Value Chain Study FINAL (Web)

EnRD PRoGRam CASE STUDY
01
Plantation Wood, Rattan and Bamboo in Leyte Island

Value Chains to Benefit Income Generation of Forest Farmers
A Case Study
Imprint
This publication is by the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbH
November 2011
Environment and Rural Development Program Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbH 2B PDCP Bank Center, V.a. Rufino corner L.P. Leviste Sts. Salcedo Village, makati City, Philippines Tel. +63 2 892 9051 Fax +62 2 892 3374 www.enrdph.org Contact Dr. Walter Salzer Director and Principal advisor EnRD Program Email: walter.salzer@giz.de
Plantation Wood, Rattan and bamboo in Leyte Island

Value Chains to Benefit Income generation of forest farmers
a Case Study
EnRD PRogRam CaSE STUDY
01
EnVIRonmEnT anD RURaL DEVELoPmEnT PRogRam-ThE DEUTSChE gESELLSChafT fR InTERnaTIonaLE ZUSammEnaRbEIT (gIZ) gmbh
Contents
ACKNOWLEDGEMENTS FOREWORD SUMMARY: TOP 10 FINDINGS OF THIS STUDY PLANTATION WOOD VALUE CHAIN THE FURNITURE VALUE CHAIN FROM PLANTATION WOOD IN LEYTE Situationer Enablers and Supporters MAJOR FUNCTION OF THE PLANTATION WOOD VALUE CHAIN Provision of Quality Seedlings Production Harvesting Lumber Processing Wholesale / Retail Furniture Making Trade and Consumption ECONOMICS OF PLANTATION WOOD VALUE CHAIN AND OPTIONS FOR CBFM / PO FARMERS ENHANCING COMPETITIVENESS OF FARMERS AND POS Case Study: Gmelina: Value additing to Gain Income
4 5 7
9 13 15 16 17 19 20 21 22 23 28 29 33
OPPORTUNITIES AND CONSTRAINTS

RATTAN AND BAMBOO VALUE CHAINS SITUATIONER ON RATTAN AND BAMBOO MAPPING THE RATTAN AND BAMBOO VALUE CHAINS IN LEYTE OPERATORS ENABLERS AND SUPPORTERS FUNCTIONS IN THE RATTAN AND BAMBOO VALUE CHAINS ECONOMICS AND VALUE ADDING OPPORTUNITIES AND CONSTRAINTS
37 40 42 42 43 45 48
LEGAL AND REGULATORY ENVIRONMENT AFFECTING THE VALUE CHAINS INTERVENTIONS, UPGRADING STRATEGIES AND STRENGTHENING LINKS IN THE VALUE CHAIN CONCLUSIONS AND RECOMMENDATIONS
51 59 63
lIST OF TABLES
1 2 3 4 5 6 7 8 9 10 11
Wood demand projections for 2011 to 2015, and the corresponding additional plantation areas needed Log production (m3) and their sources by type of timber license / permit, from 2004 to 2006 Type of logs produced by origin, 2004-2006 Summary of possible options, costs, and prospective gains of farmers Estimated wood recovery for different sawing systems Price structure of Gmelina wood at different levels and locations in the value chain (in PhP) Exports and imports of rattan materials, 2004-2006 Philippine trade in bamboo and bamboo-based products from 2004-2006 Transactions and payments made in transporting rattan poles from Leyte to Pampanga: An Example. Traders cost of doing business Production sharing system from forest plantations in CBFMA areas in Leyte Island
11 12 12 27 28 30 37 39 45 46 55
lIST OF FIGURES
1 2 3 4 5 6 7 8 9 10
A basic framework of a value chain map Furniture value chain from plantation wood in Leyte Timber harvesting operation in Leyte Island Processing of lumber in a resawmill in Leyte Island Inputs, outputs, and processes in furniture manufacture Value addition along the different functions in the Leyte Island plantation wood value chain Simplified value chain for Gmelina lumber produced in Leyte Island and sold in Cebu City Furniture value chain from rattan in Leyte Island Furniture value chain from bamboo in Leyte Island Value adding per pole of rattan (1-1/8) up to furniture as final product
9 10 18 19 22 30 31 40 41 47
>> CD-ROM: ANNEXES A TO P
Acknowledgements
This publication has been produced with the contribution of time, expertise and inputs from the Department of Environment and Natural Resources (DENR), the Department of Trade and Industry (DTI), Cebu Furniture Industries Federation (CFIF), the Chamber of Furniture Industries of the Philippines (CFIP), the Philippine Wood Producers Association (PWPA), and other institutions such as the academe (Visayas State University) and research agencies (Forest Products Research and Development Institute (FPRDI), the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development (PCARRD). Additional information was obtained from various websites on the internet, especially on international markets and trade and from related, previous value chain studies.
Foreword
In 2009, the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbHthe Environment and Rural Development Program (EnRD) commissioned a value chain study on wood and non-timber products (rattan and bamboo). One of the success indicators of the GIZ-EnRD Program is the increase of the income of individual farmers and peoples organizations (POs) in Leyte Island that have participated in governments reforestation efforts through the Community-Based Forest Management (CBFM) Program. The CBFM program links the rehabilitation of degraded forest areas with the provision of livelihood for the communities that are responsible for the development, protection and conservation of resources such as timber and non-timber forest products (NTFPs) in forestlands. Planting fast-growing timber such as Gmelina and Mahogany, and NTFPs such as rattan and bamboo has been encouraged as one of the strategies to help restore denuded forest areas. Through time, these planted species have matured and become ready for harvest. Harvesting, processing and utilizing these resources offer farmers opportunities to benefit from their contribution to reforestation and plantation. The harvesting particularly of plantation-grown timber was also in line with Region 8s Wood Processing Rationalization Plan, which aims to establish a wood processing sector in the Eastern Visayas with a solid base of sustainably supplied raw materials. The value chains were mapped using the GIZ ValueLinks framework. The study involved a three-month period of gathering primary and secondary data from various government agencies and private sector organizations. The value chains were validated in two subsequent workshops attended by various stakeholders representing the respective actors and enablers. The participants came up with a set of recommended action programs that stakeholders agreed to pursue to fulfill the vision of the respective value chains within the next three (3) years. (2010-2012). This study is an effort to help understand how farmers can benefit more from plantation wood, rattan and bamboo that are processed into different consumer products, especially furniture.It provides an overview about the industries, including local and global market, and the market demand for plantation wood, rattan and bamboo. The study also identifies how the target groups could get maximum returns for their products. It describes which sub-sector has the most potential in terms of market demand, value addition and income generation for the benefit of the various operators in the respective value chains. The study gives a special focus on forest farmers who are dependent upon the income derived from forest and agroforestry products. Results will be useful in enabling farmers and communities to maximize the benefits they derive from forestry activities in order to make a living and at the same time protect the resources in upland areas.
Acronyms and Abbreviations

aaC a&D ACIAR aWP bd.ft. C&I CaRP Cbfm Cbfma CENRO fice CfIf CfIP CIF CIM lung CITC CLOA CNFPO CO CRMF CTPO CTPO CV cu.m. DA Dao DENR DMC Dmo DOST DTI ECC Emb EnRD ENRO EO ERDB fDC fLma fmb fob FPRDI GDH GIZ Ha Ifma IfP ISF ITTO k annual allowable Cut alienable and Disposable Australian Centre for International Agricultural Research annual Work Plan board feet Criteria and Indicators Comprehensive agrarian Reform Program Community-based forest management Community-based forest management agreement Community Environment and Natural Resources OfCebu furniture Industries federation Chamber of furniture Industries of the Philippines Cost, Insurance, Freight Centrum fr Internationale Migration und EntwickCottage Industry Technology Center Certificate of Land Ownership Award Certificate of Non-Timber Forest Products Origin Certificate of Origin Community Resource Management Framework Certificate of Tree Plantation Ownership Certificate of Tree Plantation Ownership Certificate of Verification Cubic meter Department of Agriculture Department administrative order Department of Environment and Natural Resources Department Memorandum Circular Department memorandum order Department of Science and Technology Department of Trade and Industry Environmental Clearance Certificate Environmental management bureau Environment and Rural Development Environment and Natural Resources Office Executive Order Ecosystems Research and Development Bureau forestry Development Center forest Land management agreement forest management bureau free on board Forest Products Research and Development Institute Gifts, Dcors and Houseware Deutsche Gesellschaft fr Internationale Zusammenarbeit (gIZ) gmbh Hectare Integrated forest management agreement Industrial forest Plantation Integrated Social Forestry International Tropical Timber Organization Kilo LCCI LGU Lm m3 mao mDf MFPC MNR moa nCR NRDC NTFP OTOP OWBMA PCA PCARRD PCHI PD PENRO PfDa PFS PLTL PLTP PLTPCP PO PnoC PTC PWPA RA RED RfmP RSD RUP SCP SIFMA Smf SoP SPLTP SPWP SYC TESDA TLA UPLb UTM VC VSU WRP WPRP Leyte Chamber of Commerce and Industry Local Government Unit Lineal meter Cubic meter ministry administrative order medium Density fiberboard Multi-Sectoral Forest Protection Council Ministry of Natural Resources memorandum of agreement national Capital Region Natural Resources Development Corporation Non-Timber Forest Product One Town, One Product Other Wood-Based Manufactured Articles Philippine Coconut Authority Philippine Council for Agriculture, Forestry and Natural Resources Research and Development Philippine Chamber of Handicraft Industries Presidential Decree Provincial Environment and Natural Resources Office Private forest Development agreement Philippine Forestry Statistics Private Land Timber License Private Land Timber Permit Private Land Timber Plantation Cutting Permit Peoples Organization Philippine national oil Company Permit to Cut Philippine Wood Producers Association Republic Act Regional Executive Director Revised forestry master Plan Rattan Special Deposit Resource Utilization Permit Special Cutting Permit Social Integrated Forest Management Agreement Self monitoring form Standard operating Payment Special Private Land Timber Plantation Secondary Processed Wood Product Sustained Yield Cut Technical Education and Skills Development authority Timber License Agreement University of the Philippines Los baos Universal Transverse Mercator Value Chain Visayas State University Wood Recovery Permit Wood Processing Rationalization Plan
Summary
Top ten findings of this study

1. Common to all three sub-sectors are the problems associated with unstable and complicated policies that make compliance difficult, cumbersome and costly. This results in opportunities for bribe-taking and corruption. Delays in Resources Utilization Permits (RUP) approval are also a usual occurrence because of a highly centralized permitting system. 2. Linkages among the different actors of the value chain are informal and tend to be dominated by the traders and processors, with the raw material suppliers having very limited access to market information. 3. Quality standards are generally lacking. Producers do not employ advanced silvicultural techniques to improve the timber stand while processors do not use the latest technologies to improve process efficiency and to upgrade end-product quality. 4. Plantation wood, rattan and bamboo industries in Leyte Island are not included in any of the priority programs of government designed to promote products and expand market opportunities. 5. Among the three forest-based materials, plantation wood offers the greatest potential to improve the lives of farmers in Leyte. The more developed state of tree plantations in Leyte is an advantage over those of rattan and bamboo as it insures long-term supply. The wider spectrum of products from wood and their general acceptability to consumers provides more stable markets, and farmers can readily have access to information and technical assistance from government agencies and other enabling institutions on plantation wood. 6. Almost one third of the value generated along the wood and rattan value chains disappears in so-called undocumented special operational payments. This has major negative effects on the income of farmers involved in wood and rattan harvesting. 7. Policies regarding wood and rattan harvesting and transporting are complex and contradicting. Therefore, there is not only a lack of understanding, knowledged of processes and their rights and responsibilities on the side of farmers, traders and processors but also on the side of the local executive authority. 8. Application and permitting process takes long which in combination with poor product quality (insufficiently dried logs) tempts applicants to shortcut the process through bribes and grease money to avoid further degradation and devaluation of the product. 9. Peoples Organizations lack information on market prices and are sometimes restricted to sell to traders which are recommended by the Environmental Officers who negotiates on their behalf. Farmers prefer the less profitable stumpages sale so that the traders have to shoulder the permitting costs. 10. Monitoring of application and permitting processes is insufficient and no adequate reporting system is in place.
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1. Furniture Value Chain from Plantation Wood in Leyte

