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Chapter 6

Helen Desmond and Digby Race


Outgrower schemes are an emerging feature of forestry development in many countries, yet the socio-economic value of such schemes is still to be fully assessed. The main aims of this study were to assess the extent and main characteristics of forestry outgrower schemes globally, with an emphasis on developing countries, and develop an analytical framework to assist the comparative analysis and development of existing and future outgrower schemes.

This study provides a broad overview of forestry outgrower schemes in operation around the world. A major component of the study was to survey forest industry staff who manager outgrower schemes, with a response rate of 21 percent received for the study's questionnaire - covering 17 schemes. Given the limitations of the study, it is not presented as a comprehensive review of all forestry outgrower schemes in operation.

Based on the information derived from the outgrower schemes reviewed by this study, the key issues that contribute to the success of schemes include the extent:

ˇ arrangements are appropriate (e.g. partners should have a reasonable likelihood of deriving benefits, contribute to the strengthening of the sociocultural and economic context of local communities);

ˇ contributions (e.g. land tenure, business viability) and partnerships are secure;

ˇ production and market risks are accurately calculated and shared;

ˇ partners have the social and technical expertise to genuinely negotiate arrangements;

ˇ partners are informed of realistic prospects and opportunities (e.g. flexibility of options);

ˇ arrangements and forestry practices are consistent with sustainable forest management principles - at the local and regional levels; and

ˇ arrangements contribute to wider community well-being.

Drawing on published literature and the results of this study, a set of principles and criteria or an analytical framework has been developed as a tool for assessing the implications of forestry outgrower schemes. This framework outlines the characteristics that appear to have a major influence on the extent outgrower arrangements are fair and beneficial for each partner (or potential partner).

Framework for assessing forestry outgrower schemes


ˇ Mutual acceptance of each partner's aims under the arrangement;

ˇ Fair negotiation process where all partners can make informed and free decisions - including allowance for a third party to negotiate on their behalf;

ˇ Realistic prospect of all partners being able to derive benefits proportional to their contributions and risks; and

ˇ Long-term viability and commitment of partners to optimize the returns from the arrangement - in terms of commercial, sociocultural and environmental attributes.


ˇ Positive local sociocultural, policy, economic and environmental context for all the principles (noted above) to develop;

ˇ Partners have a willingness and capacity to contribute to arrangements within the socio-economic and environmental parameters of their household/business over the contractual period - with opportunities for renegotiation or inherent flexibility within contracts (e.g.. partners need to avoid high risk arrangements);

ˇ Arrangements are formalized (e.g. have legal status) with clear details of when and how multiple benefits can be arranged (e.g. collection of NTFPs, grazing, intercropping), contracts can be nullified, and compensation would be forthcoming. It would also appear useful for a credible and independent third party to be nominated to arbitrate if disagreement arises;

ˇ Partners have access to accurate, in-depth and independent information on the:

i. likely short- and long-term prospects - with contingency scenarios explored if arrangements are nullified;

ii. current and likely long-term viability of prospective partners; and

iii.likely long-term context for local forestry development (e.g. market trends - product volumes and
competitiveness, necessary infrastructure, government policy, code of practices, local SFM practices,
landholder/grower participation, wider community support).

How these principles and criteria translate to any given local context will vary depending on the extent:

ˇ entering into outgrower arrangements out-weighs the opportunity costs for both partners;

ˇ partners are informed of the commercial prospects and wider implications;

ˇ regional markets provide positive commercial returns for both partners;

ˇ partners remain motivated to contribute to arrangements - reflecting the importance of schemes to the viability of the household/business;

ˇ government has a willingness and capacity to develop encouraging policies and procedures;

ˇ community perceptions of outgrower schemes and potential partners are favourable; and

ˇ institutional support is available for providing market information and a fair negotiating context.


Background to the study

While forest activity to supply household needs - subsistence forestry - accounts for much of the forestry undertaken throughout the world, commercial forestry provides important benefits to household, regional and national economies. An important aspect of commercial forestry is the trade between those supplying forest products (or providing access to land/forests) and those processing for end uses. The trade relationship between suppliers (e.g. growers) and processors often plays an important role in determining the nature and extent of benefits derived from commercial forestry, and the distribution of these benefits.

Those interested in forestry development - whether in industrialized or non-industrialized countries - are becoming increasingly aware that positive partnerships between forest companies and growers can provide a means of encouraging forest management which is environmentally sustainable, cost-efficient and equitable.

Forest company-grower partnerships can take many forms. For example, existing partnerships may be informal or formal (e.g. contracts), occur between forestry companies and growers, who may be individuals, groups or communities, be short-term or long-term, and offer simple financial returns or multiple benefits to growers. Sometimes, partnerships involve more than two parties in the negotiation phase, as often NGOs, government and market agents may influence arrangements on behalf of growers. While some small-scale growers have developed commercial forestry ventures independently of industry and government assistance, most choose to link with industry before harvesting.

Forestry outgrower schemes describe one type of partnership emerging between growers and processing companies, as the companies with inadequate forest holdings or access to public forests seek to secure additional supplies to meet the increasing global demand for wood products. Under outgrower partnerships, growers allocate land and other resources to the production and management of trees (sometimes other forest products) for a processing company, with the company providing a guaranteed market. The varying responsibilities of each partner are defined by contract.

The incentives for forest processors to develop outgrower schemes include: increased supply of wood resource, access to productive land, resource security without the need to purchase land, diversification of supply, and increased cooperation with local communities. For growers, the reasons to join outgrowers schemes include: an alternate and additional source of income, guaranteed market for products, reduced market risk and, in some cases, financial support.

However, existing outgrower arrangements vary considerably in their ability to be mutually beneficial, achieve sustainable forest management, and meet the social, technical or economic goals of the partners. Not all outgrower partnerships are viewed as successful and poor grower-industry links are regularly identified as one of the major constraints to forestry development throughout the world.

If outgrower schemes are to achieve their full potential, an understanding of how partnerships differ, under what circumstances they occur, and what the critical ingredients are for mutually beneficial partnerships, have emerged as important research questions.

A workshop held at the International Institute for Environment and Development (IIED), in London during April 1999, brought together knowledge of, and initiated further discussions on, outgrower partnerships between forest companies and growers worldwide. Following the workshop, FAO commissioned a global survey and analysis of forestry outgrower schemes to:

ˇ assess the extent and location of outgrower schemes worldwide; and

ˇ identify key parameters for successful outgrowers schemes to provide guidance to forestry developers, decision makers and participants in such schemes.

The results of this study will be important for informing FAO's Global Forest Resources Assessment 2000 report, a reporting process conducted every 10 years. This study is also a part of a continuing collective effort to improve understanding of outgrower schemes.

Research into various aspects of forest company-grower partnerships throughout the world is being undertaken by a range of institutions (e.g. Arnold, 1997; Curtis and Race, 1998; Mayers, 2000). Several research projects are also known to be investigating forest company-community partnerships (e.g. Instruments for Sustainable Private Sector Forestry: 1998-2000 by IIED; regional case studies documented by the Rural Development Forestry Network by Overseas Development Institute [ODI]; Optimising Industry-Grower Partnerships for Farm Forestry by ANU Forestry-Cooperative Research Centre for Sustainable Production Forestry [CRCSPF]).

However, information on the many forest company-grower partnerships that occur, and an assessment of their relative success, is difficult to obtain. While some issues are more relevant to either industrialized or non-industrialized countries, there are many issues common to both. This study attempts to highlight the issues raised in the limited literature available and to present additional case studies of other outgrower partnerships to contribute to identifying the key ingredients for mutually beneficial outgrower partnerships.

Context: setting the scene

Definition of outgrower partnerships

A literature review reveals that numerous strategies have developed for trading wood between growers and the processing industry. For example, some companies obtain their supplies through trading intermediaries (i.e. market agents) and do not have a direct relationship with growers, while other companies lease land (i.e. rent) under contract from landholders for growing trees, or contract farmers to grow trees (Mayers, 2000). Growers have also developed market strategies, such as establishing cooperatives or employing their own market agents, to improve the commercial returns from forestry.

For the purpose of this study, an outgrower arrangement is defined as a contractual partnership between growers/landholders and a processing company for the production of commercial forest products. Outgrower partnerships vary considerably in the extent inputs, costs, risks and benefits are shared between growers/landholders and companies. Partnerships may be short or long-term (e.g. 40 years), and may offer growers only financial benefits or a wider range of benefits. Also, growers may act individually or as a group in partnership with a company, and use private or communal land/forests. The nature of individual outgrower partnerships (e.g. responsibilities, contributions, returns) tend to be detailed in formal contracts.

According to the above definition, outgrower partnerships may include arrangements described in the literature as joint ventures and contract tree farming. Differences between each of these arrangements largely occur in relation to responsibility for silviculture, resource ownership and control, and the financial remuneration to growers. In conventional outgrower schemes, the landholder is contractually responsible for the silviculture and the supply of forest products (often timber) to the company at harvest. Under the contract, the company may provide inputs and/or technical support to the grower, and guarantees a market for the product. A number of outgrower schemes occurring in Ghana, India, South Africa and Thailand have been described in the literature (Mayers, 2000).

In Australia and New Zealand, outgrower partnerships are usually referred to as joint ventures, with there being three broad types of arrangements - "lease" joint ventures, "cropshare" joint ventures, and "market" joint ventures (see Box 1) (Curtis and Race, 1998). These arrangements require a contractual agreement between the landowner and the forest processing company (sometimes a government forestry enterprise), identifying the inputs and responsibilities of each partner for the establishment, management and harvesting of trees, or for the management and harvesting of an existing forest.

In New Zealand, joint ventures which share the financial returns following harvest are more common than "lease" joint ventures as in Australia (New Zealand Ministry of Forestry, 1994). In Australia and New Zealand, the industry partner may only guarantee market price at harvest or have an agreed return indexed to inflation. Also, not all industry investors are "end-product" processing companies - some industry investors "on-sell" or simply trade in raw or unprocessed forest products (e.g. woodchips) (Curtis and Race, 1998).

BOX 6.1 Forest company-grower joint ventures in Australia

Lease joint ventures are agreements in which the landowner receives regular (usually annual) payments from the industrial partner for essentially leasing their land for commercial forestry.

Cropshare joint ventures are agreements between the landowner and investors - who may be forest processing companies, which identify the responsibilities of each partner for inputs and allocation of returns throughout the life of the treecrop. The returns from the harvest are determined from the market price at harvest.

Market joint ventures guarantee a sale for the grower, usually based on market price at the time of harvest. The grower is required to offer the industry partner the first option of purchase, however if a better price can be found, the grower may sell to another purchaser.

Source: Curtis and Race, 1998.

