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6.1 Summary of FBSSE Advantages and Constraints
6.2 Diminishing Natural Resources
6.3 Access to Finance
6.4 Escaping From the Low Value-Added Trap
6.5 Insecure and Changing Markets
6.6 Lack of Institutional Support
6.7 Sociological Variables
6.8 Recommendations

6.1 Summary of FBSSE Advantages and Constraints

The three case studies in this publication illustrate the considerable diversity of forest-based small-scale enterprises. Yet clearly all of the activities described, whether collecting rattan vines in the tropical forests of East Kalimantan, labelling matchboxes in South India, or carving wooden furniture in Java, also share certain characteristics. As each case study points out, the relatively simple technology typical of these enterprises makes them accessible to large numbers of workers and self-employed entrepreneurs. Often the seasonal nature of small forest-based enterprises offers much needed flexibility in employment to rural households. Although the incomes gained from these small operations may sometimes be quite low, they can nevertheless make an important difference in the cash resources of poor families.

FBSSEs make sense in other ways as well. There are many specific circumstances where small-scale operations prove more competitive than large-scale production. Where resources are scattered and hard to reach, mass extraction can carry high financial and environmental costs. Small-scale enterprises can be a more efficient, less destructive means of making productive use of these resources. In East Kalimantan, indigenous rattan collectors have been able to gather and process raw rattan out of dense local rainforests for hundreds of years to feed a growing non-timber industry in Indonesia.

Small-scale forest enterprises are more appropriate than larger operations for serving local markets and providing flexible channels for sub-contracting within an industry. Small-scale splint and veneer producing enterprises in southern India provide a reliable supply of intermediate goods to thousands of small match making enterprises scattered within the region. FBSSEs are also able to produce items not suitable for mass production on a factory floor. Thus, wood carvers and rattan craftspersons in Central Java are able to claim a market niche that large, mechanized furniture factories cannot fill.

As viable as many FBSSEs promise to be, circumstances can and often do take a different rum. Sometimes, certain conditions change - a new road is put in, cheaper, mass-produced substitutes are introduced - such that larger scale operations find themselves able to produce and distribute goods at lower cost than small-scale enterprises. In this case, FBSSEs lose their competitive advantage and may become less viable for the long term. In Indonesia, the traditional umbrella making industry has been unable to defend its market niche against cheaper, factory-produced plastic substitutes over the last several decades. In the Indian match making industry, although the government has subsidized the development of the very small cottage sector for a number of years, the middle-sized factories have continued to assert themselves, now producing 67% of the country’s total match output. Many cottage-sized, household-based match units, unable to afford raw materials, transport costs and marketing expenses, have had to close down.

More information is needed to determine whether better government support of the match-making cottage sector in India would improve its long-run competitiveness, or whether, given present circumstances, match production at a very small-scale is simply not viable. It may be that circumstances beyond the reach of government support make it impossible for these tiny units to achieve and maintain production costs at a level that secures them an adequate share of the market. An increase in size and equipment may become necessary for survival. The question then becomes: How can growth in the cottage match sector be achieved in a way that benefits local rural populations the most?

However, as the case studies in this publication suggest, in many cases forest-based small-scale enterprises are and can continue to be both competitive, productive units as well as crucial sources of income for both rural and urban populations. Yet, despite their clear advantages, they often face some special constraints that weaken their role. What causes some promising small enterprises to succeed and others to fail as enterprises and as viable income sources? Based on the information provided by the case studies in this publication common constraints that FBSSEs face can be grouped into five broad categories:

- diminishing supplies of natural raw material;

- financial problems relating to access to loans, credit and higher value added to the product;

- insecure and changing markets;

- absent or ineffective institutional support; and,

- location-specific sociological constraints which may include exclusive control over resources and different stages of the industry by distinct ethnic or other interest groups.

Each of the FBSSEs studied in this publication appeared affected by these problems to varying degrees, revealing the diversity of their natural, socio-economic and political settings. A more detailed examination of these five categories reveals a number of unanswered questions and raises some challenging issues for the future of FBSSEs.

