This publication was produced for review by the UnitedStates Agency for International Development. It was preparedby Bhishma Subedi, Hari Dhungana, Deepak Khadka, SushilGyawali (ANSAB- Asia Network for Sustainable Agricultureand Bioresources) for International Resources Group.

LOCAL COMMUNITIES ANDNATURAL PRODUCTS:A MANUAL FOR ORGANIZING NATURAL RESOURCEMANAGEMENT GROUPS FOR RESOURCE MANAGEMENTPLANNING, ENTERPRISE DEVELOPMENT ANDINTEGRATION INTO VALUE CHAINS

USAIDFROM THE AMERICAN PEOPLE

SEPTEMBER20072007

LOCAL COMMUNITIES ANDNATURAL PRODUCTS:A MANUAL FOR ORGANIZING NATURAL RESOURCEMANAGEMENT GROUPS FOR RESOURCE MANAGEMENTPLANNING, ENTERPRISE DEVELOPMENT ANDINTEGRATION INTO VALUE CHAINS

DISCLAIMERThis Manual is made possible by the support of the American People through the United States Agency for InternationalDevelopment (USAID). The contents of this Manual are the sole responsibility of IRG and do not necessarily reflect theviews of USAID or the United States Government.

ANSABPO Box No: 11035, New Baneshwar, Kathmandu

www.ansab.org

International Resources Group1211 Connecticut Ave, NW, Suite 700,

Washington, DC 20036

ANSAB

i

ACRONYMS iii

PREFACE iv

INTRODUCTION 1WHY THIS MANUAL? 1WHO IS THE MANUAL FOR? 2MANUAL FLOWCHART 3SUGGESTIONS FOR USE 3

1 IDENTIFY AND ORGANIZE COMMUNITY FOR NATURAL RESOURCEMANAGEMENT AND ENTERPRISES 4

1.1 GETTING STARTED: PLANNING FOR COMMUNITY ORGANIZING 41.1.1 Consider Why Community Organizing Is Essential 41.1.2 Select The Site Where You Will Be Working 61.1.3 Be Prepared To Work In The Field 7

1.2 ORGANIZE CBNRM GROUP- HOW CFUGS IN NEPAL ARE ORGANIZED? 71.2.1 Step One: Identify Forest Area And Users 81.2.2 Step Two: Form The Community Forest User Group (CFUG) 91.2.3 Step Three: Demarcate The Forest 91.2.4 Step Four: Prepare Forest Management Operational Plan (OP) 91.2.5 Step Five: Negotiate With Forestry Authority For Handing Over Of Community Forest 111.2.6 Step Six: Implement, Monitor And Review The OP/Constitution Implementation 11

1.3 FORM SMALL ENTERPRISE GROUPS 12

1.4 FORM COMMUNITY-BASED NATURAL PRODUCTS ENTERPRISE ENTITIES 13

1.5 FACILITATE NETWORKING, ALLIANCE AND FEDERATION-BUILDING 18

1.6 SET THE GROUPS INTO MOTION 19

2 DEVELOP AND IMPLEMENT PARTICIPATORY NATURAL RESOURCE MANAGEMENT PLAN 20

2.1 GETTING STARTED 20

2.2 DEFINE MANAGEMENT OBJECTIVES 20

2.3 CONDUCT RESOURCES INVENTORY/ASSESSMENT 212.3.1 Forest Survey 222.3.2 Timber And Non-timber Forest Products Inventory/Assessment 232.3.3 Analysis And Prescriptions 25

2.4 CARRY OUT PARTICIPATORY BIODIVERSITY MONITORING 25

2.5 DEVELOP RESOURCE MANAGEMENT PLAN 272.5.1 Steps Of Forest Management Operational Plan (OP) Preparation 272.5.2 Write Up The Operational Plan 28

TABLE OF CONTENTS

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3 IMPLEMENT THE NATURAL RESOURCE MANAGEMENT PLAN 29

3.1 START WITH THE APPROVED OP 29

3.2 ADOPT FOREST CONSERVATION AND ENRICHMENT MEASURES 29

3.3 HARVEST FOREST PRODUCTS AT A SUSTAINABLE LEVEL 30

3.4 PLAN FOR ENTERPRISES 31

3.5 IMPROVE THE PLAN 31

3.6 GET CERTIFIED 31

3.7 INTEGRATE RESOURCE MANAGEMENT TO LANDSCAPE/CLUSTER LEVEL 33

4 DEVELOP AND IMPLEMENT COMMUNITY-BASED NATURAL PRODUCTS ENTERPRISE PLAN 34

4.1 CARRY OUT ENTERPRISE IDENTIFICATION AND FEASIBILITY STUDY 354.1.1 Assess The Existing Situation 354.1.2 Identify Products, Markets And Means Of Marketing 35

4.2 IDENTIFY LEVERAGE POINTS FOR ENTERPRISE DEVELOPMENT:CARRY OUT A SUB-SECTOR ANALYSIS 36

4.3 PREPARE THE BUSINESS PLAN 364.3.1 Component 1: Natural Products Marketing Plan 364.3.2 Component 2: Raw Materials Sourcing And Production Plan 384.3.3 Component 3: Organization And Management Plan 404.3.4 Component 4: Financial Plan 424.3.5 Component 5: Policy And Regulatory Environment 464.3.6 Put All Components Together Into The Business Plan 47

4.4 OPERATE THE ENTERPRISE 49

4.5 DEVELOP ENTERPRISE CLUSTERS AND NETWORKS 49

5 INTEGRATE COMMUNITY ENTERPRISES INTO VALUE CHAIN 51

5.1 UNDERSTAND THE VALUE CHAIN AND ITS LINKAGES WITH SMALL FIRMS 51

5.2 ANALYZE THE VALUE CHAIN 52

5.3 LINK CBNPES TO APPROPRIATE VALUE CHAINS 53

5.4 DEVISE AND IMPLEMENT UPGRADING AND INTERVENTION STRATEGIES 555.4.1 Firm Level Upgrading Strategies 555.4.2 Industry-level Upgrading Strategies 56

5.5 DEVELOP SYSTEMS FOR SERVICES DELIVERY ON A SUSTAINABLE BASIS 565.5.1 Why Business Development Services (BDS)? 565.5.2 Promote The Supply Of Business Development Services 575.5.3 Enhance The Demand For BDS 59

SELECTED BIBLIOGRAPHY 60

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AAC Annual Allowable Cut

ANSAB Asia Network for Sustainable Agriculture and Bioresources

BDS Business Development Service

BDS-MaPS Business Development Services – Marketing and Production Services

BEP Break-even point

CBNPE Community Based Natural Products Enterprise

CBNRM Community-based natural resource management

CBFE Community-based forest enterprise

CF Community Forestry

CFUG Community Forest User Group

DFO District Forest Office

FECOFUN Federation of Community Forestry Users, Nepal

FSC Forest Stewardship Council

IRG International Resources Group

IRMS Indigenous resource management system

LRP Local Resource Persons

MIS Market Information System

MSE Micro and Small Enterprise

NNN Nepal NTFP Network

NRM Natural resource management

OP Operational Plan

ROI Return on Investment

SHG Self-Help Group

SME Small and Medium Enterprise

USAID United States Agency for International Development

VFC Village Forest Council

ACRONYMS

iv

PREFACE

The natural resource dependent communities are getting organized and in many instancessuccessfully carrying out conservation and resource management activities. In Nepal, forinstance, there is a large organized network of community forest users groups that arededicated to attain conservation and livelihoods objectives. At the same time we also seethat the resource-dependent communities have not been able to get a proper share ofeconomic advantages on their work. In this context, local, national and internationalconservation and development organizations as well as government agencies share achallenge: how to reconcile resource conservation with livelihoods and business objectives?And how can front-desk organizations and field facilitators make it happen?

This Manual aims to make a timely contribution to the needs of field facilitators and serviceprovider agencies and organizations to facilitate community organizing for resourcemanagement, enterprise development and integration of community enterprises to appropriatevalue chains within the natural products sector. It is based on the experience of ANSAB’swork in Nepal and is also drawn from similar experiences elsewhere. The manual provideskey insights, process, methods and tools to capture on the potential of natural productssector for poverty reduction. It combines community organizing, natural resource managementplanning, enterprise planning and value chain integration together in the single volume sothat the readers can have a more complete picture of the processes that are critical withinthe natural resources sector.

We would like to thank the USAID and the IRG-FRAME project for the financial contributionfor the preparation of this manual. We are particularly grateful to Mike McGahuey, Dr.Pradeep Tharakan and Dr. Jack Croucher who supported in conceptualizing it. We thankLauren Sorkin and Denise Mortimer who provided very important comments on the previousversions of this manual. We also acknowledge various contributions from Surya Binayee,Ann Koonz, Ram Hari Subedi, Indu Sapkota, Ram Prasad Acharya and Durga Regmi atvarious stages of this work.

We are hopeful that this manual would prove to be useful to a wide array of agencies andfield facilitators working within the natural product sector, and forestry sector in particular,to design and implement their programs and interventions. We look forward to receive thevaluable comments and feedback from the readers.

Bhishma P. SubediExecutive Director, ANSAB

INTRODUCTION

Policies promoting community-based naturalresources management (CBNRM) have created animportant role for communities in the conservation,management, and use of natural resources.Government agencies, non-governmentalorganizations and other service providers aresupporting local people to get organized in variousforms of Natural Resource Management (NRM)groups. Such groups are also taking up responsibilitiesto achieve their objectives and have made significantprogress in several areas of resource governance andmanagement. Critical to the success of CBNRMefforts is ensuring that local communities’ livelihoodsneeds are met through the sustainable managementof natural resources. Natural resource basedenterprises play an important role in helpingcommunities realize economic benefits from suchresource management. Learning how to organizecommunities to effective manage natural resources,and natural resource based enterprises is an essentialskill for any NGO or government agency dedicatedto promoting CBNRM.

This Manual intends to serve the needs of agenciesand organizations that are interested in facilitatingcommunity organizing, NRM management planningand implementation, community-based naturalproduct enterprise development, and the integrationof NRM groups or natural products enterprises intorewarding value chains. This Manual presents a setof processes, methods and tools with links to thesuccesses associated with them. It evolved out ofthe distinct experiences of implementation of adiverse range of CBNRM projects in Nepal. CBNRMpractitioners working within or beyond Nepal,especially where CBNRM is promoted, will find thisManual useful.

The following are some of the distinct features ofthis Manual. These also provide a highlight of howthe use of this Manual could support dual goals ofconservation and livelihood improvement.

• This Manual is based on ANSAB’s communityorganizing approach to CBNRM and enterprisedevelopment as a means to biodiversityconservation and equitable economicdevelopment. Its core process, methods andtools relate to how to organize and work withthe community in order to support them tomanage their natural resources in a sustainablemanner, and develop and operate viable naturalproduct enterprises. On this approachcommunities are organized in order to be ableto define their own objectives and priorities andset up institutional basis for manage the naturalresources and enterprise development.

• This Manual provides a process linking theconservation of natural resources with economicincentives generated through enterprise activities.The long-term sustainability of the resource, tobe achieved through conscious planning andmanagement actions, would be realisticallyachieved when communities are able to deriveeconomic incentives. Thus the Manual combinesrather distinct objectives of conservation andpoverty reduction/ livelihood improvementthrough natural products enterprises.

• This Manual takes up enterprise activities notas limited to activities at a certain point –suchas some natural products production activity.This shows the ways how greater benefits tothe community are more likely to be accruedwith integration into the wider value chain ofthe product. This integration enhances systemiccompetitiveness for sustainable enterprisedevelopment.

WHY THIS MANUAL?

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WHO IS THE MANUAL FOR?Though this Manual can apply to management of adiverse range of natural resources, it is developedmainly with the experience on forest resourcesmanagement and non-timber forest products (NTFP)-based enterprises. The processes, methods and tools,as well as the cases presented in this Manual aredrawn on from within the framework of participatoryforestry in Nepal. These highlight more recentexperiences of community-based natural productsenterprises, forest certification, and businessdevelopment service and value chain analysis. Incase of enterprises, it can be used for those in theprocess of establishment, or those that are alreadyestablished, but yet to come into smooth operation.Several of the processes, methods and tools givenin this Manual came from ANSAB’s programimplementation from 1994 to 2006.

This manual is intended for use by field-levelfacilitators and agencies and organizations workingin supporting NRM groups at local level. This isparticularly to serve the needs of the following:

• Practitioners at the field level;

• Community forestry/NRM facilitators;

• Community groups, federations and associations;

• Natural product enterprise/marketing facilitators;

• Field staff of government agencies;

• NGOs, Projects and Program personnel;

• Field-level development workers;

• Training organizations; and

• Entrepreneurs, natural products businessassociations.

The main objective of this Manual is to providepractical guidance to development organizationsand government agencies in order to achievebiodiversity conservation and equitable economicdevelopment through community-based enterprise-oriented solutions. For this, this Manual providesfield workers and NRM organizations with practicalinsights – process, methods and tools –on organizingNRM groups, NRM planning and implementation,community-based enterprise development andintegration of community-based enterprises intovalue chains.

In particular, its objectives are to provide fieldfacilitators with the process, methods and tools to:

• Facilitate organizing community members intoNRM groups for sustainable natural resourcesmanagement and community-based naturalproduct enterprise development;

• Support NRM groups for developing andimplementing plans for sustainable managementof the natural resources (especially forestresources), such as with resource inventory/assessment, biodiversity monitoring, micro-levelplanning and implementation;

• Facilitate the establishment and operation ofcommunity-based natural products enterprisedevelopment;

• Provide key insights, experiences and methodsof identifying and analyzing businessdevelopment services and linking localenterprises into the wider natural product valuechain.

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MANUAL FLOWCHART

SUGGESTIONS FOR USE

The following are some suggestions that could beuseful to the readers of this Manual:1. Each of the five core chapters in this Manual

are organized according to the five phasesoutlined above. Thus we suggest the readers,especially those who work in a new site, to startwith Phase 1 and move in a sequence toPhase 5.

2. For those who have previously completed workon earlier phases (e.g., Phase 1), they can startwith the next phase. Or if some work on suchearlier phase is complete, but some activitiesare not carried out, the readers should go throughthat phase.

3

This Manual outlines five distinct phases from identifying and organizing the community to integrating communityenterprises into value chain (See figure below). These five phases comprise the five core chapters of this Manual.

Note: In the above figure the plain lines represent step-by-step process and the dashed lines represent ‘conditional’ steps,i.e., steps to be followed depending on the conditions of the NRM groups or enterprises.

3. Within each of the phases (chapters in thisManual), a set of processes, methods are toolsare presented. While these are organized in astep-by-step sequence based on ANSAB’sexperiences, field facilitators need to considertheir particular situations to decide on planningand carrying out the activities.

4. Field facilitators need to consider their previousexperience of working in specific sites or socialsettings or generally of facilitation on activitiescloser to those outlined in the five phases ofthis Manual.

5. It is thus advised to adapt the process, methodsand tools of this Manual, and use them in aflexible way to fit to actual circumstances underwhich field facilitation has to be carried out.

Phase 2.Develop participatory natural resourcemanagement plan

Phase 3.Implement participatory natural resourcemanagement plan

Phase 4.Develop and implement community-based natural product enterprise plan

Phase 5.Integrate community enterprises intovalue chain

Phase 1.Identify and organize community

1 IDENTIFY AND ORGANIZE COMMUNITY FOR NATURALRESOURCE MANAGEMENT AND ENTERPRISES

1.1 GETTING STARTED: PLANNINGFOR COMMUNITY ORGANIZING

1.1.1 Consider why community organizing isessentialOrganizing natural resource users into a NRM groupsserves resource governance, economic, andinstitutional functions. Group organizing helpsgoverning the resources: setting out rules and normsfor conservation and management of the resources,the extraction of products, and the fair and equitabledistribution of benefits. In addition, NRM groupscan also be organized for two principal purposes:for management of the resource, such as conservationand subsistence, and for enterprise activities.Community organizing for both these purposes willbe outlined in this chapter.

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Many natural resources exist ascommons resources. It is well knownthat use of the commons resources,in the absence of proper governanceand organizational framework, is verylikely to lead to over-extraction andconsequent degradation of theresource. On the other hand,organized community-based naturalresource management (CBNRM)groups can perform better whennatural products enterprises are tobe developed. In addition, grouporganizing helps clarify the users’objectives, governance structures andrender predictability to managementactions and outcomes.

In this chapter (See the Figure), youwill first consider why communityorganizing is essential, decide whereto work, and subsequently to planyour work. You will first have threeoptions of the groups to organize:CBNRM groups (or CommunityForest User Groups, CFUGs), smallenterprise groups, and community-based natural products enterprises(or community-based forestenterprises, CBFEs). Depending oncommunity’s situation (groupcharacteristics) and resourceconditions, you may choose to formeither small enterprise groups, orother forms of CBFEs. These two,however, may follow the formationof CBNRM group in most situations,or could be carried out independentof CBNRM group formation. Thiswill be followed by a process ofalliance or federation building andthen to put the groups into motion.

Chapter 1

Getting Started• Consider why organizing is essential• Decide where to work• Plan your work

Organize CBNRMGroups

OrganizeCBNPEs

Form smallenterprise groups

Facilitate Networking and Alliances• User Group Federations• CBFE Alliance/Networks

Set the groups into motion

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Institutionally, organizing the communities isimportant for a number of reasons:• Organizing helps set up a predictable and

systematic basis for the functioning of NRMgroups;

• It increases the voice of the communitymembers, such as to influence local level servicedelivery or articulate for policy decisions intheir own favor;

• It allows for greater discussion and deliberationat the local level, so that the voice of the poorergroups is more likely to be heeded;

• It often provides a legal recognition to the group;• It helps pool together knowledge, skills and

experience of group members for the bettermanagement of natural resources.

