Handmade paper is a high value Nepali handicraft product produced from the fibrous inner bark of a high altitude shrub of the species Daphne, called lokta in Nepali. Handmade paper making relies on access to and a ready supply of lokta bark, a forest resource, as well as the skills of traditional paper makers and block printers to make the paper products. To sustain the industry, it also requires a reliable market. Lokta comes from high mountain forests of Nepal, the paper makers dwell in rural villages nearby, and the block printing skills necessary to convert the paper into saleable products - cards, stationery, art paper, boxes and bags, for example - are found largely within the Kathmandu valley. Over the past quarter century, handmade paper products from Nepal have become well known internationally. This case study describes, in part, why the industry has been so successful, and demonstrates that socially-responsible entrepreneurship along with environmentally-sustainable methods of resource harvesting and processing are important in maintaining an industry dependent on an alternate forest resource (AFR). It also demonstrates how private entrepreneurs have helped promote equitable access for women, especially, to a forest resource-based paper production enterprise. The description of the paper making enterprise takes up with a donor-funded project begun in 1980, but goes on to describe how the handmade paper industry of today, which has gone far beyond the project level and is now dominated by innovative and socially-responsible private entrepreneurs and NGOs.
In 1980, encouraged by the success of the (then) newly created Small Farmer Development Program and by a long felt need to rejuvenate the failing handmade paper industry in rural Nepal, the United Nations Childrens Fund (UNICEF) launched an innovative Community Development Through the Production of Handmade Paper Project. The overall aim of the project was to revive and revitalize papermaking and block-printing traditions as an economic base for community development. The Agricultural Development Bank of Nepal (ADB/N) managed the project nationally as part of the FAO/UNDPs Asia-wide Small Farmer Development Programme (SFDP). It combined economic and community development functions with both rural and urban components, with the objective of rejuvenating a centuries old but languishing tradition of paper making and expanding it through an innovative paper craft production process.
Nepals handmade craft paper is made from the fibrous inner bark of a high altitude shrub called lokta (Daphne spp.), an alternative forest resource (AFR) of considerable importance in the subsistence economies of many poor rural Nepalese households. Lokta paper is noted for its long lasting qualities and resistance to insects and mildew. Historically, it was a single purpose product used primarily by government for record keeping. Since at least the twelfth century AD handmade paper has been produced in traditional ways at several locations in the rural hill districts of Nepal. For years, the most renowned paper came from around the central Nepal trading town of Baglung. By as early as the 1930s, however, handmade paper production was in decline due to imports from Tibet, and by the 1960s the traditional Nepalese industry was virtually moribund due to even more serious competition from the import of machine made papers from India. By 1980, only a few families in Baglung and neighbouring Parbat District communities still retained knowledge of the traditional production process.
During the 1970s as tourism began to grow in Nepal, interest in this traditional craft product began to rise, so that by the end of that decade there was encouraging evidence of new market potential. It was in this climate of optimism and innovation that UNICEF and the ADB/N-SFDP launched the project. The ultimate goal was to provide community development in the rural component primarily for lokta cutters and paper makers and new employment opportunities (poverty reduction) within both a rural and an urban component. To that end, the project included creation of the urban-based paper craft products manufacturing unit, the Bhaktapur Craft Printers (BCP), in the Kathmandu valley.
In 1985, two industrial developments occurred that brought significant change and improvement to the industry. One was the introduction of Japanese technologies employing both energy- and resource-efficient factory methods, while continuing the labour-intensive craft product production system. Japan had a long-established tradition of its own for manufacturing handmade paper crafts using daphne bark fibre-based paper, about which Nepali producers were only vaguely aware. A key aspect of the Japanese technology is a method (previously unknown in Nepal) of using recycled lokta paper trimmings and scraps.
In 1985, the Japan International Cooperation Agency (JICA) approached the Nepal government to suggest that it introduce Nepali producers to the Japanese technology. And, JICA took interested Nepali entrepreneurs to Japan for training. Simultaneously, General Paper Industries (now known as Get Paper Industries, or GPI) was founded as Nepals first major private hand-made paper making company. It was also the first to adopt the Japanese technology for these and other key steps in the development of the industry.
