Outgrower scheme initiatives in Indonesia have occurred particularly in response to rapid changes in the sociopolitical situation in Indonesia. This situation has influenced forestry plantation industries to practise more socially oriented management in daily operations, and also in the same time as a way to secure company wood supplies. Despite the emerging private initiatives on outgrower schemes, companies do not generally have a clear idea on the mechanisms that would work best in the field and to what extent participatory approaches could be used in ensuring a full commitment from the landowner/tree grower partners without jeopardizing the companies' economic principle of cost efficiency.
The main aim of this Center for International Forestry Research (CIFOR) study was to conduct a socio-economic analysis of the existing outgrower schemes in Indonesia so that key elements for mutually beneficial partnership can be identified to improve long-term viability of the schemes. Specific research questions developed in this research are:
Have the schemes been effective in ensuring mutually beneficial partnership for key stakeholders?
What are the lessons learned that identify key elements for establishing mutually beneficial partnerships?
This study intends to provide comprehensive understanding to the private timber plantation companies, or to those implementing outgrower schemes, or to those who might wish to initiate feasible outgrower schemes by considering the expectations from small-scale tree landholders or tree grower partners. This study was conducted in collaboration with three private companies: two Indonesian companies, Wira Karya Sakti-WKS and Xylo Indah Pratama; and Finnantara Intiga, a joint venture company between Inhutani III - State Enterprise (33 percent shares holding) and Stora Enso (Nordic Forest Development Holding Pte Limited) - Finland Company (67 percent shares holding).
The concepts of comanagement, and participation were core ideas to bring forward the framework of analysis in this study, especially to design the principles, criteria and indicators of mutually beneficial outgrower scheme partnership. The prerequisites for mutually beneficial partnerships are that:
Partnerships be commercially feasible under a long-term partnership contract;
There be a mutually beneficial arrangement, whose development is based on fair contractual agreement determined by fair valuation of shared inputs for mutual economic and social objectives, and a full understanding from both parties upon the potential consequences and risks by joining the partnership;
Mutual economic and social objectives be included in the arrangement;
The process to achieve the objective is in line with the approach of the comanagement concept that participation be one of the key principles.
The set of mutually beneficial outgrower schemes is referred to in CIFOR's Criteria and Indicators Generic Template on Sustainable Forestry Management (CIFOR C&I Team 1999) and Criteria and Indicators for Sustainable Plantation Forestry in Indonesia (Muhtaman et al., 2000). Company staff and tree grower partners of case studies were identified and interviewed about the managerial, social, and economic aspects of the schemes' implementation, based on set of questions developed from the analytical framework.
Company motivations vary from seeking a substitute for naturally grown timber or ways to plant claimed areas inside the concessions, or improving its reputation. The landholders' motivations are mainly driven by the aim to utilize idle lands (both marginal and good quality lands) and to have extra income in the future (Table 7.1).
Table 7.1. Motivations of the company to initiate, and landowners to join, the outgrower scheme
Key partners |
Key partner's motivations to collaborate under the four schemes | |||
Wirakarya Saktia |
Finnantara Intigaa Scheme |
Xylo Indah
Pratama | ||
Schemes inside concession areasb |
Schemes on communities' private landsc | |||
Landowners |
Utilizing lands that had been in long-term conflict with the company Expecting extra income in the future |
Expecting company's assistance to build road infrastructure Expecting extra income in the future from underutilized lands, which otherwise were limited by financial capacity. |
Landowners inside the concession Saving strategy for the household Accessing company's social funds and credit schemes (e.g. fertilizer for agriculture) Migrants living outside of concession Investing on idle lands Accessing company's credit schemes |
Investing on idle lands that were otherwise limited by insufficient funds to manage these lands |
Company |
Utilizing community areas inside the concessions which have been the subject of long-term conflicts |
Establishing good relations with communities, although it may not be financially feasible, particularly for areas that are far from company's sites Responding to community's request |
Developing plantations under partnership with community Acknowledging the local communities' rights Managing logged over lands |
Maintaining the sustainability of wood supply (Alstonia sp.) for its processing industry (The company is currently buying the wood from naturally grown trees) |
Notes:
a Timber plantation
concession holder.
b Wira Karya Sakti
Forestry Plantation Partnership Scheme.
c
Wira Karya Sakti Farm Forestry Partnership Scheme, which was initially developed
under the Farm Forestry Scheme.
d
Non-concession timber plantation company.
Companies' long-term motivations are:
· To establish secure plantation operations by minimizing the economic risks through building good social relations with the communities;
· To gain better credibility at the national and international levels (public relations objectives); and
· To be eligible for the wood certification scheme. Xylo Indah Pratama has been successfully certified by Smart Wood and has maintained it for the last five years.
