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Chapter 7

Ani Adiwinata Nawir, Levania Santoso
and Irfan Mudhofar9, PLT Programme, Plantation Forestry on Degraded or Low-Potential Sites
Center for International Forestry Research

Background and the purposes of this study

Outgrower scheme initiatives in Indonesia have occurred particularly in response to rapid changes in the sociopolitical situation in Indonesia. This situation has influenced forestry plantation industries to practise more socially oriented management in daily operations, and also in the same time as a way to secure company wood supplies. Despite the emerging private initiatives on outgrower schemes, companies do not generally have a clear idea on the mechanisms that would work best in the field and to what extent participatory approaches could be used in ensuring a full commitment from the landowner/tree grower partners without jeopardizing the companies' economic principle of cost efficiency.

The main aim of this Center for International Forestry Research (CIFOR) study was to conduct a socio-economic analysis of the existing outgrower schemes in Indonesia so that key elements for mutually beneficial partnership can be identified to improve long-term viability of the schemes. Specific research questions developed in this research are:

Have the schemes been effective in ensuring mutually beneficial partnership for key stakeholders?

What are the lessons learned that identify key elements for establishing mutually beneficial partnerships?

This study intends to provide comprehensive understanding to the private timber plantation companies, or to those implementing outgrower schemes, or to those who might wish to initiate feasible outgrower schemes by considering the expectations from small-scale tree landholders or tree grower partners. This study was conducted in collaboration with three private companies: two Indonesian companies, Wira Karya Sakti-WKS and Xylo Indah Pratama; and Finnantara Intiga, a joint venture company between Inhutani III - State Enterprise (33 percent shares holding) and Stora Enso (Nordic Forest Development Holding Pte Limited) - Finland Company (67 percent shares holding).

Analytical framework

The concepts of comanagement, and participation were core ideas to bring forward the framework of analysis in this study, especially to design the principles, criteria and indicators of mutually beneficial outgrower scheme partnership. The prerequisites for mutually beneficial partnerships are that:

Partnerships be commercially feasible under a long-term partnership contract;

There be a mutually beneficial arrangement, whose development is based on fair contractual agreement determined by fair valuation of shared inputs for mutual economic and social objectives, and a full understanding from both parties upon the potential consequences and risks by joining the partnership;

Mutual economic and social objectives be included in the arrangement;

The process to achieve the objective is in line with the approach of the comanagement concept that participation be one of the key principles.

The set of mutually beneficial outgrower schemes is referred to in CIFOR's Criteria and Indicators Generic Template on Sustainable Forestry Management (CIFOR C&I Team 1999) and Criteria and Indicators for Sustainable Plantation Forestry in Indonesia (Muhtaman et al., 2000). Company staff and tree grower partners of case studies were identified and interviewed about the managerial, social, and economic aspects of the schemes' implementation, based on set of questions developed from the analytical framework.

Motivations of company and landowners

Company motivations vary from seeking a substitute for naturally grown timber or ways to plant claimed areas inside the concessions, or improving its reputation. The landholders' motivations are mainly driven by the aim to utilize idle lands (both marginal and good quality lands) and to have extra income in the future (Table 7.1).

Table 7.1. Motivations of the company to initiate, and landowners to join, the outgrower scheme

Key partners

Key partner's motivations to collaborate under the four schemes

Wirakarya Saktia

Finnantara Intigaa Scheme

Xylo Indah Pratama

Schemes inside concession areasb

Schemes on communities' private landsc


Utilizing lands that had been in long-term conflict with the company

Expecting extra income in the future

Expecting company's assistance to build road infrastructure

Expecting extra income in the future from underutilized lands, which otherwise were limited by financial capacity.

