Pablo Pacheco:  The main focus of Flagship 5 is understanding the negative and positive implications of global trade and investment in transforming forest landscapes. As part of this, we acknowledge the role that transnational corporations, global commodity traders and international financial institutions have in shaping investment trends. The demand for commodities places pressure on forests in multiple ways associated with food, animal feed, fiber and energy markets.

The effects that global and national markets have on local realities are not straightforward since they are mediated by complex transmission effects. In the ongoing debate, there is also the recognition that state actors in the producing countries tend to be weak in finding ways to reduce the pressures from markets on forests and local people, and addressing negative social and environmental outcomes, and harnessing the positive ones.

Given this, non-state market-based mechanisms (e.g. certification, import regulations, codes of conduct) have emerged as a serious attempt to minimize these impacts, yet their outcomes tend to be contradictory, and are not always as effective as originally expected. Recently, we are observing the emergence of corporate pledges to zero deforestation. These commitments open up a new set of questions about the effectiveness of demand-driven initiatives by the private sector in contributing to put in place deforestation-free supply chains.

Our research, on one side, assesses the drivers and the impacts of markets and investments on forests, related to some major global commodities – mainly oil palm, timber, soy, beef and sugar. On the other side, it looks at the effectiveness of different government regulations and private sector initiatives aimed at managing those impacts and trade-offs.

We look at both consumer and producer countries. Our attention is increasingly focused on understanding the opportunities and limits of efforts to build more sustainable supply chains in the context of initiatives to improve governance at the territorial level. And at assessing what are the motivations and innovations that originated from corporate actors.

Market impacts

So I would like to ask you to share some of your views about the impacts of global markets and investments on forests and people. What are the positives and the negatives? And how do we see that they translate across the different regions or countries in which we work? How do you think we are contributing to this debate?

Patrice Levang: Let me start with oil palm. The small blog on Monga Bay that we published in March is still very much up to date. Following the recent drop in palm oil prices, some large Southeast Asian companies, presently expanding their plantations in Western and Central Africa, are reconsidering their plans. While they were rather reluctant to include smallholders in their schemes in the beginning, these recent developments (increased pressure from environmental and indigenous NGOs, pressure from civil society and local governments, drop in palm oil prices) pushed the companies to change their mind. Some of them now consider outgrower schemes as the future of the sector.

Large companies are willing to reduce their share in the production subsector of palm oil, leaving more room to smallholders and independent planters to produce Fresh Fruit Bunches (FFB). They would confine most of their activity to processing palm oil and secondary products in large industrial mills, which is the subsector where they can make the biggest profits.

Considering the No Deforestation pledge, I see it more and more as a way to put high barriers to entry of competitors, rather than a strong ethical will by the companies. But the result is there.

Pablo Pacheco: George, would you like to add to Patrice’s perspectives in terms of how the implications of these investments or markets are mediated by the business models? Why do you think it is important to look across different business models to understand the impacts that this may have, not only in production but also in distribution of economic benefits?

George Schoneveld: I’m thinking there’s increasing disincentive, actually, to include smallholders. Especially with these new sustainability initiatives, integrating smallholders is becoming more and more difficult because it’s expensive to develop the traceability systems. And it’s also very expensive to start monitoring their production. So that’s something that could be an impact – increasing disarticulation of smallholders from large-scale investments and sustainability initiatives.

These costs could lead investors to narrow their sourcing base to a smaller number of suppliers that have greater capacity to adopt good management practices and/or to achieve economies of scale through company owned plantations.

An interesting example is Mozambique, where there are lots of soy companies that started outgrower schemes. But, because of the risk of side-selling and the lack of a good regulatory framework to protect contracts, they’re actually moving away from smallholder inclusive models to more plantation-based models – since they were trying to target international buyers with sustainability requirements.

So these sorts of shifts, we have to be cognizant of. It might be different for different crops in different sectors, but that’s an impact I think we need to be observing carefully.

And we also need to start thinking about the types of governance arrangements that could protect smallholders and actually ensure that they participate in sustainability initiatives, instead of being alienated from them, which could lead to an increased articulating of smallholders to informal, parallel markets that are articulated more to, say, local economies than to international premium markets.