With dedicated external support, the NRM groupscould realize economic and institutional objectives.Economically, the NRM groups can be supported toimprove their income or economic position or tobetter access a needed service.

Who are NRM groups?The NRM groups, as used in this Manual, referto those formal or informal groups, mainlyinhabiting in settlements closer to a forest areathat are collectively using and managing theresources. The members of NRM groups dependupon the resource for their livelihoods, and somemembers are exclusively dependent on theresource for their survival.

Groups can be both formal and informal. Informalgroups generally evolve out of local traditions.Formal groups are often created with supportfrom government agencies or other serviceproviders, have a statue (constitution) and aregenerally registered to some government body.In general the NRM groups are characterized bymembers that are poor and marginalized, withlittle linkage to outside market. In many instancesthese groups comprise of tribal and indigenouspeoples. They also have their distinct knowledgesystems, traditional medicinal practices and forestmanagement practices. The CBNRM groups needto have certain formal, official recognition at leastfor their participation in enterprise or marketingactivities, such as processing essential oils orexport of herbs. Group organizing also includesthis formal process.

Examples of CBNRM GroupsNepal: Community Forest User Group (CFUG),

Leasehold Forest User Group, Buffer ZoneUser Group, Conservation Committee

India: Self-Help Group (SHG) or Village ForestCouncils (VFC); Van Panchayat

Economic Benefits of Grouporganizing• Improve bargaining power- Combining the

volume of several members leverages theirposition when dealing with other businesses.

• Obtain market access or broaden marketopportunities -Value is added to products byprocessing or offering larger quantities of anassured type and quality to attract more buyers.

• Improve product or service quality - Member’ssatisfaction is built by adding value to products,competition the group provides, and improvedfacilities, equipment, and services.

• Reduce Cost/increase Income- Reducing thegroups’ operating costs increases the amountof earnings available for distribution to membersto increase their income.

Source: MoA, 2003

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1.1.2 Select the site where you will be workingBefore you go for facilitation of organizing thecommunities, you are likely to come across with aquestion: where to start the work? Governmentagencies, NGOs, or other support providers generallyhave two situations in this respect. First, they alreadyhave some program or project to deliver services ingenerally in broadly defined target sites orcommunities. Second, community members fromparticular areas may approach them to request forfacilitation services.

In either case, choosing where to work depends oncertain considerations. Following are key criteriathat you’ll find useful to choose where to work:• Feasibility: Interest of the community members

to engage in community organizing andenterprise development

• Need: priority of the government, availabilityof alternative service providers, social andenvironmental indicators, such as povertyincidence, level of resource degradation.

• Reliability: how the work/model used can bereplicated

• Resources and know-how: Does yourorganization have enough resources and know-how to work in the particular site(s) orcommunities.

Note: you can add further criteria depending onyour organization’s strategies or the area you areworking.

* See brief description of the four criteria above. Use Attractiveness Score from 0 to 3, as increasing orderof attractiveness of the site to work. For instance, a score of zero means a site least attractive with respectto a certain criterion, and score of 3 means that it is the most attractive.

** Add scores for all criteria for the site, and the higher the overall score the more attractive the site.

Attractiveness Matrix

Site Attractiveness Score* OverallCriterion 1 Criterion 2 Criterion 3 Criterion 4 .. Criterion 10 score**Feasibility Need Reliability Resources

Site 1Site 2Site 3…..Site 15

How can you do it?• Identify the potential sites where you would

work, or those other sites from where requestsfor facilitation services are received;

• Collect basic data from secondary sources andyour organization’s own records (e.g., data andinformation on population, forest area, resourcedegradation/improvement status);

• Make a reconnaissance visit to the identified sites- to observe resource situations and to conductpreliminary consultation with local people;

• Analyze which site is the most attractive orsuitable for your organization to work. You canuse attractiveness matrix (See the table below);

• Hold a consultation meeting with keystakeholders: present your work objectives andpreliminary analysis, avoid duplication of work,develop coordination mechanism, and finalizethe sites; and

• Develop a map: locate in a map the sites whereyou’ll be working.

Tools/methods that you need for site selection:• Government’s periodic plans and other National

Planning Commission documents (e.g. sectoralMaster Plan, district plans, etc.)

• Office records of government agencies (e.g.,District Forest Office, District DevelopmentCommittee, Range Post or Area Forest Officerecords, Department of Cottage Industry data)

• Your organization’s records• Reconnaissance visit and village-level

consultation with opinion leaders• Attractiveness Matrix analysis• Stakeholder meeting• GIS or topographic maps

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1.1.3 Be prepared to work in the fieldAfter you identify the site and community forfacilitating CBNRM group organizing, you will haveto proceed with the following:• Identify the community and the resource under

consideration;• Gather data on the community and the resource;• Consult local stakeholders, including key

informants, government agencies, NGOpersonnel;

• Consider your (your organization’s) experienceand strength;

• Discuss with the local people to clarify thepurpose of organizing;

• Determine the roles of both local people as wellas support provider agencies;

• Plan for the field visits and be prepared to stayin the villages.

Tips:

• Employ local staff, or persons having knowledgeof the community;

• Review your past experience of work in the area;• Understand and build on the customary

institutions of the community. It must, however,be borne in mind that certain traditionalinstitutions/practices might be founded onunequal power relations;

• Respond to villagers who are demandingtechnical or other assistance;

• Review the policy and legislation pertaining tocommunity forestry and user groups.

1.2 ORGANIZE CBNRM GROUP- HOWCFUGS IN NEPAL ARE ORGANIZED?Here you will learn the process of organizing acommunity-based natural resource management(CBNRM) group. Six basic steps of organizingcommunity forest user groups (CFUGs) in Nepal willbe explained below.

After organizing a CBNRM group, you will havesupported the group to complete the following:• Identify who is the member of the CBNRM

group- through a process of selection and self-election of the members

• Define the overall purpose and specificobjectives that the CBNRM group wants toachieve

• Work out an enduring group structure: generalbody, executive committee and other variants(depending on the nature of the group)

• Decide on the rights and responsibilities ofmembers and executive members portfoliopositions

• Articulate and decide on the processes ofdecision-making, accountability, transparencyof the group

• Develop a mechanism for equitable sharing ofbenefits that arise from the management of theresource

• Develop a statute (constitution) of the group• Complete or at least initiate official registration

of the group.

Nepal’s legislation recognizes community forest usergroups (CFUGs) as self-governing and autonomousentities and entrusts them with the management,control, utilization and sale of community forestresources in a planned way. The CFUGs have userights over the resource, and the rights to excludeothers from using the forest.

What does community forestry inNepal entail?The government of Nepal has been promoting aparticipatory management approach to theconservation and utilization of forest resources.This approach is commonly referred to ascommunity forestry, and implemented throughcommunity forest user group (CFUG) agreements.In a CFUG agreement, managementresponsibilities and rights are handed over totraditional forest users for the betterment of theforest and the people living around the forest site.In determining which forestlands will be handedover to the local people, the forestry policies setthree criteria:• Interest of the community;• Accessibility of the forest (distance from the

settlement); and• Management capacity of the users.

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The following are the six basic steps and requirementsin the CFUG formation process for handing overforests to local forest users in Nepal.

1.2.1 Step one: Identify forest area and usersThis step involves identifying all the households whoare the users of the particular forest. In this step aproposed community forest and the correspondingCFUG members are identified side-by-side.• Prepare a participatory social map showing the

settlement(s), households and the forest- thathelps identify household members.

• Conduct a household survey to collectinformation on population structure, numberof animals, land size and productivity, forestuse, etc.

• Assess of the people’s interests, capacity of forestmanagement, and the forestry extensionactivities. This requires various levels ofcommunity interaction.

At this step of community organizing, you neededthe following tools/methods:• Home visits• Focus group discussion• Key informant survey, discussion with opinion

leaders• Field observation• Meeting with local agencies, organizations

Do not exclude the poor in useridentification process.Poor people are most often directly dependenton the natural products- for food, medicine, anda variety of other uses. However, their access tothe resource might get compromised when asystematic resource management planning is setin place. You will thus need to identify the poormembers within the group, discuss their needsand demand in detail within the poor group, andincorporate them into decision-making.

Consider different situations.These households make up a forest user group(FUG). However, user identification and groupformation process can become lengthy andcomplicated if there is conflict between settlementsor individuals in claiming forest area for the group,and use right and responsibility of the members. The forest users are entitled to a certain level ofmembership based on their use rights andmanagement responsibility. In certain instances,the CFUG members are classified as:• Primary, and• Secondary (with limited rights and

responsibilities).

The FUG identification work is tied to the forestarea, but at this time actual forest demarcationdoes not take place.

Nepal’s Forest Acts (1993), Forest Regulations(1995) and community forestry directives provideguidelines for the community forestry program.A forest management operational plan (OP) isrequired before management responsibility ishanded over to a local community. In many casesthese plans do not incorporate non-timber forestproducts (NTFPs) and most often cover too smallan area to achieve effective biodiversityconservation.

Basic considerations in identifying forest area andusers:• A shared natural resource- customary

ownership and use of the resource• Consider who are dependent on the resource• Need of group organizing to govern/manage

the resource• Willingness of the community to manage

the resource• existing functional groups• existing resource use and management

practices• homogenous/heterogeneous community

• Make a tentative agreement on the membershipof the group and forest area/boundary

• Develop a plan with the group members forfurther work

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1.2.2 Step two: Form the community forest usergroup (CFUG)• Conduct different levels of meetings at the

village- household, hamlets, key informants,poor groups, women groups, artisans, etc.

• Make notes of the issues raised by these groups• Encourage all members to raise their concerns,

issues and demands in the general assembly• Organize a general assembly- with participation

of all members, in a date and venue and forsuch purposes discussed and decided by thecommunity members.

• Encourage the group in the general assemblyto draft/prepare a constitution, which coversgroup management and functioning.

• Ask the general assembly to select a provisionalexecuting committee, which is responsible forregistering the group with the forestry authorityand leading the forest handover process.

• Facilitate the general assembly in order to decideon the constitution and the community forestuser group committee (CFUGC, which is theexecutive committee of the group). Make surethat the FUGC is representative of several groupswithin the community.

1.2.3 Step three: Demarcate the forestThis process begins along with the process of useridentification (step one). However at this step, theforest area is identified, demarcated and any disputes(on forest area/boundary) settled. Follow thefollowing:• Prepare a participatory resource map- showing

key features (steams, hill tops, grazing areas,sacred sites, etc), and the boundary identifiers(such as trails, streams, ridge, etc).

• Hold meetings with people in the neighboringareas to know whether they have claims on thesame forest. If there is boundary dispute, bringCFUG members as well as these non-membersto demarcate the boundary on site.

• Finalize the map of the community forest andadd other important details.

Note: Further details on forest survey are includedin the next chapter of this Manual.

1.2.4 Step four: Prepare forest managementoperational plan (OP)At this step, a forest management operational planis prepared. More technical details of the OP areoutlined in the next chapter. The activities, theirprocess and expected achievements given in thetable below are indicative only.

Key elements of the CFUGconstitution• general characteristics of the group;• group objectives; membership status;• formation of the executive committee;• meeting of the committee;• assembly of the group;• roles and responsibilities of the forest users

and committee members;• fund collection, utilization and control

mechanism;• provision of forest protection and

management;• provision for enterprise development and

other development activities;• fines and penalties• staffing and• Amendment of the constitution.

Depending on the community, the generalassembly could be held a number of times. Forinstance, at a first general assembly a committeeto draft the constitution may be formed, and theconstitution can be approved in the next assembly.Or, if constitution preparation is included in theearlier activities (household visits, meetings, etc.),it can be finalized in a single general assembly.The facilitator needs to accommodate towhichever option best fits to the communityneeds/situations.

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Activities

(a) Carry outextensionactivities

(b) Survey theforest andcarry outresourceassessment

(c) Assess socialsituation

(d) Analyze data

What should be achieved?

• Awareness on government policies,rules and regulations, importanceof community forestry, and scopeof forest management for theirlivelihood.

• motivate the people to achievesustainable resource management.

• Demarcating boundary, anddetermining the forest area andresource condition

• Inventory data helps determine thesustainable supply of the productand the best method of resourcemanagement.

• Annual allowable cut isdetermined, sometimes furnishedwith harvestingmethods/techniques (with furtherinformation)

Gather information and data on thepopulation structure, agricultural andanimal husbandry situation, as well asother productive and income generatingopportunities.

• determine the supply of forestproducts and the community’sdemand for the products

• Identify proper ways for thecommunity to manage theirresources for their benefit andresource sustainability.

How

• Conduct awareness campaigns• Hold interest group meetings and informal

discussion with users

• Carry out a forest boundary survey withmeasuring tape, compass, slopemeasuring instruments and topographical,land use, and other maps, with theparticipation by the CFUG members andadjacent communities.

• Divide the forest into a number of blocks- more or less homogenous strata- basedon topography, forest conditions, andmanagement considerations.

• Calculate the area for whole forest andblocks.

• Carry out a forest resource inventory witha sampling method (generally systematicor stratified sampling).

• Data on all blocks/strata is integrated,and overall forest condition, stocking,growth, and yield determined.

• Conduct household survey, focus groupdiscussion, and interviews

• Make use of secondary sources ofinformation.

• Analyze data and information from theresource assessment and social situationassessment – using sum, average, andcollating and comparing ofinformation/data.

11

Activities

(e) Prepareoperationalplan

What should be achieved?

• Prepare an operational plan (usuallyfor 5 years)

• Get formal recognition of theoperational plan.

How

• Use the analyzed data to insert into theoperational plan

• Discuss resource management optionsbuilding on traditional managementpractices

• Consider government regulations andrequirements for the preparation ofoperational plan

• Outline activities of management,utilization, and distribution of forestproducts and conservation of the resource

• Prepare the operational plan document,get it approved through general assembly,and submit to District Forest Office forfinal approval.

Note: Please go through next chapter for further technical details of operational plan preparation.

1.2.5 Step five: Negotiate with forestry authorityfor handing over of community forestAt this step, you can help the CFUG members tosolicit technical as well as administrative inputs fromgovernment authorities (mainly the District ForestOffice) and to complete the official requirements forformal handing over of community forest. Followthe following steps:• Ask the CFUG to inform District Forest Office

on their progress of operational plan andconstitution preparation.

• Request the authorities for preliminary reviewof the OP and the constitution, and to furnishtechnical/administrative suggestions.

• Help the CFUG members apprise and discusswith DFO on forest area, forest harvesting andmanagement system

• Submit an official application (on behalf ofCFUG) alongwith the operational plan to thedistrict forest office for forest hand over

• Incorporate suggestions, if any• Be cooperative to the DFO to verify whether

adjacent users have claims on the proposedcommunity forest.

• Get the approval of the operational plan andthe constitution.

1.2.6 Step six: Implement, monitor and reviewthe OP/constitution implementationOnce the CFUG constitution and community forestOP is approved by the government authorities, theresponsibility of thier implementation lies with theCFUGs itself. However, the CFUG have to consultthe government authorities time to time, and alsoreceive technical inputs in the implementation,monitoring and improvement of the OP.

The following are important steps and/or activitiesrequired for the smooth implementation, monitoringand review:• Hold meetings and assemblies of the CFUG or

FUGC on a regular basis to decide themanagement and harvesting plans(plantation, collection of NTFPs, fencing,thinning, pruning, etc).

• Manage the daily activities of the user groupaccording to the constitution.

• Review in the CFUGC meetings as well as ingeneral assembly as to whether activities aregoing on as planned, look for discrepancies,and plan for more practical options.

• Review the performance of the CFUGC ingeneral assembly, and suggest ways for betterfunctioning.

• Review the collection and use of CFUGfunds, and make sure that accounts aremaintained in transparent way. Carry out publicaudit of funds.

• Develop annual plans as broadly laid out - firstby CFUGC meetings, and get approval throughdiscussions in the general assembly.

• Help government authorities monitor the forestmanagement activities of the group and take upsuggestions.

• Work out what revisions in the OP orconstitution are necessary. If revisions areneeded, propose the same in the generalassembly and proceed for official approval.

1.3 FORM SMALL ENTERPRISE GROUPSThe CBNRM groups (e.g., the CFUGs as outlinedjust above) are often meant to work for theconservation and general management of the naturalresources. The group members are often very diverseand so are their needs and expectations. In certainsituations, the needs of different members within thegroups cannot fully be met within the framework ofsuch ‘generic’ groups. In other cases, pursuing certainspecific functions would not be economically viableor otherwise not desirable for such groups. In eitherof these cases, small specific-purpose groups can beformed out of the CBNRM groups. With such specific-purpose groups in place support organizations canalso plan focused interventions to target them.Example of such specific-purpose groups includes:• Small enterprise groups• Saving and credit groups• Self-help groups

12

CFUG Sub-groups as SmallEnterprise GroupsIn Dolakha district, ANSAB supported to formsmall enterprise sub-groups within CFUGs. A setof criteria was used to identify members thatcould be included in the sub-group. From among10 CFUGs in the district, a total of 398 communitymembers were found to be collecting/selling morethan 25 kg of forest products (major species-Lokta, Argeli, Majitho, Jhyau) in a year. Thesemembers were amongst the poorest in theirvillages. They lived in the forest fringes and wereheavily dependent on forest. Bringing suchmembers together, a total of 22 Small EnterpriseGroups were formed.

