Non-wood forest products for rural income and sustainable forestry
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Appendix 4.2.3

MARKETS AND THE PUBLIC/PRIVATE SECTOR INTERFACE:

THEIR IMPORTANCE IN THE SUCCESSFUL DEVELOPMENT OF NON-WOOD FOREST PRODUCTS

J.J.W. Coppen, C.L. Green, A. Gordon and G.A. Hone
Natural Resources Institute
Kent, UK

INTRODUCTION

This paper was conceived as a result of discussions and lessons learnt at previous regional FAO Expert Consultations on Non-Wood Forest Products and other international conferences. Such meetings often concentrate on technical and perceived developmental issues, without giving due attention to the commercial dimension. In part, this is due to the fact that knowledge of the markets for many non-wood forest products (NWFPs) is partial and limited. A successful outcome to any developmental project, however, is dependent upon there being a demand for the product and uptake by the private sector at the producer, trader and consumer levels.

It is imperative that a market-led approach be applied in the selection of R&D projects. Resources available for R&D in most countries are limited and we should seek to ensure that these are allocated to those projects which hold real promise of commercial success. We must avoid the understandable pressures within many institutions to formulate projects on a supply-driven basis (i.e. in-house technical capability) and guard against the belief that there will be an automatic and significant market for something which is technically of a high quality. Neither an old product in a new form, nor a completely new product because it is natural and derived from the forest, are guarantees of marketability. We should be asking ourselves the question "What realistically can be sold?" rather than "What can we produce?" or "What do we produce at present?"

Failure to apply market criteria at the conception stage of a new project can result, at the very least, in rejection of the project proposal by funding bodies or, more seriously, in the dissipation of many years of scientific effort frequently of a very high calibre on R&D which ultimately fails to be taken up commercially.

Technologists, therefore, with the assistance of their marketing colleagues, must incorporate economic and market considerations into their work. This can, and indeed should, be achieved by developing a good interface with the private sector, from which it is possible to gain a better appreciation of opportunities and constraints.

This paper seeks to illustrate with some examples the benefits of close liaison between public sector institutions and the private sector. It also highlights particular considerations for new NWFPs and the separate issues of "marketing" and "commercialisation". Finally, suggestions are made on means by which R&D bodies can improve their knowledge of markets.

NOVEL NWFPs

The subject of novel NWFPs is addressed first because there is currently a propensity in R&D institutions worldwide to focus on them. This arises, in part, from the intellectual and scientific appeal of developing a new product and also from the "green/rainforest/natural product" movement, which has such a high profile in developed (and developing) countries. However, it must be recognised by decision-makers at the policy and funding levels, and by researchers, that the risks involved in developing new products are high and the scale of market demand and consequently, the benefits to forest dwellers for the majority of new products is likely to be small. In the few cases where the market is large, it is probable either that the natural forest will be unable to support expanded harvesting or collection, or that it can be more cheaply produced by some other means. Since the research investment may be of a similar order of magnitude whether the project eventually has a small or major impact, it is clearly beneficial to apply weighting and prioritisation criteria when screening project ideas at the outset.

A good example of a critical, market-led approach, and one which has gained active private-sector support, is provided by a recent project in the Brazilian Amazon funded by the U.K. Overseas Development Authority (ODA). This project was concerned with the evaluation of native, aromatic plants as candidates for new cash crops for use in sustainable agroforestry systems by farmers on the forest verge. The project formulation stage benefited from the availability of a substantial analytical database on the aromatic flora of the Amazon. The data were assessed on the basis of the prospective marketability of the plants' essential oils and the likely ease of domestication and successful cultivation.

The oils from some of the plants were of possible interest to perfumers in the world fragrance industry. However, these were rejected in the initial selection phase on the basis of high investment risk: fragrance houses are unwilling to develop new products for which continuity of supply and consistent quality and competitive pricing cannot be guaranteed, while farmers themselves are reluctant to invest on a substantial scale unless they are assured a market. Instead, it was decided to focus attention on a shrub, Piper hispidinervium, which was, perhaps, less challenging from a chemical point of view, but which displayed very good product marketability prospects. P. hispidinervium is a "weed" indigenous to the southern Amazonia region. Its attraction lies in the fact that the leaf contains a very high content of the chemical safrole, which is the starting material for the production of the fragrance material heliotropin and the "soft" or "green" insecticide ingredient, piperonyl butoxide (PBO). Demand for natural safrole (about 2,000 tonnes annually) is currently met by the destructive harvesting of wild forest trees in southern Brazil (Ocotea pretiosa) and in China and Viet Nam (Cinnamomum camphora varieties).

P. hispidinervium scored highly on several selection criteria:

At an early stage of the project, discussions with the major world processors and end-users of safrole were held and their interest confirmed. As a result, they were able to offer continuing advice and some financial support.

