Opportunities, barriers and support needs: micro-enterprise and small enterprise development based on non-timber products in eastern Indonesia

Abstract

This paper focuses on lessons related to the development of viable medium, small and micro-enterprises (SMMEs) based on non-timber products in East Nusa Tenggara (ENT), Indonesia, that are relevant to the international aid shift towards private sector development and women’s economic empowerment. Most of the products traded in the 11 428 market stalls surveyed in informal-sector market places in ENT were not from forests or agroforests, but were vegetables, second-hand clothes and other products. Most of the forest and agro-forestry products being sold were low entry-point, low-value products, sold as part of people’s survival or coping strategies. Nevertheless, a few specialist products, such as indigo, hand-woven textiles, Symplocos leaf mordants and Lygodium fern baskets, have been remarkably successful in reaching global markets. Developing business partnerships with local producer groups and entrepreneurs is easier said than done, and requires strategic choices. In addition, enterprises need to be economically viable. At first, palm sugar from Borassus flabellifer, for example, seemed to be a viable product, but the costs of the fuelwood used to boil palm sap to produce palm sugar is the major constraint on palm sugar producers and household income. Ten barriers facing entry of non-timber products into commercial markets are identified that should be taken into account if long-term enterprise development based on these products is to succeed in the long term.

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Opportunities, barriers and support needs: micro-
enterprise and small enterprise development
based on non-timber products in eastern
Indonesia
A. B. Cunningham, W. Ingram, W. Kadati & I. M. Maduarta
To cite this article: A. B. Cunningham, W. Ingram, W. Kadati & I. M. Maduarta (2017)
Opportunities, barriers and support needs: micro-enterprise and small enterprise development
based on non-timber products in eastern Indonesia, Australian Forestry, 80:3, 161-177, DOI:
10.1080/00049158.2017.1329614
To link to this article: https://doi.org/10.1080/00049158.2017.1329614
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ARTICLE
Opportunities, barriers and support needs: micro-enterprise and small enterprise
development based on non-timber products in eastern Indonesia
A. B. Cunningham
a
, W. Ingram
b
, W. Kadati
c
and I. M. Maduarta
c
a
School of Veterinary and Life Sciences, Murdoch University, Murdoch, Australia;
b
Threads of Life: Indonesian Textile Arts Centre, Ubud, Bali,
Indonesia;
c
Bebali Foundation, Ubud, Bali, Indonesia
ABSTRACT
This paper focuses on lessons related to the development of viable medium, small and micro-
enterprises (SMMEs) based on non-timber products in East Nusa Tenggara (ENT), Indonesia, that are
relevant to the international aid shift towards private sector development and women’s economic
empowerment. Most of the products traded in the 11 428 market stalls surveyed in informal-sector
market places in ENT were not from forests or agroforests, but were vegetables, second-hand
clothes and other products. Most of the forest and agro-forestry products being sold were low
entry-point, low-value products, sold as part of people’s survival or coping strategies. Nevertheless,
a few specialist products, such as indigo, hand-woven textiles, Symplocos leaf mordants and
Lygodium fern baskets, have been remarkably successful in reaching global markets. Developing
business partnerships with local producer groups and entrepreneurs is easier said than done, and
requires strategic choices. In addition, enterprises need to be economically viable. At first, palm
sugar from Borassus flabellifer, for example, seemed to be a viable product, but the costs of the
fuelwood used to boil palm sap to produce palm sugar is the major constraint on palm sugar
producers and household income. Ten barriers facing entry of non-timber products into commercial
markets are identified that should be taken into account if long-term enterprise development based
on these products is to succeed in the long term.
ARTICLE HISTORY
Received 24 November 2016
Accepted 28 March 2017
KEYWORDS
non-timber forest products;
micro-enterprise
development; SMMEs;
value-adding; private sector
development
Introduction
In Indonesia, micro-enterprises are considered to be those
with 1–4 workers (excluding the owner), while small enter-
prises have 5–19 workers, medium enterprises 20–50 work-
ers, and those with more than 50 workers are considered
large enterprises (Tambunan 2005). This review focuses on
small, medium and micro-enterprises (SMMEs) based on
trade in a diversity of non-timber forest products (NTFPs).
Although the Indonesian government has supported
small and medium enterprises (SMEs) because they can
play a role in job creation and the production of exports
(Tambunan & Cant 2009), the informal industry sector should
also be considered. By definition, informal-sector activities
are part of a ‘hidden economy’that is neither taxed nor
monitored by national governments. Yet, self-employment
in the informal sector is a particularly significant economic
opportunity for low-income households, and for women
with limited employment options or earning power (Woller
2004; Tambunan & Cant 2009). Unlike the example of the
furniture industry in Jepara, Java, where a cluster of 15 271
wooden furniture production units employs about 170 000
workers (Roda et al. 2007), fewer ethnobotanical studies
have been done of NTFPs traded in informal-sector market
places, exceptions being the study of Arman (1996) of fruits
sold in Pontianak, West Kalimantan, and the recent study of
Cunningham et al. (2011a) in East Nusa Tenggara (ENT),
which provides the quantitative basis for this policy-oriented
paper.
Indonesia’s largest donor of bilateral aid, Australia, has
shifted away from the donor–recipient model to one aimed
at a more efficient approach, with a focus on private sector
development (PSD) and women’s economic empowerment
(DFAT 2015). Although interest in PSD and public–private
partnerships (PPP) has increased since the 1980s (Reed &
Reed 2009), PPP have been applied mostly to mainstream
agribusiness (such as global coffee and cocoa supply chains),
and far less to non-timber products. This is not surprising for
several reasons, including the fact that the terms ‘non-
timber products’or ‘non-timber forest products’confuses
many policy makers and potential business partners. Over
a decade ago, Belcher (2003) pointed out that the term
NTFPs is confusing precisely because it is a negative term
that refers to what NTFPs are not (i.e. non-timber), rather
than what they actually are. In the 1980s, as Peters (2011,p.
v) points out, ‘there seemed to be an unstated assumption
that somehow the NTFP acronym –as well as the people
that collect them and the markets through which they are
sold –represented a distinct and relatively homogenous
category of products and processes’. Being faced with com-
plexity and diversity rather than homogeneity puts many
people off, including potential funders in the agribusiness
sector who are used to clearly defined, mainstream com-
modities. To compound the problem, unrealistic expecta-
tions of the economic value of NTFPs, stimulated in the
late 1980s by an influential paper by Peters et al. (1989),
resulted in disillusionment about NTFPs as an economic
alternative to unsustainable logging of tropical forests
(Sheil & Wunder 2002; Belcher & Schreckenberg 2007).
Nevertheless, as Ruiz-Perez et al. (2004) pointed out after
an analysis of 61 traded NTFPs, specialisation, supplemented
for some NTFPs by intensive management and agroforestry
CONTACT A. B. Cunningham tonyc05@bigpond.net.au
© 2017 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/licenses/by-nc-nd/4.0/),
which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
AUSTRALIAN FORESTRY, 2017
VOL. 80, NO. 3, 161–177
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production, can make a significant difference to household
income. In Indonesia, in common with the economic success
of the timber furniture trade from Jepara (Roda et al. 2007),
there are vibrant clusters of small-scale enterprises that pro-
cess and export NTFPs. These include rattan blinds and
furniture (Smyth 1992), a vibrant traditional medicines
(jamu) market (Phillip Capital 2014), and Lygodium circinna-
tum fern basketry (Cunningham et al. 2011a).
Australia’s shift in foreign aid policy was stimulated by
the fact that, from a macro-economic perspective, rapid
economic growth and industrialisation have made
Indonesia a middle-income country and the world’s six-
teenth-largest economy. Yet ENT, Indonesia’s driest and
poorest province, is a world away from bustling industrial
centres of Java or the tourist hub of Bali. Most of ENT’s 5.1
million people are involved in small-scale farming, and
depend on timber and NTFPs, as well as off-farm income
during the long annual dry seasons and frequent droughts.
Due to the complexity and diversity of the NTFP sector, the
current focus of Australian aid for PSD needs a nuanced
understanding of what ‘business’can (and cannot) offer as
‘development agents’when it comes to NTFPs. A clear
understanding about how businesses operate is also needed
at the village level. Under these circumstances, it is worth
asking whether NTFPs, which are either wild-harvested from
forests or more intensively produced in agroforestry systems,
can play an important role in poverty alleviation in ENT, and
if so, how this can be done?
Our paper is structured as follows. First, the methods
used to assess different categories of trade in non-timber
products from forests and agroforests over the past decade
are described. Second, the results are presented, differentiat-
ing products according to the geography of trade (local,
inter-island, national and international export) and gender
aspects of trade, discussing species sold in both large-scale
and niche markets. In particular, products that offer a greater
chance for enterprise development are highlighted. Third, a
framework for improving the efficiency of development aid
delivery focused on PSD related to NTFPs is suggested.
