Aggregation Economies for the Forest Commons

Discussion

Author N.A.:

"The forest economy is held in the informal economy at a low-level equilibrium because of path dependence in market structures and the long web of intermediaries through which Seasonal Forest Products make their way into industrial value chains(Molnar et al., 2007). In addition, the scale of operations in the first mile of the supply side of the forest economy is at the individual level. The informality and individual scale of primary level operations imposes severe constraints on productivity.

The first order challenge in the forest economy is the absence of an aggregation mechanism at the collection stage. While there are several co-benefits to creating systems for aggregation, the direct positive outcome is that it allows for the value of product as well as price to be retained and enhanced at the local level. Aggregation enables economies of scale to make mechanical interventions for processing at the local level viable. It is not practical, feasible, or affordable to create value for small quantities of Seasonal Forest Products. In cases where traditional labor-intensive methods and outdated tools create value at the local level, it is associated with huge opportunity costs. Therefore, inefficient methods and tools for value creation and retention often results in damaging their market value. Strategic interventions to improve the aggregation infrastructure allow for creation of value at the local level by increasing the rewards for unit effort, creating jobs in the first mile of forest-based value chains, and generating distributed wealth across the forest economy. Such economies of scale enable the establishment of standardized processes for drying, sorting, grading, and create the possibility of further processing at the local level. Aggregation leading to economies of scale ultimately ensures better price realization in the first mile (Ge et al., 2018).

Aggregation also makes diversification possible. For example, Bamboo is used as a raw material in multiple industries but is extracted and exported from forests in its raw form. Different applications use different parts of the bamboo, leading to wasteful use of a valuable resource. Bamboo can be a high value commodity if parts of it are matched with respective product. The pulp industry discards the outer hard layer of bamboo owing to its high silica content and the cost of pollution abatement (Baharuddin et al., 2023). However, the incense sticks industry values exactly this outer layer as its primary raw material. Further, non-woody parts of the bamboo are discarded in both these applications but constitute an important source of biomass for ethanol or biofertilizer production. Sorting bamboo by quality also allows low-quality bamboo to be processed into briquettes to be used as coal substitutes in the Cement industry.

At present, much of this value is being lost as each sector sources bamboo in its raw form and primarily from intermediaries that are far removed from the forest. Aggregation at the local level creates economies of scale to implement simple mechanical solutions for splitting and segregating bamboo into constituent parts for entry into different industrial value chains. The best bamboo sticks will receive the most value from the construction sector, but this value only accrues if there are economies of scale. Similarly, bamboo splitters will not be commercially viable below a threshold of volume that can only be achieved at large scales. The logic of aggregation economies also applies to the space-time substitution aspect. Because each forest produces multiple products across seasons, investments to harness economies of scale through technology can be designed to be applicable to more than one seasonal forest product in any given location. For example, simple devices for drying and sorting or instruments to measure moisture content become more viable when designed to be used in the forest enterprise round the year instead of one product at a time. The actions designed for aggregation need to be integrated vertically to create economies of scale in practice. Usually, this is precisely the service rendered by a myriad of market intermediaries through informal transactions at the local level. Commission agents buy forest products from individuals in the village and sell them to traders in nearby towns. Traders in turn employ labor to clean, sort, and grade the product for different markets, realizing greater value per unit but far away from the forest (Molnar et al., 2007). Even at this stage, there is negligible mechanization in the aggregation, with concomitant loss of value through inadequate drying and infestation from improper storage conditions.

The logical site for aggregation is closest to the forest where the products are collected. Vertical integration takes the form of a legally incorporated community enterprise with sufficient scale to create and capture aggregation economies. This will provide visibility of the forest product aggregation processes to external market actors like businesses and consumers making supply chains traceable. The enterprise will be owned and operated by collectors of seasonal forest products and organized on principles of responsible business practices. There are several examples of successful community-owned and operated enterprises around the world, and their experience provides the confidence for our framework (Engbring & Hajjar, 2022).