6.2 Diminishing Natural Resources

The potential for utilization of the still incredibly diverse forest resources of the world particularly the non-timber forest resources continues to be great. Yet, as increasing demands for additional employment, supplemental income and specific forest products drive FBSSEs to exploit more forest products at ever growing rates of extraction, the issue of sustaining the resource base looms large. Disturbing trends are pointed out in each case study. The shortage of raw materials seems to promise a crisis in the match industry in India, where increasing requirements for fuelwood for a growing population are already taxing forest resources to the limit. The rattan industry in Indonesia, which at least until very recently supplied 80-90% of the world’s raw rattan, is beginning to feel the first ripples of a crisis. Growing numbers of collectors and consumers, ineffective regeneration efforts, deforestation due to other expanding human activities are all taking their toll.

FBSSEs promise desperately needed work and income for poor rural populations. But do they carry the seeds of their own destruction? In considering this question, it is important to begin identifying some of the specific factors which contribute to the depletion of forest resources. Extraction of raw materials from the forest to supply forest-based small-scale enterprises is only one part of the story. As Peluso has pointed out, it is the breakdown of traditional systems of control over resource extraction among rattan collectors that appears to be a key factor in undermining resource sustainability.

The role of large-scale forest-based enterprises in threatening the resource base must also be considered. Timber concessionaires in Indonesia destroy rattan during timber harvests and often keep local people from collecting what is theirs by traditional right within the concession area. Indigenous collectors thus find themselves increasingly dependent on a shrinking resources base which suffers an accelerated rate of destruction as a result. Government or large-scale commercial regeneration programmes often focus on a narrow choice of reforestation species and frequently alienate the very people who benefitted from the forests in the first place. Thus local people find their resource base seriously threatened, yet without the institutional and legal means to deal with the crisis.

6.3 Access to Finance

Although one of the characteristics frequently associated with FBSSEs is low capital investment requirement, access to financial resources remains a major constraint. Even a small amount of money is difficult for many subsistence level farmers or labourers to save. They often have few personal possessions they can put up in the way of collateral. And they are often located far from any sort of credit granting facility other than a local shopkeeper or moneylender.

Larger forest product processing enterprises in the small-scale sector often need quite a bit of capital, particularly for the purchase of machines (even simple ones). This is clearly the case in the rattan industry where better first stage processing centers can eventually retain higher value added to the rattan. Access to credit and loans varies from case to case. In the case of the match industry, financial incentives are provided by the Indian government which subsidizes small-scale sector factories by reducing the excise tax they must pay per match box.

6.4 Escaping From the Low Value-Added Trap

One of the most important questions which arises out of the study of FBSSEs is that of income. As the case studies in this publication point out, although FBSSEs can bring in much needed earnings, they often offer the majority of the collectors, processors or labourers only the lowest wage levels. Labourers in the Indian match industry work for extremely low wages, sorting, dipping and packing millions of low value matches. Up until recently, 87% of Indonesian rattan was exported after first stage processing in country. Entrepreneurs in Hong Kong and Singapore make money simply re-processing the rattan, while furniture craftsmen reap even higher profits. Money is frequently distributed unequally in FBSSEs, with the rural producer earning far less than the urban distributor, the upstream rattan collector earning far less than the downstream processor, who in turn earns but a percentage of what the exporter does.

How can the poor earn the value added by secondary processing and manufacturing while still enjoying the benefits of being small-scale? If they cannot substantially rise above the lowest income levels, are FBSSEs the appropriate route for them to take? These questions need to be answered to ensure that FBSSEs really meet their potential.

6.5 Insecure and Changing Markets

Small-scale enterprises can be vulnerable to the whims of the market, particularly when they are specialized and only produce one product or work with one type of raw material. FBSSEs need to be able to adapt to changes and diversify their activities to meet changing market demands. The carved wooden furniture industry in Indonesia is able to do this by recognizing new demands and implementing new designs to meet them. The umbrella and clog industries in Indonesia are declining because there is no longer a demand for the traditional items they produce. These have been replaced by plastic substitutes from Taiwan that have flooded both the domestic and international the market. Also, the proliferation of small-scale enterprises can lead to intense competition for market shares. The wood carving industry in Indonesia is now facing saturated local markets, and entrepreneurs must find economical ways of sending their products to distant cities in order to sell them.