Methods
The quantitative data and qualitative information pre-
sented come from nine methods and approaches used
over the past decade. First, systematic surveys of local
marketplaces were conducted (Cunningham et al. 2011a).
This is widely acknowledged as a method for gaining
insights into which plant species have commercial value
in local livelihoods, and increasing understanding of the
characteristics of traders (Cunningham 2001). Data on the
informal-sector trade in local marketplaces on Flores, Savu,
Sumba and in West Timor were collected, including count-
ing the number of women and men selling products in
the different marketplaces. Systematic classification of
these marketplaces, their schedules and the types of tra-
ders within them was an important step in understanding
the network of harvesting and trade in products such as
Areca catechu (pinang) and Piper betle (sirih). Three mar-
kets were surveyed on Flores (Bajawa, Ende and
Maumere); two on the small, remote island of Savu (Seba
and Lobohede); six on Sumba (Waitabula, Waingapu,
Waikabubak, Melolo, Lewa and Kananggar); and 17 in
West Timor (Naikoten and Oeba markets in Kupang;
Oinlasi, Oesau, Niki Niki, Maubesi,Kapan,Soe,Eban,
Camplong, Betun, Baun, Batu Putih, Baru Kefa and Lama
Kefa in Kefamenanu; Atambua and Tarus) (Fig. 1).
Together, these markets form a major outlet for
informal-sector marketing of agricultural crop surplus,
agroforestry and forest products, but not high-value pro-
ductssuchassandalwood(Santalum album), gaharu
(Aquilaria malaccensis) and Indian screw-tree fruits
(Helicteres isora) that are generally only observed in sepa-
rate ‘ethnic supply chains’.
Second, the ‘hidden’supply chains that are separate from
the trade in local marketplaces were assessed through field
observation and interviews with people along the supply
chain—from harvesters and middlemen to major traders.
Specifically, these supply chains involve trade in some med-
icinal plants, such as Helicteres isora (locally known as usa-
kneo or kayu ules), Usnea (Spanish moss, known as tai
anggin or kayu anngin), candlenuts (Aleurites moluccana,
kemiri), Tamarindus indica (asem) pulp and seeds and, to a
lesser extent, in dyes (Maclura cochinchinensis (kayu kuning)).
These are often sold through kinship networks of traders
who consolidate products bought from smallholder produ-
cers by ‘papalele’(buyers of these products at the farm-
gate), where Indonesian entrepreneurs of Chinese descent
usually play a leading role in the consolidation process.
Similar trade networks are recorded for trade in rattans,
sandalwood, Aquilaria resin (gaharu) and swiftlet ‘bird’s’
nests, but as these have been studied by others (for exam-
ple: Smyth 1992; Soehartono & Newton 2001; McWilliam
2005; Yoder 2011; Idris et al. 2014) they were not a focus
of this work.
Third, available trade data for forestry and agroforestry
products was analysed. As project partners, the staff of the
Forestry Research and Development Agency (FORDA) office in
West Timor collated official statistics on agroforestry products
and NTFPs (such as honey and lac). In addition, Threads of Life
(ToL)—an organisation that supports and promotes
Indonesian textile weavers—provided access to their data
on sales of high-quality baskets and hand-woven textiles.
Fourth, international trade data were obtained from pub-
lished literature and from websites that record international
trade (such as www.zauba.com). In the case of baskets
woven from Lygodium circinnatum (fern stems in Indonesia
that are exported globally), prices were recorded from web-
sites of wholesalers in Japan (www. rakuten.co.jp), the USA
(for example http://www.alaskafurexchange.com and http://
www.alaskaantler.com) and, at the final point in the value
chain, in Alaska, USA.
Fifth, the harvest of specific products, such as Canarium
nuts, Symplocos leaves (for mordants) and Lygodium stems
for basketry fibre, was observed, and interviews undertaken
with both harvesters and producers of specific products. This
included discussions on prices, processing methods, quanti-
ties of a product that harvesters generally collected in a day
and, where relevant, whether resource shortages were or
were not becoming a constraint.
Sixth, discussions were held with small-scale producers,
traders and consolidators about prices and value-chain
dynamics of products (ranging from tamarind pulp and
candlenuts to seed oils, dyes, mordant plants and textiles).
These discussions were important, for as Kanji et al. (2005)
point out, value-chain analysis does not give a comprehen-
sive perspective of market interactions.
162 A. B. CUNNINGHAM ET AL.
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Seventh, based on knowledge of natural products, mar-
keting and value-adding opportunities for NTFPs in ENT
were identified.
Eighth, the appropriate production and marketing partners
were identified to realise these opportunities. Some of the
products from the seventh step—for example lontar (Borassus
flabellifer)palmsugar—have not developed further at this
stage.
Lastly, community-based businesses were initiated for NTFPs
in different markets using a range of business models and over
individualised timeframes. Domestic trade and international
wholesale trade of Symplocos cochinchinensis leaf powder as a
natural dye mordant was facilitated for two communities in
central Flores; virgin coconut oil production was initiated in
one community in Timor for the local domestic market; and
indigo paste production was initiated in four villages in Timor
for use by local natural dyers and for export to Bali.
Results
The results are explored in two ways: through an analysis of
the characteristics of markets at different points in the value
chain, and through case studies drawn from the research.
Characteristics of markets
The surveys of trade in products from forests and agroforests
carried out during this study enable the characterisation of
the different types of trade. In particular, this enables a far
better understanding of the hidden economy based around
trade in the informal sector, with trade being grouped into
three main categories: informal-sector trade in local market-
places; intra-island and inter-island trade; and exports from
ENT to national and international markets.
Informal-sector trade in local marketplaces
Of the 11 428 market stalls surveyed, over half were occupied
by female sellers (53.8%), with men occupying 44.9%, and men
and women sharing the stalls in 1.3% of stalls. Most of the stalls
(9365; 81.9%) were in permanent (daily) markets, characteristic
of larger towns (Fig. 1(a)), and the remainder (2063; 18.1%)
were in weekly markets (Fig. 1(b)) in more remote rural areas
or rural villages. In terms of types of seller, the majority of
sellers in all markets were middlemen (9512; 83.2%), followed
by producer-sellers (farmers marketing their own farm pro-
ducts) (1639; 14.3%). There were relatively few bulk sellers or
travelling merchants (who move from one weekly market to
Figure 1. Sizes of markets on Flores, Sumba and West Timor. (a). Informal sector daily markets. (b). Periodic (weekly) markets. Sizes of circles indicate numberof
sellers.
AUSTRALIAN FORESTRY 163
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another (236; 2.1%)), and very few itinerant sellers (only 5
people). The lack of itinerant traders in the sample is probably
due to the survey method, which was focused on local market-
places, while most itinerant sellers market farm products (such
as vegetables) or fresh Borassus flabellifer (lontar) palm wine by
doing the rounds of local neighbourhoods in larger towns. In
both the wet and dry seasons, the focal categories of interest in
this study (forest and agroforestry products) were outnum-
bered by vegetable sellers and clothes sellers (Fig. 2). The
majority of people selling agroforestry products (n = 1918),
forest products (n = 204), and spices and cultivated medicinal
plants (n = 563), had either not attended school or had ele-
mentary school education.
The most commonly sold agroforestry products were the
combination of pinang (Areca catechu) and sirih (Piper betle).
Wild-harvested forest products were sold by spice and tradi-
tional medicine sellers, generally including bark of kayu
manis (cinnamon, Cinnamomum burmannii) and kayu
hamoi (a Litsea species). Throughout Sumba, sellers (mainly
from Bima in West Nusa Tenggara) generally sell clothes and
everyday needs such as rice, sugar, cooking oil and salt from
sembako stalls, while Savunese generally sell raw materials
for dyes and, in the Melolo area of Sumba, palm sugar (gula
lempeng—palm sugar in flat rounds or discs). The term
sembako, widely used in Indonesia, is a shortened form of
sembilan bahan pokok. This refers to nine (sembilan)
0 500 1000 1500 2000
Fruits
Vegetables
Roots/tubers (ubi)
Honey (madu)
Obat/bumbu
Sembako
Minyak kelapa
Minyak kayu putih
Pinang siri
Palm wine (laru)
Gula Merah
Palm Crafts
Cotton/thread
Textiles (woven cloth)
Hardware (incl. knives)
Parang & knives (only)
Kayu api
Arang
Fish (fresh)
Fish (dried)
Chickens (live)
Chickens (dead, meat)
Livestock - cattle
Livestock - sheep
Livestock - pig
Livestock - goats
Meat (not chickens)
Gold/Jewellers
Second hand clothes
Outtters
Clay pots
Beras
Jagung
Jamu
Bebek
Dog
Tempe
Bahan Bangunan
Number of sellers
Female
Male
Figure 2. Numbers of men and women selling a range of products, from building materials (bahan bangunan), ducks (bebek), agricultural products (jagung
(beans), beras (rice) and sembako (‘sembilan bahan pokok’, which as we explain in this paper, refers to nine (sembilan) commodities that are considered basic
household needs) and then products from agroforestry systems, forests, and non-timber forest products, such as firewood (kayu api), the pinang/sirih
combination (Areca catechu (betel nut, pinang) palm fruits and Piper betle flowers/leaves (sirih), coconut oil (minyak kelapa), Borassus flabellifer palm sugar (gula
merah) and forests (including minyak kayu putih (Melaleuca oil), obat/bumbu (medicines and spices)) in relation to other products, such as vegetables and
clothes].