A tri-partite agreement between these specialgroups, CFUGs and DFO was made to ensurethese groups’ right over the forest. These groupswere supported for saving-credit scheme to coverfinancial needs for enterprise activities and day-to-day expenses. CFUGs are provided withmatching funds to develop enterprise developmentfund. The CFUGs’ fund mobilization guidelineswere prepared, and these had provisions toallocate funds for Small Enterprise Groups tocover enterprise development costs.

As the members of the Small Enterprise Groupswere mostly from the poor and marginalizedgroups, bringing them together was a challengein the beginning. They needed continuousorientation and coaching to work for businessand enterprise development. Still there is a needfor massive efforts for training and orientation.External support is further needed in leadershipdevelopment, efficiency enhancement, marketing,basic office management etc. However, thecreation of Small Enterprise Groups has helpedprovide focused support (especially on enterprisedevelopment), utilization of otherwise unusedbarren land within community forest, better useof CFUG funds, creation of employment for poorersections.

13

Steps: How to organize small enterprise groups?• Discuss the need/feasibility of the formation of

Small Enterprise Groups within the CFUGexecutive committee

• Develop criteria for member selection andoutline tentative objectives that such groupscan achieve

• Help/facilitate the selection of the membersfrom within CFUGs (facilitator and the CFUGexecutive committee working together)

• Ask each identified member whether they wouldbe interested and active in that particular group

• Hold separate meetings of the small enterprisegroup members, and work out the relationshipbetween FUGC and the special group.

• Facilitate community members to form separatespecial group of micro enterpriseso Discuss within members how members

can contribute to the micro-enterpriseo Explore and negotiate for support as

available from within CFUGo Explore and demand support from other

agencies• Develop business plan of the group (depending

on the group, it could be a verbally agreedsimpleplan, or slightly elaborate, written plan. SeeChapter 4).

• Prepare operational policies and strategies(depending on the nature and size of the groupit could range from simple, informally agreedset of strategies to written, formalizedpolicies/strategies of the special group).

• Implement the business plan and strategies.• Monitor the progress against the group objectives

and take corrective actions.

1.4 FORM COMMUNITY-BASEDNATURAL PRODUCTS ENTERPRISEENTITIESFormation of community-based natural productsenterprises (CBNPEs) depends mainly on the kindof ownership structure of the enterprise. There areseveral ownership types of a natural productsenterprise. The main ownership types found in Nepalinclude:• Sole enterprise• CFUG enterprise (including the small enterprise

group)• CFUG consortium• Cooperative• Company

The following table provides a brief description of each of these common ownership types, and the type of productsthese entities are handling.

Types

Sole enterprise

Products types handled

Timber (furniture, logs and poles); Other woodproducts (handicrafts, carvings, implements);Fuelwood and Charcoal; Plant fibers (Loktapaper, ropes and cloth from Allo, Hemp,Bhimal, Bhorla, Sabai grass); Medicinal plantproducts; Traditional medicines; Essential oils;Food and spices; Brooms; Bamboo and rattanproducts; Fodder and grass; Leaf products(plates, handicrafts); Others (soap nuts, incense,herbal dyes)

Brief description

Enterprises primarily owned andmanaged, with or without formalregistration, by an individual or ahousehold.

Commonly found enterprise ownership types in Nepal

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How do you formcommunity-based naturalproducts enterprises?• Consider which of the

ownership type suits to aparticular community [SeeTable above]. Consider, forexample, whether CFUGitself is likely to transforminto an enterprise entity,or whether only few CFUGmembers are likely to beinvolved in the enterprise.The enterprise could alsobe owned by differentcategories ofpeople/entities [See forexample in the Figure].

Types

CFUG Enterprise

CFUG Consortioum

Cooperative

Partnership

Company

Products types handled

FUG Timber (sawn timber, furniture, logs andpoles); Fuelwood and Charcoal

Timber (sawn timber); Plant fibers (Loktapaper); Medicinal plant products; Essentialoils

Plant fibers (ropes and cloth from Allo);Medicinal plant products; Food and spices

Leaf products (plates, handicrafts)

Timber (sawn timber); Plant fibers (Loktapaper, Argeli whiteskin); Essential oil; Leafproducts (plates, handicrafts);

Timber (sawn timber); Plant fibers (Loktapaper, Argeli whiteskin); Essential oil

Brief description

Individual FUGs, leasehold groupsor other community groupsmanaging forests as a commonproperty resource and producing,selling or distributing forestproducts.

Two or more FUGs workingtogether for the collectiveproduction and marketing of forestproducts.

Formal or informal networks ofindividuals and groups collecting,processing, and trading forestproducts.

Generally a partnership of twoindividuals

Corporate entities registered as perprevailing company legislation inNepal which at present allows amaximum of 50 shareholders.

Example: Ownership structure of a natural product enterprise (company)

Percentage within parenthesis refers to the percent of shares for each category.

Local Enterprises(No: 4)(35%)

CFUG(No: 10)(30%)

Private Investors-CFUG Members

(15%)

Poor CFUGMembers

(10%)

National-levelEnterprise

(10%)

Bhimeshwor NTFPProduction and

ProcessingCompany Pvt. Ltd.

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• Discuss with the community members of thepros and cons of each of the enterpriseownership model [See the Table below]. Thetable allows you to judge the enterprise modelswith respect to market-related, environmental,social and technological considerations.

• Review the government regulations concerningthe registration and operation of each of theownership types

• Proceed for registration of the enterprise(However, a CFUG enterprise does not needseparate registration. Sole enterprises may alsobe operated on an informal basis. However, ifthe enterprise plans for exporting products, itneeds to be registered as a company in CompanyRegistrar’s Office and should have export license.Similarly Cooperatives are registered at DistrictCooperative Office. For companies, Articles ofIncorporation and Regulations need to besubmitted, while for Cooperatives, their Statuteshave to be approved. Refer to Company Actand Cooperative Acts for details of therequirements.)

Registration is not always easy.This Malika enterprise was registered in Officeof the Company Registar Kathmandu. It is alsoessential to register this enterprise in DistrictCottage Industry (DCI) Office, Bajhang. To legalizethe enterprise, district forest provides arecommendation to the DCI office. District ForestOffice does not make any co-operation for thewelfare of FUG. Up to now this enterprise doesnot register at DCI. District forest Office demandedthe agreement of the product marketing. The copyof the agreement was also provided by theenterprise to DFO. DFO again demanded theoriginal copy of that document. That creates adifficulty to register that enterprise. Withoutregistration, one cannot pay the income tax.However, policy provides sufficient support tothe community. It does not implement in reality.It seems that facilitators should make a smoothrelationship to all possible and should planactivities according to their interests.

• If ‘company’ is agreed as a suitable enterprisemodality, consider the options for ownershipof diverse categories of people: CFUGs,individuals, local traders, poor members,national enterprises etc. This can provideopportunities for bringing together strength ofthese groups and coordinate different functionsfor mutual advantage. In the Bhimeshwar NTFPProduction and Processing Company (See figure),for example, CFUGs provide raw materials,national-level enterprises take up marketingresponsibilities, and local enterprises bring intechnology/skills and marketing. But who shouldtake share in the company and the percentageof their share have to be decided on the basisof whether it will benefit the CFUG members.

• Develop a business plan and operate theenterprise [See details in Chapter 4].

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DecisionFactors

MARKET:

Price

Economy of scale

Access to transport

Access to forwardlinkages and services

ENVIRONMENT:Biodiversity

Management andmonitoring caneasily be organized

Enterprise Ownership Type

Comparison table to decide on enterprise modalities

Soleenterprise

No bargainingpower unlessorganized intoa tradeassociation;difficult toguaranteeagreement onsale price tobuyers

Difficult toachieve

Difficult toorganize

Difficult toachieve

No positiveimpact can beguaranteed andchances ofnegative impactare highwithout peerpressure

Needs goodlinkage withFUG and can’tbe ensured

FUGenterprise

Potential forown financingand thereforefor increasedbargainingpower, butdifficult toreachagreementamongst allmembers onsale price tobuyers

Can beachieved

Easy toorganize

Managementcapacity islacking toorganize this

Potential forgood impact ifparticipation ofall users isensured andconflicts areresolved

Can easily beorganized

FUGconsortium

Potential forown financingand thereforefor increasedbargainingpower, butdifficult toreachagreementamongst allmembers onsale price tobuyers

Can beachieved

Easy toorganize

Managementcapacity islacking toorganize this

More difficultto ensureparticipationbut haspotential forgood impact

Can easily beorganized

Cooperative

Potential forown financingand thereforefor increasedbargainingpower. Canalso achieveagreementsamongstmembers onsale price tobuyers

Can beachieved

Easy toorganize

Managementcapacity islacking toorganize this

Good impactis onlyachieved ifincreasedincome resultsin in-creasedawareness ofconservation

Needs goodlinkage withFUG in orderto be possibleand can’t beensured

Company

Potential forown financingand thereforefor increasedbargainingpower and canalso easilyreachagreement onsale priceamongstshareholders

Can beachieved

Easy toorganize

Bettermanagementcapacity toachieve this

Good impactis onlyachieved ifincreasedincome resultsin increasedawareness ofconservation

Needs goodlinkage withFUG in orderto be possibleand can’t beensured

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DecisionFactors

SOCIAL:

Distribution ofincome

Participation ofwomen

Impact of Policy

TECHNOLOGY:Access to valueaddition

Sustainability

Enterprise Ownership Type

Soleenterprise

There is nocontrol overequity

Potential to bevery high if it'sa womenownedenterprise, oran ethnic groupin whichwomen arealloweddecisionmaking roles

No advocacypower withDFO

Poor access

Very difficult toensure

FUGenterprise

Potential to beequitable ifthere istransparencyand goodparticipation indecisionmaking onFUG funds

Potential for itto be high onlyif there issupport forparticipation indecisionmaking inFUGcommittee

Strongadvocacypower andpotentialsupport fromFECOFUNand NGO

Good access

Can beensured withgoodmanagement

FUGconsortium

Potential to beequitable ifthere istransparencyand goodparticipation indecisionmaking onFUG funds

Potential for itto be high onlyif there issupport forparticipation indecisionmaking inFUGcommittee

Strongadvocacypower andpotentialsupport fromFECOFUNand NGO

Good access

Can beensured withgoodmanagement

Cooperative

By - lawsguaranteeequity andtransparencywithdistribution ofdividends, butdistribution ofworkopportunitiesmay notalways beequitable

Can be veryhigh in thecase of awomen’s onlycoop

No advocacypower withDFO

Good access

More difficultto ensurecontinuinglinkages

Company

Equity is onlyensuredthroughDistribution ofshares.Influentialshare holderscan dominatedecisionmaking

Potential to bevery high inthe case of awomen’s onlycompany, butthere are noexamples inforestry sector(only inhandicraftsector)

No advocacypower withDFO

Good access

More difficultto ensurecontinuinglinkages

Source: Subedi et. al (2002)

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1.5 FACILITATE NETWORKING,ALLIANCE AND FEDERATION-BUILDINGAs the CBNRM groups, or community-based naturalproducts enterprises as organized and their objectivesand activities become clear, opportunities for allianceand federation-building arise. Networking, allianceor federations provide several benefits to such groups,such as influencing government policies, demandingservices, or ensuring economies of scale throughintegration of several functions. Depending on theCBNRM group or the kind of enterprise, suchnetworks, alliance or federations vary.

The formation of networks, alliance or federationsis not necessarily an essential step of group organizing,resource management or enterprise activities.However, these are created generally based on thefelt needs of the constituent members. Ensuring therights of the members, increasing their voice, gettingeconomies of scale are some of the objectives thesenetworks can achieve. So such networks may beconceived of after a reasonable time of operation ofthe CBNRM groups or enterprises.

How can you promote networks, allianceor federations?• Let the CBNRM groups or enterprises operate

on its own for a reasonable period of time (itcould be one year, or few years depending onthe nature of the group or enterprise)

• Explore and discuss within the groups orenterprises how the formation of networks canbe beneficial to them

• Hold a meeting of the groups or enterprises ina particular area (e.g. a district, zone or someother administrative region) and explore howtheir joint efforts and networking promotes theirinterest

• Discuss the advantages and disadvantages(e.g., operating, transaction costs etc) of havingthe network

• If networks, federations or alliance areconsidered essential in these discussions, forma task force, or an interim committee to preparea statute of the network, or just develop a looseand informal network

• Get the decision through the task force or interimcommittee whether the network, alliance orfederation needs a formal recognition orregistration

• Develop the statute if necessary• Hold a general assembly and proceed for

registration• Upscale the federation, network or alliance

(if necessary) to a regional or national level.• Develop a system of continuous communication,

democratic decision-making, and feedbackmechanism at various tiers of the alliance,network or federation.

Example of networks, alliance orfederations• Federation of CFUGs (e.g., FECOFUN)• Fair trade group• Sustainable Biotrade Group (See Section 4.5)• Apex marketing body (could be formed by

CFUGs, cooperatives, etc. to facilitate large-scale marketing or export)

• Landscape level management committees(group of neighboring CFUGs)

• Enterprise clusters- different enterprises withina particular area/cluster product networking

• Federation of companies, especially for largeones (e.g., Federation of Nepalese Chamberof Commerce and Industries)

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1.6 SET THE GROUPS INTO MOTIONWhen a CBNRM group or an enterprise is organized(and alliance, federation or network established),these must be functioning in a proper manner toachieve their objectives. The following table showssome key considerations for setting these groups intomotion.

Key suggestions

• Make it both a periodic andcontinuous process

• Allow for continuousmonitoring, mid-coursecorrection andimprovement

• Ensure that activities are tiedto the objectives of thegroup.

• Ensure through continuousdiscussion andcommunication of the unityof purpose of the group.

• Ensure that the groupmembers are involved inplanning, decision-making,monitoring, etc.

• Develop a system ofaccounts and auditsavailable to the notice ofmembers.

• Conduct public audit ofaccounts

• Ensure participation ofmembers in the decisionmaking

• Publicize key decisions ofthe group and circulate tomembers.

Issue

Planning process

Participation ofgroup members

Transparency

Key suggestions

• Include in the group’sstatute or regulations howthe executive committeeswill be made accountableto their decisions

• Develop a system ofrewards and punishments

• Explore what technical andother supports are availablefrom government and otheragencies.

• Make a financial assessmentof different services (andprivileges) available to theenterprises, and rank themfor a decision on whichoption to pursue.

• Utilize such support to theadvantage of groupmembers.

• Explore how the group canwork to benefit the women,the poor and otherdisadvantaged people- suchas in ownership of theenterprise, employment,provision of loans, or otherfinancial support

Issue

Accountability

Solicitation ofexternal support

Equity and socialresponsibilities

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2 DEVELOP AND IMPLEMENT PARTICIPATORY NATURALRESOURCE MANAGEMENT PLAN

2.1 GETTING STARTEDAfter you go through this chapter, you will haveimportant practical insights on developing aparticipatory natural resource management plan.The process, methods and tools outlined in thischapter are drawn mainly from the communityforestry experience of Nepal, with particular referenceto the considerations of biodiversity conservationand enterprise development. Thus the key purposeof this chapter is to enable to facilitators to movethrough a process of developing resourcemanagement plan.

In this chapter, you will learn (See figure):• Defining management objectives• Resource inventory and assessment• Biodiversity monitoring• Development of resource management plan

Chapter 2

2.2 DEFINE MANAGEMENTOBJECTIVESResource management planning starts with a clarityof management objectives. It implies theowners/managers of the resource are clear from thebeginning what they want to achieve with themanagement. While resource management objectivesvary across different groups, NRM is tied in generalto two distinct objectives: (a) conservation –protectionof species, ecosystems or the ecological sustainability,and (b) poverty reduction –income and employmentgeneration, and equity.

How to define the objectives?• Hold household level meetings of the NRM

group/CFUG- to solicit what they expect fromthe resource and how they can achieve it.

• Hold interest group meetings- artisan groups,traditional healers, etc. and collect and compiletheir needs and expectations

• Meet with poor groups- consideration of specificneeds of the poor groups- such as theirsubsistence, income and employment needs

• Hold a executive committee level meeting• Consult with government authorities on the

objectives they want to promote• Develop draft goal and objectives of resource

management and discuss in the executivecommittee of the CFUG to improve, adjust orrefine them

• Present the draft before the CFUG generalassembly

• Include in the forest management operationalplan. The objectives should be realistic(achievable) through action.

• Plan activities to support the managementobjectives (sometimes objectives tend to beideal and abstract, and activities do not tallywith the management objectives. Care needsto be taken to avoid this.)

• Revise the objectives as the plan getsimplemented.

Getting Started

Define management objectives

Conduct Resource Inventory/ assessment• Forest survey• Timber and NTFP inventory/assessment• Analysis and prescriptions

Carry out Participatory Biodiversity Monitoring• Methods of measurement• Indicator and verifiers• Frequency of measurement

Develop resource management plan

Note: The dashed-line shows an optional step, tobe pursued depending on management objective.

21

Consider the Prospects forImproving Livelihoods andConservation• Facilitating local control of resources by

providing support to existing and potentialCFUGs.

• Supporting for active management andconsideration of leasing some portion ofcommunity forest by forming leasehold sub-groups (LSGs) of the poor and landlesshouseholds.

• Enhancing local access to commercialresources through handing over forests andpasture areas, incorporating sustainablemanagement and harvesting systems inCFUG operational plans, allowing CFUGsto independently sell the products for theirown benefits.

• Facilitating to prepare quality operationalplans to ensure effective utilization offorest products and institutionalizingparticipatory, gender-sensitive and equitablepractices.

• Organizing local harvesters andtraders.

• Providing integrated business developmentservices.