GPI began by using BCPs lokta scraps for its raw material, and started marketing its lokta products to international buyers whom BCP was unable to supply. After BCP adopted the Japanese recycling technology in 1991, its scrap lokta was no longer available to GPI, whereupon GPI sought alternative sources of lokta paper from paper makers in districts other than those exclusively contracted to BCP. GPI also increased its use of recycled fibres from other sources than lokta.
In 1991, two BCP employees, one a previous general manager and the other a technician, left the project and joined the private sector. They founded the company Nepali Paper Products P. Ltd. (NPP). During the 1990s, other entrepreneurs (some of whom also had BCP experience) saw the growing international market and joined the private sector, registering as private companies or as NGOs. In less than 15 years, these new private sector enterprises, taken together, have far outstripped the ongoing project/BCP operations in number of lokta cutters, rural paper makers and factory employees, and in overall outputs and marketing. In 2002, BCP contributed about 16% of the total international exports of the handmade paper industry. UNICEFs Greeting Cards Operation (GCO) still remains BCPs primary wholesale market, accounting for approximately 90 percent of BCPs sales, under an exclusive contract. BCP first began searching for alternative markets when, during the 1996/97 seasons, the GCO briefly cancelled its international orders. Since then, BCP has been developing a range of alternative international markets. The privatization of BCP has also been discussed, but has not taken place; it still maintains links with UNICEF.
As the overall handmade paper production and marketing industry expanded during the 1990s and early 2000s, several developments beyond the UNICEF project changed the future of this AFR-based industry. These developments have enhanced potential access of its private entrepreneurs and NGOs, and their employees both rural and urban, to the resource base and to the industrys development processes.
As the overall handmade paper production and marketing industry expanded during the 1990s and early 2000s, a number of government and international agencies and private sector organizations and associations also became integrally involved in the industry, in such functions as the regulation of employment practices, quality control, fair trade and export practices, and concern for maintaining a sustainable resource base. Government agencies involved include the Department of Small and Cottage Industries and the Trade Promotion Centre. The Nepal Chamber of Commerce and the Federation of Nepalese Chambers of Commerce and Industry are also involved.
There is also the Handicraft Association of Nepal (HAN), founded in 1972, a government sponsored organization which has played an important role in industry development. HAN looks after a wide range of handicraft sectors in addition to handmade paper. It serves as a business certification agency, conducts technical trainings, workshops and seminars, provides members with information on trade and export policy, publishes promotional materials, and sponsors and participates in trade missions, exhibitions and craft competitions. It also lobbies for improved government services. HAN is financed by a small tax on the sales of its member units. In one way or another, these government organizations have played facilitating roles in the development of the industry.
From the perspective of this study, it is the innovative behaviour of the handmade paper making entrepreneurs, themselves, which is most interesting. They have recently founded the Nepal Handmade Paper Association (HANDPASS) in 1996 as a private business service organization designed to strengthen and promote the overall business enterprise. The creation of HANDPASS marked a significant change in the management and overall conduct of the industry. Thirty-two companies are registered members of HANDPASS. The organization has a graduated membership fee based on a companys ability to pay. Its main objectives are to (a) develop mutual understanding and fraternity amongst the handmade paper producers group and product manufacturers; (b) develop and promote paper making enterprises in rural areas and improve the lifestyle of low income communities; (c) ensure that the handmade paper making industry continues to be an environmentally sustainable and socially desirable enterprise; (d) help paper manufacturers in product development and marketing, as well as in skill enhancement; and (e) promote handmade paper as one of Nepals leading export items.
HANDPASS assists rural and urban paper makers, craft producers, exporters and product sellers by providing information, consulting services and technical advice in order to assure maintenance of paper and product quality. It also lobbies government on industry concerns. It conducts workshops, seminars, training programs and exhibitions, carries out market surveys and research, and publishes bulletins, a newsletter and other informative materials. In short, it is a strong access-support organization that looks after the concerns of its membership, and their employees and associated communities.