164 A. B. CUNNINGHAM ET AL.
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commodities that are considered basic household
needs–eggs, milk, salt, granulated sugar, kerosene (or alter-
natively, liquefied petroleum gas (LPG)), rice (or cassava),
cooking oil (or margarine), beef (or chicken meat) and
maize (or, in some areas, sago). Agroforestry products are
also sold by sembako sellers.
In West Timor, at Atambua market, apart from many local
sellers, others originate from Rote (an island south of West
Timor), Kupang, East Timor or Java; or are Bugis or Chinese
Indonesians. Local people generally sell surplus crops from
their home gardens, as well as cassava, sweet potatoes and
other vegetables. Throughout Timor, local producer-sellers
typically sell out in the open, and are poorer farmers who
make a subsistence income from sales.
Sellers fromRote, Savu and Bugis traders insemi-permanent
areas and have more stock to sell, with a larger variety of
products. Sellers at these permanent locations sell goods that
are relatively long-lasting, like household cooking products,
spices, salted fish, betel nut (pinang) and tobacco.
In terms of the gender of market sellers, the proportion of
women selling fruits, vegetables, obat/bumbu (medicines/
spices), coconut oil (minyak kelapa) and dried fish was sig-
nificantly different.
In terms of outfitters, most were men (many from Bima).
Men also dominated the fresh fish trade and sales of live-
stock and hardware (such as machetes and other locally
smithed tools). Only a small proportion of the products
sold in local marketplaces are wild-harvested from natural
forests, most products being derived from agroforestry sys-
tems. The relative proportions of people selling these three
product categories were similar across Flores, Sumba, Savu
and West Timor (Cunningham et al. 2011a).
Intra-island and inter-island trade within ENT
Within ENT, complex intra-island and inter-island supply
chains occur over both short distances (such as trade in
palm syrup from Savu to Raijua and Sumba) or over longer
distances (such as from Flores to Bali). It is clear that cultural
preferences are an important driver of local and inter-island
trade in many products from forests and agroforestry sys-
tems. Trade in textiles, the betel nut combination of Areca
catechu (pinang) and Piper betle (sirih), and plants used in
traditional medical systems (such as Acorus calamus rhi-
zomes and Litsea bark (kayu hamoi)) are good examples.
Exports from ENT for national and international markets
Counts of all the traders in different categories also provided
a background context to the relative importance of forest
and agroforestry products compared with other categories
(such as vegetables, fish or second-hand clothes). A total of
11 428 market sellers were surveyed: 3242 on Flores (28.4%),
2192 on Sumba (19.2%), 5874 in West Timor (51.4%) and 120
on Savu (1%). All interviews with sellers and traders were
conducted either in local languages or in Bahasa Indonesia.
Exports from ENT to other parts of Indonesia include trade
in two main categories: the more visible market chains, which
are at least partially recorded in official statistics, such as trade
in Aleurites moluccana (kemiri) and Areca catechu (pinang)
fruits; and the hidden market chains for high-value, wild-har-
vested products. These are sold in the national market and
internationally. Good examples are the national and interna-
tional trade in Aquilaria (gaharu) resin, Pemphis acidula (san-
tigi) (one of the world’s best tree species for bonsai, with single
individuals selling for 30 million IDR (AUD 3300)), Lygodium
circinnatum fern stems for basketry, Usnea (Spanish moss) and
Helicteres isora fruits (both ingredients for jamu).
Case studies
Each of the case studies has been analysed based on the
barriers to entry for each product in a specific location with
respect to the three broad levels of the market chain. Ten
parameters were developed with which to perform the ana-
lysis of the barriers to entry in these markets:
●Resource base needs
●Capital needs
●Scale needs
●Quality needs
●Market knowledge needs
●Trade network needs
●Inventory turnover needs
●Policy and regulation needs
●Marketing partner needs
●Producer support needs.
These needs, and the associated barriers to entry, vary
according to whether trade is into local markets, intra-island
or inter-island trade, or international markets. When pre-
sented in a framework, the results aid in decision-making
about which products have potential, where that potential
lies, and what is needed to develop that potential within a
market level and when transitioning between market levels.
Example analyses are presented in Tables 1 and 2.
Traditional textile weavers’groups
Within local markets, the vast majority of traditional textiles
are made with synthetic dyes. These are profitably traded
across intra-island and inter-island markets, but do not com-
mand sufficiently high retail prices in the international mar-
ket to encourage trade partnerships directly with producers.
However, beside the local markets there is a hidden trade in
natural-dyed textiles that are made for use in customary
ceremonies, for personal use by the weaver and her
extended family, or for direct sale to members of the com-
munity with ceremonial needs for traditional cloth. As the
price on the international market for a natural-dyed textile
can be ten times the price of a synthetic-dyed equivalent,
there is a market niche for high-quality, high-value, hand-
made, natural-dyed, traditional textiles that are marketed
based on the personal stories and cultural integrity of the
weavers and dyers. ToL was established in this market niche
in 1998 and now works directly in the field with over 1000
producers across 12 Indonesian islands, where the textiles
are made with locally sourced natural dyes from forest and
agroforestry systems. In terms of the above framework, the
unusual aspects of the enterprise are the depth of focus
applied to resource base and producer support issues, devel-
oping sufficient supplies of dye plants, and facilitating the
continued transmission of traditional dye recipe knowledge.
Lygodium circinnatum baskets
The international trade in baskets from the climbing fern
Lygodium circinnatum is particularly interesting. Initially, bas-
ket makers in Tenganan, East Bali, traditionally used L. circin-
natum fibre to weave just four basket types for a small-scale,
AUSTRALIAN FORESTRY 165
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Table 1. Barriers to entry for different markets for virgin coconut oil (VCO) production in Timor, Indonesia
Barrier to entry
Markets
Local Intra-island & inter-island International
Resource base needs Coconuts from community and
neighboring villages needed to
fulfill regency market
Coconuts from sub-district
needed to fulfill intra-island
and inter-island markets
Coconuts from regency
needed to fulfill
international markets
Capital needs AU$1000 workspace AU$1000 workspace AU$1000 workspace
AU$4000 tools & machinery AU$4000 tools & machinery AU$4000 tools & machinery
Scale & price needs 600 coconuts per month to
produce 17 litres of VCO per
month for 7 months per year at
AU$16.50 per litre wholesale
1800 coconuts per month to
produce 50 litres of VCO per
month for 7 months per
year at AU$12 per litre
3600 coconuts per month to
produce 100 litres of VCO
per month for 7 months
per year at AU$12 per litre
Quality needs Home-kitchen standard
cleanliness; no visible
sedimentation in bottles
Commercial kitchen standard
cleanliness; no visible
sedimentation in bottles;
water content <2%
Commercial kitchen standard
cleanliness; no visible
sedimentation in bottles;
water content <2%
Market knowledge needs New consumer product needs
documentation explaining use
to retailers and consumers
Wholesale packaging in ≥1
litre opaque bottles
Wholesale packaging in ≥1
litre opaque canisters
capable of air freight
Trade network needs Need contacts with retailers in
nearby market towns and cities
Need contacts with cosmetic
producers, wholesalers and
retailers
Need contacts with
international essential oil
wholesalers
Inventory turnover needs Local market will tolerate
fluctuations in production
turnover stock each 6 months
Need to fulfill orders within
30 days
Need to fulfill orders within
30 days
Policy and regulation needs Needs to pass one-time laboratory
test and site inspection to get
Indonesian health department
certification
Needs to pass one-time
laboratory test and site
inspection to get
Indonesian health
department certification
Needs to pass regular
laboratory tests to
maintain importer country
certification
Marketing partner needs Local entrepreneurs with
extensive contacts and a social
conscience
National entrepreneur with
experience in essential oil
markets
International entrepreneur
with experience in
essential oil markets
Producer support needs After initial training, needs
monthly facilitation of
production and business
development
Needs monthly facilitation of
production and business
development
Needs monthly facilitation of
production and business
development
Table 2. Barriers to entry for different markets for indigo dye paste production in Timor, Indonesia
Barriers to entry
Market
Local Intra-island & inter-island International
Resource base needs Indigofera tinctoria for small-
scale production can be
gathered from the wild
I. tinctoria for mid-scale
production can be
cultivated on marginal land
I. tinctoria for large-scale
production will be
cultivated on agricultural
land
Capital needs Little capital required to buy
buckets for temporary
soaking vats
Some capital required to buy
tarpaulin for temporary
soaking vats
Capital required for making
of cement vats and
purchase of circulating
pump
Scale & price needs 1–10 kg of production for
local market demand at AU
$10 per kg
10–100 kg of production for
intra- and inter-island
market demand at AU$8
per kg
>100 kg of production for
international market
demand at AU$8 per kg
Quality needs Local dyers will tolerate
variation in dye quality, as
long as price reflects quality
Commercial-scale natural
dyers will take top and
second grade indigo paste
International markets only
take highest grade indigo
powder (dried from the
paste)
Market knowledge needs Local indigo dye traditions
and dyers will be known
within producer’s
community
There are few commercial-
scale natural dyers and they
will be hard to meet
There are few international
resellers and they will be
very hard to contact
Trade network needs Extensive family and clan
relationships connect
farmer and dyer
Commercial natural dyers buy
directly from producers or
producers agents
International resellers buy
from personally vetted
traders and suppliers
Inventory turnover needs Seasonal product made during
season of textile production
can be sold when needed
by dyers
Seasonal product for year-
round market with 30–60
day lead times
Seasonal product for year-
round market with less
than 30–day lead times
Policy & regulation needs Trade functions entirely within
the ‘hidden economy’
outside of regulation
Formal inter-regency
shipment requires forestry
department documentation
Formal export requires an
export agent and
documentation
Marketing partner needs Marketers need to understand
local social networks and
textile traditions
Marketers need relationships
within commercial natural
dye sector
Marketers need relationships
within international
natural dye trade
Producer support needs Producers need training in
making paste and dyers
need training in using paste
Need training in making paste
at scale, oversight of
quality, and support in
managing orders
Producers need oversight of
quality and support in
managing orders
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local trade. In terms of the resource base, barriers to entry
were low, quality was high, and financial requirements for
basket production were low. Today, through the initiative of
a few local innovative ‘champions’, Tenganan has become a
global hub for fine basketry design and trade, with hundreds
of basket designs. The basket production process has
changed, so that Tenganan is the marketing hub, with decen-
tralised basket production across the Kabupaten (Regency) of
Kerangasem. Some villages specialise in a single, intricate,
high-value basket type while other baskets, such as handbags,
are produced in a ‘conveyer belt’sequence across different
villages, some weaving the basket, others weaving straps or
fixing Japanese cloth inside the baskets before they are
returned by motorbike to Tenganan for packing and export.
