Sustainable trade facilitation in Indonesia -- background paper

10/03/2003


Background Paper
Sustainable Trade Facilitation in Indonesia

I. INTRODUCTION

Indonesia is rich in natural resources and endowed with a variety of eco-systems. A long tradition exists in Indonesia with respect to the use of, and trade in products derived from these natural resources. Many of these products enjoy fast-growing consumer demand, either domestically or in industrialised countries (e.g. health foods, nutriceuticals, cosmeceuticals). They often have high value-adding potential, and also have the potential to generate local income by involving local and indigenous communities, while contributing to biodiversity conservation.

However, the resource base, both aquatic and terrestrial, of many of these products is currently under heavy pressure. Indonesia is for instance witnessing high deforestation rates, with obvious threats to biological diversity. Deforestation is mentioned to be caused by such factors as the clearing of land for agriculture, commercial and illegal logging, unsustainable land-use, and urbanisation.

Likewise, ecosystems related to coastal waters, rivers and lakes are threatened by overexploitation, pollution and conversion of mangrove and other coastal forests. In the aggregate, these developments contribute to further erosion of livelihood security of already poor segments of Indonesian society, i.e: coastal and forest-dependent communities.

Biodiversity products and services may offer an important alternative source of income for communities whose livelihoods depend on ecologically fragile ecosystems. Entire ecosystems may therefore benefit from the provision of sustainable alternatives for economically deprived households living in areas rich in biodiversity.

The sustainable use of biological resources is expected to constitute an important avenue for sustainable development in Indonesia. In order to seize the potential benefits of such development, important issues to focus on are:

· Developing legal and policy frameworks for the sustainable use of biodiversity and its associate knowledge, including Intellectual Property Rights (IPRs), benefit sharing and sui generis mechanisms;
· Awareness campaigns on the numerous values and functions of ecosystems;
· Developing biodiversity conservation schemes and criteria;
· Acquiring technical and entrepreneurial capabilities that guarantee ecological and economical sustainability in the use of biodiversity;
· Assisting producers to trade their products at national and international levels (trade fairs, supporting product certification, etc);
· Access to market information and markets;
· Raising local awareness, and enhancing training and education on the sustainable production of biodiversity products; and,
· Helping agro-extractive producers and small holders to organise themselves into associations and cooperatives in order to increase the supply volume and quality of products; establish sustainable supply scenario's, tracking and tracing mechanisms and certification procedures; improve product chain management and value addition schemes.

In many instances, lack of capacity in several or many of these areas leads to low value-added products and services, which only marginally benefit the country, its biodiversity and local populations. Without an appropriate framework for innovative mechanisms and economic incentives, the agenda for conservation and sustainable use will therefore be difficult to realise.

II. POTENTIAL FOR SUSTAINABLE TRADE FACILITATION IN INDONESIA

There are already a number of initiatives underway in Indonesia in the area of sustainable trade, but in discussions with a number of actors involved, interests were expressed for more systematic support to concrete business ventures promoting the sustainable use of biodiversity resources. Such support can comprise provision of business support services, export promotion, assistance to the development of sustainability criteria, sustainable management plans and certification, access to finance and the promotion of conducive legal and policy frameworks.

See the general background paper of UNCTAD "Use of Biodiversity Resources: the Quest for Sustainable Development" for more examples of programmes promoting sustainable trade at www.biotrade.org.

Projects in Indonesia (e.g. KEHATI, SHK Kaltim's rattan project in Kalimantan), the NTFP [Non-Timber Forest Product] Exchange Programme for South and Southeast Asia, and programmes in other regions (such as the Bolsa Amazonia programme in the Amazon region and the BIOTRADE programmes in the Andean region ), provide clear-cut positive examples of sustainable trade development initiatives. By capitalising on the experiences of these initiatives, and adapting these to the Indonesian reality, a firm basis could be laid for sustainable trade facilitation in Indonesia.