Varied arrangements were driven by company motivation and objectives in initiating schemes. Similarities of company responsibilities include the financial commitments to bear all costs in establishing plantations, and the obligations to conduct community organization, training in technical skills, and other extension programmes. In return, companies secure access to jointly managed lands and planted timber crops by placing responsibilities (in relation to access) in the hands of landowners/tree growers. Furthermore, the companies had the privileges to decide on the buying prices (or royalty rates) for harvested timber and wage rates for labour in the plantation areas.
Landowners/tree growers were responsible for securing company access to the outgrower scheme areas by not transferring the landownership (unless the right to harvest remains with the company) to other people, and by maintaining and protecting the planted areas from theft and fires. In the case of initial capital funded from loans, the landowners as a group were responsible for paying back credit. In return, individually, landowners/tree growers have the rights to receive a certain proportion of net revenue from harvested timber crops (Table 7.2).
Table 7.2. The designs of the case study outgrower schemes
Schemes |
Programmes on outgrower schemes areas |
Other incentives as part of the partnership programme | |
Main |
Other | ||
Wira Karya Sakti Forestry Plantation Partnership Schemea |
90 percent of the areas were used for Acacia plantations |
On 10 percentd of the areas, the company has initiated farming programmes of short-term crops such as patin (local fish) and corns |
Community organization by forming the Forest Farmer Cooperative from the existing Farmer Group Social fundse Field training |
Finnantara Intiga Schemea |
95 percent of the areas were used for Acacia plantations |
On five percent of the areas, high-yielding rubber trees were planted 10 percentd of the Acacia plantations used by the company for planting native species |
Land incentives and funds for infrastructure development were provided. Community organizing by forming Community Development Group (KUB-Kelompok Usaha Bersama), and field training Social fundse Incentives for conducting a traditional ceremony prior to land clearing Agro-forestry programme: establishing dry rice fields on five ha per dusun (subvillage) in plantation areas in the form of credit assistance Wet rice field intensification programme: two hectares per dusun (subvillage) Credit and savings programme managed by Community Development Group |
Wira Karya Sakti Farm Forestry Partnership Schemeb |
90 percent of the areas were planted by Acacia |
On 10d percent of the areas, the company initiated farming programmes of short-term crops such as patin (local fish) and corn |
Community organizing by forming Forest Farmer Cooperative from the existing Farmer Group Social fundse Field training. |
Xylo Indah Pratama Schemec |
All of the scheme areas were planted by Alstonia |
None |
Community organizing through the existing farmer group (KT-Kelompok Tani) Social fundse Company responded to tree growers' requests for company assistance in providing seeds for cash crops such as soybean |
Notes:
a A partnership scheme between a company of
timber plantation concession holder and land claimers/owners residing in the
concession areas. This was initiated in 1999/2000 with a 43-year term of
contract. The first harvesting is expected in 2008.
b A
partnership scheme between a company of timber plantation concession holder and
landowners on the surrounding plantation areas outside the concessions. This was
initiated in 1999/2000 with a 43-year contract (initially was initiated in 1995
under the Farm Forestry Scheme with eight years contract). The first harvest is
expected in 2003.
c A partnership scheme between company of
non-concession timber plantation and private landowners was initiated in 1995.
The first harvest is expected in 2005.
d Based on government
regulation on the composition of main crops (90%) and other crops
(10%).
e Social funds are provided in response to local community requests for financing social occasions.
The socialization process was "the main entrance door" for the company to generate local landowners' interests in joining outgrower schemes. Partnership programmes in establishing timber plantations were not familiar to most of the potential partners.
Therefore, companies had to convince landowners and also accommodate the needs of landowners or tree growers, such as providing options for income during the grace period. This option would ensure a full support from company's partners towards the main programme of growing timber trees. During the initiation process, the company holds several meetings at the village or dusun (subvillage) levels to explain the proposed scheme and how landowners would benefit by participating (an example of benefits among others were income diversity options initiated by company, and available incentives). Local government authorities were also involved as mediators between the company and the community.
Overall, identified socialization processes were the combination of the three approaches:
· Taking advantage of marketing strategies (Xylo Indah Pratama Scheme);
· Involving third parties, such as local government officers at various levels (Wira Karya Sakti Schemes), or forming a task force (Finnantara Intiga Scheme); and
· Involving the local community group, e.g. The farmer group or forest farmer cooperative (previous WKS-Hutan Rakyat Scheme, Xylo Indah Pratama Scheme).
To avoid any potential conflict in the future that could have financial implications, the company ensured the lands under outgrower schemes were free from conflict by setting required processes for potential tree grower partners to follow. From the tree growers' perspective, this process has indirectly led to greater recognition of their long-term land- user rights or land status. Figure 7.1 describes the processes.