Landowners inside the concession

Saving strategy for the household

Accessing company's social funds and credit schemes (e.g. fertilizer for agriculture)

Migrants living outside of concession

Investing on idle lands

Accessing company's credit schemes

Investing on idle lands that were otherwise limited by insufficient funds to manage these lands


Utilizing community areas inside the concessions which have been the subject of long-term conflicts

Establishing good relations with communities, although it may not be financially feasible, particularly for areas that are far from company's sites

Responding to community's request

Developing plantations under partnership with community

Acknowledging the local communities' rights

Managing logged over lands

Maintaining the sustainability of wood supply (Alstonia sp.) for its processing industry

(The company is currently buying the wood from naturally grown trees)


a Timber plantation concession holder.
b Wira Karya Sakti Forestry Plantation Partnership Scheme.
c Wira Karya Sakti Farm Forestry Partnership Scheme, which was initially developed under the Farm Forestry Scheme.
d Non-concession timber plantation company.

Companies' long-term motivations are:

Outgrower scheme arrangements: company dominating processes

Varied arrangements were driven by company motivation and objectives in initiating schemes. Similarities of company responsibilities include the financial commitments to bear all costs in establishing plantations, and the obligations to conduct community organization, training in technical skills, and other extension programmes. In return, companies secure access to jointly managed lands and planted timber crops by placing responsibilities (in relation to access) in the hands of landowners/tree growers. Furthermore, the companies had the privileges to decide on the buying prices (or royalty rates) for harvested timber and wage rates for labour in the plantation areas.

Landowners/tree growers were responsible for securing company access to the outgrower scheme areas by not transferring the landownership (unless the right to harvest remains with the company) to other people, and by maintaining and protecting the planted areas from theft and fires. In the case of initial capital funded from loans, the landowners as a group were responsible for paying back credit. In return, individually, landowners/tree growers have the rights to receive a certain proportion of net revenue from harvested timber crops (Table 7.2).

Table 7.2. The designs of the case study outgrower schemes


Programmes on outgrower schemes areas

Other incentives as part of the partnership programme



Wira Karya Sakti Forestry Plantation Partnership Schemea

90 percent of the areas were used for Acacia plantations

On 10 percentd of the areas, the company has initiated farming programmes of short-term crops such as patin (local fish) and corns

Community organization by forming the Forest Farmer Cooperative from the existing Farmer Group

Social fundse

Field training

Finnantara Intiga Schemea

95 percent of the areas were used for Acacia plantations

On five percent of the areas, high-yielding rubber trees were planted

10 percentd of the Acacia plantations used by the company for planting native species

Land incentives and funds for infrastructure development were provided.

Community organizing by forming Community Development Group (KUB-Kelompok Usaha Bersama), and field training

Social fundse

Incentives for conducting a traditional ceremony prior to land clearing

Agro-forestry programme: establishing dry rice fields on five ha per dusun (subvillage) in plantation areas in the form of credit assistance

Wet rice field intensification programme: two hectares per dusun (subvillage)

Credit and savings programme managed by Community Development Group

Wira Karya Sakti Farm Forestry Partnership Schemeb

90 percent of the areas were planted by Acacia

On 10d percent of the areas, the company initiated farming programmes of short-term crops such as patin (local fish) and corn

Community organizing by forming Forest Farmer Cooperative from the existing Farmer Group

Social fundse

Field training.

Xylo Indah Pratama Schemec

All of the scheme areas were planted by Alstonia


Community organizing through the existing farmer group (KT-Kelompok Tani)

Social fundse

Company responded to tree growers' requests for company assistance in providing seeds for cash crops such as soybean


a A partnership scheme between a company of timber plantation concession holder and land claimers/owners residing in the concession areas. This was initiated in 1999/2000 with a 43-year term of contract. The first harvesting is expected in 2008.
b A partnership scheme between a company of timber plantation concession holder and landowners on the surrounding plantation areas outside the concessions. This was initiated in 1999/2000 with a 43-year contract (initially was initiated in 1995 under the Farm Forestry Scheme with eight years contract). The first harvest is expected in 2003.
c A partnership scheme between company of non-concession timber plantation and private landowners was initiated in 1995. The first harvest is expected in 2005.
d Based on government regulation on the composition of main crops (90%) and other crops (10%).
e  Social funds are provided in response to local community requests for financing social occasions.

Starting-up: socialization processes and land status clarification

The socialization process was "the main entrance door" for the company to generate local landowners' interests in joining outgrower schemes. Partnership programmes in establishing timber plantations were not familiar to most of the potential partners.