Why outgrower partnerships are emerging

Recent reviews of the global changes in forestry provide a valuable understanding of the context in which forest company-grower partnerships are emerging (FAO, 1999; Higman et al., 1999; IIED, 1999). The important issues include:

ˇ Increasing attention to ensure forest management is balancing social, economic and environmental objectives. Various instruments are being developed (e.g. product certification for markets, legally binding targets) at the national and international levels. However, the effectiveness of such instruments in promoting sustainable forest management (SFM) is largely yet to be determined;

ˇ While there was a decrease in the total area of the world's forests between 1990 and 1995 by about 1.6 percent, there was an increase of 8.8 million hectares in industrialized countries (mainly from forest growth on abandoned agricultural land). Some form of outgrower partnership is likely to be important if industry is to gain access to this new area of forest;

ˇ Increasing privatization of forests and/or forest services (including processing capital), making the private sector increasingly dominant in forestry. Typically, the private sector is investing in fibre production from high-yielding forests in plantations in subtropical and temperate regions (farm forestry is expected to play a growing role in supplying wood products). The biggest industrial investor in these forests is often the large-scale corporations. Reflecting this trend, is the survey results that 60 percent of the major wood pulp companies who responded to the survey source some of their fibre from independent, non-government growers (e.g. through outgrower schemes, joint ventures) (IIED, 1999). Also, large multinational corporations (i.e. global organization) are increasingly dominating the private sector owing to their growing value of trade in forest products;

ˇ Increasing number of mechanisms for the devolution of forestry decision-making and management to local communities or user groups. However, there appears to have been little analysis of the abilities of local communities to negotiate fair deals with the increasingly dominant private sector. This remains an important issue for understanding the benefits of outgrower partnerships; and

ˇ Communities need a combination of timber and non-timber forest products and additional forest services (e.g. water catchments, recreation, wildlife habitat). Given the increasing role of the private sector in controlling forest access and management (as private forest owners, concession holders to public forests), there is a continuing tension between community (public) and private sector expectations over how forests should be managed. This tension is also contributing to increasing attention to how private land is manageed, and its impact on community needs.

Benefits of outgrower partnerships

As industrial forest companies are often the initiators of outgrower partnerships, the benefits for these companies from such arrangements appear to be significant. Outgrower partnerships allow the company to access additional, more secure, and/or cheaper supplies of forest products. These partnerships also allow companies to diversify the sources of their raw materials, which often makes good business sense (Arnold, 1997; Curtis and Race, 1998; Mayers, 2000). In assessing the cost of operations, companies will consider, in addition to the direct costs of tree growing, the indirect costs and financial risks incurred through land purchase and the otherwise employment of large labour teams - much of which can be avoided through outgrower partnerships (Arnold, 1997). Companies can also receive sociocultural or sociopolitical benefits by involving local communities in partnership in forestry development, as a more supportive community context for industrial forestry is likely to be fostered.

For growers/landholders, a range of potential benefits through outgrower partnerships have been noted. In a review of outgrower schemes in Brazil, India and the Philippines (Higman et al., 1999), it was noted that farmers have been able to secure land tenure and increase the clarity over rights to trees being grown, gain access to financial support or sources of income while trees mature, receive higher net returns from trees than from traditional land uses, secure markets for wood, and have a good means of participating with the company and an ability to appeal to third parties. Such schemes have also enabled growers to generate an income from underutilized land (Mayers, 2000). While land tenure issues are not a major concern in Australia, the remaining benefits identified above correspond with benefits Australian growers/landholders have gained through forestry outgrower partnerships (Curtis and Race, 1998).

The varying nature of some outgrower partnerships and the benefits they offer is illustrated in the case studies summarized in Box 6.2. While some companies offer growers a guaranteed market for their products - either at fixed/indexed or market prices - other companies promote partnerships with the additional benefit of a percentage share of the forest product (e.g. timber) at harvest. Other arrangements have additional benefits that offer employment, or contribute to community development (e.g. funds for school or health facilities) or agricultural improvements (e.g. fodder for livestock).

ˇ On a world scale, outgrower partnerships can be a mechanism for addressing several important issues for sustainable timber production (Race, 1999), which include:

ˇ bringing degraded land/forests back into beneficial production;

ˇ focusing on integrating forestry objectives of different partners over the medium to long term; and

ˇ recognizing that the long-term investment and discounting inherent with forestry are a common problem for small-scale growers and farmers, with company-grower partnerships offering a viable cost-sharing option particularly suitable for forestry.

BOX 6.2 Examples of outgrower partnerships

Swiss Lumber Company, Ghana

The Swiss Lumber company has a sawmill in Ghana but lacks access to forest areas to obtain an adequate wood supply. While the company has developed plantations on its own land they will be insufficient to meet the capacity of its sawmill. Consequently, it has developed strategies to attract outgrowers to produce indigenous trees on land which was degraded and producing marginal agricultural yields.

Joint ventures are offered to landholders. Farmers receive a lump sum down payment upon joining the venture, an agreed percentage of the timber at harvest, an annual land rent, and first option on the weeding contract for the plantation as a means of creating employment for participating farmers. In return, landholders agree to give the company first option on the purchase their share of the timber at the prevailing market prices.

Source: Higman et al., 1999.

PICOP, Philippines

The Paper Industries Corporation of the Philippines (PICOP) developed an outgrower scheme for local landholders in order to seek additional plantation resources to partially supply pulpwood, as their "concession" forests were becoming depleted. The company was also motivated by the opportunity it would provide to strengthen their relationship with local communities through the sharing of benefits.

In 1986, PICOP began to encourage farmers to grow Albizzia falcateria on eight-year rotations on marginal lands for pulpwood. Under the outgrower scheme, they agreed to provide farmers with planting stock and technical advice, and assured a market for the product at a guaranteed minimum price. The company also developed the necessary road infrastructure and a strong extension service. In return, the growers agreed to give PICOP first right of refusal of the trees, after which they could sell to other buyers.

Source: Arnold, 1997.

Sappi and Mondi companies, South Africa

These companies, which own large pulp and paper mills in the KwaZulu-Natal region have large forest plantation holdings. The interest in obtaining wood products from landholders, arising from problems the companies face in acquiring land or retaining land, with the companies encouraging landholders to produce wood commercially on a small scale.

One scheme for small-scale landholders developed for Sappi and Mondi was initiated in mid-1980. Under this scheme growers established plantations of 1.2 ha on average. Under the contract, growers received subsidized inputs, loans against the final harvest, and extension advice. In return, they agreed to sell their wood to the company. The companies have also been encouraging block plantings on communal land in areas adjacent to their mills where there are existing outgrower schemes.

Source: Arnold (1997).

Who do they benefit?

Much of the literature notes that the potential benefits of outgrower partnerships may only flow to growers/landholders under specific circumstances - indicating that assumptions about the extent of the benefits flowing from outgrower partnerships should be avoided. Yet Mayers (2000) indicated that growers perceive potential benefits from outgrower partnerships when:

ˇ underutilized land that is not required for food production becomes available;

ˇ land tenure and tree rights are secure;

ˇ net returns that are higher than alternatives are anticipated;

ˇ cash flow is reliable through a regular income or assured sales;

ˇ technical and financial support is available; and

ˇ means of participation with the partner is clear.

It should be noted that resource security for growers may exist under land tenure arrangements other than private ownership (e.g. long-term leasehold or community ownership) (Arnold, 1997). Higman et al. (1999) indicated that outgrower schemes may even assist small-scale landholders to establish land ownership, as occurred in the PICOP scheme in the Philippines (Arnold, 1997). However, Kato (1996) notes the limitation of the PICOP outgrower scheme, as the scheme is largely irrelevant for those who are landless - essentially the very poor. Arnold (1997) found that the landholders benefiting from the PICOP outgrower arrangement are those who had settled on land classified as alienable and disposable (i.e. so could be purchased/leased for private use), had farms of about 11 ha (i.e. sufficient land to dedicate to long-term ventures), and were growing subsistence crops or other intensive management systems that created underutilized land. Typically, these farmers were producing low-input crops, had grazing livestock or were undertaking other extensive farming.

The schemes run by Sappi and Mondi pulp and paper companies in Zululand, South Africa, for small-scale landholders were found to be useful to farmers with other sources of income or where labour did not need to be diverted from existing activities (Arnold, 1997). Typically, farmers need a regular alternate source of income to avoid cash flow difficulties between tree harvests and, therefore, to avoid dependence on loans. Outgrower arrangements that cause farmers to displace food crops with forestry can jeopardize food security and force households to generate higher incomes to purchase food - all which can expose households to greater socio-economic risk. Arnold's (1997) study of the experiences of outgrower schemes in the Philippines and South Africa led him to conclude that outgrower schemes were appropriate for farmers under certain conditions. In summary, outgrower partnerships require consideration of how farmers can make use of the gains in wood production, against the loss in agricultural production.

It should also be assessed whether the production seasons of forest products and agriculture are complementary, such as with minimal competition for farm labour (Mayers, 2000). Mayers (2000) suggested that some farming and forestry systems can be counter-seasonal in temperate regions, enabling farm forestry activities. In contrast, these activities typically overlap in tropical regions (Hardcastle, 1999, cited in Mayers, 2000), although exceptions are known to occur.

Clearly, outgrower partnerships will not suit all forest growers and companies, yet clarification of the circumstances under which prospective partners will benefit appears warranted.

  1. Outgrower partnerships: issues and concerns

Competing land uses

A concern of forestry outgrower schemes, especially in non-industrialized countries, is that tree growing can replace crop production, thereby reducing the staple food production of communities. In the KwaZulu region of South Africa, land shortage was the main reason many farmers decided not to join the outgrower schemes.

Following this response, the companies agreed to focus their schemes on land of low agricultural potential. Although some farmers ultimately planted trees on arable land, displacement of food production in this situation was negligible (Arnold, 1997).

In areas with widespread industrial forestry, some concern has arisen over excessive water use by trees, particularly where water is a critical constraint on farming. The issue of forestry reducing the water availability for agriculture - at farm and catchment levels, can be positive or negative, depending upon natural resource management objectives.

Some farmers involved in the PICOP outgrower scheme in the Philippines were found to move in and out of tree growing. The main reason for the movement was that farmers had also planted trees on land suitable for cropping, and after harvesting the trees and obtaining a substantial payment they returned the land to crop production (Arnold, 1997).

In Australia, broadacre farmers tend to be willing to convert farmland of 10 ha or greater to commercial forestry if reliable market assessments indicate farm forestry is viable compared to the alternate land uses. In this situation, there are often reservations about whether the assessments are reliable given the lack of experience and in-depth market appraisals of farm forestry (Curtis and Race, 1998). However, outgrower arrangements that provide some returns prior to final harvest (e.g. land lease schemes) have proved to be the most popular (Curtis and Race, 1998).

