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7.1 The Informal Wood Economy
7.2 Linking with the Formal Wood Economy
7.3 Farm Forestry on Public Lands
7.4 Equity of Access to Commercial Farm Forestry
7.5 Other Social Issues
7.6 Environmental Issues
7.7 The Scope for Farm Forestry for the Market

Where there are commercial markets for wood or for other tree products, farmers may undertake a more intensive programme of tree management and cultivation to produce goods for sale. Under these circumstances, trees assume the character of many cash crops: they must be planted, harvested and marketed, while the addition of other inputs such as fertilizers and irrigation may increase the farmers’ returns.

Experience has shown that market demands can provide significant incentives for farmers to take up tree growing. There can be a number of advantages in terms of resource allocation. Tree crops can be more profitable than alternative crops; they can allow an economic use of land unsuitable for agriculture; they may be more easily adapted to family labour availability than other farm activities. As they do not perish if not harvested at a particular time, trees can be left growing until market conditions are favourable and can thus be less financially risky than annual crops. Once established, trees may also survive times of drought better than annuals.

Soil fertility - a decisive factor

On the other hand, returns from sales of forest products begin to accrue only after a period of some years; many farmers may not be able to forego income and tie up land and other resources for so long. The relatively lengthy production period may also entail risk to the farmer in certain circumstances of land or tree tenure, or if future market conditions are liable to change adversely. Tree management may also involve periodic capital or labour inputs beyond what the small farmer can secure from his own resources.

The extent to which, farmers respond to the incentives offered by the commercial market in any particular area will thus depend on how the returns compare with other income generating strategies, as well as on the farmers’ productive capacity and access to necessary inputs. Support services which provide access to credit and markets may prove to be as important to this type of tree growing by rural people as is access to technical forestry advice and planting stock.

Commercial farm forestry can also be important on a broader scale than just the individual farm. It can generate additional employment and income in the rural areas. In addition, the private sector is usually a more efficient producer of goods and services than the public sector, and because of this, farm forestry is often much more productive than state-managed plantations. Finally, if a farm forestry programme is properly designed, it can contribute to meeting a number of social as well as environmental objectives.

Tree growing by farmers to’ produce goods for sale is not new. Acacia senegal, for example, has long been cultivated as a fallow period crop in Sudan, and elsewhere, to produce gum arabic. This product has been commercially traded since at least 4000 B.C., and its trade has for some time been subject to certain control and marketing mechanisms. In contrast, much of the recent increase in commercial farm forestry has been in response to emerging markets which as yet lack formal structures.

7.1 The Informal Wood Economy

In many areas, as forest resources have become increasingly scarce, wood has gradually entered into the market economy. Growing quantities of fuelwood, charcoal and basic structural timbers are traded by the informal sector. Market “throughput” is seldom recorded in national accounting exercises. Nonetheless, these markets are sometimes quite substantial and have provided a significant incentive for farmers to take up farm forestry.

The development of wood markets is particularly notable around urban areas where there are sometimes complex networks of fuelwood and charcoal producers, distributors, sellers and buyers (Morgan, 1983). Charcoal production can be an important source of income and employment in rural areas because, unlike fuelwood, it can be economically transported great distances. Although charcoal production can place serious pressures on fragile savannah ecosystems, in other areas it can be a reasonably sustainable activity.

Charcoal - a source of rural income

Some programmes have successfully introduced farm forestry by encouraging smallholders to plant trees to meet such emerging market demands for fuelwood and for charcoal. In Haiti, farmers have been quick to undertake cash-crop tree growing because of urban demands for fuel and building poles. The programme of farm forestry followed earlier communally-based efforts which were abandoned because of the lack of any strong traditions of communal cooperation and land ownership. There are, however, strong traditions of private ownership, and many families have access to land, much of which is unsuitable for agriculture.