Hints: Management goals andobjectivesIn most situations, there are multiple objectivesattached to natural resource management.Management objectives correspond to theresource condition, needs of the resource users,and enterprise and marketing potentials.

The goals may include:a) Conserve the natural resource base,b) Commercially use the local natural products

in a sustainable manner, andc) Assure benefits are long lasting and equitably

shared by the community.

2.3 CONDUCT RESOURCESINVENTORY/ASSESSMENTResources inventory and assessment helps makemanagement decisions. Thus, resource inventoryand assessment should not be taken in isolation –itshould generate information needed to design NRMactivities in order to achieve NRM groups’management objectives. In addition, governmentregulations might specify a general method andprescribe for a set of information to be generatedfrom inventory, such as in the case of communityforestry in Nepal where this information is used toapprove the community forest operational plan. Thusresource inventory and assessment needs to generateboth types of information.

Within community forestry, forest inventory andassessment involves:1. Forest survey2. Inventory3. Analysis and prescriptions

The objectives may include:a) Commercial development of NTFPs through

the creation of a local processing company,b) Domestication of commercially important

NTFPsc) Institutionalize local natural resource

management and conservation practicesunder Nepal's community forestry system,

d) Generate management information throughbiological and socio-economic monitoring,

e) Conduct training, education, and extensionsupport to strengthen the capacity of thestakeholders.

Information needs• Data and information needed to inform

management decisions (such as for plantation,protection, harvesting scheme or harvestingmethods)

• Data and information needed under existingregulations for approval of the operationalplan.

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Methods of forest survey andmapping• Participatory mapping• Chain and compass survey• GIS mapping and• Use of topographic map

2.3.1 Forest surveyForest resource inventory/assessment most oftenbegins with a forest survey. A forest survey is meantto depict spatial features and other forestcharacteristics and make these readily available ina map. Depending on the needs of the community,size of forest, nature of terrain, availability of surveyinstruments, know-how of technical personnel, andavailability of GIS and topographical maps, the surveymethods vary. Generally four methods can beconsidered (See box).

The specific techniques and tools of forest surveyare very different for the methods shown above.However, you will see below two distinct cases offorest survey which are often practiced in communityforestry in Nepal: survey procedures when forestareas are comparatively small, or the procedureswhen forest area is larger. The distinction is subjective,but a rough guide is that a size smaller than 100 hacan be considered small, and greater the large.

When forest area are small:• Use Silva compass, Measuring tape, Abney's

Level• Measure the slope or horizontal distance with

measuring tape and its slope angle with Abney'sLabel or Silva compass. Take bearing withPrismatic compass, Surveyor's compass or Silvacompass (Note: Silva compass is very simple,easy and quickly handled).

• Record the above data in a field book• Convert all slope distance into horizontal

distance• Map the forest into the paper

• Show in the map all permanent features• Show the scale in the map• Add additional features [several resource features,

such as density, etc. can be subsequentlyoverlaid in the same map).

When Forest area is large or remote andinaccessible• Use a topographical map• Delineate the forest boundary and block lines

in the map• Find out boundary line features are in the map

and measure later (The forest boundaries andblocking line should be permanent featuressuch as stream, river, ridge, trail etc. Todemarcate forest boundaries and blocking line,measure reference features.)

• Take bearing and distance with compass andtape for field features and with scale and Silvacompass for the same features in the map.

• Compare the data for the field and map, andverify for correctness and indicate field featuresin the map.

• Demarcate forest area in the map by sightingthe field from a top point (Some part of theforest could be invisible from the point. In suchcase, take a number of points according to thefield condition and while doing so demarcatethe forest area that is visible and perfectlymatching with the field features.)

• Transfer the forest boundaries and blocks fromthe map to a transparent paper and then markingthe straight line, prick down the points to transferto a graph paper for easier measurement.

• Orient the map and graph before transferringthe area on graph paper.

• Make a precise measurement of the distancebetween two points with scale and bearing withprotractor from the graph paper.

• Consider the scale of the topographical mapused (which is often 1:63,360 in Nepal) andmeasure and calculate accordingly.

• Prepare the forest map in a graph paper takingindependent coordinates (latitude and departure)with appropriate scale.

23

2.3.2 Timber and Non-timber forest productsinventory/assessmentOnce the forest is surveyed, and area of whole forestand blocks, as well as the boundaries and additionalfeatures shown in the map, the next step is to conducta resource inventory/ assessment. The key objectivesof inventory/assessment are to (a) ascertain the overallstock of the resource, such as of timber, (b) find outthe spatial distribution of species/products, and then(c) provide inputs to sustainable management as wellas harvesting.

Forest inventory has conventionally been confinedto timber; and this serves only timber managementobjective. However, non-timber forest products(NTFPs) are receiving greater recognition for theirsubsistence and market-based potentials. Thus, forestinventory needs to include NTFPs assessment.

The details of timber inventory for Nepal are outlinedin the Government of Nepal’s Inventory Guidelines.The Table below shows the process of assessmentof two NTFP species (Argeli and Lokta) as suggestedsteps for NTFP inventory.

Key steps

Preliminarymapping

Boundary surveyand blocking

Habitat mappingand areacalculation

Determiningdiameter andclump sizedistribution

Lokta Assessment in Bajhang

The community prepared a participatoryresource map showing forests and its realusers. Community members also demarcatedthe forest boundary on a topographical sheet.

Using topographical map sheet, forestboundary was tentatively delineated. Theboundary was verified with a compass andtape survey. The community forest area wascalculated from the map (912 hectares), andwas divided into seven blocks, based on theexisting natural boundaries and forest types.

Argeli Assessment in Dolakha

A participatory map of the forest was preparedshowing different forest types and conditions,indicating the distribution of Argeli.

[see above for reference]

Argeli habitat was delineated in the forestmap by foresters and villagers. Through atransect walk, three density classes were laidqualitatively in the habitat map.

Proportions of stems of different diameterclasses were estimated through a sample of1000 stems in 27 clumps of different sizes.The girth classes used for this purpose were: <2cm, 2-4cm, 4-6cm, 6-8cm and >8cm.These data were used to determine diameterdistribution curve. The clump size distributionwas also assessed to determine a suitableclump size classification for the sampleinventory. Four classes of clump size weredetermined keeping the method simple aswell as fairly accurate: small (<15), medium(15-30), large (30-45) and very large (>45).

Argeli and Lokta assessments in two community forests in Dolakha and Bajhang, Nepal

24

Key steps

Sampling andmeasurement

Estimation oftotal clumps (bysize class) andstems (bydiameter class)

Projection ofpopulation

Estimation ofsustainable yield

Prescribedharvestingtechniques

Lokta Assessment in Bajhang

Using a stratified random sampling method,the group completed a participatoryinventory of the forest tree species andNTFP in the forest. Several strata weremade based on types of forest. The samplingintensity was around 1% and 136 plotswere observed. Twenty major tree speciesand twenty NTFP species were recorded.Only seven tree species and Lokta wereinventoried in greater detail. Stock of Loktawas recorded for predetermined diameterclasses (below 3 cm; 3 to 6 cm; 6 to 9 cm)to identify sustainable harvesting levels.

Using the data from the inventory andavailable secondary sources (on growthrate, stem diameter and bark yield relationsetc.), sustainable yield was prescribed forfive years. Every year the FUG can obtainapproximately 20,000 kg of Lokta bark thatproduces 7200 kg of hand made paper.Sampling error can be expected butexperiences afterwards showed that theestimates provide a fairly accurate basis tojudge the potential of Lokta supply, uponwhich enterprise decisions are made.

Argeli Assessment in Dolakha

Taking a sampling intensity of 1%, the sampledplots (plot size: 400m2) were allocatedproportionately to the three strata delineated onthe stocking density map. Only the number ofclumps (and not the number of stems) in eachsize class was recorded.

The data from the sample inventory were usedto estimate total number of clumps by clump-size class for the entire habitat area. Similarly,the diameter distribution curve and the estimatednumber of clumps were the basis of estimatingthe total number of stems by diameter class.

Assuming 30% mortality and 8 cm girth as theminimum size for the harvest, Argeli populationwas projected for ten years using spreadsheetanalysis.

Stems greater than 8 cm in girth were estimatedusing the projected population. The output tablegives number of stems that can be harvested andthe quantity of whiteskin produced annually.The participatory wisdom determined that thecutting would be controlled by size and not byrotational area.

Stems less than 1.5 m in length, even if greaterthan 8 cm in girth, will not be used for processingbut may be used for preparing new seedlingsthrough cutting. A sharp cutting device isprescribed so that no bark is dislodged belowthe cutting portion. The season prescribed forharvesting is December – February.

25

Key steps

Incorporation ofNTFP provisionsin OP

Lokta Assessment in Bajhang

The information was used to prescribeharvesting system for timber as well as NTFPused in subsistence and/or income generatingactivities. The plan includes a separate sectionon the harvesting of NTFP, particularly Lokta.The 5-year operational plan describes theforest management and harvesting activities.

Argeli Assessment in Dolakha

Source: Ojha, HR, Subedi, BP and Dangal, SP (nd)

Thus inventory/assessment involves ascertaining thestock of the resource, finding its spatial distributionwithin the forest under consideration, andincorporation of that data into management planning.

2.3.3 Analysis and prescriptionsForest inventory and assessment data and informationcan be analyzed and fed into managementprescriptions. Two specific methods can be used(Also see the box below):

Stock Mapping:• collect per hectare stock of particular product

for each block / sub-block of the forest,• Indicate in the map by categories (high density,

medium, low etc.)• prescribe management and harvesting options

based on the map

Prescription of sustainable harvestlevel/allowable cut:• Take reference from government prescriptions

the allowable cut (as a percentage of annualgrowth for a particular species)

• Disaggregate inventory data by blocks or sub-blocks (or take whole forest if it is small, orhomogenous)

• Calculate annual allowable cut for a particularspecies/product.

2.4 CARRY OUT PARTICIPATORYBIODIVERSITY MONITORINGBiodiversity monitoring is closely linked to forestinventory and assessment, but it has additionalfeatures and objectives. Biodiversity monitoringgenerates data and information needed to takeappropriate conservation and management measuresfor biodiversity resources. Biodiversity monitoringis useful for community forest user groups,conservation agencies or programs and governmentagencies alike. The intent of monitoring is to discernthe changes in biodiversity and to adjust resourceuse and conservation practices to achievesustainability. It also provides early indication of themeasures to cope with threats to biodiversity.

A participatory biodiversity monitoring:• Does not just oversee things, but generates

information and provides feedback for adaptingconservation actions.

• Monitoring information contributes to theimproved management of natural resources.

Thus any conservation program should have amonitoring system to ensure the conservationactivities are in the right direction to achieve theintended goals.

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Criteria and Indicators forbiodiversity monitoringConventionally biodiversity monitoring is carriedout by conservation bodies or organizations.However the activity is increasingly relevant toconservation and development projects,government agencies, and NRM gropups (CFUGs)alike. But the information required for theseagencies could well be different depending upontheir interest.

At ANSAB, three main criteria for biodiversitymonitoring were developed: ecosystem healthand vitality, threats to biodiversity, and social

How to conduct a participatory biodiversitymonitoring?The table below provides a set of methods forbiodiversity monitoring, and corresponding indicatorsand verifiers. It also shows the frequency with whichthese measurements have to be taken.

response. Each of the criteria has a set of indicatorsand verifiers. Indicators and verifiers may beadapted as more is learned about their validityand measurability in the field.

Note: Consult ANSAB Resource Center for theIndicators and Verifiers.

Methods

ResourceInventory

Transect Walk

HouseholdSurvey

Focus GroupDiscussion

Key InformantSurvey

FUG andEnterpriseRecords

ExperimentalPlots

Frequency of Measurement

Once in five years (at the timeOP preparation and revision)

Biennially (including at thetime OP preparation andrevision)

Once in five years (at the timeOP preparation and revision)

Yearly

Yearly

Yearly

Yearly

Indicators and Verifiers Measured

Vegetation types and characteristics, plant species diversity,crown cover, dead and fallen trees, organic matter on theground, growing stock (size class distribution, plant densityof herbs, green biomass, vegetation height), regeneration,threats (fire, grazing, encroachment, biomass removal)

Vegetation types and characteristics, plant species diversity,fungal fruiting bodies, lopped trees, crown cover, groundcover, dead and fallen trees, old growth trees, area coveredby CWD, organic matter and fine litter, factors of regeneration,threats (fire, grazing, encroachment)

Demography, cattle population, household-wide forest productdemand, agricultural land, education

All indicators related to threats and social response

Indicators related to threats, enterprise effects, social response

Community participation in conservation, forest management,harvesting and use, threats (fire, theft, encroachment, etc.),fund mobilization, enterprise contributions

Utilizable biomass, growth and yield

Methods for the measurement of indicators and verifiers

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2.5 DEVELOP RESOURCEMANAGEMENT PLANForest management is a tool and an art of managingand conserving forests and associated lands forcontinuing economic, social, and environmentalbenefits. Management includes a variety ofobjectives– social, economic, environmental (seeearlier section of this chapter). Forest managementobjectives as well as activities are fed with theinformation from resource inventory/assessment aswell as from biodiversity monitoring.

Types of knowledge contributingto forest management• Botanical knowledge on species

characteristics, and use properties.• Ecological knowledge on growing conditions

of trees.• Technical Knowledge on silvicultural

management practices.• Institutional knowledge on norms, rules, and

regulations for using and managing forestsresources.

• Behavioral knowledge on community needsand use pattern.

• Market related knowledge on economicbenefits and values of forest products.

• Legal knowledge on national, internationalregional and state levels laws and legislationfor planting and harvesting.

Source: Adapted from Munyanziza and Wiersum, 1999;Singhal, 2000

Key characteristics of IndigenousResource Management Systems(IRMS)i. Clear-cut user groups with informal but

complex sets of rights to the resource;ii. Disputes over resources are not uncommon

and user rights evolve and change.iii. Consensus on management issues.iv. Organizational forms are diverse,

flexible, and dynamic. IRMS have aninstitutional substructure consisting of userrights and allocation rules at the primarylevel; and shared values, rules, and practicesat the secondary level. Indigenous systemswith no institutional base are generallyineffective.

v. IRMS are perceived by participants tobe effective and important to the extentthat they are successful in excludingoutsiders and ensuring proper distributionof benefits.

2.5.1 Steps of Forest Management OperationalPlan (OP) PreparationThe preparation of an operational plan will involvethe following tasks:• The preparation and planning• The exploration and rapport building• The Identification and formation of FUG (As

described in previous sections).• The Identification and verification of the forest

area• Identification of existing community

management systems• Identification and prioritization of the needs,

problems, concerns and issues of the FUG anddifferent interest groups

• Collection and analysis of information on theproposed community forest

• Identification of solutions to the needs andproblems

• Preparation and finalization of the OperationalPlan

Thus a forest management planning needsto consider:• Traditional management practices• Priorities and needs of the CFUG members,

with special consideration of the poor anddisadvantaged groups

• Recent trends in commercialization of NTFPsand other forest products

• A fusion of forestry science and indigenousknowledge

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The following tools/techniques should be used inthe preparation of OP:• Home visits: Household survey, awareness

raising, needs/demand collection,• Hamlet/Tole meeting• Focus group meeting: meeting artisan,

occupational groups,• General assembly

2.5.2 Write up the Operational PlanThe writing up of the operational plan needs a jointwork of the facilitator and local people. The followingare the key steps:• Consider the key contents (see the box below

for the requirements)• Compile data collected in the earlier stages• Hold focus group meetings, household

discussions, poor group meetings, meeting withwomen groups

• Bring the information to the CFUGC meeting• Draft an operational plan with (along with all

descriptions and inventory data)• Consult district forestry office for technical inputs• Include the suggestions from government

personnel• Present the draft in the general assembly and

incorporate suggestions• Submit an application to the District Forest

Office (DFO) for the approval of the OP(Generally, the CFUG constitution and OP isapproved simultaneously). If the DFO personnelwere involved in the previous stages of thepreparation of OP or the constitution, theapproval is likely to be fast. In other cases, DFOpersonnel may ask for clarification on forestboundary, membership, inventory data,prescriptions, etc, and CFUG needs to furnishinformation asked for the approval.

Key Contents of a CommunityForest Management Plan in Nepal1. Introduction

o Forest user groupo Forest areao Objective of forest managemento Historical background and traditional

forest management system

2. Description of forestso Blocko Sub-block

(boundaries, area, slope, aspect,elevation, soil type, forest type, forestcondition, crown cover, regenerationstatus, tree and NTFP species, stock ofthe species, growth, and harvestableyield)

3. Forest managemento Description of forest user groupo Demand of forest productso Management of timber production areaso Management of firewood production

areaso Management of fodder and grass

production areaso Management of NTFP production areas

• Management of commercial NTFPs• Detailed management plan for

targeted NTFPo Management of grazing areaso Management of other forest products

production areas (cattle bed, litter, etc.)o Management of regeneration

4. Distribution and sales of forest products

5. Forest protection system (including forestguarding and penalty provisions)

6. Fund management

7. Biological monitoring system

8. Others (role of forest department, NGOs,and FUG association; forest products pricingmechanism, and operational planamendment)

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3 IMPLEMENT THE NATURAL RESOURCE MANAGEMENTPLAN

When the forest management operational plan (OP)and CFUG constitution is approved, the responsibilityof the management lies with the CFUG itself. TheCFUGs can solicit technical and financial supportfrom NGOs or the government agencies. In thisChapter you will go through the process ofimplementing the natural resource managementplan. It includes the following steps (see the Figure)

Chapter 3

• Create awareness among CFUG members aboutthe provisions

• Identify what are the prescriptions and activitiesfor the year (including plantation activities,harvesting, etc.)