Production methods

In most outgrower partnerships the company partner recommends, and sometimes controls, production methods to ensure optimal productivity of plantations. However, it has been reported that sometimes the recommendations have been too complex, labour intensive, and costly for growers. As a result, many farmers participating in the PICOP scheme opted to hire contractors to conduct the operations, or modified them (Arnold, 1997). In such cases, farmers' profits were reduced owing to the higher production costs or when modified schedules were followed, farmers were able to reduce their costs of tree growing (Kato, 1996). For example, some farmers had minimized the level of maintenance, relied on natural regeneration rather than purchasing seedlings, and planted trees in woodlots at one time rather than staggered times of planting. However, such changes to recommended practices usually has productivity tradeoffs - either in lower yields or inferior quality. In turn, this will affect the financial returns to growers and would be likely to alter the profitability of outgrower schemes for growers and/or companies.

Providing growers with sound technical advice on forestry practices is advantageous to companies as it is likely to produce the quality and yields required. The provision of appropriate extension and technical support to growers can be important for the success of outgrower schemes. Mayers (2000) noted some of the more successful schemes have established nurseries to provide growers with high quality seedlings.

In the KwaZulu outgrower schemes, farmers' involvement in production varied. Farmers had the option to allow the company to manage the operations or hire contractors to carry out the work - yet this sometimes resulted in poor production (Arnold, 1997). Based on observations of other schemes, Arnold (1997) believed that farmers should be closely involved in production operations themselves, and rely less heavily on the company, to achieve improved productivity and increase profits by reducing contract labour costs.

Access to financial loans

The availability of financial loans is often important for growers' participation in outgrower arrangements, particularly to cover the costs of establishment and early maintenance of plantations, but also to bridge finances until the trees were sold. However, loans may not always be necessary and can be an additional risk in forestry ventures - sometimes adversely affecting the profitability of schemes for growers. The availability of credit from partner companies may lead some farmers to employ labour unnecessarily, as was observed in the KwaZuli schemes (Arnold, 1997), reducing the profits from tree growing. Consequently, Arnold (1997) suggested that the company partner who provides a service to the farmers should not be a source of loans for participants.

Arnold (1997) reported that while some farmers were willing to participate in the PICOP schemes, they were ineligible for, or unwilling to pursue loans owing to the difficult administrative procedures. Although many of the farmers planting small areas did not require loans to cover labour and other costs.

Competitive markets

Where competitive markets for forest products occur, outgrower partnerships are more likely to be balanced (Race, 1999). A competitive market is likely to result in satisfactory market prices for growers. Although in some outgrower partnerships the processing company guarantees a market, growers can sell to other buyers offering better prices. For example, PICOP found growers in the schemes sold wood to other buyers offering better prices, while some growers for Sappi and Mondi, required by contract to sell their product to the companies, also sold to other buyers offering higher prices. Some growers had sold to other forestry companies to avoid repaying the loan (Arnold, 1997).

To avoid loss of supplies from outgrower schemes to other buyers, typically a company will choose to match the current market price and develop a positive relationship with growers. The development of positive relations may involve meeting farmers information needs, providing greater market share of the profits, or it may involve providing broader agricultural and community benefits. In response to the lesser security of wood supply from outgrower schemes in competitive markets, companies have also reduced dependence on outgrowers by developing alternative strategies for obtaining its wood requirements (Arnold, 1997; Curtis and Race, 1998). Some companies have withdrawn their outgrower schemes altogether (Shingi, 1997).

Competitive markets also reduce the reliance of growers on companies - particularly during times when they may be unable to fulfil their contractual commitment to purchase. Examples have been reported that the processing company has reduced its purchases from outgrowers when demand has decreased or supply requirements have changed (Arnold, 1997; Curtis and Race, 1998; Mayers, 2000).

Together with more competitive markets, Arnold (1997) suggested better representation of growers in the negotiation process and more flexible partnerships that offer growers a share of the value of the processed products under outgrower schemes would contribute to more attractive prices for growers.

However, where competitive markets are lacking, companies can tend to be uninterested in initiating outgrower schemes, as in the Australian experience (Curtis and Race, 1998). Even where outgrower arrangements occur, uncompetitive markets will make it difficult to calculate prices on which to base negotiations. Curtis and Race (1998) suggested that a fundamental task of forestry development, and farm forestry in particular, will be to encourage competitive markets at a local scale to develop. They identify some scope for developing long-term supply arrangements that allow costs and prices to be reviewed at regular intervals as a means of encouraging fair outgrower arrangements. They also indicated that investment by government may be needed to improve access (e.g. increase market information, transport infrastructure) to more competitive markets.

Variability in the market place is largely inherent in the commercial forestry sector. Both companies and growers are susceptible to periods of market instability over the contract period if insufficient financial flexibility has been incorporated into partnership arrangements. However, poor forecasting of changes in market demand on the part of companies has also resulted in failure of partnerships, particularly in the pulp and paper industry (Mayers, 2000).

Negotiating arrangements

Generally, the outgrower arrangements offered by forest companies are limited. Some company staff believe offering flexible arrangements, such as involving individual negotiations with numerous growers, can be too time consuming and expensive to manage (Curtis and Race, 1998). In the same study, the authors also found that companies were more willing to negotiate with those growers in close proximity to mills, or with a desirable wood supply. However, in regions where supplies from small-scale growers are less critical for companies, growers typically have to accept or reject the schemes offered. In these circumstances, unequal partnerships can develop (Mayers, 2000) and have limited grower participation (Arnold, 1997). Even where forestry companies are willing to negotiate with growers, the companies' greater knowledge of markets and the general inexperience of growers places growers in a poor negotiating position.

In the KwaZulu schemes, the growers' lack of negotiating power resulted in many signing contracts which they do not fully understand or with unrealistic expectations of the likely returns. The South African schemes have drawn criticism owing to the lack of balance of the risks and returns for growers and the companies in the arrangements (Arnold, 1997).

To enhance growers' capacity to negotiate more balanced and equitable partnerships, growers could benefit from employing a third party to negotiate on their behalf (Arnold 1997; Mayers 2000). However, Mayers (2000) also noted that growers who gain experience and proficiency in negotiation with forestry companies by renegotiating contracts periodically, may have less need for such an organization. Under these circumstances, outgrower partnerships are most likely to be balanced (Mayers, 2000).

In Australia, small-scale growers generally feel they are ill equipped to negotiate with the industry and doubt the fairness of current arrangements. To make a more significant investment in forestry, many growers believe they would be better placed if they joined a marketing cooperative or operated independently of a company - seeking to contact potential buyers at the time of harvest (Race and Curtis, 1999). However, the study found that in regions where poor market structures occur, small-scale growers best opportunity to negotiate with companies may be prior to tree establishment. At this time, farmers have greater negotiating power and have the opportunity to redirect their household resources.

Scope of partnership

Typically, outgrower schemes offer technical support to growers to facilitate the production of the optimal volume and quality of wood (Arnold, 1997; Curtis and Race, 1998; Vuokko and Otsamo, 1998; Shingi, 1997). However, reviews of existing outgrower schemes indicate that the most successful schemes offer growers broad arrangements which provide technical support and advice needed by growers to overcome a range of socio-economic and environmental issues (Curtis and Race, 1998; Mayers, 2000), or which assist communities in achieving wider socio-economic aims (Mayers, 2000).

The joint venture project run by ENSO and Inhutani in West Kalimantan, Indonesia, provide a range of community benefits to participating villages, including improved infrastructure, improved rubber trees for private plantations, support in developing agricultural practices, and employment opportunities (Vuokko and Otsamo, 1998).

Mayers (2000) noted that outgrower partnership with community groups present greater challenges for companies, such as helping communities to build their internal capacity to resolve internal disputes when they arise. The successful outgrower scheme involving a village community has been reported in West Kalimantan, Indonesia (Vuokko and Otsamo, 1998). Although the company needed to overcome initial uncertainty about the venture, the uptake of the scheme by villagers has led to broad support for the company's interests.

Study methodology

A literature review of outgrower schemes was undertaken to review the nature and context of current arrangements, and to identify the issues influencing the effectiveness of outgrower partnerships. An annotated bibliography of relevant literature was also prepared (refer to Appendix 2).

A Resource Group of 12 people with knowledge and expertise relevant to the study of outgrower partnerships was formed to provide expert input into the study (refer to Appendix 1). They were invited to contribute their knowledge of outgrower schemes, or of literature discussing outgrower schemes to this study.

A questionnaire was developed to identify the location and extent of existing outgrower partnerships, and to identify the benefits and issues arising from these partnerships. A total of 86 questionnaires was sent to informants in 46 countries, particularly non-industrialized countries in the Asian, African and South American regions (refer to Appendix 1). Attempts to send another 24 surveys to people in various countries proved unsuccessful (e.g. poor communication capacity of recipient organizations).

The guidance of many people working in the forestry industry worldwide was sought to identify people and organizations who may have knowledge of outgrower schemes to whom questionnaires should be sent. About 25percent of the questionnaires were sent to targeted companies, individuals or organizations identified in this way. The remaining questionnaires were sent to heads of forestry departments and non-government organizations identified from lists provided by the Resource Group and other people.

The questionnaire achieved a response rate of 21 percent, covering 17 schemes. Twelve respondents provided detailed information structured around the questionnaire. One respondent was able to provide details of six outgrower schemes of which he was aware. In all, respondents provided information on outgrower partnerships in Brazil, Colombia, Ghana, India, Indonesia, New Zealand, Portugal, Solomon Islands, South Africa, Vanuatu and Zimbabwe.

A further six respondents indicated that, to their knowledge, outgrower schemes were not in operation in the countries concerned. These countries were Cameroon, Germany, Japan, Nepal, Peru and Sweden.

In addition, nine people responded indicating their inability to complete the questionnaire and so provided further contacts of people or companies who should be contacted. A questionnaire was sent to those identified and their number is included in the total respondents.

Limitations of the study

The undirected nature of a large proportion of the questionnaire's mailing had, as expected, a much lower response rate than the targeted mailing. Most mailing occurred during late October to early November 1999, with responses received up until late May 2000.

While every attempt was made to contact the key people via email, fax and/or letter, telecommunication capacity varies considerably around the world, preventing 24 questionnaires from being delivered. In other cases, communication with key people was delayed for reasons beyond the control of this study (e.g. people on leave). Also, as expected the questionnaire was not necessarily to best survey tool for all potential respondents. First, the questionnaire was written in English, which may have inadvertently discouraged respondents proficient in other languages.