Figure 7.1 Processes required to clarify the status of jointly managed land in outgrower schemes
Notes:
a Mainly applied when
the initiatives to join the partnership come from landowners
b Company policy and perceptions on land status
categories determined types of papers accepted in the partnership
scheme.
c The Memorandum of Understanding
(MOU) set out the understanding that both parties agreed to start an outgrower
scheme to establish a timber plantation. If historical conflicts emerged
strongly and the outgrower initiative was a solution to settle the conflict,
signature from a higher-level authority was required (e.g. Minister of
Forestry).
d A Letter of Authority explained
that the landowners had agreed to hand over the lands and/or appointed the
company to represent them on their behalf to decide any related matters.
e Company staff, together with the
landowners or appointed representatives, measured and defined the land
boundaries. Finnantara Intiga used the Digital Aerial Survey to define the
potential areas for plantation development.
f The process to sign the contractual document
between representatives from the company and landowners, and witnessed by representatives of government authorities.
To estimate the potential share of woods that will be produced from outgrower scheme areas, calculation was based on planting realization of outgrower scheme areas and estimated volume per hectare (except for Wira Karya Sakti Scheme inside concessions; see notes following the table), and used the sensitivity analysis as the next step to provide a range of estimation figures. Table 7.3 provides the estimation of woods produced under the three schemes. All three schemes are could become potential reliable wood sources.
Table 7.3. Estimated wood volumes on outgrower scheme plantation areas
Schemes |
Estimation of harvested areas per yeara (ha) |
High estimation of harvested wood volumeb |
Modest estimation of harvested wood volumec | ||||
Volume per hectare (cum) |
Total harvested volume (cum) |
Proportion to annual requirement(%) |
Volume per hectare (cum) |
Total harvested volume (cum) |
Proportion to annual requirement(%) | ||
WKS scheme inside the concessions |
10,296d |
150 |
1,544,400 |
93h |
75 |
772,200 |
46h |
WKS schemes on private community lands |
1,644e |
150 |
246,556 |
75 |
123,278 | ||
Finnantara |
5,993f |
150 |
898,950 |
40i |
75 |
449,475 |
20i |
Xylo scheme on community lands |
1,350 |
260 |
396,500 |
More than 100j |
100 |
152,500 |
More than 100j |
Notes:
a Based on planted realization data during the implementation years of each scheme.
b Based on estimated wood volume per hectare as used by companies in the Feasibility Study.
c For Acacia, based on the lower estimation of wood volume per hectare, by approximately 50%. For Alstonia, based on company approximation of the actual harvested volume.
d Based on potential area of 82,368 ha (owing to no realization on planting up to 2000), which will be managed in eight blocks, one block of 10,269 ha will be planted per year.
e Based on actual total planted areas in two districts of Tanjung Jabung and Batang Hari up to May 2000 covered 6,575 ha for four years implementation or 1,644 ha per year.
f Based on the realization of a total of 23,972 ha by mid-2000 or 5,993 ha per year in four years' implementation.
g Based on the actual realization up to mid-2000 at 1,525 ha per year or a total of 6,100 ha after four years.
h Annual requirement of company processing plant (PT Lontar Papyrus Pulp and Paper Industry, which is a sister company of WKS), at full capacity is 1,935,000 cum of Acacia logs per year to produce 430,000 tonnes of pulp.
i The logs were initially planned to supply processing plant with the capacity to process 2,250,000 cum logs per year to produce 500,000 tonnes of pulp. In 2000, the plant had not been set up.
j The full capacity of processing plant for pencil slats requires only 60,000 cum of Alstonia logs.
Drawbacks in the process of defining the contractual agreement: the company dominated the process in formulating entitlements of both parties in the agreement
Companies have not commonly used participatory approaches to socialize or deliver information about rights and responsibilities to the wider landowner or tree grower audiences (limited to the head of the farmer group/cooperative and staff). Another problem was due to the fact that a copy of the contract document had not been provided to tree growers in most of the case study locations. This will become a potential source of conflict during the process of calculating benefit sharing of revenues among tree growers.
To some extent, these had resulted in mixed perceptions on the positive values of joining the scheme on the part of landowner partners. In the longer term, commitment from outgrowers, so essential to the sustainability of the contract term, could be weakened from this situation.
Drawbacks in implementing an effective management plan
Following a contract agreement, a clear management plan is essential to ensure effective implementation on the ground to ensure that the target planted production could be met for long-term viability. The management plan could include working plans with scheduled activities, technical guidelines, and land-use planning. In the case studies, companies mostly focus on short-term management plans (one rotation), even for companies who initiated long-term contracts due in course with granted timber plantation concession rights.