After three years of cultivation and pilot-scale distillation trials, including appraisal of oil samples by buyers, the results have proved extremely encouraging: cultivation and plant management has been simple; harvesting (and hence first cash flow) is possible after six months, and can be repeated at four- to six-month intervals (tentatively for three years, but possibly for much longer); and preliminary data suggest that returns from cultivation and distillation should be attractive to the farmer. Moreover, some 10,000 ha would need to be cultivated to replace the existing non-sustainable supply base of the oil. An adaptive-phase project is now being formulated which will involve commercial-scale proving trials with farmers, and for which the world's major buyers of safrole have pledged further support.

Within the same project, trials have also been conducted on Brazilian rosewood (Aniba rosaeodora) which provides a highly valued perfumery oil of commerce (currently priced at about US$ 23/kg). This was selected for research on the basis of: existing, if comparatively small, demand (about 150 tonnes annually); the need to address the problem of long-term sustainability of supply in an industry which, again, is based on destructive felling of wild forest trees; and its possible utility as a minor cash crop tree within an agroforestry package. The trials suggest that cultivation for timber feedstock to produce the traditional oil which is distilled from the trunk wood might be possible on a short-rotation basis and that a new product, a leaf oil, could be produced by a sustainable coppicing system. The project has benefited considerably from interaction with the private sector: first from the traditional distillation industry in Brazil, which would welcome a sustainable source of rosewood oil, and second, from the international traders and fragrance houses who are undertaking objective appraisals of the potential of the new leaf oil. This particular project is highlighted since, although it meets several important criteria, the small market size for the products does not offer a sufficiently high return on investment in R&D to make it attractive on its own. A decision on further investment will be dependent, therefore, on confirmed promise of sales of the new leaf oil and on spreading the R&D costs by making it part of a larger project.

Similar types of products (i.e. those which have a significant established market demand but a threatened supply-base) may well merit examination elsewhere and might be expected to find support from the private sector.

IMPROVEMENT OF EXISTING NWFP INDUSTRIES

While "novel" NWFPs have their particular attraction for the researcher, we should not allow this to lead to neglect of established NWFP industries, many of which have a need for improvement and offer the opportunity for scientific research of a high order. This is illustrated by two examples from the plantation sector.

Eucalypts have been widely planted for pulp, timber and fuelwood purposes. They are also an important source of essential oil, particularly the medicinal type. However, most of the research aimed at improving productivity and product quality of eucalypts has been devoted to timber and pulpwood applications. Comparatively little effort has been given to essential oil production and to multipurpose use. At the Natural Resources Institute (NRI), work on species and provenance selection and on field management systems for oil-bearing species has been carried out for a number of years in collaboration with private-sector companies in Africa. This has been mutually beneficial and, indeed, could not have been performed by any other means. Close contact with the private sector ensures that the research does not go off at academic tangents but follows lines which have a demonstrably practical objective and will result in economic returns. It is important also to note that collaboration with the private sector is not necessarily a constraint to dissemination of the results of the research. NRI's experience is that publication is generally agreed by the private sector collaborators so that the results remain in the public domain for others elsewhere in the world to benefit.

Similar research has been undertaken by NRI on pines, which are tapped and utilised as a source of turpentine and rosin.

ADDED-VALUE PROCESSING OF NWFPs

Upgrading the value of materials by further processing prior to sale is a natural interest of all those involved in NWFPs R&D. However, a word of caution and suggestions on the approach to this subject are needed here on the basis of NRI's experience. For a variety of reasons it is neither easy nor necessarily economically justified to attempt to penetrate the added-value market. Some of these reasons are not always apparent at the concept stage.

A study on gum arabic was recently undertaken by NRI on behalf of a Kenyan NGO. It was aimed at assessing the potential for producing value-added derivatives for direct sale to the printing and pharmaceutical industries in the UK. Direct interviews with importers, processors and end-users revealed that major technical and practical constraints existed for the production at origin of spray-dried or formulated products. However, the simple process of kibbling (that is, reducing the larger lumps of gum to a smaller and more uniform size) prior to export was identified as something which could offer the value-added advantages that were sought. This example demonstrates the benefits of carrying out a market study, albeit a rather small one, and identifying the appropriate developmental option before embarking on an investment which, at first glance, might appear to offer the greatest return.

A rather more surprising conclusion was reached by an NRI study in 1989 for Perum Perhutani, the Indonesian State Forest Corporation. Indonesia was then making a growing impact on the international market as a supplier of turpentine but was importing substantial quantities of the derivative, pine oil. Logic appeared to point to curtailment of the volume of raw turpentine exports and domestic processing to pine oil for import substitution and, possibly, for export. However, the market study indicated that at that time there would be no substantial economic advantage in taking this course, primarily from the level of competition for pine derivatives on the international market. The study recommended that the market situation be reviewed after a suitable interval and that any feasibility study involve examination of a broader range of turpentine derivatives. (No such investment had been made as of August 1994.)