Furthermore, given the nature of the study, the questionnaire was sent to individuals, organizations or companies who could be contacted via email, fax or letter. As such, it was unlikely that many growers would be contacted, leaving companies to be the primary source of information for the study. Consequently, the results of the questionnaire could be expected to more accurately reveal issues from a company's perspective, rather than from a grower's. Oral communication with some localized fieldwork is likely to be a better means of obtaining growers' perspectives, and so warrants consideration as an additional phase in the study of outgrower arrangements


In this study, outgrower arrangements were identified in Brazil, Colombia, Ghana, India, Indonesia, New Zealand, Portugal, Solomon Islands, South Africa, Vanuatu and Zimbabwe. A profile of these outgrower partnerships is provided in Box 6.3. Information was generally provided by forestry companies, a marketing partner, and a forestry consultant assisting with the schemes in Zimbabwe.

The majority of schemes were initiated in the 1990s. The outgrower schemes were primarily initiated by the forestry companies with a view to gaining access to additional wood resources, largely for production of pulpwood, but also for sawlogs, wattle bark and poles. One forestry company reported it had initiated a scheme primarily for improving its public image.

While most forestry companies have formed partnerships with individual growers, some companies have formed partnerships with community groups, cooperatives, or whole villages as in four schemes.

Additional reasons for companies to initiate schemes include:

ˇ providing growers with genetically improved material for higher productivity and profitability;

ˇ allowing more flexibility in the use of its own land;

ˇ involving more investors in the forestry business;

ˇ encouraging reforestation activity in the country;

ˇ consolidating forestry in districts where it is already established;

ˇ encouraging neighbouring landowners to become involved in and supportive of forestry;

ˇ avoiding conflict with local people arising from wood production on land to which they have traditional user rights.

Although most schemes were initiated by the forestry processing companies, five schemes were initiated by community groups or individual growers. Communities initiated schemes to access capital to develop underutilized land for subsequent income generation, while growers were similarly motivated to generate income from outgrower schemes to achieve socio-economic goals of their households.

Scale of schemes

The scale of the outgrower schemes reported in this study varies considerably - in terms of planned scale of planting, the volume of wood supplied to processing companies, and the number of growers involved (refer to Table 6.1).

Generally, agreements to supply pulpwood comprise the largest proportion of outgrower partnerships, with an area greater than 20,000 ha planned in four of the outgrower schemes: the Aracruz Celulose Timber Partner Program in Brazil; SOPORCEL's EMPORSIL Scheme in Portugal; Stora Enso Inhutani III PT Finnantara Intiga Scheme in West Kalimantan, Indonesia; and the Tasman Forest Industries' Leasehold Maori Land Scheme in New Zealand. Two smaller schemes for pulpwood production plan to establish areas of 8,000 ha (Mondi Khulanathi scheme in South Africa) and 2,200 ha (PS Zimboard schemes in Zimbabwe).

No area was reported for Smurfit Cartón de Colombia in Colombia and ITC Bhadrachalam Paperboards in India. However, under these schemes 3,860 ha and 3,210 ha have already been established. Furthermore, ITC Bhadrachalam Paperboards anticipates the annual establishment of between 1,500 and 2,000 ha per year in future.

During the implementation of these schemes, two companies have reviewed their expected plantation area. Owing to the enthusiasm of growers, Aracruz Celulose recently increased the area planned in the Timber Partner program from 28,000 ha to 60,000 ha, and have recently expanded the scheme to include sawlog production. In contrast, Stora Enso Inhutani III decreased their total planned area from 100,000 ha to 30,000 ha in response to the current political instability perceived in Indonesia.

The percentage supply of pulpwood anticipated from these schemes differs between forestry companies (Table 6.1). They range between supplying the total annual resource, for example in the PT Finnantara Intiga and ITC Bhadrachalam Paperboards schemes, to being of strategic value, as for the Mondi processing company. As a result of Aracruz Celulose increasing their projections for plantings, the future significance of the annual wood volume supplied from this scheme is expected to increase from 13 to 17 percent.

The schemes initiated for the supply of sawlogs have been planned on a smaller scale. The outgrower schemes run by Kolombangara Forest Products in the Solomon Islands, and the Swiss Lumber Company

in Ghana, have assisted growers to establish 200 ha and 150 ha woodlots, with plans to expand the area by 30 ha and 25 ha per year, respectively. Melcoffee Sawmill in Vanuatu aims to assist growers to plant between 400 ha and 500 ha in total. Currently 100 ha have been established.

The remaining two schemes, Border Timbers and the Phezu Komkhono Wattle Bark Loan schemes, aim to establish an area of 2,000 ha. These schemes were initiated for the production of poles and wattle bark, respectively.

The number of growers involved in the schemes presented, and the typical area of land they allocate for tree planting is also variable (Table 6.1). The number of outgrower partners in the schemes reported in this study show considerable variation, ranging from one to 2,000. The typical area planted by outgrower partners is also equally varied. In seven of the outgrower schemes, growers have planted between one and 10 ha, suggesting that these schemes are popular for small-scale tree growers.

Table 6.1. Summary of outgrower schemes reported in FAO survey

Company and Outgrower scheme

Year scheme started

Primary product/s

Total area planned (ha)

of product to company

Area planted (ha)

Number of growers

Typical area planted by growers (ha)

Aracruz Celulose - Brazil: Timber Partner Program


pulpwood, sawlogs


13% supply/yr to 17% in future




Border Timbers - Zimbabwe: Outgrower Scheme




60% of supply/year




ITC Bhadrachalam Paperboards Ltd - India: clonal eucalypt plantation scheme




1,500-2,000 ha/year

will meet total pulpwood needs




Kolombangara Forest Product - Solomon Islands: Kolombangara forestry outgrower scheme



30 ha/year

not significant yet




Melcoffee Sawmill - Vanuatu: MSL Extension Forestry Scheme








Mondi Ltd - South Africa: Khulanathi Scheme




strategic value




PS Zimboard - Zimbabwe: Fallscroft Estate Scheme




2,100 m3/year




PS Zimboard - Zimbabwe: Himalaya Cooperative Scheme







(22 people)


PS Zimboard - Zimbabwe: Kaerezi Estate Scheme




60% eucalypt pulpwood




PS Zimboard - Zimbabwe: Manicaland Development Association Scheme




10,500 m3/year




PS Zimboard - Zimbabwe: Nyafarm Development Cooperative Scheme




17 000 m3/year


(20 people)


Smurfit Cartón de Colombia - Colombia: Third Part Reforestation Programs




maintaining area needed




SOPORCEL - Portugal: EMPORSIL Scheme




10% annual supply




South Africa Wattle Industry - South Africa: Phezu Komkhono Scheme


wattle bark


5% of supply




Stora Enso, Inhutani III - West Kalimantan: PT Finnantara Intiga Scheme




all fibre for mill


100 villages


Swiss Lumber Company - Ghana: Outgrower Scheme



25 ha/year

public relations




Tasman Forest Industries - New Zealand: Leasehold Maori Land Scheme




1/3 of plantation estate


27 groups


Nature of the arrangements between partners

The arrangements between growers and processors (or cooperative) may be characterized as:

ˇ partnerships in which growers are largely responsible for production, with company assurance/guarantee they will purchase the product;

ˇ partnerships in which the company is largely responsible for production, paying landholders market prices for their wood allocation;

ˇ land lease agreements in which landholders have little involvement in plantation management;

ˇ land lease agreements with additional benefits for landholders.

Partnerships with growers largely responsible for production

In outgrower schemes where the growers are primarily responsible for production, forestry processing companies usually guarantee to purchase the wood at harvest. The extent of further support from the companies varies. The returns to growers also differ. It should be noted that while arrangements are typically detailed in a contract, the schemes run by Kolombangara Forest Products and Melcoffee Sawmill have no contractual basis.

Growers are responsible for the production of trees in the schemes operated by PS Zimboard in Zimbabwe, Kolombangara Forest Products in the Solomon Islands, Melcoffee Sawmill in Vanuatu, Mondi in South Africa, the South African Wattle Growers Union, and Aracruz Cellulose in Brazil. While growers in the Border Timbers scheme may be responsible for production, the flexibility of the arrangement allows the company to share this responsibility under the grower's terms.

Thereafter a number of differences are evident. Unlike most schemes, PS Zimboard does not provide inputs for plantation establishment, although it offers growers technical advice. In the remaining schemes growers are provided with seedlings, typically at cost, and technical support. The South African Wattle Growers Union, Mondi, and Aracruz Cellulose schemes provide additional inputs. As well as seedlings and technical assistance, the South African Wattle Growers Union provides growers with fencing, site preparation, fertilizers and insurance. The Aracruz Cellulose scheme provides seedlings, fertilizer and ant killer, if required, free of charge provided growers sell the wood to the company. The company also covers any insurances or taxes arising from the agreement. In the event the grower sells to another company, default arrangements for payment are specified in the contract.

Growers also benefit from the above schemes by retaining low-grade material (e.g. prunings, thinnings) for their own use. In the Aracruz Cellulose scheme, growers retain an additional 3 percent of wood volume for their own use and receive native seedlings free of charge. In the scheme run by the South African Wattle Growers Union, in addition to receiving market prices for the wattle bark, growers retain all the wood for their own use or may sell it as pulpwood.

Some forestry companies do not offer finance to their growers - these are Kolombangara Forest Products in the Solomon Islands, Melcoffee Sawmill in Vanuatu, and ITC Bhadrachalam Paperboards Ltd. in India. Melcoffee Sawmills indicated that growers did not require loans, as the company covered the cost of establishment. Two schemes in Zimbabwe offer growers loans at 15 percent interest, while Mondi offers growers loans at 10 percent interest, and the South African Wattle Growers Union offers loans at 8 percent to cover the costs of inputs. However, the Aracruz scheme offers growers finance to meet the operational costs of plantation establishment and maintenance, to be repaid in the equivalent value of wood at the time of harvest.

Partnerships with companies largely responsible for production

Under two outgrower schemes, the company partner is responsible for tree production, undertaking all the establishment, management and harvesting. These schemes are Smurfit Cartón de Colombia in Colombia, and SOPORCEL in Portugal.

Growers in partnership with Smurfit Cartón de Colombia, as landholders, are responsible for continuing to pay land taxes. They are also required to contribute to the construction of any secondary roads required for harvesting. Under the EMPORSIL outgrower scheme, landholders may negotiate to contribute labour and machinery.

The contract arrangements between the growers and processors specify the percentage of wood volume growers retain at harvest. The company agrees to purchase the wood at the market price at harvest. Under the EMPORSIL scheme, the grower's percentage will vary according to the extent of their involvement. Under this scheme landowners may also retain hunting and other rights to the area planted. Also growers retain the entire earnings from the second and third rotations under both the EMPORSIL (Portugal) and Third Part Reforestation Programs (Colombia) schemes.

Land lease agreements with minimal involvement from growers

The Tasman Forest Industries have entered into land lease agreements with Maori groups to develop plantations over two rotations. This arrangement was preferred the landholders compared to a joint management option. The company pays an agreed annual rent for the contractual period. Landholders have some joint responsibility for animal control in the plantation area, and maintain their rights to hunt and graze sheep amongst the trees.

