Private Sector Led Marketing Arrangements within the Value Chain

Success Stories

Table of ContentsI. Country Situationer:.................................................................................................................................3

A.1. The state of agribusiness development (particularly agri food sector) in the country.....................3

A.2. Production and trade performance of major agri-food commodities..............................................3

Crops...................................................................................................................................................5

Livestock..............................................................................................................................................6

Fisheries...............................................................................................................................................7

Forestry...............................................................................................................................................7

Domestic Consumption.......................................................................................................................7

Trade...................................................................................................................................................8

Agricultural Trade................................................................................................................................9

Employment in Agriculture..................................................................................................................9

Value Adding.......................................................................................................................................9

II. Statement of the problem.....................................................................................................................10

A.1. Production constraints...................................................................................................................10

Natural production of food and agricultural products.......................................................................10

Rice security and mono-cropping......................................................................................................11

Slow progress of formal land tenure security....................................................................................11

A.2. Business constraints.......................................................................................................................11

Small scale of private enterprise........................................................................................................12

Weak financial services......................................................................................................................12

Low labor productivity.......................................................................................................................13

A.3. Trade constraints............................................................................................................................13

Market-related issues........................................................................................................................13

Decentralized authority for trade......................................................................................................16

Logistics.............................................................................................................................................16

Project-driven enterprises.....................................................................................................................17

A.4. The impact of this marketing concerns on farmers’ income and livelihood and their coping mechanisms...........................................................................................................................................17

Engaging the Market.........................................................................................................................18

A.5. The general policy environment where in which these are occurring............................................19

Strategy for Agricultural Development..............................................................................................19

Agriculture Master Plan (AMP)..........................................................................................................19

Agriculture Investment Plan (AIP)......................................................................................................19

III. Marketing modalities in the agribusiness sector..................................................................................20

Creation of Wholesale Markets.............................................................................................................20

Creation of Farmer Organizations..........................................................................................................21

Sector where they are predominant.....................................................................................................23

IV. Successful Cases of marketing arrangements.......................................................................................24

Cases of Successful Marketing Arrangements of Farmers with Private Enterprises..............................26

Case 1: Enhancing Milled Rice Production (EMRIP)...........................................................................26

Case 2: Pakxong Development Enterprise Export-Import Company.................................................32

Case 3: Natural Products International (NPI).....................................................................................34

Case 4: Friends of the Upland Farmer (FUF)......................................................................................35

Case 5: Nam Nyon Production Group................................................................................................36

Case 6: Application Point in the Boloven (PAB – Point d’Application des Bolovens) Production groups and later on the Boloven Plateau Association of Coffee Producers’ Groups (AGPC – Association des Groupements de Producteurs de Café)....................................................................37

Case 7: Poultry in Samphanxai Kumban, Khoun District, Xieng Khouang..........................................39

Case 8: Green Vegetables, Khoune District........................................................................................41

Case 9: Ban Nampheng Marketing Groups........................................................................................43

Case 10: Collective Cattle Trading, Nonghet......................................................................................45

Case 11: Organic Market in Pek District, Xiengkhuang Province........................................................47

Case 12: Modernization of the Clean Vegetables supply chain brand in collaboration with the Trade Development Facility.........................................................................................................................48

Case 13: Organic Rice Production in Sangthong District, Vientiane Province....................................48

V. Conclusion.............................................................................................................................................49

Works Cited...............................................................................................................................................50

I. Country Situationer:

A.1. The state of agribusiness development (particularly agri food sector) in the country1

While declining as a portion of GDP, agriculture remains central to Laos’ development, as it contributes to the livelihoods of 80 per cent of the population (World Bank, 2006). Agriculture and forestry accounted for 33 per cent of GDP, or approximately US$2.4 billion in 2010 (World Bank, 2012). This is down from 61 per cent in 1990 and 52 per cent in 2000 and reflects the growing importance of other sectors such as mining, hydropower and services (World Bank, 2006). The agriculture sector includes crops, livestock, fisheries and forestry. Agriculture is sometimes more broadly referred to in government documents as the agriculture, natural resource and rural development sector, or ANR (MAF, 2010a). This is an indication of the strong relationship the government sees between agriculture and development. Agriculture is broadly divided into lowlands and uplands systems (World Bank, 2006; MAF, 2010a; FAO, 2011). . . Lowland agriculture is dominated by rain-fed and irrigated cropping, while upland agriculture is dominated by shifting cultivation (MAF, 2010a). Irrigated crop production for commercial commodity production is the dominant mode of expansion in lowland agriculture, while upland agriculture is focused on food security and livelihoods of rural populations (MAF, 2010a).

A.2. Production and trade performance of major agri-food commodities2

Data Source: Lao Statistics Bureau, 2012

1 Lifted from Roderick Campbell, July 2012:5.

2 Lifted from ibid:5-9.

Data Source: Lao Statistics Bureau, 2012

Data Source: Lao Statistics Bureau, 2012

Data Source: Lao Statistics Bureau, 2012

Crops Crops in Laos are still dominated by smallholders engaged in low-productivity subsistence agriculture (MAF, 2010a; FAO, 2011). The main staple crop is rice, accounting for the vast majority of cultivated area (World Bank, 2006; FAO, 2011). Glutinous rice in particular is cultivated in Laos for domestic consumption. Other crops grown include vegetables, corn, coffee, tea, fruit, spices, sugar cane and cotton. Corn, mainly for livestock feed, has grown at the fastest rate in recent years, with production increasing by 545 per cent—from 143,000 tons in 2003 to 947,000 tons in 2008 (IMF, 2009) and (FAO & WFP, 2011). Levels of production reflect the land area dedicated to particular crops, as seen in the chart [above]. Rice production is steadily rising since 2006 and has reached its peaked in 2009, then steadily declining but still more than its 2006 level. As compared to rice, corn production is rising rapidly. From a low of 372.5 tons in 2005 it now has risen to a high of more than 1 million tons in 2011. This goes hand in hand with rising acreage given to corn. In 2005 only 86 thousand hectares were planted to corn. In 2011, this has more than doubled, reaching 212 hectares.

Livestock Between 40 and 60 per cent of households own some sort of livestock, particularly in rural areas outside the more developed Vientiane Plain (World Bank, 2006). Poultry, pigs and cattle are mostly kept for eggs, meat and milk, while buffalos are used extensively for draft power to assist with rice cultivation. Recent growth in animal numbers has been in poultry and pigs, due to increased intensive raising for commercial meat production (MAF, 2010a).

This is typical of developing livestock sectors, as poultry and pigs are most suitable to more intensive raising (Campbell & Knowles, 2011). Poultry far outnumber other livestock in terms of numbers, but pigs, cattle and buffalo account for the vast majority of meat production (International Monetary Fund [IMF], 2009).

Fisheries Fish from the Mekong River and its tributaries are an important source of protein for people throughout the region, particularly for rural households, where fish account for around 40 per cent of total protein intake. By 2020, the government plans to increase annual fisheries production per capita from 10 kilograms to 23 kilograms by developing aquaculture industries (World Bank, 2006).

Forestry Like many other countries in the region, Laos has seen its forest cover and density decline dramatically. In 1940, forest cover was 70 per cent but has since declined to between 40 and 50 per cent (Tong, 2009; FAO, 2011). Dense forest areas have decreased from 29 per cent in 1992 to 9 per cent in 2005 (Tong, 2009). Deforestation is caused by shifting cultivation methods (slash and burn), uncontrolled logging and land-use change (to agricultural or other uses) (Tong, 2009).

Domestic Consumption Most of Laos’ food crop production, particularly paddy rice, is consumed domestically. Only 10 per cent of rice produced is marketed, with the vast majority being consumed by farm households (MAF, 2010a). Limited exporting of rice occurs because the main variety grown is glutinous (sticky rice) and is not in high demand on the world market. By contrast, cash crops such as coffee and maize as well as timber are nearly all exported (United Nations Conference on Trade and Development [UNCTAD], 2010).

Data Source: Lao Statistics Bureau, 2012

Data Source: Lao Statistics Bureau, 2012

Data Source: Lao Statistics Bureau, 2012

Data Source: Lao Statistics Bureau, 2012

Trade While total exports from Laos increased from US$0.47 billion in 2003 to US$1.3 billion in 2007, imports increased at the same rate and so the trade deficit for agriculture has increased from US$0.3 billion to US$0.8 billion (IMF, 2009). Nonetheless, Laos is currently a net importer of agricultural products, with imports exceeding exports by US$182 million in 2008 (FAO, 2011). Overall, agricultural exports from Laos have grown at a slower rate than exports from the mining and energy sectors and as a result now account for a smaller share of total exports.

Agricultural Trade Exports of non-timber agricultural products were estimated at US$53 million in 2008 (FAO, 2011), an increase of nearly 40 per cent from 2005, when FDI in the sector was liberalized. The most significant export crops by production value were coffee and maize (FAO, 2011). In 2009, live cattle imports were valued at US$21 million, live pig imports at US$8 million and live chicken imports at US$0.2 million. Laos exported 3000 buffalos in 2009 with a value of US$0.25 million. Despite this, official statistics show that Laos neither imported nor exported any meat products in 2009. However, it did import US$6.6 million worth of processed dairy products (FAO, 2012b).

Employment in Agriculture Agriculture employs or supports the livelihoods of approximately 75 per cent of the population (Ministry of Planning and Investment [MPI], 2010). This figure has come down from approximately 80 per cent in 2005 and would indicate a development trend of increased growth in other sectors and subsequent urban migration (World Bank, 2006). The majority of employment is in crop and livestock production, with forestry accounting for less than 1 per cent of employment (Tong, 2009).

Value Adding Minimal value adding currently takes place for agricultural commodities, with most sold unprocessed at both a farmer and national level (MAF, 2010a). Significant capacity building of the Lao workforce (i.e., education and training) and infrastructure would be required to add more value to its agricultural exports. Given that its major trading partners have established manufacturing and processing industries to process the raw commodities produced in Laos, its competitive advantage may at least temporarily come in the form of cheaper labor and energy costs. Nevertheless, the sector is becoming better organized, and a number of trade or industry associations have been formed in recent years including (MAF, 2010a; Tong, 2009): Lao Coffee Association Coffee Exporters Association Association of Coffee Producers Groups Lao Wood Processing Industry Association Lao Tree Plantation and Cash Crop Business Association.

By 2020, it is expected that commodity associations will be in place for maize, coffee, rubber, rice and livestock (MAF, 2010a). (Roderick Campbell, July 2012:9)

Data Source: Lao Statistics Bureau, 2012

Of the US$2.4 billion that agriculture contributes to GDP, crops account for 54 per cent (US$1.3 billion), livestock and fisheries for 36 per cent (US$0.9 billion) and forestry for 10 per cent (US$0.24 billion) (FAO, 2011; World Bank, 2012). In 2008, rice had the largest production value of all crops, approximately US$700 million, much of which is consumed by growers rather than marketed. Corn was the next most valuable crop with a value of US$91 million, mostly used for livestock feed (FAO, 2011). Agricultural output from Laos has increased markedly in recent years, growing at 4.1 per cent annually from 2006 to 2010 (Government of Lao PDR, 2010). Contributing factors have been trade reforms, improved infrastructure, economic growth in surrounding countries, price increases, land availability, increased involvement of the private sector and increased domestic demand (MAF, 2010a). It is expected that the growth rate for the sector will remain above 4 per cent over the next 10 years (MAF, 2010a). The majority of production remains for domestic consumption, but this is changing as the economy develops and opens up to international trade. Exports have risen in recent years, but the true extent of agricultural exports is somewhat masked by informal trade and a lack of accurate data (World Bank, 2006).

II. Statement of the problem3

A.1. Production constraints The production-based impediments to agribusiness development are characterized primarily by farmers continuing to use traditional agricultural practices; an emphasis on household rice self-sufficiency; and, a weak agricultural land tenure system4.

Natural production of food and agricultural productsMost rural households have little or no experience with modern agriculture technologies, including using improved seed varieties, chemical or bio-fertilizers, or pesticides. Instead, agricultural production is natural; with farmers using indigenous seed varieties; applying little or no soil additives; and, using no pesticides. Nor do farmers have easy access to information about alternative production techniques and basic agricultural production inputs

3 Lifted from Zola, August 2009:15-21.

4 Access to land (Farmers’ Conference on Farmers’ Organizations, August 8-10, Vientiane).

(i.e., quality seeds, irrigation water, credit, bio-pesticides, and organic fertilizers). The low level of education of most farmers also is an obstacle to training.Weak extension services hinder the provision of advice on diversified cropping, commercialized agriculture, agribusiness, farm management, post-harvest handling, marketing, food technology, livestock varieties, or animal health. As a result, both productivity and product quality are inferior; in most cases significantly below standards required by regional agro-processors, presenting a serious constraint to agribusiness development.

Rice security and mono-croppingTraditional farming systems emphasize wet season rice production to achieve rice self-sufficiency, with minimal crop diversification. A secondary priority is to accumulate livestock, the most important farm asset after land and a harvested crop.Any remaining human and capital resources are used for gathering non-timber forest products (NTFPs), fishing, and hunting to supplement household food supply and generate cash. Off-farm income is derived most often from selling household labor services. Vegetables for family consumption are generally cultivated during the cool season using residual soil moisture and / or water remaining in seasonal ponds or streams.However, all family resources focus primarily on producing rice during the wet season and, if irrigation is available, also during the dry season (usually for sale). As a result, most rural households depend on a rice mono-crop. There is little or no significant interest - nor time, labor, or capital resources - in any other on-farm activity. The use of available resources to produce rice is an important constraint to development of mixed farming systems that could produce raw materials for agro-processing.

Slow progress of formal land tenure security The 1997 Land Law recognizes the transfer and inheritance of land use rights, but not title. In flatland areas ownership rights have gradually been formalized. Related to weak agricultural credit and financing services, land ownership and property rights continue to evolve. Although a national land titling program is underway, the current focus is chiefly on land in urban and peri-urban areas5. More systematic land administration in rural areas will be introduced in the future. In the interim, most farm households are unable to use their land — their most valued asset — to mobilize capital to invest in on-farm and production based activities. In some locations, land continues to be community property and is allocated by the State, based on village needs. Farmers can be allocated up to one hectare of paddy land per farm laborer, three hectares for commercial crops, three hectares for fruit trees, and 15 hectares for livestock production. The combination of small plots of land, restrictions on consolidation, and common property ownership impedes commercialization of the agricultural sector. Land outside village areas is largely unallocated which leads to ambiguities as these are areas in which shifting cultivation typically takes place.Most recently, the GOL6 has granted land concessions on large areas of unallocated land, removing it as a potential site for rice production and source of NTFPs.