InTRoDUCTIon This study uses the GIZ ValueLinks framework (Figure 1). The framework depicts the five main business links: provision of specific inputs, production, transformation, trade and final sale. Under each major link, there are specific activities. The VC actors range from individuals to organizations, whose decisions and actions could influence and potentially spell the failure or success of the value chain.
Specific Input Provider
Primary Producers
Logistics centers, industry
Traders
final sales Point/ Retailer
FIGURE 1 A basic framework of a value chain map describing functions (chain links)
The value chain map for plantation wood going into lumber and furniture, as well as the functions, operators, and enablers and their relationships are shown in Figure 2. The overall value chain map for plantation wood in Leyte traces the product flow in accordance with the sequence logs lumber furniture. In reality, there are branches along the sequence, where logs could end up to other products, such as veneer, plywood, paper, poles, etc. Lumber may go directly into construction (as low-cost scaffolding material or as structural components), or as inputs for builders woodworks, mouldings, the Gifts, Decors and Houseware (GDH) industries and household consumers (fencing, home-made furniture, handicrafts etc.). Furniture was selected as the main product as explained previously and elaborated below, with the understanding that channels do exist for diversion of the primary raw material, plantation wood, and the intermediate product, lumber, into other product chains or consumer items.
Plantation Wood, Rattan and Bamboo in Leyte Island | Value Chains to benefit income generation of forest farmers
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uts
W Re holes tai al l e
cifi ci np
Fu Ma rnitu kin re g
Lu Pr mbe oc r es sin g
sti ng
tio n
uc
rve
Pr od
Tra d
Sp e
Main function
Provision of quality seedlings
land preparation planting maintenance inventory tree registration
tree felling scaling squaring hauling transport
unloading scaling re-sawing sorting & piling air drying
selling to individual customers & lumber traders
furniture design machining/ woodworks furniture assembly finishing & upholstery
Households/ domestic homeowner retailing Offices sale to other provinces & exporters (?)
Operators
Nurseries (n=74)
POs (CBFM) (n=74) Tree Farmers (n14,000) IFMA / PFDA
Buyers (n<10)
Lumber dealers / Hardware (n=39)
Formal Furniture Manufacturers (n=5) Small Furniture workshops (n=100)
Lumber dealers cum re-saw permittees (n=11)
DENR, Academe
CFIP, CFIF TESDA, FPRDI Bahandi
Enablers/ Supporters
PNOC, NGOs, Cooperative
Development Organizations, LGUs DTI
FIGURE 2 Furniture Value Chain from Plantation Wood in Leyte
The value chain is focused on furniture because local demand for this commodity is seen as stable and relatively unaffected by market forces external to Leyte. Leyte has had no wood-based processing facility that produces primary wood products except for lumber, which were produced by resaw mills and not by sawmills. A furniture industry does exist in Leyte, but is composed of micro to small enterprises that cater mostly to the local demand for furniture. As an industry, furniture is both raw material- and labor-intensive, auguring well for Leyte which does not seem to have a shortage of either resource. Furniture is a consumer item required not only by households but also by government and private offices, and businesses that are engaged as service providers like restaurants and hospitals, educational institutions and enterprises catering to the tourism industry. SITUaTIonER on WooD anD WooD PRoDUCTS DEmanD fRom fURnITURE manUfaCTURIng anD hoUSIng The Revised Forestry Master Plan (2003-2015) (FMB-DENR) projected how much wood was going to be needed by the Philippine furniture manufacturing and housing based on the furniture industry performance (1992 and 2002). The projected demand for housing used as a benchmark the 232,773 housing units that are constructed annually, and factored in population growth rate, double occupancy, and the presence
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Co n
Ha
su
mp
tio n
of unacceptable and makeshift housing units. Projections from 2011 to 2015 are shown in Table 1. No attempt was made to revise the projections to take into consideration the apparent surge in Secondary Processed Wood Products (SPWPs), the Table 1.financial crisis that started2011 to 2015, and thethe extremely strong typhoons global Wood demand projections for in late 2007, and corresponding
additional plantation areas needed (DENR, 2003). 2011 High1 Low 361,139 237,598 (722,278) (475,196) 2013 High Low 436,979 261,952 (873,958) (523,904) 2015 High 528,744 (1,057,488)
Lumber needed (m3) for furniture (in log form) Wood for Housing New units 2 1,473,068 (m3) Repair (m3) 199,244 Total (m3) 2,394,590 Plantation 7,370 needed (Has)3
1 2 3
Low 288,803 (577,606)
1,473,068 199,244 2,147,508 6,135
1,473,068 199,244 2,546,270 8,129
1,473,068 199,244 2,196,216 6,378
1,473,068 199,244 2729,800 9,046
1,473,068 199,244 2,249,918 6,647
High estimates are assumed to include wood needed by the forest products manufacturing sector. Wood required for housing is assumed to be in the form of lumber and plywood. Plantation output is assumed as 200 m3 per hectare at year 10.
1 2 3
TABLE 1. plantation areas needed (DENR, 2003).
High estimates are assumed to include wood needed by the forest products manufacturing sector. Wood required for housing is assumed to be in the form of lumber and plywood. Wood demand projectionsas 200 m3 per hectareand the10. Plantation output is assumed for 2011 to 2015 at year corresponding additional
and floods that hit the country with increasing frequency over the last 5 years, thereby affecting the standing timber resource and the existing housing structures. The Revised Forestry Master Plan (RFMP) indicated that there is wood shortage and additional tree plantations are needed, but no additional planting in private lands was projected. Developing additional tree plantations to respond to the projected wood shortage from a growing furniture industry and the backlogs experienced by the housing sector was recommended. The projected plantation areas to be developed included plantations from the private sector in public lands covered by the following instruments: Forest Land Management Agreement (FLMA), Industrial Forest Plantation (IFP), Community-Based Forest Management (CBFM) and agroforestry. No additional planting in private lands was projected. Log production from private lands contributed significantly to wood supply from 2004-2006. However, annual log production in the Philippines actually increased from 2004 to 2006, owing largely to substantial increases in outputs from private lands. This is evident in Table 2, which shows that logs issued permits on the basis of self monitoring forms (SMF) and/or certificates of verification (CV) have comprised the bulk of log production since 2004. The increase in log outputs from private lands indicates that there is heightened recognition of the profit-generating potential of private tree plantation development. All regions in the country have reported to have harvested logs from private lands.
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Community-based forestry contributed a small percentage in log production from 2004-2006. Share of production from community-based forestry was small, contributing 5.06% of the total log output in 2004 to only 1.32% (2005) and 1.79% (2006). The reason could be attributed in part to the nationwide ban on logging in 2004 and the suspension of Resource Utilization Permits (RUP) of CBFM beginning in 2003.
annEx a DISCUSSIonS on ThE DEmanD anD SUPPLY of TImbER anD PRImaRY anD SEConDaRY PRoCESSED WooD PRoDUCTS.
There is an expanding interest in tree plantation development as a business venture, both by the government and the private sector. Table 3 shows the type of logs produced by origin (naturally grown or planted). Planted trees contributed to more than 70% of logs produced in 2004, then increasing and leveling at more than 80% in 2005 and 2006. This is a positive development as far as conservation of remaining forest resources is concerned, while also pointing to expanding interest in tree plantation development as a business venture, both by the Table 2. government and and their sources by type of timber license/permit, Log production (m3) the private sector.
from 2004 to 2006 (FMB-DENR, 2004-2006). 2004 Vol (m3) % 51,001 1,872 38,862 6.64 0.24 5.06 2005 Vol (m3) % 51,930 456 11,079 6.17 0.05 1.32 Timber License/Permit Timber License Agreement (TLA) Special Cutting Permit (SCP) Community Based Forest Management (Integrated Social Forestry (CBFM/ISF) Private Land Timber Permit (PLTP) Special Private Land Timber Permit (SPLTP) Forest Land Management Agreement (FLMA) Integrated Forest Management Agreement (IFMA) Self Monitoring Form/ Certificate of Verification (SMF/CV) Others Total
a
2006 Vol (m3) 72,717 2,273 18,590
% 7.02 0.22 1.79
3,075 877 6,427 353,012 299,309 13,234a 767,669
0.40 0.11 0.84 45.98 38.99 1.72 100.00
1,946
0.23 0.00 0.00
4,777
0.46 0.00 0.00
146,965 623,839 4,766b 840,981
17.48 74.18 0.57 100.00
228,051 704,920 4,706b 1,036,034
22.01 68.04 0.45 100.00
a From MRP Muyong Recovery Permit; SPLTP Permit; SPLTPLand Timber Permit;Land Timber Permit; WRP Wood Recovery Permit From MRP Muyong Recovery Special Private Special Private WRP Wood Recovery Permit b b From MRP, WRP, FLMA, Tree FLMA, Tree Cutting Permit From MRP, WRP, Cutting Permit
Table 2. Log production (m3) and their sources by type of timber license/permit, from 2004 to 2006 (fmb-DEnR, 2004-2006).
Origin Naturally-grown Planted Total 2004 Vol % (m3) 217,072 28.28 550,596 71.72 767,668 100.00 2005 Vol (m3) % 96,317 744,663 840,980 11.45 88.55 100.00
Table 3. Type of logs produced by origin, 2004-2006. (FMB-DENR, 2004-2006). 2006 Vol (m3) 171,139 864,894 1,036,033 % 16.52 83.48 100.00
Table 3. Type of logs produced by origin, 2004-2006. (FMB-DENR, 2004-2006)

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EnabLERS anD SUPPoRTERS of ThE PLanTaTIon WooD VaLUE ChaIn
EnabLERS anD SUPPoRTERS

ThE DEnR This national government agency plays many very important and varied functions in the plantation wood value chain. Its influence on the value chain cuts across many functions and ranges from provision of land and support for plantation development, formulation and implementation of harvesting policies to the imposition of forest charges, the provision of financial, logistics, and technical assistance up to linking or brokering with potential buyers and even the control and regulation of transport conveyances, markets, and/or destinations of products. aCaDEmE The academe, particularly the Visayas State University (VSU, formerly the Leyte State University), in Visca, Baybay, Leyte has been a major player in helping upgrade the plantation wood value chain in Leyte, particularly those supplied by smallholder tree farmers. About 80% of these farmers own the tree farms while the rest are tenants. Through a project funded by the Australian Centre for International Agricultural Research (ACIAR), VSU implemented an extension research program that resulted in the publication of a tree registration manual which provided farmers with information on the requirements and procedures for tree registration. Current research focuses on setting standards for tree nurseries, which had been identified as a bottleneck that has limited the quality of trees produced in small-holder plantations. GIZ also supported the rainforestation project, which was implemented with private land owners who planted indigenous tree species in their farms. ThE PhILIPPInE naTIonaL oIL ComPanY (PnoC) This company operates a geothermal power plant in Leyte, assists POs within forestlands under its jurisdiction over a range of activities from provision of seedlings, establishment of nurseries and plantations, preparation of Community Resource Management Framework (CRMF), Annual Work Plans (AWP), and RUP and the documents associated with these requirements, in enterprise and organizational management, and in the identification of livelihood opportunities for community members. PNOC had adopted a multiple-use approach in managing its forest resources, which is evident in the presence of abaca and other agricultural crops and livestock resources, along with rattan and timber resources inside its forests. NGOs such as FCI and development organizations such as GIZ likewise provide support to POs in their plantation development and in livelihood generation. ThE DEPaRTmEnT of TRaDE anD InDUSTRY (DTI) This is the government agency mandated to promote entrepreneurship in the country. It can assist in product promotion, market identification, linking with buyers, and provision of training on various aspects of enterprise operation and management. BAHANDI, an organization composed of handicraft and local delicacy producers in Eastern Visayas, provides, with the support of DTI, GIZ and CIM, opportunities for its members to participate in trade fairs, publishes brochures about the members products and contact information, and maintains a website that links the members with potential customers in the outside world. Although DTI has launched the One Town, One Product (OTOP) program in collaboration with LGUs,
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the program does not support nor focus its attention to plantation wood development and wood products promotion.
LoCaL goVERnmEnT UnITS Through the Local Government Code (RA No. 7160), LGUs have been mandated to become involved in the implementation of communitybased forestry projects and the management and control of communal forests and similar forest development projects in coordination with the DENR. Thus, in the harvesting, transport and marketing of forest products, LGUs are expected to play an important partnership role with the DENR. Among others, LGUs are tasked with the responsibility to confirm the existence of forest resources that are being targeted for exploitation and harvesting, through an assessment and actual inspection of the resources within their jurisdiction. Another important role of LGUs is the policing of illegal acts and abuse of natural resources.
The interview with the City ENRO in Leyte revealed the desire of LGUs to become more involved in the management of forest resources and to assume greater responsibility over communities and enterprises that were dependent on the forests, but lamented the fact that mechanisms for better coordination with DENR were not yet in place. Some key informants also believe that LGUs should be at the frontline in the protection and management of natural resources. LGUs are also seen as providers of technical assistance to local communities/constituents.
ThE ChambER of fURnITURE InDUSTRIES of ThE PhILIPPInES (CfIP) This Chamber used to have a presence in Leyte, but this link has been inactive in recent years.
The Forest Products Research and Development Institute (FPRDI) This Institute of the Department of Science and Technology has recently assisted Mr. Albert Chua in setting up a kiln dryer for the latters company in Ormoc City. The Technical Education and Skills Development Authority (TESDA), the government agency whose primary function is in management and technical skills development, has yet to be tapped by Leyteos for assistance in these areas.
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maJoR fUnCTIon of ThE PLanTaTIon WooD VaLUE ChaIn
PRoVISIon of qUaLITY SEEDLIngS