Land lease agreements with additional benefits for growers

Two schemes reviewed in this study - PT Finnantara Intiga operated by Stora Enso Inhutani III in Indonesia and the Swiss Lumber Company in Ghana, comply with this category. Under these schemes the forestry companies, in addition to paying landholders an annual rent for the land under plantation, offer growers employment opportunities and a percentage of the wood volume produced which they guarantee to purchase at market prices. Under the Swiss Lumber Company scheme, growers are employed to carry out maintenance work. In some cases the growers are not necessarily the landholders, with the allocation of 50 percent of the wood volume shared between them. Under the PT Finnantara Intiga scheme, villagers are employed to carry out work in the plantation while the company maintains responsibility for plantation activities. The landholders comprise villagers, who own 10 percent of the plantation. Both companies provide inputs, with the Swiss Lumber Company providing the seedlings and equipment for plantation establishment and the Stora Enso Inhutani III providing the necessary inputs.

In addition to plantation activities, Stora Enso Inhutani III provides the villages involved in the outgrower scheme with seedlings of multipurpose species and improved rubber clones. They have also allocated resources for community development, primarily through the provision of infrastructure and skills to improve permanent agriculture. Both the company and the Indonesian Ministry of Forestry fund the scheme.

Contract period

The contractual period that land is committed to growing trees differs according to rotation length, and the number of rotations agreed under the contract. For example, growers in the EMPORSIL scheme have committed their land to tree growing for three rotations, or 36 years, in order to receive the benefits of the third rotation. In other schemes, the rotation lengths vary from 7 to 15 years for hardwood and softwood pulp. Outgrowers in the Border Timbers scheme in Zimbabwe have committed their land to pole plantations for 10 to 12 years.

However, it is uncertain whether the period for which the land is committed for plantations is specified in the contract. ITC Bhadrachalam Paperboards reported that growers have often harvested trees before the end of the anticipated rotation, suggesting the term of commitment of land to plantations may not always be specified in terms of a set number of years but rather crop cycles.

Role of other organizations

Other organizations or institutions may facilitate outgrower schemes. However, in this study the role of a third party was limited to:

ˇ Government agencies providing tax relief to those investing in reforestation, including schemes run by Smurfit Cartón de Colombia;

ˇ Financial institutions providing loans for plantation development through Tasman Forest Industries;

ˇ Confederation of Zimbabwe Industries (CZI) providing training and establishing business links between forestry companies and growers in three outgrower schemes operated by PS Zimboard: Kaerezi Estate, Nyafarm Development Company, and Manicaland Development Association.

It was reported that Aracruz Cellulose envisages a role for cooperatives to represent farmers in their outgrower schemes in the future.

BOX 6.3 Profiles of outgrower schemes reported in FAO survey

Aracruz Cellulose, Brazil: Timber partner program

Aracruz Cellulose has operated an outgrower scheme for pulpwood production since 1990. The company initiated the scheme to increase supply of wood fibre. Restrictions imposed after protests against companies owning large tracts of land had prevented the company from expanding their own plantations. The popularity of the scheme has encouraged the company to expand it to include the production of sawlogs.

The company offers growers three contract options varying in the extent of company inputs and the grower's need for financial assistance. They offer technical assistance and seedlings in all schemes. Growers may also receive fertilizer, ant killer and interest free loans, if desired. If the grower sells the wood to the company, the seedlings, fertilizer and ant killer are provided at no cost. Insurance and taxes arising from the agreement are paid by the company. Under contract, the company retains an agreed percentage of wood in payment for technical assistance and any financial assistance. For the remaining wood, the grower receives market price or better for the wood.

The growers are responsible for planting the seedlings, maintaining the plantation, harvesting the trees within six to eight years, and transporting the logs to the company's nearest depot. If the grower sells to another purchaser, they must pay back the company expenses plus 10-20 percent for defaulting on the contract.

In addition to receiving market price for the wood volume sold to the company, growers retain 3 percent of wood for their own use and receive free seedlings of native species for planting.

Growers are planting Eucalyptus grandis and E. urophylla in woodlots which are harvested at six to eight years and 12 to 14 years for pulpwood and sawlogs, respectively. To date, 20,000 ha of the originally planned 28,000 ha have been established under the scheme. The growers' enthusiasm has resulted in the company increasing the planned area of plantation under this scheme to 60,000 ha. Almost 2,000 growers are involved in the scheme currently, each typically planting a 10 ha woodlot.

Border Timbers, Zimbabwe

Border Timbers has operated an outgrower scheme in Manicaland, Zimbabwe, since 1996 for the production of poles from eucalypt woodlots on a 10- to 12-year rotation. The company initiated the scheme to allow it greater flexibility in production from its own land, and aims to achieve a plantation area of 2,000 ha under the scheme, providing about 60 percent of its pole requirements. Currently the scheme involves 65 growers who have planted a total of 450 ha.

Under the outgrower scheme, Border Timbers offers growers some flexibility in production. The grower determines the production tasks they wish to accept responsibility for (with advice from the company), with the company accepting responsibility for the remaining tasks. Thus, the agreement may involve the company managing plantation activities partially or entirely. The financial arrangements vary accordingly. Border Timbers offers growers loans at 15 percent interest. The company guarantees to purchase the product at harvest at market prices.

ITC Bhadrachalam Paperboards Ltd., India: Clonal Eucalypt plantation scheme

ITC Bhadrachalam Paperboards has run an outgrower scheme in Andhra Pradesh, India, for the production of eucalypt pulpwood and poles for the past 10 years. Unable to gain commitment for pulpwood supply from the State government, the company initiated the scheme to ensure supply of pulpwood, and to improve the productivity and profitability of pulpwood plantations by ensuring genetically improved material is used. Research, development and distribution of high-yielding Eucalyptus tereticornis clones commenced in 1989.

The company provides growers with the genetically improved "Bhadrachalam" E. tereticornis seedlings, technical support and enters into buy-back agreements, in which they offer to buy the wood at market price. The grower is responsible for planting and managing the plantation. They must also arrange the finance, if required, to purchase seedlings and maintain the plantation. Those who establish an integrated agroforestry system obtain crops in the first year. Growers also retain small timber and fuelwood after the trees are harvested.

Under this agreement the grower is not bound to sell the wood to the company. However, the company envisages that its efforts in working with growers and improving productivity of plantations will enable it to buy the bulk of the wood at market prices.

Currently there are 1,357 growers participating in this outgrower scheme, planting the genetically improved E. tereticornis in woodlots or agroforestry systems. The area of plantations are typically about 1.5 ha. The total area planted under this scheme is about 3,210 ha. The company anticipates an additional 1,500 farmers will join the scheme each year, increasing the total plantation area by between 1,500 and 2,000 ha annually.

Kolombangara Forest Products Ltd, Solomon Islands: Kolombangara Forestry Scheme

The company commenced the outgrower scheme in 1989 to produce additional sawlogs for their mill. Through this initiative, the company aimed to promote sustainable forest plantation management in the Solomon Islands, and to engender good relations with surrounding communities. The scheme is implemented on Kolombangara Island, in the Solomon Islands.

Under this scheme, the company will purchase logs from growers. The company provides seedlings and silvicultural advice. The growers are responsible for the establishment and management of plantations. No finance is offered by the company. These arrangements have no contractual basis and so there is no formal commitment from the growers to sell wood to the sawmill.

The growers retain residual wood for their own use. Those who have adopted agroforestry systems also benefit from fruit and vegetables produced on the land as well as timber.

Currently there are 100 growers participating in the scheme, who have planted 1-2 ha in woodlots or agroforestry systems. The species planted are Eucalyptus deglupta, Gmelina arborea and Tectona grandis. About 200 ha have been planted, with the company encouraging expansion of this area by 30 ha per year. It is expected that the growers will harvest the trees after about 16 years.

Melcoffee Sawmill, Vanuatu: MSL Extension Forestry

In 1996, Melcoffee Sawmill commenced a scheme with local growers at East Coast Santo to produce sawlogs for markets in Asia, Noumea and Australia. The scheme was initiated by the company to gain access to an expanded resource for the future while helping landholders to retain their economic independence.

The sawmill provides growers with seedlings, as well as management and technical support to help plant and maintain the trees. At harvest, the company pays market price for the timber. The growers are responsible for the establishment and maintenance of trees, and are allowed to retain the low-grade timber from the trees for their own use.

About 50 growers are involved in the scheme, planting 1-2 ha each of Endospermum medullosum in woodlots and agroforestry systems. About 100 ha of the planned 400-500 ha have been planted so far, with the trees expected to be harvested after 15-20 years.

Mondi Ltd, South Africa: Khulanathi scheme

The company Mondi Ltd has been operating an outgrower scheme in the KwaZulu-Natal region with landholders since 1990, when their demand for pulpwood increased following the construction of their pulp mill. The company developed the scheme in order to access suitable land, much of which was tribal land, for forestry in the vicinity of the mill.

The company provides growers with inputs, including cloned seedlings, fertilizer and herbicides. It also employs an extension forester in each district to provide assistance to growers in plantation establishment and maintenance, and advice on harvesting and transport. The company also offers finance to establish woodlots at 10 percent interest, payable at harvest. It pays the market price for the timber at the time of harvest.

Growers have tended to establish woodlots on their underutilized land. They are responsible for plantation maintenance on their as well for delivering their timber to the company depot, which is located close to the communities to allow growers to use their existing vehicles. Growers receive the mill price for the wood less any costs to the company for transport and loading. Growers retain the low-grade timber for their own use (e.g. fuelwood, fencing).

Under this scheme 2,854 growers have planted about 5,900 ha with eucalypts, with most planting a 2 ha woodlot. Production commenced in 1994 and the trees are harvested after four to six years. Growers provide the company with between 100,000 and 150,000 tonnes per year. The company aims to increase the plantation area to about 8,000 ha.

PS Zimboard Products, Zimbabwe

PS Zimboard Products in Zimbabwe operate five outgrower schemes, which commenced between 1997 and 1999. Two schemes were initiated by the company to obtain additional supplies of wood for their pulp mill, as eucalypt pulpwood is expected to be in short supply in the future. The remaining three schemes were initiated by landholders wanting to generate income for agricultural or community development. From one scheme alone the company aims to obtain 60 percent of its annual eucalypt wood supply.

The schemes are run by Project Committees - comprising representatives of growers and the company.

The company encourages plantations of Eucalyptus grandis, E. saligna and E. regnans in woodlots managed on seven-year rotations. The company offers growers technical advice and support, and guarantees to purchase the wood at market price. The company also provides loans for working capital at 15 percent interest to growers. The growers purchase seedlings from a commercial nursery, and are responsible for the establishment and maintenance of plantations. They also retain the low-grade residual wood.