Therefore, companies had to convince landowners and also accommodate the needs of landowners or tree growers, such as providing options for income during the grace period. This option would ensure a full support from company's partners towards the main programme of growing timber trees. During the initiation process, the company holds several meetings at the village or dusun (subvillage) levels to explain the proposed scheme and how landowners would benefit by participating (an example of benefits among others were income diversity options initiated by company, and available incentives). Local government authorities were also involved as mediators between the company and the community.

Overall, identified socialization processes were the combination of the three approaches:

To avoid any potential conflict in the future that could have financial implications, the company ensured the lands under outgrower schemes were free from conflict by setting required processes for potential tree grower partners to follow. From the tree growers' perspective, this process has indirectly led to greater recognition of their long-term land- user rights or land status. Figure 7.1 describes the processes.

Figure 7.1 Processes required to clarify the status of jointly managed land in outgrower schemes


a Mainly applied when the initiatives to join the partnership come from landowners
b Company policy and perceptions on land status categories determined types of papers accepted in the partnership scheme.
c The Memorandum of Understanding (MOU) set out the understanding that both parties agreed to start an outgrower scheme to establish a timber plantation. If historical conflicts emerged strongly and the outgrower initiative was a solution to settle the conflict, signature from a higher-level authority was required (e.g. Minister of Forestry).
d A Letter of Authority explained that the landowners had agreed to hand over the lands and/or appointed the company to represent them on their behalf to decide any related matters.
e Company staff, together with the landowners or appointed representatives, measured and defined the land boundaries. Finnantara Intiga used the Digital Aerial Survey to define the potential areas for plantation development.
f The process to sign the contractual document between representatives from the company and landowners, and witnessed by representatives of government authorities.

Assessing the commercial feasibility of the scheme

Estimated wood volumes

To estimate the potential share of woods that will be produced from outgrower scheme areas, calculation was based on planting realization of outgrower scheme areas and estimated volume per hectare (except for Wira Karya Sakti Scheme inside concessions; see notes following the table), and used the sensitivity analysis as the next step to provide a range of estimation figures. Table 7.3 provides the estimation of woods produced under the three schemes. All three schemes are could become potential reliable wood sources.

Table 7.3. Estimated wood volumes on outgrower scheme plantation areas


Estimation of harvested areas per yeara (ha)

High estimation of harvested wood volumeb

Modest estimation of harvested wood volumec

Volume per hectare (cum)

Total harvested volume (cum)

Proportion to annual requirement(%)

Volume per hectare (cum)

Total harvested volume (cum)

Proportion to annual requirement(%)

WKS scheme inside the concessions








WKS schemes on private community lands














Xylo scheme on community lands




More than 100j



More than 100j


a Based on planted realization data during the implementation years of each scheme.

b Based on estimated wood volume per hectare as used by companies in the Feasibility Study.

c For Acacia, based on the lower estimation of wood volume per hectare, by approximately 50%. For Alstonia, based on company approximation of the actual harvested volume.

d Based on potential area of 82,368 ha (owing to no realization on planting up to 2000), which will be managed in eight blocks, one block of 10,269 ha will be planted per year.

e Based on actual total planted areas in two districts of Tanjung Jabung and Batang Hari up to May 2000 covered 6,575 ha for four years implementation or 1,644 ha per year.

f Based on the realization of a total of 23,972 ha by mid-2000 or 5,993 ha per year in four years' implementation.

g Based on the actual realization up to mid-2000 at 1,525 ha per year or a total of 6,100 ha after four years.

h Annual requirement of company processing plant (PT Lontar Papyrus Pulp and Paper Industry, which is a sister company of WKS), at full capacity is 1,935,000 cum of Acacia logs per year to produce 430,000 tonnes of pulp.

i The logs were initially planned to supply processing plant with the capacity to process 2,250,000 cum logs per year to produce 500,000 tonnes of pulp. In 2000, the plant had not been set up.

j The full capacity of processing plant for pencil slats requires only 60,000 cum of Alstonia logs.