A.2. Business constraints The main business-related impediments to agribusiness development are characterized primarily by a confusing policy, regulatory, and legal framework; the small scale of private enterprise; weak financial services; and, low labor productivity. 5 A transitory frontier between urban expansion and rural land (http://www.uws.edu.au/wiser).

6 Government of Lao

Policy, regulatory, and legal framework: The granting of land concessions to agribusiness investors has emerged as an important GOL policy mechanism for promoting agribusiness development. However, the governance framework of the authorization process and organizing smallholder-based contract farming operations is complex and is an impediment to developing sustainable commercialized agriculture.As a result of the GOL’s decentralization policies since 1986, provincial governments rather than central authorities are responsible for: (i) authorizing company registrations and investment licenses; (ii) firm-level inspections; and, (iii) allocating land-use rights and an enterprise’s access to other resources. The only exceptions are some very large or politically sensitive business ventures that require authorization at the national level.As currently organized, the land concession system is administered through several different laws, decrees, and government agencies, resulting in a complex web of rules, regulations, procedures, and fees that dissuade any but the most tenacious and wealthy investors, and provide opportunities for corruption. High transaction costs, extra-legal surcharges, and facilitation fees are not unusual. The less than fully transparent policy and regulatory framework and weak law enforcement hinder private enterprise development, as contracts, property rights, tax provisions and other fundamentals lack assurance:- Business registration and licensing procedures are cumbersome, time consuming and discretionary, reflecting a control and micro-management mindset; business registration nominally takes up to 45-60 days in Laos. A similar process takes only about 7 days in Vietnam. - Complications in structuring a business: Almost all tax-registered business in Laos are sole-traders, reflecting the complicated registration procedures and lack of awareness about other legal options (limited liability and public companies).- Amendments to the Electricity Law are needed to facilitate private enterprise in providing rural electricity; governance concerning forestry is particularly weak.- Difficulties in the trade regime: Import tariff exemptions and quantitative restrictions are applied in a non-transparent manner, complicating trade and business development; and, non-formal barriers imposed by neighboring countries are a serious impediment. - Discretionary application of the tax law, frequently through negotiations:Advance payment of taxes often is required by provincial governments during periods of cash shortages.

Small scale of private enterpriseThe scale of most domestic private enterprise is geared to the small size of the domestic market and low purchasing power of the population. Particular impediments to growth of small firms include the lack of access to capital7 and to market information8.The costs of meeting licensing and other requirements are relatively higher for small enterprises.

Weak financial services The banking sector continues to be very weak, especially in rural areas where few people have access to financial services. In addition, the Bankruptcy Law and the Secured Transaction Law are difficult to enforce, hence banks are reluctant to lend to private enterprises. Export credit is generally not available, hampering growth of trade.

Low labor productivityAlthough labor costs in Lao PDR are relatively very low, this advantage is undermined by low labor productivity by international and regional standards. The 2008 updated Human Development Report reports that in 2006 the combined primary, secondary, and tertiary gross enrolment ratio was 59.6 percent (compared to 114.2 percent for Australia and 58.7 percent for Cambodia).The ethnic diversity of the people poses language and other problems impeding education and skills-training. The adult illiteracy rate (ages 15 and older; 2007) is 73.18 percent (compared to 76.32 and 91.90 percent in Cambodia and Malaysia, respectively), and the labor force has on average less than 5 years of education.Graduates of vocational schools and university are few.

A.3. Trade constraints The principal trade obstacles to agribusiness development are characterized by inexperience among entrepreneurs and producers in accessing markets; institutional constraints on export diversification and growth; decentralized authority for trade; and, logistical issues.

7 Limited production capital and on the other hand, rising indebtedness of farmers (Farmers’ Conference on Farmers’ Organizations, August 8-10, Vientiane).

Much of the currently available financing for agriculture is earmarked for production. Farmers looking to market their products would be focusing on product processing and promotion, rather than production (Debuque (ed), 2005:33).

Microfinance that supports small-scale producers is critical, but is often not available in rural areas, especially for small enterprises whose owner/members have few assets. This microfinance gap is now well recognised and creative mechanisms need to be successfully piloted (Kanokwan Manorom, 2011:17).

8 Access to domestic and international markets (market information, market linkages), Farmers’ Conference on Farmers’ Organizations, August 8-10, Vientiane.

Market-related issuesBoth entrepreneurs and producers have an inadequate understanding of domestic, regional, and global markets. Lao producers almost universally cultivate and harvest the same crops at the same time, corresponding with traditional practices and changing seasons. An important impact is that large volumes of the same unprocessed food and agricultural products saturate small local markets and many regional markets simultaneously, driving down prices. This local decline in commodity prices is repeated annually, serving as a disincentive for farmers to diversify their cropping system. In fact, the unstructured nature of local and regional markets provides few incentives for farmers to invest additional time, labor, or capital in post-harvest handling or value-added processing at the farm or household level. For the most part crops are sold to iterant traders or in undiscriminating local markets. An important outcome is that trade officials in neighboring countries periodically impose trade restrictions on Lao products, including import quotas on vegetables and field crops and other nontariff trade barriers; to control the seasonal flow of selected Lao commodities. These actions contravene agreements and understandings among trade authorities (e.g., the 5th MOU signed between Champasak [Laos] and Ubon Ratchathani [Thailand] provinces). In addition, trade continues to be hampered by various levies and fees by both Lao and neighboring country border authorities.These transaction costs seriously impede trade with China, Viet Nam, and Thailand. Only since 2002 has the Thai Government supported ACMECS9 program promoted the formation of Lao-Thai joint ventures for contract farming of selected food and agriculture products; initiating a more systematic approach to border trade and resolving tariff and logistical constraints to agribusiness and market development. In terms of interacting with domestic, regional, and global markets, most Lao entrepreneurs and commodity traders are as traditional as their producer counterparts. They lack awareness of modern, transparent, market-based ways of doing business. They prefer to purchase raw materials at the farm-gate and perhaps carry out some post-harvest value-added processing (drying, cleaning, sorting, grading, etc.) that will supplement their small trade margin. Agribusiness entrepreneurs generally lack a long-term vision. They are motivated more by short-term gains from traditional trading.Entrepreneurs also lack sound investment projects for agribusiness expansion or value-added processing. Only a small number of agro-processing facilities exist in Lao PDR. These exceptions are found in selected sectors, namely coffee (e.g., Dao Heung, Sinouk, and the Association des Groupements de Producteurs de Café du Plateau des Bolovens [AGPC], in Champasak); and, fruit and vegetable processing (e.g., Lao Agro Industry, Vientiane Province; and, Lao Farmers’ Products Company, Vientiane Capital). Institutional constraints on export diversification and growth: Agribusiness, like agricultural production is impacted by insecure property rights and an inefficient financial system that inhibit the accumulation and use of capital. The development of value-added processing facilities also is inhibited by a regulatory system built on control and fee extractions rather than facilitation; restrictions on trade through licensing regulations; and, generally weak institutional and fiscal management capacity.

9 a political, economic, and cultural organization among Thailand, Laos, Vietnam, Cambodia and Myanmar created at the special ASEAN Summit on SARS, held in Bangkok on 29 April 2003 . . . The objectives of this new initiative are to bridge the economic gap among the four countries and to promote prosperity in the sub-region in a sustainable manner. . . The Leaders agreed to call this newly created economic cooperation framework the "Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy" or "ACMECS" (https://en.wikipedia.org/wiki/ACMECS).

The efficiency of agribusiness and export-oriented enterprises also is impacted by institutional constraints linked to time consuming official procedures and technical formalities. Exporters of food and agricultural products from Champasak are obligated to abide by a complex set of rules and regulations, consisting of several sets of forms required to export their commodities. Although the forms are not difficult to complete or unusually detailed, several different departments, offices, and individuals must be contacted in person; a process that usually requires three to four days to complete (sometimes longer, depending upon the availability of ‘competent’ [i.e., legal] authorities and the level of surcharge that an exporter is willing to pay). Figure 1 presents a flow chart for the processing of export forms, using coffee as an example. In addition, Table 1 presents the forms required for agricultural exports (coffee and most other crops), including the agency responsible for each form, costs of the forms, and the number of days required for their processing. Note that the numbers in parentheses ( ) in column 1 correspond to the numbers in Figure 1 above. Agricultural commodity traders report that the process of obtaining and processing all required forms usually takes from three to four days, but can take up to seven days if authorized officials are absent and/or a weekend is included. Traders generally agree that completing and processing the forms is not unnecessarily complex or difficult; but persistence is required. Some traders reported hiring a shipping company to handle all

paperwork for exporting commodities. Surcharges (both formal and informal) and unofficial fees are often imposed for faster service.

Although such fees increase transaction costs, they are not unexpected or particularly excessive; and, are considered a cost of conducting business. Traders reported that obtaining the phyto-sanitary certificate (‘phyto’), issued by the Provincial Agriculture (Crops) Section, proved most challenging. The certificate requires the

name and signature of a legally competent official who is authorized to sign and issue the certificate.Although more than one officer is designated as legally competent, the name of the officer physically present is required on the form. However, since the Crops Section must inspect the shipment — which takes time – the specified individual may be unavailable by the time the form reaches his desk for signature. Should this occur, the forms must be prepared a second time; with the name of the replacement officer who is physically present and is legally competent to sign the form.

Decentralized authority for tradeAdministrative decentralization that began in 1986 also decentralized authority for trade. Based on an already weak institutional capacity, the result has been confusion, with overlapping responsibilities of central and provincial governments, making it complex for traders and investors to do business in Lao PDR. Important factors include:- Unclear and poorly communicated government policy toward the business sector and lack of coordination among line ministries in policy making; - High cost of power, transport, telecommunications, and other critical services; - Excessive and unnecessary regulation of ongoing business operations;- Institutional orientation toward control rather than facilitation by the tax and trade administration systems; - Difficult access to land and its limited use as collateral for debt; - A weak legal system to support investment, enterprise establishment, contract enforcement, and commercial transactions; - Insufficient intellectual property rights protection for both domestic and foreign investors; and,- Rigid labor regulations.In addition, provincial and border authorities have little knowledge or understanding of the terms and conditions of various trade agreements administered through the World Trade Organization (WTO), ASEAN Free Trade Area (AFTA), and the China-ASEAN Free Trade Area (CAFTA). This institutional lack of knowledge leads to significant trade regime uncertainties.

Logistics The mountainous terrain in most areas of the country and poor market access road network, together with cross-border trade impediments with neighboring countries, has meant high transport costs and fragmented markets. The generally poor condition of the road network results in high rates of damage to both trucks and cargo. Trucking monopolies in Thailand and rent-seeking by Customs and other officials (including business “tycoons”) throughout the region add to the costs of transit and trade.Agribusiness development also is constrained by the limited number of international level cross-border points and facilities and officials qualified to verify sanitary and phyto-sanitary (SPS) standards, mandatory under WTO regulations.Trade infrastructure, including banking and financing services at cross-border trade locations are limited or non-existent. Storage facilities for agricultural products in rural areas and particularly at cross-border locations are limited, inadequate, or lacking.Notwithstanding the conclusion of the Greater Mekong Sub-region (GMS) Cross border Transit Agreement (CBTA) and other cross-border trade and transit agreements: (i) Thai

owners of containers do not allow empty containers to be transported into Champasak Province for loading, mostly fearing that they will not be returned; (ii) Lao products are obligated to be loaded on to Lao trucks in Laos, incurring labor costs; and, unloaded on to Thai trucks or into a Thai container on the Thai side of the frontier, incurring labor costs for a second time. Further, the weighing of vehicles and products being traded continues to be an issue; with Lao and Thai scales not being equally calibrated.

Project-driven enterprisesForming partnerships with the private sector is a key area in which government and non-government supported projects are often weak. Community enterprises are often protected by projects. Products are ‘made to work’ through project support of infrastructure, financing at favorable rates, and uncompetitive pricing. While this may ‘work’ in the short term, it creates unsustainable enterprises. As noted above, project personnel often lack marketing experience and are more comfortable with project activities and objectives related to conservation or social concerns. Yet it is effective responses to the demands of the market that will ultimately determine the success of small enterprises and the viability of forest products as a means for poverty reduction. The private sector has to be engaged as a partner in poverty reduction (Warner, June 2007:16).

A.4. The impact of this marketing concerns on farmers’ income and livelihood and their coping mechanisms10

Studies that discuss the benefits of contract farming reflect conflicting points of view. Some of the evidence shows contract farming bringing a wide range of benefits to rural areas. Globally, there appears to be evidence that contract farming has successfully promoted high-value food products in developing countries and that this has led to the emergence of “New Agricultural Countries” (Patrick 2004). Reardon and Berdegué (2002) found that farmers enjoy the benefits of contract farming because frequent sales to supermarkets give them a more regular income. Consumers tend to see contract farming as a more politically acceptable form of agriculture than large concessions or estates, while investors see it as a way of overcoming land acquisition constraints. The investors also favor contract farming because their risks are reduced by not being directly responsible for production and because more consistent quality can be obtained than if purchases were made on the open market (Eaton and Shepherd 2001; Patrick 2004; Songsak, and Aree 2008; Setboonsarng 2008).A key argument in favor of contract farming is that it has the potential to incorporate low-income growers into modern technology through private-driven efforts whereby inputs are provided in exchange for specified crops. Through contracts, the buyers provide significant inputs such as credit, information, reliable markets, and services. In this way, smallholders are supported and enabled to cultivate lucrative non-traditional crops. Proponents of contract farming argue that this brings positive multiplier effects for employment, infrastructure, and market development in the local economy (Key and Rusten 1999, Sautier 2006). Studies of rice contract farming in neighboring Cambodia by Cai, Ung, Setboonsarng, and Leung (2008) found that contract farmers, in comparison to noncontract farmers, had greater opportunities to obtain stable markets, access to credit, extension services, infrastructure, and other benefits.Improved income is the key benefit identified by proponents of contract farming. Rice and Watts (1993) found that farmers involved in contract farming in northeast Thailand were reaping a number of benefits (e.g. substantial amount of cash flow within the villages involved — new pickup trucks, communal projects, and private construction).

