Financial Performance of Contract Tree Farming for Smallholders: The Case of Contract Eucalypt Tree Farming in Thailand

Abstract

Eucalypt (Eucalyptus spp.) tree farming is a source of income for many smallholders in developing and emerging countries and critical to the resource supply of many pulp and paper companies. These companies rely on smallholders adopting tree farming, sometimes by offering a contract. This paper reports a study from four regions of Thailand, where smallholder eucalypt tree farming is practiced, which investigated the financial performance of contract eucalypt tree farming for smallholders. A total of 82 contract eucalypt tree farmers and 81 independent tree farmers were systematically selected and surveyed in these regions, using door-to-door personal interviews. Focus groups and key informant interviews were also used to gain in-depth understanding of the issues. An investment appraisal analysis was used to determine and evaluate comparative financial returns from various cutting cycle periods, through computation of the net present value (NPV). There was no evidence that contracts increase the NPV of tree growing. It could be that tree growers entered into a contractual agreement with the expectation of higher benefits and the importance of this expectation diminishes as the crop matures, and tree farmers appreciate the strong market for eucalypt wood in Thailand. Contracts do not increase inequalities in terms of income but they might increase inequalities in terms of knowledge, because farmers with more land have better access to new knowledge provided by the contracting company.