Findings The VC begins with the provision of quality seedlings of tree species. These seedlings are to be planted by POs, farmers, and IFMA/SIFMA/ PFDA tenure holders and private landowners in Leyte. These seedlings can be grown from seeds, as well as from cuttings and/or wildlings, and are hardened before they are out-planted in open plantations. The growing and nurturing of seedlings are done in nurseries established within the island, preferably in strategic areas that are accessible to most tree farmers. In the case of POs, nurseries are strategically located, usually near the PO meeting center so that PO members can easily collect their planting materials. In the case of private tree farmers, nurseries are located beside their houses. Most family members assist in operating the farmers nursery.
Commercially important plantation wood species available in Leyte Island* Gmelina or Yemane (Gmelina arborea) Mahogany (Swietenia macrophyla) Antipolo (Artocarpus blancoi) Giant Ipil-ipil (Leucaena leucocephala) Bagalunga (Melia dubia) Narra (Pterocarpus indicus) Bagras (Eucalyptus deglupta) Falcata (Paraserianthes falcataria) Kaatoan bangkal (Anthocephalus chinensis) Mangium (Acacia mangium)
*Identified during the interviews with farmers and validated during the workshops.
The names of the above listed planted were also in the species list provided by the DENR Regional Office in Tacloban and CENRO Maasin of registered certificate of tree plantation ownership (CTPO) holders in Southern Leyte.
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annEx b InDICaTES Log PRoDUCTIon bY SPECIES fRom REgIon 8, anD CoRRoboRaTES ThE PRESEnCE of a nUmbER of ThESE SPECIES In ThE REgIon. ThE VoLUmE of YEmanE LogS PRoDUCED oVER ThE fIVE YEaR PERIoD aCCoUnTED foR a LITTLE oVER 70% of ToTaL Log PRoDUCTIon foR ThE REgIon, oUTnUmbERIng LogS fRom aLL oThER SPECIES CombInED bY a RaTIo of aLmoST 2.4:1.
Volume of the planted tree species*: 1) Gmelina (78.4%) 2) Mahogany (17.0%) 3) Giant ipil-ipil (3.4%) 4) Antipolo (0.2%) 5) Bagalunga (0.8%)
*A rough estimate based on the database of marketable volume of species from CTPOs in Southern Leyte compiled by CENRO Maasin resulted in the following ranking ( annEx C): Four of the five tree species planted in private tree plantations, with the exception of Bagalunga, have figured in the FMB-DENR data on log production in Region 8 for the period 2002 to 2006. Bagalunga is a fast-growing, medium-sized tree, and the properties of its wood make it suitable for furniture, construction, and for other industrial annEx D: a SUmmaRY of ThE PRoPERTIES anD aPPLICaTIonS of SELECTED CommERCIaL WooD uses. ( SPECIES In LEYTE)
Government financing of PO nursery establishments. As part of the CBFM reforestation project, the government financed the establishment of nurseries by the POs within their respective areas. These nurseries supplied the POs with planting materials. Apart from clearing the land on which the POs erected the nursery shed, farmers raise seedlings, select viable germinants that are transferred into plastic bags containing the soil media, water regularly, and weed and maintain the seedlings before transporting them to the planting sites. Aside from seedlings as inputs for tree plantation establishment, fertilizers and pesticides, are the other variable inputs needed. This study has found that none of the POs had used these inputs in planting or subsequent protection/maintenance activities. Land belongs to government as far as POs and IFMA/SIFMA holders are concerned, subject to tenurial agreements that give the tenure holder right of use over the resources therein for a specified period.
PRoDUCTIon
This function involves the development of tree plantations, either under the DENRs reforestation program for CBFM, or as the beginning of a long-term business activity by private small-hold tree farmers and by IFMAs/SIFMAs.
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Findings The activities under this function include land preparation and clearing, digging, actual planting of seedlings, weeding and brushing, replanting of dead saplings, and protection of the plantation from fire, astray animals and humans encroaching into the land to gather firewood and other forest products.
Labor for planting and the subsequent maintenance work done by POs, generally for a 3-year period following planting, were paid for by the government as part of its commitment to POs, a concession given to them for agreeing to manage and protect the area covered by the CBFMA.
haRVESTIng
This function pertains to tree felling and other auxiliary operations that will convert standing timber to logs, marking the starting point for the utilization of the wood from the tree for a variety of purposes. Fig. 3 shows the sequence of events and the detailed flow of materials during harvesting and the subsequent hauling of the wood to processors and lumber dealers.
Findings Prior to the actual harvesting, the POs and tree farmers would engage in many other activities that do not necessarily add value to the plantation trees but nevertheless take up most of the POs and farmers time, resources and energy. These activities include the conduct of inventory, filling out of numerous forms and/or preparation of written reports, tree registration for private tree plantation owners, and for POs, procuring the necessary resource utilization permits (RUPs). Later on, transport permits and other prescribed documents to comply with legal requirements prior to the conduct of harvesting operations would have to be secured as well, following tedious protocols and poorly understood rules and regulations. These rules and regulations are discussed in detail under the section Legal and Regulatory Environment Affecting the Wood Value Chain in the present report.
At the harvesting stage, bidding and negotiations starts. Once the RUP has been released, the PO could already theoretically negotiate and sell freely to the bidder that will give the highest value for their timber, provided they are legitimate buyers. In accordance with DENR regulations, buyers should be licensed dealers or wood processors. In reality, this is far from what is happening on the ground.
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Cutting into flitches
Cutting to flitches
figure 3. Timber harvesting operation in Leyte Island
Challenges encountered by Peoples Organizations in dealing with buyers: 1. They have limited access to information as to the prevailing market prices for timber. 2. They are constrained to dealing with buyers who are recommended to them by the CENRO, who negotiates with the buyer on behalf of the PO. 3. In the process of disposing their logs, some farmers also deal with intermediaries who are in the business of buying-and-selling timber. The process of transacting with potential buyers gets even more complicated when the local government unit, from the Barangay up to the municipality, would impose additional rules that require the farmers to secure documents other than those already imposed by the DENR and to pay other fees or local taxes. 4. Finally, the deal to transact business between the PO and the buyer, if they are able to go this far, is sealed with a memorandum of agreement (MOA), which still needs CENRO approval. Thus, before a single board foot of lumber reaches its final consumer, the farmer must have paid countless visits to the CENR Office, conferred with several DENR officers who may have varying or conflicting interpretation of rules and regulations, obtained the signatures of several government bureaucrats, and paid hundreds or even thousands of pesos in both legal and non-legal fees to consummate the process.
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Recommendation There are many other ways by which POs can dispose of their timber. One way is through stumpage sale, where at a presumably negotiated price, the buyer obtains harvesting rights over a given volume of timber as approved in the POs RUP, within predetermined blocks containing inventoried stocks that are already mature enough for felling. This mode appears to be the mode preferred by POs because the buyer shoulders the costs of everything from hiring chainsaw operators to hauling, and likewise facilitates the procurement of documents required by government authorities and/or agencies. This mode also affords the opportunity for some of the PO members to earn extra cash by being hired by the buyers to assist in the harvesting operation. In the case of private tree plantations however, stumpage sale is no longer practiced in Southern Leyte, according to PENRO Arbiol (Personal communication, 2009).
LUmbER PRoCESSIng
The absence of sawmills and lack of logging equipment in Leyte Island leads to different ways of lumber production as summarized in Fig. 3. The process flow for lumber processing in resawmills is shown in Fig. 4.
Findings The only mechanized equipment used in a resawmill is a bandsaw, which unlike regular sawmills, is not equipped with carriage and setwork mechanisms for faster and more precise cutting of lumber boards. At least two lumber processors have equipment that appeared old, while another processor admitted to be operating reconditioned equipment. Consequently, recovery is much lower than regular sawmills which is compounded by the poor quality materials that are allegedly brought in by the log producers. Recovery was generally less than 50%, especially with Gmelina which was observed to undergo severe deformation
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Plantation Wood, Rattan and bamboo in Leyte Island | Value Chains to benefit income generation of forest farmers
after cutting. The bandsaws were also being run by operators who were assisted by helpers who paid little attention to orderliness in the mill and the proper stacking/storage of processed lumber. There was not much effort on the part of the resawmills to segregate lumber properly and to separate the trimmings, slabs, and sawdust from the finished products. Predominantly 2 thick boards are produced. The lumber dealers cum processors appeared to have little understanding of the importance of moisture content in wood as a factor that affects the quality of lumber. Boards were merely left to dry in the air, although the rainy climate limits the desirability and effectiveness of this practice in Leyte. The boards were not being piled in a manner that would facilitate air drying. Only one processor (in Ormoc City) was reported to have a kiln dryer, which was installed less than two years ago. Local furniture makers usually use air dry lumber, but the export industry and most high end domestic processors require kiln dried lumber.
WhoLESaLE/RETaIL
A large number of lumber dealers are located in Cebu and the NCR. Bigger companies have their own kiln drying facilities or have agreements with other companies to kiln dry their wood. A few processors buy directly from suppliers from other regions, especially those with their own kiln drying facilities. The majority of the furniture makers and contractors buy their wood already kiln dried from lumber dealers. This allows them to classify the lumber by quality and moisture content before buying.
Findings In Leyte, lumber was being sold through the lumber dealers and/or hardware stores in Leyte. Oftentimes, lumber is sold directly to customers, contractors and processors, mostly local buyers. One lumber dealer in Ormoc City was reported to be selling lumber to Cebu. One of the lumber processors revealed that he had received inquiries about selling lumber outside of Leyte Island, (for example, Manila) but he expressed apprehension about his capacity to supply the large volume required by big buyers, particularly makers of furniture. Local sales are usually in small volumes only. Local furniture makers can seldom buy bigger volumes of timber all at once. Only lumber dealers and hardware shops can be targeted for direct sales of bigger volumes. Farmers or POs that target to sell in bulk might need to sell outside of the Region.
Heavy wood industries like the manufacturers of reconstituted panels or pulp and paper are potential plantation wood customers. These companies typically use bigger
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volumes of wood to produce larger quantities for a highly competitive market. They require a reliable, stable and cheap supply of raw material in order to be able to meet market prices. Typically, they secure the raw material supply from their own plantations and the factories are built near the timber sources. Region 8 has no industrial wood processor. Most wood industries are located in Mindanao. Supplying these companies from Leyte Island might not be economically feasible. Only one case was reported where Falcata wood from Leyte was sold to a Mindanao-based processor. However, industrial processors are still a potential market for wood from Leyte if transport cost can be lowered. That would be possible if Leyte producers could ensure a steady supply of volumes that would allow using hired cargo vessels for shipment. The needed consolidation of supplies could be done through cooperatives, associations or federations or simply by private entrepreneurs. Such market could be of great importance for Leyte wood producers since some wood industries can accept young wood and/or wood of low quality.
fURnITURE maKIng
Furniture making is the only secondary processed wood products industry in Leyte, one that has already long existed in the Island. Wood is not the only raw material used by the industry as there are furniture makers who are into the use of other forest-based materials such as rattan, bamboo, vines, abaca in combination with non-indigenous materials such as plastics, fabric, iron, etc. Furniture making is considered as a sunset industry in Leyte, which can be attributed to a number of reasons: a) influx of cheaper and sometimes, better quality China-made furniture; b) restrictions in supply/scarcity of good quality wood; c) unfavorable procurement policies by government which is the largest customer of furniture makers in the Island, and d) relative ease of procuring finished furniture compared to manufacturing. Apparently, no furniture maker in Leyte has the capacity to produce export high-end furniture, such as those found in Cebu and Pampanga. According to the Pearl2 project, the steps and processes involved in furniture making are as shown in Fig. 5. There are a variety of inputs required including wood in a variety of forms (lumber, plywood, Medium Density Fiberboard - MDF, veneer) as well as finishes (paints/varnish), carton boxes and other packaging materials. Processing goes through a series of steps, requiring
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different tools and equipment, with quality inspection and control being integral to the manufacturing operation. The wood used is often air-dried or semi air-dried only since there are but a few hardware stores and lumber yards that offer kiln dried wood. Most of the kiln dried lumber comes from Cebu and is relatively expensive.
InPUTS quality inspection Drying
Kiln drying Sun drying
PRoCESSES
oUTPUTS
Work-inprocess
Molding Casing Cutting Cleaning Drilling Edge banding Grooving Rabbet Carving Exact sizing Rough sizing Gluing
finishing
Storage
assembly/ framing
Alignment Wielding Fitting
Dry storage Manual Storage
Molding Casing Cutting Cleaning Drilling Edge banding Grooving Rabbet Carving Exact sizing Rough sizing Gluing
Job out/ subcontracting quality Control
Work-inprocess
final quality inspection Packing
In-laying Weaving Sanding Lamination Powder coating Upholstery Carving
Box construction Tagging Labeling
Loading
Figure 5. Inputs, outputs, and processes in furniture manufacture (Adapted from Pearl 2, 2006).
TRaDE anD ConSUmPTIon
Wood furniture made in Leyte is sold principally within the Island. Wood furniture manufacturers maintain a display room or shop which also serves as their store. Small manufacturers are located along roadsides, making it easy for buyers to take a look at their products and to load them to jeepneys, pedicabs, or trucks, when a sale is made. Furniture for home furnishing probably comprises the greatest volume of furniture sales,
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usually by walk-in buyers who directly purchase their furniture requirements from the furniture shops. Furniture makers look forward to government contracts as these onetime purchases could comprise of substantial volume that could sustain the companys operations in the long run. Some furniture manufacturers claimed that their products have already reached Manila, at least one set or piece of furniture at a time, but they do not have the capacity to produce large quantities to supply big demands. Being able to sell their products outside of the Island and to penetrate the export market is seen a s a long-term goal by the industry in Leyte.
1.2 Economics of Plantation Wood Value Chain and Options for CBFM/PO Farmers
A part of the present studys objective is to assess options by which POs/farmers improve the benefits they could derive from the plantation wood value chain. It looks into which returns that can be generated if: 1. The PO or the farmer adopts different modes of disposing their timber was conducted. 2. They had been given the opportunity to perform functions vertically up the value chain, such as going into further processing like lumbering and furniture making were determined. Theoretically, farmers and POs have many options with or without venturing upwards in the processing chain. What might be realistically feasible for the farmers/POs would depend on their respective situations. The following analyzes some options that may help to develop individual strategies.
oPTIon 1 STUmPagE SaLE
STUmPagE SaLE
The baseline scenario, also the simplest, is stumpage sale. While this is no longer a recommended practice in Southern Leyte, it appears to continue to prevail as a preferred mode by some farmers and POs due to the advantage it offers in terms of liberating them from tedious paper work and from the hassle of contracting chainsaw operators and haulers. Two different versions are possible.
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oPTIon 1a STUmPagE SaLE (aT LUmP SUm) Stumpage sale (at lump sum) A farmer can sell the trees on a lump sum based on estimated volumes. In this situation, the buyers usually assume the responsibility of procuring transport documents and in paying the corresponding fees, as well as in shouldering the cost of hiring chain saw operators, helpers, haulers, loaders of the flitches onto trucks, and in paying grease money en route to the final destinations. Obviously, there is very little leeway for the farmer to profit much from this arrangement. However, if the PO/farmer is well informed about the prevailing market price for timber and would have access to many other buyers that offer different bids for the standing timber, then the farmer would probably offer his timber for sale to the highest bidder. In reality, such is not the case due to the remoteness of the farmers plantations and some other restrictions. Farmers/POs that do not have the capacities to harvest themselves are best advised to sell the trees on a stumpage sale on a lump sum basis. In this case, they have a fixed estimated volume and can easily compare different offers. They can charge for the trees before actual felling.
Pros Cons
Little work for the POs /farmers The total standing volume is base for the payment Different species can be listed separately with different prices The wood is paid in advance before felling The buyers interest is to get high recovery from what he has paid already Farmers/PO members could help during harvesting with direct compensation All charges, fees and SOPs can be paid by the buyer directly. (Buyer negotiates with government officials)
Low price per bd.ft. (but based on round wood volume) DENR interested in documenting a high farm gate price and might not allow this kind of agreement Buyers are possibly not much interested in this way of buying wood since they have to carry a higher risk and they have less or no opportunities to make deductions
oPTIon 1b STUmPagE SaLE baSED on haRVESTED fLITChES Stumpage sales based on harvested flitches Secondly, a more common method is stumpage sale based on what is leaving the farm. The base for the volume calculation under this type of agreement is usually flitches or better, what could be recovered from the flitches when transformed into lumber. This alternative leads to lower recovery and other disadvantages, particularly to the POs.
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Pros
Little work for the POs /farmers Farmers/PO members can often help during harvesting with direct compensation All charges, fees and SOPs can be paid by the buyer directly. (Buyer negotiates with government officials)
Cons
Low price per bd.ft. Buyer is not interested in high recovery but only to get the best wood (high wastage factor) Only flitches leaving the farm are the base for payment The buyer might find many reasons not to pay in full Payment is done only when or after the flitches leave the farm Different species often not segregated nor paid for according to their respective market value Payments are possibly delayed Farmers/POs have little to put against arbitrary measures from part of the buyer when trees are felled already
oThER oPTIonS EngagE In SaWmILLIng, DRYIng anD TRaDIng
The farmer or PO also has the option to organize the harvesting themselves and even engage in sawmilling, drying and trading. Each option or processing level has some advantages and disadvantages which are tabulated below, for purposes of comparison:
Logs sold at farm gate

Pros
Further increased number of potential buyers
Cons
Most charges, fees and SOPs are to be paid by the farmer/PO (Farmer/PO has to negotiate with government officials) Harvesting and ripping has to be pre-financed and/or workers are paid only when flitches are sold High risk of devaluation of wood when not sold fast enough Moderate investments in equipment are needed (e.g. chain saws) Farmers are paid only when flitches are sold
Farmers/PO members can work during harvesting and ripping Usually better prices are paid than for logs Different species can be sold individually Flitches can be stored at central location (reduced risk of theft) Farmer/POs can sell based on the best offer
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Flitches are sold at farm gate

Pros
Direct sales to contractors, furniture makers and end users are possible with corresponding higher prices Community members have more income opportunities Lumber does not undergo devaluation if stored correctly
Cons
All charges, fees and SOPs are to be paid by the farmer/PO. (Farmer/PO has to negotiate with government officials) Investment in equipment and building is needed. All work has to be pre-financed for a longer period of time especially if sawn wood is air dried (high working capital needed) Increased risk of mismanagement Skills are required (training needs)
Different species can be sold individually Payment is usually directly received during the selling transaction. No risk of non-payment or deductions Farmers/POs can sell based on the best offer Farmers can use their own lumber for their needs
Sawnwood is sold by the farmers/POs

Pros
The range of possible buyers is further increased. Direct sales to furniture exporters are possible. Increased income opportunities of community members. Wood can be stored without devaluation Quality and recovery can be controlled Highest possible prices can be achieved
Cons
Everything has to be handled by the farmers/POs from harvesting over processing to marketing, even outside the region. High investment costs High operational cost (working capital) Market has to be extended to other regions Risk of mismanagement Special knowhow needed
Kiln dried sawn wood is sold by the farmer/PO

Pros
The range of possible buyers is further increased. Direct sales to furniture exporters are possible. Increased income opportunities of community members. Wood can be stored without devaluation Quality and recovery can be controlled Highest possible prices can be achieved
Cons
Everything has to be handled by the farmers/POs from harvesting over processing to marketing, even outside the region. High investment costs High operational cost (working capital) Market has to be extended to other regions Risk of mismanagement Special knowhow needed
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Profit margins turn out to be more sizeable as the functions being performed, if farmers/ POs have the capacity to do so, move closer to the consumers of the products. This shows that greater value adding opportunities occur towards the market end of the value chain, and validates the contention that those at the supply side of the chain are far removed from where increased revenues could be realized. This somewhat justifies the expressed desire of farmers not to be limited to the production function and to be able to upgrade their livelihood options by moving up the value chain.
SUmmaRY of oPTIonS
A summary of these options and the costs or additional investments that POs/farmers need to make to be able to undertake them, as well as the prospective benefits are shown in Table 4. ( annEx E: ThE DETaILED ComPUTaTIonS anD aSSUmPTIonS)
Particulars
Stumpage sale
Farmer/PO will do the harvesting and sell the wood as flitches
Farmer/PO will install a resawmill
Farmer/PO will install a mini-sawmill
Farmer/PO will go into furniture manufacture
Additional costs/investments for POs/farmers
None
Chainsaw, hiring of chainsaw operator, haulers, scaler, and helpers
Chainsaw, Resawmill installation, hiring of chainsaw operator, resawmill operator, scaler, and helpers, fees for WPP, ECC, and power costs
Chainsaw, Mini-sawmill installation, hiring of chainsaw operator, resawmill operator, scaler, and helpers, fees for WPP, ECC, and power costs
Chainsaw, resawmill or mini-sawmill installation, furniture shop and equipment installation, hiring of chainsaw operator, resawmill operator, scaler, and helpers, furniture designers and assemblers, fees for WPP, ECC, and power costs Ranges from 588 to 5,288 depending on wood recovery and selling price of furniture
Net receipt (Php) per cubic meter of Gmelina
275.00
378.70
Ranges from 600 to 1,236 depending on minimum selling price per board foot of lumber
Ranges from 841 to 1,667 depending on minimum selling price per board foot of lumber
Table 4. Summary of possible options, costs, and prospective gains of farmers.