The idea is to also learn from initiatives that so far have fallen beyond the scope of the current biodiversity-oriented programmes in Indonesia. Worth mentioning are for instance the Export Promotion Programme on Natural Ingredients for Cosmetics and Pharmaceuticals, recently initiated in Indonesia by CBI (Netherlands' Centre for the Promotion of Imports from Developing Countries), and UNCTAD's BioTrade Facilitation Programme for biodiversity products and services, a practical trade promotion programme that also includes Indonesia.

A more systematic approach in Indonesia would also be in line with increasing importance that environment-related Multilateral Environmental Agreements (MEAs), such as the Convention on Wetlands (Ramsar, 1971) and the Convention of Biological Diversity (CBD) are putting on sustainable or wise use of biodiversity.

III. WORKSHOP SUSTAINABLE TRADE FACILITATION

In response to detected interest and potential, the Secretariat of the Convention on Wetlands (Ramsar, 1971) and DFID's Multi-stakeholder Forestry Programme (MFP) Indonesia took up the challenge to organise a workshop on the issue of sustainable trade facilitation. Aim of the workshop is to discuss the potential of a more systematic approach for sustainable trade facilitation in Indonesia, with the work title 'Bolsa Nusantara' (referring to the above-mentioned Bolsa Amazonia programme in Brazil, which is dealing with NGO - private sector partnerships). This idea was subsequently further elaborated in association with the BIOTRADE Initiative of UNCTAD, which provides technical support to similar programmes in other regions, and has experience with developing sustainable trade programmes.

Technical support is also provided by ProFound, in view of its experience with the formulation and implementation of various projects in Indonesia, such as the NTFP Exchange Programme for South and Southeast Asia, SHK Kaltim's (Sistem Hutan Kerakyatan Kalimantan Timur) rattan project, CBI's Export Promotion Programme on Natural Ingredients for Cosmetics and Pharmaceuticals, and with UNCTAD/ITC's BioTrade Facilitation Programme for biodiversity products and services.

Sustainable trade facilitation must be driven by national stakeholders, building to the largest possible extent on existing capacities and programmes of NGOs, private sector, Government and donors.

The following initial actions have been outlined:

· Identify national stakeholders/organisations that can host and shoulder sustainable trade approaches.
· Identify a core group of national experts that can facilitate and lead these approaches.
· Identify the most important existing national and international programmes that can contribute to building the institutional framework that is required to support sustainable trade approaches.
· Define strategic lines of action, based on the experiences of existing programmes and prevailing realities in Indonesia.
· Design a clear plan of action for providing support to sustainable trade approaches.

In order to take the process further, it was proposed to organise a workshop, to address the above-mentioned issues with a select group of international and national experts. The workshop is expected to come up with strategic lines of action for sustainable biotrade approaches in Indonesia, and a clear plan of action with agreed responsibilities.

IV. ON DFID'S MFP, THE CONVENTION ON WETLANDS (RAMSAR, 1971) AND UNCTAD'S BIOTRADE INITIATIVE

A. DFID's MFP

DFID (Department for International Development) is a British government department responsible for the formulation of policies and implementation of bilateral and multilateral programmes in poverty alleviation. This department is committed to support internationally agreed target to cut the number of world population below poverty line, by more than half in year 2015, along with related targets, including humanity development and nature conservancy. The British government's policy used as guidance for DFID's work-programme is 'the White Paper for International Development' titled 'Alleviation of World Poverty: The Challenge for the 21st Century'. In the Country Strategic Paper for Indonesia (written in year 2000), DFID has chosen three working areas:

1. Poor-people-oriented policymaking and budget management;
2. Government reform which potentially includes all important challenges currently faced by Indonesia;
3. Forest management reform to help stop deforestation, and to improve the livelihood of forest dependent poor people.