The socially responsible behaviour of the industry came from three types of social entrepreneurs (as actors or drivers for change). (a) One includes such NGOs as Mahaguthi and Sana Hastakala, which are members of Nepals Fair Trade Group (FTG). (b) Another is Lotus Holdings, an umbrella business service organization that promotes the concept of corporate social responsibility. It has been instrumental in helping to establish HANDPASS, and one of the private handmade paper companies, Lotus Paper Crafts, abides by the Social Code of Conduct drawn up by Lotus Holdings. (c) The third is the unique, socially responsible behaviour of several of the major handmade paper private companies, whereby they divert 25 percent of profits to NGOs concerned with community development, community health, social inclusion and gender equity.
Recently, HANDPASS and HAN joined the Swiss/Nepal Small Industries Promotion Program to organize a two-day seminar on Lokta Production and Handmade Paper Making in Nepal: Problems and Way Out. One of the main issues discussed was the need to further develop international markets for lokta paper. Following this, Nepals Trade Promotion Centre put the HANDPASS leadership in touch with an independent Dutch consultancy, which specialises in developing outlets for handicraft products in European markets, that helped the industry prepare a sector marketing plan.
Overall, the creation and expansion of the handmade paper and craft products industry beyond the original UNICEF project, along with allied social services, is a positive and remarkable story of Nepalese entrepreneurship. The industrys current emphasis on fair trade ethics is closely allied with its expressions of social responsibility and environmental sustainability. This is where the issues of access come prominently into play. The private and NGO entrepreneurs of this industry are showing how business entrepreneurship as well as social entrepreneurship is affecting their behaviour.
Issues of access in the handmade paper industry of Nepal focus around two points: (a) access to the raw materials, the lokta resource in the forests at the micro level that serve as the fundamental basis of the entire industry, and (b) access to safe, healthy and empowering employment and decision-making at the macro level.
Access to the basic forest resource
Access to the lokta resource is the crucial first step in the development and maintenance of the handmade paper industry, followed by access to employment in the initial stages of paper making, then in the block-printing activities, and finally to international markets. To understand the overall industry, it is necessary to review the cycle of harvesting, paper making, value added production, and marketing; in short, the entire handmade paper market chain:
There are four main steps:
1. Harvesting the raw material, lokta bark, by high altitude cutters in the rural districts, who sell it to nearby village paper-makers.
2. Processing the lokta in the villages, by cooking it over wood fires then sun-drying it on cotton mesh stretched between wooden frames to produce thin paper sheets. The process requires ample fuelwood and potash derived from wood ash. When dry, the paper is graded, bundled and transported to urban factories.
3. Producing value-added craft products from the paper using traditional block printing techniques to create cards, stationery, art papers, boxes, bags, etc. The product has been enhanced over time by the introduction of technological innovations (mostly of Japanese origin) to increase energy savings and mechanical efficiency, and to improve attractiveness, quality and saleability. These production processes are primarily urban, involving scores of city dwellers and, by extension, their families.
4. Marketing. The original UNICEF sponsored project marketed its products through the agencys Greeting Cards Operation in Geneva, Switzerland. As private entrepreneurs entered the industry, however, new international markets have opened up, as well as the important local tourist market within Nepal.
When the original UNICEF-sponsored project began, the lokta resources were harvested exclusively from Hatiya forest in Baglung District, the paper makers dwelled in the villages of Pang and Nanglibang in neighbouring Parbat District, and the block-printers and marketing arm of the enterprise was located in urban Kathmandu valley. Eventually, the project was expanded to include lokta cutters and paper makers in nearby Myagdi and Lamjung Districts, and more factories in the city. Today, across the entire industry, lokta harvesting and rural paper making is found in 16 hill districts, supplying a number of urban factories, large and small.
In the early 1980s, UNICEF engaged a team of forest scientists to study lokta ecology and growth in order to inform project administrators and rural participants of the most sustainable management and harvesting techniques. They recommended specific strategies, such as rotational cutting and care in cutting the lokta stems to protect the roots for proper coppicing. They conducted training with cutters and paper making groups for drawing up resource management plans. The project also established small woodlots as a source of fuelwood for cooking the lokta pulp, or bast, from which the paper is made. The foresters guidance has been followed to date with only slight variation. Lokta resource sustainability remains a high priority concern within the industry. Villager access to lokta-rich forests is an important first step in a long string of household subsistence strategies of rural and urban dwellers.
