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DEVELOPMENT OF SMALL AND MEDIUM FOREST ENTERPRISES FOR POVERTY REDUCTION
By Dietmar Stoian & Jason Donovan
Sustainable forest management has been advocated as a means to ensure both livelihood security of forest-dependent people and forest conservation. Throughout the tropical belt, indigenous and peasant communities have long been managing forests and are increasingly gaining legal access to the resource base. It is only recently, however, that they have started to form small and medium forest enterprises (SMFEs) to add value to their timber and non-timber forest products (NTFPs) involving both men and women. SMFEs thus represent a promising option for contributing to poverty reduction and resource conservation through sustainable forest management and downstream processing. Their development into economically viable businesses requires an enabling environment of laws and policies that promote legal access to the resource base, provide incentives for sound forest management, support increased value adding, and promote the formation of human, social, physical and financial capital for effective forest and business management.
The development of SMFEs contributes to the Millennium Development Goals (MDG) # 1 (“Eradicate extreme poverty and hunger”), # 3 (“Promote gender equality & empower women”), and # 7 (“Ensure environmental sustainability”). Joint international efforts to create enabling environments for SMFE development also hold the potential to achieve MDG # 8 (“Develop a global partnership for development”). This became evident in an international conference on “Small and Medium Enterprise Development for Poverty Reduction: Opportunities and Challenges in Globalizing Markets” held at the Tropical Agricultural Research and Higher Education Center (CATIE) in Turrialba , Costa Rica , on May 23-25, 2006 . The onference, funded and co-organized by FAO, IDB-MIF, ICCO, CIFOR, SNV, Rainforest Alliance and RUTA, brought together nearly 200 experts, practitioners and business and community leaders from around the world to discuss institutional and policy options for promoting more viable and sustainable SMFEs. The conference concluded by stating that there are still significant challenges to the development of viable SMFEs and that government and non-governmental agencies, as well as SMFEs and their business partners, have important roles to play to overcome them. This article highlights some of the major findings that should help steer and strengthen related processes.
The role of governments
Governments can play a critical role in strengthening SMFEs to reduce poverty. They can create enabling environments for SMFE development by defining clear rules to access forest resources, simplify business registration and export procedures, and adjusting tax and incentive schemes to the needs and realities of these enterprises. Improving, or simply enforcing, forest legislation to curb illegal logging and unsustainable harvesting of NTFPs will help reduce unfair competition. Simplifying bureaucratic procedures for SMFE registration can reduce costs and enhance value adding opportunities. Financial incentives, including tax breaks for start-up SMFEs, are an additional positive step. Green purchasing policies, involving the purchase of timber and wood products originating from sustainable forest management, send a positive signal to legally and sustainably operating SMFEs. Government agencies can facilitate information flows along supply chains, help organize trade fairs for sustainable timber and NTFPs, and facilitate multi-stakeholder platforms for conflict management and community-company links. Finally, governments can support research for increased understanding of successful cases and sound practices of SMFE development, the underlying critical success factors, and the potential for scaling up.
The role of SMFEs
SMFEs can improve their competitiveness in national and international markets for forest-based products by seeking out new business opportunities and acquiring the capacities to initiate new business models and form mutually beneficial partnerships with other businesses along the supply chain. At the very beginning of this process, business organization among small-scale producers is crucial, as is the right choice of the legal form and business management model. The process also requires upgrading technical, business and financial capacities to add value to timber and NTFPs and reduce production and administration costs. The organization of SMFEs into second-level associations may facilitate the upgrading process, allowing for increased economies of scale in processing and marketing, and greater bargaining power. Upgrading processes strongly benefit from strategic alliances with technical, business development and financial service providers both from the public and private sectors.
The role of business development service providers
While many SMFEs have made significant progress in terms of technical aspects of forest management and processing, most of them reveal deficiencies in business administration and marketing. Providers of business development services (BDS) can help overcome these by improving quality, direction and coverage of their services. Special emphasis needs to be put on services that effectively promote business development and supply or value chain integration. This requires access to and provision of up-to-date, precise and lowcost market information. BDS providers also need to assist SMFEs in identifying their service needs through a process of awareness raising, critical selfassessment, negotiation and mutual trust building. Market-based mechanisms for service delivery, including effective cost/ benefit sharing mechanisms, are essential to ensure impact and sustainability of these services. Strengthening core competencies and establishing partnerships with other service providers and businesses that can provide complementary services also works towards this end.
The role of financial service providers
Financial services are crucial for the startup and further development phases of SMFEs. Specific credit lines and related services and mechanisms need to be developed according to the needs and nature of SMFEs. Many financial service providers are not aware of the potential and necessities of SMFE development. Existing credit and saving products may need to be expanded and measures be taken to reduce transaction costs, for example, by allowing for alternative forms of collateral, improving management information systems, and reducing excessive paperwork. Publicprivate partnerships ensuring the promotion of and investments in SMFE development can help share risks and benefits.
The role of NGOs and development agencies
In addition to commercial service providers, non-governmental and development agencies can strengthen the capacities of SMFEs. Facilitating access to market and technical information is a priority. SMFE communication networks can be funded to improve information flows, stimulate community-company links, and facilitate access to trade fairs and better articulation among technical, business development and financial service providers. Facilitating multi-stakeholder negotiations for better policies, improved business environments, and conflict management can help address context-specific challenges. Support is also needed to obtain access to niche markets (e.g., for certified timber or fair trade NTFPs) and to improve marketing and negotiation skills. Clear labour division is needed among NGOs, development agencies and commercial service providers.
Conclusion
Progress towards achieving the Millennium Development Goals has not been encouraging to date. Broad-based, multistakeholder and innovative approaches will be needed to address this challenge. The role of forests in general, and the development of small and medium forest enterprises in particular, have not been adequately acknowledged in such approaches. SMFE development holds a largely untapped potential to contribute to achieving the MDGs. National governments, NGOs, development agencies, and SMFEs and their service providers have an important role to play in this process by creating an enabling environment conducive to adding value to timber and NTFPs based on sustainable forest management.
For further information, please visit http://www.catie.ac.cr/econegociosforestales,
or contact:
Dietmar Stoian (stoian@catie.ac.cr) or
Jason Donovan (jdonovan@catie.ac.cr).
Dietmar Stoian & Jason Donovan
Center for the Competitiveness of Ecoenterprises (CeCoEco)
Tropical Agriculture Research and Higher Education Center (CATIE)
Turrialba , Costa Rica