Drawbacks in the process of defining the contractual agreement: the company dominated the process in formulating entitlements of both parties in the agreement

Companies have not commonly used participatory approaches to socialize or deliver information about rights and responsibilities to the wider landowner or tree grower audiences (limited to the head of the farmer group/cooperative and staff). Another problem was due to the fact that a copy of the contract document had not been provided to tree growers in most of the case study locations. This will become a potential source of conflict during the process of calculating benefit sharing of revenues among tree growers.

To some extent, these had resulted in mixed perceptions on the positive values of joining the scheme on the part of landowner partners. In the longer term, commitment from outgrowers, so essential to the sustainability of the contract term, could be weakened from this situation.

Drawbacks in implementing an effective management plan

Following a contract agreement, a clear management plan is essential to ensure effective implementation on the ground to ensure that the target planted production could be met for long-term viability. The management plan could include working plans with scheduled activities, technical guidelines, and land-use planning. In the case studies, companies mostly focus on short-term management plans (one rotation), even for companies who initiated long-term contracts due in course with granted timber plantation concession rights.

The management plan in all case studies was verbally communicated to the tree-grower partners in the field during different stages of implementing the plantation establishments. Many tree-grower participants were not aware that the management plan existed or whether they should take part in its development for effective implementation. Finnantara Intiga wrote an integrated and comprehensive book on the guidelines adapted from lessons learned from five years' implementation, realizing that common vision and interpretation are essential. This explains why the guidelines are now documented systematically. Table 7.4 presents more problems affecting effective management plans.

Table 7.4. Problems affecting effective implementation of the management plans

problems identified

raised by

Lack of written management plans/working guidelines

Tree growers were not aware of any applied management plan

Tree growers

The working plan was delivered verbally in the field and no written guidelines were provided

Tree growers

Inadequate extension programme

With less effective company extension programmes on technical aspects; only the head of the farmer group and staff thought the programme was effective

Tree growers

For timber plantation concessions with two scheme types, less intensive attention on schemes developed outside the concessions compared to the scheme managing claimed areas inside the concessiona

Tree growers

Low interest from tree growers owing mainly to focusing on the technical aspect of timber crops, while tree growers also expected to receive other technical information on crops developed as part of outgrower schemes

Tree growers

Few copies of contractual agreement

A copy of the contract document (SPK) had not been distributed to tree-grower partners

Company staff

Only the head of dusun (subvillage) or the head of the farmer group possess the contract document

Tree growers

Delayed schedule on planned activities

Some maintenance activities were behind schedule of the company's owned-plantationb

Tree growers

The company incentive had not been 100% fulfilled

Tree growers

Company internal managerial problems

Frequent company staff rotation

Tree growers, company staff

Mixed perceptions among company staff that developing outgrower schemes would be an alternative to using occupied land inside the concession

Company staff

Visions, concepts, and principles for establishing plantations based on partnerships had not been clearly communicated from top management to the executives and field staff

Company staff

Challenges in company human resources

Limited skills or limited numbers of competent human resources.

Company staff

Tree growers had no interest in provided working opportunities.

Local people concerned about short-term activities in timber plantations (maximum of three years at the beginning of rotation)

Company staff

Lower wage rate compared to other opportunities (e.g. palm oil plantation)

Tree growers

External competition

Competition with the expansion of oil palm plantation

Company staff


a This was mainly driven by the company's main objective when initiating the scheme, which was to develop plantation areas inside concessions after the long-term conflict.
b The company of timber plantation concession holder established its own plantation, besides developing plantation under the outgrower schemes.