From that perspective, it’s very important to start looking at business models, and at what can be done to promote more meaningful smallholder integration, while investing in the upgrading and sustainability of their production practices.

And that can be done through financing, for instance. It can be done through integrated land use and economic planning. It can be done through public-private partnerships. That’s something that’s being trialed now in the region through these spatial development initiatives, for instance.

So, we have to start looking more at these innovative models. Also, to involve more meaningfully the states in planning investment, and to think about these technical and financial barriers to participation that smallholders face.

Anne Terheggen: I would like to add something, and I think you said it already. It might be commodity specific, right? Because when I had a look at the timber industry, for example, I saw a lot of movement actually. I think it’s important to have that commodity differentiation that George hinted at. Because, in timber, what I saw a lot was the move towards the source, because it becomes important to have a concession to be able to control the supply. If you are a buyer, and you’re depending on smallholders or other companies selling you something, you’re lost and you will not have control. So they all go back to the source.

And then maybe just an additional note – and this is going to be a paper we’re working on. We look at the historical context much more of industrial policy. We do that for palm oil in Malaysia and Indonesia, and rubber in China and Laos. Because these industries were actually created almost from the ground up. And they still influence behavior today.

So I’m more and more convinced that it should be an integral part of any analysis. And it is possible for policy basically to shape a sector and to shape a sector into a beneficial direction. The question of smallholders I don’t necessarily agree on. As I said, I understand why they’re there and I understand their situation. But I think the issue can only be solved when one looks at the entire economy.

One of the questions why smallholders are where they are, and why they might be stuck in agriculture or palm oil or whatever, is because they don’t have other options. Or they hold onto land because there’s no other insurance for them. So they’re forced to be there, but they will never be as productive as a big company. They just can’t.

So there are hopefully solutions, but I don’t think the silver bullet has yet been found. And I don’t think it’s in the sector. It’s in the economy and the mix of sectors offering choices. And we researchers can’t offer that. It’s the government and the industry and the market that has to do that.

Pablo Pacheco: Would you like to add, Patrice, in terms of to what extent you see that the moves you have been looking at are just an exception? Or do you think that can be the overall trend of the cases that you have been looking at, in Cameroon for example?

Patrice Levang: As George mentioned, I think that the place and role of smallholders in the value-chains is both commodity- and site-specific.

The companies are facing increased opposition by environmental and indigenous groups. Companies are facing increasing costs to meet all demands from NGOs, like free prior informed consent (FPIC) rules or excluding High conservation value (HCV) forests from their developments. Even then, they keep being criticized by activists. I get the feeling from their reaction that they are ready now to promote more smallholder schemes, which they were more reluctant to do in the past. So that’s a change.

But I also agree that this is a big problem for certification because getting palm oil certified for a huge number of smallholders is increasingly difficult. So it might happen that we have a two-way evolution of certified production: the oil by industrial estates with higher value, sold in Europe and in the States; and the smallholder production which is totally possible in Western and Central Africa, where they’re still far from being self-sufficient in oil. So they can go without certification.

Pablo Pacheco: I agree on the fact that the way in which companies tend to engage with smallholders depends on the structures of incentives. The latter is also a result of several contextual factors. However, it is interesting what George put on the table. That increasing pressure for compliance with sustainability standards leads them to leave behind the smallholders, and look for gains in efficiency by sourcing from large-scale operations.

The timber sector provides interesting examples and lessons about how smallholders can get more integrated or not when the market begins to demand higher standards. Paolo, can you elaborate more on the timber sector?

Paolo Cerutti: The timber sector follows a different model. We generally don’t have this integration of large and small scale on the same production unit. What we have now is probably not the most effective model, that is large-scale logging concessions with compulsory forest management plans, which are also starting in Brazil on one side – mostly dealing in the international timber market. And on the other side, there are small-scale, medium to small-scale, individual producers that for many reasons, including the cost to produce timber for the international market, prefer to remain largely domestic or regional.