The management plan in all case studies was verbally communicated to the tree-grower partners in the field during different stages of implementing the plantation establishments. Many tree-grower participants were not aware that the management plan existed or whether they should take part in its development for effective implementation. Finnantara Intiga wrote an integrated and comprehensive book on the guidelines adapted from lessons learned from five years' implementation, realizing that common vision and interpretation are essential. This explains why the guidelines are now documented systematically. Table 7.4 presents more problems affecting effective management plans.
Table 7.4. Problems affecting effective implementation of the management plans
problems identified |
raised by | |
Lack of written management plans/working guidelines |
Tree growers were not aware of any applied management plan |
Tree growers |
The working plan was delivered verbally in the field and no written guidelines were provided |
Tree growers | |
Inadequate extension programme |
With less effective company extension programmes on technical aspects; only the head of the farmer group and staff thought the programme was effective |
Tree growers |
For timber plantation concessions with two scheme types, less intensive attention on schemes developed outside the concessions compared to the scheme managing claimed areas inside the concessiona |
Tree growers | |
Low interest from tree growers owing mainly to focusing on the technical aspect of timber crops, while tree growers also expected to receive other technical information on crops developed as part of outgrower schemes |
Tree growers | |
Few copies of contractual agreement |
A copy of the contract document (SPK) had not been distributed to tree-grower partners |
Company staff |
Only the head of dusun (subvillage) or the head of the farmer group possess the contract document |
Tree growers | |
Delayed schedule on planned activities |
Some maintenance activities were behind schedule of the company's owned-plantationb |
Tree growers |
The company incentive had not been 100% fulfilled |
Tree growers | |
Company internal managerial problems |
Frequent company staff rotation |
Tree growers, company staff |
Mixed perceptions among company staff that developing outgrower schemes would be an alternative to using occupied land inside the concession |
Company staff | |
Visions, concepts, and principles for establishing plantations based on partnerships had not been clearly communicated from top management to the executives and field staff |
Company staff | |
Challenges in company human resources |
Limited skills or limited numbers of competent human resources. |
Company staff |
Tree growers had no interest in provided working opportunities. |
Local people concerned about short-term activities in timber plantations (maximum of three years at the beginning of rotation) |
Company staff |
Lower wage rate compared to other opportunities (e.g. palm oil plantation) |
Tree growers | |
External competition |
Competition with the expansion of oil palm plantation |
Company staff |
Notes:
a This was mainly driven
by the company's main objective when initiating the scheme, which was to develop
plantation areas inside concessions after the long-term conflict.
b The company of timber plantation concession holder established its own plantation, besides developing plantation under the outgrower schemes.
Link with processing industry/market is vital
There are two important market links that should be given attention in ensuring the long-term viability of partnerships in outgrower schemes:
· The market for planted timber produced by tree grower partners. Securing this market is an important aspect in securing tree growers' commitment to the partnership, which will consequently be very relevant to the commercial viability of the scheme.
· The market for company to sell the woods bought from tree growers. This would allow the market for planted timber produced by tree grower partners to also be secured. In case studies, unless the company abandons the scheme owing to bankruptcy or other reasons, the company will secure the market for planted timber as stated in the agreement.
Based on case study observations, company partners are in a better position to secure tree growers' planted timber, if the company is in the following category:
· The company owns its processing plant (the case of the Xylo Indah Pratama Scheme);
· The company has a contract or is in the same group as the other company which readily buys the plantation company's products:
i. Collaboration between Xylo Indah Pratama and Faber Castle; and
ii. Wira Karya Sakti and its sister company, Lontar Papyrus Pulp and Paper Indonesia.
However, there are two different situations that the company has to consider in dealing with tree growers. First, where the local market is available, there are greater pressures for the company to offer competitive prices. Second, the situation where the company will be the only buyer and no tree growers' experiences on the benefit of harvested wood, such as the case of Acacia woods of Wira Karya Sakti and Finnantara Intiga. There are more challenges for companies in the second situation to provide transparent information and mechanisms to gain trust, especially for the second rotation. Most of tree grower respondents would react by abandoning the partnership for the second rotation if the first rotation were proven to be unprofitable. For the Finnantara Intiga Scheme, the process to gain the tree growers' trust for long-term commitment would be even harder since there is no certainty as to when the processing plant would be established.
Fair account of inputs from both parties as the basis for setting up the benefit-sharing agreement, timber buying prices from tree growers, and cost-efficiency in managing small-scale operations
Since the company partner was the one, which bore all of the expenses in developing timber plantations, the benefit-sharing agreement is based on net timber revenues after the company expenses were paid. Table 7.5 presents the benefit-sharing agreements of four schemes case-studied.