In three schemes, there is just a single grower, planting 300 ha, 40 ha and 600 ha each. Cooperatives are involved in the remaining two schemes, comprised of 20 and 22 growers, and have established 300 ha and 500 ha plantations, respectively.

Smurfit Cartón de Colombia, Colombia: Third Part Reforestation Programs

Smurfit Cartón de Colombia, situated in the Andean Colombia region, has been operating a scheme for the production of pulpwood since 1986. The scheme was initiated by the company to increase access to land adjacent to its own holdings, increase the future supply of wood, consolidate the forestry activity in neighbouring districts, support initiatives from its neighbouring landholders, involve more investors in forestry, and encourage widespread reforestation within the country.

Long-term contracts are sought with landholders, with the company undertaking all the establishment, maintenance and construction of secondary roads for harvesting. They will replace the plantation if damage occurs. Growers are responsible for paying the land taxes, and constructing the primary roads needed for harvesting. The contract details the percentage of wood volume allocated to the grower and the company, with the grower able to receive market price for their percentage rather than the wood.

The security of each partner's investment is protected under the contract. If the company decides to withdraw from the contract it must leave the plantation to the grower. If the grower decides to withdraw from the contract, they must return the company's investment plus an additional 30 percent. If grower decides to sell the land, they must ensure the purchaser agrees to fulfil the contract.

Under this scheme, woodlots of hardwood (Eucalyptus grandis) and softwoods (Pinus oocarpa, P. khesya and P. tecumumanii) covering 3,860 ha have been established. A total of 56 growers is involved, with each typically planting about 69 ha. The eucalypt and pine plantations are managed in rotations of 15 and 8 years, respectively. Through the scheme, the company aims to access the wood needed to supply 10 percent of its future hardwood and softwood requirements.

SOPORCEL, Portugal: EMPORSIL scheme

Since 1990, the Lisbon-based company SOPORCEL has operated an outgrower scheme through its subsidiary company EMPORSIL for the production of pulpwood. SOPORCEL established EMPORSIL to manage their own plantations and to offer partnerships to landholders to access additional wood supplies.

Under this outgrower scheme, EMPORSIL undertakes plantation establishment and maintenance with funds supplied by SOPORCEL, and guarantees the success of the plantation. The grower provides the necessary land, and may provide labour and machinery if they wish. Proportional to their input, the grower retains a percentage of roundwood production, which SOPORCEL agrees to purchase at market price at the time of harvest. Contracts last through to the harvest of the third rotation. Contract arrangements may allow growers to retain hunting and other rights to the land placed under plantation.

Under this scheme, 10,000 ha of a planned 30,000 ha have been planted to date with Eucalyptus globulus for pulpwood. Typically, growers plant woodlots of 20-40 ha in area, which are managed on 12-year rotations.

South Africa Wattle Growers' Union, South Africa: Phezu Komkhono Wattle Bark Loan Scheme

The South African Wattle Growers Union, a marketing cooperative, sells wattle bark on behalf of growers to domestic South African markets. This scheme was initiated in 1995 in the KwaZulu Natal region, after a tribal chief approached the union for financial assistance for individual community members to grow wattle. Under the scheme, growers supply about 5 percent of the industry's demand.

The cooperative provides fencing materials, seeds or seedlings, fertilizer and arranges insurance for growers. They also provide an extension service and assist with plantation establishment. The cooperative also offers loans for plantation establishment at 8 percent interest, which is paid from the returns from sales.

The growers are responsible plantation establishment, maintenance, fire protection and harvesting - usually after nine years of growth. They receive market price for the wattle bark from the Union. They retain the timber for their own use, primarily for construction and firewood, or to sell on the open pulpwood market.

Since the scheme commenced, 430 growers are participating by planting Acacia mearnsii woodlots of about 1 ha. The scheme aims to plant about 2,000 ha in total. In addition to the wattle bark, growers have produced about 8,000 tonnes of poles and 7,000 tonnes of pulpwood from the plantations.

Stora Enso Inhutani III, West Kalimantan, Indonesia: PT Finnantara Intiga scheme

The PT Finnantara Intiga outgrower scheme, run jointly by a Finnish and Indonesian company, Stora Enso Inhutani III, has been developed to produce pulpwood, which commenced in 1994. The scheme was initiated to avoid conflict with local people when land, owned by the government with local people holding traditional user rights, was allocated to timber production under the Timber Estate Program of the Indonesian Government.

The villagers contribute village land, with many local people employed under the scheme. The company provides all other inputs, including the seedlings and is responsible for maintaining, harvesting and replanting of plantations. At harvest, the village retains 10 percent of the plantation, which they sell to the company at the market price. The company also provides villagers with seedlings of local multipurpose trees and improved rubber tree clones, and has allocated resources for community development - particularly in support of agriculture.

Under this scheme, villagers are planting Acacia mangim, A. crassicarpa and Eucalyptus pellita on grassland and in bushland. The system of planting is dependent on original vegetation, topography and soil factors. The company has a target of establishing 30,000 ha to supply 10 percent of its requirements, with 22,000 ha already established. About 100 villages are currently participating, each planting about 200 ha.

Swiss Lumber Company, Ghana: Swiss Lumber Company scheme

The Swiss Lumber Company operates an outgrower scheme in Manso-Amenfi, Ghana, for sawlog production. The scheme began in 1991, primarily as a public relations project by the company.

Under this scheme, the company pays the landholder - who may or may not be the grower, an annual rent for the land. It supplies growers with seedlings and equipment for plantation establishment. The company also employs growers to complete plantation maintenance. At harvest the grower and landholder receive 50 percent of the wood and the company the other 50 percent. The company has the first right to buy the grower's/landholder's 50 percent at market prices. The growers are allowed to keep the low-grade residual wood.

The company provides seedlings of Terminalia, Metroxylon, Entandofragma, Miliciacea and Ceiba species. As agroforestry is not possible, owing to the poor productivity of the soil from past use, and erosion is of concern, the company encourages contour planting along degraded hill slopes. At present, 25 growers are involved, and have planted 4-10 ha each. The company aims to plant between 20 and 25 ha per year, with about 150 ha currently planted.

Tasman Forest Industries, New Zealand: Leasehold Maori Land

Tasman Forest Industries have been running a land lease scheme on Maori land since 1993, for the production of pulpwood. About a third of the company's plantation estate is located on Maori land. The scheme was initiated by the company to access additional wood fibre for their pulp mill.

The company leases land from Maori groups and manages the development and maintenance of the trees. The period of the lease allows the company to develop plantations for two treecrop rotations. The landholders retain hunting rights and may graze sheep under the plantation if desired. The management of vermin control is undertaken jointly.

To date, 27 owners are involved in the scheme, each leasing about 200 ha to the company. Under this scheme eucalypt (Eucalyptus nitens, E. fastigata and E. globulus) woodlots have been planted over 11,000 ha, with harvest expected after 11 years. The company plans to develop about 20,000 ha of plantations under this scheme.

Reported benefits of schemes to outgrower partners

The benefits of schemes derived by forestry companies and growers were reported and are summarized in Table 6.2 below. With the exception of one forestry company, the access to additional resources at competitive prices was considered the primary benefit reported. Under these schemes, companies' production costs are typically lowered by avoiding investment in land and labour costs. One forestry company, which initiated an outgrower scheme as a public relations exercise, saw an improved public image as the primary benefit. Another three forestry companies identified the primary benefits as: outgrower plantations being in close proximity to the mill; spreading the risk of environmental damage across numerous plantations; and increased community support by developing forestry that provides social and environmental benefits.The majority of growers perceived the additional income generated from wood sales as the primary benefit of outgrower schemes, as noted in Table 6.2. Other important benefits for growers included additional employment for themselves and the community, the diversification of farm production, and the production opportunity by using underutilized land.

Table 6.2. Benefits of forestry outgrower schemes reported in FAO survey

Benefits of outgrower schemes

Number of responses

For forestry companies

Greater resource base at competitive prices


Public image


Geographic proximity


Geographic spread of risk


Social and environmental benefits


For growers

Diversification of farm production




Production from underutilized or idle land




Improved plantation productivity, profitability


Access to investment capital


Developing business skills


Improved infrastructure


Agricultural development assistance


Note: X = 1 response, XXXXX = 5 responses.

Issues of concern for outgrower partners

The issues of concern for forestry companies and growers participating in the outgrower schemes reviewed are presented in Table 6.3. Readers are reminded that the growers' issues were identified by the company partners in this study, with the exception of the schemes in Zimbabwe, which were reported by a forestry consultant. A number of issues were reported by more than respondent, with discussion of the issues presented in the sections below.

The main issues of concern highlighted by forestry companies include the loss of the forestry resource as a result of changing land tenure, declining grower interest, competition from other land uses, and increased environmental hazards. Contractual price disputes and security on loans had also concerned some companies. However, some companies also identified external issues with the potential to threaten the viability of schemes, or hinder planning and investment. These included concerns about the unpredictable direction of natural resource management policies, conflict with environmental organizations and an unstable local environment for business.

In general, growers' concerns also stem from uncertainty of markets, viability of their company partner company, environmental risks of production, whether production was being maximized, and price and credit fluctuations. As indicated in Table 6.3, the high interest rates on loans dominate the concerns of growers participating in all of outgrower schemes reported for Zimbabwe.

Table 6.3. Issues of concern reported in FAO survey

Benefits of outgrower schemes

Number of responses

For forestry companies

Land redistribution, sale


Conflict with environmental organizations


Uncertainty of growers commitment to agreement


Price negotiations


Environmental risks


Competition from other companies


Timber theft


Profitability of harvesting scattered plantations


Growers harvesting prematurely


Loss of community support


Growers defaulting on loans


Stability of natural resource management policies


Availability of land


Business atmosphere


For growers

High interest rate on loan


Dissatisfaction with prices


Reliability of market


Partners fulfilling contract


Environmental risk


Lack of finance


Level of production


Changes in natural resource management policies


Loss of land productivity


Maintaining good relationships with neighbours


Note: X = 1 response, XXXXX = 5 responses

Forest company issues

Some forestry companies expressed uncertainty about the security of supply under outgrower schemes. The potential loss of supplies through compulsory government land redistribution or sale, and in one scheme, a change in political leadership which disfavours outgrower schemes concerned PS Zimboard, in Zimbabwe. One of three schemes affected by land redistribution proposals in Zimbabwe, the Himalaya Cooperative, has since successfully secured title to the land. Smurfit Cartón de Colombia in Colombia also consider the potential sale of plantation land to an uncommitted landholder to be a concern. Further, conflict between landholders and growers in the scheme run by the Swiss Lumber Company, arising from discrepancies between the traditional and government systems of allocation of land was identified as a potential threat to the long-term viability of the scheme.