10 Lifted from Kanokwan Manorom et al, 2011:16-17.

On the other hand, a number of authors present evidence of contract farming being detrimental to the poor (Goodman and Watt 1997, Tiongco et al 2009, Rosset 2009). Many of the studies reviewed take a pessimistic view of contract farming, emphasizing a wide range of problems which include limited benefits for small-scale farmers, unequal power relations11, disputes within participating households, market failure, production difficulties, food insecurity, health hazards, loss of new varieties to diseases and pests, fluctuating global prices, and limited benefits for landless people.In the Lao PDR, as elsewhere, communities have not formed a marketing enterprise. Instead, the groups improve harvesting and selling. There are significant constraints and barriers for small-scale enterprises to effectively link to markets and compete successfully. Low income producers face many disadvantages due to poverty itself, as well as a lack of education and infrastructure (Scherr, White and Kaimowitz 2002; 2004). One of the primary concerns is that the poor will be pushed aside when commercial opportunities appear.

Engaging the Market12

The increasing demand for organic products13 favors the mainstreaming of sustainable agriculture. However, engaging the market imposes strict requirements on producers, specifically in regard to volume, regularity of supply, consistency in product quality, and packaging. This presents a major challenge to small and marginal farmers who cultivate small parcels and produce little surplus. They need to consolidate their products and reduce transaction costs to be able to compete in the market.A number of challenges and limitations which have bedeviled other attempts to market organic products had confounded . . . market linkages as well. Some of these are:

Lack of a marketing system tailored to support sustainable agriculture14

The infrastructure that supports the trade in and marketing of agricultural produce was and still tailored to the requirements of conventional, chemically grown products. A new system, one which takes into account of the unique processing, storage, and even packaging needs of organic producers, must be established. The Farmers’ Conference on Farmers’ Organizations, August 8-10, Vientiane has also identified the following concerns:

11 Production under contract in some areas is unfair; for instance, farmers are paying higher prices for fertilizers (Farmers’ Conference on Farmers’ Organizations, August 8-10, 2012, Vientiane).

12 Lifted from Debuque (ed), 2005:33.

13 For example, organic rice production can benefit small-holder farmers by decreasing the farm production cost while at the same time increasing product’s price. Moreover, fertility of their land is improved and health condition and safety of both farmers and consumers are protected. In terms of production volume and quality, Laos has no chance of competing with leading rice exporters in ASEAN like Cambodia, Thailand, and Vietnam in terms of quantity but it can do so in term of quality. The Lao PDR government has aggressively promoted organic rice production with the aim of exporting organic rice to Western markets. The short and long term vision of Department of Agriculture is directed at food security and safety and strict adherence to international standards has been promoted and monitored by international NGOs and the Lao extension system (Choulatida, June 2011:30).

14 Lifted from Debuque (ed), 2005:34.

Higher production cost (the price of all inputs e.g. seed, fertilizers, labor, electricity and other service charges are increasing)

Unfair price Certification system for export products Competition with large foreign investors in the use of land, water and markets Influx of cheap imports Rising use of chemicals in agricultural production

A.5. The general policy environment where in which these are occurring15

Strategy for Agricultural Development The Agricultural Development Strategy (ADS) is the official strategy for development of the agricultural sector. It emphasizes a gradual transition from subsistence to commercial agricultural production and is supported by two implementation plans: the Agriculture Master Plan (AMP) and the Agriculture Investment Plan (AIP). The stated long-term goals (by 2020) of the ADS are to modernize lowland farming with a focus on market-orientated production (cash crops) for smallholders, and to better conserve upland ecosystems to ensure food security and improve the livelihoods of rural populations (MAF, 2010a). In the shorter term (2011–2015), the strategy includes four main goals: 1. Improving livelihoods through agricultural activities (crops and livestock) with a focus on

food security. 2. Increased and modernized production of agricultural commodities (cash crops) based on

organizations of smallholder farmers and utilizing private sector investment. 3. More sustainable production systems, including the stabilization of shifting cultivation,

climate change adaptation and improved targeting of production based on socioeconomic and agro-economic conditions of different regions.

4. More sustainable forest management to improve the quality and quantity of national forestry cover and allow for mixed-uses of forest resources.

Agriculture Master Plan (AMP) In order to achieve the four goals outlined in the ADS, the Ministry of Agriculture and Forestry will implement eight programs covering the following areas: 1. Food production 2. Commodity production and farmer organization 3. Sustainable production patterns, land allocation and rural development 4. Forestry development 5. Irrigated agriculture 6. Other agriculture and forestry infrastructure 7. Agriculture and forestry infrastructure 8. Human resource development

15 Lifted from Roderick Campbell, July 2012:11-12.

Agriculture Investment Plan (AIP) The AIP outlines the potential for development partners and the private sector to enter into partnerships to finance the implementation of the eight programs outlined above (MAF, 2010b). The AIP outlines three potential scenarios for investment in the agricultural programs run by the MAF: realistic, conservative and optimistic. Each scenario estimates a different mix of funding sources for running the eight programs within the Ministry of Agriculture and Forestry. Under a “realistic” scenario, FDI is expected to contribute 46 per cent (US$0.85 billion) of all investment into the sector by 2015. Overseas development assistance (ODA) is estimated to contribute 48 per cent (US$0.89 billion), with only minor contributions from government budgets, (MAF, 2010b).

III. Marketing modalities in the agribusiness sectorZola (2008) as cited in Kanokwan Manorom et al, 2011:16, in his review of contract farming in the Lao PDR, describes five modalities in the agriculture and natural resources sector, namely:i. the wholesale market model operating with domestic investment,ii. plantations established on land concessions granted by the government,iii. the concession share-croppers’ model (a variation of the land concession model),iv. the producers’ association model, andv. the independent farmers’ group model.

Creation of Wholesale Markets16 The participation of smallholder farmers in contract farming is being promoted in certain parts of the Lao PDR through the construction of wholesale or “primary” markets. Six wholesale markets have been constructed through the Asian Development Bank (ADB)-supported Smallholder Development Project at a cost of approximately $150,000 each (Zola 2008). The wholesale markets provide a sanitary area where farmers, traders, and even agro-processers can conduct business. Those funded by the project include market information systems as well as technical training, workshops, and trade fairs; while the government provides other supporting activities. The wholesale markets are supervised by district authorities, through management contracts that provide farmers’ associations with the opportunity to act as a market management group. Farmers and traders rent space from the group where they can conduct business and negotiate informal contract farming agreements.The farmers also benefit from the fact that they no longer have to take their produce to the border. In the case of the Pakxong District Wholesale Market in Champasak Province, farmers save 200 kilometers (km) of travel, a significant saving in terms of transport costs and time (although the price differences are not known at this stage). Other benefits provided by the market management group include:i. certification of weights and measures;ii. identification, screening, and registration of foreign companies interested in purchasing produce from producer groups;

16 Lifted from Kanokwan Manorom et al, 2011:20-21.

iii. promotion of crops in demand by local and regional traders; andiv. provision of assistance to Lao PDR authorities by provincial Thai authorities in negotiating with Thai companies.Although there are no written contracts, there is evidence that wholesale markets are encouraging the growth of contract farming. In the case of Pakxong District, for example, Zola (2008) found that about 30% of the Lao PDR farmers were receiving credit, in the form of seeds, chemical fertilizer, and pesticides, from Thai traders. These are advanced on the basis of trust in return for crops at an agreed price.

Creation of Farmer Organizations17 There is evidence from the literature that the creation of farmers’ organizations strengthens the position of small-scale farmers entering into contract farming. For example, in the case of Pakxong, Zola reported that the District Agriculture and Forestry Office has organized 23 producer groups to produce coffee, cabbage, bok choi, and banana for the wholesale market. Once farmers are organized in this way, it becomes feasible to offer basic extension services, such as advice on new crops and market access information.The formation of farmers’ organizations has been encouraged under the ADB-funded Smallholder Development Project. By October 2007, the project had initiated 119 producer groups in four provinces. Zola argued that such groups can facilitate relations and economically empower smallholder farmers in their negotiations with private sector companies. The firms benefit by not having to deal directly with individual farmers but having harvesting and transport organized by local representatives of the farmers. This is the case in the Charoen Pokphand Project in Khammouan Province, where an investor from Thailand organized farmers into maize producer groups in several villages covering an area of 4,800 ha. beginning in the 2008 wet season.Importantly, Zola (2008) noted that relationships can sour, as happened in Nam Bok District,One reason for buyers not taking a product is the poor quality of the crop. Fullbrook (2007) described cases where buyers rejected chili that had been grown under contract in northern Lao PDR: the harvest contained green chili beans, while the contract stipulated only red; and some of the crop showed signs of fungi, while farmers had been instructed to uproot any infected plants. Had the farmers’ group been more vigilant in ensuring that its members adhered to these details of the contract, the crop may have been accepted. Hence, it is clear from the literature that contract breaches occur on both sides of the agreement, and that a key aim of future efforts should be to minimize these.The most advanced producer groups are full-fledged cooperatives, such as the Ban Vang Gnao Coffee Producers Group in the Bolaven Plateau. These cooperatives have been operating for many years and now add value to their products (e.g. roasting and packaging coffee beans) and are aiming for niche markets (such as fair trade and organic produce). There are clearly lessons that can be learned from these well-established groups and from their experience in ensuring quality control and optimizing benefit flows to the group members.Folkard, Virvong, Connell and Photakhoun, 2011 made a typology of farmer organizations (FO)s, which is as follows:Informal farmer production groups

Acronym

Characterization

17 Lifted from Kanokwan Manorom et al, 2011:21

Receiving

FPG/R These groups are formed mostly by outside agencies as a vehicle to capture various supply-driven benefits which can result in distortions (training, materials). The focus of the group is thus on management of these inputs and is production oriented.There is no incentive to expand membership as this could dilute the input share for each existing member. Furthermore, since this type of FO is linked to a finite input, it will have little self-sustaining possibilities beyond the life of the outside project/agency supplying those inputs.

Trading FPG/T Members formed these groups to respond better to market demand, but with no or limited external inputs (some training). The need to bulk their product for collective trading inspires active FOs.They expand membership and build members capacity to achieve greater volume and consistent quality. Thus, they tend to be problem-solving and develop better linkages with outsiders e.g. traders, local authorities, etc.Functions and BenefitsFarmers in these groups had already developed their production base to a reasonable degree (i.e. higher than average yields) and so did not urgently need production assistance or training as is the focus with many FPG / R. Farmers already producing efficiently, were in a position to respond to market demand. Thus ‘production’ and ‘capturing inputs’ were not the initial focus for farmers in these groups. Rather the issues they were faced were market related: undependable traders, low prices, price discrimination within the same or nearby villages.The key objective of the groups is: collective trading of their products with a single price being negotiated for the whole group. The main functions of the groups were thus: (a) to assemble product (or bulking) for easy pick-up by traders and (b) negotiate a common price. As a result, the groups were able to achieve a minimum 10% increase in price with some realizing 30% increase. As traders recognized these groups as reliable sources of output, during periods of oversupply traders tend to make them their first stop. As a result, they are able to sell their products even in the peak season, though at a reduced price.The bulking of the products by farmers provide significant savings for traders. Whereas they would previously need to visit many villages, and then have to negotiate prices at each producer. The producer groups now provide the product for them in a time and cost efficient manner. Described from a value chain perspective, the task of assembling the product has been shifted back along the value chain (from traders to producers). This assembly function is a form of ‘value added’, that farmers now capture themselves.

Formal farmer organizations

Farmer Cooperatives

FC Group collects products from its members and trades on their behalf. Fees are collected for this and other services (e.g. post-harvest processing) provided.The group buys products from its members and sells in the upstream market with an agreed margin. The margin is invested in providing services (e.g. post-harvest, certification, schools).The management of common assets (equipment and funds) and handling of large volumes of product require formal structures and procedures of cooperatives and associations.

Farmer Associations

FA The association studied assembled product from member cooperatives / groups, processed documentation and exported product. Member services included certification such as organic and fair trade.Due to the requirement of these specialized functions (logistics, documentation, marketing) a professional administration unit was employed. This worked under the direction of a board elected from the producer cooperatives.

Value-chain private sector driven groups

Private sector actors prominent in a value chain can be driving forces for agriculture change and even lead to increased farmers’ income.

Farmer Group Enterprises

FGE FGEs are formed by well-off farmers who pool their resources (cash and equipment) forming a profit-seeking venture. They provide services that enable farmers to increase their production: ploughing and land preparation, supply of inputs, shelling or other post-harvest services and marketing, creating dependable total-demand.

Constructive Contract Farming

C-CF Traders (or investors) provide services (materials, training, market access) to secure a sustained supply to their business. In the process, they recognize the importance of farmer viability to ensure a long-term supply, and may evolve towards recognition of a degree of partnership with farmers that extends beyond the ‘+3’ inputs.

Sector where they are predominant18 In Luangnamtha Province, most of the investments are in agricultural products, notably sugarcane— which is the predominant crop—rubber, corn, rice, melon, and banana. Many villagers are now engaged in contract farming, marketing their products via local or PRC19

traders to the PRC. Constraints faced by the farmers in this area include the high costs of cross-border trading; fluctuating prices; limited access to technology, market information, and credit; and weak negotiating positions with traders on prices. Contract farming arrangements differ across crops. Sugarcane and rubber are often contracted from a centralized estate. Some firms directly contract farmers to manage the crops, providing technical support, seeds, fertilizers, and the market. In the case of rice and 18 Lifted from Kanokwan Manorom, 2011:22-23.

