Where the chain stops: chain length and customary markups in three smallholder plantation timber chains in eastern Nepal

In the flat, fertile plains of eastern Nepal, a quiet revolution in land use has taken root. For decades, the region's natural forests have been largely depleted, leaving a high demand for wood that local public forests cannot meet. In response, farmers have turned their fields into small-scale tree farms, planting rows of timber alongside their food crops. This practice, known as agroforestry, allows a farmer to grow a tree for a decade and then sell it for cash. But a critical question remains unanswered for many of these growers: what is their tree actually worth? While they can measure the height and girth of their timber, they rarely know the true value of the standing tree once it leaves their land. This uncertainty creates a gap between the effort of growing the wood and the money the grower receives, a gap that depends less on the quality of the wood and more on the path the wood takes to reach the final customer.

Researchers set out to map this journey in the southern part of Morang District, a place where the demand for timber is intense and the supply comes almost entirely from private farms. They focused on three specific types of trees that farmers grow there: eucalyptus, teak, and kadam. These trees are all planted by the same farmers, grown for roughly the same amount of time, and sold to the same group of buyers. The scientists wanted to understand how the money is divided as the wood moves from the farm gate to the final product, and why some growers end up with a much smaller slice of the profit than others. By following the wood through every step of the process, from the nursery to the furniture shop or construction site, the study reveals a hidden system of pricing that has little to do with the cost of production and everything to do with tradition and the length of the supply chain.

The researchers began by interviewing thirty-four farmers who had recently cut down their trees, along with every single wood retailer and sawmill in the area. They tracked the price of the wood at each stage: what the farmer was paid, what the retailer charged for the log, what the mill charged for the sawn timber, and finally, what the customer paid for the finished item. They found that the farmers themselves spent very little to grow these trees, often just covering the cost of the seedlings and the labor to plant them. However, once the trees were cut, the money started to change hands in ways that seemed arbitrary to the growers. The retailers and mill owners did not calculate their prices by adding up their costs and adding a profit. Instead, they used a customary rule of thumb, a fixed multiplier, to set their prices.

For eucalyptus and kadam, the retailers sold the logs at nearly double the price they paid the farmer. The sawmills then sold the finished boards at roughly one and a half times the price of the log. When you combine these steps, the final price of the sawn timber was more than three times what the farmer received. This rule was applied almost exactly the same way to both species, even though they are very different trees with different uses. Teak, however, followed a different path. It was priced with a much higher multiplier, meaning the price jumped significantly more at each step. This difference meant that while teak farmers received a higher absolute amount of money for their trees, they still kept a much smaller percentage of the final value compared to the other species.

The most surprising discovery was not about the price of the wood, but about where the journey ended. The eucalyptus and teak trees were almost always turned into furniture, such as beds, cupboards, and chairs. This process added several steps to the chain: the log had to be sawn, then the boards had to be shaped, sanded, and assembled by skilled workers. Each of these steps added value, but it also added another layer of cost and profit for the people doing the work. By the time the furniture was sold, the original farmer had received only a tiny fraction of the final price, sometimes as little as two or three percent.

In contrast, the kadam tree took a much shorter route. It was never used for furniture. Instead, the logs were either sawn for use in building construction or peeled into thin sheets for plywood. In both cases, the wood reached its final user after just one or two steps. Because the chain was so short, the farmer kept a much larger share of the final price. Even though kadam was the cheapest tree and the farmers earned the least amount of money in total, they kept nearly a third of the final value. The study showed that the length of the chain, not the value of the wood itself, determined how much the grower earned. The longer the wood had to travel and the more it had to be transformed, the less the farmer got to keep.

The researchers also looked at how the system was governed. They found that the market looked like a free exchange, but it behaved more like a situation where the seller has no real choice. There were very few buyers for the wood, and they all seemed to agree on the same pricing rules. Farmers did not know what their trees were worth, and they could not wait for a better price because the trees had to be cut at a specific size and time. This lack of information and competition meant that the farmers were in a weak position, accepting whatever price was offered. The government had set official reference prices for wood, but these were only used for public forests and were not shared with the private farmers, leaving them to negotiate in the dark.

The study suggests that the solution to this problem is not to give farmers more money for planting trees, which they are already doing successfully, but to give them better information. If farmers knew what a fair price looked like, they could negotiate better. If there were more buyers, competition would drive prices up. The researchers argue that the current system, which encourages local processing and turning wood into furniture, actually hurts the farmers in this specific region. While making furniture creates more total wealth for the district, that wealth is captured by the processors and retailers, not the growers. To truly help the farmers, the focus needs to shift from how much the wood is processed to how much power the farmer has in the transaction.

In the end, the story of these three trees reveals a simple but powerful truth about value chains. The money a grower makes is not just about the tree they planted; it is about the journey that tree takes. A short journey keeps more money in the grower's pocket, while a long, complex journey, filled with many steps and many hands, leaves the grower with very little. The researchers found that by understanding these paths and the rules that govern them, farmers can be empowered to claim a fairer share of the value they create. The path forward lies not in changing the trees, but in changing the information and the choices available to the people who grow them.