Opportunities for the smallholder sandalwood industry in ... - ACIAR

each of the three products, Summit Estate estimates
that the miniplantation will be worth A$251,328,
of which 80% (A$201,062) will be returned to the
investor, resulting in an internal rate of return of 15%.
Joint-ventures between international investors and
local planters have been in operation for a number of
years. The contracts are structured so that the investor
provides capital such as seedlings, chainsaws, fencing,
tools and labour, while the landowner provides
the land and management. The sandalwood trees are
jointly owned until harvest, when the trees are divided
equally among the partners. Under these agreements,
each partner has the right to individually market their
own sandalwood. These joint-ventures are highly
dependent on trust and regular communication. In
the past, regular communication between partners
has been problematic, and issues in the field could
not be easily reported to the investor. In some cases,
the joint-venture model has worked very well, but in
others many trees were not successfully established in
the field. With the liberalisation of the telecommunication
industry in early 2008, mobile phone coverage
has increased from 20% of the population in 2007 to
75% in 2008 (AusAID 2009). The costs of handsets,
SIM cards and calls are also now affordable for most
of the population. This means that communication
between investor and smallholder is becoming less
of an issue, but the mixed success of joint-ventures in
the recent past means that investors are not currently
seeking these partnerships.
While most smallholder sandalwood planters
intend to maintain the planting for sale at maturity,
some seek to use their immature plantings as a source
of income. Some smallholders have expressed an
interest in selling a proportion of their trees at current
standing value and then being contracted by the buyer
to maintain them until maturity, when the buyer sells
the trees and retains all the proceeds of that sale. Such
agreements would give these smallholders a modest
sum of money on sale, as well as a small annuity for
maintaining those trees. Investors seeking to secure
such plantings would need to develop strong relationships
with these smallholders, given that the success
of these investments is heavily dependent on trust.
Sandalwood plantings for use as
collateral
With a rotation of at least 15 years before making
any return, the economic benefits of plantation
sandalwood may only be realised well into the
future. Many smallholders have expressed interest
in using their immature sandalwood plantings as
collateral for securing a personal loan. The use of
sandalwood in this way can help to bring forward
the benefits of planted sandalwood to support business
opportunities and stimulate local economic
activity. The Personal Property Securities Act (No.
17 of 2008) allows crop assets to be used as security
for loans, and the National Bank of Vanuatu can
use an immature sandalwood planting as security
for microfinance. The likelihood of a smallholder
farmer securing such a loan is limited, since the bank
considers them as unemployed with little capacity
to service the loan. Wage earners with interests in
sandalwood planting are more likely to be successful
in meeting the requirements of the bank for these
loans. Other financial institutions currently will not
consider sandalwood, at any stage of maturity, as
security for loans. These institutions often cited the
high vulnerability of these assets to natural disaster,
the logistical constraints of liquidating these assets
on default, and that many smallholder farmers have
no reliable source of income to repay these loans.
While there are limited avenues for a smallholder
to draw on their sandalwood planting before it is
mature, there are some ways to assist with the costs
of establishing a sandalwood planting. One of the
currently licensed sandalwood buyers offers grower
agreements whereby they provide support in the form
of planter bags (which can be difficult to source),
and 5 years after planting an inventory is carried
out and a small annuity paid for standing trees. In
return for this support, the grower agrees to sell their
sandalwood exclusively through this licensed buyer.
The licence holder benefits from the assurance of a
more reliable supply, which can assist in securing
and holding export markets, and the smallholder
benefits from the modest but regular income during
the maturation of their sandalwood planting.
Vanwods is a microfinance institution based in
Vanuatu with a focus on providing financial and business
development services for women in Vanuatu.
Vanwods has approximately 5,000 members in
the islands of Santo, Malekula and Efate, with an
additional 2,000 members from Tanna expected by
the end of 2010. The members are structured in
centres and groups, where each centre is made up of
35 women consisting of seven groups of five women
each. Each group is typically comprised of close
friends and family members. Each member is initially
issued with a savings account, and the five women
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