Is Smallholder Forestry Investable?

As the growing global population’s appetite for wood products increases, and the land-base from which to grow more forests does not, policy makers, investors and project developers are looking for ways to increase wood production from a limited land base. One approach potentially suitable to tropical geographies, is through smallholder tree growing, where much of the suitable land is held. However, is it investable? Smallholder tree growing brings several complexities across the forest-to-wood product value chain. This article explores these elements as uncovered by research in Elsevier’s Land Use Policy and makes inferences for the investment community considering to apply the smallholder approach.   

Beyond the “Field of Dreams” model in smallholder forestry

Building viable timber value chains for smallholder tree growers in developing countries is a very relevant topic of study. As frontier geographies remain one of the few untapped resources in terms of suitable land for sustainable commercial reforestation, the largest challenge is secure access to this land. In the tropics, suitable land is often not privately or publicly owned, but held by communities or in customary or informal tenure – making it difficult for any investable parties to enter the scene and generate anything of scale. Smallholder tree growers remain a potential solution to this challenge, yet the success stories are fewer than the lessons learned.

In the Beyond the “Field of Dreams” model article, authors (Carias et al. 2022) identify the conditions that enable the development of viable timber value chains around smallholder tree growers in developing countries. Through a series of case studies across SE Asia and the South Pacific, their main findings from different smallholder tree grower models were the following:

1. Encouraging planting without specific end-uses leads to plantings that are of little use to industry, frustration for smallholders, and wastes resources.
2. Processing high-value timber products requires scale and investment, and therefore strategic planning is required. Such planning should consider wood demand, infrastructure, smallholder capabilities and interests, and biophysical suitability for trees and specific species.
3. There is no cookie-cutter approach, both at the country level, and even at the regional level, flexible policies that apply to local contexts are required.
4. Grower groups or cooperatives are not increasing, believed largely to stem from stallholder scepticism over reliance on old models that don’t serve the smallholder, regulatory barriers, and increased administration.
5. Traders and buyers at the farm gate fill an important role in the value chain for smallholder tree growers, despite the low prices paid.
6. Not surprisingly, land security and tree tenure are a requirement for smallholder interest in the first place. However, government policies that promise land in exchange for granting a farmer tenure has resulted in poor tree management, unable to reach a market (site-species matching, silviculture, and distance to market).
7. The value of silviculture is not understood by farmers. Thus, beyond planting trees, farmers rarely pay attention to such practices as pruning or thinning that could increase the value of the trees they produce.

Though the article draws conclusions for policy makers, there are some important lessons learned here for commercial reforestation project developers considering to incorporate smallholder tree growers into their business model.

Enabling a bankable smallholder model

1. Ensure land security – This is the most critical element. Growing a tree is a long-term engagement, and without a smallholder having clear tenure and timber rights (or carbon rights as the case may be), you are at risk. Without this, your farmers will also not want to invest their time and resources into growing trees if there is concern that their land/resources will be confiscated.
2. Assess the local context – Understand the relevant national and local policies, community politics, and smallholder land-use and livelihood preferences that will affect the success of your smallholder engagement. Do some research to understand if other such initiatives have taken place in the past (and with what level of success). Have there been any development projects in the area promoting smallholder tree growing? What has worked? What hasn’t? Are cooperatives alive and well in the area for other farm products – why or why not, and if so, are they working?
3. Ensure scale – If the context of your operation is not conducive to bring scale to a smallholder model, you should consider if it is worth it. Initiating a smallholder tree growing program is resource intensive and requires long-term commitment. Prior to planning a full fledged smallholder program, talk to them and assess the magnitude of interest.  
4. Plan carefully – As a forest company, consider at what stage it will be a smart move to incorporate smallholder tree growers. Ensure there is market to demonstrate, there are company resources available to support the smallholders, infrastructure in place to connect them to your value chain, and that government policies are favorable to their participation.
5. Demonstrate market – For smallholders that are taking a risk with their land-use allocation, by tying it up into a long-term investment – they need to see how they can benefit from investing their resources. A well-established forest company that is already commercializing wood products are likely to be much more alluring than an unproven greenfield model. If your project is early stage, you should consider how you could demonstrate market – either by organizing a tour to a local wood yard or mill.
6. Incorporation of traders – If there are already traders active in smallholder tree growing value chains, see how they can be incorporated, or how their model can be incorporated into your own value chain. This is often the well-known, reliable business model for smallholders. All the better if you can increase the revenue smallholders receive but provide the quick-win services of farmgate collection as needed by the farmer. Bringing existing traders into your own business will require early engagement, negotiation, and monitoring.
7. Ensure good silviculture – It is not just a matter of training smallholder tree growers in good silviculture. It may require your company to bring in trained people to execute the work, or carefully supervise that it is carried out. Providing financial incentives to farmers prior to final harvest are a good way for smallholders to realize the value in real time, rather than waiting until some elusive time in the future. It is very counterintuitive to a lot of smallholders that removing some of the trees (thinning) or cutting some of the parts away (pruning) will increase the price they receive. They often see tree growing as a passive savings account – where they can plant the trees, and walk away, only to return and harvest a tree when the money is needed. This way of thinking will not help the business case of any commercial partner.

Through all stages that smallholder tree growers are engaged, there needs to be very regular interaction with the tree growers. You can not just see them as a passive wood source. They need to be treated as a partner and stakeholder that can contribute to the success of your business, while your engagement benefits them in the same way.

Share your smallholder tree grower success story!

If you are an investor or forest business that has successfully incorporated smallholder tree growing into your commercial reforestation business, please reach out! I’d be interested to hear the nuances of your journey and see how we can share your important success factors with The ForestLink’s audience!