China and India are still repositories also of this small-scale timber. But I think it’s a tiny percentage of the total. At the moment, the big problem facing small-scale producers and smallholders comes from the international calls for legality. Because now the governments and international institutions try to put a lot more focus on them, and that could lead to negative impacts on their livelihoods.

From what we found, these guys are generally well off thanks to their forestry activities. Not all of them, but it’s a big business, and they make money out of it. It’s real money that trickles down to the remote locations where positive financial impacts are needed, where the money from the industrial timber taxes generally does not go. So that’s the picture we have now.

We have also been doing a lot of work on forest certification, but unfortunately in terms of certification in the tropics we are also very much skewed towards large scale logging concessions. We still don’t have any timber certification scheme that specifically targets smallholders, and none of those that I know of that have been tested are really working.

Because, basically, the philosophy of certification is based on the market. And if the market remains the local or regional one, there is no sense in going for better, improved production. Those requests are simply not there in the demand of the local markets. That’s the picture we have.

To resume, I think our research recently has been more in the sense of creating awareness of those negative impacts that the large, international forest regimes could have on the smallholders, before trying to propose policy options that governments could adopt to avoid such negative impacts.

Pablo Pacheco: Maybe now it would be interesting to move this discussion to what George put on the table in terms of what are the sort of incentives or policy instruments that could be used to rebalance these potential trends of companies, in an attempt to adopt more sustainable practices, cleaning their supply chains – how that is going to impact smallholders? I don’t think we have too many cases that show what can be the role of the state in actively trying to support adoption of sustainability practices. And, at the same time, trying to build more inclusive economies. So, to what extent are policy recommendations just ideas?

George Schoneveld: It’s very different for different sites, and the sorts of mechanisms you need are very site and crop specific, so we need to be very cognizant of that.

I think an example is the oil palm expansion in Pará, Brazil, in the case of Agropalma. It’s being done in an inclusive manner and in a sustainable manner. But why does it work in Pará? And would that model not be able to be transposed, say, to an African country?

Fact is, it’s premised on having institutional capacity that ensures enforcement of social and environmental safeguards, and it works there because of clear, individual property rights. And if you go to a situation where you don’t have clarity of property rights, a whole suite of new issues could arise from the introduction of these inclusive models – such as increased competition for land and undesirable land-use changes that could involve loss of food security and deforestation.

And that’s why you have to look at very specific issues, such as – if you introduce a cash crop, how can you prevent unfavorable land-use dynamics? How can you prevent increased competition for land? How do you create production arrangements that reduce the risk of side-selling? How do you ensure that the quality of technical support is good, and contract enforcement is good? So they’re all very specific issues that require, I think, different sorts of policy instruments and different types of governance arrangements. And, again, like the example of Brazil shows, these issues are different for every single site in every single country. So it’s very difficult to talk about standardized arrangements.

We really have to think about what is relevant in each location to address very specific issues. These issues are specific to the crops, to the farming system, and to specific ecologies. To me, it’s very difficult to say: this instrument is better than that one, and this is how we do it. It’s decidedly complex and requires approaches tailored to local realities and challenges.

Pablo Pacheco: I think that’s a good point. But if we go back to what Anne was saying in terms of how the state policies can shape the development of sectors, maybe also there’s a way to think on a macro level of policy instruments that states can apply to favor these processes. Anne, would you like to go back to what you were saying before?

Anne Terheggen: One of my favorite studies – that I’ve never done – was to actually go back to Europe, and to look at some industries there. Because Europe has been poor, or certain countries in Europe have been poor, and have been dragged along because they’ve joined the European Union. We look at Portugal, really poor, the agriculture there, really, really poor. And then they made it big because they were focusing on flowers and other horticultural products.

So I think this is what might be pushing us or helping us to think in the right direction, if we were to have more information about what policies were implemented in countries that already made it happen. Japan wasn’t long ago, South Korea didn’t develop long ago. That’s 60 years ago. That information is there. And then adjust it, obviously. It needs to be adjusted to each crop, doesn’t it? I mean, palm oil is not the same as cassava or something else.