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1.3 Enhancing the competitiveness of farmers and POs

Better plantation management is important for producing good quality lumber. In mature plantations the farmer/PO can influence the quality of the wood by choosing the best time for harvesting. In general, the wood increment increases with increasing tree age. Also the volume of heartwood increases with age, which means better wood quality. Waiting as long as possible or harvesting a few trees in order to promote the remaining trees (thinning) is advisable as long as the trees are not prone to decay in the heart or center portion. Significant and fast improvements and corresponding benefits can be achieved from minimizing wastage. Ripping logs by means of chain saws into flitches or even boards results in a low recovery rate and low quality of the lumber. A bad quality raw material will result again in low recovery rates when further processed. The unnecessary wastage can be as high as 50% or more of the total wood recovery (see Table 5). Additionally, the harvesting and hauling techniques often result in breakage and dirty wood with corresponding problems at the processors level. Higher recovery means higher income. Better wood quality and clean lumber can financially be acknowledged by the processor since he has less wastage and tool costs.
Table 5. Estimated wood recovery for different sawing systems1. Chain Saw by step 54% 87% 49% Total 54% 47% 23% Chain and Band Saw by step 54% 98% 57% Total 54% 53% 30% System Cutting into flitches Cutting into boards Furniture making (incl. over- sizing)
1
Sawmill (Bandsaw) by step Total 69% 61% 69% 42%
1 Calculations are based on theoretical recovery rates from straight logs with rates from straight logs with no defects . Calculations are based on theoretical recovery no defects.
Table 5. Estimated wood recovery for different sawing systems
Further processing gives the plantation owner the chance to earn more but he needs to have the funds and capacity to do so. Processing lumber should be targeted since flitches and logs are difficult to store. Also, the range of customers is much broader for lumber than for flitches or logs. As long as the lumber is sold locally, air-drying is currently sufficient. When markets in Cebu or Manila are targeted kiln drying seems to be advisable. The question on whether further processing is economically feasible can be answered in general with YES. Further processing is done by a large number of
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Improving wood quality through plantation management a. silviculture b. choice of most suitable species/species mix (including prime hardwoods) c. de-branching d. thinning e. harvesting at an optimum age Reducing the wastage during a. harvesting b. hauling c. ripping d. sawmilling
e. storage f. drying Venturing further up the wood preparation value chain a. felling b. hauling c. ripping d. sawmilling e. air-drying f. kiln-drying Reducing or eliminating SOPs a. for licenses b. checkpoints c. monitoring fee
Establishing a buyers information system for better linkage of buyers and producers Taking over trading function a. eliminating one or more trading levels b. building up direct trade relations with further processors
Box 01. A summary of how improvements can be achieved to improve the competitiveness of farmers/Pos.
companies successfully. Further processing at the location where the wood is produced gives advantages at least up to the level of ready-to-sell lumber.
CaSE STUDY: gmELIna
aDDIng VaLUE To gaIn InComE

It can be seen from Table 4 that the net returns per cubic meter of Gmelina increase as the farmer is made to perform other functions higher up the value chain. The benefit at higher processing levels is not only higher sale prices, but increased income opportunities for community members and a broader range of possible buyers. This is of special importance since the supply of the most common plantation species like Gmelina and (Honduras) Mahogany seems to be higher than the domestic demand. Only higher quality and well-processed lumber can increase the competitiveness that might be necessary to operate profitably in the long run. Fig, 6 shows the value added per board foot of lumber as the material moves from the supply side to the consumer end of the value chain. These are based on the differences in prices as the product enters into and exits from one function to another in the plantation wood value chains. For purposes of simplifying the illustration, only the average prices are shown. Note that the closer the functions are to the markets, the higher are the profit margins associated with the products. The range of prices paid for lumber as of the end of 2008 at different levels of the chain and at different locations are presented in Table 6. The selling prices can be represented by a simplified value chain for sales from Leyte Island to Cebu City as shown in Fig. 7. In the National Capital Region (NCR), prices for Gmelina wood are on average Php3/ bd ft higher than in Cebu City. The plantation wood value chain often includes hidden profits. Some examples of how these arise are through the following: (a) The trader has fewer expenses for the harvesting operation than calculated for determining the farm gate price when buying from POs; (b) Volumes are understated to save fees, government share, etc.; (c) The same low price for Gmelina is paid for all species harvested although selling prices are usually higher for other species; (d) Flitches are bought oversized and the lumber is sold undersized after re31
Value adding per board foot of Gmelina lumber up to furniture as final product.
Specific inputs Production
Harvesting1
Processing2
Lumber
Wholesale/ Retail
Furniture Making3
Trade
Consumption
P26-30/bf
P6-P10 for
conversion to furniture component
P20/bf
P6 for
P14/bf
P2 for
resawing & markup
P12/bf
Govt:
P5.10 for
fees & other charges Buyer:
hauling and other charges
P3.40 for
Farmers: P3.50 inclusive of inputs operating costs
Figure 6. Value addition along the different functions in the Leyte Island plantation wood value chain.
sawing. Sometimes one additional board can be gained from a flitch than what has been actually paid for. Oftentimes, the buyer makes deductions from the farmers for various reasons. These are examples on how a higher income in trading can be gained. The surplus results in reducing the benefits of the farmers, the government and the final processor or consumer. For plantation-grown Mahogany, POs usually get the same price as for Gmelina. Private plantation and traders might get a higher price as they are paid at approximately 20% more than what is generally received by POs.
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In summary, being able to move vertically up the value chain has requirements that could pose as risks and limitations to POs/farmers. Among these requirements are the following: a)financial resources for equipment, Delivered Cebu Delivered Cebu Delivered Cebu Farm gate Lumber Green Air Dried Kiln Dried structure, and Yard 17 PhP 19 PhP 23 PhP 13 PhP 31 PhP working capital; b)additional Figure 7. Simplified value chain for Gmelina lumber produced in Leyte Island and sold documentation in Cebu City (in PhP/bd. ft.) requirements; c ) m o r e sophisticated entrepreneurial and production following reasons: management skills; a) Owned wood supply might not be d) technical and product design skills; available all the time. Therefore, a bigger e) access to utilities; and stock of lumber might be needed during f) linkage with consumer markets. periods where no harvesting takes place. The value of the stock would have to be It would take more than good intentions on financed by the PO. b) If the lumber can be bought at the same the part of POs/farmers to embark into, much price as the one at which the lumber they less become successful in, venturing into the produce can be sold, then there is no functions further up the plantation wood value competitive advantage to have their own chain. There is a vital need to thoroughly assess the technical, entrepreneurial and financial wood over someone who buys wood. capacity of POs/farmers to determine their The decision to establish a furniture workshop readiness to move up the value chain and to should be made mainly on basis of factors like: perform functions other than production and to some extent, harvesting so as not to Markets and market access unduly expose the POs to risks that can spell Availability of skilled workers Availability of supplies (glues, fittings, huge disaster on PO finances and relationships among members. finishing materials, etc.) Existence of entrepreneurial skills and spirit This does not mean, however, that POs will Availability of capital Available buildings or land and funds to forever be consigned as the lowest-income earning participants of the plantation wood erect the needed buildings Availability and security of power and water value chain by merely confining themselves to the supply end of the chain. Farmers can supply. undertake improvements in their planting In most cases furniture makers will look for a and tree plantation management practices location close to markets, labor and supplies. to produce better quality timber that could In case a PO plans to open its own furniture command a higher price in the market. They shop, a location in or near to a city should be can also learn and adopt improved techniques considered. In case a location in the municipality that would increase the per hectare yield of their of the PO is the only possible choice, then the plantations. Farmers should also gain better size of the shop and the range of products access to updated market information so they produced should suit the potential market at can bargain for more favorable prices for their products. The harvesting and hauling options that location. are also within reasonable reach of the farmers, Seldom do forest or plantation owners operate requiring only minimal investments in the a furniture factory since forest management, acquisition of chainsaws, and perhaps, carabaos harvesting, sawmilling, drying and marketing and other low-cost transport systems, as well already require much attention on the part of as skills training in harvesting and tree felling, the entrepreneur to be successful. Furniture primary log breakdown and wood handling.
During the validation workshop, some PO representatives mentioned that they would like to venture into furniture making. This is to maximize the use of the wood they own and to add more value to it. However, the decision to establish a furniture shop should be made independent from owning wood supply for the
making is also a very different trade compared to plantation management and lumber production.
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Investment cost Sawmill Support equipment and import drying, etc.
PhP 576,000 384,000
Main saw chosen: Assumptions:
WoodMizer LT28; price USD 12,000.-; capacity 200 bd.ft./hr Investment PhP Storage building 440,000 cost 35,200 bd.ft./month for air
Sawmill Support equipment 1.4 M PHP and import
576,000
384,000 Increased recovery rate from logs by 25% Total investment Sales price of PhP 18 instead of PhP 12 (harvesting and 440,000 hauling included) Storage building for air drying, etc. Capacity utilization of 75% = 26,400 bd.ft./month
Operational cost
Sawmill
Total investment
PhP
1.4 M PHP
Milling, handling, petrol, Investment cost PhP overhead 576,000 costs

384,000 440,000 1.4 M PHP
Support equipment Total operational and import Storage building for air drying, etc. Total investment
( handling, petrol, Milling,used 3 PhP) overhead

Total3 PHP/bd.ft. operational costs
2-4 PHP/ bd.ft. Operational cost
PhP 2-4 PHP/ bd.ft. ( used 3 PhP) 3 PHP/bd.ft.
Benefit Operational cost Benefit Milling, handling, petrol, PhP 2-4 PHP/ bd.ft. 25% higher recovery = 78900 PhP/year bd.ft./year at 18 PhP
PhP/year 1,420,200 946,800
sales price of the 25% overhead recovery = 78900 3 PhP) Higher lumber produced:remaining higher 1,420,200 ( used 75% of 236,700 bd/ft. 4 PhP bd.ft./year at 18 PhP Total operational costs 3 PHP/bd.ft.
Higher sales price of the remaining Operational costs 316800 bd.ft . 3 946,800 75% of lumber produced: 236,700 PhP bd/ft. 4 Benefit PhP Total gain PhP/year in return
25% higher recovery = 78900 Gross additional revenue bd.ft./year at 18 PhP Higher sales price of the remaining Operational costs 316800 75% of lumber produced: 236,700 PhP bd/ft. 4 PhP Gross additional revenue Operational costs 316800 bd.ft . 3 PhP 1,420,200
Gross additional revenue
2,367,000 950.400 1,416,600
2,367,000 950.400 1,416,600
bd.ft . 3
946,800
Total gain in return
2,367,000 950.400
(A WoodMizer Bandsaw was chosen as example since the DOST at the Forest Products Research and Development Total gain in return 1,416,600 Institute (FPRDI) avails of a similar model. Training could possibly be provided by DOST).
Box 02. Brief economic estimate for a mobile or semi-mobile band-sawmill
The main advantages are reduced transport costs and reduced costs for land and labor. The success of a venture depends less on calculated possible profits but more on factors like management, skills, manpower, and market access. However, to illustrate how fast investments could be recovered, an example is presented in Box 02. In here, the main benefit is gained from higher recovery rates. Sales prices and operational cost were conservatively assumed. Box 02 shows that the return of investment seems possible in 1 year time, provided charges on the part of the government remain the same based on the raw material input in currently used system. If the higher recovery rates would result in additional charges for government share (30% based on 12 PhP/bd.ft.) and monitoring fee (1.5 PhP/ bd.ft.), then the additional cost would be 402,390 PhP/year The return in investment would be approximately 4 months longer. This scenario is estimated for conditions where logs for cutting are available all the time and all lumber produced can be sold. Stand still times are maximum 25% (at 8 hours/day). Based on experience, the reality looks usually different with many delays and stand still times as well as management faults. To expect a double or even longer time for the return of investment seems to be advisable.
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1.4 Opportunities and Constraints in the Plantation Wood Value Chain

Many POs had undertaken tree plantation establishment activities within the island of Leyte. The EnRD Program has been assisting 30 POs in the provinces of Leyte and Southern Leyte. All of the POs have established, and were in fact already nurturing mature tree plantations. Most of them were in the process of securing RUP while some were currently engaged in harvesting activities.
Constraints
POs mentioned several constraints that they encountered in tree plantation establishment, management, harvesting, transporting, and marketing of wood products. Considered as most significant constraints were the following: (1) difficulties in obtaining/securing permits to harvest and transport their forest products; (2) no technology/ lack of equipment/ no capital for furniture processing; (3) limited number of buyers controlling the price of wood; (4) lack of information of buyers and traders regarding the marketing of products; and (5) the poor quality of plantation grown timber that makes them difficult to process into furniture. POs claim that they lack linkages to and information on other potential buyers. For marketing they are mostly dependent upon buyers recommended to them by CENRO personnel. Often, these buyers offer to buy timber at very low prices. This situation leaves POs with no choice in terms of where they could get the best returns for their plantation timber.
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Traders and processors are aware of the increasing availability of timber from Gmelina and Mahogany, and they view this as a welcome opportunity for the sub-sector. The sustained demand for wood components needed for furniture, housing, construction, and for SPWPs is also seen as an opportunity by this group of stakeholders. On the side of constraints, the group feels that the value chain is adversely affected by the declining furniture market, the lack of product development, the lack of quality materials from species traditionally used for furniture, and the lack of information on uses of wood species other than narra and lauan.
Opportunities
A number of POs recognize their potential to succeed in tree plantation development. This assessment can be attributed to the following:; (1) interest shown by some local and national development institutions to financially support the POs in their tree plantation establishment activities (e.g. PNOC-EDC is currently implementing tree planting programs in partnership with POs within their area of jurisdiction); (2) the vacant and open areas available for tree plantation expansion; (3) interest by the POs to engage in furniture making using their plantation timber for income generation by selling to schools and even churches; and (4) ability of POs to replant in previously harvested areas. Expansion of the DENR information system. A possible solution, according to Mangaoang and co-workers (2006), is the expansion of the DENR information system that is already in place in CENRO Maasin, Southern Leyte, to cover the entire Leyte Island, if not the whole region. Enabling the POs to adopt and participate in the timber market information system would result in a better price for timber/lumber as it would allow farmers to access as many potential buyers as possible. The creation of a federation of POs may also help open up
36
opportunities to improve the disposition and marketing of forest products from CBFM areas. As a group, the federation can try to influence the DENR to simplify the permitting and marketing system of the POs products. Another possible responsibility of the federation is to oversee the local and regional market for timber and other finished products. The federation can help link the POs with different local and domestic buyers of timber. A PO federation would also be in a better position to initiate liaison and create partnerships with local and national development institutions that can provide assistance in improving the POs performance and delivery of their functions along the plantation wood value chain. POs engaged in Gmelina production have yet to overcome biases and perceptions that the wood of Gmelina is of poor quality. There are some consumers who think that Gmelina wood is fit only for low-cost scaffolding material that can be substituted for coco lumber when the latter is in short supply, and for other low-value products. Box 03 below explains the issues involved in harvesting and processing Gmelina timber and how the perceived defects in quality and working properties, which result in the poor image of the species, could be overcome. Many of the opportunities and constraints identified by the value chain operators were also confirmed by the enablers, which had a longer list than the real actors in the chain. Enablers contradicted the traders and processors in their assessment of the availability of updated product development and design. The group also believes that current policies encourage more planting of trees, not to mention availability of funds, seedlings, technology and areas for planting. They also think that Leyteos have the skills required to promote the value chain. But constraints to the value chain exceeded the opportunities. They view farmers as indifferent to quality requirements, using very little or no good practices to ensure quality of logs, sustainable planting, maintenance, and harvesting. Farmers were also seen as lacking in skills to access funding for plantation establishment. Enablers also deride the unharmonized policies that result in difficult and cumbersome permitting process and other hidden transaction costs associated with harvesting plantation timber. On the processing and marketing aspects of the chain, enablers consider as constraints the inefficient lumber process technology in use which results in poor quality products. This would make it more difficult for the local industry to compete with imported products that are viewed as cheaper apart from being better in quality and design. The marketing system is considered as largely unsynchronized, making the industry prone to unfair trade practices and market price distortion. The enablers also wondered why some furniture makers still prefer banned species as their raw materials.
annEx f: ThE SUmmaRY of ThE oPPoRTUnITIES anD ConSTRaInTS IDEnTIfIED bY ThE DIffEREnT STaKEhoLDERS Who PaRTICIPaTED In ThE VaLUE ChaIn VaLIDaTIon WoRKShoP
37
38
2. Rattan and Bamboo Value Chains