The impressive market knowledge of Tenganan’s‘cham-
pions’has been fed by a ‘made-to-order’sensitivity to export
markets, where marketing partners, such as Japanese impor-
ters, suggest particular designs that will sell well in Japan.
Exports are mainly to Japan (c. 70%), but also to Europe and
North America. Even with current non-selective harvesting of
L. circinnatum stems, a harvester is able to collect ten bun-
dles (each of 70–100 stems) per day, selling these for 5000
IDR per bundle (an income of AU$5 per day), which is above
the average daily income for the area. These are sold to
traders who re-sell bundles of fern stems in Lombok and at
Bebandem market in East Bali, where they are bought by
local farmers who supplement their income by weaving fine-
quality baskets.
Prices vary with the size and intricacy of basket design.
Small baskets tend to have a higher mark-up than larger
baskets. This reaches an extreme in the USA export market,
where a ‘fruit basket’style basket for which the weaver is paid
50 000 IDR (around AU$5) (Fig. 3(a)) retails for AU$117 in
Alaska (Fig. 3(b)). Unlike the Japanese retail market, where L.
circinnatum baskets from Bali are advertised as such (see
www. rakuten.co.jp), those sold in Alaska are commonly mar-
keted as ‘smoked grass’baskets ‘embellished’by Inuit people
without mention of basket origin (Fig. 3). Yet even the iconic
‘Alaskan’carved bone ornaments used as embellishments
(such as salmon, bald eagle heads or hump-back whale tails)
are carved in Bali (Fig. 3(e,f)). In addition, these high-quality
baskets are in demand at tourist centres, such as Kuta, Sanur
and Ubud, driving a large-scale intra-island trade.
This commercial success and high trade turnover has
resulted in commercial depletion of large L. circinnatum
stems in forests of East Bali, increasing the cost of the
resource on which this commercial trade is based. Bundles
of stems are wild-harvested in montane forests of Flores,
Sumbawa and Central Kalimantan, and then sent to
Bebandem market and Tenganan. In this case, both signifi-
cant needs relate to the resource base. The first resource-
based need is to raise awareness along the supply chain that
Figure 3. Complexity and value-chains. (a). ‘Fruit basket’woven of Lygodium circinnatum fibre in Bali for which the weaver gets AU$5. (b). The same basket type
embellished by Inuit with a carved whale tail (retail price AU$117). (c). A soap-box-style L. circinnatum basket from Bali. (d). A Balinese basket embellished with
a carving of an Inuit. (e). A made-to-order enterprise at a cluster carving Native American and Inuit style carvings in Bali. (f). Bags of carved humpback whale
tails and bald eagle heads produced in Bali that are similar to those used to embellish Bali baskets sold in Alaska. Photos: A.B. Cunningham.
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digging up the base of the stems to get the dark section
near the rhizome (that is used to weave a pattern into some
baskets) has a high impact on individual L. circinnatum
plants and is inadvisable if continued harvests are to be
sustained. The second need is to raise awareness among
middlemen and harvesters that selective cutting of L. circin-
natum stems is preferable to cutting all stems. Selective
cutting of only straight stems would leaving large crooked
stems to continue to grow and would shorten the recovery
time after harvest. Offering harvesters double the price for
graded (straight) stems (i.e. IDR 10 000 per bundle) would
make little difference to the final sale price, but a big differ-
ence to resource recovery times.
Virgin coconut oil
As with indigo (see below), the biggest barriers between
markets for virgin coconut oil are at the transition between
the local and the intra-and-inter-island markets, though with
this product the transition needs to be between market
partners as ToL does not have the expertise needed above
the local market level. ToL could facilitate connections with
local entrepreneurs but did not have the means to develop
national-level contacts in essential oil markets within the
project timeframe. A business plan for the local market was
therefore developed based on the participants’data on
coconut supplies, their material costs, and local retail prices
for virgin coconut oil. As for many such businesses, initial
capital would be converted to inventory before sales gener-
ated a profit. The imperative of avoiding negative cash flow
in the inventory-heavy stage of this process meant that daily
wages were based on the opportunity costs of participants’
other income-generating activities. Participants would be
paid both as workers when they worked and as shareholders
at the year-end. Though the shareholder income could dou-
ble the wage income, the most difficult aspect of the facil-
itation was getting participants to accept this model; they
wanted the double wage at the time of work.
This highlights the second major reason for focusing on
the local market first: a producer group needs to traverse the
learning curve of running a business at a small scale before
there is any likelihood of success in more competitive, price-
sensitive and time-sensitive national markets. Price was a
particular issue beyond the local market where an export
market price of US$12–15 per litre (IDR 150 000–200 000)
compares poorly to a farm-gate price of IDR 170 000 (US$13)
per litre. Taken together, the analysis pointed to a best
option of a good-quality product offered at local market
prices with no market-chain intermediaries.
Indigo
Identifying the barriers to entry for each level of the indigo
market also identifies the barriers for progression between
different market levels. From the analysis of entry barriers for
the indigo paste producers in Timor, it is clear there is a
significant gap between the barriers to entry into the local
market and the barriers to entry to intra-and-inter-island
markets. The most significant gap is in the areas of indigo
cultivation, quality control, price, and speed of delivery, and
the capacities of the marketing and production support
partners. From this, the need for a new market segment
bridging the local and intra-and-inter-island markets was
suggested. This segment would need to be tolerant of
more variation in product quality, a higher price, and a
slower speed of delivery than the intra-and-inter-island mar-
kets. The ToL dye studio in Bali has initiated a new business
offering week-long natural dye classes to international dyers,
and will use indigo dye paste from the Timorese producers
whenever it is available, thus providing a flexible bridging
market.
Lontar palm (borassus flabellifer) products
Across South-East Asia, B. flabellifer palms provide multiple
products to households (Fox 1977; Davis & Johnson 1987;
Borin & Preston 1995; Cunningham et al. 2011a). These
include low-cost housing (thatch and construction timber),
food supplements from the fruits and sap, basketry for a
wide range of purposes, and pig food. Lontar sap products
are commercially most important. Borassus flabellifer palm
sugar yields can be 18 tonnes ha
–1
(Khieu 1996) compared
with coconut palm sugar production of 19 tonnes ha
–1
(Jeganathan 1974) and sugarcane production (5–15 tonnes
of sugar ha
–1
) (Dalibard 1999).