Aggregation interventions must be designed and delivered to achieve gender parity and bridge the gender gap (Duguma et al., 2022). While the community enterprise can take several forms, there are specific advantages to prioritizing the involvement of women. Women-led community enterprises have the potential to initiate the transformation of gender relationships at community and societal levels. A women-led enterprise redefines the participation of women in market institutions by design, providing them with pathways to emerge as leaders in the economic sphere (Larson et al., 2012). The existing institutional infrastructure and financial provisions in the public and private sector domains allows for coordinated investments supporting the development of such women-led enterprises. Most countries, multilateral institutions, and philanthropic organizations have multiple programs aimed at building the capacity of women to operate a successful business. So far, the failure of these efforts can be attributed to the small scale of operations and an over-ambitious market strategy. The first intervention in the proposed framework to realize the potential of the forest economy addresses this gap by enabling a system that creates aggregation economies."

(Source: Radical Forest futures: Building on community ownership. Author unknown.)

The Role of Community Ownership in the Forest Economy

Author unknown:

"As economic returns from the collection and sale of forest products increase and wealth is created at the local level through aggregation economies and market visibility, the threat of overharvesting products from the forests will significantly increase. In the present scenario, forest governance in most of the tropical world is beset with lack of clarity. With a few exceptions, local communities do not have sufficient autonomy to manage forests for the purposes of subsistence, income generation or to regulate the operations of external actors in the forest (Camino et al., 2023). In the absence of clear property rights, community organizations are dependent on public agencies for regulation and enforcement, which is often absent or worse (Erbaugh et al., 2020). These system dynamics also create conditions for a tragedy of the commons, with every individual racing to extract as much as possible, without regard to sustainability of the resource.

Community ownership of forest lands addresses these challenges. The underlying argument is that clear property rights, particularly in the form of collective ownership, provide the incentive for communities to invest in the growth of their forests by aligning present economic benefits with sustainable management of forests for its future benefits. Investments in the management of resources for their long-term productivity are contingent upon the belief that benefits that accrue in the future will not be captured by external actors. Community ownership of forests provides incentives for communities to invest in the protection of their forest resources while ensuring that the other services that forests provide like carbon sequestration, habitat quality and connectivity, and pollination (among several other ecosystem services) are not compromised in the present and future.

While it is challenging for external actors to ensure that rules are enforced, penalties are imposed, and forests are monitored to prevent unsustainable practices, communities that are organized as formal management organizations are well placed to take on this responsibility. They possess a deep knowledge about their forests and stand to gain the most from the transactions in a formal forest economy. This realization is now percolating through the policy community across the world, with increasing recognition of the salience of community ownership of forest land for sustainable governance and stewardship. More than three decades of scholarship, starting with Elinor Ostrom’s work on the superiority of existing common property regimes across the world, has generated strong evidence in favor of community ownership of forests (Kaur et al., 2023). Beyond providing a safeguard against expropriation or exploitation, community forest ownership can now be seen as the necessary building block of a sustainable and equitable forest economy.

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The literature on forest commons has demonstrated the significance of community ownership and governance for social and ecological outcomes (Erbaugh et al., 2020). Community ownership of forests and a decentralized governance system have positive outcomes for sustaining the lives of people, mitigating climate-related challenges, and conserving biodiversity (Chhatre & Agrawal, 2009; Miller et al., 2022; Persha et al., 2011). However, the role of forests in this literature is often limited to people’s use of forest products for subsistence and as a minor source of income, not as an instrument for the transformation of their livelihoods.

Forests have been functioning as spaces of wealth since the industrial revolution, but with limited or no visibility of the actors in the first mile of forest-based value chains. The value created by the sale of forest products does not fully benefit local communities because of three reasons: a lack of clearly defined property rights that put restrictions on the scale at which forest products can be marketed or sold at the local level; a lack of convergence among civic, market, and public institutions across scales towards creating synergies in social, economic, political, and ecological outcomes; and an institutional architecture for equitable distribution of the wealth created from forests while ensuring their long-term sustainability. The private sector, although increasingly committed to the adoption of responsible business practices, lacks accurate and trustworthy information about the sources of forest-based raw materials and the communities managing these forests.

We propose that investments to build the capacity of community institutions for decentralized governance of forests (at the local and landscape levels) and wealth creation through enterprise development will create synergies in achieving multiple sustainable development goals and minimize trade-offs that result from operations in the forest economy. The forest economy of the future is not only about providing raw material to industry for wealth creation far from forest landscapes, but also about the participation of local communities in markets on favourable terms through an institutional network that ensures inclusion of voices across scales to ensure the sustainability of forests. However, community agency must be coupled with a coordination mechanism across institutions at the local and landscape levels, embedded in partnerships with multiple external stakeholders. The framework presented in this paper describes the building blocks and moving parts necessary to achieve this vision.