While other tree growing programmes in Haiti have emphasized the environmental benefits of tree planting, this scheme emphasizes financial profitability. Non-governmental organizations have assumed most of the responsibility for starting tree nurseries, and seedlings are supplied to farmers at cost. Between 1981 and the end of the 1983 rainy season, around 4 million trees had been planted by about 6 000 participating households. It is still too early to speculate on how profitable the activity will be, and some critics have been concerned about the technical advice and overly optimistic expectations given to participating farmers. It is, however, anticipated by project managers that farmers will have little trouble tapping into the charcoal and fuelwood markets (Murray, 1983).

Perhaps the single most widely reported farm forestry programme is in the state of Gujarat, India, where the markets for construction poles and fuelwood have provided a strong incentive for farmers to plant trees. This scheme was started by the state’s Forest Department in the early 1970s as one component of its social forestry programme. The original idea was that farmers would plant seedlings on unused or marginal lands on and around their holdings.

As the project evolved, some farmers realized that it was even more profitable to grow trees on agricultural land than to grow the usual cash crops such as cotton and tobacco. Trees turned out to have several important advantages over conventional crops. Farm forestry was less labour intensive, and labour requirements could be spread out more evenly over the year since trees could be harvested during the dry season when the demand for labour was slack. This reduced total labour requirements and simplified farm management.

Tree farming, primarily of eucalyptus, has in fact emerged as an extremely lucrative exercise in Gujarat. An early financial analysis of the tree farming activities of one of Gujarat’s first farm foresters (who intercropped eucalyptus and cotton during the first year) identified investment costs of around $1 700 per hectares and total returns, after five years, of $5 900 per hectares.

Trees - a cash crop in India

While the Internal Rate of Return was calculated at 129 percent for the first rotation, it was estimated to increase to 213 percent for each successive coppice crop (Gupta, 1979). These return forecasts were much higher than those for any other crop. In some cases, farmers have undertaken tree farming because, in addition to these high potential returns, their ability to produce the next best paying cash crop, cotton, has been seriously constrained by the government’s Cotton Marketing Board.

Farmer response to the profitability of this type of farm forestry has been enthusiastic. The rate of distribution of government produced seedlings increased four-fold between 1975 and 1979 from 12 million trees per year to 48 million per year, doubled again to 100 million by 1981, and yet again to 195 million by 1983. For the state’s rural population of around 25 million, this represents about eight seedlings per person during 1983.

Over 5 percent of Gujarat’s farming population has become involved in farm forestry, and by 1983 the equivalent of over 150 000 hectares had been planted. According to one estimate, around 22 percent of the seedlings were distributed to farmers on holdings of less than 2 hectares, although other studies show a much lower percentage of tree planting done by farmers with small holdings (Patel and Doshi, 1984).

Initially, farmers could obtain as many as 10 000 seedlings free. At a cost of about $2 per hundred seedlings, this represented a significant subsidy for farmers who chose to take advantage of the programme - considering that the wage rate of an agricultural labourer is around $1 per day. Because farmers on large landholdings are more able to take advantage of these subsidies and because of consequent concerns about equity issues, the number of seedlings distributed free was reduced to 3 500 and is likely to be reduced further to 1 000. Farmers who want to plant more seedlings can buy them from the Forest Department or from other private farmers who have started their own nurseries. Private nurseries have greatly supplemented Forest Department seedling supplies.

In this project, the interest of farmers in planting trees was greatly underestimated in the project planning process. In 1979, when a proposal for funding a new phase of the social forestry programme was submitted to the World Bank, it was envisaged that farm forestry would be a relatively small component of the project. In the economic analysis, fuelwood and construction poles were “proxy-priced” because there was an incorrect impression that they were non-marketed commodities. By the end of the 1984 planting season, however, four times as many seedlings had been distributed to farmers as had been planned.

Nonetheless, there are indications that this tree-planting boom cannot continue indefinitely. Within the next few years, many trees planted since 1979 will become mature enough to sell, and there is the real possibility that the market will experience a glut of construction poles and fuelwood. Falling market prices would discourage farmers from continued plantings, and lands might be converted back to other cash crops unless other markets for wood could be tapped or developed.