Table 7.5. Benefit-sharing arrangements as stated in the contractual agreement
Schemes |
Types of shared benefits |
Benefit-sharing agreement (percentage) |
Conditions applied | |
Company |
Outgrowers | |||
The Wira Karya Sakti Forestry Plantation Partnership Scheme and the Farm Forestry Partnership Scheme |
Dividend based on Joint Venture Company shareholdings (arrangement at the beginning of the contract) |
80 |
20 |
Initial nominal price per share is |
Proposed arrangement of the Joint Venture Company shares holdings (at 35th year of the contract) |
35 |
65 |
||
Finnantara Intiga |
Outgrower scheme area management |
95a |
5b |
|
Volume of Acacia woods harvested - valued based on minimum royalty per cum b |
90 |
10 |
Minimum royalty is set at Rs 7,500 (US$ 0.81) per cum | |
Xylo Indah Pratama |
Net revenues of Alstonia woods harvested |
50 |
50 |
|
Notes:
a This includes the
native species areas (10%) that are managed by the company. In addition to the
Acacia plantations, the tree growers will receive the 10% royalty after
logging.
b Rubber plantations managed by the tree growers.
For a fair benefit-sharing and economic relation, recognizing stakeholders' economics contribution is important, which would also minimize potential conflicts. From case study analysis, there are inputs that have not been taken into account and used as the basis to decide the benefit-sharing arrangement in the agreement.
Inputs that have not been taken into account fully from the company are:
· costs for constructing road infrastructures;
· occasional social funds that are often not well recorded;
· formal and informal transaction costs;
· valuing the company's willingness to take risks by initiating outgrower schemes; taking risks could be more affecting medium-scale plantation companies, but lesser for large-scale ones.
From the tree grower side, the benefit-sharing agreement has not clearly stated whether it has incorporated tree growers' land values/rents to consider tree grower contributions fairly. The company generally prefers not to include tree growers' land rents into the equation, since the company policy adheres to the government policy that tree grower lands inside the concessions are covered as state forest areas. Companies like Finnantara Intiga provide land incentives in their schemes, but the contractual agreement specifically mentions that this incentive mainly aims to value the local people's ancestors.
The financial benefits could be ensured by efficiently managing the dominant cost components, associated with each individual scheme arrangement. The highest cost component in each of the four schemes varied to a great extent since different partnership arrangements applied. For example, estimated harvesting costs (excluding the transportation cost) account for the biggest proportion of the Xylo scheme, because these include harvest from thinning at years five and seven. Transportation costs for all cases are estimated to be high because of the scattered locations of tree growers' lands. However, this crucial component was excluded since reliable data was not available. Owing to high variation of transportation costs, companies use stumpage price as the timber-buying price.
A reinvestment mechanism is part of the agreement
Under a long-term contract of 43 years, the Wira Karya Sakti Forestry Plantation Partnership Scheme/Farm Forestry Partnership Scheme is the only one that includes an advanced mechanism to empower tree growers in the long term by providing that tree growers through the Forest Farmer Cooperative will have 65 percent of the shares of the Joint Venture Company by the end of the contract. During the 43-year contract, funds for reinvesting in Acacia plantations are expected to come from a certain proportion of revenues from harvesting Acacia woods that are rotated in eight planting area blocks. Then, from the 8th to the 16th year, there will be continuous revenues. Reinvestment funds are also expected to come from the agribusiness/farming activities on agricultural crops such as chilli, fish and corn. However, it is still too early to claim that this scenario would work well in the implementation stages. Reinvestment mechanisms and tree growers' perceptions are presented in table 7.6.
Table 7.6. The reinvestment mechanism and the tree growers' perceptions on developing plantations
Schemes |
Reinvestment mechanism |
Tree growers' perceptions for self-financing plantation development |
Wira Karya Sakti Forestry Plantation Partnership Scheme and Farm Forestry Partnership Scheme |
It is intended that at the end of the 35th year of the contract, the tree grower cooperative will hold the biggest proportion of shares (65%), with the main activity of establishing Acacia plantations. In the management plan, planted areas will be divided into eight blocks and will provide income from the 8th to the 16th year continually. The reinvestment funds are also expected to be earned from farming activities to finance Acacia plantations. |
Most of tree growers do not have any idea as to the amount of money coming from harvested timber and whether they will be able to use some of the money to self-finance the next rotation planting. Most of tree growers expect that the outgrower scheme's timber function more as household savings. The first harvest should be a real test; if it turns out to be profitable, no doubt tree growers will be interested in establishing their own plantations. |
Finnantara Intiga |
Although the company expects that tree growers will independently establish Acacia plantations, the reinvestment mechanism is not clear. The company is currently at the "wait and see" stage before rushing out to plan the long-term scheme, especially since no processing plant has been set up yet. |
Low interest from tree growers to develop Acacia plantations if they are no longer involved in the outgrower scheme initiated by the company. This is mainly because tree growers have no experience in seeing the potential economic values of Acacia timber. |
Xylo Indah Pratama |
The company outgrower scheme initiative in establishing Alstonia plantations is actually the reinvestment scheme; the company is now buying naturally grown Alstonia trees from the community under a separate contractual arrangement. |
Tree growers are willing to plant their own Alstonia, even if the tree growers are no longer bound under the outgrower scheme contract. This is mainly stimulated by the company marketing scheme for naturally grown timber in community private lands. |
As tree growers are the company's main partners in outgrower schemes, securing their commitment is crucial. Therefore, identifying factors that may influence tree growers to break the contract will help the company anticipate different possibilities.
