In Competition: Teak Smallholders in Java, Indonesia
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1 In Competition: Teak Smallholders in Java, Indonesia Aulia Perdana & James Roshetko World Agroforestry Centre (ICRAF) Presentation at IUFRO Small scale Forestry Conference September 2012 Amherst, Massachusetts 1
2 World Agroforestry Centre (ICRAF) Our role is to improve the livelihoods of smallholders and improve the sustainability and productivity of agricultural landscapes Broadening the range and diversity of trees Maximizing the productivity of agroforestry systems Improving the income of poor households by facilitating their access to markets. 2
3 Perum Perhutani, a stateowned forest enterprise, manages 2,442,101 ha of teak plantation In addition, approximately 1.2 million ha of smallholders plantations in Indonesia that primarily produce teak Introduction 3
4 Introduction Smallholding plantations: Rarely benefit from silvicultural management Logs are shorter, have smaller diameter, less clear wood, more knots, and obtain lower prices 4
5 What happens to the teak between producer, processor and consumer is frequently unclear. It is imperative for smallholders to understand their target market and develop active marketing strategies. Key factors: negligence in smallholders teak management that limits the teak s potential value the barriers faced by new market participants the bargaining power of buyers (i.e. traders or collectors) competition among smallholding teak producers. Introduction 5
6 Research methods Identify actors in the smallholding teak chain, marketing practices, market access, and its problems and opportunities. Multi step research methodology Households survey Rapid market appraisal (RMA) In depth interviews and focus group discussions. 6
7 Research methods Household survey Producer to consumer analysis Rapid market appraisal Value chain analysis Action research 7
8 Sampling and data collection 37 hamlets in Gunung Kidul, a district within Yogyakarta province, Indonesia The survey of 275 households used a stratified purposive sampling method to ensure that smallholders were included from various regions. 8
9 Characteristics of producer households The recent total forest cover in the area has reached more than 42,000 hectares or about 28.5 % of the total district land area (Rohadi et al. 2012) More than 29,000 hectares (69%) of these forests are teak farm forests (BPS Gunung Kidul, 2008) Only 10% of farmers land is allocated to teak production Economic contribution of teak sales to total household income averaged 11.6% (between 2007 and 2008) Teak farmers in Gunung Kidul considered teak plantations as their financial reserve For Javanese people, teak has become an important part of their 9
10 Characteristics of smallholding teak producers Producers Local traders Local processor Large traders / wholesaler Processors Producers Large traders / wholesalers Processors Producers Local traders Large traders / wholesalers Processors 10
11 Marketing system Simply growing & selling Cut tree for immediate cash Sold in standing tree Sell through traders 11
12 Rivalry and threats of new entrants Play a role in the market by selling teak stands to traders. Neighbouring producers planting similar seedlings and implementing similar management, competition is hardly noticeable. 12
13 Rivalry and threats of new entrants Smallholder producers in Gunung Kidul are competing head on with Perhutani Perhutani also produces value added products such as sawn timber, flooring, and outdoor furniture Produced 477, 736 m3 of teakwood in 2008 and marketed 423,308 m3 in the same year (Perhutani 2010). 13
14 Bargaining power of suppliers A value added approach should be taken to increase smallholders net profit from their teak growing enterprise There is a need to bulk their harvest in order to access targeted markets or the processing industry Through traders, processing companies, or collective marketing arrangements Market their timber collectively Improve economies of scale Division of labour to make the whole process efficient Lower their transaction costs Increase quality control Obtain communal equipment and services. 14
15 Bargaining power of buyers At the farm level, standing trees were the preferred unit of sale. Negotiation was done without clear quality or value standards. To obtain a better price, most producers collected information from neighbours or other producers who had recently sold trees. Farmers can improve their negotiating position by offering the same trees to more than one buyer. An efficient channel is critical. 15
16 Role of intermediaries Collect information from buyers, farmers & price negotiation Transform products & add value Distribute to various buyers Bear costs incurred 16
17 Cost components Risking, illegal charges 20% Collections 10% Storage & delivery 30% Financing 5% Negotiation, legal costs 5% Promotion 5% Inventory carrying / ownership 25% Source: Perdana A., Roshetko, J.M., Kurniawan, I Forces of competition: smallholding teak producers in Indonesia. International Forestry Review 14 (2),
18 Government needs to provide more suitable timber trade regulations, specifically for timber coming from smallholders plantations Providing farmers with more access to state land would be a good intervention More access for farmers to state land would increase the economies of scale of smallholding plantations and at the same time potentially reduces unproductive land areas (Rohadi et al. 2010) Role of Government 18
19 Recommendations Improve market information for smallholders by introducing producers to the log grading and pricing system that is used by the timber industry Simplify timber trade regulations to minimize transaction costs, making the smallholding teak market more efficient Develop links between teak producers and teak industries Collaboration with teak processing industries could further be developed by involving teak producers in furniture processing 19
20 Thank you 20
21 Acknowledgement Improving Economic Outcomes for Smallholders Growing Teak in Agroforestry Systems in Indonesia project funded by the Australian Centre for International Agricultural Research (ACIAR) (No. FST/2005/177). 21
In Competition: Teak Smallholders in Java, Indonesia
In Competition: Teak Smallholders in Java, Indonesia Aulia Perdana 1 and James M. Roshetko 2 1 World Agroforestry Centre, PO Box 161, Bogor 16001, Jawa Barat, Indonesia, a.perdana@cgiar.org 2 World Agroforestry
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