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Promoting communal small-scale forest-based processing enterprises: lessons from a project in Peru.

by T. Oksanen and W. Rijssenbeek1/

1/Project GCP/PER/030/SWE - “Apoyo al aprovechamiento de plantaciones forestales de una comunidad campesina del Cusco”, is executed by FAO under Sweden/FAO Trust Fund arrangements. It is associated with a much larger INFOR/FAO/Netherlands project on fuelwood and local community development.


In the past 25 years the rural communities in the Peruvian Sierra have been establishing plantations of Eucalyptus globulus with the aid of the state and various projects sponsored from abroad. There are now some 150 000 hectares of these forests of which 20-30 000 ha are ready for harvesting. However, it has been noticed that the communities have benefitted very little from the existence of these forests. The benefits have mainly accrued to a small group of middlemen, who have bought the standing timber from the communities for a whistle. In some cases the earnings from the sale of a full-grown eucalypt have not been enough to buy a bottle of beer; hardly an incentive to go on with the reforestation. Yet the growth of the population and the economic stagnation in the Sierra are forcing a growing number of people to join the misery-belts around the big coastal cities.

It was for these reasons that the Project FAO/Holanda/INFOR started looking for ways of promoting the creation of small communal forest-based enterprises (SCFE), to increase benefits reaching the people - and so give a real incentive for reforestation and strenghten the economic base of the rural communities. The work is still very much in a pilot stage. The project is still seeking for optimum products and technologies for the SCFE, and looking at alternative organizational arrangements to strike a balance between community participation and efficiency. It is strongly felt that as the forest resource has been established through massive community participation and belongs to the whole community, the benefits should also be shared and not go to just a few people.

Market and Enterprise characteristics Products and Markets

According to the market studies that were made, the main products demanded at regional level are mineprops and mine sleepers; sawn timber for mines; treated poles for electric power-lines; charcoal; and rustic chairs. At the local level (nearby towns etc.), demand is for posts, beams and sawn timber for housebuilding; charcoal and firewood; rustic wooden chairs and tables; and artisanal household utensils.

At the community level, the main markets are for firewood; posts and beams for housebuilding; and simple furniture, such as chairs, benches, tables and beds. Of these products rustic wooden chairs, charcoal, firewood, treated posts and sawn-timber have been produced in the SCFEs up to date.

In the evaluation of markets for SCFE products two limiting factors were taken into account: firstly, that finer woods from the Selva (which are available throughout the Sierra) are strongly preferred for fine carpentry and joinery; and secondly, that products which require expensive machinery or very special skills for their manufacture could not be considered feasible for the SCFEs. For the products selected, most of the technologies employed have already been tested in small family enterprises, only one SCFE has major imported components.

Turning a chair leg at a rural community workshop

Markets and technology by product


Chair manufacture is the most common type of SCFE that has been introduced in the communities. There are now a total of eight workshops which generally have a locally built wooden lathe powered by a water wheel driven from small creeks or irrigation canals, with a fall of about five metres. They need little raw-material, about 2-3 trees a week depending on size, produce up to 40 chairs in six working days, and employ normally five persons. The net value of the production varies with productivity and whether the chairs are sold within the community for a lower price, or outside for a higher one. In Huaraz the net value has been calculated at US $ 12/m3 roundwood. Taking into account the low opportunity cost of the workers, the real value of the production is much higher.

The materials and tools needed for the workshop cost less than US$ 500, and even including the costs of training and working capital, the total costs are not more than US $ 1000.

The chairs have a well developed market on the local level in some parts of the country (Huaraz, Huancayo), both for local use and for resale in the big cities of the coast. In other parts (Cusco) they are recently being introduced with some success. Demand exists also on the community level but, unfortunately, at a very low price-level.


The main buyers of the charcoal produced in the communities are the local restaurants, mainly those specializing in fried chicken. In some cases it has been possible to agree on deliveries directly from the community on a regular basis. Other group of buyers of lesser importance are the local blacksmiths.

Charcoal is being produced in one community in Huaraz with a transportable metal kiln, type Mark 5. In Cusco there are two communities producing charcoal with a locally designed method, a hybrid between a metal kiln and a simple earth pit. The latter has a somewhat lower yield than the mark 5 (16-18% compared with 25%), but due to its much lower initial cost (US$ 150 compared with US$ 800) it is a more feasible alternative for many communities.

The productivity of the Mark 5 has been about 250 kgs of charcoal in 3-4 days, with a two-man team operating the kiln. This has made possible a profit of US $ 14/m3 roundwood. In Cusco the profits have been slightly lower due to the differences in yield and a longer cooling time for the pit (5-6 day cycle). Compared to firewood production the profits have been about 1.5 times higher.

Rural forest industries greatly increase the value of trees for the local people

Preservation of poles and posts

The preservation of posts was first started in Huaraz as a communal industry with the idea of selling the posts to Electroperu (the state-owned electricity-company). Pretty soon it was noticed that because of the high profitability of the treated-posts' business and the monopsonistic condition of the market (even the communities buy their posts through Electroperu), there are arrangements between the buyer and the existing producers which close the market to new producers.