Unprofitable net revenues for tree growers in the first rotation (test on the benefit-sharing agreement) and lack of transparent mechanism during the process of revenue sharing
Obviously, as many tree growers said, they will continue to join the outgrower scheme if there is beneficial income from harvested timber based on transparent processes of the sharing agreement.
Lack of transparent information provided to tree growers, updated wood prices and risks and consequences in joining the scheme
Despite various mechanisms of the companies that are settled in the agreement and their advantageous position in securing the tree growers' planted timber, it is more important that the company gain trust in securing the tree growers' commitment, e.g. continuously circulated transparent information of wood prices so tree growers will not feel betrayed in the case of "low wood prices" during harvest time. In all case studies, tree growers generally agreed that wood prices are the most essential information that tree growers would like to be updated on from time to time. In all cases, the mechanism to periodically share wood prices and other related information had not been clearly set by the company partner. Ultimately, this would be important to sustain the scheme by avoiding the tree growers' sense of being cheated by the company partner by the time of net revenue sharing.
Lack of effective conflict resolution/renegotiation mechanisms
Conflicts occur in any partnership relation including in outgrower schemes. Recognizing various sources of potential conflict will be advantageous for the company by providing indications of what sort of conflict mechanism would adequately suppress and handle conflicts before they become too extensive and difficult to manage. The main challenge is to establish a conflict resolution mechanism that will be accepted and respected by key partners in the schemes. However, field observations have revealed that developing a suitable conflict resolution mechanism when designing schemes has not always been conducted by companies studied owing to lack of knowledge in developing such mechanism.
The mechanism may play an important role in solving potential conflicts when harvesting time comes, such as disagreement on the wood prices as the basis for sharing revenue from harvested timber. Overall, the conflict resolution mechanism that companies included in the contract agreement was a general statement that if there is disagreement between the two parties, it will be resolved through amicable discussion or "musyawarah", and if the suggested solution is not be accepted by both parties, the case will be referred to the courts. This general statement is interpreted in various ways on the ground.
Specific channels used by tree growers to address conflicts or issues of concern were mainly through:
· The head of the group and his/her assistant, particularly if the tree growers' group/farmers' group/cooperative are functioning effectively. The problem addressed was the delayed schedule on planting and other plantation-related procedures.
· The head of the village or subvillage, particularly if the formal institution is legal and respected.
· Customary leaders or other informal leaders, particularly if the customary institution role is quite solid in the area. The problem addressed was the boundaries between landowners inside outgrower scheme areas.
· The head of the tree growers' group or other appointed representatives, or possibly, individual tree growers. Individual tree growers use this channel more where company field staff are approachable and available. The problem addressed was the delayed schedule on planting and plantation-related procedures.
· Other mechanisms: developing individual contract agreement. Xylo Indah Pratama has now processed a transfer from group to individual contracts in conjunction with a timber stand survey of individual landowners' rights to prevent potential conflicts that may arise during harvesting.
In addition to the conflict resolution mechanism, mutually beneficial partnerships would exist if the agreed arrangement included a mechanism to allow key partners, both company and tree growers, to renegotiate points of the agreement. Although in one agreement it was stated that both parties should hold one copy of the agreement and have the same legal rights, during implementation the companies case-studied applied procedures and conditions differently for tree growers to renegotiate points. The points raised were:
· A legal process is required: changes in any points of the agreement should be done through legal process (witnessed by a notary).
· Agreements from the members of the farmers' group or the cooperative are required.
· The demands must be reasonable from both parties' perspectives.
For effective renegotiation, stakeholders, mainly tree growers who usually are underrepresented and/or in the least beneficial position, should be able to articulate their views individually or as a group. From the company' s perspective, this will also be beneficial as the company will be able to discuss the negotiated points efficiently and will not bear negative consequences, since tree grower representatives can be responsible for their decisions taken.
Taking into account social elements to ensure commercial objectives achieved
For long-term feasibility, companies should examine local sociocultural conditions. However, companies should carefully consider not replicating the "charity driven" programme implemented in the past that resulted in a greater dependency of tree grower on the company.
