It is hard to imagine successfully commercializing ecosystem goods and services without substantial participation of the private sector. The capital, facilities, know-how, and markets that businesses command make them strong potential investors and partners for nature-based enterprises of the poor. In Southwestern Ghana, the Swiss Lumber Company has entered into contracts with rural farmers to grow hardwoods on degraded lands, where they will not compete with agriculture. The company provides a lump-sum down payment, a 20-50 percent share (depending on the size of the down payment) of the timber at harvest, and an annual land rent. In return, Swiss Lumber—which does not own timber lands or have access to government timber concessions in the area—gets first option to buy the timber at market prices when the trees are ready for harvest (Mayers and Vermeulen 2002:141).

As the Swiss Lumber example shows, the business relationships that can develop between rural residents and companies can be beneficial to both. For poor households, benefits can include a more consistent income stream and access to credit, training, business planning, and marketing. One of the biggest benefits is that poor households can share the risks of a business venture rather than assume all the risks on their own (Mayers and Vermeulen 2002:viii, 97-101).

The obvious benefits to companies are access to raw resources such as timber, fish, nontimber forest products, or scenic sights and experiences for tourism. The poor also comprise a low-cost labor force for management tasks like tree pruning, growing of specialized crops, or hand-collection of wild fruits. In addition, despite their limited means, poor households can provide a substantial consumer pool for the products and services that companies sell. Targeting sales to the sizable consumer group at the “bottom of the pyramid” is a strategy that many companies are beginning to explore, and building brand recognition and engagement with rural communities is a first step to this end.(See Box 4.3 Serving The Poor Profitably: A Private-Sector Approach To Poverty.)

Engaging with rural communities can also help companies meet demand for specialized products such as certified lumber or organic foods. In 1990 the U.S. company Smith and Hawken faced growing consumer demand for sustainably harvested tropical hardwoods such as mahogany for furniture and other high-end home furnishings. In response, it helped campesino forestry groups in northern Honduras—community organizations of 5-50 members that manage state forests under use agreements with the government—attain certification for their mahogany and other hardwoods. The campesino groups are now using the publicity they have received to expand the market for less well-known woods (Mayers and Vermeulen 2002:147).

Arrangements like the ones undertaken by Swiss Lumber and Smith and Hawken to contract with rural farmers to supply trees are perhaps the most common arrangements between poor households and natural resource companies. These “outgrower” schemes are programs where timber companies pay small farmers to plant trees on their own (or sometimes communal) land in order to ensure a reliable supply of timber in the future. The schemes, which can be found in many countries on every continent, vary widely by company and by country. In some, the company provides seedlings, access to credit, technical help in planting and caring for the trees, and even the construction of roads for harvest. In other cases, the arrangements are more sparse, with no finance and little other than seedlings and an offer to buy the trees at market price (Mayers and Vermeulen 2002:140-154).

The poverty-reduction potential of outgrower schemes varies, but can be sizable. In the South African province of KwaZulu Natal, some 10,000 farmers—more than half of them women—participate in the outgrower programs of the Sappi and Mondi paper companies. With materials supplied by the companies, the farmers grow eucalyptus trees on their small plots of a few hectares. Sappi and Mondi agree to purchase the plantation wood after 6-7 years for their pulp mills. Studies have shown that participating in these outgrower programs contributes 12-45 percent of the income needed for a household to remain above the “abject poverty line,” so outgrower programs can be important sources of stability in some rural economies (Scherr et al 2003: 51; Mayers and Vermeulen 2002:143).

For companies, outgrower programs can benefit the corporate image as well as securing the timber or pulp supply for the future. In Brazil, pulp-and-paper company Klabin works with timber outgrowers in a variety of joint ventures that have generated annual income for farmers ranging from US$76 to $217 per hectare. Klabin’s stated reasons for running its outgrower program include the need to maintain a good company image. The company also tries to gets its outgrowers certified as sustainable timber producers in order to supply the demand from local furniture companies that want certified wood. Klabin has guaranteed 10 years of timber supply to these small furniture companies, which it hopes its outgrowers will provide (Mayers and Vermeulen 2002:143).

Despite the promise of such programs, nature-based investments in poor communities are not necessarily easy for companies or communities, and are by no means always successful. The history of such partnerships shows many missteps, reflecting the difficult circumstances of poor households that push them to seek quick returns at low risk, and demands investments of training and trust-building. For example, several outgrower programs in India were plagued with inconsistent participation by poor families. Free seedlings offered by the companies were often neglected; loan and credit deals were too complicated and cumbersome to be attractive; and participants often abandoned the programs when they learned they could find better prices on the open market than the prices offered by the companies (Mayers and Vermeulen 2002:v, 45-52).

For both companies and communities, partnerships sometimes have high transaction costs, and take negotiation and continued care to succeed. In addition, coping with government regulations can be confusing and time-consuming. Experience shows that it is important for both sides to enter an outgrower agreement with realistic expectations about the income potential and the responsibilities of each side. Outside legal advice, perhaps provided by an NGO, can help poor families clarify contracts, while a system of arbitration set up ahead of time can help resolve disputes. It takes energy and good faith to deal with these complexities, but where there is willingness on both sides, the local income gains and corporate benefits can be substantial (Mayers and Vermeulen 2002:xi-xv).