How to support smaller businesses in the legal timber trade – report

30 November 2022, Rome - Micro, small and medium-sized enterprises (MSMEs) have a critical role to play in meeting global demand for forest products but because of their size it is hard for them to meet legal requirements for timber production and trade.

A new report from the FAO-EU Forest Law Enforcement, Governance and Trade (FLEGT) Programme, Enabling micro, small and medium-sized enterprises to participate in legal timber production and trade: Transformational changes generated by the FAO-EU FLEGT Programme, explains the challenges facing forest sector MSMEs and outlines strategies to support them to supply legal timber and timber products to domestic and international markets.

Forest sector MSMEs are crucial to the global timber trade. They are the backbone of supply chains for large companies, they produce the majority of domestic forest products and they create much-needed employment in rural areas.

Despite their limited size and resources, they are expected to comply with legal requirements that are often designed for industrial-sized companies. Those who cannot meet them sometimes have little choice but to stay afloat by operating without being registered, working in unsafe conditions with outdated equipment, paying bribes to transport or trade their products, or even trading in timber of unknown or illegal origin.

“It is often not by choice but by necessity if MSMEs do not meet legal requirements,” said Ewald Rametsteiner, Deputy Director of FAO’s Forestry Division. “We have worked out how best to support them and we have seen what a boost they get from becoming part of the formal, sustainable economy.”

The benefits of legal compliance

The report highlights that achieving legal compliance is an important first step towards addressing many challenges facing forest sector MSMEs. Legally compliant MSMEs are better positioned to access advisory and business support services, represent themselves on official platforms, form and join associations, and pursue long-term operations and growth. This ultimately makes it easier for them to access markets, build better livelihoods, and promote sustainable forest resource use.

The paper draws from analysis of 110 initiatives supported by the FAO-EU FLEGT Programme in 20 countries between 2016 and 2022 and presents lessons learnt about what motivates MSMEs to become compliant, best practice in supporting them with the process and strategies for interventions that reach MSMEs on a larger scale.

A comprehensive support package

The paper provides seven strategies organized under three pillars of support that create conditions for small companies to become legally compliant and benefit from doing so. Among these are the need for initiatives that provide tailor-made support to facilitate compliance, establish strong support structures and create an environment that enables MSMEs to integrate into legal timber value chains.

The paper also highlights the value of providing business skills training and tailored digital tools, pursuing legal reforms to define alternative requirements for MSMEs, and building capacity of associations and federations to support each other.

“The challenges that face forest-sector MSMEs are well-known, but the “how” of actually overcoming these challenges is much more challenging,” said Erica Pohnan, FAO forest governance consultant and lead author of the paper. "The idea behind this paper was to look at the 110 initiatives and draw out successful approaches that figured out the “how” and can be replicated by others.”

The analysis concludes that using a range of these strategies in a comprehensive support package can help realize the potential of MSMEs to move past traditional business-as-usual modes of operation towards green growth and a more inclusive economy.