Saturation of the construction pole market would probably lower the price of fuelwood and make it more accessible to people who might not be able to afford it otherwise. New wood-based industries might be established to take up some of the slack. Nevertheless, though farmers have some flexibility in responding to conditions of oversupply, as they can leave their trees in the ground until an equilibrium in the market is restored, such disruptions could be very difficult for many farmers to accommodate.

The risk over the next several years will be especially high for small farmers who lack significant marketing experience. Market instabilities may leave them vulnerable to exploitation by middlemen, and it has been recommended that alternative marketing arrangements be explored to reduce these risks. Such arrangements might take the form of tree-growers’ cooperatives, a few of which have already been established in areas where farmers have been particularly enthusiastic about farm forestry (Dewees, 1983).

The Gujarat farm forestry experience has been criticized in some quarters on the grounds that the original primary objective of the activity was to produce fuelwood for local use, not the construction poles for sale which have formed the actual main product. However, farmers have had little interest in growing trees explicitly for fuelwood when the markets for construction poles are profitable. A substantial but yet unmeasured amount of fuelwood is being produced, but mainly as a by-product of construction pole production from the thinnings, “lops and tops” and non-marketable poles.

Different variations of the Gujarat programme have been adopted in other Indian states. One of the largest programmes is in the state of Uttar Pradesh where seedlings are, for the most part, provided to farmers at 50 percent of cost. Seedling production has had to be greatly increased in order to meet demands. During the 1982/83 planting season, 156 million seedlings were distributed - nearly 30 times the planned number.

Perhaps the most important issue highlighted by all such recent programmes to encourage commercial farm forestry is the need for a more accurate understanding of the informal wood economy at the stage of project planning. In some cases, inadequate knowledge has not been a serious constraint to project implementation so far because the size of the wood markets was underestimated, and the programmes have had the flexibility to respond to market demands. In other cases, insufficient understanding of the supply/demand situation has led to an overestimation of the extent of market demands, and this has seriously limited the ability of a project to meet its objectives.

Projects planned without adequate market information may easily fail. The project in the Ilocos region of Luzon island in the Philippines was a scheme to encourage farmers to plant Leucaena to supply fuelwood for curing tobacco. Project planners had not observed that tobacco curing enterprises already had access to an assured supply of wood through the informal sector. Farmers had developed traditional systems for producing fuelwood on small woodlots and had little interest in adopting the new and uncertain approach which was being promoted through the project (Wiersum and Veer, 1983).

7.2 Linking with the Formal Wood Economy

In some cases, reliance on the informal market can involve farmers in risks they find unacceptable. Their risks are perhaps highest when an inadequate transportation infrastructure limits their ability to tap into the market, or when production closely matches demand and the market is in transition from a “seller’s market” (where the producers have a degree of control over the price) to a “buyer’s market” (where the consumers assume this control). Their risks are least when they can be assured of a good market price for their production and where markets are easily accessible.

Where the informal sector is unable to ensure that farmers will receive adequate prices for their products, an alternative is to design programmes which link farm forestry production with formal market demands for wood and tree products. These linkages may take the form of marketing agreements between farmers and wood-based industries such as papermills, sawmills and fibre-based industries.

Tree farming for pulpwood

This strategy has been attempted with some success in the Philippines. In 1968, at the initiative of the Paper Industries Corporation of the Philippines (PICOP), farmers were encouraged to undertake tree farming for pulpwood production. The programme was initially conceived to offer an option to slash and burn agriculturists who were encroaching on PICOP’s forest concessions. It was also an attempt to raise rural incomes and so avoid the social tensions which would otherwise have emerged as a relatively well-off class of industrial workers settled in a generally poor rural region.

An agroforestry system was developed as part of the programme, integrating livestock and subsistence crop production with the growing of Albizia falcataria on 10 hectares plots. PICOP provided farmers with seedlings at cost. Technical assistance was geared toward increasing the efficiency of the agroforestry system and incorporated elements of PICOP’s own industrial plantation experience. Smallholders were guaranteed a minimum price for their wood, and PICOP also agreed to pay transportation costs. The required size for the trees was reached in eight years.