Respected traditional/heritage values of lands
The issue of land status/property rights, particularly inside the forest areas had not been clearly addressed in various schemes.
Enabling the continuation of the current livelihood strategy
Field observations have shown that replacing the community's long-term practice with new options is not preferable and may waste the funds in unsuccessful programmes. For example, tree growers in the Finnantara Intiga scheme do not feel positive towards planting high-yielding rubber trees to replace the traditional practice of tapping rubber trees in the forest that do not require intensive maintenance. As a result of limited time and a low level of interest, tree growers did not plant many rubber seedlings. In the WKS (Wira Karya Sakti) latest scheme, some programmes, such as planting Pinang trees, were initiated in response to tree growers' requests. However, the accommodated requests came mainly from the Head of the Forest Farmer Cooperative and other management personnel, while ordinary members' opinions and preferences were often excluded. This situation could mean that the programme will not be widely supported by the tree grower members of the group, and may create a social gap.
Indirect benefits gained by tree growers secure their commitments
Most tree growers appreciated that there were intangible benefits gained by joining the schemes. Intangible social benefits to the tree growers mainly included having improved knowledge on the intensive cultivation of timber crops, since such a system was not in keeping with the tradition of these people who were used to log timber from natural forests. This situation implied that the socialization approaches were required to be even more effective in introducing partnership schemes for timber crops. Indirect benefits could influence the tree grower felling being more attached to the partnership programme in order to secure tree growers' commitment in the long term. Other benefits included:
· clearer boundaries between community land
· a mechanism for resolution of conflicts over land use, specifically for areas inside the concession
· intensive and positive interaction between company and tree growers and also among tree growers in implementing "gotong-royong", i.e. traditional initiatives of an informal group of people working together on various activities in order to help each other;
· stimulated group activities since group discussions and negotiations are required in the outgrower scheme;
· productive use of idle lands.
Ensuring the rights entitled in the contractual agreement can be transferred to their heirs
According to the communities' sociocultural needs, the most important condition is the recognition of the wish to transfer tree growers' rights to their heirs (intergenerational principle). This need is due to the nature of timber trees, which need a long time from planting to harvest, and the fact that the contract in outgrower schemes covers from 11 to 45 years. Accordingly, the intergenerational principle is important as it relates to the tree growers' involvement in the partnership and must be carefully considered so that landowners' rights and their families will be maintained by the contract agreement over several generations. The Xylo Indah Pratama scheme was the only one that included this issue in the agreement, allowing growers to transfer the contract to their heirs.
Ensuring that the agreement can be transferred to the landowners' family is also important to prevent any conflict that may occur during harvest if, for example, the initial holder passes away (the tree grower/land holder who signed the contract with the company). Rights would be more secure if the agreement contained specific clausal on who would be the `seconded-person' or heir to receive the revenues from harvested timber.
The importance of developing income options to fill the grace period between planting and harvesting would be relevant if the objective in developing this programme is to minimize the possibilities of tree growers to withdraw from the scheme, particularly in the situation where local income options are limited.
Some aspects that should be considered in initiating effective income diversity options in order to bridge the period between planting and harvesting, are as follows:
· Idle lands (either marginal/good quality lands) with high opportunity costs (competitive land uses) and limited other income opportunities. Initiating various income diversity options to bridge the gap between planting and harvesting period is essential if the land opportunity cost is high and limited existing options to generate incomes for tree grower households. However, while the marginal idle lands are handed over in outgrower schemes, tree growers who are busy managing their own productive lands would not have the time and/or human resources to implement additional opportunities provided to them by the company partner.
· Defining income diversity options that suit the needs of tree grower partners: a preliminary socio-economic survey will provide information on more cost-effective investment on income diversity options. Proper needs assessment among tree grower households should be conducted prior to any company initiatives on community development programmes in providing income diversity options. It is also important to take into account other members of tree grower groups, not just the head of the group, and few administrators of the cooperatives.
Based on case study analysis in this report, outgrower schemes provide opportunity for the company to ensure sustainable wood supply while sharing the benefits (and risks) with local communities. However, to become effective in the long term, finding ways for mutually beneficial arrangements for both parties is essential to secure company investment, and to maintain long-term tree growers' commitments.
An outgrower scheme should be initiated and implemented in a way that it is commercially viable to both company and tree grower partners, which depends on several conditions as the elements of success:
· Link with processing industry/timber market is important to secure the market for timber produced by tree grower partners.
· Fair accounts of inputs from both parties to define the benefit-sharing agreement and timber buying prices from tree growers.
· Cost efficiency should be an essential part of small-scale timber plantation management, particularly in managing crucial cost components (transportation and transaction costs: community organizing, social funds, and seeking local government support).
· A reinvestment mechanism is part of the agreement.