• Divide these annual activities prescribed in theOP into

a. smaller periods of time (such as into semi-annual, trimester, or monthly plans,depending on the activity)

b. blocks of forest (what activities to becarried out in which block)

c. Divide the role for these activities haveto be carried out among CFUG membersin specific hamlets or specific groups orwhole of CFUG members

d. Work out the methods to carry out theseactivities

• Make a ‘micro-plan’, combining the aboveelements: when (time period), where (block offorest), who (among CFUG members), and how(methods). This can be documented in the CFUGminutes, or can also be informal, unwritten plandepending on the scale of activities.

• Review in FUGC meetings to see to what extentor whether present activities are helping to meetthe needs/demands of CFUG members.

• Develop a mechanism for monitoring theimplementation of the activities (eg, by assigningFUGC members specific roles- such asplantation, timber harvesting, fuelwoodcollection, etc.)

3.2 ADOPT FOREST CONSERVATIONAND ENRICHMENT MEASURESThe next step for the CFUGs for the implementationof the natural resource management plan is to pursueconservation and forest enrichment measures.Generally conservation measures encompass activitiesthat ensure that the resource conditions (such asspecies diversity) go on improving, or at least do not

3.1 START WITH THE APPROVED OPThe first thing for the CFUG to move forward is tocarry out the activities mentioned in the CFOperational Plan (OP).• Discuss in the CFUGC of the provisions of the

OP and constitution,

Start with the Approved Operational Plan

Adopt forest conservation and enrichmentmeasures

Harvest forest products at a sustainable level

Plan for Enterprises

Improve the Plan

Get Certified

Integrate management at a landscape level

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degrade from the present level. Enrichment measures,on the other hand, imply activities that improve theforest condition, productivity or species diversity soas to better realize management objectives. Takentogether these activities include, but not limited to,the following:• Adopt the resource conservation measures laid

out in the OP• Allow grazing only to a limited level to avoid

over-grazing and destruction of small growthand NTFPs. CFUG members can be convincedof stall-feeding, by adopting grass and legumesin the private lands.

• If endangered species are available in the forest,enforce strict protection through agreement ofCFUG members

• Coordinate with neighboring groups to take upcoordinated activities for the conservation ofendemic or endangered species, or to serve aswildlife corridor [See Section 3.7]

• Carry out plantation, thinning, cleaning, pruning,singling or other silvicultural activities prescribedin the OP.

• Consider which species could be promoted inthe forest with respect to the suitability of thatspecies to the site and marketing or subsistencevalue of the species.

• Maintain species diversity and do minimumdamage to the existing ecosystem.

3.3 HARVEST FOREST PRODUCTS ATA SUSTAINABLE LEVELForest product harvesting allows CFUG membersmeet their forest produce demands and to sell surplusproduce. Harvesting also has implications for thesustainability of the resource. Sustainable harvestingincorporates adoption of proper methods andtechniques, consideration of the proper level ofproduct extraction (e.g., annual allowable cut) andan assessment of the needs/demands of CFUGmembers. Thus key considerations for harvestingare: (a) which product or species to harvest, (b) howmuch can be harvested, (c) what is the method ofharvesting, (d) harvesting season (See the Box below),and (e) demand/need of forest produce.

Generally the CF operational plans providesuggestions on these aspects. The followingactivities• Discuss the harvesting methods as prescribed

in the OP in the CFUGC meeting• Adopt the species- or product-specific harvesting

time, collection technique and storage. Whenproper time is not followed product quality andprice could be significantly low

• Consider what local level processing could addvalue to the harvested products (simpleprocessing methods- such air-drying, cleaningare equally important)

• Review every year what has been the effect onproduct abundance after following prescribed‘allowable cut’.

• Refine methods as more experience is gained.

Example: When is Best to HarvestJatamansi?Jatamansi is dormant from late Autumn until earlySummer. During the Winter, plants are coveredin snow, making harvest impractical. The plantssprout in early Summer, and grow until Autumn.When is best to harvest Jatamansi?

From the collectors’ point of view, Summer iscomfortable weather for harvesting work. Wholeroots can be pulled up easily from the moist andless compact soil. During Autumn, however, thesoil is very hard due to freezing and it is difficultto pull out the roots, further aggravated due tothe cold weather. When snow falls early, thecollectors may have to return empty handed.

During Summer, collectors have a tendency tocollect a higher percentage of plants. Looseningof soil surface and the trampling by the grazinganimals after Summer harvests accelerate soilerosion during the rains. Harvesting in Summeris also detrimental to the remaining plants andpropagules as most of them decay in the rainyseason. As Summer is the beginning of forJatamansi, its collection in this period reduces itsyield.

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The quality of Jatamansi harvested in Autumnwas found to be better than that harvested inSummer. The Autumn harvest has low moisturecontent, is less likely to be damaged by fungi,and produces heavier high quality essential oils.The Summer harvest contains high moisture, islikely to be damaged by fungi, and produces poorquality essential oils. Therefore, Autumn isrecommended as a more appropriate season ofharvesting from the biological point of view.

Source: Subedi and Koonz 1999

3.4 PLAN FOR ENTERPRISESImplementation of the natural resource managementplan is also linked to the development of naturalproducts enterprises. Natural products enterprisesoften source their raw materials to the communityforest, influencing management and harvestingdecisions. CFUGs may also be interested to explorenew marketing opportunities and to improve theirsystemic competitiveness- especially linked tointegration into the value chain. For this they willneed to bring in additional skills and knowledge totap such opportunities, and feed into their resourcemanagement planning and implementation.

See Chapter 4 for developing enterprises. See Chapter 5 for business development services.

3.5 IMPROVE THE PLANThe CF operational plan (OP) should not be takenas given for ever. Good resource managementplanning and implementation require that OP goeson improving as more experience is gained on itsimplementation. Improvement or revision of theresource management plan should be fed bymonitoring information on resource conditions andthe extent with which present management practiceshave met needs of the CFUG members or havecatered to market demand. Consider the followingactivities: • Discuss and review in the CFUGC and CFUG

general assembly about how the existingmanagement activities are meet the product-related and other needs of CFUG members

• Discuss in the CFUGC or CFUG assemblywhether the activities of the OP areimpractical, unenforceable or otherwiserequire changes

• Explore what opportunities are missing• Develop a tentative revision plan within the

CFUGC• Consider how improvements can be put to

practice, and develop a revision plan, with timeframe, responsible persons and methods ofimplementation

• Propose the revision in the CFUG generalassembly

• Make a request to the District Forest Office forrevision of the Plan

• Implement the revised plan after approval.

3.6 GET CERTIFIEDOne of the promising ways how local people canreach out to international markets is through forestmanagement certification or chain-of-custodycertification. Certified products are likely to findmore demand, new markets, and higher prices. Inthe process, the local people get feedbacks to adoptresponsible practices- relating to the resource,production process, compliance with laws, laborpolicies, etc. Certification is becoming important tocommunity groups with potential of selling theirproducts to international market in bulk.

What is forest certification?Certification is a procedure by which a third partygives written assurance that a product, processor service conforms to specified requirements(ISO/IEC, 1991). The quality of the product orthe process is stated in a standard. Forestcertification provides an incentive for improvedforest management and is considered as a softeconomic instrument.

A wide variety of organizations have developedstandards for certification and they may work ininternational, regional, and national level. Thesestandards have focus primarily on ecological, socialand environmental or in all aspects.

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How to Get Forest Certification?1. Consider whether you plan to sell your products

to international markets – if the products arefor subsistence use or only local sales,certification could not be viable (as in mostdeveloping country situations)

2. Discuss within the CFUGC and CFUG generalassembly how certification is essential or addvalue to the existing forest management

3. Consult relevant agencies (such as ANSAB inNepal) or BDS service providers on how theincremental costs of certification can berecovered with possible revenue increases, orcan be subsidized under some external help?

4. Explore whether there are other groups interestedto get involved in some ‘group certification’scheme in order to reduce unit cost ofcertification.

Checklist of certification process1. Application2. Scoping visits3. Inspection--assessment4. Report preparation5. Peer review6. Certification decision7. Annual audit

Certification program

Wildcrafter Standards

Organic Certification

FairTrade Certification

EcologicalCertification

Good Agricultural andCollection Practices

Good ManufacturingPractices

Methods ValidationPrograms

Emphasis

Guidelines for harvesters

Pesticide-free standards;organic-processing guidance

Assures fair wages and goodworking conditions

Forest ecosystem assessments

Proper sanitation and handlingof herbs

Standards for appropriatefacilities and trained personnel

Standards for properpreparation of botanicalremedies

Attributes of Various Standards and Certification Programs for NTFPs

Weakness

Difficult to implement; relieson harvesters to be organizedor accept organization

Single species orientation;weak forestry and ecosystemstandards

Mainly focused on highvolume/high value agriculturalcommodities

No attention to processing ormanufacturing stages ofproduction

Little to no ecological or socialcriteria for sourcing of herbs

No attention to sourcing issues

Overlooks sourcing issues,variable standards andapplications

Main Message

Trained or certifiedecologically-sensitiveharvesters

Pesticide-free herbs

Equitable trade withproducers, fair laborconditions

Sustainable forestryand harvesting, healthyforest ecosystems

Contaminant-freestarter materials

Clean and safemanufacturing

Botanical medicinesproduced bystandardized methods

Source: Shanley et al.2006

5. Choose the kind of certification scheme youneed to promote your products, and identifythe agencies (such as Forest Stewardship Council)

6. Contact and consult the certifying body, suchas Rainforest Alliance’s SmartWood Asia-PacificOffice in Bali, Indonesia, if you consider FSCcertification schemes (The certification bodyshould be a credible and well accepted by themarkets. The other process involves an initialassessment of your operations.)

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Cost of the certificationThe cost of the certification may vary based onsize and complexity of the operation. Fees arecharged by the certification bodies for theirservices. For example FSC charges a fee to thecertification bodies to cover the costs of itsaccreditation services. In order to obtain a costestimate, companies and organizations shouldcontact an accredited certification body.

7. Enter into agreement with the certifying bodyor their representatives, and follow as agreed.(The actual certification evaluation will involvea visit to the forest or company/CFUG and areview of the procedures and documentationbefore a certification decision is made.)

8. Take up suggestions of the auditors, and carryout audits annually.

9. Get inputs from certifying body to project yourproducts internationally.

3.7 INTEGRATE RESOURCEMANAGEMENT TO LANDSCAPE/CLUSTER LEVELIn certain CFUGs the resource managementobjectives could be better achieved throughintegration of management actions to wider spatialscale- especially by coordinating with neighboringgroups. It involves coordination and joint planningof a number of groups in a landscape or cluster.

Generally this function is supported or facilitated bysupport organizations, NGOs government agencies.However individual CFUGs can also initiate this toa certain extent.

There are three key considerations: (a) Why landscapelevel coordination? (b) Who should initiate landscapelevel coordination? And (c) How to do it?

Why landscape level coordination?This exercise serves several objectives that it isdifficult or impossible for a single group to achieveon its own:• It serves as a consolidated production-cum-

management cluster for certain products havingunique product qualities or competitiveadvantage. The coordination among neighboring

groups ensures production in large quantities,pool together skills and technologies andmarketing jointly to benefit all members.

• It allows sharing of knowledge and skills amongneighboring groups for both resourcemanagement and enterprise planning andoperation.

• It helps consolidation of raw materials supply-balances out raw materials productionfluctuations at particular group.

• It increases enterprise success: availestablishment funds, produce in large quantities,reduce marketing costs, etc.

• It helps conservation of endemic or endangeredplants/animals. The groups can jointly takemeasures for conservation, e.g. by enforcingcommon rules, making wildlife corridors,conserving certain ecosystem types, etc.

Who should initiate landscape levelcoordination:The purpose of management integration at thelandscape level defines who should initiate this.Service provider agencies can initiate this, and leaveto CFUGs to follow it up on their own. The CFUGfederation can also play a role in starting this process.

How to do it?Depending on the purpose of this exercise, the actualprocedures vary. The general process includes:1. Organize a meeting of representatives of CFUGs

within a landscape or cluster2. Discuss on how their joint actions can promote

conservation or enterprise success3. Allow all representatives to discuss in their

respective CFUGs to explore and discuss onopportunities/actions that could be achievedthrough such cluster level initiative

4. Hold another round of meeting- distill the pointsinto a tentative action plan

5. Refine the purpose, and develop detailed actionplans, and outline responsibilities for eachmember CFUGs

6. Operate it either as a formal entity, or as informalone- as per decision of the members

7. Continuously review whether this initiative isrelevant (ie, in the interest of CFUGs), identifywhat improvements can be made, and plan fornew opportunities.

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4 DEVELOP AND IMPLEMENT COMMUNITY-BASEDNATURAL PRODUCTS ENTERPRISE PLAN

In this chapter, you will have insights of the processof developing and implementing Community-basednatural products enterprise (CBNPE) plans. Simplyput, enterprises refer to a set of organized activitiesfor making a living. CBNPEs constitute an importantelement of community-based natural resourcemanagement (CBNRM), and are specifically focusedon doing business on natural products. To look forhow to do it, this is the chapter for you.

Going through this chapter you will have importantinsights of the process, methods and tools to developand implement a business plan for CBNPEs. Go toSection 1.4 of Chapter 1 for the process of organizingCBNPE entities- that is essential before starting thebusiness. The flow chart of this chapter is shown inthe figure.

Chapter 4

Why natural products enterprises?Community-based natural products enterprises(CBNPEs) for their environmental, social andeconomic functions.

Environmentally, the development of naturalproduct enterprises can reduce threats tobiodiversity by providing alternative incomesources from the natural forest.

Socially, rural populations living near the forestuse natural products for their livelihood.

Economically, market growth for natural productsin local and export markets generates interest inpolicy initiatives that support sustainable economicgrowth.

Note: Regular lines represent usual flow, while dotted lines represent feedback.

1. Carry out enterprise identificationand feasibility study• Assess the existing situation• Identify, products, markets and

means of marketing

2. Identify leverage points forenterprise developmentCarry out a sub-sector analysis

3. Prepare the business plan• Marketing natural products plan• Raw materials and production plan• Organization and management plan• Financial plan

4. Operate the enterprise

5. Develop enterprise clustersand networks

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Common characteristics of naturalproducts enterprises• Use renewable natural resources• Raw materials found in remote locations;

transport costs could become an issue• Raw materials are seasonal• Large number of collectors/suppliers with

small quantity of raw materials• Difficult to maintain consistent quality and

quantity of products• Competition from illegal activities results in

pricing information and distributiondistortions

4.1 CARRY OUT ENTERPRISEIDENTIFICATION AND FEASIBILITYSTUDYEnterprise identification and feasibility study is crucialto develop a successful community-based naturalproduct enterprise. Market Analysis and DevelopmentManual (FAO, 2000) provides a step-by-step processfor this. Sub-sector study helps a lot to identify theappropriate point of intervention in any sub-sector.Together these will help to identify better enterpriseoptions and understanding of the market.

The following presents the steps (Sub-sections 4.1.1and 4.1.2 are adapted from FAO, 2002 MA&DManual).

4.1.1 Assess the existing situationThis exercise helps understand the livelihoodstrategies, define the problems and opportunities,and shortlist a range of natural products.• Identify the target group with which you will

be working [Also See Chapter 1]• Determine the financial objectives of the target

group through a discussion with group members• Prepare a list existing natural resources and

products• Identify key constraints as well as opportunities

of the existing market system• Shortlist a range of products• Raise awareness of the benefits of working

together among the target group members.

Outputs of this exercise:• A shortlist of products that will be evaluated

subsequently• Understanding of the social, environmental and

technical constraints of a range of products• Formation of a team of target group members

to undertake subsequent activities

4.1.2 Identify products, markets and means ofmarketingThis exercise helps gather information for analyzingthe feasibility of the short listed products and decideon the most viable enterprises which can bedeveloped during the period of your organization’ssupport. Conduct the following activities:• Analyze the four areas of enterprise development

(market, environment, social/institutional andtechnology)

• Select the most promising products• Create interest groups for the selected products

Outputs of this exercise• Identification of the most promising products

and gathering of information for the design ofbusiness plans

• Formation of interest groups for the selectedproducts who will undertake the activities inPhase

Tools for Enterprise Identification andFeasibility Study:• Elimination and short listing of products (MA&D)• Feasibility studies and product selection based

on four areas (MA&D)• Sub-sector study (GEMENI/ Enterprise

Development manual, ANSAB/EWW)• Product flow (value chain) mapping (Enterprise

Development manual, ANSAB/EWW)

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4.2 IDENTIFY LEVERAGE POINTS FORENTERPRISE DEVELOPMENT: CARRYOUT A SUB-SECTOR ANALYSISThe ‘sub-sector analysis’ helps to identify leveragepoints- that indicate the strategic actions whichenhance profitability and benefits to the target groupsand is useful to the entrepreneur to understand thedynamics that will affect the targeted enterpriseactivity. For this you need a ‘Fuction, Participantsand Technology Chart’ (See ANSAB/EWW, 2000Enterprise Development for Natural Products Manual).Go through the following steps:

STEP 1: List all the functions or activities involvedin the selected natural product enterprise.Define the end market. For example, Jatamansiessential oil can be processed into cosmetics andperfumes for export markets in India and Europe.Visualize what happens to the natural product fromthe time it grows in the forest and is harvested untilthe time it reaches a user (downstream processor ormanufacturer) or final consumer in some processedform. These are the functions and should be listedon the left-hand side of the chart.