While the above schemes are concerned about the possible loss of land under schemes, Stora Enso Inhutani III operating in Indonesia is concerned about the limited land available for future plantations and the increasing competition for land by the oil palm industry.

The full dependency of the company on outgrower partnerships for wood supply makes land access a critical issue.

Both Stora Enso Inhutani III and ITC Bhadrachalam Paperboards (India) are concerned about the profitability of harvesting scattered plantations. ITC Bhadrachalam Paperboards indicated that the plantations developed under the scheme were dispersed and typically 1.5 ha in area, increasing the cost of harvesting and transport operations.

A lack of grower commitment to schemes has created uncertainty for some company partners. Kolombangara Forest Product and Melcoffee Sawmill are concerned that growers may identify other buyers at harvest time. Partnerships in these schemes are not bound by contract, heightening this uncertainty. Another company, Tasman Forest Industries believes the commitment of Maori groups to their contractual arrangements is unpredictable, as compared to contracts with public companies. Under the Mondi scheme in South Africa, a respondent indicated that other companies were persuading growers to sell wood early "... at unrealistic prices and uneconomic volumes", which disrupted contractual arrangements. Mondi was also concerned about the theft of timber, particularly in regions of high unemployment and people were in close proximity to the plantations. This situation had already resulted in a considerable loss of supply.

Concern over environmental damage to plantations caused by fires, insects, animals or disease was raised by Smurfit Cartón de Colombia in Colombia and Border Timbers in Zimbabwe. Although unlike Smurfit Cartón de Colombia, Border Timbers does not bear the production risk in the scheme. However, Border Timbers has additional concerns with its high dependency on the scheme for supplies (60 percent of its pole requirements) and the capacity of growers to repay their loans from the company. The South African Wattle Growers' Union, who run the Phezu Komkhono outgrower scheme, also indicated their concern about growers defaulting on loans they provided, particularly as plantations were often grown on community land with the loans unable to be secured through land ownership.

Issues relating to prices were raised by two companies. Melcoffee Sawmill in Vanuatu does not have a formal contractual arrangement with growers participating in the scheme, and is consequently concerned that royalties may not be successfully negotiated at the time of harvest. The Aracruz Cellulose scheme, which has been operating over a longer period, has experience of disputes about the purchase price with some growers, who mostly signed contracts between 1990 and 1994. During this high inflation period, prices were adjusted according to an official index, which no longer exists. Currently, market price determines the price offered, with dissatisfaction expressed by some growers that Aracruz Cellulose, who dominate the market, were keeping prices low. Following negotiations, the dispute has largely been resolved by the company lowering the growers level of debt, effectively increasing their profit margin.

In the past landholders in the EMPORSIL scheme in Portugal, were also dissatisfied with the manner in which the company calculated their percentage wood allocation from the plantation. There were two issues raised which the company has tried to address. First, EMPORSIL is paid in wood volume for its services, and the company has found it difficult determine an agreed value for its services. Second, after deducting a percentage amount in payment for EMPORSIL services, the company formerly calculated the percentage wood volume to be retained by the growers based on the estimated harvested volume and its monetary value. However, after the growers expressed dissatisfaction, the company now determines the percentage wood volume to be retained by growers from the actual volume harvested.

Disputes over outgrower schemes with independent environmental organizations have affected the Aracruz Cellulose and Tasman Forest Industries schemes. Tasman Forest Industries reported that environmental groups are trying to dissuade Maori groups from entering into land lease agreements for plantation establishment on land with native vegetation. Aracruz Cellulose is faced with a dispute with an environmental NGO about the scheme's environmental impacts, with a judicial inquiry appointed to arbitrate. This action has delayed the scheme's development and may have implications for the future of the scheme.

Growers' issues

Typically, the growers' issues reported through this study's questionnaire correspond to those for forestry companies (Table 6.3). Growers are concerned about security in terms of future markets, the long-term viability of the company partner, and the company's ability to meet its obligations under the terms of contract. For the 100 villages involved in the Stora Enso Inhutani III scheme, this would mean losing a major business partner from which widespread benefits are generated.

Growers in partnership with Kolombangara Forest Products in the Solomon Islands, and PS Zimboard and Border Timbers in Zimbabwe, have raised concerns about the lack of financial assistance available to them. It appears that this has limited grower involvement in the outgrower schemes. Kolombangara Forest Products believes there is a role for government to provide loans to prospective growers, while growers in the schemes operated by PS Zimboard and Border Timbers have expressed concern at the high interest rates (15 percent) for loans offered by the companies.

The reliability of the market was reported as a concern for growers in the Mondi scheme in South Africa, where growers are exposed to fluctuating market demand for products. The company is subsequently investing considerable time in communication and negotiations with growers.

Some partners in the EMPOSIL scheme in Portugal are concerned that the company is not providing adequate silvicultural information to growers. There appears a willingness by some growers to play a greater role in forest management to improve yields and profits. However, currently the scheme only allows a very limited management role for landholders.

Alternatively, growers participating in the Smurfit Cartón de Colombia scheme have expressed concerns that forestry may reduce the productive potential of their land and subsequently diminish their good relations with neighbouring landholders.

Environmental hazards resulting in damage to plantations have implications for growers who carry the production risk and rely on high-interest loans. Growers in three schemes operating in Zimbabwe have needed to replant owing to damage from fire, insects and vermin. These ecological risks were identified as the biggest problem for these schemes. The need to replace poor quality seedlings also slowed production.

Growers in the Phezu Komkhono scheme managed by the South African Wattle Growers' Union may face restrictions on future plantations owing to changes to legislation to restrict water use. The company views the lack of education from government about proposed changes to legislation as a major concern.

Successes of outgrower schemes

Respondents to the questionnaire reported the success of outgrower schemes included:

ˇ expanding future supplies for industry;

ˇ increasing the number and willingness of growers to participate in forestry; and

ˇ providing broad social and economic enrichment for the individuals and communities involved.

For example, reports about the scheme operated by Mondi in South Africa emphasized the contribution to building self-reliance of participating communities. Beyond the benefits for growers, the scheme provided employment for local people to transport the timber from the supply depots to the mill. Also, the Swiss Lumber Company reported it had had won several "best practice" awards for its management of the outgrower scheme.

Ingredients for success

Mondi reported that the combination of optimal growing conditions, close proximity of plantations to the mill, and good prices for wood allowed growers to make a good return on their investment. As such, many landholders perceived forestry to be a better investment than agriculture. Mondi also noted that individual growers tended to receive greater benefits from the scheme as compared to community groups, owing to their greater attention to their management practices to ensure high quality timber was produced. This supports the view of the South African Wattle Growers' Union, which reported that individual ownership has a positive correlation with successful outgrower schemes.

Discussion: towards an analytical framework

Key issues

Generally, the issues raised by respondents to the questionnaire in this study reflect the issues discussed in the literature. Worldwide, there is a diverse range of outgrower schemes with a corresponding complexity of issues. As such, the nature and extent of benefits of outgrower schemes should not be assumed. A summary of the key issues that appear to determine fair and beneficial outgrower schemes is provided below. These issues were further developed into a set of principles and criteria, or an analytical framework (refer to Box 6.4, below).

Based on the information derived from the outgrower schemes reviewed by this study, the key issues that contribute to the success of schemes include the extent:

ˇ arrangements are appropriate (e.g. partners should have a reasonable likelihood of deriving benefits, contribute to the strengthening of the sociocultural and economic context of local communities);

ˇ contributions (e.g. land tenure, business viability) and partnerships are secure;

ˇ production and market risks are accurately calculated and shared;

ˇ partners have the social and technical expertise to genuinely negotiate arrangements;

ˇ partners are informed of realistic prospects and opportunities (e.g. flexibility of options);

ˇ arrangements and forestry practices are consistent with sustainable forest management principles - at the local and regional levels;

ˇ arrangements contribute to wider community well-being.

Appropriate outgrower arrangements

The outgrower arrangements offered by forestry companies vary within, and between, countries, with those schemes reported in this study illustrating such variation. These include:

ˇ land lease arrangements where the forestry company has full responsibility for the whole forestry development process;

ˇ land lease arrangements with some opportunity for the landholder to participate in the production process;

ˇ arrangements where the forestry company and landholder share the production and market responsibilities and risks - with returns divided proportionally according to the level of inputs; and

ˇ arrangements where the landholder/grower has full responsibility for production, with the company partner offering to purchase at market price at time of harvest.

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 outgrower schemes have begun only recently, with several having undergone or still undergoing adaptation (e.g. Aracruz Cellulose scheme in Brazil is expanding to include pulpwood and sawlog production).

Security of contributions and partnerships

The importance of secure land tenure for the involvement of landholders in outgrower schemes has been highlighted in the literature (e.g. Arnold, 1997; Higman et al., 1999; Mayers, 2000), yet security of land tenure is not the only requirement.

The outgrower arrangement itself may be uncertain owing to being an informal agreement (e.g. as in Solomon Islands and Vanuatu), loss of business viability of either partner, change of company policy, closure/sale of company, or externalities. Externalities can include changes in government policy (e.g. compulsory land redistribution), fluctuations in the value of the local currency, or changes in markets (e.g. loss of local markets due to shifts in global market demand/supply).

The uncertainty arising from compulsory land redistribution was reported for three outgrower schemes in this study, with secure land tenure viewed as a necessary prerequisite for entering into an outgrower scheme. However, land ownership is not the only tenurial arrangement affording security, with there examples of growers who have established plantations on community-owned land and land under long-term leases.

The negotiation process should allow both partners to make an informed assessment about the security of the other partner's contributions and obligations. Also, contracts should clearly specify the circumstances under which outgrower arrangements can be nullified and the terms for compensation.

Sharing production and market risks

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 minimize the risk of environmental damage to the trees.

As discussed above, 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 the grower receiving an agreed percentage of the returns from production agreed to under contract (e.g. lease arrangements), growers have largely been concerned about whether:

ˇ the leasing rate is fair;

ˇ methods used to calculate their return from market price or wood volume equivalent are fair;

ˇ production and harvesting has been optimized in terms of silviculture and market prices;

ˇ land has maintained its physical potential to provide reliable production in future (either from forestry or alternate land uses);

ˇ there is a cost-efficient opportunity to change land use (i.e. out of forestry) when the contract expires or concurrently (e.g. integrated agroforestry).

Under some outgrower schemes (i.e. where growers share responsibility for production), forestry companies provide technical assistance and advice to lower the risks for growers. However, the provision of such assistance can also increase the costs of production for growers (Arnold, 1997). Alternatively, from a company perspective, participation by inexperienced growers can greatly increase the risks of poor production. The outgrower schemes operated by PS Zimboard in Zimbabwe offer growers technical and business assistance through a third party, with individual growers purchasing inputs or advice as required.