George Schoneveld: Yes, I think about translatability from one context to another. And that’s what struck me so much about doing a similar sort of research in Mozambique, and doing the same thing in Brazil. To realize why you have such extremely different outcomes. And you really see that these contextual factors play such an important role. So I’m very reluctant to think about: okay, this worked in place X – thus, we can transpose it into case Y.

Anne Terheggen: No, you don’t just look at case X. You look at X, Y and Z. As many as you can find. And then ask, what are the core fundamentals? And that boils down to, what are core government functions? And we actually know the answer, we know why it’s failing: infrastructure.
Obviously you have to look at a number of countries, but we know what the core government functions are. It’s infrastructure, it’s property rights, it’s law – it’s actually law enforcement these days. We already know why they are failing. Paolo, you did a comparative study. I think actually there must be a lot of information already in the existing literature. It’s not a reinvention of the wheel. We need to do the digging.

Pablo Pacheco: We need to know what are the basic conditions that can explain what shapes improved behavior by the actors involved. For example, if we go to some specific contexts like Cameroon in Africa where Patrice is working, it seems that those basic conditions are not in place. States are weak or not strong enough in shaping good corporate practice. So, to what extent are governments willing – vis-à-vis the private sector – to put in place mechanisms to ensure more sustainability and social inclusion, without making them obstacles for developing the national economies?

Paolo Cerutti: Patrice, before you answer, can I say one thing? I think we should stop thinking about these states as weak states. These people are super powerful and they know very well how to do the wrong thing because of the returns to their private pockets. So they should be doing the right thing, instead of thinking only of their pockets. They have the capacity, they have the knowledge to do most of the things that researchers and other partners suggest to them to do. The problem is that it is not in their interests. So I really would not call them weak. We might find another term.

Patrice Levang: Well, what is weak in a state is not the head of the state. These autocrats have much power, that’s true. As Anne mentioned, it boils down to the same items – infrastructure, property rights, etc. We already know that. We also know that we won’t change this in a short time, so we need to find alternative ways with these weak states and strong autocrats in power.

How can we propose policies that are acceptable for the strong heads of states and for their constituencies? And that’s kind of an in-between way. For instance in Liberia, the government included in its concession contracts the obligation for the companies to reserve at least 15% of the land to smallholder development. This is something that has been working, some companies even consider increasing this figure to 30%. The reasons behind this choice might not be inspired by rural poverty alleviation. And the same with zero deforestation. Dominant companies might use this move to strengthen their position, not to fight deforestation.

George Schoneveld: I do agree with you. I think there are mechanisms, either through the financial industries or through concession agreements and conditionality being built into investment plans where you can force investors to become more inclusive. But then: inclusive business models are not always necessarily inclusive.

How can you make sure that there’s equitable distribution of benefits? That smallholders gain the technical capacity they need to be good outgrowers? That they don’t sell on the side? That there isn’t a displacement of food crops? That women are not marginalized?

So there’s a whole suite of issues that you need to address, and that requires strong institutions. It’s more than just a concession contract with conditionality or regulations. It’s about the state that is able to provide the sort of support services to ensure that investors are able to deliver on what they want to achieve, because they also face many challenges.

And also, to support smallholders in integrating these new crops into their farming systems, because it’s a huge problem if people start displacing food crops or if they refuse to displace food crops and then go to forest land. Such issues are often not the responsibility of investors and require state support to manage negative trade-offs.

So there are many, many issues. And, again, it points to institutions and a whole suite of institutional options that clearly demarcate private and public mandates and accountabilities.

Patrice Levang: I totally agree. It’s a huge problem. We won’t solve it just like that. We have many examples. If the smallholder sector developed well in oil palm, of course you will displace food crops because producing food crops doesn’t pay. In the countries we are working in, like Cameroon, the government is unable to provide the adequate extension services, so we have to count more on the private sector. That was the idea.

Pablo Pacheco: So, in that sense, may I invite you for a last round of interventions about how you see the arrangements between the public and private sector, and their potential to lead to better outcomes in terms of sustainability and inclusion. I think we have to move beyond looking separately, at public policy instruments and regulations, on the one side; and on the other side, at private sector or non-state actors’ initiatives and commitments. It makes more sense to understand how public and private actors, through diverse types of governance arrangements, will be able to trigger some effective change in practice.

