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Future Trends in Smallholder Plantation Forestry

Tree-planting is an old peasant activity in many countries, but still today, Governments own about half of the productive forest plantations in the world. The political and legal environment has a significant impact on smallholder tree planting: in addition to sufficient demand for plantation wood, land and tree ownership security is necessary to allow the long-term investment in tree planting. The growing global demand for wood based products, land use pressures and fragmentation of land ownership is already starting to increase the role of smallholders in wood production.

History of tree planting stretches from home gardens established as early as 13 000 to 9 000 BC to forest management and tree planting by the early Chinese dynasties, to forest management practices in the Europe in the medieval era, to actual forest plantations in Japan in the 17th century, and finally to the large scale industrial plantation establishment in the industrial era. Today the largest areas of planted forests are in China, Europe and North America which together account for about 75% of global planted forest area.

Role of plantations is foreseen to increase as a source of industrial wood

According to FAO, planted forests account some 7% and fast growing industrial plantations less than 2% of all forests. The largest industrial plantations are in the US, China and Brazil, each with over 5 million ha of industrial plantations, and India and Indonesia following with their over 2.5 million hectares. Presently about one third of the industrial roundwood originates from plantations.

Governments still own about half of the productive plantations in the world, although different kinds of leasing and management partnership arrangements are slowly increasing on these plantations. Private smallholders own about one third of global productive plantations, and corporates own less than one fifth of global plantation area. It should be noted though that a great share of smallholder tree planting (wood lots and trees outside forests) is not included in official statistics.

Demand for forest products is foreseen to continue increasing, and substitution of non-renewables with biomass-based materials may strengthen the trend further. The competition for land is also increasing, particularly due to the pressure for more agricultural land in the developing world. This trend leads to land fragmentation, increases the land prices and pushes tree planting to lower-yielding areas. At the same time, planted forests are expected to provide more industrial wood. This all requires careful land use planning and optimization of land uses, and limits possibilities to establish traditional large-scale industrial plantations. The diversification emphasises the role of smallholders in tree growing, while also providing them with alternative, diversified livelihoods, which can provide a buffer against economic shocks and agricultural product price fluctuations.

Globally smallholder plantations and outgrower schemes are not yet a common source for industrial wood in the large scale, but the pressures on land use and concerns on social sustainability of industrial plantations are driving development towards smaller, locally owned plantations. Finland and the US are good examples of countries where smallholder forest ownership and forest management is the basis of the viable forest sector.

The scale of smallholder tree planting varies from a few trees to tens or hundreds of hectares. A common feature is that majority of trees planted are exotic species such as pine, eucalyptus, acacia, or teak.

Emerging and developing economies are developing their forestry sector relying on smallholder forestry

Many of the countries with a significant forest industry have at some point used incentives to boost the forest sector development. These include Brazil, Chile, Uruguay, New Zealand, South Africa and Finland. Many of these countries continue to do so. The newest incentive schemes have been established in Uganda, Malaysia, Thailand and Costa Rica. Successful incentive schemes have helped creating a critical mass of forests to support the establishment of forest-based industries, to catalyse socio-economic development and reduce poverty in rural areas, reduce pressure on natural forests and strengthen land tenure.

Outgrower schemes between forest industries and small scale tree planters have also been developed and tested to diversify wood sourcing for forest industries. The keys and major challenges in the outgrower schemes are building the trust between the partners and establishing feasible and mutually beneficial, fair and transparent agreements.

Smallholders prefer the common commercial, often exotic species on their plantations. Small holder teak plantation in Luang Prabang province in Laos.

Developing countries where smallholder-led tree planting has been supported and has become the mainstream activity in last decades include China, Vietnam, Philippines, South Africa, India and Indonesia (Java). In last years, smallholder tree planting has mounted up also in Eastern Africa, including Uganda with the support of SPGS incentive scheme, and Tanzania and Ethiopia. However, in the absence of technical support and incentives, smallholders are often not fully able to integrate in the (industrial) wood value chains and their wood is often ending in lower value markets.