19 Peoples’ Republic of China

corn, firms initially took a centralized approach but are now increasingly purchasing directly from farmers through informal agreements as farmers acquire the necessary production skills. Watermelon and banana are usually produced through partially formal or informal contract farming agreements. Sugarcane was selected as the product to be studied in Luangnamtha Province because it can provide many insights into the complexities of contract farming. Sugarcane contract farming has been practiced for more than 10 years and has the longest, continuous form of contract farming. It is obvious that the contract farming arrangement is well developed and implemented. Both the farmers and the company have gained experience from its implementation.Local Lao officials recognize that it is a typical “2+3” model, where farmers provide land and labor (2) while the company takes care of capital, production technology, and market (3).Farmers in Xayabouly Province grow maize, mainly for the export market in Loei Province in Thailand. Middlemen normally work with village heads, or Taseang, to encourage them to promote the growing of hybrid maize. Most middlemen offer inputs, on credit, to farmers; however, the farmers have to go through the Taseang or the head of the Contract Farmers’ Group who acts as guarantor. A key problem faced by the farmers is the lack of relevant information. As a result, they sell at unfair, low prices to middlemen. They also have no idea about how much is required by the processing factories in Thailand and so they are not in a position to plan wisely. This lack of knowledge of market requirements also means that farmers are not able to work toward better prices, for example, by decreasing the moisture content of their produce, or by grading and undertaking preliminary processing.Cabbage is one of the crops grown by contract farmers under contract farming agreements between Champasak Province in Laos and Ubon Ratchathani Province in Thailand. Here contract farming is expanding dramatically, with Thai business groups cooperating with local partners in growing cabbage and other crops including banana, tamarind, macadamia nuts, and horticultural crops, such as asparagus. Investment is estimated at around Baht 600–B700 million. Cabbage farming was selected for the case study because trade in cabbage has been growing steadily over the past 5 years and the authorities of Champasak Province have a special agreement called the “Agreed Market on Agricultural Products Project” (AMAPP) with Ubon Ratchathani Provincial Commerce20, following the Ayeyawady– Chao Phraya–Mekong Economic Cooperation Strategy (ACMECS). The term “AMAPP,” coined by ACMECS, was used instead of “contract farming” because many of the cross-border crops traded between the two provinces, including cabbage, are not on the list of ACMECS crops.Generally, the contract models found in Pakxong District in Champasak Province, as seen in the case of cabbage, are mixed between formal and informal forms. The contractors are mostly companies and middlemen from Thailand. Both lowland and highland farmers have responded to contract farming opportunities and, with the encouragement of the local authorities, are producing banana, cabbage, tamarind, coffee, melon, and other crops. Most products are exported to Thailand and Viet Nam. The government provides support to farmers through training and the provision of infrastructure, such as warehouses. Companies generally provide credit and inputs. Both verbal and written contracts are used.Ubon Ratchathani Province in Thailand is the biggest wholesale market for contract farming crops, especially for cabbage and banana from Champasak. The Thai companies and middlemen come to buy these crops from the wholesale market and deliver them to the lower part of the northeastern region of Thailand and to Bangkok. 20 Thailand’s Ubon Ratchathani Province is in the “Emerald Triangle,” an area with a potential for developing economic and tourism cooperation between Cambodia, the Lao PDR, and Thailand. Chong Mek is a very important border checkpoint between Ubon Ratchathani and Champasak provinces. In 2009, Baht 936,571million was generated through cross-border trade between the Lao PDR and Thailand. Some of the imported goods that contributed to taxes generated were clothes, utensils, logs, wooden crafts, and agricultural goods such as cabbage and green banana from the Lao PDR (2009 Annual Report of Phibunmangsahan Border).

In Luangprabang Province. Here several PRC and Lao PDR–PRC joint venture firms promoted white sesame, corn, groundnuts, and vegetables for export to the PRC through farmer producer groups. These failed, however, apparently because the purchasing company did not always return to buy the produce even when the firms provided seeds and small quantities of chemical fertilizer on credit.

IV. Successful Cases of marketing arrangements

Name of Firm/Group/Project

Commodity Type of Marketing Arrangement

Driver

Enhancing Milled Rice Production (EMRIP)

Rice Production Agreement

Donor/INGO

Pakxong Development Enterprise Export-Import Company

Cabbage and Chinese cabbage

Contract Growing Provincial Trade Department

Natural Products International

Soy beans Contract Growing Foreign Firm

Friends of the Upland Farmer (FUF)

Cardamon, broom grass, maize, soya and garlic

Contract Growing Foreign Firm/NGO

Nam Nyon Production Group

mangetout21, yellow flowers similar to marigolds, corn, and forest produce such as “mak dao” a kind of small sugar palm, bamboo shoots, and broom grass

Contract Growing Farmer Group

Application Point in the Boloven (PAB – Point d’Application des Bolovens) Production groups and later on the Boloven Plateau Association of Coffee Producers’ Groups (AGPC – Association des Groupements de Producteurs de Café)

Organic Coffee Cooperative Growing

Donor

21 The snow pea (Pisum sativum var. saccharatum) is a legume, more specifically a variety of pea eaten whole in its pod while still unripe. The name mangetout (French for “eat all”) can apply both to snow peas and to snap peas.

Samphanxai Kumban, Khoun District, Xieng Khouang

Poultry Collective Trading Donor/Project

Khoune District Green Vegetables Collective Trading Donor/ProjectBan Nampheng Marketing Groups

Bitter bamboo shoots (Indosas sinensis) and cardamom pods (Amomum spp.)

Collective Trading Donor

Collective Cattle Trading, Nonghet

Cattle Collective Trading Government

Organic Market in Pek District, Xiengkhuang Province

Vegetables Direct Marketing NPA

Modernization of the Clean Vegetable Brand

Salad Vegetables Collective Trading, Branding, Provision of Common Service Facility

Donor

Organic Rice Production, Sangthong District, Vientiane Province

Organic Rice Contract Farming Private Trader/Consolidator

Cases of Successful Marketing Arrangements of Farmers with Private Enterprises

Case 1: Enhancing Milled Rice Production (EMRIP)22

Description of the marketing arrangementThe EMRIP project is essentially a Public Private Partnership (PPP) model. The intervention sought to scale up development of the rice value chain by expanding the project area to six provinces, with a target of 20 mills (including 10 female rice millers) and a production network of 20,000 smallholder rice producers.

22 Lifted from Connell, November 2011 and Sotouky, 2012.

BeginningsThe Enhancing Milled Rice Production in Lao PDR Project (EMRIP) is a joint initiative by SNV 23

and Helvetas24 launched in 2009 with funding from the European Union’s rapid response Food Facility to address soaring food prices in developing countries.

Objective for the marketing arrangementThe overall goal of the intervention was to contribute to a rapid and sustained increase in the supply of good quality milled rice for domestic consumption and trade. The specific objectives included:Increasing the output of high quality milled rice through upgraded storage and milling facilities and equipment, coordinated supply chains, and optimized farmer productivity to ensure increased supplies of paddy rice;Supporting the targeted provinces, districts and business development service providers (BDSP) to facilitate the emergence of efficient value chains and provide technical and market support for the production of good quality milled rice;Creating a national policy environment that was supportive of producer, processor and provincial government efforts to anticipate and adapt to supply, demand and price volatility.

Measure of meeting targets/ objective achievementOverall objective: To rapidly increase the quantity and stability of supplies of good quality milled rice for domestic consumption and trade Indicators of achievement: Production capacity for high quality paddy rice is increased by 30,000 tons; Production, trading and milling relationships link 20,000 producers to 20 target millers

Specific objective 01 - Improved market stability for rice producers and millers in target areas Indicators of achievement: 20 millers have the physical infrastructure and skills needed to produce and profit from milling good quality rice; 20,000 farmers are mobilized, organized and linked to markets for high quality milled rice that supports a price premium for quality

Specific Objective 02 - Improved frame conditions required for producers, millers and consumers to benefit from continued growth in production and price stability for high quality milled rice in Lao PDR Indicators of achievement: 6 provincial and district government agencies are able to facilitate value chain development in their areas; 6 national government agencies are engaged in productive policy dialogue about rice milling; 6 BDSP have business serving the rice milling industry

Motivation to participate, contribution to & expectations out of the marketing arrangementMills recognized that supporting farmers to be effective producers would generate improved feed to their mills. Thus they made no attempt to profit from input supply, and the prices for purchase of rice were competitive. They were committed to ensuring that technical advice did indeed assist farmers, and most mills have already begun to employ their own staff to provide technical support in a targeted manner.All [farmer] groups expressed satisfaction in the security of the mills to purchase their crop.23 A non-profit, international development organization, established in the Netherlands in 1965.

24 A Swiss Association for International Cooperation.

Marketing Arrangement’s ImplementationInclusive businesses and investment plans. . . one of the critical strategies that has underscored [the] success [of EMRIP is] . . . the process of filtering suitable mill candidates to; firstly, receive the grants of equipment, and then to be active in establishing producer networks, a ‘business model’ that would have been almost counter intuitive for most mills. Briefly, criteria were set for suitable mills, the opportunity was [advertised] publicly (78 applied), and then an open committee was used to match the applications against the objective criteria. In two cases mills were accepted due to requests by local authorities thus circumventing the process. These did not perform and were dismissed and substituted by 3 other mills. As a result of this process the mills that have been selected were those who had a broader vision of doing business than simply maximizing profit margins when purchasing from farmers. These mills have in effect been willing to think critically, to analyze their context and opportunities, and had a longer term perspective to improve their overall trading position. This includes ensuring an improved supply of feed (volume and quality); in effect meaning they have taken on a value-chain perspective. As a result, providing support to farmers to ensure they become effective producers fitted with this vision. Further to this, it is these millers who have been interested to form miller groups, and to then gone on to assist the new . . . farmers as part of their standard practices.

Production agreementsMills supply [farmers with] inputs and give them a one-stop market for their crop. All groups expressed satisfaction in the security of the mills to purchase their crop. In practice the agreements of a minimum guaranteed price were only for repayment of the inputs provided on credit with farmers free to sell the remainder of their crop to any buyer. In all cases the mills honored the contract agreements, even when disadvantageous to themselves25. At the same time when buying the harvest the mills have done so according to the market price, and then paid a premium for single var. batches by about 10%. This is a deliberate strategy of the mills to both reward quality and encourage other HHs to join the producer network.

Input supply The mills, by delivering seed and fertilizer to villages makes them available and at reasonable cost. With no private sector seed providers and a public sector seed system that hasn’t developed a distribution system, rice mills are filling a very important gap in the system and in fact providing a very valuable service to farmers. Prices millers set for inputs were sufficient to cover their costs (base, transport and bank interest), but lower than existing sources available to farmers. In other words millers did not try to make profit from input supply, but aim to encourage farmers' use of these to generate increased supply of single variety quality paddy as feed stock for their mills. Many mills encouraged initial use of HYV26 seed by not requiring payback for seed in the first year. Then in following seasons (2010/11 naa saeng27 and 2011 naa phii28) they collected

25 Bounkham mill (Saravan) accepted paddy repayment at contract price at a time when market prices were lower. Sriphaseuth had mill operation difficulties and could not mill but purchased back paddy for credit discharge as agreed.

repayment at cost. Finally where farmers suffered crop losses due to floods etc. and could not repay, mills rolled the debt over without adding further interest. Altogether the ready access, initial subsidy to gain farmers use of fresh HYV seed, and a policy of cost recovery for inputs were effective in gaining substantial application of these by contract farmers.

Technical support The initial training event conducted by CADC29 was didactic and not suitable for farmers to apply in the field. This was quickly recognized and a multi-layered approach instituted by EMRIP. This included; - One day training events, with mills as ‘focal point’ with 2 representatives from each village attending - Starting point for training generated by farmers brainstorming of issues they felt needed to be covered - Using a range of resource persons, including DAFEO30 staff; champion farmers, and increasingly mill staff. - Specific follow-up plans for village representative to pass-on the technical messages, which are attended by mill representatives (incl. DAFEO staff where available). This approach then (a) responded to farmers needs in technical advice; (b) mobilized appropriate resources persons, and included committed following-up to support the trainees relating the technical messages to fellow farmers. Millers have quickly come to recognize that effective technical support will contribute increased volume to their mill, and assist farmers gain profits and so find commercial rice production viable. Thus there is a genuine growing commitment by millers to enabling this support. As the mills increasing want to lock in farmers’ productivity, several are beginning to employ their own field staff, either on a seasonal basis or time based.

Farmer Production Groups The formation of the first groups was facilitated by EMRIP staff in two steps; introducing the group functions to farmers, then allowing time for farmers to set their own regulations and committee. Groups in subsequent villages were formed by millers themselves. These farmers groups have been a pre-requisite for efficient supply of inputs and bulking of product for sale. They further have assisted members to become aware of, be trained and to

26 High yielding varieties of rice may also be referred to as ‘improved varieties’. They confer higher yield through their improved plant physiology (better tillering, longer panicles, etc), better resistance to disease and pests, and finally greater responsiveness to fertilizer if applied. Seed supplied to farmers is generally 4th generation and should be replaced with fresh seed every 3rd- 4th year to maintain the high yield potential and good eating characteristics.

27 A form of dry season rice cultivation, called nana saeng, which relied on natural moisture remaining around lakes and swamps to sustain the rice crop, through creation of small bunded paddies.

28 secondary dry season rice crop

29 Clean Agriculture Development Center

30 District Agriculture and Forestry Extension Office

use improved practices. These are ‘normal’ function for ‘farmer production groups’. In this respect, they have been formed and then operated as a part of the mill supply chain.

Mill operation Mill support for farmers to establish producer networks is a profound change in the operation of the mills. It has direct effects on the ability for the mills to operate efficiently, generating a high quality product, and to operate within a planned business framework. Millers consistently stated that the network of producer groups supplying them with improved feed was the key to their improved operation. These improvements appear firstly in the improved feed to the mill, both in volume and quality. The single variety feed allows for increases in recovery rate (as distinct from the improved recovery due to equipment upgrades) and produces an improved product with a higher value. The ‘producer network’ dramatically reduces time to secure feed for the mill. One mill stated that he now can run at his new capacity by working with 3-4 villages, compared to ten or more in the past. Another stated that when in the past it often took a day to fill the truck, now it is an hour of her time to arrange. Perhaps more important is that having a secure supply, the mills are in a better position to make forward commitments, and to secure loans. One miller who had invested in additional mill equipment stated he would not have considered such a move without his producer network in place. These are compelling reasons for millers to ensure their producer network functions well. Thus the mill interactions with farmers are designed to enable them to produce more effectively, and to then secure the sale of their crop to them. As a result, the repayment rates for the inputs are at cost-recovery levels and prices paid for paddy have been competitive, with premium of quality paddy (single variety, etc.)Mills have often gone beyond the contract agreements and provided other enabling support to farmers as needed. This has included; paying electricity bills for pumps before season; soft loans for repairs to irrigation canals, acting as source of credit in times of stress. A new mechanism that may well become general is that of allowing the mill warehouse to be used as a storage facility (rice bank) for network members’ rice. Farmers notify the mill when they want to release it for sale, receiving the market price at time of milling. For the miller this secures a stock of rice which won’t be sold to other traders. The provision of these as a grant is an unusual intervention for ODA31/public sector projects but does not appear would be a necessary component for replication. Of the 21 EMRIP mills 13 mills co-invested on average 31,000 EU each, close to the average EMRIP grant (39,424 EU) to each mill. On top of this, none of the 79 new mills that have joined miller groups in Khammouane have received such grants. Thus the grant has helped to provide a model for improved milling, without proving to be an obstacle for replication.