The programme gained significant momentum in 1972 when PICOP entered into an arrangement with the Development Bank of the Philippines (DBP) to develop a loan programme for smallholder tree farming. Loans were offered to smallholders to finance 75 percent of the costs of plantation development and maintenance. Farmers with titled property could receive loans at a 12 percent rate of interest; farmers with unsecured property could receive loans at a 14 percent rate of interest. PICOP continued to guarantee a minimum purchase price for smallholder production, but allowed farmers to sell wood to other outlets if they could get a better price.

The scheme proved popular. By 1981, the programme supported 3 800 participants and covered 22 000 hectares. Around 30 percent of the farmers had taken advantage of the credit programme (Magno, 1982).

Although the programme was intended to incorporate trees gradually into an agroforestry system, in practice nearly all of the farmers involved in the loan programme planted the whole of their property with Albizia. Rather than stagger their planting schedule over several years, around 80 percent of the project’s participants planted all of their property in the first year. The farmers cited lower labour costs for clearing, planting and management in even-aged stands as reasons for doing so.

The result was that smallholders needed to harvest their entire plantation at the end of the 8-year rotation period. A staggered harvest would have allowed them to rely on household labour, but instead more expensive contract labourers had to be employed. In order to cover these costs, smallholders argued for a higher millgate price (Development Bank of the Philippines, 1981).

Nonetheless, a post-project financial evaluation of the PICOP programme suggested that smallholder farm forestry has been extremely profitable. Under the most typical management system, internal rates of return ranged from 22 to 31 percent, depending on the yield of the smallholding. These returns were very sensitive to wage rates, however, as labour accounts for most of the cost.

Among the important lesson from the experience has been that projects which include loan components must have the flexibility to respond to changes in the smallholder’s capital requirements. For instance, the costs of harvesting had not been included in the loan programme. It is also crucial that the timing of loan disbursal closely reflects the timing of capital and labour requirements for harvesting (Hyman, 1983b).

The PICOP experience suggests that there is the potential for meeting industrial wood demands through farm forestry. Building on this experience, the PICOP model has been used by a number of other industries to encourage smallholder tree farming for timber and charcoal production. Evaluation of the project has also found that it encouraged farmers to plant additional trees without the incentive of the loan programme. Around a third of the original loan recipients planted, on average, an additional 9 hectares of trees for pulpwood as well as for the production of coconuts and fruit.

7.3 Farm Forestry on Public Lands

Most commercial farm forestry activities have been carried out on private lands where smallholders have been assured of receiving the benefits of tree growing. Recently, a number of programmes have been developed to utilise commercial farm forestry as a means of providing income to landless people by allocating parcels of state owned land to them for this purpose, thus offering them security of tenure in areas where markets for tree products exist.

In the Indian state of West Bengal, a programme has been initiated which involves giving landless people official title to small plots of government-owned wastelands. Farmers are allocated half-hectare plots close to their villages and are provided with seedlings and fertilizer. As most of the plots are contiguous, the farmers are able to take advantage of group efforts for protection and eventual marketing. The proceeds from the effort belong to them. In 1981 and 1982, a total of around 400 farmers were involved in this effort (Misra, 1983).

Similar tree tenure schemes for the landless and poor have also been undertaken in the states of Rajasthan, Gujarat and Himachal Pradesh in India. Under all of these programmes, landless or minimum-resource farmers are allocated rights to grow trees on public lands. Often, the beneficiaries are given a certain amount of money for their initial investment and are provided other inputs, such as seedlings, free of cost. In some cases, they are also given small incentive payments on the basis of survival rates. Intermediate products such as grass, branchwood, fruit and seedpods generally belong to the leaseholder, while the final harvest may be shared with the forest department.