MFP (Multistakeholder Forestry Programme) is an Indonesian-British cooperation programme. The signing of agreement between the two governments took place in Jakarta, on 12 October 2000. Generally, the MFP aims to improve livelihood opportunities of forest dependent poor people, through support of existing initiatives in Indonesia on policy development, organization and processes toward fair and sustainable forest resource management. By 'multistakeholder', it is meant that those initiatives can be done by various stakeholders in Indonesia: nature dependent communities, central or regional governmental bodies, independent organizations such as non-governmental organizations (NGOs), religious bodies, private sector, research institutes and universities. The stakeholder can also be involved in the network, be it local, national or international. The MFP cooperates with the Planning Bureau of the Indonesian Department of Forestry.

Through multistakeholder cooperation, the expected outputs are, among others:

1. Contribution of multistakeholder policy research to national forest strategy,
2. Operation of supervision mechanism and responsibilities of forest-users and investors on their performance,
3. Improvement of attitude, value and decision-making skills which includes more stakeholders,
4. Ability of forest-users and service providers in certain areas to implement forest management practice that improves the livelihood of poor people,
5. Better documentation and communication that can improve knowledge base, and accelerate the learning process of best forest policy and practices.

The implementation of MFP is based on partnership principal. Partners of this programme are Indonesian people, through various organizations (as mentioned above), and a DFID team to facilitate the process toward partnership. The partners design, plan and implement the initiatives and the DFID facilitator team supports the partners as needed. Anyone can join MFP as partner, as long as the candidate meets the criteria, which can be summarized as 'involvement in and supports forest-related policy reform toward fair and sustainable natural resources management'.

B/C RAMSAR and UNCTAD

During the World Summit on Sustainable Development (WSSD), UNCTAD and the Convention on Wetlands (Ramsar) signed a Memorandum of Understanding indicating their intent to jointly promote new programmes that support trade in products and services derived from wetlands in support of sustainable development of wetlands and its inhabitants.

The following sections briefly provide background information on the Ramsar Convention and UNCTAD BIOTRADE, as well as on issues that are relevant to the programme formulation workshop that is scheduled for 20-22 March 2003 in Indonesia.

B. The Convention on Wetlands (RAMSAR)

The Convention on Wetlands (Ramsar, Iran, 1971) is one of the oldest of the global multilateral environmental agreements (MEAs) and has 134 contracting parties, including Indonesia.

The Convention defines "wetland" in very broad terms in recognition of the intrinsic importance of wetlands to the maintenance of healthy and productive freshwater and coastal ecosystems. Since its inception the Convention has progressively developed its scope and approach to address the sustainable utilisation of wetlands (considered to be synonymous with the Convention's concept of "wise use") in the context of integrated territorial and water resource planning and management.

The Convention stresses that it is essential to integrate the conservation of wetlands and sustainable use as a contribution to the health and well-being of people through sustainable development everywhere.

There is increasingly wide appreciation that wetlands, in all their forms, provide unique services to human societies and human well-being. Wetlands play a key role in the global hydrological cycle; supply water for the survival of biological diversity, human consumption, agricultural production and recreation; supply food (especially fish and rice and other natural products) and fibre (e.g. wood, peat and reeds); are centres of economic development focused around industry, transport, food production and tourism; and as well are places rich in unique plant and animal species. They are irreplaceable natural assets, with highly significant ecological, economic, social, cultural and recreational values; the nature of these values varying in different places and circumstances.

However, in all regions of the world, human populations are suffering social, economic and environmental hardships resulting from the destruction and mismanagement of their natural resources, notably including their wetlands and water resources.

This destruction, which is continuing at alarming rates in many countries, is contributing to escalating poverty and water supply and food security problems, as well as robbing the planet of the biological diversity with which wetlands are endowed. Its causes are multiple - from local actions and national policies to global issues.

Sustainable trade can play a powerful role as an incentive for wetland conservation and for wetland wise uses. Ramsar therefore encourages Contracting Parties to improve the provision of incentives to promote, and removing incentives acting against, the conservation and wise use of wetlands, and involve the private sector in the conservation and wise use of wetlands.