The framework makes two novel contributions: convergence of interventions for producing positive social, economic, political, and ecological outcomes jointly, and complementary and collaborative interactions among institutions across scales to enable just and equitable distribution of resources. The implementation of interventions outlined in the framework cannot be undertaken by any one stakeholder group in isolation. Historically, the implementation of any one of these interventions has met with limited success in achieving the expected outcomes. The strength of our framework lies in the joint implementation of interventions, the scale of operations to enable governance of forests at a landscape level, and formal multi-way partnerships among forest communities, the government, and the private sector. Such partnerships will enable implementation at scale, build trust among all stakeholders, and mitigate market risks for community enterprises. For example, the recognition of community ownership of forest lands in the absence of interventions that are targeted at improving the livelihoods of local communities may improve tenure security and autonomy to manage resources for sustainable use but are unlikely to create significant wealth in rural economies. Similarly, direct-to-consumer marketing in the absence of aggregation economies will not create jobs or improve livelihoods as communities are not well placed to compete with large businesses. While there are experiences of enabling economies of scale through women-led collectives, the large-scale supply of forest-based raw materials cannot be sustained over the long run in the absence of community governance of forests with secure tenure.

For forests to materialize as enablers of economic growth, rural prosperity, and carbon sinks, we need multilateral partnerships for implementing the three interventions in the forest economy framework. A partnership between governments, industry, and communities is critical to achieving scale in operations, building the capacity of community enterprises, and establishing a system of accountability among different actors involved in the forest economy. The framework enables the emergence of a network of institutions at different scales for complementary and collaborative action to create wealth at the local level while ensuring the long-term sustainability of forests and their services for the welfare of society. The discourse on climate change mitigation and adaptation, sustainable development goals, and forest landscape restoration has not sufficiently considered the role of forests in achieving synergies in outcomes on multiple dimensions. Forests continue to be perceived as spaces of conservation while supporting the survival of communities that live in or around them. We propose to invert this logic: biodiversity conservation, sustainable development, and forest restoration can be co-benefits of investments targeted at increasing the incomes of people that depend on forests. The implementation of the proposed framework will make direct contributions to several sustainable development goals. The immediate outcome of aggregation economies and market visibility is the creation of jobs and wealth in the rural economy. By increasing the disposable incomes of households that depend on forests, the framework will make direct contributions to SDG

1. 1 (No Poverty). The framework will improve SDG #5 (Gender Equality) by ensuring the participation

of women in markets. Such inclusion will create pathways to channel public investments to empower women’s collectives and build their capacity as business leaders. Government mandates for emissions reduction from energy production compels industry to look for cleaner alternatives (Naylor & Higgins, 2018). The framework demonstrated in this paper is built on forest landscapes, which are the most viable and promising alternative that also enables countries to achieve SDG #7 (Affordable and Clean Energy).

At present, actors in the first mile of the forest economy operate in the informal sector, and their income portfolios are built on unskilled jobs with high levels of drudgery. Mechanical interventions to create value at the local level will not only reduce the drudgery involved in the collection and processing of forest products but will also establish local communities as the primary suppliers of industrial raw materials in forest-based value chains (SDG #8: Decent Work and Economic Growth). The institutional architecture for the collective sale of forest products enables value creation and retention at the local level. Market visibility through direct and formal partnerships with large industrial buyers will result in significantly greater rewards by capturing a higher proportion of value closer to the forests (SDG #10: Reduced Inequality). At the same time, market visibility increases transparency in the forest economy. The application of digital technologies like blockchain will build trust to enable consumers and businesses to work towards SDG #12 (Responsible Consumption and Production). The framework will contribute to SDG #13 (Climate Action) through its institutional architecture and multiway partnerships for sequestering carbon in forests at the landscape level, avoiding emissions through better forest management and governance, and building adaptive capacity to deal with climate change. The interventions proposed in this paper enable the private sector and industries at large to sustainably procure forest-based raw materials from humandominated forests, contributing to SDG #15 (Life on Land). As disposable household incomes in rural landscapes increase, local communities will have plausible incentives to invest in the growth of their forests for the long-term availability of forest products and the restoration of ecosystem services."

(Source: Radical Forest futures: Building on community ownership. Author unknown.)