THE LAG-TIME IN IMPLEMENTATION OF RESEARCH RESULTS

Even with soundly selected and executed developmental work, there can often be a considerable lag-time between dissemination of the results and their eventual uptake by the commercial sector. This fact must be appreciated, firstly by the researcher who understandably is impatient for his findings to be utilised and equally importantly by the funding agencies. In the experience of NRI, the lag-time can be long and eventual uptake can occur in areas which had not originally been foreseen.

Pine tapping, once again, provides an example. During the 1970s and 1980s, it was recognised that major changes were occurring in the global supply and demand for turpentine and rosin and that opportunities were emerging for the development of new industries in non-traditional areas. The results of a market study and a techno-economic profile outlining methodologies and financial aspects of turpentine and rosin production were published by NRI in 1984 for the benefit of prospective new producers. No immediate, visible outcome occurred in what had been perceived as the obvious candidate countries. Some years later, however, it was learnt that an industry had been set up by an entrepreneur in Kenya using the NRI publications as a source of much-needed information. The same entrepreneur has recently expanded into Uganda. This demonstrates the slow and often unexpected manner in which disseminated information bears fruit.

MARKETING AND COMMERCIALISATION OF NWFPs

The importance of market knowledge has been stressed in the preceding discussion. Other key aspects of ensuring a successful development are product marketing and commercialisation. These are two distinct issues which are frequently confused. The first involves identification and promotion within specific markets and the second is concerned with establishing an effective mechanism for commercial uptake.

A good example of the sort of problem which can be encountered is provided by a current project in Bolivia. This involves diversification by farmers out of coca cultivation in the remote areas of Bolivia into new cash crops in sustainable agroforestry systems. One of the developments involves essential oil production by farmer cooperatives. The choice of essential oils is highly appropriate in terms of their high unit-value characteristics. However, the original concept was very much technology-driven and the marketing/commercialisation aspects were neglected. This has now been rectified by technical assistance by the UN Industrial Development Organisation (UNIDO), to which NRI has contributed as consultants. Examination of the international and regional markets has provided a better focus on the most promising crops and target markets. The latter proved to be regional, with Brazil being prominent. Of equal importance, the regional market study brought buyers into direct contact with the cooperatives and it was possible to establish commercialisation (trading) mechanisms with several interested companies.

Success in a commercial venture is dependent upon many factors but the means by which the product is traded from producer to buyer must be recognised from the outset as being of critical importance. Products do not sell themselves, but require sustained efforts and contacts.

MEANS OF IMPROVING MARKET AWARENESS

Many NWFPs are relatively minor and specialist items in terms of world trade. Consequently, reliable information on trade and markets is often not readily available to researchers in producer countries. Nonetheless, it must be accepted that research on markets is a very important element of project identification and formulation. Ideally, a team of technologists and economists should be involved at the outset in the new project process.

With some commodities, UN bodies or specialist research organisations in the developed countries undertake and publish market studies. By the time such documents are accessed by researchers in producer countries, they may be out of date; supply and demand are dynamic and not static. Nevertheless, this type of publication can provide a better understanding of the market, constraints and risks and, most importantly, the identification of prospective buyers. The published proceedings of specialist conferences provide equally valuable sources of information.

Up-to-date awareness of market opportunities or constraints requires a more intensive effort. Valuable guidance, if not the definitive picture, can often by provided by individuals within UN and specialist overseas institutions, so networking is a good idea. Developing and extending contacts within the domestic private sector can also be worthwhile; many traders are highly experienced and knowledgeable and, in addition to providing guidance on the international market, they can often identify unrecognised domestic market opportunities.

At some juncture, it will be necessary to contact prospective overseas buyers. In the first instance, dealers are an important source of information; end users still rely heavily on these intermediaries. Several traders should be consulted to avoid biased views or ones unduly influenced by short-term market trends. In communications, concise background information on the project should be provided and, if available, a representative sample of the product. This makes a favourable impression on the recipient.

Finally, the role of FAO should be acknowledged in the areas of both compilation of statistics and information dissemination. The series of meetings on NWFPs, of which this consultation is the culmination, have served to highlight the importance of NWFPs in the social and economic life of people all over the world and the need to conserve the forest resource. The forest is there to be used, but wisely and sustainably. The meetings have provided a valuable forum for discussion and it is to be hoped that the information, advice, cautionary tales and salutary lessons offered by speakers at the present one contribute to this better use.

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