Access to markets
There are now over 300 handmade paper units registered with the Small and Cottage Industries Department, of which only 170 are currently active. Most of their products are for export. Total exports in 2001/02 were worth about US$3.5 million, demonstrating that this is a major activity involving an important forest-based resource. Since the late 1990s, all handmade paper product exports (lokta-based and other) have increased by an average of 26 percent per year.
The industry is currently dominated by two companies, GPI and NPP, each of which contributed about 27 percent to total official exports in 2001/02. Their major markets are in the USA, UK, France and Japan. By one recent estimate, the handmade paper industry provides employment for 4,155 families, or about 21,000 persons, with women making up 80 percent of those employed. This may seem a small impact on poverty in absolute numbers, but in an industry where (typically) whole rural and urban neighbourhoods or communities are engaged, it has significant local socio-economic impacts. As a potential model of access and entrepreneurship for emulation elsewhere. Here spin-off effects become all the more important. While we do not claim that this industrys labour intensive employment practices fully address Nepals wider poverty alleviation needs, support for initiatives of this kind in other sectors (e.g., horticulture, livestock, local tourism) would go a long ways in that direction.
More important than the statistics, however, is the quality and conditions of employment among those who work in this industry. Regarding benefits to the poor, especially the poorest of the poor - concerns that are consistently raised today by development actors - the apparent positive outcomes of the original UNICEF project and of the subsequent industrial growth remains open for deeper empirical analysis. But, there has been a documented increase in employment and it remains a labour-intensive enterprise, thus affording employment opportunities, from the harvesting of lokta, to paper making, to the production of finished paper-based crafts, to the preparation for marketing and export. Most, if not all, processing of lokta takes place in Nepal, and much of this is in rural areas. In the original project, the primary poverty concern was with the welfare of poor small farmers and, as was shown in an earlier study, many poorer farmers graduated rather quickly to a better economic status. While a fuller analysis is still needed to assess the overall project outcomes, we would be surprised if the assessment did not confirm a continuing beneficial effect on poverty reduction. A 1995 evaluation of the UNICEF-supported project, which looked at project effects on the welfare of poor women and children, clearly shows substantial positive improvements at that time.
Outside of the project, the private companies and NGOs are creating socially responsible codes of conduct. This means that for this sector of the economy poverty reduction activities (social inclusion, education, health) are being actively implemented on a day-to-day basis as part of the larger business enterprise and transactions.
Handmade paper making is a very good example of a non-agricultural source of income among poorer rural people. It is part of an overall complex pattern of income sources. It is interesting that it was a small farmer development project in the late 1970s, one the explicitly targeted the very poor, that stimulated revival of the ancient Nepalese paper making industry. While non-farm rural livelihoods have now become a mainstream concern of many donors, it is worth noting that these sources of livelihoods have been recognized and policies and programmes organized for their support in this particular industry, now, for more than two decades in Nepal.
In rural areas, where micro-enterprise based on lokta and other resources is important, more attention is now being given to alternative forest resources (AFRs) than ever before. AFRs provide important sources of rural incomes and livelihoods, based on natural forest resources. The source of livelihood has been in existence for a long time in Nepal, but to nurture it and help the industry grow many complex productions, marketing and institutional issues have to be taken into account. What is significant here is that it has been largely the private sector that has now taken the lead (away from the project) in creating some of the most relevant policies and institutions, i.e., the necessary social capital, at the national level to make the long-term sustainability of this industry, hence access to employment by the poor, more likely.
At the macro institutional and policy level, the case study illustrates that Nepals existing trade policies, regulatory practices and trade promotion agencies have helped promote this dramatic recent growth of the handmade paper industry (this is said against a background of repeated criticisms of the Nepal government). It is evident that the government and certain quasi-governmental organizations such as the Department of Small and Cottage Industries, the Handicrafts Association of Nepal, the Federation of Nepalese Chambers of Commerce and the Trade Promotion Centre have been especially helpful and responsive in facilitating positive developments within the industry.