SITUaTIonER on RaTTan anD bamboo
Rattan Rattan is considered the second most important forest product after timber. The amount of forest charges collected from Non-Timber Forest Products (NTFPs) can be attributed largely to rattan, indicating not only the volume and value collected, but the importance that can be attached to this resource among forest-dependent individuals and communities. Export-based rattan furniture is declining, while import of it as raw material is increasing. The Philippines has targeted the high end market for furniture in western countries, and rattan-based products would easily fit into this category. The Philippines is known worldwide as a design leader in rattan-based furniture, with the likes of Cebubased designer Kenneth Cobunpue becoming renowned for the functionality and aesthetic value of his creations. Rattan-made furniture products were once the dominant furniture export, but its share from 2004 to 2006 has been on the downtrend. The export of rattan furniture has been on the decline in recent years, which Aquino et al. (2004) (Table 7) have attributed to the influx of cheap rattan furniture from China that were unfairly copied or patterned after original Philippine designs. Despite its rich rattan resources, the Philippines had been transformed to become a net importer of rattan, both in split and unsplit forms. Importing the raw material was done to meet the countrys requirements for furniture products that were largely being exported. According to the Philippine Forestry Statistics, imported rattans were sourced mainly from the trading ports of Hongkong and Singapore, although China has made inroads into exporting the semi-processed derivatives consisting of rattan splits and core.
Particulars 2004 Quantity (net kg) Rattan pole exports (FOB) Rattan pole imports (CIF) Rattan splits and core imports (CIF) 60a 202,040 167,690 Value (US$) 196 749,845 420,055 2005 Quantity (net kg) 4,052 102,796 228,791 Value (US$) 8,789 325,314 585,576 2006 Quantity (net kg) 13,663 28,344 209,350 Value (US$) 49,702 89,844 530,539
Table 7. Exports and imports of rattan materials, 2004-2006. (FMB-DENR, 2004-2006).
a In 2004, the a In 2004,was also able to export 7,314 (netable to export 7,314at US$1,380of split mostly to Vietnam. US$1,380 (FOB), mostly to Philippines the Philippines was also kg) of split rattan valued (net kg) (FOB), rattan valued at
Table 7. Exports and imports of rattan materials, 2004-2006. (fmb-DEnR, 2004-2006)
The value of different types of furniture (including those made from rattan) that are exported fro the Philippines
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The value of different types of furniture (including those made from rattan) that are exported from and imported by the Philippines The Revised Master Plan for Forestry Development (2003) projected that the country needs between 8,799 to 12,462 hectares of rattan plantation to meet export requirements for rattan furniture by 2015. According to Aquino et al. (2006), the Philippines has an estimated 17,395 hectares of land planted to rattan. With this figure, the Philippines has more than enough rattan plantations to supply current and future demands for rattan poles up to 2015. Rattan may still be being harvested from vast forest areas not entirely devoted to rattan growing. Based on the 2005 Philippine Forestry Statistics, the allowable cut approved for rattan cutting contracts was for 10,948,312 lm, which accounted for only about 22.4% of the projected volume (48.79M lm) needed that year (RFMP, 2003). The 2005 rattan cutting contracts were approved for 8 regions in the country, covering an area of 190,994 hectares, which suggests that rattan was still being harvested from vast forest areas not entirely devoted to rattan growing. In Region 8, rattan cutting contracts were approved for two provinces in the Island of Samar only. Rattan species that are planted or existing in CBFM areas in Leyte Island: Palasan (Calamus merrillii) Kalapi (Calamus ornatus) Pudlos/ Arorog (Calamus javensis) Saha-an* Pagiti* Bagay* Ilisi*
*Vernacular names. These do not appear in known lists of rattan species. However, Pagiti has a similar sound to Tagiktik and Ilisi could be Ulasi or Ulisi. The species Tumalim (Calamus mindorensis Becc.), which is highly sought after by the furniture industry because of its favorable working properties, is not being planted by Leyte farmers.
annEx g: LIST of CommERCIaLLY ImPoRTanT RaTTan SPECIES In ThE PhILIPPInES
Bamboo Globally, the demand for traditional bamboo products has fluctuated in recent years, but trade in technology-intensive bamboo products is increasing. Bamboo, from its pole to its shoots, is a material that is versatile. Bamboo products are now generally grouped under two categories: traditional (low-tech, usually hand-made items) and modern. Engineered bamboo, fabric and/or textile, chemicals, medicinals and cosmetics, and canned bamboo shoots, has been reported to be gaining and is projected to continue to further increase in the next decade, while traditional products from bamboo is declining. The Philippines lags behind its Asian neighbours with respect to engineered bamboo products. Engineered bamboo products (e.g. floor panels made from glueassembled bamboo slats) and chemical process-derived products (e.g. textile and medicinal products) are mainly supplied globally by China, Vietnam and Taiwan. Recognizing the need for the country to catch up in this area in view of the increasing potential of these products in the global market, as well as the relative ease and short gestation period of
40
growing bamboo, The Philippine Council for Agriculture, Forestry and Natural Resources Research and Development (PCARRD) has funded the Bamboo Industry Development Program to help fast-track the development of an engineered-bamboo industry in the Philippines. From 2004 to 2006, the export of raw bamboo has increased steadily in value along with the exports of other NTFPs, while imports of it had declined. In 2004, bamboo accounted for only 5.42% of the value of NTFP raw material exports, but this has increased to more than 21% in 2006. This is an interesting development, considering that there has not been an official lifting of the ban exporting bamboo poles from the country. Imports primarily from China and Vietnam, were declining. The total export value of bamboo baskets and basketware from 2004-2006 has consistently been larger than that of bamboo furniture. With regard to manufactured articles from NTFPs, baskets and basketware account for more than 98% of the exports in this product category. The other items that were listed in this group were buri and pandan placemats, and sawali from bamboo, but their volume has been small compared with baskets and basketware. However, the latter comprise of products made from other materials such as rattan, reed, and raffia, so the exact contribution of bamboo to this category cannot be ascertained. It should be noted further that the total export value of baskets and basketware has consistently been larger than that of bamboo furniture, at about 4.8 to 5.6 times the value during the 3-year period. Bamboo stands in the Philippines cover an area of 48,403 has.of which 368 hectares can be found in Region 8, or approximately 1.4% of the total. There are about 70 species of bamboo occurring in the Philippines, 45 of which are erect, while the rest are climbing. Bamboo species found in Leyte: Kawayan tinik (Bambusa blumeana) Kayali (Gigantochloa atter) Lunas* Patong*
*Vernacular names
annEx h : PRoPERTIES anD USES of CommERCIaL bamboo SPECIES

Product Quantity 2004 Value (US$, FOB) 23,859 Quantity 2005
Table 8. Philippine trade in bamboo and bamboo-based products from 2004-2006. (FMB-DENR, 2004-200
2006 Value (US$, FOB) 73,334 Quantity Value (US$, FOB) 128,997
Bamboo exports (net kg) Bamboo imports (net kg) Woven bamboo strips (number) Baskets & basketware1 (number)
39,473
74,587
66,264
107,271
79,140
95,628
132,699
77,997
77,826
1,043 7,805,998
2,863 20,173,101
251 7,026,674
660 15,539,285
2,147 5,603,143
11,729 12,392,920
1 This product category includes those made from materials other than bamboo, such as rattan, reed, raffia, etc.)
1
This product category includes those made from materials other than bamboo, such as rattan, reed, raffia, etc.)
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maPPIng ThE RaTTan anD bamboo VaLUE ChaInS In LEYTE

The value chains for rattan and bamboo, showing the different functions, the various operators and their interrelationships, as well as the chain enablers and supporters, are shown in Figures 8 and 9, respectively. For rattan, the value chain comprises the main function production and harvesting, primary processing, pole trade, furniture making, furniture trade and consumption. Main operators are Peoples Organizations, non-formal collectors, island traders, trader cum processor, rattan furniture makers and buyers outside from Leyte. For bamboo, the value chain comprises the main functions: production and harvesting, primary processing and sale, furniture making, furniture trade and consumption. Main operators are farmers or People Organizations, bamboo furniture makers and direct buyers. For both value chains, the enablers are almost the same: Academe, NGOs, Cooperatives, PNOC, CFIP, CFIF and PCHI, Bahandi and the DTI.
FIGURE 8 Furniture Value Chain from Rattan in Leyte
POs (CBFM) (n<10) Non-formal Collectors (n=?)
Island Traders (n<5) Rattan Furniture Makers (n<10) Trader cum processor (n=1)
Buyers outside Leyte
DENR, Academe PNOC, NGOs, Cooperative Development Organizations, LGUs DTI
CFIP, CFIF Bahandi
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Vision for the Rattan and bamboo Value Chains
The following vision statement for the rattan and bamboo furniture value chains was formulated and finally adopted during the Strategic Planning Workshop held March 9-10, 2009 in Tacloban. By 2011, the rattan and bamboo industries in Leyte shall have developed new highquality product lines that will promote creativity, enhance craftsmanship, sustain forest resources, and respond to the socioeconomic and ecological needs of farmers.
FIGURE 9 Furniture Value Chain from Bamboo in Leyte
Farmers with plantation / stands n=1,000 Bamboo furniture makers n100 POs (CBFM) (n<10)
Direct buyers who use bamboo for housing construction
PNOC ERDB, Academe
Academe, FPRDI
CFIP, CFIF Bahandi
Development Organizations DTI
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oPERaToRS In ThE RaTTan anD bamboo VaLUE ChaInS
oPERaToRS (STaKEhoLDERS) In ThE RaTTan anD bamboo VaLUE ChaInS

The operators in the rattan value chain consist of POs engaged in rattan planting and harvesting, Leyte Island traders, rattan furniture makers and traders, as well as the consumers of rattan-based furniture products. At least one trader also has his own furniture/handicraft-making facility. In addition to these stakeholders who are legally performing their respective functions in the rattan value chain, an undocumented number of illegal gatherers are involved. These are people who gather and sell rattans without the necessary permits, who encroach upon areas planted and/or managed by POs, or gather naturally-growing rattans from areas outside of CBFM. Less than 10 POs reported that they are legally engaged in planting and harvesting rattans. There are also less than 5 legal traders of rattan poles and about 10 enterprises are engaged in rattan furniture making and trade. The bamboo value chain in Leyte Island is less complex than either the plantation wood or rattan value chain as the chain is considerably shorter and there are no raw material traders involved. Farmers who have bamboo stands sell directly their bamboo culms to buyers who need the poles for house construction or to bamboo furniture makers. Less than 10 POs are actively planting bamboo, but an estimated 1,000 or so farmers maintain bamboo stands. An estimated 100 individuals, scattered all over the Island, but concentrated in some towns that have identified bamboo as their one town, one product (OTOP) such as Tanauan, are engaged in bamboo furniture making and trade. Customers include local buyers, some bamboo furniture traders from the neighboring Island of Samar, and from time to time, buyers from as far as Manila and Cebu.
EnabLERS anD SUPPoRTERS of ThE RaTTan anD bamboo VLaUE ChaInS
EnabLERS anD SUPPoRTERS of ThE RaTTan anD bamboo VaLUE ChaInS

The rattan and bamboo value chains involve almost similar groups or organizations as supporters and/or enablers.
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The Department of Environment and Natural Resources As in plantation wood, the most visible enabling organization is the DENR since both rattan and bamboo are classified as non-timber forest products. The land where the POs plant their rattans had been handed over to them by the Government through the DENR. The latter is also involved in the grant of permits, inspection and checking of rattan poles that are in the process of shipment to their respective destinations. Bamboo does not attract as much attention as rattan in terms of regulatory control by the DENR. PNOC They support POs that are within areas under their jurisdiction by providing them rattan seedlings and through the extension of assistance in getting rattan cutting permits from the DENR. DTI has no long-term program for rattan and bamboo although some rattan and bamboobased products of BAHANDI members are among those that are promoted in trade fairs and exhibits. Nationally, research organizations such as ERDB, FPRDI, PCARRD and the academe have done a number of research projects on bamboo and rattan but no direct engagement nor assistance have so far been provided to bamboo and rattan growers, processors, and traders in Leyte. Trade organizations such as CFIF and PCHI could also potentially support the rattan and bamboo sub-sectors in Leyte, but so far, these organizations activities and programs have not reached the Island.
fUnCTIonS In ThE RaTTan anD bamboo VaLUE ChaInS
fUnCTIonS In ThE RaTTan anD bamboo VaLUE ChaInS