Communities in other countries have also been allocated state-owned lands for farm forestry. In the Philippines, upland communities can obtain 25 year leases on unutilized forest lands to convert them into tree farms. These areas are subdivided into 1 hectares plots and are allocated to individual farmers who are supposed to plant at least 80 percent of their land with trees. The Bureau of Forest Development provides seedlings and technical assistance. By 1980, over 10 000 hectares of land had been allocated. In this programme, however, farmers tend to be more interested in planting food crops because of the uncertainty of the markets for tree products.

At present there is insufficient experience with such projects to assess them. Their particular attraction is that they offer a means of including the landless and the poor in farm forestry. They can also provide a cheaper and possibly more effective long-term solution to the problem of the protection and management of marginal lands than can other publicly-managed activities. Their limitation is that ultimately they can have only limited impact because they can absorb so few of the enormous number of landless people. There is also a danger that these projects may exclude other landless people from lands which they formerly used, thus reducing their access to fuel, fodder, building materials and so on. These schemes need to be closely monitored over the next several years.

7.4 Equity of Access to Commercial Farm Forestry

When circumstances are favourable, farm forestry can produce substantial financial benefits for farmers. This in itself can hardly be criticized. Since the encouragement of economic activity in rural areas is a primary objective of many national development strategies, there can be no rational objection to farm forestry solely on the grounds that it is profitable to those who engage in it (Foley and Barnard, 1984). Nevertheless, farm forestry programmes can cause problems of equity and have been widely criticized in India on these grounds (Shiva et al., 1981, 1982; Centre for Science and Environment, 1982).

It is an undeniable feature of farm forestry that owners of larger landholdings are usually most able to participate. Wealthier farmers have the greatest capital and labour resources at their command and have the largest number of alternatives open to them. They may have the option of using prime agricultural lands instead of marginal lands for tree planting and will be able to afford fertilizer and irrigation inputs to increase production. They can also afford to hire additional labour if this is necessary.

Perhaps most importantly, they are able to take the risk of investing in tree planting. They can divert some of their lands to tree farming, with little impact on the production of other cash and food crops, and can wait longer for the benefits of tree growing to accrue than can owners of smaller farms. When the time comes to harvest the trees, they will often be in a strong bargaining position to obtain a good price for their products, and they will almost always be in a better position to take advantage of any incentives which may be provided to encourage farm forestry.

Farmers on small holdings or on marginal lands, on the contrary, are often unable to take advantage of the opportunities offered by farm forestry for the market. A considerable proportion of their land will always be required for subsistence crop production, and it is very likely that there will be little left for farm forestry - regardless of its potential benefits. Nor can a limited-resource farming family take the risk of jeopardizing its economic position by using scarce capital and labour resources on farm forestry which will only show a return in 5 or 10 years. Their lack of access to additional capital and labour further reduces their ability to engage in farm forestry on a substantial and competitive scale.

Too poor for farm forestry?

The fact that landed and wealthier farmers are more able to participate is a characteristic of many development activities, not just farm forestry. Investments in these types of lucrative ventures can be justified in financial terms, but the fact remains that equity and distributional objectives are especially difficult to address in activities which are designed to encourage capital formation.

The challenge for support programmes is to find ways of broadening the impact of farm forestry. This means that resources should not be spent in a way which preferentially favours the wealthy. The indiscriminate distribution of free seedlings, for instance, provides disproportionate subsidies to wealthier farmers who have the land for planting large numbers of trees and who could probably afford to buy seedlings. It is also probable that the wealthier farmers will not need concessional loans because they have access to commercial financial markets. Support, therefore, usually needs to be directed toward poorer farmers who would otherwise not be able to grow trees as a source of income.

7.5 Other Social Issues

Farmers involved in tree growing to meet market demands will naturally try to get the highest possible price for their products. The highest wood prices are usually commanded by urban markets, so farm forestry products often end up in the cities. Even where wood is sold ‘locally, it will only go to those who are able to afford it. The landless and the poor, with the most urgent needs for wood products, do not have the purchasing power to afford it.