While it is difficult to provide generic guidelines, outgrower arrangements should aim to balance opportunities for flexible participation with contractual security.

Negotiation of arrangements

Both partners need to have the capacity to genuinely negotiate outgrower arrangements that are beneficial and fair. Capacity building may involve developing expertise (i.e. market knowledge, negotiating skills) or providing an affordable alternative, such as a third party to actively negotiate on the behalf of a partner. For example, an individual small-scale grower may possess little bargaining power, yet when combined with a large number of growers (e.g. through a growers' cooperative, shared contracting of a market broker) may be able to extract a better deal in negotiations.

This study revealed that landholders/growers are often in a weak position to negotiate with large industrial forest companies owing to their lack of market knowledge (e.g. fair prices, long-term market trends), and if companies only offer a standard contract. In some instances, forestry companies can prefer to negotiate with a single representative organization (e.g. growers' cooperative), rather than incur the higher costs and time delays when negotiating with numerous individual growers (Curtis and Race, 1998). However, the extent to which a partner can negotiate a better arrangement largely reflects the willingness of both partners to participate in an outgrower scheme, which in turn is strongly influenced by the nature of local markets (i.e. favouring landholders/growers or processors).

Awareness of realistic opportunities

Despite the apparent multiple benefits of outgrower 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 30-40 years). An element of this uncertainty is due to the inherent fluctuations in the forestry 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 among buyers. Yet landholders/growers should not naďvely rely on prospective industrial partners to provide an appraisal of the opportunities under outgrower schemes. Third parties (e.g. NGOs, government) wishing to encourage sound forestry development could play a catalytic role by supporting the availability of accurate market assessments.

Some respondents to the questionnaire reported that growers have been able to renegotiate prices or their percentage wood allocation with companies to more accurately reflect market prospects (e.g. Aracruz Cellulose in Brazil, SOPORCEL in Portugal).

Sustainable forest management

While the principles of sustainable forest management (SFM) may be well known, how SFM should translate into local forestry practices is far from clear. This is further complicated under outgrower schemes when landholders/growers and forestry companies have different views as to what constitutes SFM. As with increasing market knowledge, both partners need to take responsibility for understanding the implications of forestry practices used under schemes, with subsequent negotiation to ensure clear agreement is reached. While not reported as such by respondents in this study, third parties could play an important role in making information available and negotiating on behalf of a partner to ensure SFM practices are employed.

Community support

In large-scale forestry projects or where forestry is directly important to the livelihoods of the wider community, managers of outgrower schemes will need to be mindful of their implied obligations to the wider community. Merely arguing that outgrower schemes are exclusively a contract between individual landholders/growers and the forestry 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, as 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 outgrower schemes. Of further complication is that communities may become divided in their support of forestry, with it difficult to clearly identify opinion leaders and their issues of concern.

Alternatively, if outgrower schemes are widely perceived to be fair and beneficial for the participating individual partners and their associated communities, then there is the potential for wider and more enduring benefits to flow from forestry development than simply producing wood fibre. Some companies will even absorb the higher costs of operating, or poorer quality timber from, an outgrower scheme compared with investing in their own industrial plantations owing to the positive community support it can attract.

An analytical framework

Drawing on published literature and the results of this study, a set of principles and criteria or an analytical framework has been developed as a tool for assessing the implications of forestry outgrower schemes (Box 6.4). This framework outlines the characteristics that appear to have a major influence on the extent outgrower arrangements are fair and beneficial for each partner (or potential partner). It may also be of value to organizations considering the establishment of, or support for, an outgrower scheme.

Positively, many governments have demonstrated a capacity to create the necessary conditions for beneficial forestry outgrower schemes to emerge. However, it is likely that on-going support will be required to ensure the expected benefits are delivered over the long-term to all parties involved (directly or indirectly) with outgrower schemes (e.g. role for government, non-government organizations, civil society groups, market intermediaries), particularly when there is little incentive or commitment of either partner to contribute fairly to arrangements.

BOX 6.4 Framework for assessing forestry outgrower schemes


Mutual acceptance of each partner's aims under the arrangement;

Fair negotiation process where all partners can make informed and free decisions - including allowance for a third party to negotiate on their behalf;

Realistic prospect of all partners being able to derive benefits proportional to their contributions and risks; and

Long-term viability and commitment of partners to optimize the returns from the arrangement in terms of commercial, sociocultural and environmental attributes.


Positive local sociocultural, policy, economic and environmental context for all the principles (noted above) to develop;

Partners have a willingness and capacity to contribute to arrangements within the socio-economic and environmental parameters of their household/business over the contractual period - with opportunities for renegotiation or inherent flexibility within contracts (i.e. partners need to avoid high risk arrangements);

Arrangements are formalized (i.e. have legal status) with clear details of when and how multiple benefits can be arranged (e.g. collection of NTFPs, grazing, intercropping), contracts can be nullified, and compensation would be forthcoming. It would also appear useful for a credible and independent third party to be nominated to arbitrate if disagreement arises;

Partners have access to accurate, in-depth and independent information on the:

ˇ likely short- and long-term prospects - with contingency scenarios explored if arrangements are nullified;

ˇ current and likely long-term viability of prospective partners; and

ˇ likely long-term context for local forestry development (e.g. market trends - product volumes and competitiveness, necessary infrastructure, government policy, code of practices, local SFM practices, landholder/grower participation, wider community support).

How these principles and criteria translate to any given local context will vary depending on the extent:

ˇ entering into outgrower arrangements outweighs the opportunity costs for both partners;

ˇ partners are informed of the commercial prospects and wider implications;

ˇ regional markets provide positive commercial returns for both partners;

ˇ partners remain motivated to contribute to arrangements - reflecting the importance of schemes to the viability of the household/business;

ˇ government has a willingness and capacity to develop encouraging policies and procedures;

ˇ community perceptions of outgrower schemes and potential partners are favourable;

ˇ institutional support is available for providing market information and a fair negotiating context.


Outgrower schemes are an emerging feature of forestry development in many countries, yet the socio-economic value of such schemes is still to be fully assessed. Furthermore, there is little available literature to suggest the criteria for assessing the viability and fairness of forestry outgrower schemes.

The main aims of this study were to assess the extent and main characteristics of forestry outgrower schemes globally, with an emphasis on developing countries, and develop an analytical framework to assist the comparative analysis and development of existing and future outgrower schemes.

This study provides a broad overview of forestry outgrower schemes in operation around the world. A major component of the study was to survey forest industry staff who manager outgrower schemes. A response rate of 21 percent was received to the study's questionnaire. Given the limitations of the study, it cannot claim to be a comprehensive review of all forestry outgrower schemes in operation. While the study's initial aim was to undertake a comprehensive review, on reflection it appears this aim was overly optimistic given the level of funding for the study. Nevertheless, it has revealed many important aspects of outgrower arrangements that need to be considered when assessing strategies for forestry development. This report also includes an annotated bibliography of literature relevant to understanding forestry outgrower schemes.

The study's Resource Group was a valuable component to the study, and provided a mechanism for ongoing dialogue between the researchers and experienced people located around the world. A mid-term report of the study was submitted to the project's advisory team at FAO in December 1999, with constructive feedback received.


Consideration should be given to expanding the study to include feedback from growers participating in outgrower schemes (e.g. via fieldwork) and translating the study's questionnaire and reports into additional languages (e.g. French, Spanish). A continuing effort to refine and build upon the current outgrower contact list should also be considered.

A fieldwork component would allow the information reported in the study's questionnaires to be verified from other perspectives (e.g. growers, NGOs). Few questionnaire respondents reported the participation of a third party in schemes - either NGOs, governments, banks, donors or commissioned brokers/agents, suggesting that third parties have not played a significant role in the outgrower arrangements reported or third parties do not play a role that is valued by forestry companies (i.e. majority of respondents). This is an area that should be explored in future research, as the role of a third party has emerged as an important element of our analytical framework.

In summary, we recommend that FAO give consideration to a subsequent stage of the project which has an emphasis on fieldwork in order to:

ˇ gain in-depth understanding of the growers' perspective;

ˇ identify the nature and extent of the role (or potential role) of third parties;

ˇ verify results received via the mailed questionnaire;

ˇ conduct multiperspective workshops to refine the analytical framework; and

ˇ fully document fair and beneficial outgrower arrangements (particularly those that reveal important lessons that can be transferred to other countries or contexts) that are widely viewed as exemplars to replicate.


Arnold, M. 1997. Trees as outgrower crops for forest industries: experience from the Philippines and South Africa. Rural Developmen0t Forestry Network, Network Paper 22a (Winter 1997/98). London, UK, Overseas Development Institute.

Curtis, A. & Race, D. 1998. Links between farm forestry growers and the wood processing industry: lessons from the green triangle, Tasmania and Western Australia. Report for Rural Industries Research and Development Corporation, (RIRDC) Publication No. 98/41. Canberra, Australia.

FAO. 1999. State of the world's forests. Rome.

Higman, S., Bass, S., Judd, N., Mayers, J. & Nussbaum, R. 1999. The sustainable forestry handbook. London, UK, Earthscan.

IIED. 1999. Private sector participation in sustainable forest management. Draft report of IIED workshop, Wokingham, UK. (January). London, UK, International Institute for Environment and Development.

Kato, T. 1996. Towards sustainable treefarming by small farmers: key factors derived from the experience of PICOP. Paper presented at the International Conference on Community Forestry: as a strategy for sustainable forest management. 24-26 May 1996. Manila, Philippines.

Lal, P. 1999. Private sector forestry research: a success story from India. The Indian Forester, 125(1): 55-65.

Makarabhirom, P & Mochida, H. 1999. A study on contract tree farming in Thailand. (monograph). Reprinted from Bulletin of Tsukuba University (Forests No. 15). Thailand.

Mayers, J. 2000. Company-community forestry partnerships: a growing phenomenon. Unasylva, 200: 33-41.

New Zealand Ministry of Forestry. 1994. Small forest management. 2. Forestry Joint Ventures. Auckland.

Race, D. 1999. Forest company - community partnerships: ingredients for success. Discussion paper based on a meeting held at International Institute for Environment and Development (IIED), London, UK, 9 April 1999.

Race, D. & Curtis, A. 1999. Farm forestry in Australia: improving links between small-scale growers and industry. Journal of Sustainable Agriculture, 13(4): 67-86.

Shingi, P.M. 1997. Production and marketing of poplars in India: a case study. Ahmedabad, India, Centre for Management in Agriculture, Indian Institute of Management.

Vuokko R. & Otsamo, A. 1998. Social and technical considerations in establishing large-scale Acacia plantations on grassland and bushland in West Kalimantan, Indonesia. In Turnbull et al. Recent developments in acacia planting. ACIAR Proceedings No. 82. Canberra, Australia.

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