Lessons learned from the innovation system approach

In this study an innovation system approach was used to understand the interactions between innovation processes in international value chains and framework conditions, such as policies and regulations, market demand and the wider political system in which a value chain is embedded (see Section 2.7 for details on the methodology used). It was expected that by knowing how these interactions work, the dynamics of an innovation process could be explained, and the role of the Dutch government in initiatives for increasing the sustainability of international value chains assessed.

In this section the triggers, drivers, barriers and opportunities⁴⁵ of the four tropical timber value chain innovation cases (see Table 10) are analysed.

The aim of this analysis is to be able to provide the Dutch government with information it can use to look beyond their current indirect involvement in initiatives to increase the sustainability of the tropical timber value chains and to recognize how the results of value chain innovations depend on how interactions between an innovation process and framework conditions work and how the leverage points of these interactions can be used and managed.

45In this project, the trigger of an innovation refers to the factors that stimulate or induce the start of an innovation process.

The driver of an innovation is what it keeps going and allows innovations to become attractive enough to become gradually established practices.

Table 10 Triggers, drivers, barriers and opportunities in the four researched international tropical timber value chain innovation cases

Case Triggers Drivers Barriers Opportunities

Sustainable unions for a long term sustainability agenda Singular focus on FSC/ no competition among certification schemes Immature market for ecosystem services Certified timber products:

• The global financial crisis

• Uncertain growth of demand for certified forest products

• Costs of certification vs.

competitive advantage for companies

IDH approach to learning in and between different Felt need by value chain actors for a credible not dealt with in timber concessions or in

Low coverage of FSC in tropical timber producing regions

Little evidence to show the impact of certification on

• The global financial crisis

• Uncertain growth of demand for certified forest products

• Costs of certification vs.

competitive advantage for companies

High level of integration of ecosystem services in FSC

changes Direct funding (TPAC) by Dutch government products from Indonesia

UN-REDD+ Program in

No evidence to show the impact of REDD+ on forest management

• Insecure land tenure

• Weak legal frameworks for land use planning

Changes in framework conditions have predominantly triggered the innovations in the four cases presented. In the IDH-STAP case, the trigger was the shift of the Dutch development cooperation policy ‘from aid to trade’ together with the joint plea from civil society organisations, private business and trade unions for a united and long term sustainability agenda for Dutch international trade, including timber. Innovations in the FSC and ForCES cases were triggered by organisations concerned about the conservation of forests, with both centred on making the values of ecosystem services and products explicit and tradable, as a way of conserving them. They are derived from the mixed success and high costs of conventional conservation approaches and are based upon an assumption that timber can be sustainably exploited if voluntary, externally certified standards are adhered to. The EU timber regulation that became effective in March 2013, reinforces the market potential of FSC certified products and follows a similar market-led approach to sustainable exploitation. Innovations in Dutch public procurement were triggered by both Dutch and EU policy changes. The REDD+ innovations originate from the 13th UN Framework Convention on Climate Change (UNFCC) conference and succeeding Conference of Parties (COP) meetings. Although endorsed by the international research and development agendas, uptake has been very slow and difficult in practice.

To a large extent market opportunities drove the innovation process in the IDH-STAP and FSC cases.

Increasing corporate and public consumer demand for certified products, enable access to environmentally sensitive markets by using price premiums to reward timber producers, processors and traders for sustainable operations. Additionally, public-private partnerships were promoted by the Dutch government and governmental funds for agencies such as IDH and TPAC, sustained the innovation process in the IDH-STAP, FSC and public procurement cases. Funding of (inter)national development and environmental NGOs fuels the REDD+ process, in particular for their advocacy and

‘watch dog’ roles.

The barriers to innovations in the four cases also predominantly originate in the contexts in which the chains are embedded. For example, in the IDH-STAP, FSC/ForCES and REDD cases, the difficulties in valuing ecosystem services and in particular the immature market for ecosystem products forms a significant barrier. Similarly, expanding the scale of certification of tropical timber production and reducing the costs are barriers. Issues in ecosystem certification include ascertaining who owns, who can trade and who can benefit from payments for services and whether or not one should exclude beneficiaries who may be unable to pay for the benefits (e.g. water, watersheds or non-timber forest products) located in the ecosystem providing these services⁴⁶.

The analysis of triggers, drivers, barriers and opportunities in the four cases illustrates that the dynamics of value chain innovation and their achievements depend to a large extent on framework conditions, in particular market demand for certified products (IDH/STAP and FSC/FoRCES) and the institutional environment (public procurement and REDD+). The analysis also shows that the current activities of the Dutch government in addressing the complex challenge of sustainable international value chains are geared towards initiating and facilitating cooperation between value chain actors in the form of public-private partnerships, and the promotion of financial and institutional support of the certification of timber products. Although market actors and civil society organisations have been in the driving seat it remains to be seen if the private sector is willing and able to take up these issues, begging the question what the role of government should be.

46See the WOT publication that is part of this project: Arets and Leneman (2013) Effects of Dutch import of tropical timber on ecosystem services and social costs and benefits of more sustainable production.