There is also the possibility that farm forestry may even reduce the rural poor’s access to fuel and fodder. This may be the result where customs permit farm labourers to collect crop residues from fields after the harvest. If these fields are planted with trees, and access to them is consequently restricted, alternative sources of fuel and fodder may have to be found.

In extreme cases, farm forestry may have other negative social impacts. It may displace rural labourers in the agricultural sector. One of the reasons for growing trees in India appears to be that they require less labour than other types of agricultural crop production thus reducing both labour costs and the problems of farm management. Farm forestry programmes could therefore reduce the economic opportunities of the neediest people in the rural areas, since it is the landless and the poor who rely on agricultural employment as a means of earning a living.

Farm forestry has also been criticized in some cases on the grounds that it diverts the use of agricultural land from food crops to tree growing. In principle, at least, this could lead to a decrease in total food production and increases in food prices. However, this is an issue that is not unique to farm forestry. It is equally likely to arise from the introduction of other cash crops. Nonetheless, it is clear that farm forestry is not necessarily an appropriate vehicle for addressing social inequities. The claim that growing trees for profit will easily or quickly benefit all sectors of the community is not realistic.

Farm forestry can be justified for many valid reasons, but equity and distributional objectives are not especially credible ones. There remains a strong obligation on programme designers to ensure that the introduction of farm forestry does not make the position of the rural poor worse than it might otherwise have been.

7.6 Environmental Issues

Critics have also voiced some concern about the environmental impacts of farm forestry programmes. Tree plantations do not necessarily result in environmental improvement nor do they automatically improve the condition of the soil. Indeed, there is some evidence that high-yielding monocultures grown on short rotations may reduce the soil’s fertility if insufficient attention is given to proper establishment and management practices (Evans, 1984).

Farmers who grow trees for the market will normally be interested in maximizing their benefits and not necessarily in improving the environment. The choice of sites used for trees will ultimately be made based on the relative capacity of tree growing to generate an income compared to other land uses. Though it may be desirable from an environmental perspective to plant trees in degraded areas, this may not make economic sense to the farmer.

In the hills of Nepal, where few markets exist for farm forestry products, most farmers plant trees on steep hillsides and on the boundaries of upland fields (Bhattarai and Campbell, 1983). In contrast, over half of the farmers who have planted trees in Gujarat have planted them in block plantations. Three-fourths of these block plantations were planted on agricultural crop lands, one half of which were formerly used for growing food crops and one half for growing either food or cash crops (Sardar Patel Institute, 1985).

Land that needs trees

For these reasons, it can be argued that farm forestry programmes will not automatically achieve many of the more ambitious environmental objectives which promoting agencies have sometimes set. This does not mean that no beneficial environmental effects will accrue from tree growing for the market. But it does suggest that trees are unlikely to be concentrated in the places which are most at risk. In many cases, the areas under the worst environmental threat are not even privately owned, so that farm forestry as a means of protecting them is effectively ruled out.

7.7 The Scope for Farm Forestry for the Market

Although it has been criticized in certain respects, farm forestry has considerable potential for producing additional supplies of wood to meet commercial markets and for generating income for those able to participate. Farm forestry programmes can be particularly efficient in comparison with other tree production strategies. In India, for instance, the public sector costs of growing trees through farm forestry are about a fifth those of government forestry plantations.

One of the major advantages of farm forestry programmes from the programme planning point of view is that it genuinely decentralizes decision-making, giving it to those most concerned. Farmers will make their own decisions on the inputs they wish to make and on the level of production they wish to achieve.

If tree planting is truly financially viable, farm forestry programmes will tend to become self-sustaining. The need for demonstration plots, free seedlings, subsidized credit and other means of encouragement will diminish as it becomes clear that farm forestry can be a sustainable means of generating incomes for rural households. The main task of support programmes then becomes that of identifying viable opportunities for farmers to engage in tree growing for the market, supplying market information and technical advice in the initial stages and, where necessary, providing access to credit and marketing services.

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