Paolo Cerutti: We see it clearly in the research on forest certification. I don’t know whether it’s easier compared to the palm oil sector. The fact is: you see that certification was launched as a market instrument, a private, voluntary instrument with the capacity to bypass public policies completely. So the idea was, the state is not able to deliver anything, let’s use the market to deliver this better. Sustainable forest management, among other things.

But then we see now, after all the analysis that we have done on the real impacts, that there are points beyond which the market is not able to bypass the need for a government, exactly because there is a state. Because there is a regulation, because there are public policies. And, in those instances, when these two things clash or encounter themselves, then it’s a third dimension that we need, neither completely private nor public, but with some characteristics of one and some of the other. I would think it is this type of institution, beyond the state and beyond the market, that we need in the future to manage those sectors – to have even better outcomes.

I have no idea what that new type of institutional setting should look like. We have some ideas about the characteristics that it should have. But, at the moment, I don’t have any practical example in the world where this has already become a working reality on the ground delivering positive outcomes.

George Schoneveld: If I may add to that, I think what’s important is that we don’t think in sectoral silos. Because there are so many linkages and displacement effects and interactions between sectors that, whatever sustainability system you develop within a specific location, it has to be cross-sectoral in orientation.

So you need to think about integration the production of food crops, energy needs, and improving income generation through cash crops – all together. Therefore, research should look across various sustainability issues – indeed, at the social, environmental, and the economic side. And how you develop an integrated system like that – this is the question.

I do think there are public-private partnership (PPP) type models that are being trialed at the moment in Africa, that involve integrated development planning, integrated land-use planning and that adopt a landscape and territorial-type approaches. And we have to think more in that direction rather than narrowing in on specific impacts and specific sectors.

Patrice Levang: Well, yes, from a purely academic point of view a cross-sectoral approach would be good. But when it comes to local solutions, moving forward to something really effective, we have to keep some actions on the ground. Smaller, more site-oriented interventions, keeping in mind the broader view, I agree. But if we go too broad, we might stay at the very high pie in the sky, wishful thinking. We need some actions on the ground. I think we can find something managing both points of view.

Anne Terheggen: I wonder, should we have a lot of PPPs? Because a lot of political officers profit from logging companies or oil palm industries being in the country. That’s why they are there. Malaysians moved into Indonesia to grow palm oil exactly because they knew they could give some money to the Indonesians. And that’s the working PPP model. That’s the established model.I don’t have an answer to what the alternative is, but I completely agree with Paolo on my right and George on my left. I think there needs to be an economy-wide system change. An industry cannot work in isolation. They all need to use the same road, they all need to use the same harbor or whatever other facility. And the market itself does not have the power and the endurance to consistently work despite the government or against the government. Because at one point they will get out, pull out, and take their business somewhere else. But what to do with this knowledge, I don’t know yet.

George Schoneveld: I do appreciate what Patrice is saying about having to work on the ground and finding site-specific solutions. And obviously it’s hypothetical and there are huge practical challenges to resolve to develop a system like that.

I’m a bit more optimistic, though, if you start looking at the headway that’s being made, for instance, with more territorial approaches, jurisdiction approaches in general. Sustainability initiatives need to be embedded into more territorial and PPP style initiatives. And for which, at the moment, there’s quite a bit of momentum, especially in East Africa through Climate-Smart Agriculture Initiatives, through the different Climate Change Actions Plans, for instance, to undertake planning and sustainability initiatives at the local level.

So there are options and concrete initiatives that enable you to do develop sustainability systems that are cross-sectoral in orientation and involve a wide range of stakeholder groups.

And also, the spatial development initiatives I was talking about before, like these agricultural growth corridors in Tanzania, Mozambique and Zambia for instance. You see the sort of planning and the participatory approaches that they’re sampling. There are some interesting results coming out of that.

So I do think we have to look more clearly at those sorts of initiatives and examine those implementation challenges, and not dismiss them outright. Because there is a certain research momentum ongoing already.