Policy dialogue EMRIP has been able to facilitate policy dialogue which had contributed to constructive outcomes at the provincial level these include: Streamlining of trade procedures: previously mills needed to obtain approvals and

signatures on 10 documents to trade across provincial boundaries. In Khammouane these have been reduced to a single approval

Reduction of import tax for agriculture equipment and materials. This was a provincial level tax (5-10%) applied to; milling equipment; fertilizer and production equipment. In Bolikhamxai this has been reduced to 1%.

31 Official Development Assistance

Reduction in local trading restrictions: In early 2011 several provinces Saravan, Champassak and Bolikhamxai imposed a trade ban on rice. Prov. meetings included mills to discuss stock levels resulting in the bans being retracted.

Provincial authorities now recognize ‘miller groups’ as an appropriate association and have begun to consult with them in a more regular framework.

At the national level, a project based stakeholder group was formed with core members from MAF32 and MoIC33. As well as these core members’ specific agencies have been included according to the issues raised. The stakeholder group has conducted meetings covering a range of issues including; production; grain quality; access to funds for millers and marketing of rice. This has resulted in:

Moves to develop a national rice strategy, currently being drawn up by DoA34 Allocation of national funds for new mechanisms; 50 B Kip for a rice stockpile through

rice millers and 17 Billion Kip for privatization of seed production and marketing.

Outcome of the marketing arrangementAll mills established networks of producer groups with a total of 21,361 (2011 wet-season crop) members across 340 villages. Thus the mill producer networks typically comprise 10-15 villages with about 1000 members. As a result of mill support, farmers gained significant increases in income (>60%) due to both; increased crop yields (+30-50%); and higher prices (+10%) for improved quality of paddy . . . As result of both the interventions above, the 21 mills measurably improved their milling operation with actual throughput increasing from 12,400 tons (2009) to 36,523 tons (2011 projected) an increase of about 300% . . . Within its project area EMRIP has enabled a more integrated rice value-chain. This is evident firstly at village level, by farmers seeing the local rice mill as more reliable markets for their crop than spot traders. Millers on their part have been willing to invest in their own operations; (e.g. seed for farmers; mill equipment for millers).

Intended and unintended outcomesAchieving a higher quality grain not only gains a price premium, but also enables the mills to enter markets which previously were not open to them with mixed grades. This includes government quotas (police and military), which now form significant and secure portions of their sales. It also positions them to access new export markets in the future. At the higher end, one mill (Suthat, Vientiane) is now marketing A grade quality rice in branded bags and one other mill (Vanida, Thakhek) is considering something similar. This should place the mills in a more confident marketing position; to becoming price makers rather than price takers. Some of these millers are moving into a high quality higher priced market segment that was previously filled mostly by imports rather than Lao production. The Khammouane Development Rice Mills Group (KDRG) is already becoming proactive in seeking markets (Thailand) rather than accepting trade that comes to them.

Village level perceptions: The crop yield increases have occurred broadly enough to affect village economies and outlooks. This is illustrated by two examples, the first from a community with established

32 Ministry of Agriculture and Forestry

33 Ministry of Industry and Commerce

34 Department of Agriculture

rice trade, and the second a rice deficit village, which would not normally be expected to be in a position to benefit from a trading relationship with mills. Increased trade - Farmers recognized that rice has become a more reliable traded commodity. B Naa Huaphou (Paksan) was already a commercial rice trading village. Farmers interviewed estimated that 70% of the contract HHs35 would have increased the volume of paddy they sold from 3 T/HH to 4.5 T/HH, an increase of +50%. The additional income from this would be +3.8 M Kip/HH8 (or +58%, corroborating the figures for HH income above). Achieving sufficiency - B. Dan, a Khamu village in Mahaxai district typically suffered crop losses to their main wet-season rice crop due to flooding of adjacent river, resulting in all HHs having rice deficits of at least 2 month each year. Pumps have been installed by NTPC to allow them to crop in the dry season and escape flooding. However technical support to assist them to take advantage of this new system had been weak and so their yields for dry-season cropping were low. Support under contract from the mill (Niphaphone) had resulted a dramatic improvement in their naa saeng yields of +100% over their earlier efforts. Floods this year were excessive and still damaged their crop, however 30% of HH had sufficient rice, and a further 20% had excess to sell. Here the mill support was enabling the village to move from a deficit, to sufficiency and excess.The improved outlook for villages comes not only from increased yields but also from more predictable trading relationships.Whereas in the past they visited many villages to buy paddy rice, they now satisfy their new mill capacity from a smaller no. of contracted villages that they actively support. This is also consistent with villages having gross increases in production available to trade.

Factors Contributory to successful marketing arrangementEMRIP has demonstrated across a wide area and a range of production conditions that a PPP mechanism can result in increases in rice yields [of] 30-50%. Application of the EMRIP model, to engage mills to support farmers within producer networks, could thus make a significant contribution to maintaining and even surpassing national rice sufficiency. EMRIP has been a special case, where part of the ‘public’ contribution provided equipment to the mills as grants. However the core mechanism has been mill support for farmers to establish their producer networks. As a result such grants should not be necessary in replication. The key support then was for training, coordination, seed supply and facilitation. Over the life of the project (2 yrs) expenditures in these areas amounted to about $578,7761, much of this for expert facilitation. The potential for replication is high, as indicated by the additional mills in Khammouane voluntarily joining the miller associations and following the model of supporting farmers’ production. There are three agencies36 which have, or are in the process of committing funds to replicate the EMRIP approach. However in addition to this, it is a mechanism that the relevant GoL37

agencies should invest in, without waiting donor support. Here lie some weaknesses, in ensuring that local extension workers are committed to this work and effective, and that there is better coordination cross agencies particularly the agriculture and commerce sectors.35 households

36 1# Mc Knight Foundation; to bring a focus on further strengthening of farmer groups in Savannakhet, Saravan and Xekong; 2# RABO Bank; with additional focus on strengthening of mills groups in Khammouane; and 3# World Food Program to use this mechanism for is Purchase for Progress program in a total for 8 provinces including 2 in the north.

37 Government of Lao

The miller groups have the potential to instill mill support to farmers as a standard practice to ensure good feed to mills. This would in turn boost crop yields by 30-50%. However the formation of new miller groups has not been based on a core of mills effectively using this mechanism (as was the case in Khammouane), but by designation. This is counterproductive and if allowed to continue will undermine the opportunity for these groups to enlist new mills to work in this manner and thus with it the boost to yields.

Case 2: Pakxong Development Enterprise Export-Import Company38

Description of the marketing arrangement After some discussion and consultation with Thai counterparts and Lao PDR authorities, the company organized a multilateral cross-border trade agreement between Thai buyers and Lao sellers, with the endorsement of the commerce authorities of Thailand’s Ubon Ratchathanee Province and Lao PDR’s Champasak Province.This agreement specified a minimum price for 14 fresh vegetables and fruits as well as minimum trading volumes.

Beginnings Pakxong Development Enterprise Export-Import Company Limited is a family business. Its principal owners are Inpeng Samounty and Montree Chomsamut. The company was registered in 2001, and began commercial activities in the timber sector. The company bought timber from the Government of the Lao People’s Democratic Republic (Lao PDR) and exported it overseas, mainly to Japan and Thailand. Once Lao PDR’s timber supply became exhausted, the company began dealing in fresh produce in 2004 when a high ranking Lao political leader39 asked the company for assistance in organizing cross-border trade in fresh vegetables.

Marketing Arrangement’s ImplementationIndividual producers purchase their own vegetable seeds and farm inputs, and organize their own production schedules as they see fit. In cases in which producers need credit to produce enough to fulfill their individual quotas, they apply for loans for this purpose from the provincial agricultural bank; these loans in turn are guaranteed by the field representatives operating in the area where the farmers are located. To ensure that the provincial agricultural banks have sufficient cash on hand to satisfy producers’ demand for credit, the company deposits ThB 4010 million with the provincial banks. Producers then pay interest to the bank on their loans, these interest payments being used by the banks to cover their administrative and overhead costs.Boonpon and other officials [of the provincial trade department] encourage farmers to form groups for producing crops to match orders from traders, usually Laotians, who in turn are exporting to customers in Thailand.Meanwhile he tries to find companies to place orders and helps find groups to match the needs of companies that come into the district seeking supplies.

38 Lifted from Panyakul, 2012:10; Fullbrook, October 2007:45 and Kanokwan Manorom, 2011:58.

39 The provincial trade department which in 2006 began a pilot project to regulate contract farming and trading in Paksong District of Champasak Province (Fullbrook, October 2007:45).

40 Thai Baht

“I introduce buyers to production groups and farmers, if the farmers want to see the company representative I will arrange a meeting. For example if the company wants to export 200 tons of vegetables, the company has to work with the trade unit. I will go to see the farmers to find who wants to grow these vegetables and collect data about their production. The unit tells the farmers to produce 200 tons with a guaranteed minimum price,” says Boonpon.Boonpon’s unit has good reason to match farmers and companies: its budget increasingly depends on charges levied on production for helping to manage the production process.Buying produce under this managed contract system incurs a tax of 1.25 kip per kilogram, another 5 kip is levied per kilo for extension services, and 7.75 kip for the units running costs, including salaries; a total of 14 kip per kilo.Energetic Boonpon’s involvement does not stop with such production agreements. “I monitor the implementation of the contract between the company and the farmers. I try to resolve disputes, for example if the company does not pay the minimum price.”

Objective for the marketing arrangement“This unit was established because in the past farmers did not always earn reasonable prices as traders would push down prices for unfair reasons. The unit is here to guarantee fair prices for farmers by only allowing companies holding contracts with a customer to come here to buy from the farmers through this unit,” says Boonpon Boonarat, head of the cabbage and Chinese cabbage wholesale market unit of the trade office of Paksong.

Motivation to participate, contribution to & expectations out of the marketing arrangementSecure orders from traders under the regulated production model are encouraging farmers to expand production. “The guaranteed price gives us confidence to grow more, we are no longer afraid of not finding a market,” says Samlong.

Outcome of the marketing arrangementThe owner of the Lao PDR company, Pakxong Development Export–Import State Enterprise, who signed the cross-border contract with Champasak Province, reported that cross-border contract farming provides small farmers with a secure income. It guarantees sales, at daily market price. Farmers benefit as the market price may be higher than the agreed minimum price. Farmers can either sell the cabbage to the company in the town or they can take their produce to the Thai buyers at the border themselves. If farmers request inputs or other services, such as fertilizer and seed, the company provides them. The company deducts the cost of the inputs from the sale, with the farmers receiving the balance.[Before] the farmers could only make profits in two months a year. Now they can make profits in seven months out of the eight month the cabbage season.”. . The consequences are striking: Hyundai light trucks are now common, parked in fields beside salas or being loaded high with cabbage along the roads weaving between the verdant fields. Farmers reckon a Hyundai, which costs 57,000,000 kip ($5,876) in Pakse, is a good investment because each season they can save 20,000 baht ($571) that would otherwise be spent on hiring transport to take cabbages to the Thai border.

Factors Contributory to successful marketing arrangementThe major lessons learned from this case study are that when combined with improvements in managing the food supply chain, contract farming can deliver significant financial and

other benefits to producers, and stabilize market prices as well. Further, market-based mechanisms, such as minimum price guarantees, minimum purchase volumes, production planning, production credit guarantees, and formalized transport arrangements, can give small-scale producers access to markets that they otherwise would not have access to, and thus can produce economic benefits for their families and communities.However, a critical success factor in this case is the efficient supply chain management and planning contributed by the company since, in its absence, the benefits referred to above would not have been achieved. The company’s management skills in organizing its field representatives and the cooperative arrangements it concluded ultimately brought about a level of certainty for farmers, exporters, and buyers that facilitated efficient functioning of the supply chain. Regarding distribution of the organically grown produce that the company is planning, the contributions of nongovernment and international development organizations, such as PROFIL and the International Trade Commission, in training the company’s extension staff will likely play significant role in expanding production and trade in organically grown produce. Thus, another lesson learned from this case study is that such bodies may have an important role to play in facilitating successes such as that described in this case study. In this regard, capacity building of the company’s staff may produce much wider benefits if it is extended to technical training and experience-sharing programs organized at the sub-regional and regional levels.Another factor critical to success in the case described above was the annual agreements concluded between private sector transactors on opposite sides of an international boundary, since these were key in producing mutual benefits for all parties concerned.Such agreements have two important implications. First, some degree of collaboration between producers, exporters, and buyers can result in additional benefits for all transactors as opposed to producers independently planning production and engaging in price competition when their produce is brought to market. Second, contracting for minimum prices and volumes benefits all parties to the transaction, and provides exporters with sufficient certainty to encourage them to invest in improving the supply chain. In this case, this included posting financial capital used for extending production credit to farmers, as well as direct loans to producer representatives for vehicle purchase.Finally, while support from international trade authorities in both countries was critical to achieving success in this particular case, this would probably be true for all such arrangements. In particular, endorsing the annual agreement concluded between the company, its field representatives, producers, and the buyers facilitated the cross-border trade that delivered benefits to all parties to the agreement. This type of agreement with official endorsement thus might be used as a model for cross-border trade in agricultural products in other countries of the Greater Mekong Sub-region.

Case 3: Natural Products International (NPI)41

In 1995, Natural Products International, Inc. (NPI, Inc.) a small American-owned company began operations in Laos. The company is focused on improving food security in northern Laos using a market-based approach involving two focus areas. It was successful in partnering with local farmers and helping them grow high-quality soy which NPI purchased for a fair price. In May 1997 it has secured a contract to produce all of the Corn-Soy Blend (CSB) for the World Food Program's (WFP) school feeding program in Laos. It has invested over $1.4 million in equipment, real estate, and salaries. NPI has worked with local subsistence farmers. It has set up a feed mill and taught over 1,000 farming families to grow soybeans. For many of those families, soybeans represented their first cash crop, in some cases nearly doubling their annual income. The model in Laos gradually expanded to include selling seed soybeans, buying the harvest from the family 41 Lifted from Huso, 2008 and Portfolio - Laos, 2012.

farmers, processing the soybeans into animal feed and oil, and selling the feed. In addition, NPI, Inc. set up a hen house for egg production, and began work to establish farmer-owned layer farms. In 2005, NPI, Inc. set up a second mill to make human food using locally grown soybeans, rice and corn. This is the most profitable of all processing, but requires a great deal of training, and more expensive equipment. NPI, Inc. recognized this was the most dramatic way to impact a region’s ability to feed itself, and the surest way to ensure profitability and sustainability. NPI, Inc. continued producing corn-soy blend until 2006, when it ended its operations in Laos. NPI's partnership with WFP, and its support of local farmers, has served as a model for the WFP's "Purchase for Progress" program, which focuses on purchasing food aid in-country from local farmers and supporting sustainable agricultural development. NPI was feted in May during a visit to WFP headquarters in Rome and encouraged by WFP to expand into additional countries.

