Teak production and furniture manufacture is a major industry in Java, Indonesia. In 2001, logs and sawn timber sales accounted for more than 680,000 m3 valued at nearly AUD 115 million. In just one district , Jepara, more than 15,000 factories depend on teak to survive. While production from the parastatal plantations is in decline, approximately 1.5 million households in Java are already growing teak, mostly on degraded land.

Despite the major potential smallholders represent as a source to feed timber demand in Indonesia, there are significant impediments to profitable smallholder teak plantations, including poor silvicultural techniques, limited market knowledge and restrictive timber regulations. Poor silvicultural techniques have led to low-quality timber. Smallholders' efforts to improve timber quality are challenged by a lack of capital to invest in teak planting and limited ability to wait the duration of a teak rotation before requiring returns. Smallholders also tend to accept prices that are often well below market rates because of their limited access to markets, limited market information and inability to overcome transaction costs faced by timber buyers. Further, government policies restrict smallholder involvement in timber production, as regulations designed for large-scale timber production (e.g. cutting and transportation permits, registration procedures) are applied to smallholders.

Supported by the Australian Center for International Agricultural Research, this ACIAR Project No. FST/2005/177 'Improving economic outcomes for smallholders growing teak in agroforestry systems in Indonesia' aims to improve livelihoods of smallholders growing teak in Indonesia, through three main objectives.

• Improve returns for smallholder teak producers by introducing and adapting silvicultural technologies
• Provide incentives for smallholder participation in profitable teak production by identifying and designing financing schemes
• Enhance market access on the part of smallholder teak producers