Elements for the scheme feasibility

Link with processing industry/market is vital

There are two important market links that should be given attention in ensuring the long-term viability of partnerships in outgrower schemes:

Based on case study observations, company partners are in a better position to secure tree growers' planted timber, if the company is in the following category:

However, there are two different situations that the company has to consider in dealing with tree growers. First, where the local market is available, there are greater pressures for the company to offer competitive prices. Second, the situation where the company will be the only buyer and no tree growers' experiences on the benefit of harvested wood, such as the case of Acacia woods of Wira Karya Sakti and Finnantara Intiga. There are more challenges for companies in the second situation to provide transparent information and mechanisms to gain trust, especially for the second rotation. Most of tree grower respondents would react by abandoning the partnership for the second rotation if the first rotation were proven to be unprofitable. For the Finnantara Intiga Scheme, the process to gain the tree growers' trust for long-term commitment would be even harder since there is no certainty as to when the processing plant would be established.

Fair account of inputs from both parties as the basis for setting up the benefit-sharing agreement, timber buying prices from tree growers, and cost-efficiency in managing small-scale operations

Since the company partner was the one, which bore all of the expenses in developing timber plantations, the benefit-sharing agreement is based on net timber revenues after the company expenses were paid. Table 7.5 presents the benefit-sharing agreements of four schemes case-studied.

Table 7.5. Benefit-sharing arrangements as stated in the contractual agreement


Types of shared benefits

Benefit-sharing agreement (percentage)

Conditions applied



The Wira Karya Sakti Forestry Plantation Partnership Scheme and the Farm Forestry Partnership Scheme

Dividend based on Joint Venture Company shareholdings (arrangement at the beginning of the contract)



Initial nominal price per share is
Rs 1,000,000 (US$108)

Proposed arrangement of the Joint Venture Company shares holdings (at 35th year of the contract)




Finnantara Intiga

Outgrower scheme area management




Volume of Acacia woods harvested - valued based on minimum royalty per cum b



Minimum royalty is set at Rs 7,500 (US$ 0.81) per cum

Xylo Indah Pratama

Net revenues of Alstonia woods harvested





a This includes the native species areas (10%) that are managed by the company. In addition to the Acacia plantations, the tree growers will receive the 10% royalty after logging.
b Rubber plantations managed by the tree growers.

For a fair benefit-sharing and economic relation, recognizing stakeholders' economics contribution is important, which would also minimize potential conflicts. From case study analysis, there are inputs that have not been taken into account and used as the basis to decide the benefit-sharing arrangement in the agreement.

Inputs that have not been taken into account fully from the company are:

From the tree grower side, the benefit-sharing agreement has not clearly stated whether it has incorporated tree growers' land values/rents to consider tree grower contributions fairly. The company generally prefers not to include tree growers' land rents into the equation, since the company policy adheres to the government policy that tree grower lands inside the concessions are covered as state forest areas. Companies like Finnantara Intiga provide land incentives in their schemes, but the contractual agreement specifically mentions that this incentive mainly aims to value the local people's ancestors.

The financial benefits could be ensured by efficiently managing the dominant cost components, associated with each individual scheme arrangement. The highest cost component in each of the four schemes varied to a great extent since different partnership arrangements applied. For example, estimated harvesting costs (excluding the transportation cost) account for the biggest proportion of the Xylo scheme, because these include harvest from thinning at years five and seven. Transportation costs for all cases are estimated to be high because of the scattered locations of tree growers' lands. However, this crucial component was excluded since reliable data was not available. Owing to high variation of transportation costs, companies use stumpage price as the timber-buying price.

A reinvestment mechanism is part of the agreement

Under a long-term contract of 43 years, the Wira Karya Sakti Forestry Plantation Partnership Scheme/Farm Forestry Partnership Scheme is the only one that includes an advanced mechanism to empower tree growers in the long term by providing that tree growers through the Forest Farmer Cooperative will have 65 percent of the shares of the Joint Venture Company by the end of the contract. During the 43-year contract, funds for reinvesting in Acacia plantations are expected to come from a certain proportion of revenues from harvesting Acacia woods that are rotated in eight planting area blocks. Then, from the 8th to the 16th year, there will be continuous revenues. Reinvestment funds are also expected to come from the agribusiness/farming activities on agricultural crops such as chilli, fish and corn. However, it is still too early to claim that this scenario would work well in the implementation stages. Reinvestment mechanisms and tree growers' perceptions are presented in table 7.6.

