3.1 Key issues
3.1.1 Locally appropriate out-grower arrangements
3.1.2 Security of contributions and partnerships
3.1.3 Sharing production and market risks
3.1.4. Negotiation of arrangements
3.1.5 Awareness of realistic opportunities
3.1.6 Sustainable forest management
3.1.7 Community support
Worldwide, there is a diverse range of forestry out-grower schemes giving rise to an array of complex issues. As such, the nature and extent of benefits from out-grower schemes should not be assumed.
Based on Desmond and Race (2000), the key issues that contribute to the success of schemes include the extent that:
The out-grower arrangements offered by forestry companies vary within, and between, countries. Broadly, these include:
While the terms of agreement in some schemes may be fixed, others offer considerable flexibility in the extent of grower involvement, with growers able to determine their labour and investment contributions. Many forestry out-grower schemes have begun only recently and are being adapted to the local situation.
The importance of secure land tenure for the involvement of landholders in out-grower schemes has been highlighted in the literature (eg. Arnold 1997; Higman et al. 1999; Mayers 1999), yet security of land tenure is not the only requirement. The out-grower arrangement itself may be uncertain due to being an informal agreement, loss of business viability of either partner, change of company policy, closure or sale of the company, or externalities. Externalities can include changes in government policy (eg. compulsory land redistribution), fluctuations in the value of the local currency, or changes in markets such as a loss of local markets due to shifts in global market demand and supply.
The negotiation process should allow both partners to make an informed assessment about the security of the other partners contributions and obligations. Also, contracts should clearly specify the circumstances under which out-grower arrangements can be nullified, and the terms and mechanisms for compensation.
In addition to prices paid by forestry companies at harvest, growers returns are dependent on achieving optimal production yields. This in-turn relies on adopting appropriate silvicultural practices to optimize growth of plantations and minimizing the risk of environmental damage to the trees.
The nature and significance of market risks vary for partners - for both companies and growers, depending on the schemes themselves, as well as externalities. Where forestry companies make the financial and technical investment and assume responsibility for the production process, with growers receiving an agreed percentage of the returns from production agreed to under contract (eg. lease arrangements), growers have largely been concerned about whether:
While it is difficult to provide generic guidelines, out-grower arrangements should aim to balance opportunities for flexible participation with the extent of benefits and contractual security.
Both partners need to have the capacity to genuinely negotiate out-grower arrangements that are beneficial and fair. Capacity building may involve developing expertise such as market knowledge and negotiating skills. An alternative is to use an affordable third party to actively negotiate on the behalf of a partner. An individual small-scale grower may possess little bargaining power, yet when combined with a large number of growers (eg. through a growers co-operative, shared contracting of a market broker) they may be able to extract a better deal in negotiations.
Despite the apparent multiple benefits of out-grower schemes for growers and forestry companies, there can be considerable uncertainty about whether these benefits will be delivered in the long-term. Some schemes can be binding for as long as 30-40 years. An element of this uncertainty is due to the inherent fluctuations in the forest industry both at the local and international levels.
However, growers are frequently disadvantaged by their lack of detailed and realistic information about what returns they can expect over the short- and long-term. There is evidence that prices received by growers closely correspond to the level of market competition amongst buyers. Yet growers should not naively rely on prospective industrial partners to provide an appraisal of the opportunities under their out-grower schemes. Independent third parties could play a catalytic role by supporting the availability of accurate market assessments.
While the principles of sustainable forest management may be well known, how this translates into local forestry practices is far from clear. This is further complicated under out-grower schemes when growers and forestry companies can have different views as to what constitutes sustainable management. As with increasing market knowledge, both partners need to take responsibility for understanding the implications of forestry practices to be used in schemes, with subsequent negotiation to ensure clear agreement is reached. Again, a third party could play an important role in making information available and negotiating on behalf of a partner to ensure sustainable practices are employed.
In large-scale forestry projects or where forestry is directly important to the livelihoods of the wider community, managers of out-grower schemes need to be mindful of their obligations to the wider community. Merely arguing that out-grower schemes are exclusively a contract between particular growers and the company may fail to prevent a wider community backlash if it is perceived that public benefits are being diminished. The potential for public backlash against forestry development should not be underestimated. In the past it has led to dramatic changes in government policy, time delays for legal appeals, decline in reputation of companies, damage to growers and companies property, and decline in community interest in future participation in out-grower schemes. A further complication is that communities may become divided in their support for forestry. Sometimes it is difficult to clearly identify opinion leaders and their concerns.
Alternatively, if out-grower schemes are widely perceived to be fair and beneficial for the participating growers and their associated communities, then there is the potential for wider and more enduring benefits to flow from forestry development. Some companies will even absorb the higher costs of operating or poor quality timber from an out-grower scheme compared to investing in their own industrial plantations, if it attracts positive community support.