Rattan The functions in the rattan value chain, as shown in Figure 7, include the provision of specific inputs, production and harvesting, primary processing, pole trade, furniture making and trade, and consumption. Farmers and POs generally undertake all of the first three functions. Traders buy the rattan poles and sell them to furniture makers within and outside Leyte, Furniture makers process rattan. Their workshops also serve as their display areas. Homeowners and commercial establishments buy rattan-made products.
Not all POs in Leyte plant rattan. There are some who do have members who were engaged in rattan pole collection in the past as a source of livelihood income. Collection has not been limited to planted rattan poles, since it would require several days for them to return
45
from rattan collection expeditions. Rattan collection is difficult and risky, and gatherers are equipped only with the most basic tools such as a bolo or hatchet when harvesting rattans. Falling from trees around which the viney rattan stem clings is not uncommon. Farmers pull the rattan poles away from the trees, remove the leaf sheathes and the spines around the poles, and then cut them to length for easier hauling, which is usually done by carrying the forest product on their backs as they return to the rattan depots in the center of the Barangay on foot. In the Barangay center, primary processing of the pole is done such as scraping, piling, air drying, and bundling. Scaling (inspection) and pricing is done in the presence of the buyer or trader. Scaling serves as the basis of payment to the gatherers, who would normally receive only the balance since payment in general, had already been made in advance by the buyers. Traders have their own trucks that are used to haul the bundled rattans to a central storage area or directly to rattan furniture or handicraft makers or to buyers from other provinces. Rattan furniture makers process the rattan into chairs, sala sets, tables and other high-end type of furniture. Rattans are cut to length and bent to the desired configuration as per the design of the product. Weaving of furniture components is a time-consuming operation in rattan furniture making. The finished products are applied with varnish, stains and other finishing materials and then are put on display for potential buyers to see. There is little marketing effort on the part of furniture makers to advertise their products.
Bamboo The bamboo value chain is more straightforward than the plantation and rattan value chains. Like rattan, there is negligible input in bamboo production as the plant tends to grow naturally with very little human intervention. Bamboo clumps occur in patches along the banks of rivers, creeks or streams and can also be found surrounding backyards or as hedges around farms. There are two modes in which farmers sell their bamboo. One is by direct selling to furniture makers or consumers. In this mode, the farmers do the cutting, harvesting, transport, and directly deliver them to the furniture maker. Another mode is through the pakyaw system, where the buyer, usually the furniture maker or a consumer planning to build a house, negotiates with the farmer for the price of the bamboo poles in a clump or several clumps in a stand. The buyer then takes care of hiring people to cut, remove branches and thorns, haul, and transport the bamboo poles to the furniture workshop.
Bamboo poles are air-dried before they are processed into furniture. The lower portions are made to stand on end, while the top portions are laid in a horizontal position until they are dry and deemed fit for processing. The poles are cut to length, the skin scraped off, and then worked depending on the part of the furniture they would be put into. The bamboo furniture components are assembled according to the design, sanded to make the surface smooth, then exposed for some time prior to application of varnish or sold as is without any finish. Customers are generally walk-in buyers who want a set for their house, or buyers from Tacloban City or nearby Province of Samar, who have their own bamboo furniture stores.
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2.1 Economics and Value Adding in the Rattan and Bamboo Value Chains
Rattan The harvesting, primary processing, and trading of rattan involve transactions where money flows in exchange for several functions: labor or service rendered, the cost of the material itself and some processing entailed, as well as the movement or hauling to the market, usually a furniture maker. These are legitimate costs that have to be paid as they add value to the material before they are eventually assembled into furniture. Table 9 below shows the transactions involved for a container van of rattan shipped to a destination in Luzon coming from Leyte. Ideally for a value chain, only those who actually rendered service or supplied raw material and other inputs should receive payments in exchange. Note that half of the estimated total cost of P336,000 for the shipment is accounted for by payments to the cutters (P168,000), P12,000 for labor by scrapers, and what the trader gets for undertaking the shipment (P43,980 or about 13% of the total estimated cost). However, a large portion goes to other expenses that do not accrue to improving the value chain such as payments received by the PO, taxes (Barangay ordinance and forest charges) and permits, as well as undocumented payments (SOPs). All combined, these Table 9. total P87,020, accounting for more than 25% of poles from the to Pampanga: payments Transactions and payments made in transporting rattanthe cost ofLeyte shipment. In An Example.
Recipient Cutters Scrapers PO (holds cutting permit and paid SOPs involved) Barangay ordinance Government through DENR Transport permit 40% of forest charge 40% of reforestation fund Undocumented: SOP permit to transport 60% of forest charge 60% of reforestation fund 3/4 of SOP from check-points Police and other check-points Transport and handling costs (partly also used for small SOPs) Trader (less when deductions or smaller diameters included) Total 1,000 16,128 4,320 5,000 24,192 6,480 15,000 PHP (detailed) PHP (total) 168,000 12,000 6,000 3,900 21,448
50,672
5,000 25,000 43,980 336,000
Table 9. Transactions and payments made in transporting rattan poles from Leyte to Pampanga: an Example.
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part, this explains why locally-sourced rattan is an expensive raw material, and why the rattan furniture industry in the Philippines can hardly compete with those of China and Vietnam. With respect to return to labor, if each gatherer could only carry a maximum of about 40 poles on the way home from a rattan collection expedition, he would only receive P560 per trip as payment (for labor and materials taken together). Scrapers receive P1 each per pole (usually done by female community members). Other payments received for labor (not shown in the table) are for piling the rattan in a wigwam fashion to dry in the sun, storage, bundling, and for hauling onto trucks. The breakdown of the traders cost for getting into the business of buying and selling rattan is as shown in Table 10 below (for 1 shipment of rattan poles). Note that the trader assumes most of the cost of permitting as well as other costs such as dealing with the Barangay, the PO, the DENR and the inspectors at the checkpoints. Thus, the trader must maintain a good cash flow position to provide the outlays required in the business. This explains why he cannot afford delays in transporting the poles, which could happen if checkpoints are encountered that would arbitrarily find flaws and additional requirements in transport documents, no matter how complete. Risks are higher for improperly dried materials, which could suffer from fungal stains or even deterioration during shipment under hot, humid conditions leading to significantly lower market price, if not total rejection of the shipment.
Table 10. Traders cost of doing business a. Cost Center 12,000 poles from cutters (1&1/8 @ 14 Pesos/pole) Scrapers (1 Peso/pole) Payment to PO for 7/8 up only (0.5 Pesos/pole) Payment to Barangay captain (7/8 up) (10-(20)25) Cent Forest charges Reforestation fund (to DENR) (details of this regulation not yet well understood) (0.9 Pesos/pole?) Permit to transport (estimate) SOP permit to transport (PhP5,000 (?), PhP1,500 Brgy.) SOP on the way (PhP500+ (?), PhP100-300 others), up to PhP25,000 or even PhP30,000 reported Amount (PhP) 168,000.00 12000.00 6000.00 2400.00 40320.00 10800.00 Securing cash advances Volumes understated Understated too? Comment
1000.00 6500.00 20000.00
No info yet
Reason for DENR: Understated volume
a Table 10. Traders cost of doing businessLeyte to Pampanga of 1 and 1/8 poles. Scenario: Rattan delivery, 1 truck, from
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Fig. 10 shows value adding along the rattan value chain. Poles 1&1/8 or bigger delivered to the Barangay center cost PhP14 each, which covers the price of the material and all of the inputs of the gatherer (walking to the site, actual cutting, removal of spines and leaf sheaths, cutting to size, and hauling on their backs). The payments are usually received in the form of cash advance, with the farmer getting some extra payments for poles delivered over and above the respective quota. After basic processing and material handling in the Barangay, more or less PhP6 is added to the cost per pole, part of which also goes to payments to the Barangay and the PO. Transport, handling and traders markup would add another PhP8 to the poles value, inclusive of undocumented payments. Processing into high-end furniture would result in an increase of between PhP8 to 12 in the price of each pole.
Figure 10. Value adding per pole of rattan ( 1-1/8) up to furniture as final product.
inputs Specific inputs Specific Production & Harvesting
Production & harvesting
Processing Primary Processing
Primary
Pole trading
Pole Trading
Making furniture making
Furniture
Trade
Trade
Consumption
Consumption
P36-40/pole
P8 - 12 for conversion to furniture
P28/pole
P4.00 mark-up
P20/pole
P4.80 - fees P2.40 w/ rcpt. P2.40 undoc.
P4.00 broken down as P1.70 - SOPs P2.30 transport & other operating costs
P14/pole
Farmers:
P0.85 50 - PO 35 - Bgy.
P14
P1.55 for scraping, drying, storage, bundling
inclusive of inputs
Figure 10. Value adding per pole of rattan (1-1/8) up to furniture as final product
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2.3 Opportunities and Constraints in the Rattan and Bamboo Value Chains
Rattan
Opportunities Despite depressed global markets and prices for rattan furniture products, stakeholders in the rattan value chain were still optimistic about rattan production, having identified the following as the potential prospects in engaging in this sub-sector:
Rattan can be harnessed in the gifts, decors and houseware (GDH) sector, so the industry can still potentially add to the incomes of the operators in the rattan value chain; and There is an abundance of raw materials for furniture making. Wide areas can be planted with rattan and there is no apparent lack of planting materials as there are wildlings that are readily available.
Constraints The permitting system for harvesting rattan is complex and sometimes cumbersome. This makes compliance difficult, and could even be prone to errors or varying interpretation by officials tasked with evaluating and approving permit applications. This could lead to even more price distortion.
Rattan is not considered a priority industry sector and therefore, those engaged in the industry could not get enough attention or support from appropriate agencies. There were no new programs designed or currently implemented to improve the performance of the rattan industry. Rattan was not included in the Department of Trade and Industries
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list of primary commodities to be developed and supported. The commodities that are the focus of research and development efforts in Region 8 include coconut, abaca, and jackfruit, but not rattan nor bamboo.
The low price for rattan that is almost being unilaterally imposed by traders/ buyers of these products. Farmers do not consider such a low price as fair return for their labor after investing considerable time and effort to bring rattan canes down from the forests where they are gathered. There is lack of access to product development. They feel it makes it even more difficult for them to compete given the lack of modern facilities and other factors that make their products outdated and more expensive than what foreign competitors could offer. Processors also consider as a constraint their inability to access the latest rattan processing technologies, such as in the drying and treatment of rattan poles. They also find the industry as lacking in appropriate tools and equipment and skilled workers. The market is largely domestic (i.e., confined to Leyte), and production volumes are still very low. While traders believe that there is enough rattan in the Island, the supply of rattan poles remains unstable. Enablers concede that available harvestable stocks of rattan are still largely an untapped economic resource. One are of development noted by the enablers is the presence of organized POs which they also consider as an opportunity for the rattan value chain. These POs could easily avail of training opportunities provided by various government agencies and development organizations. Leyte is in close proximity to Cebu, a processing center for rattan furniture. Some Cebu manufacturers make use of the so-called Big Brother scheme for sub-contracting materials and components needed for their products.
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Bamboo Only two POs were engaged in bamboo plantation development in Leyte Island. Others reported to have planted bamboo as hedges or markers along boundaries, or to stabilize the soil along creeks/riverbanks, but not for the purpose of marketing the mature bamboo culms later. If harvested, the bamboos were employed for domestic use or for the consumption of the POs but not for commercial purposes. Opportunities Notwithstanding the current situation of the bamboo industry in Leyte Island, stakeholders believed that there is potential to engage in bamboo propagation and even up to processing owing to the following:
(1) Sufficiency of bamboo supply in the Island; (2) The potential for new product lines from bamboo such as chopsticks and toothpicks, which makes bamboo a good raw material for gifts, decors, and houseware (GDH) manufacture; and (3) Expectation of high demand for quality bamboo furniture at some periods during the year. There was general agreement among stakeholders that bamboo remains in abundant supply in Leyte, and could readily feed an industry in need of available raw materials. They found great promise in the GDH sector, where bamboo has potential to be crafted into many types of products that would easily fit into new and emerging consumer demands. Despite seasonal demand for bamboo furniture, stakeholders believe that they can live with it provided they have the resources to meet the demand when it is at its peak. They have well-adapted to the local bamboo furniture market and could even afford to sell their products to walk-in buyers from outside the Island.
Constraints Perceived as constraining the stakeholders from fully-benefiting from the bamboo industry in Leyte were the following: (1) lack of propagation technology that will result in easy to harvest bamboo plantations; (2) lack of buyers resulting in overgrown bamboo poles; (3) lack of drying technology; and (4) and unavailability of capital to acquire modern facilities for bamboo furnituremaking.
Although bamboo grows easily, the absence of proper propagation and management techniques results in dense bamboo clumps that are difficult to access at harvesting time. Also, bamboo is so abundant that most clumps grow beyond maturity. Growing bamboo and maintaining them are of no use to farmers if they could not be exchanged for cash due to the limited number of buyers. The quality of bamboo furniture and bamboo-made products is adversely affected by the moisture in bamboo. If improperly dried, bamboo will deform, crack, and the joints in finished products will become weak. Hence, the absence of drying technology for bamboo poles is seen as a key constraint that must be addressed. Other than drying, there are other technologies that can help upgrade bamboo product quality, but the processors have very limited capital to access them. Even the facilities that were promised to them in order that they could expand their operations and improve the marketing of their products were not properly installed because of the limited funds provided for the project.
annEx m: ThE SUmmaRY of ThE oPPoRTUnITIES anD ConSTRaInTS IDEnTIfIED bY ThE DIffEREnT STaKEhoLDERS Who PaRTICIPaTED In ThE VaLUE ChaIn WoRKShoP.
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3. Legal and Regulatory Environment Affecting the Value Chains