Table 7.6. The reinvestment mechanism and the tree growers' perceptions on developing plantations


Reinvestment mechanism

Tree growers' perceptions for self-financing plantation development

Wira Karya Sakti Forestry Plantation Partnership Scheme and Farm Forestry Partnership Scheme

It is intended that at the end of the 35th year of the contract, the tree grower cooperative will hold the biggest proportion of shares (65%), with the main activity of establishing Acacia plantations. In the management plan, planted areas will be divided into eight blocks and will provide income from the 8th to the 16th year continually.

The reinvestment funds are also expected to be earned from farming activities to finance Acacia plantations.

Most of tree growers do not have any idea as to the amount of money coming from harvested timber and whether they will be able to use some of the money to self-finance the next rotation planting. Most of tree growers expect that the outgrower scheme's timber function more as household savings. The first harvest should be a real test; if it turns out to be profitable, no doubt tree growers will be interested in establishing their own plantations.

Finnantara Intiga

Although the company expects that tree growers will independently establish Acacia plantations, the reinvestment mechanism is not clear. The company is currently at the "wait and see" stage before rushing out to plan the long-term scheme, especially since no processing plant has been set up yet.

Low interest from tree growers to develop Acacia plantations if they are no longer involved in the outgrower scheme initiated by the company. This is mainly because tree growers have no experience in seeing the potential economic values of Acacia timber.

Xylo Indah Pratama

The company outgrower scheme initiative in establishing Alstonia plantations is actually the reinvestment scheme; the company is now buying naturally grown Alstonia trees from the community under a separate contractual arrangement.

Tree growers are willing to plant their own Alstonia, even if the tree growers are no longer bound under the outgrower scheme contract. This is mainly stimulated by the company marketing scheme for naturally grown timber in community private lands.

Securing long-term commitment of tree growers by identifying factors that may influence tree growers to break the contract

As tree growers are the company's main partners in outgrower schemes, securing their commitment is crucial. Therefore, identifying factors that may influence tree growers to break the contract will help the company anticipate different possibilities.

Unprofitable net revenues for tree growers in the first rotation (test on the benefit-sharing agreement) and lack of transparent mechanism during the process of revenue sharing

Obviously, as many tree growers said, they will continue to join the outgrower scheme if there is beneficial income from harvested timber based on transparent processes of the sharing agreement.

Lack of transparent information provided to tree growers, updated wood prices and risks and consequences in joining the scheme

Despite various mechanisms of the companies that are settled in the agreement and their advantageous position in securing the tree growers' planted timber, it is more important that the company gain trust in securing the tree growers' commitment, e.g. continuously circulated transparent information of wood prices so tree growers will not feel betrayed in the case of "low wood prices" during harvest time. In all case studies, tree growers generally agreed that wood prices are the most essential information that tree growers would like to be updated on from time to time. In all cases, the mechanism to periodically share wood prices and other related information had not been clearly set by the company partner. Ultimately, this would be important to sustain the scheme by avoiding the tree growers' sense of being cheated by the company partner by the time of net revenue sharing.

Lack of effective conflict resolution/renegotiation mechanisms

Conflicts occur in any partnership relation including in outgrower schemes. Recognizing various sources of potential conflict will be advantageous for the company by providing indications of what sort of conflict mechanism would adequately suppress and handle conflicts before they become too extensive and difficult to manage. The main challenge is to establish a conflict resolution mechanism that will be accepted and respected by key partners in the schemes. However, field observations have revealed that developing a suitable conflict resolution mechanism when designing schemes has not always been conducted by companies studied owing to lack of knowledge in developing such mechanism.

The mechanism may play an important role in solving potential conflicts when harvesting time comes, such as disagreement on the wood prices as the basis for sharing revenue from harvested timber. Overall, the conflict resolution mechanism that companies included in the contract agreement was a general statement that if there is disagreement between the two parties, it will be resolved through amicable discussion or "musyawarah", and if the suggested solution is not be accepted by both parties, the case will be referred to the courts. This general statement is interpreted in various ways on the ground.