In many of the current debates, sustainability is often singularly restricted to concern with natural resources and the effects of projects and development on the environment. As we have seen, the sustainability of the natural resources (daphne forests) was a major concern of the project from the start. The changes in forest management technologies and methods reflect an interesting development that appears to increase economic efficacy while, at the same time, maintains the resource.
The history of the paper making industry over the past two decades contains some interesting lessons concerning economic sustainability. Paradoxically, however, it appears that the project continues to carry with it some classic infant industry problems. From the very beginning, a key feature in project sustainability was the role that UNICEFs Greeting Cards Operation played in providing an assured market. The BCP still relies on this exclusive special client to buy 90 percent of its products. Prior to the BCPs marketing crisis of 1996/97, the BCP managers acted totally rationally from a financial business perspective: Why develop alternative markets when you have an guaranteed one? By todays criteria of long-term financial sustainability of projects, however, for BCP to continue under these circumstances places it in an extremely vulnerable position. Were the project to be critically evaluated today, under current development criteria, it would be expected to have a program for phasing UNICEF out of BCP operations and/or developing an aggressive BCP privatization plan.
It is the institutional sustainability issues that make this case study so interesting. Much of the contemporary development discourse speaks of promoting good governance, civil society, policies and institutions that promote rural livelihoods for the poor. This case study shows how innovative social entrepreneurs in Nepal are actually already doing this. Because it is a dynamic indigenous process we argue it is institutionally sustainable. This compares to institutional models that are transferred from elsewhere, or models that are relevant only to the special conditions of adaptive research or donor projects.
The current trend in development circles is to move away from special projects and focus more on sector support programs. If we ask what implications our analysis has for such a change, we can answer that it both supports it and refutes it. In a strange way the original project was a well prepared but classic special demonstration project. Its designers may not have realized this, though, because it was not designated nor implemented as a demonstration. The fact that the project demonstrated that handmade papermaking could be financially and economically viable is one of the main reasons why there now exists a rapidly growing labour intensive, socially responsible and environmentally friendly industry in the private sector. If the project had not existed, it is unlikely that the industry would have developed in the way it has.
That it was a special project can be seen in certain aspects of its original design. Not only were new institutions formed at the village level, based on pre-existing local social arrangements, but also new and innovative changes were made in the ADB/N to facilitate the new types of loans to very poor people and to provide a wide range of other support services for community development activities in participating communities. And, the Bhaktapur Craft Producers was established to which the rural paper makers sold their product, out of the profits of which the projects rural community development works were funded.
Over time, this special project has had very large and important spill-over effects. Early on, the project was judged a success in part because handmade paper units in villages had been established and participating farmers incomes and lives had improved. One of the reasons for rural success was because it was nested within a larger industry- and a program-wide framework. But, it seems that the industry wide success has come about, not because of the project but as a result of the Nepalese social entrepreneurs in the industry. For example, as far as we know there were no plans in the original project to estimate the lokta potential for the entire country, nor to forecast a potential international market for handmade paper products, nor plans to stimulate the wider lokta industry in the private sector. In this sense, the current shift to broader sectoral and programmatic views of development policy and intervention is welcome. This case study supports the view that good projects can be useful, provided that they are located within a broader program level set of long-term contextual considerations.
From the perspective of this study, which focuses on the role of development actors in promoting access to natural resources by poor and marginalized groups, there are some important lessons:
1) Beginning in 1980, a project supported by UNICEF under the Small Farmers Development Programme (SFDP), launched a handmade paper project focussed on poverty reduction, community development and rural livelihood goals. According to assessments of the project, it achieved major positive results.
2) The rise of a socially responsible culture within the handmade paper industry, while not inconsistent with the earlier project, was driven by social entrepreneurs from within the industry, rather than as an outgrowth of the project.
3) It was these social entrepreneurs who created a new institutional innovation, a guild-like association called HANDPASS, which is now the industrys main business service organization.