In ENT there is a long history of attempts to add value to
lontar products, and no other agroforestry or forest product
can match the diversity of value-added commercial products
as those from lontar (Cunningham et al. 2011a). Barriers to
entry are relatively low, yet there is significant potential for
increased lontar palm sugar trade within Indonesia. In Java,
for example, a rising middleclass and coffee culture has
driven up the price for gula lempeng, the palm syrup that
is poured into palm-leaf rings (R. Achdiawan, pers. comm.
2016). In Bali, lontar palm syrup could be a definite winning
product, ‘the maple syrup of Asia’, poured over ice-cream
and pancakes in hundreds of restaurants.
At first glance, tapping is sustainable and the resource
base seems secure. Based on a review of palm-tapping
technologies (Cunningham 1990) and field observation in
tropical Africa and Asia, the palm-tapping techniques used
on Savu, Raijua and Rote are the most sophisticated and
sustainable tapping methods used anywhere. Palm sap tap-
pers, all of them men who are local farmers, tap the palm
flower stalks, collecting the sap that excretes from the
wound. This is generally done twice a day, once in the
morning and once in the afternoon. There are two seasons,
one with low yields (late April –August) and one with high
yields (Sept –early November). The resource management
issue is the quantity of firewood needed to boil palm sap
into palm sugar in already fuelwood-scarce landscapes of
Savu, Raijua and West Timor, so fuelwood costs are the
major constraint on palm sugar producers and household
income.
This has had a knock-on effect in terms of quality needs.
In some parts of Savu, women add sodium bicarbonate to
the palm syrup before it is reduced to its final stage. This is
done to thicken it more quickly, but the shelf life of the palm
syrup is shorter and its quality reduced. At the moment,
most of this palm syrup is sold to Raijua or Sumba, but if
export of organically certified palm syrup develops, then
quality control at various stages of the supply chain will be
needed.
In addition to competing with local household fuelwood
requirements, the growth in the specialist smoked Timorese
pork (sei babi) industry in West Timor and large-scale pol-
larding of Schleichera oleosa trees on Rote and Sumba by lac
producers has also affected stocks of this tree species.
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An additional potential problem is that sustainable use
depends not only on the natural resource base, but also on
customary knowledge and skills. If there is no incentive to
pass these skills down to the next generation, then those
techniques and knowledge will be lost. This process of
change is facing lontar palm tapping on Raijua, and possibly
on Rote, due to a clash of economies between seaweed
production and lontar sap tapping. For the last two years,
people have been selling palm syrup to Raijua in large
quantities. This is related to the seaweed business, which
developed to a large scale on Raijua since 2006. Many
people have therefore stopped tapping lontar, particularly
near the port. This is obvious from the flowers of male palm
trees, which are uncut (Cunningham et al. 2011a).
A further significant hurdle to trade is competition
from other palm sugars. Palm sugar is not only produced
from Borassus flabeliifer,butalsofromArenga pinnata,
coconut palms (Cocos nucifera)andCaryota urens.
Coconut palm sugar in markets in Europe and USA,
imported from Cambodia, Thailand and India, is cheaper
than Borassus palm sugar. This could be circumvented
through certification, but this has high annual costs, for
example through Ecocert costs would be between AU
$5000–7000 per year.
In terms of policy and regulatory needs, a bottleneck
constraining lontar palm syrup exports to Darwin,
Australia, is the prohibitively high insurance costs for ship-
ping any products (including palm syrup) between
Indonesia and Australia. Therefore, product and marketing
support needs would be, firstly, to start with the palm
syrup market in Bali and the gula lempeng market in
Java, dealing with pricing issues and improving quality
and traceability along the value-chain, and then, secondly,
to test appropriate technologies used for producing palm
sugar and palm syrup that are either very fuel-efficient or
use solar technology.
In Cambodia, it is estimated that the 20 000 people pro-
ducing palm sugar use 120 000–144 000 tons of fuelwood
per year (GERES 2009). In Cambodia, and probably in ENT,
this is the second highest usage after domestic cooking. The
problem of fuelwood shortages facing palm sugar produc-
tion is not a new one and solutions have been implemented
in various parts of south and south-east Asia over the past
60 years. In India in the 1950s, Khanna (1957) and Mathur
and Khanna (1957) developed a solar cooker for palm sugar
production. In Cambodia, the palm sugar exporter Eco-Biz
introduced Vattanak stoves to improve the fuel efficiency of
palm sugar production. These stoves, developed by Groupe
Energies Renouvelables, Environnement et Solidarités
(GERES), reportedly use 30% less fuel. Whether they are
more efficient than the multi-pot stoves locally developed
in West Timor needs to be tested.
The third step in addressing the product and marketing
needs, once the conventional market for palm syrup has
developed, would be to conduct a cost-benefit analysis for
organic certification.
Discussion
Ten barriers to entry were identified through the case stu-
dies as a framework of needs for long-term enterprise devel-
opment. These are discussed individually below.
Resource base
The potential supply of an NTFP must be compared with the
product’s potential markets; a product that has commercial
viability at one scale in one market may not be viable at
another scale in a broader market. The key is to avoid under-
mining the resource base. In many cases, natural resource-
based enterprises become victims of their own success,
where demand exceeds supplies of the natural resource on
which marketed products are based. Concerns about timber
shortages undermining the otherwise successful furniture
industry of Jepara in Java, which consumes between 1.5
and 2.2 million m
3
of round-wood per year (Roda et al.
2007), can equally apply to NTFPs, such as Lygodium circin-
natum fern stems for basketry.
Risks of destructive harvest or resource depletion need to
be addressed, either through managed wild harvest or
through agroforestry, or both. Historical trade in Maclura
cochinchinensis (kayu kuning), aromatic Aquilaria malaccensis
(gaharu) resin-impregnated wood, and Symplocos leaves
(often wrapped in destructively harvested bark) for use as a
mordant, also has a long history in the region and was built
on resource mining of what used to be substantial wild
stocks of these species. Only remnant populations of the
above tree species remain in the region today (for example,
Soehartono & Newton 2001; McWilliam 2005; Yoder 2011).
ENT also has recent examples of local resource being
over-exploited and food security undermined due to unin-
tended consequences. Two examples related to a single
multiple-use tree species, Schleichera oleosa, illustrate this
point. The first unintended consequence was the introduc-
tion of lac insects (Laccifera lacca) and a push for a commer-
cial lac industry in 1992. This resulted in a serious decline in
the edible S. oleosa fruits in East Sumba and on Rote, ignor-
ing the fact that these trees also produce an economically
valuable oil-seed, and leaves that are an edible vegetable
also used as fodder for livestock. The second unintended
consequence is the growth in the specialist smoked
Timorese pork (sei babi) industry in West Timor, which pre-
ferentially uses S. oleosa wood to smoke the pork. This has
resulted in felling of S. oleosa trees on a massive scale
around Kupang, eroding local livelihood security in the
process.
These examples hold useful lessons for wild harvest and
for diversifying agroforestry systems. In the Symplocos case,
cultivation is difficult. Wild stocks are therefore the main
supply source. Consequently, community-based forest man-
agement and a shift away from bark exploitation and tree
felling to collection of the aluminium-rich fallen leaves is the
viable solution for sustainable harvest for both local demand
and exports of this natural mordant. The management plan
developed for the forest with remnant Symplocos popula-
tions (YPBB 2008) is a positive example of this approach
(Cunningham et al. 2011b).
Capital
Building business requires capital accumulation, but the
private accumulation of wealth, without sharing it with
one’s community, is considered anti-social in the traditional
rural ENT societies where NTFPs are found. A whole commu-
nity needs economic development if any one member of the
community is to develop economically, otherwise the
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individual capable of developing an enterprise will leave the
village for the relative freedom of the city. Planning and
practice accommodate this social reality by developing pro-
ducer groups, which tend to form from extended family
networks, groups of neighbours, or members of a particular
social stratum.
This can facilitate elite capture, where politically or eco-
nomically powerful individuals grab opportunities at the
expense of the majority. If the details of the social context
within a community are not understood, elite capture can
ensue. As Mansuri and Rao (2003, p. 42) point out: ‘Even in
the most egalitarian societies involving the community in
choosing, constructing and managing a public good is a
process that will almost always be dominated by elites
because they tend to be better educated, have fewer oppor-
tunity costs on their time, and therefore have the greatest
net benefit from participation’. Members of traditional aris-
tocracies, those already at an economic advantage, and
those with good government contacts, can end up mono-
polising an opportunity. This is not to say that powerful
elites should be barred from participation. Their involvement
is often crucial, but any tendency to dominate should be
mitigated where possible. In the cases where there is elite
capture of market chains for natural products, elite capture
occurs at various levels and in different forms during pro-
duction, transport, processing or manufacture. But although
elite capture is widespread, it does not mean it cannot be
avoided. If development agencies and donors are serious
about enterprises that benefit poorer rural people, particu-
larly women, then strategies to reduce or avoid elite capture
are necessary.
