The benefits of working together: small and medium forest enterprises

Small and medium enterprises account for a huge proportion of the businesses and jobs in the world’s forests. These enterprises can be easy for poor people to set up, but without support, the challenges of being small threaten their survival. The best way forward is usually finding a common cause and working together as an association.

Research from the International Institute for Environment and Development, UK, looks at how associations of small and medium forest enterprises (SMFEs) offer economic, social and environmental opportunities for poor rural communities.  Forestry policies are critical to support such associations.

However, in many cases central government policies are biased against SMFEs in favour of larger enterprises. For example, small South African forest contractors with few staff find it difficult to find time and money to comply with rules governing the Unemployment Insurance Fund, the district municipality levies, training levies, licensing procedures and banking requirements.

Donors often aggravate the disparity in policies that work against SMFEs. They increasingly give direct budget support to central government departments that work with the large forest companies responsible for marginalising SMFEs in rural areas. The justification is that this approach is more efficient and democratic, but the result is increasing marginalisation of poor people’s groups, including SMFE associations. The research finds that many SMFEs:

• have difficulty in complying with administrative requirements, often requiring transport to distant provincial or national capitals
• struggle to secure funds because they lack guarantees required by mainstream finance institutions and cannot meet the interest rates for alternative finance sources
• do not have access to important market information (such as world market prices for particular timber species)
• are discriminated against in land allocation in favour of larger companies who can invest in machinery and large-scale harvesting
• suffer from market liberalisation – they do not have the necessary support and contacts to adapt to rapid changes in competitive demand.

SMFEs can benefit from being part of collective associations. Association strengthens SMFE’s ability to campaign for policy changes, increase their scale efficiencies and provide resources to adapt to emerging market opportunities. For example:

• In India, protests by the Saharanpur Wood Carving Association made the government withdraw a sales tax on wooden handicraft products.
• In Guyana, the Ituni Small Loggers and Chainsaw Association gained access to a larger concession allocation, grouping individual enterprises together.
• In Brazil, the RECA association has adapted individual agroforestry enterprise production to the emerging organic market.

The research suggests that donors and governments support associations through several policy changes:

• More support for trusted intermediary organisations, which can reach SMFE associations beyond the scope of centralised government departments.
• Training for local association staff in leadership, financial and resource management skills and business skills.
• Investment in systems that provide access to market information, such as simple capital city market-outlook sessions broadcast on local radio networks.
• Emphasis on gender specific support – for example, creating specific Women’s Associations that support women’s small-scale enterprises.
• Commitment to long term in-country aid managers with good knowledge of the challenges facing SMFEs in specific regions.

Source(s):
‘Advancement through association: Appropriate support for associations of small and medium forest enterprises’, by Duncan Macqueen, Sonja Vermeulen, Cornelius Kazoora, Frank Merry, Sharon Ousman, Sushil Saigal, Shao Wen and Horst Weyerhauser in ‘How to Make Poverty History – the central role of local organisations in meeting the MDGs’, IIED: London, edited by Tom Biggs and David Satterthwaite, 2005 Full document.

Funded by: UK Government's Department for International Development (DFID), with additional support for small and medium enterprise work from: Swedish International Development Co-operation Agency (Sida); the Norwegian Agency for Development Co-operation (NORAD); the Directorate General for International Co-operation of the Netherlands (DGIS); the Swiss Agency for Development and Co-operation (SDC); UNDP Poverty and Environment Initiative (supported by the UK Department for International Development and the European Commission)

id21 Research Highlight: 24 March 2006

Further Information:
Duncan Macqueen
International Institute for Environment and Development
3 Endsleigh Street
London, WC1H 0DD
UK

Tel: +44 (0)20 7388 2117
Fax: +44 (0)20 7388 2826
Contact the contributor: duncan.macqueen@iied.org

International Institute for Environment and Development, UK

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'Formalising informal enterprises without damaging job opportunities'

'Business development support to small service providers'

'Investment incentives: do they help Ethiopian enterprises?'

'Learning process affects business growth in Latin America'

See id21's links on forestry