It also encourages Contracting Parties to review, in cooperation with the private sector, domestic and international trade in wetland-derived plant and animal products, both exports and imports, and as appropriate implement the necessary legal, institutional and administrative measures to ensure that harvesting is sustainable, and in accordance with the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES).

Finally, Ramsar seeks to facilitate the creation of programmes that seek to promote trade in products and services derived from wetlands, so as to serve as an example of the potential of trade contributing to wise use.

Questions for participants in preparation of the workshop:

· What are the main threats posed to wetlands in Indonesia? What are their causes?
· How can sustainable trade contribute to easing these threats?
· What wetland products are currently traded in Indonesia?
· Which wetland products and services are regarded to have a trade potential?

C. UNCTAD BIOTRADE

The BIOTRADE Initiative of UNCTAD was launched during the third Conference of the Parties (COP3) of the Convention on Biological Diversity (CBD) in Buenos Aires, Argentina, November 1996. Its mission is to stimulate trade and investment in biological resources to further sustainable development in line with the three objectives of the CBD. The programme seeks to enhance the capability of developing countries to produce value-added products and services derived from biodiversity, for both domestic and international markets.

The BIOTRADE Initiative comprises three complementary components:

· country and regional programmes (through national and regional focal points);
· policy development and trade promotion;
· Internet services (www.biotrade.org).

C.1 National Programmes UNCTAD BIOTRADE

BIOTRADE country programmes are at the centre of UNCTAD BIOTRADE. In the context of these programmes, the national focal points and regional partners, together with other local actors, develop policies, strategies and pilot projects to promote trade and investment in products and services derived from biodiversity. This includes, for instance, the development of market information systems and services related to trade facilitation and business development. Local actors include for example: local private sector, Government, NGOs, academic organisations, local and indigenous communities.

Country programmes are being developed in Bolivia, Colombia, Ecuador, Peru, Uganda and Venezuela, in coordination with the Government and national partners of the civil society. At the country level, BIOTRADE programmes are managed by national focal points with experience in the area of sustainable development.

C.2 Regional programmes

Regional programmes are important in the BIOTRADE programmes as they complement national programmes and promote co-ordination and creation of synergies in regions.

At the regional level, UNCTAD cooperates with the NGO POEMA (Belem, Brazil) in the Bolsa Amazonia Programme. This programme supports local communities seize bio-business opportunities for natural products of the Amazonian region by forging links with the private sector.

Another programme was recently launched for the Andean region by the Andean Community (CAN), the Andean Development Corporation (CAF) and UNCTAD. It aims at supporting the development of BIOTRADE in the Andean region. The programme has the following specific objectives:

§ the establishment of an appropriate institutional framework to promote and develop biodiversity product and service markets, under sustainable use principles;
§ the development of an Andean BIOTRADE Information System;
§ the development of technological capacity in the countries; and
§ to enhance financial assistance to the development of bio-businesses through an investment fund.

Recently, a programme to organise a regional Investor Forum was established, which will provide credit and venture capital for businesses working with products and services derived from biodiversity in the Andean and Amazonian region. This Forum will generate new investment for sustainable use of biodiversity with the aim of contributing to biodiversity conservation and poverty alleviation. This is a partnership of the World Resources Institute (WRI), the Andean Development Corporation (CAF) and UNCTAD BIOTRADE.

In southern Africa, BIOTRADE is working with the NGO Southern Alliance for Indigenous Resources (SAFIRE) and with Southern African Natural Product Trade Association (SANProTA) to support the commercialisation of natural products

C.3 International programmes

The national and regional BIOTRADE programmes have requested UNCTAD assistance in the area of practical trade promotion of biodiversity products and services and enhance their access to potential export markets.
In response, UNCTAD BIOTRADE and the International Trade Centre UNCTAD/WTO in Geneva developed a BioTrade Facilitation Programme (BTFP) for biodiversity products and services.
This programme will provide practical support to enterprises of developing countries to access the export markets for biodiversity products and services, thereby diversifying their production base in a sustainable manner. Technical partners in the programme will the Dutch Centre for the Promotion of Imports from Developing Countries, and the Swiss Import Promotion Agency.