Scale
There are several relevant issues concerning scale. It is
important not to underestimate the time required to build
businesses that work. Building up from micro levels takes a
decade, and enterprise partners may change as scale devel-
ops. Large scale is not always the right scale; it is strategic to
appreciate cases where small-scale producers have advan-
tages. Furthermore, dynamism in an enterprise can be more
important than an initial scale where economies of scale can
be realised through clustering. Based on the case studies
presented above, a step-wise process is needed to cross the
‘missing middle’between the starting point of local produc-
tion and the needs of an external market. What is required
are dynamic business pathways rather than static business
models. Finally, it is useful (though not always easy) to
measure results by where participants end up in the long
term, not by what they achieve in the short term.
Developing SMMEs in remote rural areas is not a sprint to
the common donor funding cycle deadline of 3–5 years, but
a challenging long-distance marathon on an 8–12 year time-
scale (or sometimes longer). The development of a weavers’
cooperative in ENT illustrates this concept well, with five
stages of participation identified over the course of ToL’s
fieldwork since 1998 (Fig. 4).
Some groups go through all these five stages; some reach
and maintain one of the stages; some will reach a peak
stage, and then drop down a level or two, before achieving
a higher level again at a later time. Each stage of participa-
tion can be characterised as exhibiting a new level of shared
confidence in organisational capability and income from the
market. At first, the weavers are all single producers, selling
to ToL as individuals. Members of ToL would go door-to-
door in a village and buy directly from the weavers. But this
takes a lot of time and reduces how much ToL can buy per
visit, so they looked for someone around whom a group can
be established—usually be a master weaver or master nat-
ural dyer with a recognised status and authority. If this
woman is willing to host a group of her peers in her
house, ToL ask her to invite weavers to come and sell to
ToL there.
This begins the second stage, selling together. Though
they might meet ToL as a group, the women still sell as
individuals and the bargaining with each woman begins
from scratch, even though most of the women will have
very similar textiles for sale. What is saved is social time:
the coffee and small talk would have been required at each
household before getting down to business is now done
only once, giving ToL much more time to buy.
The third stage is a long one. As trust builds within the
group and shared challenges and concerns are identified, a
degree of sharing may emerge. If many of the women have
similar problems with dye recipes, the master dyer may
share her knowledge, or communal workdays may be orga-
nised with the women meeting once a week to spin or dye
together. After ToL has taught simple bookkeeping, and
encouraged a small percentage (3–5%) of sales to be set
aside to pay for the running of the group (covering costs of
snacks and beverages for meetings, and mobile phone
charges for customer communications), a significant amount
can start to accumulate in the group’s petty cash. For
women without ready access to credit, this capital can
become the seed funding for a members’savings and credit
association. All through this third stage, sales are still orga-
nised as in stages one and two, with textiles being bargained
for one-by-one with their owner-makers.
The watershed event that precipitates stage four’s collec-
tive bargaining is a willingness among the women to cri-
tique each other’s work. This is avoided in the early stages to
prevent conflict, but, as the women learn what the market
wants, they can start to comment on how a piece is likely to
be valued, as a way of indirectly passing judgment. Once this
begins, ToL can then ask the group to grade textiles of like
kind and similar quality into separate piles and, once the
sorting has been checked, one price for all the pieces in a
pile can be negotiated. A smart group will learn to sort and
set a price for the pieces in each pile before ToL arrive. The
encouragement for them to do this is that it opens the way
for the group to ship product to ToL in Bali, which dramati-
cally increases their sales and improves their cash flow,
rather than wait for ToL’s semi-annual buying trips to their
village.
The greater access to market that stage four generates
can be founded on: improved communication and commer-
cial skills that overcome a remote community’s isolation;
improved infrastructure, which reduces that isolation; or
the improved notoriety of the village’s weaving tradition
that the weavers’group reputation establishes. As individual
confidence increases and the sense of isolation decreases,
the incentives that motivated the establishment of the coop-
erative may diminish. Some weavers may see themselves as
better off outside the group, and this initiates stage five.
Using capital they have accumulated by working with the
group, they employ other weavers to work for them and
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establish a personal connection with external markets. Stage
five is similar to stage one in that weavers are working and
selling alone, but the level of market expertise has increased
significantly.
While these stages suggest a path or progress, they can
also mark the steps of regress. Social problems within the
group or wider community can erode the mutual trust and
shared confidence on which the collaborative enterprise
grows. Key members may leave or die. Mismanagement or
misappropriation can shatter trust. The group may be co-
opted by some other agency for another purpose, and com-
mitment to growing the business may decline. As the early
adopters are seen to be doing well, a sudden surge in
membership can occur, but if production then exceeds
what the market can absorb, a precipitous drop can ensue.
In each of these stages, it is precisely the producers’
smallness of scale that affords their competitive advantage.
Across the developing world, smallholder farmers not only
have access to land and labour, but also have the local
knowledge to manage complex agroforestry and farming
systems in ways that are not possible in large-scale mono-
cultures (Smart & Hanlon 2014). Local people also have
traditional skills that produce some high-quality, handmade
items for which there are a growing demand in an increas-
ingly industrialised world that is saturated with sameness.
Even though ENT covers a relatively small geographic area of
Indonesia, for example, it has 40–50 local languages that
reflect the cultural richness that gives depth to diverse car-
ving designs, textile motifs or basketry styles that are highly
marketable, as ToL (www.threadsoflife.com) has shown.
In his insightful analysis of Indonesian SMEs, Tambunan
(2005) classified enterprises into four categories that
reflected how active they were:
(1) artisanal: mainly micro-enterprises that were local
market-oriented, had passive marketing and were
stagnant, with low productivity and low income
(2) active: enterprises that had more skilled workers and
better technology, with active marketing, supplying
national and export markets with good networking,
both internally and externally
(3) dynamic: enterprises with strong international net-
works and internal heterogeneity within clusters
with regard to their size and use of technology
(4) advanced: enterprises with a high level of inter-firm
co-operation and specialisation; these enterprises
Figure 4. Use of appropriate technologies to add value to natural resource-based enterprises. (a). A loom used to weave traditional textiles. (b). Testing a
macadamia nut-cracker developed in Australia for cracking candlenuts (from Aleurites moluccana). (c). The traditional method of cracking candlenuts, using a
tool made from a strip of Areca catechu palm spathe. (d). Using a seed-oil extraction press at a village in West Timor (press built in Java for this project). (e).
Stems of the climbing fern Lygodium circinnatum. (f). A bottle top with holes: the local technology to trim fern stems L. circinnatum strips a consistent diameter
for a high-quality end product. (g). A wooden frame for weaving complex straps for exported L. circinnatum baskets. Photos: A.B. Cunningham (A–D, F, G) and
(h). Cunningham (E).
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networked strongly with raw material and component
suppliers, traders, distributors and banks, also coop-
erating with local, regional or even national
government.
In the NTFP sector, virtually all enterprises in local market-
places would fit into the artisanal category. But, with careful
selection based on outside knowledge and suitable business
partners, there are ‘wild card’products that could be viable,
such as extraction of polysaccharides from tamarind seeds
(Cunningham et al. 2011a). In ENT, most of the active,
dynamic and advanced enterprises link to markets in other
parts of Indonesia (mainly Bali and Java) or internationally.
Outside of the textile, basketry and salt-making sectors,
enterprise clusters are less common in ENT than in Bali and
Java. With proper support and appropriate technology
(Fig. 4), such as presses for extraction of high-quality seed
oils (Fig. 4(d)), it is possible to stimulate production clusters.
However, choice of location is crucial, not only in terms of
the natural resource base, but for social reasons as well. In
too many cases in bi-laterally funded projects, locations are
chosen for other reasons, with consequent increased risk of
failure.
Quality
A perennial problem in working with small-scale producers is
in the maintenance of quality. This is often closely related to
issues of scale, in that when a market opportunity is identi-
fied there is a tendency for producers to think that more is
better, and in aiming to produce more, quality can suffer. If
one design of traditional textile sells well, quality of work
tends to decrease in order to increase production of that
pattern, which can drop the product out of the market niche
it was aiming for. In the case of virgin coconut oil, if it has
been raining a lot and the copra is mouldering before it has
dried, there is no point in going ahead with production as
the oil will have too high a water content to be sold.
Marketers and producer support organisations must be
emphatic about the market’s quality standards, and must
not buy sub-standard product, no matter how much produ-
cers grumble and no matter how strong the marketers’
compulsion to buy as an act of charity. The important
thing is to make a long-term commitment to a producer
group: people do learn, but they need experience from
which to draw their lessons.