Specific channels used by tree growers to address conflicts or issues of concern were mainly through:

In addition to the conflict resolution mechanism, mutually beneficial partnerships would exist if the agreed arrangement included a mechanism to allow key partners, both company and tree growers, to renegotiate points of the agreement. Although in one agreement it was stated that both parties should hold one copy of the agreement and have the same legal rights, during implementation the companies case-studied applied procedures and conditions differently for tree growers to renegotiate points. The points raised were:

For effective renegotiation, stakeholders, mainly tree growers who usually are underrepresented and/or in the least beneficial position, should be able to articulate their views individually or as a group. From the company' s perspective, this will also be beneficial as the company will be able to discuss the negotiated points efficiently and will not bear negative consequences, since tree grower representatives can be responsible for their decisions taken.

Taking into account social elements to ensure commercial objectives achieved

For long-term feasibility, companies should examine local sociocultural conditions. However, companies should carefully consider not replicating the "charity driven" programme implemented in the past that resulted in a greater dependency of tree grower on the company.

Respected traditional/heritage values of lands

The issue of land status/property rights, particularly inside the forest areas had not been clearly addressed in various schemes.

Enabling the continuation of the current livelihood strategy

Field observations have shown that replacing the community's long-term practice with new options is not preferable and may waste the funds in unsuccessful programmes. For example, tree growers in the Finnantara Intiga scheme do not feel positive towards planting high-yielding rubber trees to replace the traditional practice of tapping rubber trees in the forest that do not require intensive maintenance. As a result of limited time and a low level of interest, tree growers did not plant many rubber seedlings. In the WKS (Wira Karya Sakti) latest scheme, some programmes, such as planting Pinang trees, were initiated in response to tree growers' requests. However, the accommodated requests came mainly from the Head of the Forest Farmer Cooperative and other management personnel, while ordinary members' opinions and preferences were often excluded. This situation could mean that the programme will not be widely supported by the tree grower members of the group, and may create a social gap.

Indirect benefits gained by tree growers secure their commitments

Most tree growers appreciated that there were intangible benefits gained by joining the schemes. Intangible social benefits to the tree growers mainly included having improved knowledge on the intensive cultivation of timber crops, since such a system was not in keeping with the tradition of these people who were used to log timber from natural forests. This situation implied that the socialization approaches were required to be even more effective in introducing partnership schemes for timber crops. Indirect benefits could influence the tree grower felling being more attached to the partnership programme in order to secure tree growers' commitment in the long term. Other benefits included:

Ensuring the rights entitled in the contractual agreement can be transferred to their heirs

According to the communities' sociocultural needs, the most important condition is the recognition of the wish to transfer tree growers' rights to their heirs (intergenerational principle). This need is due to the nature of timber trees, which need a long time from planting to harvest, and the fact that the contract in outgrower schemes covers from 11 to 45 years. Accordingly, the intergenerational principle is important as it relates to the tree growers' involvement in the partnership and must be carefully considered so that landowners' rights and their families will be maintained by the contract agreement over several generations. The Xylo Indah Pratama scheme was the only one that included this issue in the agreement, allowing growers to transfer the contract to their heirs.

Ensuring that the agreement can be transferred to the landowners' family is also important to prevent any conflict that may occur during harvest if, for example, the initial holder passes away (the tree grower/land holder who signed the contract with the company). Rights would be more secure if the agreement contained specific clausal on who would be the `seconded-person' or heir to receive the revenues from harvested timber.

Providing income opportunities during the grace period. Does the absence of alternative income during the grace period influence tree grower partners to break the contract?

The importance of developing income options to fill the grace period between planting and harvesting would be relevant if the objective in developing this programme is to minimize the possibilities of tree growers to withdraw from the scheme, particularly in the situation where local income options are limited.

Some aspects that should be considered in initiating effective income diversity options in order to bridge the period between planting and harvesting, are as follows:

Mutually beneficial partnerships in outgrower schemes are a continual process

Based on case study analysis in this report, outgrower schemes provide opportunity for the company to ensure sustainable wood supply while sharing the benefits (and risks) with local communities. However, to become effective in the long term, finding ways for mutually beneficial arrangements for both parties is essential to secure company investment, and to maintain long-term tree growers' commitments.