C.4 Challenges faced by developing countries in the natural product sector

Experiences UNCTAD BIOTRADE and its partner organisations show that a number of factors frequently inhibit the successful national and international marketing of natural products. The most important are:

Management and business skills

Smallholder producers and SMEs interested in engaging in economic activities related to this type of products often lack clear business plans with well-elaborated product and market-chain analyses. They also lack links with existing enterprises that create backward linkages and involve business managers in programme design and training. Although a large number of institutions are already active in the development of business skills and the promotion of backward linkages, few are focussing on natural products. BIOTRADE partners are moving in this direction, but they need systematic support specific to natural products.

For example, in Colombia, the von Humboldt Institute has started to collaborate with Corporación Innovar to help small enterprises and community-based enterprises develop business plans for commercialisation of natural products.

Market information, marketing and market access

There is a rapidly expanding global market for biodiversity products, but there are still not that many examples of SMEs or community based enterprises in Africa, Asia and Latin America that have successfully managed to benefit from this global market. One of the key elements to become effective producers and competitors on these markets is market and marketing information for these products as well as direct linkages to the market, for example through trade fair participation or matchmaking activities.

Adding value

Generally, smallholder producers or SMEs only capture a small percentage of the end-value of products and thus generate limited benefits at the local level. Natural products have the potential to have increased valued adding at local and national levels. However, the need exists to support first-stage processing on a small scale, for example by facilitating the acquisition of simple grading, processing or packaging techniques by an individual entrepreneur.

Economies of scale

As a result of small-scale production of natural products, and regional and seasonal variability in supply quality and quantity, it is often difficult to reach a scale of production that is of commercial interest to the buyers in domestic or international markets. Experience of the BIOTRADE partner organisations shows that there is a need for effective organisation of agro-extractive producers and smallholders into associations and cooperatives. This would increase the quantity of marketable products and reduce the intermediary chains by providing incentives for collective commercialisation.

Linking organised groups to domestic and international companies would also facilitate product development, as resources for research and development in natural products are scarce, and communication and coordination between research and producer organisations is still limited.

Mobilising financial resources

The right incentives for economically viable enterprises will only be generated if finance is provided through loans instead of grants. However, attracting financial investments is often a serious bottleneck for small enterprises, often due to problems mentioned above such as a lack of market contacts, business plans, management skills or quality products.

BIOTRADE partners are starting to facilitate access to existing funds that provide credit to small and medium sized-enterprises, sometimes in combination with limited technical assistance funds. However, additional technical assistance is required to successfully attract funding.

Identifying private sector counterparts

Experience and additional information collected during visits to trade fairs (BIOFACH and IN-COSMETICS in Germany, Natural Products in the Netherlands and Vitafoods in Switzerland) shows that industry is developing an increasing interest in direct sourcing. Direct sourcing is a response to the traditional sourcing through specialised importers who put more emphasis on competitive pricing than on developing sustainable supply scenarios. The desire to control sourcing processes is responding to increased consumer awareness and demands with respect to origin, quality, green image and safety of products. In addition, increased industry interest was detected in controlled wild collection parallel to their cultivation activities. This results from the fact that for many natural plants it is costly to reach the stage of domestication and cultivation.

Industries are therefore in need of clearly identifiable and trustworthy counterparts in developing countries that can help with identifying reliable producers which can provide sufficient quantities with a guaranteed sustainability of supply.

Questions for participants in preparation of the workshop:

· How do the above-listed problems compare to the reality in Indonesia?
· Which additional problems exist and do they differ per region within the country?
· Which existing organisations/programmes are seeking to address these problems?
· To what extend is the private sector integrated in similar programmes in Indonesia?
· What biodiversity products and services are most well-know in Indonesia?