Case 4: Friends of the Upland Farmer (FUF)42

Description of the marketing arrangementAccording to the contract FUF would give farmers corn seed and advice, but not fertilizers or pesticides. . . In return farmers would cultivate the seeds, guard against scavenging animals, and sell at least the first 200 kilograms of the crop produced by every one kilogram of seed to FUF at prices determined by the corn’s moisture.“I will plant the seed; take care of the plants and harvest. I will only sell to the company because it gave me the seeds,” Orn La, 30, a farmer.

Beginnings FUF was founded to assist upland farming communities develop viable livelihoods and maintain vital forest resources. Since the registration as an NGO was not possible in Lao PDR, FUF is registered as a non-profit business. The goals of the company are: To promote the production of NTFPs and agricultural products To provide a link between farmers and the markets, both domestic and foreign, which will guarantee fair prices and a regular income to producers; To cooperate in participative development initiatives by villagers to provide basic services and sustainable livelihoods.

Motivation to participate, contribution to & expectations out of the marketing arrangement

“Farmers are more confident they can sell their product because the company will come to buy, they do not have to find the market. They also know the price. And even though some families cannot afford to buy seeds in advance, they can still grow crops. Farmers can also borrow money in advance if they have an urgent need. They can also bring more land into production because the company will plough the land, deducting the cost from their income.”

Marketing Arrangement’s ImplementationThe company operates through DAFO staff that trains the farmers, give instruction about planting and harvest and do the monitoring. An extension officer of FUF, Mr. Seun Phan, is

42 Lifted from Fullbrook, October 2007 and Helberg, June 2003.

responsible for coordination and based in Nalae. With the help of DAFO, villages are selected, agreements with villagers signed, before seed material is distributed. Cardamom seedlings are free, but villagers have to return three seedlings for each one received, within a period of two years, so that these can be distributed to other farmers. FUF buys cardamon, broom grass, maize, soya and garlic from the contracted villages. Other products are under consideration. Some processing facilities, such as dryers, corn sheller, threshers and storage bins are available, as well as tractors with implements.

Outcome of the marketing arrangement“The farmers are happy with this guaranteed price because it protects them when prices fall. I think more farmers want to sign the contract with the company because most of our farmers do not have money for seeds. The company pays people 10,000 kip for loading each ton of corn on to the trucks. Farmers also find access to emergency credit from the company attractive.” Kamgaew Pompanya, 43, a party member who served twice as deputy headman is confident that contracts are bringing more security and helping expand production.

Case 5: Nam Nyon Production Group43

Description of the marketing arrangement “The group will provide seeds, fertilizers, chemicals and technical support. From the farmers’ side they have to take care of the crops and pay back the funds they received in form of fertilizers, seeds and chemicals and they must sell all the crops back to our group,” says Kepchan Intachan, 53, a party member who heads the production group of Nam Nyon Kumban. “Usually the Thai partners provide us with the seeds and fertilizer.” Officials also provide information about farming techniques and trade documentation and procedures. “The district and provincial staff play similar roles, giving some guidance, collecting data and help in terms of making documents and procedures to export and import products,” says Kepchan.

BeginningsThe production group of Nam Nyon, traces its roots back to 1997 and now covers 395 of 624 families in four villages, contracts in the dry season for mangetout44; and in the rainy season for yellow flowers similar to marigolds, corn, and also buys forest produce such as “mak dao” a kind of small sugar palm, bamboo shoots, and broom grass.Motivation to participate, contribution to & expectations out of the marketing arrangement “It was difficult to find a market, so I decide to grow under the contract because after harvesting I can sell immediately. The buyers set the price, but not in advance, it’s a little lower than the market price.” Na noun.Simuang, the Ban Dan farmer, broadly agrees: “As for me I think working with group is more convenient, I don’t have to worry about marketing, I only have to pick the corn, put it the bag and give to the group. If you try to take the corn to the Thai market yourself you have to worry about all sorts of procedures like customs and tax.”. . . Saithong, the trade adviser to the Nam Nyon production group, sees benefits for everybody and a corresponding rise in 43 Lifted from Fullbrook, October 2007.

44 The snow pea (Pisum sativum var. saccharatum) is a legume, more specifically a variety of pea eaten whole in its pod while still unripe. The name mangetout (French for “eat all”) can apply both to snow peas and to snap peas.

farmers’ interest in their work. “The contract system is good for both the buyer and the farmer. The buyer can have enough supply and the farmer can have the market to sell the product. Signing this kind of contract will give the farmer greater spirit of responsibility for taking care of the crops and using the funds like seeds and fertilizer provided by the buyer.”

Marketing ArrangementIn Nam Nyon the village head doubles as the head of each village production sub-group guaranteeing the farmer will pay back the cost of seeds and fertilizer and only sell the crop to the group. . . Whatever form the contract takes the obligations are similar.A group will advance inputs like seeds to farmers in return for the right to buy the harvest at an agreed price, which is often tied to the prevailing market price.

Outcome of the marketing arrangement“Nothing has changed in terms of income, even when I invest my own money. But this contract system is good in terms of having a market for my product. Even if I don’t have money for seeds and fertilizer, I can get them in advance and pay later,” says Nanuon, the farmer from Si Don Ngeng.

Case 6: Application Point in the Boloven (PAB – Point d’Application des Bolovens) Production groups and later on the Boloven Plateau Association of Coffee Producers’ Groups (AGPC – Association des Groupements de Producteurs de Café)45

Description of the marketing arrangementPromotion of high-range coffee (commercial and robusta) to improve the income of coffee producers through collective coffee wet-processing. The programme offered producer groups to build collective processing centres for coffee and to conduct in these centres all operations up until the drying stage, with no individual ownership of coffee and strict operating rules as well as frequent quality control. The objective of this new approach is to allow producers to conduct the post-harvest transformation of coffee instead of selling it by the cherry, to intermediaries or exporters. This promises them the recognition of their product’s quality and its acknowledgment in higher prices.

Beginnings Since 2005, PAB project has helped establish 55 coffee producer groups in the districts of Paksong (Champasak province) Laongam (Salavan province) and Thateng (Sekong province). The groups were put together in order to produce and market high-quality coffee, aiming at improving producer incomes, as well as contributing to recognition of a local skills base and promoting environmental preservation. In 2006 the groups joint a second level association, AGPC, whose mission is to provide political representation for coffee producers in the groups and encourage the production and marketing of quality coffee.

45 Lifted from ‘Sharing seeds for the Future: the experience of the Bolovens Plateau Coffee Producers’ Groups Association (AGPC)’, March 2012 and Tulet, June 2009

Motivation to participate, contribution to & expectations out of the marketing arrangementOne of the motivations which lead producers to sign up to the group, probably among the most important, is the price paid for coffee. Many declare themselves satisfied by it. Some of the other material advantages are also much appreciated, notably the creation of funds specifically for the group because it frees members from having to turn to intermediaries or loaners. A dynamic being thus created, other advantages become more perceptible and tend to become just as important as direct material benefits. Some state very clearly that solidarity among villagers is increased thanks to the group. Moreover, the group taking up depulping activities and the rotation among members frees up time for farmers to spend with their families, which is also very much appreciated. It is not an individual comment, but a widely spread opinion which is reasserted in several villages. The pride of producing better quality coffee is also brought forward. Thanks to early successes, new investment projects can be considered, which in turn result in more cohesion within the group.To obtain the best possible quality and to potentially sell production on high-value niche markets, the PAB programme offered producers’ groups to build collective coffee processing centres and to conduct there all operations up to the drying stage with commercialization of coffee, strict operating rules, and frequent quality control.The creation of Collective Coffee Wet-Processing Centres (Centres Collectifs de Traitement du Café par Voie Humide – CCTCVH), processing plants aiming at transforming coffee cherries into dry coffee, known in Latin America as “benefico hùmedo”, thus fulfils four objectives: Integrating farmers, cherry traders, into the commercial chain of Arabica coffee by

providing them with necessary equipment for coffee wet-processing Improving the quality of Arabica coffee thanks to commercialization and self-managed

quality control Strengthening producers’ groups around work, investment and collective

commercialisation of coffee Providing producers’ groups with necessary equipment for wet-processing of robusta

coffee in order to promote the unique quality of this coffee to specific niche markets.

Marketing Arrangement’s ImplementationThe groups are managing production and commercialization of coffee:

support to the production of Arabica plants management of the fertility of coffee lands improvement in the size of coffee trees and shading trees implementation of integrated scolytus46 control support to coffee drying (acquiring material and improving techniques) building of CCTCVH (38 in 2007 and 2008) (Tulet, June 2009:53)

In 2007, the groups went into partnership to form a secondary level structure, the Boloven Plateau Association of Coffee Producers’ Groups (AGPC – Association des Groupements de Producteurs de Café). The AGPC’s purpose is to represent the producers from these groups in front of provincial, national, and international authorities, to encourage the production 46 Coffee berry beetle, a pest that should be controlled.

and commercialization of quality coffee in order to reach exportation capacity, and enter the national market for roast coffee, to put in place “symbolic” signs of quality (IG, Fair Trade, organic, etc), to search for funds and to participate in project management for its members.

Outcome of the marketing arrangementThe Application Point for the Boloven has thus contributed to the creation of 53 groups of coffee producers since 2005, which amounts to approximately 2,625 families, located in the districts of Paksong, Laongam and Thateng. The groups now have their own funds thanks to annual contributions from members, the refund of inputs distributed by the group to its members (the PAB subsidizes these inputs), the payment of half the original investment by the PAB for the construction of collective processing centres. These funds must be used for the operation of the group, the processing centre, but it must also allow the delivery of loans to combat the sale of trees and the threat of loan sharks.

Factors Contributory to successful marketing arrangement47

Gradual development with clear objectives Village producer cooperatives initially emerged as ‘farmer producer groups’ with a production focus. Their main function then was learning to develop improved production of coffee – both volume and quality (introduction of catimor, processing, etc.). This prepared the groups to have a product that could be traded independently (volume) and access higher value markets (quality). These groups shifted to operate as cooperatives with their prime function to provide service to members, i.e. collection of product and processing in bulk to ensure consistent quality. Fees collected allowed the cooperatives to invest in equipment and to support development initiatives. Thus, the cooperatives have secondary functions of management of its assets (equipment) and support operation of the village development fund.The association’s function is processing export of the product and marketing. This secondary level organization (a) product assembly in sufficient volume allows it to export independently; and (b) identify and negotiate with new markets. The association sought certification on fair trade and organic, enabling it to access niche markets with price premium to keep ahead of its competitors.

Getting started and sustaining functionsFunctions of producer cooperative and association have evolved and received a substantial support over two decades. A key challenge faced was payment schedule by AGPC to its members. This was allayed by the strong presence of project support staff to explain this mechanism until farmers understood the process and benefits. Establishment of a revolving fund assisted in providing funds to HHs that bridged the period until they could receive payments. Such support and other mechanisms are necessary in the early start-up period.

Professional staffThe functions of associations are complex and are handled by a management committee comprising of professional but operating under a board. Considerable training has been provided to this team who need to justify its performance and costs to the board once support ends. Management team makes specific plans to engage with the cooperative members and build group unity. This is done primarily through their role in annual meetings, transparent record keeping, technical support through dedicated technicians and social events that bring all parties together.47 Lifted from Adam Folkard, November 2011:55-56.

Future PlansIn the future AGPC would like to increase the number of the groups and to expand the volume of the coffee production. Members would like also to improve 17 coffee mills in Paksong and 11 in Salavan, and to reconstruct a coffee mill in Sekong province. In Paksong producers would like to increase the production of Arabica to 25 containers per year and to ensure a deposit of 1.500.000 kips (USD 188) for the Fund. Thanks to the new project approved in 2010 by the French government, AFD will support AGPC until 2014. The grant is being disbursed to ensure AGPC financial sustainability: Association’s expenses were covered up to a 90% by AFD during the first year of the project, to gradually decrease to a 70% during the second year, a 45% for the third year and only a 25% for the fourth year, being AGPC responsible to cover the economic counterpart.Members also express the wish to improve capacity building among farmers in order to best share responsibilities. The number of field visit should be also increased in order to improve farmers’ technical skills.

Case 7: Poultry in Samphanxai Kumban, Khoun District, Xieng Khouang48

BeginningsA Stakeholder Chain Analysis Meeting (SCAM) was held in April 2007. Representatives from all 11 villages of Samphanxai Kumban village cluster attended. One poultry trader from Phonsavanh attended as the representative of four other traders.The data collected in the RMM49 and PMCS50 was presented and reviewed. The trader outlined the market preference for six month old birds, and explained that he was only interested in purchasing birds that met this specification. For these birds he was able to offer a price of 25,000 kip/bird. He told the Kumban representatives that he was willing to purchase from Samphanxai if the birds were six months old and were sold to him in batches, of around 60 birds/batch.The three villages which had received training from GPAR51 were able to make immediate sales to the trader. Representatives from the other villages observed this trade, and this stimulated interest in the improved model for chicken raising.Three of the villages (33 households) requested technical training in this chicken production technology from the DAFO. DAFO staff undertook the requested training for the three new villages and as a component of this training conducted a cross-visit for the new trainee farmers to the established villages to see improved production.

Objective for the marketing arrangementDespite improved productivity, some villagers reported difficulties in selling their poultry. To support this work SADU examined the marketing of poultry from those villages where the improved technologies had already been adopted. Two Khoun DAFO staff with experience working with the Agro-Enterprise Development Process (AEDP) examined the market chain for poultry from Samphanxai Kumban to Phonsavanh markets. The aim was to identify the 48 Lifted from Xayalath, Case study: Using market information to stimulate production and new trade relationships: Poultry in Samphanxai Kumban Khoun District, Xieng Khouang, 2007.