PLanTaTIon WooD Harvesting, transporting, and marketing of planted wood are key hurdles among CBFM agreement holders (POs) and private plantations within Leyte Island, and could mirror what might be happening nationwide. The processing of permits for harvesting/cutting and transport are considered bottlenecks that negatively affect many of the functions along the wood value chain. The harvesting, transporting and marketing of planted wood are primarily governed by DENR Memorandum Circular (DMC) Nos. 1997-09 and 1999-20, DENR Administrative Order (DAO) Nos. 200021 and 2004-04 for trees planted in private lands. For CBFM areas, the guidelines were initially provided for by DAO Nos. 1996-29 which were subsequently amended by several administrative orders thereafter, such as DAO 1999-29, 1999-35 and 2000-29. annEx I: ThE TITLES anD bRIEf DESCRIPTIon of ThESE PoLICY ISSUanCES. annEx J: a SUmmaRY of ThE
REqUIREmEnTS foR REgISTRaTIon, haRVESTIng, TRanSPoRT anD DISPoSITIon of TImbER, naTURaLLY-gRoWn oR PLanTED, foR PREmIUm anD non-PREmIUm haRDWooDS anD foR faST-gRoWIng PLanTaTIon SPECIES).
DMC 1999-20 governs the registration, harvesting, transport and marketing of wood and by-products coming from tree plantations within private lands. Tree registration is encouraged for all private tree plantations, although in reality, it has become almost a requirement that all tree plantation owners who intend to sell and transport their logs outside of their respective plantations must comply with. Tree registration was presumed to make the processing of documentation requirements for future harvesting and transport of timber/lumber from private lands much easier (DMC 1997-09). To register the tree plantations, the following documents are needed (DMC No. 97-09): (1) Letter of intent, (2) Certified photocopy of either certificate of land Ownership Award (CLOA), Land Title or Tax declaration of untitled alienable and disposable (A&D) lands with pending application for titling, (3) Certification of tree plantation ownership from the Barangay Captain or Municipal Mayor, and (4) In cases where tree planter/applicant is not the sole owner of the land, an authorization to do so from his/her co-owner. Registration can be done for newly established, fully established and mature plantations. According to DAO 2000-21, the harvesting of registered non-premium tree species did not require a cutting permit except for the planted premium species for which a special private land timber permit (SPLTP) is prescribed. However, the non-requirement of a cutting permit for all tree species, even in private lands, has been suspended under the administration of the current DENR Secretary (as per March 10, 2009 dialogue with the RED of Region 8). In the case of naturally-grown trees in private lands, their cutting, gathering and utilization were also previously governed by DAO 2000-21 and a special
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permit was issued to the landowner known as the Private Land Timber Permit (PLTP). The transport of harvested forest products required documents as stipulated in DMC 99-20. Before transporting, the owner of forest products must secure and accomplish the self-monitoring form (SMF) which should be assigned with a control number by the CENRO concerned. Prior to the release of the SMF, the CENRO personnel would have to inspect the tree products to be transported. SMF would suffice as a transport permit but it should be accompanied by a photocopy of the certificate of tree plantation ownership (CTPO) during transport. With the SMF, the marketing/disposition of wood and wood products was presumed to have no further restrictions provided the wood was supplied to legitimate buyers. The goal was to provide benefits to the tree plantation owners as a form of recognition of their participation in the governments tree planting program. But the status of SMF as a transport document for harvested trees from private lands has also been recently suspended. Upon completion and submission of all documents to the CENRO concerned, the farmer would still have to wait for at most one month before he or she would get an approved cutting and transport permit. But the duration would depend on the volume to be harvested and species. For larger volumes, approval would be done at the higher level of DENR and additional documents would have to be submitted. This also meant a longer waiting period before getting an approval. In 2000, the DENR issued Administrative Order No. 11 revising/updating the manual of approval, which contains, among others the delegation of authority in the different levels of DENR pertaining to documents dealing with the utilization of forest resources ( annEx K). The protocols and signing authorities greatly depend on the type of activity and the volume of harvestable wood or forest products. As commonly experienced by private land plantation owners and POs in CBFM areas, the processing of some documents would take considerable time because approval had to be done by higher DENR authorities (e.g. by the PENRO, Regional Executive Director, or even by the DENR Secretary). Thus, there had been cases where the applicants had to wait for long periods before relevant documents were signed that would enable them to legally benefit from the fruits of their labor. In 1999, an administrative order entitled Revised Guidelines in the Implementation of the Resource Use Permit in Community-Based Forest Management Program was issued (DAO 1999-35). Among others, DAO 1999-35 bans commercial logging in natural forests within CBFMA areas. This was amended by DAO 2000-29 which further regulated the harvesting and utilization of forest products within CBFMA areas. DAO 2000-29 had set the basic requirements for forest resource utilization which included an (1) affirmed CRMF, (2) an affirmed AWP, (3) ECC and (4) RUP. Previously, as provided for in Section 2, DAO 1999-35, an affirmed work plan shall serve as a permit to sell logs, lumber and other forest products to legitimate buyers but this was superseded by DAO 2000-29 which stipulated that the RUP shall serve such purpose instead. Resource Utilization Permit (RUP) is necessary to harvest the planted trees legally. Based
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on responses from the interviewed POs in Leyte, the prerequisites that have to be complied with prior to the issuance of RUPs are the following: (1) assessment performance evaluation report (through criteria and indicators - C&I); (2) harvesting /marketing /replanting/ rehabilitation plan; (3) inventory report in universal transverse mercator (UTM) blocking; (4) cutting map in UTM (operational map & plan); (5) Environmental Management Bureau (EMB) clearance - certificate of non-coverage; and (6) self-monitoring form. The authors attempted to locate the administrative order upon which these requisites were based but we could not find the corresponding issuance. In an apparent effort to simplify the procedures in the processing and approval of CBFMAs, CRMFs, AWPs and RUP, DENR released DAO 99-29 amending the DAO 96-29 provision requiring endorsement/affirmation by concerned LGUs and other government agencies of such documents. Instead, the concerned LGUs and government agencies would simply be provided with copies of approved CBFMAs, CRMFs, AWPs and RUPs for their reference in assisting DENR and concerned POs in the implementation of CBFM programs. In 2003, however, DENR backtracked in relaxing the requirement regarding LGU participation in the approval process when it issued DAO 2003-11. The latter administrative order stipulated that all applications for CBFM would have to be endorsed individually or jointly by concerned legislative councils of barangay, municipal, or provincial local government units depending on the jurisdiction/coverage of the area. CBFMA holders in Leyte Island have to endure the cumbersome processing of documentary requirements and permit applications. The POs that had gone through such process complained of: (1) technical difficulties in accomplishing the required documents; (2) time consuming process of approval; and (3) costly documentary requirements. DENR personnel have different levels of understanding and varying interpretations of their organizations policies vis a vis harvesting, transport and marketing of forest products. Laws and policies were imposed and implemented in accordance with the personnels own understanding of the rules. Consequently, farmers received different instructions, recommendations, suggestions, and pieces of advice on how to accomplish the documentary requirements. Often, the POs had to deal with presumed changes in documentary requirements and processing systems, particularly while in the midst of waiting for the approval of submitted documents (e.g. when there is a new office head or a change of leadership). In effect, POs had to go through the tiresome process all over again, with additional time-consuming and costly documents to fulfill. There is an existing regulation, DAO 98-43, which exempts CBFMA holders from the payment of administrative fees such as application fee, license/permit fee, service fee, rental fee and other fees such as oath fee, appeal fee and authentication fee. The DAO explained the policy on the basis of POs, being the poorest of the poor, (are) having difficulty in the payment of forest charges and administrative fees, resulting in their inability to take advantage of the opportunities provided, or resulting in unprofitable operations. Thus, while it was acknowledged at the highest level of the DENR administration when the CBFM program was established, the recognition of the need for POs to economically gain from their activities in CBFM areas seems to have be fallen into oblivion not only among some field DENR personnel in Leyte but even in the succeeding
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DENR administrations. Upon completion of all documents, POs would then face the prospect of indefinitely waiting for approval of their application. The usual time duration experienced by Leyte POs, from processing up to the final approval of the RUP would be at least two years, with one PO reporting to have waited six years until the first RUP was approved. Some of the PO key informants lamented that the entire permitting process is disadvantageous and counterproductive, thereby preventing POs from earning good income from their tree plantation within a reasonable period of time. Despite the difficulty of pursuing actions in accordance with policy regulations, farmers were still keen on harvesting the planted trees to earn revenues from their undertakings. Some farmers alleged that they had to pay grudgingly SOP (standard operating payments) and several other undocumented fees while processing the required documents in order to fast track the permitting system. Farmers still hope to earn income from their labor, as a government partner in reforestation projects while foregoing other incomeearning activities. This appears to be a strong motivating factor that has sustained the farmers interests in the CBFM program. The production sharing system of the proceeds of forest resources utilization among the different stakeholders within CBFM areas also needs to be scrutinized. The production sharing agreement with POs in the harvest of forest plantations owned by the government inside CBFM areas is prescribed by DAO 98-42. By definition, government-owned forest plantations include all reforestation/forest plantation projects administered/established by DENR like TLA, IFMA, SIFMA, ITP, CBFMA and other reforestation or plantation projects established with governments funds. Section 4 of DAO 98-42 provides that The products or income derived from the utilization of government owned forest plantations shall be shared as follows: a. For the Peoples Organization 75% of the gross sales b. For the Government 12.5% of the gross sales c. CBFM fund (created under sec.8 of EO 263) 12.5% of the gross sales. Unfortunately, the sharing system practiced in Leyte presumably brokered by the CENROs assisting the POs, was not in consonance with what is provided for in DAO 98-42 (see Table 11 below). The exact amount could vary from one CENRO to another but more or less, the per cent sharing is approximately the same. As per Republic Act (RA) 7161 of 1991, planted trees and other forest products harvested from industrial tree plantation areas and in private lands covered by existing land titles and by approved land applications are exempted from the payment of forest charges. This is reiterated in Section 2 of DAO 96-29, which includes in the list of incentives to POs, exemption from the payment of forest charges on timber and non-timber forest products harvested in plantations. On the other hand, naturally growing timber in public, alienable and disposable, and private lands will be assessed corresponding ad valorem tax taking into consideration production cost, species and grade of timber, government share, tariff duties, taxes, risk involved and a reasonable margin of profit for domestic and export market prices for wood and wood products (RA 7161). However, based on the scheme shown in Table 11, where the total share collected from farmers (government share and monitoring cost) amounted to almost 37.5% of the farm gate price of wood, it seemed that being exempt from paying forest charges had not made a significant difference in alleviating the financial burden of POs Monitoring fees are not prescribed by the
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permitting guidelines but are paid for by POs to cover the per diem of some officers due to the limited funds11. the government for field work. from forest plantations in CBFMA areas in L Table of Production sharing system
Details PO share Government share (in lieu of forest charges) Monitoring cost (CENRO, PENRO) Operating Cost (Felling, bucking, hauling) TOTAL (buying price per board foot)
Amount (Php/bd ft) 3.50 3.00 1.50 4.00 12.00
Per cent (%) 29.2 25 12.5 33.3 100
Table 11. Production sharing system from forest plantations in CBFMA areas in Leyte Island.
RaTTan Activities in the rattan value chain that are seen to be affected by existing legal and regulatory structure and procedures are those associated with harvesting, trade (transport), and marketing functions. As in plantation wood, farmers in CBFM projects encounter difficulties in securing permits to harvest rattan canes that a number of the POs in Leyte still claimed to be abundant in their respective areas. Based on the conducted interviews, not all POs have enough planted rattan, hence, those that have engaged in rattan harvesting probably rely on augmenting their stock with naturally grown rattan. Farmers also appear to prefer naturally growing rattan to planted stocks, alleging that planted rattans are poorer in quality than the ones that grew naturally.
To harvest rattan legally, POs must secure a resource utilization permit (RUP) for rattan from the DENR through the CENRO that has jurisdiction over their area. The requirements are the same as for timber, which means that the documentation work, processing time, and costs incurred were almost insurmountable for most of the POs. In fact, POs that have several planted rattans complained that their rattans were already being poached by those who have engaged in illegally harvesting the resource. They alleged during the workshop that illegal harvesting was being done by gatherers coming from adjacent POs who were encroaching into their respective areas, and then sell the rattan canes without the necessary permits. Hence, there are two types of rattan producers identified in Leyte. The first consists of those who cut or harvest rattan legally with the corresponding permits from the DENR to do so. The second group are those who cut/harvest illegally, i.e., without the necessary permits. The latter can be legitimately growing rattan within the CBFM area
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but could not or would not secure the necessary permits, either for failure to comply with the requirements or for inability to get permit renewals due to alleged violations in the past. Possibly, there is another group which consists of rattan gatherers who neither plant nor secure the required permits to harvest rattan canes. For obvious reasons, it is difficult to determine how many fall in this category of rattan gatherers. Some farmer participants mentioned in the workshop that it was probably more profitable to engage in illegal harvesting rattan than to do so legally. A specific national policy that governs the production and utilization of rattan is DENR Administrative Order (DAO) No. 04 series of 1989. DAO 1989-4 stipulates that the governments objectives as far as rattan resources are concerned are: 1) To ensure the sustainable productivity, expand availability, and access to rattan resources for the continuing support to dependent industries and the generation of employment opportunities and revenues; 2) To provide a system of rational harvesting, and gainful and efficient utilization of the resources; and 3) To rationalize the industries, which are dependent on rattan as primary raw material. Thus, on paper, the policy on rattan is designed to promote social justice (equal access to natural rattan resources), productivity of the resources, application of their true value (disposal of the resources only if their disposal generates enough funds for their renewal), and efficiency in resources/conservation/utilization (Revilla, 1988). Rattan may be cut, gathered, transported, and disposed only through a license issued by the DENR. The license has a 10-year duration with the option for renewing for a similar period at the option by the Department Secretary. The renewal of such license may be done only upon proof that sufficient rattan plants are still available for harvesting to warrant a viable and economic operation. The renewal of the license is based on the satisfactory performance of the operators and their compliance with the terms and conditions set by the license. Such license to cut and gather naturally grown rattan from forestlands and other areas shall be granted only through a public bidding. Production of raw rattan poles shall be regulated in such a way that it shall not exceed the annual sustained yield capacity of the rattan resource. The sustained yield cut that may be granted annually is determined using the following formula (DAO 89-4): f where:
SYC A D r f
= sustained yield cut in lineal meters on annual basis = forested area in ha = average density per hectare in lineal meters = rotation period for 15 years = 0.85 (recovery factor)
DAO 89-4 had set the limit for rattan license area at an Annual Allowable Cut (AAC) of 50,000 lineal meters. Government encourages the planting of rattan to supplement the dwindling supply from the natural forests. Forestlands that had been declared available for rattan plantation development include brush lands and open lands, second growth forests, and forest tree plantation development projects or existing government reforestation projects.
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To encourage the establishment of rattan plantations, the holders of the lease were supposed to be given the following incentives: a) The minimum rental fee of PhP 0.50 per hectare shall be imposed provided that there will be no rental fee payments for the first year of the lease; b) Provision of rattan seedlings at production cost and free technical assistance by the DENR field personnel; c) Forest charges on the rattan cut out of the plantation shall be 50 percent of the regular assessment; and d) Rattan raised in plantation belongs to the lessee who shall have the right to sell, contract, convey, or dispose of the said rattan in any manner he sees fit, in accordance with forestry laws, rules, and regulations, provided that the exportation of raw rattan canes shall not be allowed. To sustain rattan plantation development, the collection of a specific amount from holders of cutting licenses in the form of Rattan Special Deposit (RSD) was introduced. The RSD would constitute a trust fund deposit to be treated in accordance with Section 65 and 66 of PD 705 as amended. It was supposed to be used for the replanting of areas with rattan pursuant to the conditions of the rattan-cutting license. But none of the POs interviewed in Leyte that were planting rattan indicated that they were able to collect any amount from the RSD to support their rattan plantation development work.
bamboo There had been only a few policy issuances from the DENR that are pertinent to or specifically focused on bamboo. In 1986, then Ministry of Natural Resources (MNR) (now the DENR) issued Ministry Administrative Order (MAO) No. 37 pertaining to the ban on the cutting of bamboo in Laguna and Rizal provinces. It was aimed at stopping illegal gathering of bamboo and all other activities related to bamboo cutting in the two provinces.
DENR Administrative Order No. 58 dated August 5, 1987 recalled the telegram directive of then Minister Teodoro Q. Pea suspending the issuance of permits for the cutting, transporting, disposition, and utilization of anahaw trunks or leaves and bamboos in Regions 3 (Central Luzon), 4 (Southern Tagalog), and 5 (Bicol Region). This effectively lifted the restriction on the cutting, transporting, disposition, and utilization of bamboo and anahaw poles and leaves. Rescinding the ban was purportedly done to ensure continuous supply of these forest products to cottage industries and fish pen operators and other end-users. DENR Administrative Order No. 31 dated June 24, 1991, known as the Revised guidelines for contract reforestation included bamboo as a reforestation species. The revised provisions included surveying, mapping, planning, and comprehensive site development; monitoring and evaluation; supplemental/alternative silvicultural treatment; reforestation costs and budgets; contract management and penal provisions. It also prescribed the ceiling cost and other requirements of bamboo plantation on a per hectare basis at a minimum survival rate of 80 percent. In view of its commercial/industrial importance, the use of bamboo in the establishment and development of industrial forest plantations
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(IFP) has become an accepted practice. Just like rattan, bamboo is considered a non-timber forest product (NTFP), and as such, its extraction, utilization and transport are supposed to be regulated by the DENR. However, reality shows that it is not. In practice, no DENR permit is needed for extraction etc. During the workshop, it was pointed out from a DENR official that bamboo was not really exempt from such requirements. Nevertheless, the apparent absence or relaxation of regulatory policies dealing with bamboo in Leyte has its own downside. POs interviewed revealed that the theft of bamboo poles was rampant and has been a common problem among them. Mature bamboo culms were prone to be stolen, both in CBFM areas and in private plantations.
annEx L : a DISCUSSIon of SomE oThER PoLICIES ThaT aRE Common To PLanTaTIon WooD, RaTTan, anD bamboo.
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4. Interventions, Upgrading Strategies and Strengthening Links in the Value Chain
This section of the report summarizes the outputs of the strategic planning workshop held in Tacloban City from March 9-10, 2009, the main objectives of which were to agree on a common vision for each value chain, verify the value chain linkages, and to draft the action plan on the proposed strategies identified in the February validation workshop.
annEx m: ThE oUTPUTS of ThE STRaTEgIC PLannIng WoRKShoP (maRCh 9-10, 2009)
PLanTaTIon WooD While the outlook for the global furniture industry was generally gloomy, domestic demand for furniture remains high due to increasing population, on-going housing construction and unmet government and industrial requirements for furniture. Strategies for this subsector include improving the quality of materials, synchronizing the marketing system, and streamlining the process for securing permits.
Improving the quality of materials Wood producers in Leyte Island have the option to concentrate on the production of good quality wood produced at high recovery rates. The close proximity to Cebu would be of advantage when well sawn and dried lumber can be offered. High quality wood begins with high quality planting materials. Thus, plantation wood should be grown from quality seedlings. It was agreed that stakeholders should work closely with the DENR and the academe, particularly VSU which has an on-going ACIAR-funded project on nursery establishment to provide quality seedlings for tree
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farmers. Farmers must also employ appropriate silvicultural practices to ensure the growth of good quality timber. On the part of processors, there is a need for them to adopt technologies available from the DOST, particularly FPRDI, on proper lumber drying and other wood processing operations. These would lead to lower cost and more competitive finished products. All enablers should assist the farmers/POs to produce high quality lumber. They do not need to do this on their own. Joint cooperative activities through associations and federations seem to be advisable. These activities may include bringing farmer groups together to provide them with the opportunity to exchange ideas and share best practices, as well as to listen to seminars on appropriate technologies for their tree farming activities. Presentations from financing institutions on how their funds could be accessed by farmers may also generate interest on the part of the producers. Streamlining the process for securing permits To ease the licensing process and to eliminate SOPs might also be a key for success The high competition has no space for unnecessary expenditures and costly delays. While on the subject of corruption, bribe-taking and the payment of SOPs, it is important to understand why such things happen so that undesirable practices can be minimized or altogether put to a stop. Many reasons or factors are at play, such as the existence of complex and cumbersome policies that result in long-winded procedures and protracted processing time, the lack of understanding of rules both by those implementing policy on one side and the farmers, traders and processors on the other, desire of some to shortcut the process or refusal by others to abide with what is legal, high degree of tolerance, inadequate monitoring and reporting systems, poor quality of shipment that could lead to further degradation of products when delayed during transport, lack of confidence, fear of reprisal, willingness to collude, and many others. Some strategies to address the issue would include building capacity of the VC operators to better understand the rules, such as the conduct of how-to seminars on procuring permits and other required documents from government, greater awareness by the various VC actors of their respective rights, accessing latest technology for improving product quality (e.g., kiln dryers for efficient moisture removal) to improve the confidence of traders in the quality of their products, hence, there will no longer be a need to pay grease money to avert delays in shipment, vigilance on the part of assisting organizations in exposing to the public fraudulent transactions, and a strong desire by government to rid the bureaucracy of corrupt practices manifested through improved salaries and benefits, increased transparency, effective monitoring and reporting systems, and successful prosecution of those who are caught performing illegal acts. Leaders at the highest levels of government and industry must also set themselves as models of good moral conduct for everyone to follow. Synchronizing the marketing system In the long run, the plantation owners should consider growing finer hardwoods, too. The demand for such woods is increasing and can currently be satisfied only by imports. DENR should find ways to monitor the legal trade of plantation wood even if it would include species that are found naturally in the Philippines. Simply banning trade in all protected, naturally-growing species is no solution and will hinder the development of forest management and wood industries in the long run. With regard to marketing, there is a need to provide assistance to match available supply
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with the demand for wood. DENR and DTI can help spearhead efforts along this line. To develop new product lines, there is a need to tap DOST which has the technology and expertise to help the private sector pursue this strategy. One possible approach to product development is the use of mixed media in furniture manufacture, which will expand the raw material base for the industry and attract more customers for their products. Today, many foreign markets for wood-based products require wood from certified sources. Neighboring countries such as Vietnam and Indonesia are working on increasing their supply of certified wood. The Philippines is far behind in this endeavor, possibly because the US market was seldom demanding certified wood in the past. Now California is set to ban all imports of non-certified wooden products and it can be expected that the other states and possibly even the whole US will follow. Also, the European Union plans to ban all wood from illegal sources, which means all wood entering the European market would need a certificate of origin which is only possible with a Chain of Custody certification. These developments will force more and more Philippine exporters to use certified wood which they are currently importing. Suppliers from within the country that can offer certified wood would have a clear competitive advantage. Group certification is possible and such venture could be the target of associations of private plantation owners or federations of POs. It can be expected that support will be provided for such undertaking. However, certification requires trustworthy papers where understating volumes and other SOPs are not possible. The provincial, regional and national government agencies would need to smoothen the way for such undertaking. To help alleviate problems associated with securing RUP, the Technical Working Group, headed by the DENR Regional Office, can amply provide the leadership to work towards this goal. The sector can also benefit from the ACIAR experience in improving compliance with tree registration from private plantations, which greatly facilitated the procurement of permits for tree harvesting in private lands.
RaTTan Rattan remains in abundant supply in Leyte Island, and stock is growing because some POs have included the planting of rattan in plantation development work. Current demand for rattan furniture in the global market is low, but producers and traders remain optimistic that they can find markets for rattan poles.
Improve the permitting process As in plantation wood, RUP for rattan is difficult to secure due to the many requirements and complicated procedure. The TWG headed by the DENR was tasked to deal with this issue, in collaboration with POs and assisting organizations such as the FCI. To address policy concerns, it was agreed that the USAID experience in promoting the value chain for rattan should be consulted in order that the outcomes of the current study would reach intended stakeholders, particularly those involved in formulating and making decisions on policy. Strengthen the industry by developing new product lines New product lines from rattan should be developed to further strengthen the rattan subsector in Leyte, although there was a concern about the absence of a program in the Island or entire Region 8 to support the industry. DTI and BAHANDI were identified as support agencies for this activity especially in marketing the new products, while DOST could be tapped for new technologies and expertise in developing alternative
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products from rattan. TESDA can help build capacity for product development as the agency provides training on skills development such as on product design and machine maintenance and operation.
bamboo Undertake a more comprehensive inventory of the resource for better regulation Bamboo, just like rattan, is perceived to be in plentiful supply in Leyte, but this claim has to be ascertained by undertaking a more comprehensive inventory of the resource throughout the Island. Bamboo clumps can be seen abundantly growing in the flat lowlands, along riverbanks, backyards, and hedges of farms. This seeming abundance of bamboo is the reason why among the three plant materials studied, bamboo harvesting and processing is unencumbered by permitting requirements and DENR personnel are unwilling to implement strictly the rules and regulations that apply to this non-timber forest product. At the moment, bamboo is unregulated in Leyte solely on the basis of the pronouncement of DENR officials not to curtail the harvesting and transport of bamboo and bamboo products in the region.
Expand the bamboo market Demand for traditional bamboo products made in Leyte is limited, so there is a need to expand the market and to develop new product lines from this resource. DTI can help in market development while the DOST can extend assistance in product development. Outputs of research and development activities generated by various organizations have to be made available to entrepreneurs and the private sector to help generate novel ideas on what products could possibly be crafted from this highly versatile material. A concerted effort to strengthen the industry should involve other organizations such as BAHANDI and LCCI which have continuing programs that support small-scale enterprises in terms of trade exhibits, printing and distribution of brochures, and other forms of market assistance to members. TESDA also provides capacity building programs such as furniture design and manufacture, as well as short courses on entrepreneurship that include financial management and market development.
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5. Conclusions and Recommendations