C.5 Lessons learned by the UNCTAD BIOTRADE Initiative

As a result of the experiences carried out by different organisations worldwide, and especially those of the five years of BIOTRADE Initiative of UNCTAD, a number of lessons learned are worth mentioning. These could support the effort of countries engaged in the sustainable use and trade of products and services derived from biodiversity as mean to achieve sustainable development.

Involving all stakeholders

The issue of using the economic potential of biodiversity while ensuring its conservation remains a sensitive one, particularly with regard to genetic resources and traditional knowledge. Activities should be carried out carefully, with sufficient involvement of the Government and civil society in a participatory and transparent manner.

Building on partnerships

The challenges attached to sustainable use of biodiversity are vast. It requires integrated sector wide approaches, and stakeholders from different disciplines to work hand in hand. The only way to achieve this effectively is to establish partnerships and networks that allow building on the comparative advantages of different organisations. Coordination, leadership, and innovative and unconventional attitudes are essential ingredients to such an approach.

Importance of integrated approach

The usefulness of national programmes, such as those of BIOTRADE, advocating an integrated approach to develop the biodiversity business sector has become increasingly apparent. They bridge gaps between actors involved in trade, biodiversity, regional and sustainable development. Actors include for example, governments attempting to promote local sustainable development based on biological resources, the financial sector interested in financing sustainable projects, and local and indigenous communities and private sector interested in developing sustainable and bankable projects in the area.

Strong national counterparts

Programmes should attempt to build as much as possible on existing capacities. The national counterpart needs to recognise the importance of this and have sufficient standing to convene all partners and delegate responsibilities. A pre-assessment study that identifies relevant actors and potential counterparts is an important pre-condition for a solid sustainable programme.

Importance of information systems

Information systems are very useful mechanisms to bridge information gaps. However, for important actors such as local and indigenous communities, additional efforts are required to allow for access and adapt the information to their particular conditions. Information systems only work if they contain sufficient up-to-date information, and can be maintained up-dated over time.

Integration and organisation of the private sector

Integration of the private sector in the biodiversity-related programmes is essential to their success. Their involvement and cooperation, as well as with other actors should be actively pursued. In addition, joint initiatives and strategies should be promoted, for example through sector associations. To ensure sustainable development, the private sector needs more assistance in the formulation of sustainable development plans, an area in which this sector has not yet acquired much expertise. By providing assistance to such sustainable management plans, national programmes can contribute greatly to biodiversity conservation and its sustainable use.

Enhancing the integration of local and indigenous communities

In order to integrate local and indigenous communities in productive processes, special attention should be given to their socio-economic and cultural reality. Increased emphasis should be given to capacity building, research, access to finance, to technology and to information in order to guarantee that benefits generated by biodiversity businesses are captured by local players, whilst assuring that autonomy and cultural respect are granted. Integrated work with other actors like government, private sector, NGOs and academic sectors is fundamental. Make possible

Effective trade promotion

In the area of the sustainable trade of biodiversity products and services, obtaining market information and effective trade promotion is difficult and costly. National programmes should have solid strategies regarding this issue, set clear priorities, develop networks with different organisations with access to relevant information, and cooperate as much as possible with international organisations. Currently, efforts by different organisations are working towards this end. (e.g. UNCTAD BIOTRADE, FAO, CBI, SIPPO, ITC, among others).

Viable enterprises

In order to help preserve biodiversity and optimise the use of resources, investments made must be profitable in the long-term. Otherwise, the sustainability of the businesses could be threatened once the financial support is withdrawn. Therefore, sound business plans are an indispensable requirement for biodiversity businesses seeking financial support.

Improving access to finance

Traditional finance mechanisms available for financing biodiversity-based businesses require important modifications to adapt to the special economic reality and risks of biodiversity businesses. Partnerships with organisations like GEF, New Venture Programme of WRI, CAF, Asian Development Bank and other development banks, can play and important role in increasing access to finance.

Questions for participants in preparation of the workshop:

· How do each of these lessons learned relate to your work experience in Indonesia?
· What approaches would best address those lessons learned relevant for Indonesia?

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