An outgrower scheme should be initiated and implemented in a way that it is commercially viable to both company and tree grower partners, which depends on several conditions as the elements of success:

Taking into account elements for a mutually beneficial arrangement, the agreement and management plan should include:

Maintaining outgrower schemes under a long-term contract

Maintaining outgrower schemes under a long-term contract is more difficult than the initiation process. The arrangement should be flexible enough to adapt to the changing socio-economic conditions within the framework of initial mutual objectives. Taking into account the elements of the dynamic processes in maintaining outgrower schemes will be one way to ensure the mutually beneficial partnership of the scheme in the long term, as discussed in the diagram below.


The implication and challenge of outgrower scheme for plantation management, strategies and policy in Indonesia

Since 1985, the Indonesian Government targeted 6.2 million hectares of plantation development, and after 15 years the realization reached only about two million hectares (Handadhari, 2001:28). Slow growth of plantation areas has not stopped the rapid expansion of large capital investments in forest-based processing industries, since these industries have relied upon the exploitation of natural forests. As Barr (2001) highlighted, plantations supplied only 8 percent of 100 cum of the wood requirements for the pulpwood industry between 1988 and 1999, and deforested about 835,000 ha of forest resources. Reliance on supply from natural forests has proved to be unsustainable, both financially and ecologically. Furthermore, industrial-based forest policy has led to local disenchantment, resentment and conflict. Successful development of the forestry sector in Indonesia requires new thinking in terms of where industry will get its timber supply and how it will go about getting it.

Clearly, plantations will be the most sustainable resource-base for timber in Indonesia and their success requires support from local communities. As recently discussed during a one- day discussion on Timber Estate in Indonesia conducted by Forestry Research and Development Agency - FORDA (2001), conflict over forest land resources first on the list of main obstacles in timber plantation development. An earlier study by CIFOR Plantation Programme, which examined criteria and indicators for plantation management, concluded along the same lines that long-term sustainability of plantation forestry is related more to social problems rather than management or environmental issues (Muhtaman, Siregar and Hopmans, 2000). Outgrower partnership schemes might provide effective approaches for ensuring a sustainable supply of timber while sharing the benefits (and risks) with previously disenfranchised - and thus angry or at least cynical - local communities. Further, maximizing social benefits from plantation development is crucial; this is especially true where forestry plantations have been developed by converting the natural forests on which significant numbers of people depend for their livelihoods.

However, if company-community partnerships in outgrower schemes is the way forwards for timber plantations in Indonesia, major challenges will be developing a conducive policy and institutional framework that are coherence with other policies on timber plantation development, and developing effective instruments for intersectoral coordination on forest land management.


Barr, C. 2001. The political economy of fiber and finance in Indonesia's pulp and paper industries. In Banking on sustainability: structural adjustment and forestry reform in post-Suharto Indonesia. Jakarta, Indonesia, Center for International Forestry Research and WWF-Macroeconomics Program Office.

CIFOR C&I Team. 1999. The CIFOR Criteria and Indicators Generic Template. Tool Box Series No. 2. Bogor, Indonesia, CIFOR.

Handadhari, T. 2001. Episode Pengelolaan Hutan yang Makin Suram (in Indonesian). Kompas, 16 February 2001. Jakarta, Indonesia.

Muhtaman, D.R., Siregar, C.A. & Hopmans, P. 2000. Criteria and indicators for sustainable plantation forestry in Indonesia. Bogor, Indonesia, Center for International Forestry Research (CIFOR) with the support of the Australian Centre for International Agricultural Research (ACIAR).

8 This summary paper was mainly taken from the full paper under the same title by the same authors, which is a forthcoming CIFOR publication (2002).

9 The authors would like to thank Philippe Guizol, Christian Cossalter, Ken MacDicken, and Rosita Go (CIFOR staff); all of the external reviewers; private companies partners (Wira Karya Sakti, Finnantara Intiga and Xylo Indah Pratama); and the team from the Faculty of Forestry at Bogor Agricultural University.

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