49 Rapid Market Mapping

50 Participatory Market Chain Study

51 Governance and Public Administration Reform Project

constraints to marketing of chickens, and opportunities that might stimulate expansion of chicken raising as an enterprise.

Outcome of the marketing arrangementThe SCAF, by bringing different parties together, played a critical role in improving the market chain, through enabling the sharing of experiences between villages, and gaining provisional agreements between the trader and the villagers. This is quite different from the outcomes from a subsector study, as the PMCS exposed farmers to issues and opportunities along the market chain, and the SCAF brought the different stakeholders face to face.The changes in chicken production techniques and market based interventions have complemented each other to the benefit of both farmers and traders:• Farmers now sell their chickens at 6 months old, and receive 25,000 kip/bird (2007).• Farmers now sell in batches of 10-20 birds each at a time.• The trader who attended the SCAF travels to Samphanxai to purchase batches, and makes an appointment when to return and buy the next batch.Selling their chickens in batches has also provided benefits to farmers. They now receive a single large payment (rather than many small payments) and take account of this money. They can now estimate the total costs and profit for each batch, which may lead to better input management.Chickens have now become a viable income option. Farmers with six hens typically sell between 80 – 100 chickens/year. At the 2007 prices, 25,000 kip/bird for dry season and 17,500 kip/bird for wet season, they will earn between 1.7 and 2.1 million kip/year. This is the equivalent of selling a two year old cow, and close to the profit they would obtain from one ha of hybrid maize.

Factors Contributory to successful marketing arrangement This case shows how market information can stimulate production, and farmers’ interest to learn improved technologies. This was seen in two ways:• In the villages where the improved model for poultry was established, farmers more than doubled their production once they were aware of the demand.• Those villages still raising chickens free-range, requested the DAFO to provide training in the improved model for chicken production.This dynamic could be applied in a number of situations. By identifying products that have an unsatisfied market demand farmers can look to expanding their production. There is a limit to how much farmers can simply expand production using their current technology, and this will lead to a demand for improved technologies. Cooperative trading behavior opens the door to improved quality while the increases in production are significant, the changes in trading behavior and the new relationships that have developed between farmers and the traders are also important:• Farmers, by collectively selling birds in batches can receive lump sum payments, and are also able to assess the profitably of their enterprise.They can then make better decisions as to how to improve their profitability.• Traders, by being able to access the required number of birds which meet their specification without wasting time searching, are able to meet the market requirements.

Farmers, by providing a product with the characteristics that a trader needs to satisfy consumer preferences, can also gain a higher price for their product.Eventually farmers and traders can develop a cooperative arrangement where volume and consistent supply becomes more important than bargaining for small price advantages.

Case 8: Green Vegetables, Khoune District52

BeginningsNyoun village cluster has been the focus of several projects in recent years. The Faculty of Agriculture, NUOL studied vegetable supply chain in 2008. They piloted the branding of vegetable by using plastic bags marked with a distinctive logo representing the geographical indication of the cluster. Farmers felt this helped gain recognition of their product. They ran out of plastic bag as the project ended and stopped branding their vegetables.In 2010 the DAFEO staffs with support from SADU facilitated villagers’ assessment of [value chain] issues and opportunities where they identified branding vegetables to increase market share. The staff agreed to this but raised a second option: that they form a group so they to negotiate collectively and gain a common price.

Marketing Arrangement’s ImplementationA cluster committee of 3 members has been formed. Its main function is to consult between the villages on the common price. The prices are estimated by checking the retail prices in Vientiane, and then allowing for the traders margin to calculate the price they should receive. The committee members in each village then inform their members.There is little face-to-face meeting, but rather a continual flow of information between committee and members.On a day-to-day basis, it is the unit heads that play the most active role, assembling the loads for pickup. As indicated, this is an important and time consuming task, as for this they are paid 2000 kip/basket as compensation.Payments are made by the traders directly to each farmer. This avoids the issue of the unit head having to handle this money or having to defend prices received.The committee members collect no fees for their tasks. The group has no formal registration and no common assets, but it does have a bank account. This is used to collect funds from the members to pay for the packing bags and printing the logo on the bags.

Outcome of the marketing arrangementThe volume of vegetables grown and traded is now quite substantial. Within each unit of 10 households, the capacity of each family differs, but overall the typical trade of a unit now amounts to about 200 Million kip per year. Without such organization it would be difficult for the traders to collect and deliver the volumes they now do to Vientiane.Farmers claim a significant price increase. Estimating this increase is difficult as prices vary greatly over the season and from vegetable to vegetable. Generally where other villages receive 18,000 kip per basket of Chinese cabbage, the Youn cluster will receive 20,000 kip/basket, an increase of 10+%. But on some occasions this margin is much more, up to 25-30%. In addition to the improved margin, traders buy preferentially from the Youn cluster. 52 Lifted from Xayalath, Case Study: Green Vegetables, Khoune District, 2010 and Adam Folkard, November 2011:43 and 45.

Thus when production is flush, farmers in the Youn cluster are better able to dispose of their product.Interaction within the group is also encouraging members to improve their productivity. As traders do pay according to the quality of the vegetables, members observe and encourage each other to grow better quality vegetables to ensure consistent quality in each load.The relationship between farmers and traders has begun to change. Whereas traders used to criticize quality to depress prices, farmers now seek trader’s assessment of their product quality to make sure they are maintaining standards and remaining competitive. Farmers also use traders as a source of market information, inquiring what the demand for different vegetables is, and whether the market wants vegetables they don’t yet grow. The units are now beginning to plan their cultivation based on this info, and some members have begun to trial new vegetables, such as ‘purple leafed cabbage’.

Factors Contributory to successful marketing arrangementBulking products and collective trading the group dynamics positively affects productivity; (a) members encourage each other to use ‘best practices’ to ensure quality and volume; (b) farmers expanded the area they cultivated and invested in infrastructure (sprinkler systems); (c) farmers trialed new types of vegetables in response to traders information.Relationships between the group and traders have become more constructive. Farmers now seek traders’ assessment of quality, and traders regard the group as a reliable source of supply, where they buy from preferentially. It is these fundamental changes in supply capacity of the village that have been significant, and to some extend the marked packing bags representing reliable ‘green’ products. The group is structured as an informal group without registration, no fees collected or common assets managed. Internal arrangements to assemble vegetable from individual members are quite complex. External support to farmers in establishing groups should be focused on providing options of different possibilities e.g. collective trading, group structure, etc. However, the final decision to select the best option and manage complex internal arrangements should be left to farmers to decide.

Case 9: Ban Nampheng Marketing Groups53

BeginningsDAFO with support from an IUCN54 project conducted a PRA55 in 1996 which identified poverty and declining forest resources as key issues. To address these twin issues, the staff

53 This case study was lifted from Adam Folkard, November 2011:48-51 and Ingles, A.W., S. Kethpanh, A. S. Inglis and K. Manivong. 2006. Scaling Sideways and Up-ways: Identifying factors that affect the adoption of forest based livelihoods development interventions in Lao PDR. (Draft final report). PROFOR/World Bank, Washington, D.C.

54 International Union for the Conservation of Nature, an international organization dedicated to finding "pragmatic solutions to our most pressing environment and development challenges".[1] The organization publishes the IUCN Red List of Threatened Species, which assesses the conservation status of species.[2]

55 Participatory rural appraisal, an approach that aims to incorporate the knowledge and opinions of rural people in the planning and management of development projects and programmes (http://en.academic.ru/dic.nsf/enwiki/3609546).

proposed to the village to form ‘NTFP56 marketing group’ to manage and trade NTFPs. After discussion with the community, objectives of the group were set: (a) to market NTFPs collected as a group and negotiate a common price; (b) manage the resources for sustainable harvesting; (c) establish a village development fund57. The group would use this for all NTFPs but will first focus on bitter bamboo shoots and cardamom.The group with support from project and district authority formed a committee, NTFP trading process and resource management strategy. Series of trainings were provided for the committee in both technical and management aspects (use of scales, book keeping).The group has significant responsibility and manages considerable resources. The committee of the group has three members one of which is the village head. Three unit’s acts as support committee, these are:

(a) trade unit whose duties are to identify traders, establish agreements and prices. This has included trips to China;

(b) monitoring unit to oversee actual trading, ensure transparency and enforce sustainable harvesting practice;

(c) accounting unit collects products and manages fundsCommittee members are elected every three years unless someone is not performing and change is made earlier. Each unit has three people. Changes in the committee do take place, although the village headman has been the head of the committee since the group was established.

Description of the marketing arrangementInitially, trading through the group where each HHs58 gave NTFPs they collected to the group was not easy for members to accept. Series of discussions were organized with the community including individual HHs to overcome their doubts. Villagers’ confidence continues to be maintained through ensuring transparency in its operations. Prices they receive for each batch of NTFP are posted on a board in the collection point. Group committee meetings are held every three months attended by all the members where accounts are reported.The committee and its supporting units functions both in relation to trading and resource management. The committee strictly enforces the harvest windows, where HH are found to have collected outside of these windows, all proceeds from the sale are confiscated by the group. They also have penalized the respective traders as well. In 2002, the group extended resource management to red mushrooms using a similar ‘harvest window’ strategy. Capacity was also built for adding value to cardamom pods (Amomum spp.) used in the production of Chinese medicine through grading and processing.

56 Non-timber forest product, any commodity obtained from the forest that does not necessitate harvesting trees. It includesgame animals, fur-bearers, nuts, seeds, berries,mushrooms, oils, foliage, medicinal plants, peat, fuelwood, forage , etc.[1]

57 This development fund is generated through a locally applied tax of 10 per cent on NTFPs sales.

58 households

Outcome of the marketing arrangementFood security has been achieved, annual cash incomes to households are significantly higher, people are healthier and all major development indicators for the village show marked improvements. The benefits from the interventions have been distributed equitably and a significant proportion of households have graduated out of a locally defined poverty situation.Organized collusion in price-setting, enhanced knowledge of market prices, grading and processing (see below) and selling by weight using scales resulted in significant increases in income to households and better returns for labor inputs59. A successful village development fund was created. The organization continued to facilitate further development of marketing strategies and facilities.In regard to forest conservation, both local users and government officials have consistently reported that the condition and productivity of forests allocated to Ban Nampheng have improved since 1996. Illegal cutting of timber is reported to have decreased because of increased food security and the enhanced returns from NTFPs collection. While the value of NTFPs’ from the forests has increased, increasing the general pressure for harvesting, villagers believe that they have greater control over such pressure through the allocation of exclusive use rights to them and the establishment of harvesting rules among the user group (Morris et al., 2004). In addition, grazing pressure on surrounding forests has been reduced because of new investments in animal husbandry that have changed livestock numbers. There are fewer cows and goats, and instead there are more chickens, pigs and buffalo. In 2006, it was found that the sale of NTFPs still dominated household income sources, providing approximately 60 per cent of cash income to households, mainly from the sale of bitter bamboo shoots. The next most important source of cash income was animal husbandry (20 per cent), followed by cash cropping (15 per cent) of sesame seeds and corn. When reviewing the long-term results of the project, it can be argued that the main reasons why poverty rates were reduced in Ban Nampheng were that:• Food security was achieved, mainly through the NTFPs project’s rice bank, forest land allocation and marketing group interventions, which increased the income from NTFPs sales to buy rice;• Available labor increased through improvements in health-care and nutrition;• Returns on labor from NTFPs collection and sale were increased significantly; and• Additional labor was applied productively to the collection and sale of NTFPs.In addition to its major role in helping to reduce poverty levels in the village, the NTFPs project’s interventions also provided a basis for further economic development through the establishment of an NTFPs Marketing Group and NTFPs Development Fund that paid for improvements in formal and informal education and provided credit to support private equipment purchases and investments in agriculture, trading, transport and animal husbandry. The substantial and robust increases in NTFPs-based incomes also allowed for private investments and livelihood diversification.

59 For example, the local price for cardamom was raised from 500 kip per kilogram to 35,000 kip per kilogram in 1998, and although prices later dropped, prices of around 12,000 kip per kilogram were sustained over time (Morris et al. 2004) (US $ 1 = about 10,000 kip)

Factors Contributory to successful marketing arrangementBulk marketing process where farmers handed over their product to the group to sell and receive payment on their behalf was something villagers initially were in doubt. It is important to provide special support in this initial period until the marketing processes have proven themselves. Explanations from the staff provided a type of external guarantee and transparency well maintained. This cannot be achieved just by training inputs but need a lot of coaching and facilitating support. The support needed in the early stages of establishing a group which has product handling and fund management function is substantial and delicate. This is not something all DAFO or PAFO staff can provide. Dedicated support from project (such as the case with IUCN) with experiences and resources for this is needed to build staff capacity.Project support ended after three years and the group has continued operation well beyond this. Group solidarity has been maintained through mechanisms that ensure transparency. These include: (a) public notification of price and volume sold; (b) clear accounting reports; and (c) opportunity to change committee members through elections.

Lesson learnedDespite the substantial benefits gained by the Nampheng NTFP Marketing Group, these have not been replicated widely, even though many villages in the district have made cross visits. Staff tends to focus on formal structures, regulations and role of committees when introducing the group to other farmers. These may overwhelm visiting villages. Introduction should be provided first of functions of the group and the benefits its members derive. If visitors wish to replicate and achieve similar results, the group structures, regulations, etc. can be introduced as means to achieve this.

Case 10: Collective Cattle Trading, Nonghet60

BeginningsStaff from DAFO61 proposed farmers that they enhance their source of income by forming a ‘cattle fattening group’. The aim of the group would be to: (a) pen and fatten animals specifically for sale; (b) sell collectively to negotiate a higher price; and (c) organize themselves for services such as vaccination of their animals.A group of ten farmers (all men) agreed to try this, and with the advice of the staff elected a head and two deputies. The village headman was a member, but not head of the group. There were few rules, except that members have definite cattle fattening plans, including identifying specific animals for fattening and participate in the monthly meetings.It would be easy for these monthly meetings to be inconsequential and lapse. But the group has continued to meet each month to keep up with progress of each member. Meetings may include inspecting pens. In one case last year, the group suggested a member to change the animal as it was not responding, and would depress the price of the batch when offered for sale. Forages have been introduced to the village by a past project62 and these were used and produced by some members.

