How financially viable is smallholder forestry? A case study with a high-value tropical forestry species

Abstract

This paper evaluates the financial performance and risk of high-value tropical forestry under the challenges faced by smallholders, using Vanuatu sandalwood as a case study. We developed a financial model to predict returns from smallholder-based sandalwood plantations. The model was used to investigate the following issues typically faced by smallholders: (i) what is the financial impact of smallholders harvesting trees at young ages because of fear of theft or cyclone damage? (ii) how does the opportunity cost of labour impact on the financial returns of sandalwood? and (iii) what are the current opportunities for smallholders to finance the establishment of sandalwood plantations and how might these be improved? Data were collected from expert interviews and relevant literature. We found that smallholder sandalwood can be a profitable investment, but tree security issues and environmental risks are leading to early harvest and an associated 64% reduction in potential returns. To improve the profitability and attractiveness of sandalwood plantations to smallholders, the following key issues must be addressed: (i) risks associated with tree theft need to be dramatically reduced; (ii) earlier returns from planting systems must be planned for smallholders with more immediate needs; and (iii) greater access to financial services is needed, including loans with competitive borrowing rates, particularly to increase the scale of planting for individual smallholders that might be constrained by labour. Theft mitigation can include fencing, patrolling, microchip tagging, all of which add significant maintenance cost. Formalised social and governance structures within and between villages, may be more cost-effective in improving tree security. Incorporating agricultural crops into systems helps produce earlier financial returns, and more rapid payback. Accessible loans can allow for upscaling of smallholder systems that are limited to household labour for plantation management, harvesting, and processing the logs.

Towards a typology of forest-managing organisations around the globe

“…However, they can maintain their comparative advantage by supplying niche markets with a diverse product assortment (Scherr 2004). A potential business model could involve timber cultivation for a specific market segment, such as high-value sawlogs for furniture production or woodchips (Tham et al 2021, Ota et al 2022). Additionally, households can diversify their income through the cultivation, value-added processing, and commercialisation of high-value non-timber forest products (Meinhold and Darr 2019).…”

Safeguarding sandalwood: A review of current and emerging tools to support sustainable and legal forestry

“…Growing sandalwood is a long‐term investment as it takes approximately 25 years for trees to mature and reach optimal levels of oil production. However, sandalwood is commonly harvested as young as 15 years (Bush et al, 2020) and identifying opportunities for early return on plantation investments is being explored as a priority to encourage smallholders to delay harvest (Ota et al, 2022). Expected production of sandalwood in 2040 indicates that India is positioned to be the largest producer globally, followed by Australia and Indonesia, with substantial growth in production in the Pacific and South East Asian regions (Table 1 and Figure 1; Thomson, 2020).…”

“…Despite overwhelming interest in sandalwood farming globally, the length of time it takes for trees to mature inevitably delays return on investment, and it is expensive to protect trees while they reach maturity (Ota et al, 2022; Viswanath et al, 2020). Methods have been developed to assist with mitigating the risk of sandalwood theft such as vibration sensing alarms that are attached to trees and send and alert to forestry staff when the vibrations from tree‐cutting are detected (Hamza et al, 2013; Kumar et al, 2020).…”

“…Methods have been developed to assist with mitigating the risk of sandalwood theft such as vibration sensing alarms that are attached to trees and send and alert to forestry staff when the vibrations from tree‐cutting are detected (Hamza et al, 2013; Kumar et al, 2020). Ongoing agroforestry research aims to improve financial viability of sandalwood planting by determining optimal timing of tree harvest (Ota et al, 2022; Viswanath et al, 2020).…”

Towards a diversified agricultural forest-based economy: Community views of planting sandalwood in Timor-Leste

“…Many of these plantation resources are beginning to mature and can satisfy international demand for sustainably sourced sandalwood products. Financially viable sandalwood production has already been demonstrated in smallholder agroforestry systems for places like Fiji (Harrison & Harrison, 2016), Vanuatu (Page et al, 2010;Ota et al, 2022) and India (Divakara et al, 2018). Recent research in Timor-Leste has also demonstrated the potential for profitable sandalwood production in smallholder systems (Page et al, 2022b).…”