STEP 2: List all the actors or participants involved inthe natural product activityThink about who performs each function. List all theactors along the row at the top of the chart.

STEP 3: List all technologies (interventions) requiredto do each function.Look at each function listed on the left-hand side ofthe chart. What is required to be able to completeeach function, e.g. a certain type of equipment,working capital, some sort of skill or particularknowledge, etc. List these items on the right handside of the chart. This list helps to identify potentialintervention in the natural product value chain.

STEP 4: Identify the functions for each participant.After completing steps 1-3, look at each functionand identify which participants are doing whatfunction and shade boxes appropriately. This stepshows who is doing what, where the potentialcompetition is and who the potential allies are inthe enterprise.

4.3 PREPARE THE BUSINESS PLANAfter identification and feasibility study, the nextstage for enterprise development is to prepare abusiness plan for the proposed enterprise. The processof the preparation of business plan needs to involvethe target groups throughout so that they understandits components and implement it smoothly. Thereare five main components of the business plan (seeBox). The business plan is essential for attractingfinancing, managing operations efficiently, andintegrating all enterprise functions so that profits canbe made while conserving the resource base.

First let us consider the five major components ofthe business plan, and then to assemble them toprepare the plan.

Components of business plan• Marketing of natural products• Raw material and production• Organization and management• Financial management• (secondary component) Policy and regulatory

environment

Market informationMarket information is a critical component ofnatural products enterprises, especially whenpurchase agreement or wholesaling are notcommon practices. The enterprises have to getmarket information for raw material purchase,processing and sale of their products. With suchinformation, they can adjust production, purchaseor sales in order to optimize profit.

4.3.1 Component 1: Natural products marketingplanThe first component of the business plan targets atmeeting buyers' requirements. Marketing planincludes aspects that are important to ensuremarketability of the products and is crucial for thesuccess of a natural products enterprise.

37

Refer to the following table, and search information and explore solutions and strategies with target group(enterprise) members. This component will eventually be integrated into the business plan as other componentsare put together.

Sub-componentsunder Marketing Plan

1. Description of theProduct

2. Comparison of theProduct with itsCompetitors

3. Target Market /Market Area

4. Pricing &Conditions

5. Channel ofDistribution

6. Promotion of theproduct

7. Marketing Strategy

Description of the sub-components

What is the product or service?

Description of the product includes size, color, shape, product features, uses and benefitsand the range of products to be offered. It is important to know that whether the productis a new or exist in the market. Market research informs about the preference of customerson the product.

How does it compare in quality and price with its competitors?

SWOT (Strength, weakness, opportunity and threat) analysis helps to analyzecompetitiveness.

What geographical areas will be covered by the enterprise?

This depends on the nature of the product; how well it allows itself to transport anddistribution; the size of the market in different localities; the presence of strong competitorsin the areas

Within the market area, to whom will the business sell its products?

This could be a specific target group or market segments among the population.

Costing: How much does it cost to make the product, or to deliver the service?

Selling price: To determine selling price start by estimating consumption, usage or salesof the product per head of the population in your market area, differentiate wholesaleprice, retail price and develop credit terms.

There are some methods to determine selling price.

a. Cost plus method (cost - based pricing): real product costs + x % (also known asmark-up or profit margin)

b. Comparative method (competitor-based pricing): What does the competitor charge?

c. What the market will bear method (Market-based pricing): What is the client willingor able to pay?

Where do customers find your product?

This could be shop(s), website, wholesalers, agents, retail outlets

What types of activities are required to boost the sales of the product?

This could be various types of promotional activities including advertisement in printand electronic media, marketing campaign, sales scheme etc

Marketing strategy is a mix of a plans considering above mentioned marketing aspects.This could be price strategy, promotional strategy, product strategy, customer targetingstrategy and mix of these all strategy.

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Some tools useful for marketing component:• Sales Forecast table• Marketing Cost table• 5 Ps of marketing

4.3.2 Component 2: Raw materials sourcing andproduction planThe next component business development planincludes raw material sourcing and production. Thisis linked to the sustainability of raw materials andproduction plan of enterprise.

This component has two principal sub-components:sustainable supply of raw materials, and

A. Ensure sustainable supply of raw materialsFor the sustainability of raw materials supply, eachenterprise should have a strong linkage with aCBNRM groups- that have a scheme of sustainableharvest of natural products. When existing resourcestock is insufficient to meet raw materials demand,two apparent options exist: (a) promote the existingCBNRM groups to actively manage/enrich theresource (e.g., by planting the desired species) andincrease productivity, and (b) bring in more CBNRMgroups to supply raw materials. Developing anenterprise on a product that is already in traded isoften less risky because the community already hasknowledge on the condition and supply of the productthan for a product not sold previously.

Go to Chapter 3 on harvesting of natural products,and follow the following to determine sustainablesourcing of raw materials:

Steps to determine sustainablesourcing of raw materials1. Identify the CBNRM groups that can

potentially supply raw materials to theenterprise

2. Identify the resource supply areas of theproduct(s) from the maps in the communityforest OPs.

3. Estimate the supply volume based on currentharvesting prescriptions.

4. Identify current or potential threats to theresource base. Conduct group meetings andinquire where and how the product has beencollected in the last three years. Rank threats.Gather data over several years, as there canbe substantial year to year variations.

5. Make a preliminary estimate of a sustainablelevel of supply. If the supply quantity isinsufficient, either ask for more activemanagement (e.g., planting seedlings of theneeded species to be harvested in somefuture time) or include more groups as rawmaterials suppliers.

6. Monitor the supply situation and adapt yoursourcing strategy over time.

7. Remember that sustainable harvestinginvolves more than the amount harvested.Sustainability is determined by how andwhen the plant is harvested and all otherimpacts on the ecosystem.

B. Develop a production planProduction planning is essential to establish aproduction facility on the ground and to minimizethe per unit production cost. It includes such aspectsas plant location, production system, environmentaland social considerations and technology (processingmethod and technology). Look for enterprises thatare using some cost-efficient technology andperforming well, so that such technology can bepurchased.

Refer to the table below to look into a number ofkey factors and explore answers to importantquestions.

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Factors

Enterprise/plant location

ProductionSystem

Key questions

• Where will the plant be located?• Is it far from people and raw

materials? What abouttransportation cost?

• Is there required facility (suchas water, fuel and power etc)?

• How the plant space is goingto be laid out? (Draw the plantmap and plant layout ifpossible)

• Number of days/year that theenterprise will operate, anddowntime for plantmaintenance and repairs?

• What are major raw materialsand supporting materials?

• Are they available throughoutthe year?

• What are the production risks?How to prevent?

• What is the cost of raw andsupporting materials, includingpackaging?

• Where are the suppliers of theseinputs?

• What is the input-output ratioor conversion ratio?

• How difficult is it to maintainan acceptable product quality?

• What are the quality controlprocedures in the enterprise?

• Can the enterprise generaterequired profits with the fixedinvestment cost associated withthe technology choice?

• What is the break-even point?How easy to achieve the BEP?

• Is there any room for increasingthe production level if demandincreases?

• How easily the required skillsand capacities and other BDSavailable or is training neededto run the enterprise?

Factors

Environmental& Socialconsiderations

Technology(processingmethod andtechnology)

Key questions

• What are the effects of theenterprise on environment?

• How to prevent its harmfuleffects?

• How to promoteenvironmentally sustainableenterprise development?

• What and how much benefitspeople involved in theenterprise receive?

• What are the impacts on thegeneral public from theenterprise?

• What equipment andprocedures will be used toproduce the givenproduct?

• Is there any new technologyavailable?

• Does the enterprise need anyspecific technology? What arethey?

• Are the technologies acceptableto the buyer?

• How expensive are thesetechnology? Is it affordable tothe entrepreneurs?

• How sophisticated are thesetechnologies and arecommunities capable formaintenance?

• What is the production capacityof the technology?

• What are the impacts ofthe technologies onenvironment?

• What kinds of mitigationmeasures are requiredto counter impacts? andhow costly are thesemeasures?

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Tools:To draw up a production scheme, you will findthe following tools and methods useful:

A. Calculation of Fixed AssetsFix assets include land, building, machinery,furniture and vehicle required for anenterprise. Fix assets are not consumed inevery unit of production. Total cost of fixedasset when dived by the age of the asset iscalled Depreciation. Profit calculated aftersubtracting deprecation is only a net profit.

B. Calculation of Cost of Goods SoldThe cost of goods sold or the production costconsist of variable cost and fixed cost.

Variable costs: The costs which change withthe level of production. These include rawmaterials, direct labor cost and variable factorycost.

Fixed costs: The costs which do not changewith the level of production. These includeindirect labor cost, fixed factory cost, etc.

C. Tables for calculation of raw material.The following table helps to calculate rawmaterials cost per unit of final product. Thiscost will further analyzed in financial plan.

4.3.3 Component 3: Organization andmanagement planOrganization and management plan is the thirdcomponent of the business plan of a community-based natural product enterprise. It includes threekey elements: (a) organization and staffing,(b) entrepreneurs’ profile, and (c) enterprisemanagement.

A. Organization and staffingFor the success of an enterprise its organization andstaffing has to be clear from the beginning, and theskills and experience required for key positions haveto be assessed properly. Consider the following:• Organizational structure: It includes structure

of authority and responsibility (line of command)

and division of labor. Visualize the variousfunctions of the enterprise (marketing,production, organization and management andfinance) to a sufficient detail and develop anorganization chart.

• Staffing: It includes the process of hiringemployees (including preference to local people,ethnic minorities or women), management ofstaff, terms of reference, job contracts, stafftraining.

B. Entrepreneurs’ profileEntrepreneur's profile exhibits the competence theenterprise and helps plan for enterprisecompetitiveness. It is considered as importantinformation for a business plan. For the survival and

No. Item(s) Quantity Cost/unit TotalTo produce ......... unit(s) of product: X (unit)

1 2

Total raw materialRaw materials cost per unit (b ÷ a)

Raw materials 1 2 3 4 5 6 7 8 9 10 11 12Cost/unit *Quantity

RM Amount

Total raw material cost

Product(s)

Product: X

Month Total

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growth of the enterprise, the entrepreneurs musthave proper qualification and experiences. However,if the entrepreneurs are new to the natural productssector, or are not themselves qualified andexperienced enough in the business, a suitablycompetent management team has to fill the void.For this include the highlights of the bio-data of themain shareholders and other key personnel inbusiness plan.

C. Enterprise managementEfficient and competent enterprise management isthe key to enterprise success. It is critical to handleand integrate core enterprise functions, such asproduction, raw material supply, marketing andfinancing. The enterprise need to evolve andcontinuously improve its management over time.Use the following checklist to include in the businessplan a system so as to ensure that key functions aretaken care of and handled by the management.

Enterprise Management Checklist• How many and what types (skills, education,

experience) of personnel are needed?• Is local talent sufficient to run the enterprise

or is an outside manager and technical staffrequired? How will extra staff be selected?

• Is training (processing, bookkeeping andaccounting, marketing, company management)needed? If so, where can staff be trained?

• What will be the enterprise managementstructure and who in the group will decidethis and oversee management?

• Who will set-up the financial andadministrative systems and maintain the booksfor the enterprise?

• Are there labor surpluses or shortages in thearea? If there are labor surpluses do thesecorrespond with the enterprise’s seasonallabor demands?

• Are decisions being made on a business basis?For example, a low priced or donated plot ofland may not be a good deal if it lacks accessto the required infrastructure. Also considerclimate; will the area be flooded when rainy?too hot in the summer? too cold in the winter?

• How many days per year will the enterpriseoperate? Is this consistent with raw materialsupplies, market demands, and local workhabits?

• How will the employees be compensated fortheir work? Monthly salary basis, output basis,onuses?

• How will enterprise monitoring andsupervision be carried out? How willemployees be motivated for best results?

Source: ANSAB/EWW 2000

Tools: The tools/methods required to develop theorganization and management plan includecalculations of (a) pre-operating cost, and (b) fixedcosts of organization and management.

• Pre-operating cost:It is the cost which is incurred prior to the operationof enterprise. This includes registration cost, trialproduction cost, and staff training cost. In a certaininterval of time, some of these costs have to beplanned. Therefore an annual amortization costcalculated by dividing total pre-operating cost by ayear of computation. This has to be deducted to getnet profit. Consider the following example of MalikaHandmade Paper Enterprise.

Items Total Amount

a. Registration 12,000.00

b. Technician fee (installmentof plant, short training) 4,000.00

c. Debugging and trial expenses

i. Worker (trial production) 1,000.00

ii. Raw material-trial (Lokta, caustic soda) 500.00

iii. Installation of beater machine 1,000.00

d. Contingency 1,000.00

Total pre-operating expenses 19,500.00

Year of computation 5

Annual amortization 3900

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• Fixed costs for organization andmanagementFixed costs include some type of fixed cost inproduction and some fixed cost in organization andmanagement. For the ease of financial plan, bothfixed costs can be calculated in one Fixed Cost table.Consider the example of a fixed cost table fromMalika Handmade Paper Enterprise.

Items Amount

Fixed manpower expenses 79,300

Indirect sales expenses (marketing) 15,000

Miscellaneous office expenses(office supply) 8,000

Replacement & maintenance (60%) 12,000

Auditing fee 10,000

Total Fixed Cost 124,300

4.3.4 Component 4: Financial planFinancial plan includes projected financial statementsof an enterprise. Cost and revenues calculated inmarketing plan, production plan and organizationand management plans are further analyzed in thisplan. It also projects a timeframe for the enterprise’sbreakeven point and quantifies the return oninvestments and payback period. Financial statementsare the key to monitor the fiscal health of theenterprise and provide a basis for a good and simplebookkeeping system. It also includes measures toguard against the misuse of funds.

The components of the financial plan are given inthe figure.

Sales forecast

MarketingForecast

Fixed assets

Cost ofgoods sold Fixed cost

Pre-operatingcost

Financial Plan

Marketing Plan Production PlanOrganization &

Management Plan

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Cost Headings Initial capital Total Annual(initial requirement in bracket) requirement expenses

1. Total fixed assets expenses 352,600 352,600

2. Total pre-operating expenses 19,500 19,500.00

3. Annual fixed cost 48,283 146,300

a. Marketing expenses (50% of total) 7,500 15,000

b. Replacement and maintenance expenses( 50% of total) 10,000 20,000

c. Office supplies (50% of total) 4,000 8,000

d. Man power (for 3 months) 26,783 93,300

e. Audit fee 10,000 10,000

4. Annual operating cost 848,722 1,989,578

a. Man power (for 3 months) 98,317 370,400

b. Raw material (for 4 full working months stock) 461,100 922,200

c. Selling expenses (for 3 month products) 140,940 375,840

d. Fuel wood (for 100 full working days stock) 61,021 146,450

e. Supporting chemical (for 4 full months stock) 79,344 158,688

f. Packaging expenses (50% of total) 8,000 16,000

Total initial capital requirement 897,005 2,111,878

B. Securing capital and loansAfter calculation of initial capital requirement, thedecision has to be made on the equity (share)contribution from each the entrepreneurs and theamount of loan required. If communities are goingto invest, it can be beneficial to them to collaboratewith existing entrepreneurs to get experience and agood leadership. Equity structure depends on theenterprise modality (refer to Section 1.4 of Chapter1 for the decision on enterprise modality), so areoptions for accessing loans or any external supportin the form of grants or privileges. So this componentneeds to be fed by a review of existing governmentregulations on companies, cooperatives, and anassessment of the availability of loan and other formsof support financial institutions, projects orgovernment bodies.

Methods and toolsThese are the analyses and calculations needed forthe financial plan. These include the following, andthe details on each of them follow subsequently.(a) Total project cost,(b) Securing capital, loans and interests(c) Profit and loss statement(d) Cash flow statement(e) Break-even point (BEP)(f) Return on investment (ROI)

A. Total Project CostTotal project cost or total investment requirement iscalculated on the basis of minimum required amountof capital to start the business. This includes all fixedassets expenses, pre-operating costs, fixed cost, andoperating expenses. Following is an example ofMalika Handmade paper enterprise on calculationof total project cost.

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C. Profit and Loss StatementProfit and loss statement (or Income Statement) is a summary of revenues and costs of an enterprise, calculatedfor a specific time period. This shows whether the enterprise is likely to be profitable. A template for the IncomeStatement of an enterprise is given below.

Heading\ Months-----> 1 2 3 4 5 6 7 8 9 10 11 12 Total

Sales revenue (a)

Variable cost of goods sold:

Raw material

Supporting chemical

Fuel wood

Direct labor

Variable cost of goods sold (at factory) (b)

Gross contribution margin: C=(a-b)

Packaging expenses

Maintenance and replacement (40%)

Selling expenses (KTM sale)

Total variable expenses (d)

Net contribution margin: e=(c-d)

Fixed operating expenses:

Fixed manpower expenses

Indirect sales expenses (marketing)

Miscellaneous office expenses (office supply)

Replacement & maintenance (60%)

Auditing fee

Total fixed expenses except depreciation (f)

Income before depreciation and tax: g=(e-f)

Depreciation and amortization (h)

Income after depreciation: i=(g-h)

Accumulated retained earning Sum (i) of every month/year

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D. Cash Flow StatementA cash-flow statement provides the cash forecast that an enterprise anticipates receiving and disbursing cash duringa given span of time (generally a month). It enables the enterprise to manage cash in a way to avoid excessive cashdeposit and to deal with situations of cash crisis. It is useful to harmonize cash flow statement to that of incomestatement in terms of time period. Please note that the ending cash balance (the bottom line of a cash flow projectionstatement) can not be negative, because it means the project have not enough cash to pay the expenses.

The following table provides a template for cash flow projection statement.