The “Boucherie” process is used to treat electricity poles. A solution of water and CCB (copper-chrome-borax) is forced by the pressure of a five metres' fall to enter one end of an inclined fresh pole which it penetrates for the whole 8-11 meters in two days. The portable Boucherie-plants used in the project produce six posts in two days, with a four-man team operating the plant. They can be easily modified to produce up to 12 posts in two days. The profits are about US $ 23/m3 roundwood for low-voltage posts (used in the communities), and US $ 28/m3 roundwood for high-voltage posts (used in the main lines between the communities). The cost of the plant, and the auxiliary equipment needed for its operation (tools for manual logging etc.), is about US$ 1000.

Under a new scheme the CENFORs (departmental-level administrative body of the INFOR)2/ of Huaraz, Huancayo and Cusco now operate one plant each, which they lend with the necessary technical assistance to the communities participating in electrification projects to treat poles from communal or individual plantations. The communities can save about 10% on the costs of an electrification project by treating their posts under this scheme instead of buying them through Electroperu. Hopefully, in the long run, they can also establish themselves as reliable direct suppliers of treated posts, and so gain access to the markets.

2/INFOR = Instituto Nacional Forestal y de Fauna
CENFOR = Centro Forestal

Sawmilling and Carpentry

A very special case of the SCFE in Peru is that of the Project FAO/SIDA/INFOR in the community of Juan Velasco Alvarado in Cusco. This is the only industrial-scale project which has been attempted in the communities; it consists of a small sawmill, a carpentry-shop and the production of charcoal, firewood and other by-products. It was created through an US $ 150 000 donation from the Swedish International Development Agency, with the intention to show to the communities of the Sierra the benefits of small-scale communal wood industries. The mill is still in installation stage, and therefore there is no information on its productivity and profitability.

Enterprise Ownership and management

The enterprises are invariably owned by the whole community, but the management forms vary depending on communal decisions. The alternative forms of managing the enterprises are:

(a) The enterprise is managed by a committee, (as for any traditional communal activity like irrigation etc.). The committee is supervised by the Administrative Council of the community, which in turn depends on the General Assembly for any major decisions. The community receives all the income and pays the workers.

(b) The enterprise is managed by a Committee (as at (a) above) but the work is done as a communal obligation instead of for wages. The participants are in turn free from other work-obligations as compensation.

(c) The General Assembly designates a group to run the enterprise. The group receives 70 percent of the income with the other 30 percent going to the community. The Community provides the roundwood in communal work.

(d) The SCFE is rented out to a carpenter by the community. The carpenter hires workers and buys the wood from the community in what is an extreme case of privatization of the SCFE.

(e) In the case of the Project FAO/SIDA/INFOR a legally constituted enterprise has been formed within the community to manage the small industry. The paid workers (who earn wages) have to be community-members, and their hiring and level of wages is approved by the General Assembly.

The environment for SCFE development Linkages to Agriculture

The Peruvian Sierra is an extremely harsh environment in which people are preoccupied not with development but survival and continuation of the family. They achieve this by a combination of activities, such as agriculture, livestock-raising, handicrafts and paid work within and outside of the community. This unspecialised economy may seem primitive, but it is well adapted to the environment. It is extremely complicated in its use of the different components and well integrated to the markets outside of the community. It is estimated by peruvian economists that about 50% of production is for subsistence consumption, and the balance is sold or bartered.

The economic and social situation of the community farmer has three specific caracteristics which influence the SCFE. Firstly, although he lives in a community, the economic decision-making takes place in the family. It is the family, not the community, which is responsible for the well-being of its members. Secondly, almost all production is done by the family, the community only allots the lands to the families and maintains the infrastructure. Thirdly, due to his precarious economic situation the community farmer has a very high aversion to risks. He simply cannot afford to fail in his economic undertakings.

Sorting handles for agricultural and workshop use

For these reasons, the SCFEs have to form another complement of the economic activities of the community farmer who is willing and would be able to participate in the SCFE when the alternative would be to look for seasonal work outside of the community but not participate at the expense of his agriculture. This is because agriculture remains the backbone of the Sierra economy and the only source of social-security its inhabitants have. It is therefore essential to adjust the scale of SCFE operations to this reality, and to promote alternatives which require specialized full-time workers only if there are landless and unemployed people facing forced migration.

Opportunities for and constraints to SCFE development

The key opportunities seem to be in the development of SCFEs that require a low investment and make products with high local demand preferably from end-users who can be reached directly by the producer. The low level of investment allows the entrepreneurs to suspend production and resume it easily depending on the pressures of other, more important, economic activities. It also implies simple technology in which all workers can carry out all production functions if necessary except very few key tasks. The high demand allows each producer to easily find a buyer at the going price whenever he has got a product to sell. The products should preferably be sold directly to the users in order to bypass middlemen.