4) While little attention in the past has been given by major donors, who have influenced forestry policy processes and development practice, to the development of industries around the alternative forest resources (AFRs), there has grown an industry that meets many of the criteria for poverty reduction, access to resources by the poor and social inclusion goals. While some of these positive outcomes may not fit frameworks of access to natural resources being explored by the leasehold forestry project (Case Study 2), they certainly come within a broader definition of concerns with rural livelihoods for poorer groups, social inclusion and long-term sustainable socially responsible behaviour in Nepal.
5) New actors and project staff in the development arena, especially those dealing with forest resources, would do well to learn first from this and other initiatives in Nepal that have already addressed access and social inclusion issues, before embarking on new initiatives. We need to make these cautionary remarks because the evidence from the behaviour of many old style projects is that there is often a lack of social science institutional analysis in their design, and a lack of initiative to learn from what has worked in the past, or to learn from other projects and initiatives (private, NGO, donor and government) going on around them.
Table 8.1: Timeline of major actor events in the rejuvenation and institutionalization of Nepali Handmade Paper Industry of Nepal*
History up to 1970s...
· Handmade lokta paper making
tradition exists in Nepal since 12th century AD, principally along the
trans-Himalayan trade route through central hill districts
· Industrial quality paper
imports from India further undermine Nepals lokta paper industry
· UNICEF project feasibility
studies conducted (1980)
· BCP adopts Japanese technology
· FTG exhibition & workshop
on fair trade challenges and opportunities (2000)
Main Actors in Nepals Lokta Paper Making Innovation System:
PRIVATE FIRMS, NGOS & ASSOCIATIONS
INTERNATIONAL AGENCIES & ASSOCIATIONS
NEPAL GOVERNMENT AGENCIES
LOCAL & OTHER
Source: Biggs and Messerschmidt (n.d.; forthcoming), Table 1.
 UNICEF 1980 and ADBN
1982. Much of the material that informs this case study is adapted from
Messerschmidt 1988 and 1995, and Biggs and Messerschmidt n.d. (forthcoming). The
origins and growth of the industry have also recently been described in a
popular local newspaper (Newar 2003).|
 From the beginning, GPIs primary international buyer has been The Body Shop International. For more information, see <www.gpinepal.com> and <www.thebodyshop.com>. As other private sector producers joined the industry, they found many other interested international buyers.
 The term private sector here includes both for-profit companies, NGOs and a Nepali hybrid. This is a situation where a private company legally diverts a percentage of its profits to an independently registered NGO.
 The Small Industry Promotion Programme (SIP-P) is a joint project of the government of Nepal and Swisscontact (a Swiss NGO). The SIP-P facilitates small industry cooperation with local chambers of commerce, trade associations, producer groups and service delivery organizations for the development of selected sectors including handicrafts.
 Forestry Services 1983a,b, Development Associates 1997 and Acharya 2003.
 These export figures are based on information supplied by HAN and HANDPASS, and in Dangol (2003). The official HANDPASS figures for the export of handmade paper of all types from Nepal is only about US$3 million. This is less than the $3.5 million overall estimate because they do not include BCPs exports, which come under a separate arrangement. The BCPs exports make up 16 percent of all exports. When added to the others, the NPP and GPI contributions are reduced to 22 percent each.
 Dangol 2003.
 Messerschmidt 1988.
 New Era 1995.
 For more on the importance of AFRs in rural livelihoods (besides Messerschmidt and Hammett 1998) see Arnold 1998, Fisseha 1987, Nurse and Paudel 2003, Ruis Pérez and Arnold 1996, Townson 1995. Recently, a new project (Business Development Services for Non-Timber Forest Products, Nepal/BNSN) funded by USAID, designed to support business initiatives has started up.
 Aid donors and government officials alike might learn some useful lessons on how to facilitate pro-poor growth from some of the government regulations and markets already in place. By the same token, a full analysis of some of the other rapidly growing rural sectors, such as horticulture and dairy in different parts of the economy, will find that these, to varying extents are the outcomes of earlier government policies programs and projects, sometimes involving donor partners.
 See Hanley (2001) for an account for why projects are seen as a problem, but also why donors and recipients often do not want to lose them.