Items

Pre- MonthTotalOperation 1 2 3 4 5 6 7 8 9 10 11 12

Cash InflowsSales

Other Income

Total Cash Inflows(a)

Cash OutflowsCash Flows for current assets

Raw materials

Labors Cost

Factory Expenses

Fixed costs

Marketing costs

Income Taxes

Other current assets

Cash Flows for Fixed asset andother investment

Land

Building & Construction

Machineries and Equipments

Vehicles

Office Equipments

Pre-Operating costs

Total Cash Outflows (b)

Net Cash Flows (d)=(a)-(b)

(+) Opening Cash

Total Cash

(+) Cash received from issuingordinary shares

(+) Proceeds from long-term loans

(-) Repayment of long-term loans

(-) Interest expenses

Year-end Cash

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E. Break-even point (BEP)Break-even analysis provides information on the salethe enterprise must ensure to cover its costs. A ‘break-even point (BEP)’ refers to a volume of sales at whichtotal costs equal total revenues. Thus the enterprisemust operate either on or above the BEP: it can makeprofit only when its sales revenue is greater than thatat the BEP. Thus the BEP is a very important Break-even point analysis is equally important for any typeof enterprise. The following table provides an exampleof calculation of BEP for an enterprise.

Items Amount

(1) Sales 2,349,000

(2) Variable costs 2,009,578

(3) Fixed Costs 124,300

(4) Exceed profit= (1) – (2) 339,422

(5) Exceed profit ratio = (4) / (1) 0.14

(6) Break-even point in sales=(3) fixed costs / (5)exceedprofit ratio 887,857

F. Return on Investment (ROI)The return on investment (ROI) refers to thepercentage of an enterprise’s profit before interestand taxes to its total investment. ROI allows theentrepreneurs or the enterprise management toexamine the profitability of a project or to compareprofitability of different projects. Projects with higherROI are more profitable than those with lower ROI.

The following formula is used to calculate the ROI.

Profit before interest and taxesTotal Investment

ROI = X 100

4.3.5 Component 5: Policy and regulatoryenvironmentThe policy and regulatory environment comprisethe fifth, yet a secondary, component of a businessplan. It is secondary because it is generally taken asgiven for an enterprise and can only be ‘factoredinto’ the business plan. With the insight on this theenterprise can better plan and adjust its operationswhen existing policy/laws continue to persist orchange over time. Important policy/regulatoryconsiderations include the various formal andinformal policies on access to resource, forestry laws,incorporation options, investment codes, pricinglegislation, labor regulations, tariffs, interest rateceilings, import and export procedures and taxesregulations.

The table below provides a glimpse of the effect ofpolicy/regulations in a simple value chain- a pathwayon which a product moves from primary productionto the end consumer. The business plan shouldstipulate the possible effects of policy/regulations onthe proposed enterprise, devise contingency strategiesto deal with changes in these policies, and planactivities accordingly.

General steps ofvalue chain

Harvesting andmanagement ofnatural products

How the regulatoryenvironment can affect anenterprise

Land and resource tenure;access to natural products;existing harvesting seasons andmethods; resourcemanagement system.

For example: District ForestOfficer (DFO) providescollection license to collectors.A Community Forest UserGroup (CFUG) can gainmanagement responsibilitiesand user rights for natural

Effect of Policy and Regulations in the Value Chain

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4.3.6 Put all components together into thebusiness planWhen assembled together, five major componentsof an enterprise (See earlier sections of this chapter)constitute a business plan. The plan provides a basisof running the enterprise and monitoring itsperformance and growth over time. It is also essentialto attract financing, manage its operations efficiently,and integrate all enterprise functions. A good businessplan enables the entrepreneurs make the rightdecisions in right time and help them realize theenterprise objectives.

Purpose of Business plan• Describe details of the project, which help

entrepreneur to set up clear goals• Plan steps, set priorities, allocate resources, and

plan cash flow• Estimate the raw materials required• Clearly communicate with management team,

banks, financial institutes or other investors• Apply for a business loan• Reduce the risk of the investment and to be

decision-making tool• Function as blueprint for financing activities,

investing activities and operating activities.

Business plan componentsA business plan has four key components and thefifth component (policy and regulatory environment)is inbuilt into them:• Marketing plan• Production plan• Organization and management plan• Financial Plan

To prepare a business plan:• Collect, summarize and analyze all the necessary

primary and secondary information and specificdata about the project (see earlier sections ofthis chapter),

• Organize the information and data to fit to thecontent of the business plan (see table below).

• Harmonize all components/parts of the businessplan

• Prepare the draft and get approved from theexecutive committee (Board, etc).

General steps ofvalue chain

How the regulatoryenvironment can affect anenterprise

resources under communityforestry provisions. A CFUGcan exclude nonmembersfrom using and harvestingresources from a communityforest.

Enterprise registration,processing license, laborregulations, technologyaccess, taxes, financialsupport.

For example: Forest basedindustries are not allowedwithin 3 km (in hills) and5 km (in Tarai) of forests.Natural product processingenterprises can obtain anincome tax holiday for upto 10 years. Financial supportis available though theagricultural developmentbank.

Release and export permits,export and import proceduresand duties, marketinformation.

For example: DFO providesRelease Order for naturalproduct from a district.Nepal Chamber of Commerce(NCC) or Federation ofNepalese Chambers ofCommerce and Industry(FNCCI) provide Certificateof Origin to the manufactureror exporter of naturalproduct.

Trade andMarketing

Processing

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CONTENT

Organizationandmanagementplan

Financial Plan

Risk Analysis

SustainableResourceManagement

EnterpriseActivities andTimeline

DETAILS

• Legal status, organizational andownership structure

• Interface with regulatory bodies• Organization chart

(Management team/board ofdirectors, manager(s), skilledpersonnel)

• Number of employees andduties, qualification for eachposition in enterprise, andcompensation structure

• Employee training andtechnical assistance planned

• Relationship with stakeholders(collectors, suppliers, tenureholders, traders, regulatoryinstitutions)

• Interface with community anddistribution of enterprisebenefits Pre-operating cost

• Fixed costs

• Total Project Cost and initialcapital requirement

• Repayment of Long-term Loansand Interests

• Profit & Loss Statement• Cash Flow Statement• Break-even point• ROI (Return on Investment)

• Mention of major risks to theenterprise that are specific tothe industry and geographiclocation

• Sustainable harvestingguidelines

• Mitigation of pollution fromprocessing (if any)

• Plan for biological monitoringand conservation enforcement

• Compliance with forestryregulations

• List of major activities (withtimeline) needed to launchenterprise and operate in yearsone and two

CONTENT

EntrepreneursProfile

ExecutiveSummary

Backgroundand OverallGoals of theEnterprise

MarketingPlan

ProductionPlan

DETAILS

• Brief description ofentrepreneurs capability andexperience on the sector

• Summarizes all the mainelements of the business planin one to two pages

• Background on rationale forthe enterprise, presentsituation, how theenterprise will change thesituation

• Summary of market research• Description of the Product

(specifications and qualitycontrol)

• Comparison of the Productwith its Competitors’

• Target Market / Market Area• Pricing & Conditions• Place / Channel of Distribution• Marketing Strategy• Sales Forecast/target and sales

plan• Marketing Cost

• Enterprise description/plantlocation

• Production System(technology, skills level,equipment, infrastructure, fuel,supplies)

• Production capacity (rawmaterials needed and capacityof processing equipment)

• Raw material collection andsupply

• Environmental & Social Plan• Technological Plan• Fixed Assets for Production

activities• Cost of Goods Sold

CONTENT OF THE BUSINESS PLAN

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4.4 OPERATE THE ENTERPRISEOperating or running an enterprise is basically tofollow the actions stipulated in the business plan.However, the enterprise needs to be constantlymaneuvering its operations as time passes on. Overtime, several things change: market preference, rawmaterials supply, policy/regulatory environment, thepeople in the management, shareholders, prices,labor laws, technology, and so forth. Thus the successof the enterprise principally lies in its ability tomanage and adapt to change. The actions outlinedbelow are just indicative of some of the actions thatenterprises need to follow:• Start with the implementation of the business

plan• Institutionalize a flexible planning and

operational system, with an ability to adjustoperations as per change in policy/environment,market demand or the like.

• Search for new markets, greater sales in existingmarkets and negotiate greater prices for yourproducts

• Build new business relationships• Maintain and continue to improve your product

quality, supply consistency and to establish your‘brand’ in the market

• Get update of the market information• Develop a rigorous system of accounts, internal

audit and budgetary control• Hire expert services (from BDS market) when

the enterprise needs to improve its knowledgeor skills base

• Develop enterprise clusters and networks toleverage enterprise functions (see next section).

Key success factor for naturalproduct enterprises• Raw materials availability• Legal access to and control over the natural

resources-• Equitable distribution of benefits-• Appropriate processing technology• Good management• Commercial sustainability• Access to capital• Available and accessible markets for the

products

4.5 DEVELOP ENTERPRISE CLUSTERSAND NETWORKSDeveloping enterprise networks or clusters helpsmall enterprises to reduce costs in several enterprisefunctions. Networks vary in purpose, and so do theirnature, structure, membership, organizational life,etc. Networks can be developed by similarenterprises- especially for jointly marketing theirproducts to ensure higher prices (marketing function)and for raising their concerns collectively (in theform of association, such as Nepal Herbs and HerbalProducts Association).

ExampleSustainable Biotrade Group comprises a numberof natural products enterprises in Nepal. It is agroup manager for chain-of-custody certificationunder the Forest Stewardship Council for itsmembers. The Group members reduce substantialcosts in ensuring conformity, documentation,internal audit, reporting requirements under thecertification scheme. But they have the advantageof projecting their products as FSC certified ones.

Similarly different enterprises within the value chaincan form alliances for stable business relationships(for example, local level producer cooperative,national level company (exporter) and an internationalcompany) can form an formal/informal alliance formutual advantage.

At the local level, producer groups can network withsimilar other groups to get their produce (rawmaterials) sold to a nearby processing firm.

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Go to Section 1.5 of Chapter 1 for the process offacilitating network and alliances.

How networking helps establishand operate enterprises?In Bajhang district of Nepal, several communityforests have Lokta (Daphne sps), which is rawmaterial to Nepali handmade paper. However,the amount of raw materials from a single CFUGis not enough to operate a handmade paperenterprise in a profitable manner. With a planto establish and operate a handmade paperenterprise, Shree Binayak Pimi Danda CFUGcollaborated with five neighboring CFUGs (viz.,Binayak, Lahare, Ranada, Pari Ban and TukiDhanatoli).

The enterprise can now receive raw material froman area of 7863 hectares- combined for all thesesix community forests. It is owned and managed

by 235 households of Shree Binayak Pimi DandaCFUG. These groups introduced a rotational Loktaharvesting schedule in their CF operational plansand 25% of the 961 households of the six CFUGsare involved in Lokta harvest. Its bark is processedinto handmade paper and sold as a specialtyproduct.

In the year 2003-04, the paper production was1776 kg with total sales of NRs 599,400 (US$8,100). Though the profit in that year wasnominal (Rs. 44,000), and so was the dividendto the shareholders (each household receivedNRs 30 to 570), the enterprise was able to createemployment and market for raw materials.

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5 INTEGRATE COMMUNITY ENTERPRISES INTO VALUECHAIN

Facilitation of community-based natural productsenterprises (CBNPEs) per se does not guarantee thatlocal communities get a due share of economicadvantages. Such enterprises are often located inremote areas, that are characterized by limited marketinformation, lack of networking and integration withthe outside market, and limited availability of skilledhuman resources and improved technology. It isessential to overcome such challenges so as togenerate equitable economic incentives and therebyto ensure sustainability of the natural resources.

In this chapter you will go through the multiple waysof linking the poor to economic growth opportunitiesthrough natural resource management and enterprisedevelopment. This chapter has two main elements:

Chapter 5

(a) linking small and micro-scale CBNPEs to theindustries, by having such CBNPEs become apart of the chain of activities in the industry andby making them competitive so that they offeropportunities to the poor to benefit from thegrowth; and

(b) developing a mechanism for accessing businessdevelopment services (BDS)

This chapter will help you understand the processto use the value chain frame work in design yourprogram/interventions and apply a BDS approach indeveloping supporting markets that can develop andstrengthen the competitiveness of CBNPEs.

5.1 UNDERSTAND THE VALUE CHAINAND ITS LINKAGES WITH SMALLFIRMS A value chain is a supply chain made up of a seriesof market actors – from input suppliers to producersto processors to exporters and finally buyers –engaged in getting a product from its inception tothe final stage. As the product market grows andmore product and money flows up and down thechain, demand (derived) is generated, which is calledsupporting market. These supporting markets includesector-specific and cross-cutting financial and orbusiness services. Finally, the chain operates in anenabling environment that can be global, nationaland or local.

The value chain describes the full range ofactivities that are required to bring a product fromits conception to its end use and beyond. Thisincludes activities such as design, production,marketing, distribution and support to the finalconsumer.

Linking Small Firms into Value Chains: An EconomicGrowth with Poverty Reduction Strategy, USAID.

Understand the value chain and its linkagewith small firms

Analyze the value chain

Link enterprises to appropriate value chains

Devise and implement upgrading andintervention strategies• Firm-level strategies• Industry-level strategies

Develop systems for service delivery on asustainable basis• Promote BDS supply• Enhance BDS demand

Chapter Layout

52

The growth of value chains clarify some importantconcepts about how products and service marketsgrow. Product markets grow vertically before theygrow horizontally. Without the capacity to get aproduct to market through the primary actors (inputsuppliers, producers, processors,wholesalers/exporters and finally retailers), industriesare unable to generate sufficient income forinvestment in upgrading services, such as productdevelopment, training, and other businessdevelopment services. Thus the vertical chain mustbe developed and strengthened before first-and/orsubsequent tiers of service emerge.

To illustrate, in Nepal, BDS-MaPS Project (BusinessDevelopment Services – Marketing and ProductionServices) worked in developing the NTFPs (non-timber forest products) sub-sector in remote and ruraldistricts of Nepal. The project worked with ruralproducers to develop and strengthen the value chainfor essential oils (Chamomile, Eucalyptus, Mentha)by providing technical assistance in setting upcommunity groups, distillation enterprises and marketlinkages. At the same time, the project helped develop

LRPs (Local Resource Persons), who were attractedto the enterprise groups due to the increase ineconomic activities, and they were trained to provideinput supplies and business development servicessuch as enterprise registration, market linkages,production techniques, maintenance of distillationunits for these enterprise groups. At the same time,the project linked the enterprise groups with localprivate sector banks and through business plansdeveloped by the LRPs, the enterprise groups wereable to get bank financing for their units.

5.2 ANALYZE THE VALUE CHAINAnalysis of the value chains allows you tounderstand the various components of the valuechain. The framework for value chain analysispresented here at brief is meant to ensure bothsystematic and systemic analysis of the value chainand factors affecting its competitiveness. This providesyou with the tools to understand the approach indeveloping competitive firms through the use ofupgrading strategies. At this section you will also gothrough the various factors that affect value chainperformance.

Global Enabling Environment

National Enabling Environment

Figure 1: Value Chain Map of Essential Oil Sector in Nepal

DOMESTIC MARKETEXPORTERS

INTERNATIONAL MARKETBuyers of oils; buyers of essential oil products;

wholesalers and retailers of products

Primary and Secondary processingPrivate, community-owned and government

distillation units; private essential oil blenders andproduct manufacturers; community processing

Production & CollectionIndividual and organized collection (CFUG);

Individual farming and collective farming;government and commercial sector contract farming

INPUTPrivate, government and community forest

Sector-specific service provider:Distillation unit maintenance, expertblenders, chemical suppliers, labs.

Cross-cutting service provider:Finance, freight forwarders, transport,NTFP local resource person,cooperatives, mgmt. services

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To achieve demonstrable, significant results in povertyeradication, programs need to reach scale bystimulating markets to replicate promising practiceson a sustainable basis. This can be done by:

• Strengthening learning systems and commercialsupport markets;

• Building the capacity of change agents to driveindustry competitiveness. This includes anassessment of tangible constraints like accessto finance as well as less tangible dynamicsinvolving the nature of relationships andincentives that can equally constraincompetitiveness.

Look at the factors affecting value chaincompetitiveness: (a) enabling environment, (b) endmarkets, (c) supporting markets, (d) inter-firmcooperation, and (e) upgrading. This will providewith key insights to subsequently devise andimplement upgrading and intervention strategies.

1. Enabling EnvironmentOne of the most critical external element influencingthe competitiveness of the value chains are enablingenvironment. This consists mainly of internationalagreements and market standards; local, nationaland regional policies and legal and regulatoryenforcement capacities. This environment createssystemic (dis)incentives that promote or inhibitprivate-sector participation and/or growth in thevalue chain. Furthermore, poor governance andenforcement of legal and regulatory regimes increasetransaction costs, informality, commitment failurerisks and, shortens business cycles limitinginvestments.

2. End marketsEnd markets for any industry or sector can be local,regional or global or all at the same time. Naturalproducts value chains encompass a wide range ofproducts and services, yet they have unique productswith their niche market. The characteristics of thefinal product or service that drives demand representsthe foundation upon which competitive advantagefor any value chains are built on.

Go to Chapter 4 for greater detail on marketing.

3. Supporting marketsSupporting markets include finance and other sectorand non-sector specific services and products thatsupport the core product market, and are a key tofirm-level upgrading. The demand of these marketsare a function of the demand of the core product orare the derived demand from the core value chains.