Market knowledge
It is worthwhile investing time in choosing the products that
are most likely to succeed, starting with the 3–5 categories
of ‘low-hanging fruit’. Which plant species or plant products,
among the diverse flora of ENT, have the most potential for
enterprise development today? Although the flora of ENT is
poorly known and under-collected by botanists, we are
spoiled for choice. In the Wallacea bio-geographic region
within which ENT is located, Conservation International
(2008) estimated there were about 10 000 species of vascu-
lar plants, with roughly 1500 endemic species (15%) and at
least 12 endemic genera. From a bio-geographical perspec-
tive, the largest island (Timor) has the highest endemism
(10.3%; Monk et al. 1997), but how much of this is split
between West and East Timor is unknown.
It is well known from quantitative ethnobotanical stu-
dies in the tropics that a high proportion of indigenous
species are useful, and Indonesia is no exception. In one of
the few quantitative studies of use values in Indonesia,
Banilodu (1998) found that between 92.3% and 100% of
species were useful to people in the six communities
around Gunung Mutis forest (Fatumnasi, West Timor). On
Timor alone, for example, traditional textile weavers use at
least 79 plant species from 38 plant families at different
stages of the textile production process (Cunningham
et al. 2014). So an assumption of 8000 useful plant species
in ENT is probably conservative. And there may be more
then 50 species with commercial potential. But it is impor-
tant to focus on 3–5 indigenous species at a time that are
most likely to lead to commercially viable new products
(Fig. 5). In addition to these indigenous species, there has
been a very long history of introduction and adoption of
plants into farming systems in ENT, including Areca cate-
chu (pinang), Piper betle (betel vine, sirih) and Aleurites
moluccana (candlenut or kemiri) that are traded and have
additional potential.
What is clear is that strategic choices need to be made
(Fig. 6). If the goal is viable enterprises that go beyond
subsistence income, then relying solely on participatory pro-
cesses to identify winning species will be misleading. Some
local people are very knowledgeable about local plants. But
local villagers cannot be expected to know about external
markets or value-added processes, whether these are for
avocado oils or polysaccharides extracted from tamarind
seeds. Selection of products in demand in external markets
requires outside insights coupled with a knowledge of which
plant resources are available locally.
In order to minimise failure rates, it is advisable to link
with existing markets and get business advice on the right
products from the right type of business people.
Development agencies and donors need to make well-
informed decisions that increase the likelihood of enterprise
success in the local context and that minimise the fall-out
effects of failure. Small businesses anywhere face many
challenges, even in urban areas of developed countries,
and failure rates are high. Common reasons why businesses
fail are a lack of awareness of existing markets, and a failure
to produce a product of the right quality, on time, in suffi-
cient quantity, and at the right price. In any society, business
failure reduces people’s confidence to try again. In small-
scale farming societies where people prefer to minimise risk
rather than maximise gain, loss of confidence can be parti-
cularly high. Failures also reduce the trust of the business
partners.
The costs of doing business in Indonesia are high in
comparison to most other countries. Singapore, for example,
is the easiest place to do business (ranked 1 out of 189
countries), whereas Indonesia is ranked at 109th (World
Bank 2016). Research in both developed (Bruderl et al.
1992; Stokes & Blackburn 2002) and developing (Rogerson
2004) countries has assessed why firms fail or succeed,
enabling policy makers and small business advisors to better
serve the small business sector. Most farmers in ENT are
‘price-takers’, with limited bargaining power. For some pro-
ducts, this needs to remain the case in order for new enter-
prises to remain competitive; however, in several other
cases, value-added processing and price negotiations by
business advisors working with producer associations can
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enable producers to get better prices and returns well above
average local daily wage rates.
Market knowledge also extends to an appreciation that
there is an internal market within a producer group. In a
usual market interaction between smallholder producers and
a trader, as sellers and buyer, they will hold different initial
positions with respect to the terms of the transaction. The
sellers will want to minimise risk to ensure income by being
paid in advance or upon delivery at as high a price as
possible. The buyer will also want to minimise risk to achieve
a profit by paying on consignment or arrears at as low a
price as possible. Buyers and sellers negotiate from these
positions to find a compromise upon which an agreement
can be reached. However, the ability to leverage compro-
mise assumes equal power in the negotiation, and in rural
Indonesia this is seldom the case. In order to achieve profits
where margins can be wafer-thin, traders establish territories
in which they dominate their trade. A Prisoners’Dilemma-
style stand-off (Rappoport & Chammah, 1965) results, in
which the buyer offers a low, take-it-or-leave-it price because
the product he receives is adulterated, and in which the
sellers adulterate their products because of the low price
they are offered.
A common attempted solution to this dilemma is to
increase the sellers’leverage in the market by organising a
community business. Indeed, as a larger seller, the commu-
nity organisation can reach beyond the local trader into the
wider market place and achieve better terms. It is often not
appreciated that this solution sets up a new internal market
between the community business and its members. The
dynamics of this market are slightly different from the
open market, as the buyer in this case is working in the
seller’s interests. While the seller’s position is unchanged—
wanting to minimise risk, maximise income, and get paid at
the latest upon delivery—the buyer’s position has evolved.
Ideally, the community business will seek not the lowest
Figure 5. Development over time: five stages of participation in the development of a weavers’cooperative
Products
requiring
public
investment
Products
with
commercial
potential
All useful
plant products
from ENT plant
species
Products under
development
Products with
self-sustaining
supply chains &
markets
Main zone for donor support
Main zone for commercial
partnerships
10000
indigenous
species +
introduced
species
c.5000
species
c. 20
species
3-5
species
at a time
Figure 6. Conceptual model for choosing 3–5 species most likely to succeed for enterprise development, from the diversity of species that have traditional uses.
Redrawn and modified from the approach used in the natural products enterprise development program of Namibia’s Indigenous Plants Task Team (IPTT).
AUSTRALIAN FORESTRY 173
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price possible, but the lowest price it can pay and still ensure
delivery of marketable product from its members. The key is
for members to see that postponed gratification can become
increased gratification. Many community businesses fail
because they do not follow this maxim, and allow members
to set high prices that mean the enterprise’s margins are so
low that cash flow is compromised and insolvency follows.
Effectively, the community business then pays members an
advance on their dividend before the dividend has even
been earned. This occurs because of a failure to recognise
that members hold two roles: they are both suppliers to the
business and shareholders in the business, and stand to get
paid both ways if the business succeeds. First, they will be
paid for their product as suppliers. Second, they stand to
receive dividends from any profits the business generates.
For the community business to thrive, its members must
set optimal prices and agree on optimal terms that balance
their short-term personal gain and the long-term financial
viability of their enterprise. This negotiation of optimal prices
and terms defines the internal market within the community
business. The results of this negotiation depend on how
members evaluate the risks and rewards of postponing
short-term income for long-term profit, and there are three
high-probability scenarios under which members will see the
risks of postponing their profit as being too high:
(1) Members may look at those organising their commu-
nity enterprise, or the organisations supporting them,
and justifiably prioritise the short-term, having cor-
rectly seen that the competence needed to run the
business and realise the promised profits are not
there.
(2) From past experience, members may surmise that
either the support organisation will at some point
withdraw, causing the business to fail, or that the
more they fail the more support they will get from
the support organisation: either conclusion leading to
short-termism. Furthermore, if donors and support
organisations do not appreciate when above-market
farm-gate prices are making a community business
unsustainable, they will keep subsidising non-viable
enterprises, potentially distorting a market to the
detriment of other local producers.
(3) Finally, and most destructively, because long-held
habits of mistrusting business and adulterating pro-
duct can lead to an internalisation of the Prisoners’
Dilemma (Rappoport & Chammah 1965), a significant
part of the long timeline needed to establish a com-
munity business is required for the development of
trust within this internal market.
A community business will succeed to the degree to
which it can address these three risk scenarios, and a best-
fit business model will be one that sets up an internal market
that responds well to the external market in which the
business is trading.
Trade networks
There is a role for foreign buyers to positively influence trade
networks. Almost 20 years ago, Saxenian (1999, p. 54)
pointed out how ‘new transportation and communications
technologies allow even the smallest firms to build
partnerships with foreign producers to tap overseas exper-
tise, cost-savings, and markets’and that ‘the scarce resource
in this new environment is the ability to locate foreign
partners quickly and to manage complex business relation-
ships across cultural and linguistic boundaries’. That was
Silicon Valley, California—a world away from ENT.
Nevertheless, a key lesson from the analysis of Berry et al.
(2002) of Indonesian SMEs remains true for NTFPs, including
those from ENT. Linking with foreign investors was a key
success factor in the wooden furniture, rattan and garment
industry sectors (Berry et al. 2002), and this applies in ENT to
a range of products, such as bamboo laminate production
from Flores (see www.indobamboo.com) and traditional tex-
tiles (through ToL), to Lygodium basketry marketed out of
Tenganan, Bali, where the ‘made-to-order’approach has
brought Japanese design components to Balinese baskets.