The right kind of incentives and partnerships are needed to establish viable smallholder plantation forestry systems

The lessons learned from successful afforestation indicate that incentive schemes need to include the following elements:

  • Be performance-based – focusing on high survival rates and high productivity
  • Combine direct incentives with tactical assistance (indirect enabling incentives)
  • Be temporary in nature – finite lifespan and phased out at a certain point of time
  • Be inclusive rather than exclusive: supporting small- medium and large-scale tree growers
  • Comply with the best environmental and social standards

The political and legal environment has also a significant impact on smallholder tree planting. In addition to sufficient demand for plantation wood, a reasonable level of land (and tree) ownership security is necessary to allow the long-term investment in tree planting. Heavy bureaucratic procedures and payments only produce grey markets for smallholder tree grown wood. In many countries, revision of legislation and regulations, and removal of red tape applied to smallholder plantations would be necessary. Addressing illegal logging and ensuring forest law enforcement are also crucial for the feasibility of planting trees. As long as there are open-access natural forest resources available, tree planting is not necessarily profitable, a reason why so many wood fuel plantation projects have not succeeded.

The return on investment time required for a tree plantation is a major challenge from a smallholder perspective and incentives are often necessary to make it possible for a smallholder to commit his/her land for tree planting for 10-30 years. In developing countries, smallholder farmers prioritise agricultural (subsistence) production with their limited capital and labour resources. Therefore, incentives for tree planting need to recognise and compensate the opportunity cost of small farmers, when they invest their land and labour in tree plantation establishment and management.

Smallholder tree planters rarely have access to technologies required for profitable, industrial-quality tree planting and this needs to be addressed with a combination of material and financial incentives and technical advisory support. Extension services for tree planters must be organised and developed with a long-term perspective. Sustainability of services can be built e.g. through partnerships and outgrower arrangements, through strengthening farmer organizations, or improving the capacities of government extension services.

Efficient and easily accessible extension services are needed to bring the small holder timber quality to industrial level (Private Forestry Programme, Southern Highlands, Tanzania)

Tree planting and forest plantation establishment are long-term and risky investments, not only from the smallholder perspective, but also for institutional investors and the industries. This is one of the reasons why incentives have played an important role in the early stages of growing the sector towards a significant industry in so many countries. Incentives have traditionally been financed from government budgets but today’s governments are struggling to meet all the financing needs. Emerging financing instruments blending public and private funding are an opportunity to support development of smallholder tree planting and outgrower schemes: public funding alleviates and carries most of the risks that private financiers are not willing to take. Based on the experiences, public loan subsidies, guarantees and similar leveraging tools can attract private investors to double or even twenty-fold the investment.

New financing instruments have a potential to address smallholder forestry needs

Despite of the challenges, smallholders have a great interest to plant trees e.g. in Ethiopia and Tanzania on their own-initiative, responding to the increasing market demand for plantation wood. The poverty reduction potential is clear: tree plantations and woodlots are working as their “green bank” and buffer against economic shocks and family emergencies and e.g. in Tanzania allow parents to send their children to school and pay for further education.

Depending on the scale and objectives of the tree planting, there are also environmental and social benefits, which attract social investors and bonds. This is also the path that climate funding is taking: e.g. Green Climate Fund aims to move more and more towards performance-based funding. Smallholders are also able to leverage funding among themselves: e.g. in Tanzania smallholder tree planters and SME wood industries have recently received support to establish their own banking and loan groups and the early experiences show they have been able to raise sufficient funding to start investing in improved technology and additional tree planting.

Organizing small holder tree growers in associations gives them negotiation power, improves the efficiency of extension services and makes small holders more interesting partners for forest industries (Private Forestry Programme, Southern Highlands, Tanzania)

The future looks promising for smallholder tree planters but the expected positive outcomes require collaboration to establish models and frameworks tailored for national and local conditions. Partnerships between smallholders and their organisations, governments, institutional financiers, private sector financiers, industries and research organisation are in the centre of building feasible, modern small holder plantations schemes. Indufor has been working with all these partners globally, and we are the leading consulting company in forest plantation development in Sub-Saharan Africa.