4. Inter-firm cooperationInter-firm cooperation is either horizontal (betweensimilar firms/ actors or same level actors) or vertical(between different value chain actors within thesame value chain). The horizontal linkage amongproducers/ CBNPEs is needed to reduce thetransaction costs. It helps small firms attain economiesof scale, group together for advocacy and developnetworks for cooperation. On the other hand, verticallinkages are critical for getting a product frominception to the market, and for transferring learningand embedded financial and business services fromfirms up the chain to firms down the chain or viceversa.

5. UpgradingIn firm-level upgrading (both product and processupgrading) firms improve their access to information,technology and capital or finance. This upgradingalso includes product development andimprovements in production techniques or processes.This improves the firm’s competitiveness.

See Section 5.4 on upgrading strategies.

5.3 LINK CBNPES TO APPROPRIATEVALUE CHAINSAn important component to a value chain approachto economic development is to develop linkages ofthe CBNPEs to appropriate value chains. Here youwill have insights on the approach and tools todetermine the appropriateness of any value chainvis-à-vis the capacities of CBNPEs, interest offacilitators and governance and policy issues in thelocal context.

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The choice and appropriateness of the value chainsare determined by various factors which include thefollowing key issues:

• Growth potential: This includes the evidenceof market demand and growth potential; matchbetween local capacities and nature ofcompetitive advantage; opportunities forlinkages; government or donor interest andexisting program support.

• Ability to achieve scale of results/ impacts:In order to maximize program efficiency andimpact it is imperative to look into the scale ofindustry/ value chains. The factors to considerhere are number of CBNPEs; potential forupgrading; potential for broader and deeperincreases in income and wealth and potentialfor employment creation.

• Industry leadership: To determine the industryleadership, factors such as willingness of leadfirms to invest in industry growth, transparencyof business transactions, commitment andwillingness to work with other lead and non-lead firms to solve industry-wide problems areclear indicators of an industry with clearleadership potentials.

Aside from these factors, you need to look also athow the value chain can encompass broader goalsfor the project that would increase the benefits ofthe CBNPEs.

One key factor in selecting an appropriate valuechain is to investigate if there are opportunities inthe value chains for expanding the roles of theCBNPEs from mere collectors and producers tohigher level value chain functions. The right valuechain for CBNPEs would foster such a move andwould provide incentives to CBNPEs, throughincreased monetary gains, to move up the chain.

There are many evidences that those value chainsthat promote win-win situation amongst value chainactors, foster learning and innovation and expandthe depth and breadth of benefits for CBFEs aregenerally more competitive and rewarding. Thesevalue chains provide a long-term sustainable pathto economic development for CBNPEs.

Case 1: Dabur Nepal and Medicinalplant value chain in NepalNepal’s BDS-MaPS project designed a value chainand BDS approach to work with the localcommunities in developing and strengtheningvalue chains for locally available medicinal plants.

At its first phase, the project developed the capacityof local communities to develop into community-based forest enterprises (CBFEs). The activitiesincluded MECD (Micro Enterprise Creation &Development) trainings that led to the formationof groups within the CFUGs (Community ForestUsers Group) to manage small scale productionand harvesting of NTFPs. The project facilitatedextensive sub sector analysis, which resulted in thecultivation of Asparagus racemosus, an importantmedicinal herb, for marketing purpose. The privatesector “hook” was supplied by Dabur Nepal – asubsidiary of Dabur India, one of South Asia’s largestmanufacturers of natural products and supplements.Dabur provided technical know-how and subsidizedseedlings, and had buy-back agreements withproducers for the final products, which have a hugedemand in the international market.

In the second phase, the project focused ondeveloping sector-specific and non-sector- specificservice providers to support the value chains. Itworked with private banks and micro-financeinstitutes, and developed packages with them toprovide financial and non-financial services tothe communities, while developing the capacitiesof the service providers to service the communitieseffectively and efficiently. The project alsosupported the development of LRPs (LocalResource Persons) to provide technical serviceof harvesting and cultivation and to providemarketing assistance.

At the final phase, the project focused ondeveloping strong networks between the variousproducer groups for economies of scale, advocacyand increased negotiation powers while workingwith various actors in the value chain to developtrust and a learning environment to make thechain more competitive.

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5.4 DEVISE AND IMPLEMENTUPGRADING AND INTERVENTIONSTRATEGIESUpgrading, both in terms of firm-level and industrylevel, refers to the needs of the firms/ industries toupgrade their products and processes so as to improvetheir competitiveness.

See the sections below for firm-level and industry-level upgrading strategies.

Guiding principles for value chaininterventions• Develop the competitiveness of the whole

industry over time while assuring thatgrowing numbers of CBNPEs contribute andbenefit;

• Foster a reduced role for government, donors,and project implementers – who should actas market ‘facilitators’ rather than players –in combination with an expanded role forprivate firms in addressing industryconstraints;

• Intervene appropriately to foster industry andfirm capacity to resolve recurrent constraintson an on-going basis- by adhering to asequencing of intervention options that firstlooks for “light touch” (i.e. interventions thatmediate misunderstandings and link firmsby acting as a moral guarantor) interventionsand progressing to the last option whichwould be using project funds to buy-downexcessive risks that are limiting criticaltransactions and linkages; and

• Increase the local capacity with a carefullyplanned exit strategy, so that impacts aresustainable.

Linking Small Firms into Value Chains: AnEconomic Growth with Poverty ReductionStrategy, USAID.

5.4.1 Firm level upgrading strategiesFirm level upgrading strategies include:

(a) Improved efficiency/ cost advantageOne of the ways for small firms to compete inappropriate value chains and increase thecompetitiveness of the value chain itself is to improveits efficiency and increase its cost effectiveness. Thiscan be done in many ways from increasing itsproduction efficiency through better technology toreducing costs and generating economies of scalethrough horizontal linkages and group coordination.However, it should be noted that cost competitivenessis only short lived and should not be taken as theonly source of competitiveness.

How unique productcharacteristics enhance firm’scompetitiveness?Aveda – a cosmetic and skin care wing of thecosmetic giant Estee Lauder in currently workingin the hand-made paper value chain in Nepal.Aveda is promoting green marketing in USA andhas marketed Nepali hand-made paper productsfor the 2007 holiday season. Aveda is suppliedcertified hand-made paper from Nepal by HBTL,a local export and manufacturing firm. The valuechain begins in Nepal’s mountain communityforests where Lokta is collected by poor ruralfamers and sold to Malika Hand-made Paper Pvt.Ltd. – a collectively-owned processing firm. Thefirm prepares hand-made paper sheets and supplyto HBTL. The HBTL liaises with Aveda tomanufacture products like cards, bags, envelopsetc. from the sheets. The uniqueness of the paperis coupled with its high quality and certificationstandard, which in return provides a competitiveadvantage for the poor farmers in Nepal.

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(b) Product differentiationThe other more innovative way to bring incompetitiveness to the firm and resultantcompetitiveness in the value chain is to bring inuniqueness to the products and services that the firmhas to offer. For firms within natural products valuechains, this can be brought by tools such as productbranding, unique attributes, ratio and quality.Certification schemes, such as organic, fair trade,forest management, can further add value to theproducts and services thereby giving it a distinctiveadvantage.

(c) Shaping demand around uniquecharacteristicsA further strategy for the competitive advantage fora firm is developing its capacity not only to understandthe market demand, but to also shape the demandsof their products in the end markets based on theunique characteristics of their products and services.

5.4.2 Industry-level upgrading strategiesIndustry-level upgrading strategies include:

(a) Fostering enabling environmentAt the program intervention and activities level, youwill have to look at strengthening enablingenvironment at three levels – local, national andinternational. Fostering the enabling environmentrequires:• identification of constraints and opportunities

at all 3 levels;• coordinating to increase incentives for

transparent business practices, conflictresolutions and mitigating the impact ofcorruption and public institutions inefficiencies;and

• Advocacy on developing conducive policiesthat favor CBFEs and reduce business relatedburden.

1 FSC (Forest Certification Scheme) through the Rainforest Alliance Smartwood program

(b) Coordinating Inter-firm cooperation andcoordinationCBNPEs often are not connected to value chains thatreach beyond their local community. Facilitating theestablishment of these linkages on a rational andcommercial basis is often one of the initial stepsneeded to provide CBNPEs access to more promisingmarket opportunities. In the same manner, lead firmsincluding exporters and processors may not haveadequate linkages to local CBNPEs. It is importantto foster such linkages for improved coordinationand relationships between such value chain actors.

(c) Developing sustainable supporting markets- business development servicesInputs and services, like seeds, fertilizers, veterinaryservices and business support like registration, auditsetc. needs to be provided within a market contextto assure not only sustainable delivery, but also tofoster greater flow of information, knowledge andskills for CBNPEs. You will find more on this topicin the next section.

5.5 DEVELOP SYSTEMS FOR SERVICESDELIVERY ON A SUSTAINABLEBASIS

5.5.1 Why business development services (BDS)?Development of community-based natural productsenterprises (CBNPEs) is often constrained by thesupply of critical services in rural settings- especiallyfor economically disadvantaged people, women andminorities. This hinders their earnings potential andsuccess as small entrepreneurs. CBNPEs are alsocharacterized for having the people with significantlylow education rates, higher rates of unemployment,and higher rates of poverty. They have limited accessto business capital. Both these shortfalls compromisetheir ability to develop viable businesses, to networkwithin existing business communities and to accessfinances needed develop and run CBNPEs. If under-served populations can access such critical businessservices and non-conventional lending sources, it ispossible that their self-employment rates and businesssuccess will improve.

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CBNPEs typically require two types of services:financial and non-financial services- more commonlyreferred to as “business development services” orby the acronym “BDS”. Financial services helpexisting or would-be entrepreneurs acquire the meansfor establishing or expanding a business (e.g. financefor machinery, production premises, and workingcapital). On the other hand, BDS refers to theprovision of information, knowledge and skills, aswell as advice on the various aspects of a business.Here the service provider carries out a consciousaction for the benefit of the service receiver.

The impact of BDS depends on the proficiency ofthe service provider and on the use made by CBNPEsof other services. BDS should be demand driven,and the owner of the enterprise should recognizethe need for BDS assistance. However, the serviceprovider may also have a role in helping theentrepreneur to identify the specific problems of theenterprise, and in offering appropriate assistancewhich should ensure that the BDS services arerelevant.

Who provide the BDS? Commercial firms or by non-profit organizations can provide the BDS. The servicesprovided on a commercial basis include the servicesmade available by private sector offering specializedservices (e.g. repair and maintenance of equipment)with fees applied to cover the full cost of the services.Making profits is the main motivation of these serviceproviders. These services are demand-driven andclient satisfaction plays an important role in thegrowth of these service providers.

Below you will go through the steps that are necessaryto develop and institutionalize a system of deliveringbusiness development services on a sustainable basis.

5.5.2 Promote the supply of business developmentservicesFor the design of a BDS-based program havinginterventions on CBNPEs, or micro and smallenterprises (MSEs) in general, it is important tounderstand the existing BDS market. You need tolook at the service providers, their supply situation,and the MSEs and their demand of services (SeeFigure below).

SUPPLY OF SERVICES

Types of existingsuppliers, network,geographical coverage

Service ranges availablein the market

SWOT analysis ofcurrent suppliers ofservice

Substitutes currentlyused by CBFEs. Do theyexists? What are theunmet need.

Transactions:

The size of the market - how big is it? Trail rateof services - What percent of MSEs have tried aparticular service?

Reasons for use and non-use of services. Gaugingthe satisfaction level and getting further feedback.

Types of payment mechanisms and MSEspreferences and use - fee-for service transactions,services embedded in other commercialtransactions, services paid for by a commercialthird party and free services Current servicedelivery system versus consumer's need anddemand for service delivery system

Price preferences, ability to pay etc.

Supply and Transaction relationship for BDS

Marketfor

Services

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In most cases BDS providers for MSEs are likely tobe very narrow in scope, focusing on the specificservice to be supplied, the characteristics of the targetmarket, and existing or potential competitors. Therelevant BDS market will need to be definedaccording to the specific type of service, targetclientele, and geographical coverage.

The following key considerations when conductingBDS Market assessment:

In industrialized economies, many owners andoperators of MSEs tend to subscribe to or networkwith various specialized knowledge providers liketrade magazines, newsletters and information packetproviders which compile and distribute the latestmarket information on their field of business. Theybecome members of trade associations or chambersof commerce which represent the MSE sector. Theseorganizations carry out research on market trendsand manage information centers, which provide up-to-date market information to their membersspecialized on a particular field of expertise. Thisinformation can also be obtained from specializedfairs like trade fair. A well-developed network ofwholesalers and retailers, and goodtelecommunications, transport and financial networksfacilitate commercial transactions and the quickprocessing of orders. More recently, many MSEs aremaking use of electronic commerce (called “e-commerce”) through the Internet. However, suchmarketing information is not so easily accessed indeveloping countries. The case below illustrates anexample of the use of market information system asa tool to promoting livelihoods and conservation.

How does BDS help stakeholders?Case of NTFPs market informationsystem (MIS) servicesNon-timber forest products (NTFPs) are a sourceof employment to millions of collectors, villagetraders and exporters in Nepal, at least seasonally.However, inadequate access to information andmarketing support undermined the income ofrural communities and entrepreneurs, andconstrained the NTFP subsector development.To address this gap, a marketing informationsystem (MIS) was developed by ANSAB in 2001.It aims to increase access to marketing informationof local collectors, harvesters and traders so as toenable them to get fair share from the trade.

The MIS service collects, analyzes anddisseminates marketing information of 32 majortraded species to collectors, local traders,entrepreneurs and development facilitators. Itgathers information from major markets in Nepaland India. The information is disseminated through11 local MIS centers, located across key NTFPsproducing/trading centers, national and localprojects, NGOs, government agencies) and theFederation of Community Forestry Users, Nepal(FEOFUN. MIS services include price informationin monthly/and weekly interval from majorproduction and trading centers in Nepal andIndia. In addition, information on pre and postharvest techniques, enterprise developmentoptions, local value addition technologies andbusiness linkages facilitation are also provided.To cater to the needs of clients, it also providescustomized marketing information services.

The MIS Service has increased the knowledgebase and bargaining capacity of collectors andentrepreneurs. It helped them develop newenterprises and find new markets for theirproducts; and in turn contributed to increase theirincomes. It also helped the government to adjustroyalty and taxes, banks to evaluate prospects ofNTFP loan proposals, NGOs to design povertyfocused programs, and community-basedenterprises to gain higher sales price.

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5.5.3 Enhance the demand for BDSAs the role of BDS service provider is graduallymoving to the private sector, more attention is neededto look at commercial viability, sustainability,appropriateness and quality of the services. The BDSproviders need to be viewed as commercial entitiesengaged in profit-making activities, especially in thecontext of the need for financial sustainability.Consequently, BDS providers are beginning to behavelike the owners of successful enterprises who payspecial attention to understanding the needs of theirclients and tailoring their products and services tomeet these needs in the most competitive mannerpossible.

BDS Needs of Micro and SmallEnterprises1. Perceived needs: These are the needs based

on the entrepreneur’s own assessment of theproblems and potential solutions. These arehighly subjective as they are based on theknowledge, experience, exposure,motivation, ability and opportunities of theMSEs alone;

2. Real needs: These needs are the result of theservice provider’s own analysis of thesituation which can be less subjective thanperceived needs but can be influenced, onceagain, by the opportunity, motivation andability of the service provider; and

3. Demand: Demand is expressed by thewillingness to pay by the MSEs for assistanceto solve a problem or pursue an opportunityand in market terms is the most suitableindicator.

Experiences have shown that the service needs ofMSEs vary with respect to their location, size, typeof sector, supporting markets, policies, etc. Theirneeds of the MSEs can be categorized into threeareas (See Box). Developing services in a generallyuncertain and dynamic business environment meansthat BDS providers need to thoroughly understandtheir clients and their needs.

It is important that BDS providers should respond bygiving priority to the perceived needs of theentrepreneurs, as well as their willingness to pay.However, this should not prevent the service providersfrom educating entrepreneurs about other “real” needsthey may have, but are not be aware of, or about theexistence of new, more effective interventions. Manysuccessful examples of service providers who decidedto respond to the felt needs of the entrepreneursclearly constitute examples of good practice.

Various approaches to needs assessment have beendeveloped and used in different countries. The moresuccessful ones make use of the five guiding principles(see box):

Guiding principles for BDS servicedemand assessment approach• The individual in charge of the needs

assessment should be psychologically closeto the MSE client. Such a person usually hasa crucial influence in determining whichneeds will be assessed and, ideally, is alsobe in charge of the planned interventions.

• The MSE client should participate fully, bothin the needs assessment and the design ofinterventions based on the assessment. Thisshould yield better intervention design anddevelop a stronger sense of client ownership.

• A needs assessment exercise should not bea one-off activity. The service provider shouldvisit clients periodically to determine if furtherassistance is needed.

• It is important to develop a tight focus, andproblems and interventions should bedescribed in detail. Generic interventionsbased on general statements are not normallyvery useful.

• It is very important to explain how supportinterventions should be delivered and carriedout - for example, there may be few clientsfor a training course that is held at the wronghour or the wrong day of the week.

Source: Committee of Donor Agencies for SmallEnterprise Development, ‘Business development servicesfor SMEs - Preliminary guidelines for donor fundedinterventions’, 1998, ILO

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LOCAL COMMUNITIES ANDNATURAL PRODUCTS:A MANUAL FOR ORGANIZING NATURAL RESOURCE MANAGEMENT GROUPSFOR RESOURCE MANAGEMENT PLANNING, ENTERPRISE DEVELOPMENT ANDINTEGRATION INTO VALUE CHAINS

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