There is also power in business groups and co-ethnic
networks that can be tapped. Although people commonly
think of business groups as a feature of East Asia (the
chaebol of Korea or keiretsu of Japan), India (business
houses) or Latin America (the Grupos Económicos), they
are a global phenomenon (Rauch 2001). Indonesia is no
exception. The kinship networks of Indonesian Chinese and
Javanese businesses, such as the jamu industry (Rademakers
1998), or from ENT the trade in bird’s nests, tamarind, can-
dlenuts, sandalwood, Aquilaria resin wood (gaharu) and
Helicteres isora, are relevant examples. For smallholder pro-
ducers outside of these networks, this poses a significant
invisible ceiling to vertical integration in existing supply
chains. But this is not an insurmountable challenge for
three reasons:
(1) All businesses appreciate good quality products, pro-
vided at the right time, in sufficient quantity at the
right price.
(2) Some highly successful Indonesian businesses that
buy plant products, such as the Martha Tilaar Group
(MTG), not only buy NTFPs but also pioneered
Corporate Social Responsibility in Indonesia (the com-
pany founder and chairwoman, Martha Tilaar, helped
develop the UN’s Global Compact—the strategic pol-
icy initiative coordinated by the former UN Secretary-
General Kofi Annan in 2000).
(3) With good products available, it may be possible for
researchers in ACIAR-funded projects to help broker
and develop relationships that open a market for
quality products from ENT with businesses committed
to Corporate Social Responsibility, particularly when
this substitutes for a product (such as Helicteres isora
fruits) that in part is imported from India into
Indonesia.
Speed of inventory turnover
Our market research of value chains for tamarind pulp and
candlenut kernels in ENT found that many mid-market
traders—the kind of trader that the establishment of a
producers’enterprise is intended to cut from the market
chain—operate to very fine gross margins and extremely
fast turnover times. With gross margins for sub-district or
regency-level traders as low as 8% (mixed broken and
whole candlenut kernels), they must receive, sort,
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repackage and ship product quickly (between 12 hours
and 7 days) to ensure market price fluctuations do not
go against them. Their business models are based on rapid
turnover and the compounding of very small profits upon
frequent transactions over long periods. Small-scale produ-
cers and their businesses have neither the capacity nor the
nerve to operate to this model within these constraints. It
is therefore necessary to pick products and markets that
match the producers’capacities for delivery fulfilment, and
project business development pathways that accommo-
date likely improvements in fulfilment capability in a rea-
listic way.
Policy and regulation
Strategic policy interventions need to stimulate rather than
constrain enterprise development. The opposite is often
the case, where policy interventions set in place complex
and often costly bureaucratic requirements that are a
major barrier to smallholder farmers (Maryudi et al. 2015).
For PSD to successfully stimulate rural enterprises requires
careful navigation between avoiding elite capture (as dis-
cussed above), meeting required regulations, and avoiding
policy bottlenecks. Although the Millennium Development
Goal on the global partnership for development calls for
an open trading system that is rule-based, predictable and
non-discriminatory, yet one that recognises the special
needs of the least-developed countries in relation to
tariff-free and quota-free access for their exports, this
goal is far from being achieved (IFAD 2004). Export success
is directly affected by government policies within both
producer countries and importing countries, and this
needs to be carefully considered on a case-by-case basis.
In the case of NTFPs from ENT, for example, policy reforms
could encourage import substitution (to stimulate buying
of Helicteres isora from ENT rather than India), or reduce
shipping insurance tariffs to facilitate export of Borassus
palm sugar from Kupang, West Timor, to Australia
(Cunningham et al. 2011a). Additional examples are tech-
nology support and matchmaking with private enterprise
partners to add considerable value to low-value products,
such as tamarind seeds for commercial extraction of col-
loids (at present the seeds are fed to pigs), and extraction
of gamma-linoleic oils to market as a tropical ‘evening
primrose oil’equivalent from Aleurites moluccana (kemiri)
oil currently sold from ENT to national and export markets,
which both have potential. Furthermore, donor support
can help level this playing field.
Marketing partners
Marketing is more than just promotion. Marketing aims to
satisfy customer needs in order to make a profit, to ensure
repeat sales, and to develop a pool of satisfied customers
who will spread the word about you because they trust you
and your products. The four stages of effective marketing
are: determining your customer needs and values; analysing
your competitive advantage; targeting your market seg-
ment; and using your marketing mix of products and ser-
vices, pricing, distribution systems, and promotion to satisfy
customer needs (Dodd 1998).
Relevant to the NTFPs and products under discussion,
ToL’s experience indicates that there are two significant
levels of marketing interaction to consider here. These are
between the producers and marketer, and between the
market and customers. Together, these two levels require
six marketing stages:
(1) Identify customer needs and values.
(2) Identify where producer needs and values are aligned
with customer needs.
(3) Engage marketing partners aligned with the needs
and values of both customers and producers.
(4) Identify actual or potential competitive advantages of
producers and market partners with respect to the
customers’needs and values.
(5) Identify the market segments in which the producers
and market partners have a competitive advantage,
and develop a strategy for communicating the shared
needs and values of producers and marketers to cus-
tomers in this segment.
(6) Establish a marketing mix (products and services, pri-
cing, distribution systems, promotion) to fulfil these
shared needs, communicate shared values, and har-
ness producers’and market partners’competitive
advantages for the profit of both producers and mar-
keting partners.
The lack of a suitable marketing partner can be a signifi-
cant barrier to entry for an NTFP product into a marketplace.
As we have seen from the examples in the results section,
the lack of such a partner is a deal-breaker, while the pre-
sence of an appropriate partner can be the key to success.
Producer support
While an appropriate marketing partner is necessary, it is not
sufficient for success. It is all very well identifying customers’
needs, but the producers must then go out and fulfil those
needs. This is seldom possible without outside support in
terms of technical production assistance, financial and busi-
ness training, producer group facilitation and motivation,
and sufficient oversight of producer activities. Such support
usually comes from local or international NGOs with donor
support, or from government agencies. However, there is
often a significant cultural gap between these agents and
potential marketing partners. The culture of the marketer
addresses the customers’needs, while the culture of the
support organisation addresses the producers’needs. This
can leave the market partner facing in the opposite direction
from the producers and their support organisation. Even
with shared values, conflict can arise from the support orga-
nisation prioritising producer needs, and the marketing part-
ner prioritising customer needs. One can argue about who
should turn around to face in which direction, and ideally
the chosen marketing partner should be able to face both
towards the market and the producer, but the market reality
means that it is the support organisations and the producers
who must turn around most if they are to sell their products
to their intended customers.
It will be seen from the examples cited that the path
chosen in this applied research was to engage in business
opportunities where the marketing partner is also the pro-
ducer support organisation: the journey of ToL’s develop-
ment as a business has been one of also learning to be a
AUSTRALIAN FORESTRY 175
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support organisation. This is an ideal situation, but it is by no
means a requirement for success.
Conclusions
Surveys of informal-sector markets are useful in terms of
understanding what people are selling, who is involved in
sales, and along which value chains. However, our data from
these informal-sector market places showed that most pro-
ducts being sold are not from forests or agroforests, while
most of the forest and agroforest products being sold are
low entry-point, low-value products, sold as part of a survival
or coping strategy. Nevertheless, we were able to identify
some products where, with suitable partners and technolo-
gies, significant value adding is possible. As Ruiz-Pérez et al.
(2004) point out, products sold to specialist markets are
characterised by more intensive management with higher
incomes to producers. In this case, with indigo and Morinda
citrifolia dye sources, there already is intensive management.
Also for sandalwood, gaharu, Maclura cochinchinensis (kayu
kuning), and Lygodium circinnatum, intensive management
and potentially good returns could be realised under the
right systems of tenure (i.e. rights of access to resources and/
or the land on which those resources occur).
Our experience suggests that identifying winning pro-
ducts that offer opportunities for higher value-adding and
higher income requires deliberate matchmaking between
entrepreneurs, the appropriate technologies for value-add-
ing, and motivated communities. If donor agencies are ser-
ious about a shift to private sector development and public-
private partnerships, then they need to focus on addressing
the identified barriers to entry that NTFP producers experi-
ence when attempting to enter new markets.
Acknowledgements
Funding from the Australian Centre for International Agricultural
Research (Project numbers SMAR/2006/011 and FST/2012/039) is grate-
fully acknowledged, as is the help from the many textile weavers, plant
harvesters and informal-sector traders in local marketplaces who con-
tinue to provide so much food for thought on the realities of enterprise
development in East Nusa Tenggara.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This work was supported by the Australian Centre for International
Agricultural Research (AU) [SMAR/2006/011 and FST/2012/039];
ORCID
A. B. Cunningham http://orcid.org/0000-0001-5373-2983
W. Ingram http://orcid.org/0000-0002-3998-7207
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