PLanTaTIon WooD The market for volume plantation species is currently highly competitive at extremely low prices. The recent crisis of the furniture export industry worsens the situation further. Competition with other countries that produce better products employing cheaper and more efficient operations make it very difficult to realize higher prices for the same product quality and processing level. Additionally, the smallholder structure of plantations in Leyte Island makes it difficult to compete even in the domestic market outside Region 8 while the local market in Leyte cannot absorb the total volume of plantation wood available.
To promote the economic well-being of farmers and Peoples Organizations whose roles are crucial for sustaining the supply side of the plantation wood value chain, some actions were identified during the workshops for immediate planning and implementation. The goals that the various stakeholders have agreed to pursue to further promote the plantation wood value chain in Leyte are the following: a) Streamline the permitting process; b) Simplify requirements needed for permitting; and c) Install a marketing information system that will make market data accessible to producers (the POs) and the traders and processors. The farmers, POs, and traders can only advocate that these actions be implemented by government organizations, such as the DENR and DTI. These agencies have the mandate and authority as well as the capacity and resources to address the above action points identified by the plantation wood value chain stakeholders. As the government agency tasked with the formulation and implementation of policies on natural resource extraction and utilization, DENR has to improve policies and regulations in such a way that they enable proper and sustainable management of these resources. Because the countrys forest resources are vast, DENR alone cannot fulfill the task of protecting them and hence, it needs the support and cooperation of all sectors in carrying out this function. It is reasonable for government to expect people and communities whose lives depend on the forest to share in this task, but because these people are among the poorest of the poor, it is imperative that their economic needs must also be met. Denying these people access to the very resource they help protect and develop is like negating them the opportunity to benefit from their efforts. This is what happens when permits to utilize forest resources are difficult to secure. DENR should take a look at the rules and regulations covering the entire permitting system and their implementation, with the end in view of streamlining them in a manner that would make them consistent with the avowed policy of developing forests with the help of communities. Closely related to the need for streamlining the permitting system is the simplification of the permit approval process. DENR should rationalize the numerous documents required, and match them with the capacity for compliance by the farmers and the POs. One possible reason for rampant bribe-taking in the sector is the desire of permit applicants to shortcut a very long-winded and complicated process, to avoid getting to line up and to keep returning to DENR offices to obtain signatures of people whose roles
65
are not clear vis a vis the evaluation of the application for a permit. There is also delay involved in having to wait for the permit to be approved by the central DENR office, with no guarantee that the long wait will result in final approval of the permit. Meanwhile, opportunities for getting a good market price for the timber are missed and valuable time for protecting and developing the forests are lost. Finally, the plantation wood value chain is also burdened by the lack of updated market information, especially for farmers who have little access to prevailing market prices and trustworthy traders who could make reasonable offers for their products. While the PENRO in Maasin has somewhat succeeded in linking farmers with buyers, the practice is limited in scope and is not yet widespread in Leyte Island. Likewise, there is no assurance that such will be continued when the PENRO leadership is changed. DENR must take steps to ensure that this positive development becomes institutionalized by the agency to ensure its continuity. DTI must also support the value chain in terms of a comprehensive program that will link the plantation wood growers with processors/entrepreneurs who use wood as their raw materials. Markets for forest products should be promoted because an expansion in the demand for finished forest products will result in increasing the demand for plantation wood.
RaTTan anD bamboo Opportunities are available for increasing income, expanding livelihoods, and for generally improving the socio-economic conditions of operators in the rattan and bamboo value chains. These opportunities arise from the ready availability of said forest-based materials and the myriad possibilities in which these can be used, such as for novelty items in the GDH sector. However, as in the plantation wood value chain, stakeholders are not able to get the maximum benefits from their involvement in the chain operation due to the constraints and limitations identified above.
To address these limitations, goals were identified and agreed upon by the stakeholders in the rattan and bamboo value chains. One, it was agreed that the difficulty in complying with documentary requirements, particularly with respect to rattan harvesting, has to be addressed. Strategies and activities were identified to achieve this goal, which could be accomplished by directing efforts towards government and the various agencies that set different requirements for farmers to embark on rattan harvesting operations. Rattan value chain enablers concur with the producers on this goal, as members of this stakeholder group have also found the permitting process to be complex and cumbersome and would therefore need an overhaul. Another goal identified was to expand the markets for rattan and bamboo products. This would make the sub-sector less vulnerable to fluctuations in the demand for furniture, and at the same time help ensure maximum utilization of rattan and bamboo that are supplied by the producers. This would require diversifying into new product lines and enhancing capacity and skills for developing and designing new products on the part of the processors. The traders and distributors must also aim to intensify their marketing efforts, especially in promoting the new products that would subsequently be developed.
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November 2011
Environment and Rural Development Program Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbH 2B PDCP Bank Center, V.a. Rufino corner L.P. Leviste Sts. Salcedo Village, makati City, Philippines Tel. +63 2 892 9051 Fax +62 2 892 3374 www.enrdph.org Contact Dr. Walter Salzer Director and Principal advisor EnRD Program Email: walter.salzer@giz.de 68

Value Chain Study FINAL (Web)

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Value Chain Study FINAL (Web)

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EnRD PRoGRam CASE STUDY

Plantation Wood, Rattan and Bamboo in Leyte Island

Plantation Wood, Rattan and bamboo in Leyte Island

EnRD PRogRam CaSE STUDY

OPPORTUNITIES AND CONSTRAINTS

>> CD-ROM: ANNEXES A TO P

Acronyms and Abbreviations

Top ten findings of this study

1. Furniture Value Chain from Plantation Wood in Leyte

Specific Input Provider

Logistics centers, industry

final sales Point/ Retailer

Provision of quality seedlings

land preparation planting maintenance inventory tree registration

tree felling scaling squaring hauling transport

unloading scaling re-sawing sorting & piling air drying

selling to individual customers & lumber traders

furniture design machining/ woodworks furniture assembly finishing & upholstery

POs (CBFM) (n=74) Tree Farmers (n14,000) IFMA / PFDA

Lumber dealers / Hardware (n=39)

Formal Furniture Manufacturers (n=5) Small Furniture workshops (n=100)

Lumber dealers cum re-saw permittees (n=11)

CFIP, CFIF TESDA, FPRDI Bahandi

PNOC, NGOs, Cooperative

Development Organizations, LGUs DTI

FIGURE 2 Furniture Value Chain from Plantation Wood in Leyte

Low 288,803 (577,606)

1,473,068 199,244 2,147,508 6,135

1,473,068 199,244 2,546,270 8,129

1,473,068 199,244 2,196,216 6,378

1,473,068 199,244 2729,800 9,046

1,473,068 199,244 2,249,918 6,647

TABLE 1. plantation areas needed (DENR, 2003).

2006 Vol (m3) 72,717 2,273 18,590

% 7.02 0.22 1.79

3,075 877 6,427 353,012 299,309 13,234a 767,669

0.40 0.11 0.84 45.98 38.99 1.72 100.00

0.23 0.00 0.00

0.46 0.00 0.00

146,965 623,839 4,766b 840,981

17.48 74.18 0.57 100.00

228,051 704,920 4,706b 1,036,034

22.01 68.04 0.45 100.00

Table 3. Type of logs produced by origin, 2004-2006. (FMB-DENR, 2004-2006)

EnabLERS anD SUPPoRTERS of ThE PLanTaTIon WooD VaLUE ChaIn

EnabLERS anD SUPPoRTERS

maJoR fUnCTIon of ThE PLanTaTIon WooD VaLUE ChaIn

PRoVISIon of qUaLITY SEEDLIngS

Cutting into flitches

figure 3. Timber harvesting operation in Leyte Island

Dry storage Manual Storage

Job out/ subcontracting quality Control

final quality inspection Packing

In-laying Weaving Sanding Lamination Powder coating Upholstery Carving

Box construction Tagging Labeling

TRaDE anD ConSUmPTIon

oPTIon 1 STUmPagE SaLE

oThER oPTIonS EngagE In SaWmILLIng, DRYIng anD TRaDIng

Logs sold at farm gate

Flitches are sold at farm gate

Sawnwood is sold by the farmers/POs

Kiln dried sawn wood is sold by the farmer/PO