Some SCFEs which meet these criteria include production of rustic wooden chairs and other furniture; production of charcoal (in some regions only since in many others firewood is still the main fuel); production of simple construction materials, such as posts, beams and (pit) sawn-timber. Also there seems to exist a good opportunity for community participation in low-cost preservation of poles for village power-lines.

For these small-size enterprises there remain several constraints to taking up opportunities. With regard to administration, one constraint is that in many cases a lot of work is required before the communal organization can manage even the smallest SCFE. Secondly, there are often conflicts between the SCFE enployees and the community as to the level of wages and the distribution of profits. In more than one case the community has kept the wage level so low that the workers have left. Thirdly, there is a tendency within the group directly involved in the SCFE to try to privatizise the enterprise as soon as profits are shown which creates conflicts with the rest of the community, and undermines the ideas behind the SCFE.

The persons directly involved with the SCFE inadvertently form a new power group which is resented and not easily accepted by traditional community leaders. The new groups can threaten the privileges they have enjoyed (such as the uncontrolled use of community funds, and profits from acting as middlemen in the sales of the forests).

The SCFEs also face considerable market problems when they attempt to take up opportunities. They often have problems in maintaining the necessary business contacts particularly for the wider regional market as this requires visits to the buyers. This often forces them to use costly middlemen. In addition some profitable markets are closed to competition by deals between buyers and existing producers. Sometimes bribes are also necessary to cut down transportation costs. All this is difficult for the SCFE to handle.

Administrative/organisational and market aspects are the largest problems facing small enterprises in the Sierra. The creation of larger scale communal enterprises by the FAO/SIDA/INFOR project was intended to avoid these constraints. However, it appears that the larger project also faces important constraints such as the weak administrative capacity of the traditional communal organization to manage activities that move money. Such projects also demand a high level of institutional support which the public administration does not have the capacity to give. Even for these larger projects, it is difficult to achieve full-time operation and specialization of workers.

Finally, it is clear that due to the limited resource-base of the communities, it is necessary for several communities to cooperate even to run a small sawmill, which in turn multiplies the administrative problems and the need for institutional support.

The main operational problems relate to shortages of raw materials, finance, and skills. The more general problems of markets and organisation were already covered under “constraints”. With regard to raw materials, problems in obtaining a sufficient flow of wood until now have been experienced only in the FAO/SIDA/INFOR project, where they were clearly a result of an incomplete evaluation of the forest resource before the project was started. They have now been resolved by buying logs from outside the project.

Loading on the timber-rack in the Peruvian Sierra

In the past, almost all SCFE equipment has been donated to the community which for its part has provided the local construction materials and construction labour. Training of the workers has also been without cost to the community. This arrangement has worked well due to the small amounts of money involved in most projects. It is obvious, however, that to expand the activity it will be necessary to obtain other forms of financing. There is already one chair-workshop in operation which has been established with a soft loan from an NGO.

Experience shows that although technical skills to operate these simple industries are acquired by workers after only a few weeks of on-the-job training, managerial skills require much more time. Even simple management training requires an ability to read with comprehension, write and make simple calculations - skills which can be hard to find. Yet they form the basis for any administrative training: adequate managerial skills (such as accounting) are not only needed to run the SCFE, but also for community control of the SCFE which can help establish confidence between the SCFE and the rest of the community.

Lessons of experience

The products and types of enterprises introduced to the communities seem to be about right, considering the opportunities and constraints already mentioned such as the constraints imposed by the linkages of the SCFE with agriculture; the weak administrative capacity of the communal organizations; and the low level of institutional support available.

Although it seems that the SCFEs have to be oriented towards the markets outside the community to guarantee their economic feasibility, care has to be taken to provide by-products (firewood etc.) to satisfy the needs of the community members. This is a concrete benefit to the community, it shows immediately and acts as an incentive to the community not to abandon the SCFE.

It has become obvious that although the SCFE are communal, the incentives to the community members participating in the enterprise have to be personal, and strong enough to justify their participation from the point of view of the family economy.

A lot of experimenting and investigation is still needed to determine whether the communal management of these small enterprises is feasible and in tune with the natural development trends in the communities. An alternative could be to combine communal ownership of the SCFE with family management, as is already the case with agriculture.

The selection of communities and identification of the type of SCFE to be started has to be based on a much more careful analysis of the organizational capacity of the community than has been done previously. To achieve the level of community participation needed for a successful SCFE, more emphasis should be given to extension and training, and the community must participate in the formulation of the SCFE-project from the beginning. The existing SCFEs have been too much concepts from the outside, that have been planted in the communities, mainly on the basis of often superficial technical evaluation.

A long period of structured follow-up (probably several years) is needed for each SCFE-project to guarantee its continuation.

To carry out identification of SCFEs, selection of communities and to provide full support immediately as well as in the long-term requires a lot from the CENFORs both in terms of abilities and money. In their present state, the CENFORs cannot cope; therefore to carry out the work, an adequate support system must be created to strenghten the CENFORs. There seems to be every justification for an internationally financed SCFE-project for the Peruvian Sierra.

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