Pablo Pacheco: I would like to invite you for a final round of comments about the priorities for our research in the future. As it has been mentioned, new governance approaches and more integrated perspectives are emerging that embrace sustainability and social inclusion as part of broader development perspectives. We still don’t know exactly what the limits of those initiatives are, or how much those are going to make a difference. Thus, let me ask you to share your thoughts about where do you see the priorities for our future research.

Patrice Levang: Our work on the promotion of smallholder oil palm development is not finished yet. We saw that it had many positive impacts compared to large-scale development.We started to investigate the role of micro mills, which is very commodity specific, but which has many interesting impacts locally – on the organization of smallholders and cooperatives. But this is something on the ground. It’s so far not really linked to large-scale initiatives of business. Though we have contact with investors in the UK, who are looking for a way of funding the development of a dozen micro mills in Cameroon and in other places of West and Central Africa.

So we’ve been contacted to find out how they could interact for a more people-friendly development of the sector. We don’t know what’s coming out of it, but that’s what we’re focused on.

Paolo Cerutti: I think we need to understand where those kinds of institutions that we’re aiming for are coming from. And that’s a lot of historical, if you want, or ground-based research. But in some other fields we know that those institutions materialized somehow. So, for me personally, it’s very interesting to understand when and where they are coming out, and how we can help them to come out sooner rather than later. If we were a lobbying organization or something else, there would probably be more to be done now.

And, with the research, support those institutions that, at least in the timber sector, would be able to produce positive outcomes for both the industrial, large-scale sector and small-scale smallholders. Because the large-scale logging concessions are not inherently bad. But there are tensions between the two models and they need to be solved.

Anne Terheggen: I’d like to focus more on the quality issues. I’m already writing a paper on how China influences other countries’ policy. And the discussion we had earlier, I think that’s important. But what is the important key we need to turn? I would focus on China in the future.

Actually, I think we all need to look more closely at agriculture. Because, from my economist perspective, that’s the key sector that needs to turn around for a country-wide dart for change.

And the other thing I proposed for ICRAF, but it’s applicable to FTA as well, is to start classifying countries into groups so that the analysis is easier to put into a context and to be compared. Because if I go and study a poor developing country like Laos, and then I go to middle-income Brazil, I’m on different planets. And I think it needs to be specified more clearly why that is. Because if I go and study a poor developing country like Laos, and then I go to middle-income Brazil, I’m on different planets. And I think it needs to be specified more clearly why that is.

George Schoneveld: What I mentioned before about these more territorial PPPs and landscape-level approaches – I think that deserves more research. And, specifically, about how you can embed different types of international sustainability initiatives within such approaches. I am talking about zero deforestation and certification schemes, whether led by the private sector or multi-stakeholder driven. So that’s very much focused on territory-based governance arrangements.

And I think, in line with that, there is a need to improve our knowledge on the context specificity of investment-related outcomes. This will enable us to identify the demands on institutions to mitigate negative and capture positive outcomes. It’s very much looking at factors that shape sustainability outcomes.

And once we have a better handle on those processes, then you can work towards developing a decision support system that could input into designing territorial approaches that are cross-sectoral in orientation. That are able to resolve the tensions between economic development, equity, and environmental management, and involve also non-state actors in a co-regulatory capacity.

Pablo Pacheco: Let me put on the table my own list of priorities. I think is important to look more closely at what are the opportunities and the limits of emerging corporate commitments to sustainability, and if they are really going to make a difference.

Also, there is a need to question further the concept of sustainability which is behind all of these commitments, and what is the common denominator shared by the different actors, either state and non-state actors, so to have clear criteria about what are the targets that can be achieved. This also should apply to issues around social inclusion and distribution of benefits.

I agree with others that we have to put more attention on new governance approaches linking initiatives focused on ‘cleaning’ the supply chain, with others looking towards achieving more sustainable landscape management. There is a high potential in these ‘hybrid’ approaches.

Finally, I consider that there is need to look more systematically at what are the opportunities, benefits, costs and risks of moving to a greener economy, and the shared responsibilities from consumer and producer countries to make possible this transition.

Thanks to you all for joining this interesting discussion today.