6.6 Lack of Institutional Support

In two of the case studies FBSSEs clearly benefitted from institutional assistance from the government - the Indian match industry and the Indonesian handicrafts industry. The match industry has benefitted mainly from government policies and subsidies, whereas the Indonesian furniture handicrafts, both wooden and rattan, have gained from a combination of accessible loans and extension and training facilities near the study sites. However the rattan collectors of East Kalimantan receive practically no institutional support whatsoever. In fact they appear to be victims of government policy biases. Policies and extension institutions clearly do seem to be able to assist FBSSEs when they are responsive to real needs and accessible to the people.

6.7 Sociological Variables

Every FBSSE must be examined in relation to the socio-economic setting in which it operates. FBSSEs are an integral part of a larger continuum of patterns and processes involving both the natural and the social environment Sociological factors can play an important role in determining whether an FBSSE will have a successful outcome or not. Sometimes, one social group is able to secure an exploitative advantage within the small-scale sector that others lack the power to challenge. In East Kalimantan, ethnicity defines the role an individual will usually have to play in the rattan trade. Dayaks and Kenyah tribal people do much of the rattan collecting, while Bugis and Banjar Muslims are likely to remain the small-scale local traders, selling to Chinese processors and exporters downstream. In the Indian match industry, ownership of medium-scale match factories has been concentrated in the hands of 18 families who hire women and under-age children at wage levels well below those given to adult males.

These patterns have evolved out of a complex social and economic history. There may be no easy way to effect significant change quickly. Attempts to support the development of FBSSEs should include efforts to recognize vulnerable groups employed in the small-scale forest sector and to identify the factors behind their vulnerability. More information is needed on the role government policies play in favoring powerful interest groups.

6.8 Recommendations

§ Clearly any expansion of FBSSE activities must be accompanied by comprehensive measures to ensure sustainable harvests and active regeneration of the forest products that drive them. However, care should be taken that this process does not undermine its original purpose and compromise the interests of the intended beneficiaries. Regeneration activities should include plantations and silvicultural practices to produce species desirable for their particular non-timber use.

§ Rights of access to resources must be clearly defined to everyone involved. Where possible, new tenurial arrangements granting individuals and communities the right to manage the resources they will use need to be developed.

§ Rural credit systems should be rationalized in order to make credit more accessible to rural small-scale entrepreneurs and so help collectors and FBSSE labourers avoid becoming indebted to local middlemen or financiers. Ways to decentralize offices and mimimize bureaucratic bottlenecks should be identified and explored.

§ Better market research should be linked to individual small-scale forest-based industries to ensure that they have a continued demand. First stage processing centers should also be established closer to the sources of the products for items like rattan in order to retain the benefits from higher value-added within the local community.

§ More rigorous extension and training activities should be undertaken with a focus on developing entrepreneurial skills as well as new technologies.

§ While government policies should encourage FBSSEs, they should not be formulated blindly. Rather, governments and other concerned agencies should determine as best possible whether small scale is in fact preferable to large within a given industry; whether local people are actively interested; and whether the items in question should be promoted on a larger market, or whether they may be most beneficial if kept for local, subsistence-level consumption.

§ FBSSEs should be approached as part of a location-specific socio-economic setting. Their development should be integrated with other needed activities in order to secure greater improvements in people’s standard of living.

§ More detailed data and field studies are desperately needed. Different factors affecting the growth of FBSSEs and their effects on local communities and the natural environment must be better understood. Where appropriate, quantifying indicators for these issues should be developed. As challenging as the task may be, achieving a greater understanding of the role of these small and dynamic enterprises may go a long way in helping to improve the prospects of poor rural communities today.


Anonymous, 1989. Strategies for the development of a NTFP programme on the importance of NTFPs in rural economies, (unpublished paper, FAO, Rome)

FAO, 1988. Forest-based small-scale enterprises in development: problems and potentials. Secretariat Note for Committee on Forestry Ninth Session (COFO - 88/3), Rome, Italy, 9-13 May, 1988.

FAO, 1987. Small-scale forest-based processing enterprises. FAO Forestry Paper no. 79. Food and Agricultural Organization of the United Nations, Rome.

ISST (Institute of Social Studies Trust), 1988. Small-scale forest based enterprises with special reference to the roles of women (Prepared for FAO, Rome)

Nair, C.T.S., 1989. Critical issues in the development of forest-based small-scale enterprises. (unpublished paper, FAO).

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