· Securing tree growers' long-term commitment:
Fair and profitable revenues from the first harvest are important for tree growers to continue joining the partnership.
Providing income opportunities during the grace period on the condition that there be high land opportunity costs and limited income opportunities.
For cost-effective investments on different programmes, local sociocultural conditions and needs should be accommodated based on a proper community needs assessment.
Taking into account elements for a mutually beneficial arrangement, the agreement and management plan should include:
· Locally driven participatory approaches in conducting a socialization programme, composing agreement, and designing management plan.
· Transparent process in clarifying the long-term status and rights over partnership areas.
· Company-facilitated clearer understanding of agreement and management plan to the other parties, as well as disseminated technical and financial information. Transparent information should be periodically provided to (and discussed with) all concerned stakeholders, including risks and consequences.
· In the case of defined multiple objectives, a defined list of priorities of the objectives and a management plan in line with this list. In the beginning, a simple arrangement is better.
· Conflict resolution and renegotiation mechanisms that are defined together with concerned stakeholders.
Maintaining outgrower schemes under a long-term contract is more difficult than the initiation process. The arrangement should be flexible enough to adapt to the changing socio-economic conditions within the framework of initial mutual objectives. Taking into account the elements of the dynamic processes in maintaining outgrower schemes will be one way to ensure the mutually beneficial partnership of the scheme in the long term, as discussed in the diagram below.
Figure 7.2 THE DYNAMIC PROCESS OF MAINTAINING OUTGROWER SCHEMES
Since 1985, the Indonesian Government targeted 6.2 million hectares of plantation development, and after 15 years the realization reached only about two million hectares (Handadhari, 2001:28). Slow growth of plantation areas has not stopped the rapid expansion of large capital investments in forest-based processing industries, since these industries have relied upon the exploitation of natural forests. As Barr (2001) highlighted, plantations supplied only 8 percent of 100 cum of the wood requirements for the pulpwood industry between 1988 and 1999, and deforested about 835,000 ha of forest resources. Reliance on supply from natural forests has proved to be unsustainable, both financially and ecologically. Furthermore, industrial-based forest policy has led to local disenchantment, resentment and conflict. Successful development of the forestry sector in Indonesia requires new thinking in terms of where industry will get its timber supply and how it will go about getting it.
Clearly, plantations will be the most sustainable resource-base for timber in Indonesia and their success requires support from local communities. As recently discussed during a one- day discussion on Timber Estate in Indonesia conducted by Forestry Research and Development Agency - FORDA (2001), conflict over forest land resources first on the list of main obstacles in timber plantation development. An earlier study by CIFOR Plantation Programme, which examined criteria and indicators for plantation management, concluded along the same lines that long-term sustainability of plantation forestry is related more to social problems rather than management or environmental issues (Muhtaman, Siregar and Hopmans, 2000). Outgrower partnership schemes might provide effective approaches for ensuring a sustainable supply of timber while sharing the benefits (and risks) with previously disenfranchised - and thus angry or at least cynical - local communities. Further, maximizing social benefits from plantation development is crucial; this is especially true where forestry plantations have been developed by converting the natural forests on which significant numbers of people depend for their livelihoods.
However, if company-community partnerships in outgrower schemes is the way forwards for timber plantations in Indonesia, major challenges will be developing a conducive policy and institutional framework that are coherence with other policies on timber plantation development, and developing effective instruments for intersectoral coordination on forest land management.
Barr, C. 2001. The political economy of fiber and finance in Indonesia's pulp and paper industries. In Banking on sustainability: structural adjustment and forestry reform in post-Suharto Indonesia. Jakarta, Indonesia, Center for International Forestry Research and WWF-Macroeconomics Program Office.
CIFOR C&I Team. 1999. The CIFOR Criteria and Indicators Generic Template. Tool Box Series No. 2. Bogor, Indonesia, CIFOR.
Handadhari, T. 2001. Episode Pengelolaan Hutan yang Makin Suram (in Indonesian). Kompas, 16 February 2001. Jakarta, Indonesia.
Muhtaman, D.R., Siregar, C.A. & Hopmans, P. 2000. Criteria and indicators for sustainable plantation forestry in Indonesia. Bogor, Indonesia, Center for International Forestry Research (CIFOR) with the support of the Australian Centre for International Agricultural Research (ACIAR).
8 This summary paper was mainly taken from the full paper under the same title by the same authors, which is a forthcoming CIFOR publication (2002).
9 The authors would like to thank Philippe Guizol, Christian Cossalter, Ken MacDicken, and Rosita Go (CIFOR staff); all of the external reviewers; private companies partners (Wira Karya Sakti, Finnantara Intiga and Xylo Indah Pratama); and the team from the Faculty of Forestry at Bogor Agricultural University.