60 Lifted from Adam Folkard, November 2011:40-41

61 District Agriculture and Forestry Office

62 Forage and Livestock Systems Project (FLSP), CIAT/NAFRI.

The group at present has no common assets or collect any fees from the sale of cattle. Activities related to vaccination have yet to be mobilized and this may then require some additional organization.

Description of the marketing arrangementWhen any farmer wanted to sell, they looked for others who might want to sell. But as others were not prepared they would end up selling independently. Thus, selecting specific animals for fattening; planning a batch for selling, reaffirmed by monthly meetings was the key for this occurring.

Outcome of the marketing arrangementIn the first year, the group sold 20 cattle in batches of 4-5 cattle for a total of 128 million kip. Prior to selling each batch, members identified animals to be included in a batch and give it a price where the owner would be satisfied. Selling this way, the group gained a significant increase in price. This was best illustrated by one batch of three cattle. The farmer first rejected the lower price offered by a trader, who left, then returned the next day to pay the asking price. The acceptance of farmers’ asking price is made by the ‘batch effect’ as shown in the table below. Batch effect is 10% higher than what traders offered.

Farmers’ asking price

Trader’s price offer

Final sale Batch effect (in %)

6 million 5.5 million 6.1 million +116.2 million 5.7 million 6.2 million +092.3 million 2 million 2.3 million +15 Other advantages for selling as a group that the farmers highly rated are:

(a) Members of the group could sell a batch on behalf of the group. This meant a farmer could be away working and his animal is still sold at the desired price.

(b) Where a member required immediate cash, other members could provide the needed fund. This ensured that the group would maintain the number of animals it needed to make a good batch.

These social benefits are not insignificant. They provide the farmers with greater flexibility, as he does not have to make a forced sale during emergency. The new focus on penning for fattening rather than preparing a champion fighting bull has affected farmers’ practices. Months for fattening have shorted from four to three. This has been possible with the use of forage as feed (napier and guinea). Group members have established new areas for forage (more than eight ha.)These changes in fattening practice have taken place quickly, over the span of just one season. Such sharing of improved techniques between farmers does not always occur. Because farmers are now selling collectively, it is in their interest to ensure that all members produce efficiently so that they present an attractive batch to traders. The monthly meetings act as a forum where improved practices are noted and shared amongst the members. New technical challenges can be expected to emerge in the future: how to maintain the productivity of the forage when harvested heavily over a number of years; what supplement might be used to improve fattening rates; what strategies farmers might use to enable fattening through the dry season, etc.

Factors Contributory to successful marketing arrangementThere was a gradual transition of the group from production to marketing. Higher price received by the group is the key driving factor that keeps the group functioning. Selling collectively also gave the members flexibility in their work schedule (other members could sell on their behalf if they are away from the village). Members share ‘good practice’ to ensure that all animals in a batch are up to standard, resulting in improved productivity.The key to the group’s effectiveness are:

Planning – group members selected specific animals for sale in a certain time. Monthly meetings – to monitor progress; reaffirm plans for marketing and exchange

of ‘good production practices’. Simple group structure – the group was formed with minimal external inputs from

DAFO. Group members decide detailed arrangement. The group operates in an open market system, with no distortions from concessions

or other overlays. The DAFO head actively supports participatory approaches.

Case 11: Organic Market in Pek District, Xiengkhuang Province

BeginningsStarting with 20 farmers, SAEDA63 with funding support from Bread for the World64 has successfully launched the organic market in Pek District, Xiengkhuang Province in July 2009 in a record of six months under the Sustainable Agriculture and Market Access Development Project (SAMADP).

Description of the marketing arrangementSAEDA has facilitated the opening of the market by gaining the support of the District Agriculture and Forestry Office (DAFO) so farmers can use their sidewalk. Prior to the launch of the market, SAEDA has trained the 20 farmers on how to make compost; how to raise vegetables both during the dry and rainy season; as well as in the production and use of bio-extract.At first, the farmers were selling their produce in the sidewalk of DAFO. Eventually, they moved to a new location in-front of the Chinese Market of Phonsavanh District. The farmers does not pay marketing fee but instead pay for maintenance of the market like the cost of cleaning at 1,200 kip/day. On top of this, the group also pays 2,000 kip for capital build-up.SAEDA continues to capacitate the farmers by helping them organize themselves into a farmers association. Leaders have also visited other places in Laos who practice organic farming. Technical exchange is practice among farmers through farmer to farmer extension.

63 Sustainable Agriculture and Environment Development Association

64 A non-partisan, Christian citizens' movement in the United States to end hunger. The organization describes itself as a collective Christian voice urging nation's decision makers to end hunger at home and abroad. By changing policies, programs, and conditions that allow hunger and poverty to persist, it provides help and opportunity far beyond the communities in which they live (https://en.wikipedia.org/wiki/Bread_for_the_World).

Outcome of the marketing arrangementFarmers have enjoyed the price premium of the organic label. Whereas, ordinary vegetables may cost around 2,000 – 3,000 kip/kilo. Farmers of SAMADP can sell theirs up to 5,000 kip/kilo. One member has reported that she earns 150,000 kip/market day. Because of this, she said, she can send her children to school; pay some materials for planting; buy a piglet and a water pump. She also said that since, she’s eating organic vegetables; she feels that she’s healthier. There is also a sense of empowerment, as the income brings with it independence from asking money from her husband.

Future PlansIf funding permits, the Project Coordinator of SAMADP said that in the future, they hope to have their own market exclusively for use of the members. A cold storage is also in the offing so farmers can store their surplus vegetables and sell it fresh the next market opening. More variety of produce will also be encouraged so consumers will have more reasons to buy at the organic market. Branding will also be explored to differentiate the produce of the farmers of SAMADP from other growers to gain more market share. Advertising through radio and TV is also in the pipeline to generate awareness of the organic produce from the public. Lastly, other markets will also be explored like those of Vientiane and Luang Prabang to expand the reach and market share of SAMADP farmers.

Case 12: Modernization of the Clean Vegetables supply chain brand in collaboration with the Trade Development Facility

BeginningsThe main objective of this project is to develop an overall competitive tourism industry, while at the same time strengthening the organic agriculture and the handicraft (especially the silk) industries in order to achieve a spill-over effect on those sectors through backward-linkages, and improving the export volume and quality of the above mentioned sectors, thereby positively impacting on poverty in targeted provinces of Laos (UN CEB Inter-Agency Cluster on Trade and Productive Capacity, Project Document, 2011:2).

Description of the marketing arrangementThe project has organized eight producer groups in eight villages of Luang Prabang. The target of the marketing is hotels and restaurants since they are the ones who are capable of paying the price premium for ‘clean’ salad vegetables. The project provided a cold storage facility for farmers so they can store their unsold produce. It also buys back these produce at cost so no loss is incurred by the farmers. The project is also demand-based or performance driven as farmers has to adhere to certain standards that must be met to enhance sale-ability of produce.

Future PlansThe project hopes to break into the lucrative export market, especially Thailand as Thais cannot produce organic vegetables due to soil contamination. It also hopes to expand into livestock most especially chicken.

Case 13: Organic Rice Production in Sangthong District, Vientiane Province

BeginningsLao Agro-Asie, a fair trade company, wants to widen the scope of its product lines. It looked to organic rice as a good candidate. At that time, ProRice65, a rice value chain project of Helvetas is wrapping up. Lao Agro-Asie saw this as an opportunity to help the farmers find market for their produce as well as take on where ProRice has left-off. Lao Agro-Asie wants to bring to the next level the project intervention made by ProRice – that is from capacity building to market access.

Description of the marketing arrangementLao Agro-Asie established a form of contract farming with 60 organic farmers of Sangthong District through its mother organization – ASDSP66. Lao Agro-Asie provides the seed, extension service and buys the product at a fair price.

Lesson learnedAs a social enterprise with a commercial orientation Lao Agro-Asie found it difficult to compete with NPA like ASDSP as they receive grants which they in turn give to farmers as a form of production subsidy. Without such ‘soft money’ Lao Agro-Asie has to bear all the cost that it incurs with farmers. An example of this is the cost of certification and facilitation fee.

V. ConclusionThe cases seem to suggest that the shift to market economy by Laos is still a continuing experiment with various hits and misses. This is brought on by poor infrastructure (farm to market roads, electricity, and telecommunications) which hinders the exchange of goods from farmers as sellers to buyers (middlemen, traders, collectors). But the most fundamental gap in this exchange is the lack of market information. Farmers don’t know what and when to produce, resulting in the glut of commodities in the market resulting to low prices. There is also poor extension, resulting to poor quality of harvested crops, which leads to low prices of these commodities. Poor infrastructure also adds on to the cost of buyers. For example, poor roads lead to faster wear and tear of vehicles, spoilage and more time spent on the field by buyers. This is a stark contrast to Thailand where better roads leads to faster transit of goods, lessening spoilage, hence, better quality of farm goods.The cases were able surmount these obstacles by internalizing these added cost of doing business in Laos. For example, Friends of the Upland Farmers (FUF, page 31) provides some processing facilities, such as dryers, corn sheller, threshers and storage bins, as well as tractors with implements. AGPC (page 33) on the other hand, provides farmers with necessary equipment for wet-processing of Robusta coffee to promote the unique quality of their coffee to specific niche markets.

65  An international cooperation projects between the Lao Department of Agriculture and the Swiss NGO Helvetas with a strong focus on marketing of organic products and the development of organic standards and an organic certification system (http://www.certificationalliance.org/ver1/partners.html).

66 An association created in France for the support to Lao farmers’ communities. ASDSP created and implemented a development project aimed at providing access to finance (micro-credit) and irrigation to the farmers of the district.

In the case of market information, Smallholder Agriculture Market Development in the Uplands of Lao (SADU) facilitated the holding of Stakeholder Chain Analysis Meeting (SCAM) with Samphanxai Kumban village cluster (page 35) to analyze the needs of the market. From this meeting the villagers were connected to traders and was able to make changes in the way they sell their chicken (It should be in batches of 60 birds and the chicken should be 6 months old). The cases have also shown that there is strength in numbers. Selling in bulk enabled the Ban Nampheng Marketing Groups (page 38) to get a good price for their bitter bamboo shoots. This was also the case for green vegetables in Khoune District (page 37). The most successful case is that of Enhancing Milled Rice Production in Lao PDR Project (EMRIP) where a natural partner of farmers in the rice value chain - millers, was engaged. It seems a good fit, as it is in the best interest of the millers to ensure the quality of rice, to raise their profit. Perhaps, this is the way to go for Laos. Empower an important actor in the value chain so they can make more value-adding services that enhance the overall benefit of the chain.However, infrastructure, market information and extension are common goods that should be shouldered by the state. If these common goods are taken on by private sector, it only adds cost to the products that farmers sell, making them uncompetitive in the marketplace. Lastly, the market is not a bed of roses. The market is also a game of chance. There are ups and downs that small farmers should be equipped to understand and master. The cases have shown that government, donors, INGO have tried to smoothen the rough edges of the market (downturn or losses) by internalizing the cost of inputs, extension and acting as facilitator and sometimes trader. This cannot go on forever, there is a limit to their benevolence and it is also distorting the market as those farmers who have no access to such subsidies (free or cheap inputs) will have higher price for their products. Farmers then have to experience the ups and downs of the market, while being aided by safety nets like crop insurance to mitigate too many losses. In the end, farmers have to learn to stand and venture on their own.

Works CitedAdam Folkard, B. V. (November 2011). Farmers Organizations: Opportunities, Challenges and Pathways for Development . Vientiane: Sub-Working Group on Farmers and Agribusiness (SWGAB).

Choulatida, P. N. (June 2011). Extension Gaps in the Production, Postharvest & Marketing System of Organic Rice in Sangthong District, Vientiane City, Laos. Los Banos: University of the Philippines - Los Banos.

Connell, J. G. (November 2011). Enhancing Milled Rice Production in Laos Final Project Evaluation. Vientiane: SNV, Helvetas, EU, Ministry of Agriculture & Forestry.

Fullbrook, D. (October 2007). Contract Farming in Lao PDR: Cases and Questions. Vientiane: Laos Extension for Agriculture Project (LEAP).

Galindo J., S. B. (November 2007). Participative analysis of coffee supply chain in Lao PDR. Vientiane: Groupe de Travail Café (GTC).

Helberg, U. (June 2003). Towards Sustainable Rural Livelihoods: Report of a mission to Luang Namtha Province, Laos. Vientiane: GTZ.

Huso, A. R. (2008 , July 28 Monday, 09:22 UTC). Cable reference id: #08VIENTIANE415. Retrieved March 1, 2013, from Wikileaks: http://cablegatesearch.wikileaks.org/cable.php?id=08VIENTIANE415

Jason Morris, E. H. (2004). Linking Poverty Reduction with Forest Conservation: The case of Laos. Bangkok: IUCN.

Kanokwan Manorom, D. H. (2011). Cross-Border Contract Farming Arrangement: Variations and Implications in the Lao People’s Democratic Republic. Greater Mekong Subregion–Phnom Penh Plan for Development Management: Research Report Series , 1 (2), 70.

Panyakul, V. (2012). Case Study: Cross-border Vegetable Supply Chain. In A. D. Bank, Case studies on cross-border ecotrade (p. 9). Mandaluyong: Asian Development Bank.

Portfolio - Laos. (2012, March Thursday). Retrieved March Thursday, 2012, from SALT International: http://saltinternational.org/portfolio_item/laos/

Roderick Campbell, T. K. (July 2012). Business Models for Foreign Investment in Agriculture In Laos. Vientiane: International Institute for Sustainable Development.

Santos, P. E. (2012). Lao People’s Democratic Republic Rice Policy Study. Vientiane: FAO.

Sayarath, R. S. (2010). Grinding out added value through Lao Rice Mills. Vientiane: SNV.

(March 2012). Sharing seeds for the Future: the experience of the Bolovens Plateau Coffee Producers’ Groups Association (AGPC). Vientiane: Ministry of Agriculture and Forestry, Department of Planning and Investment; Sustainable Natural Resource Management and Productivity Enhancement Project; International Fund for Agricultural Development (IFAD); PROCASUR Corporation.

Sotouky, S. P. (2012). Women's Empowerment in Agriculture: Creating Impact in the Lao Rice Sector. Vientiane: SNV.

Tulet, J.-C. (June 2009). Development Trends Analysis on the Boloven Plateau. Vientiane: Programme de Capitalisation en Appui a la politique de Développement Rural (Programme of Capitalisation in Support to Rural Development Policy) - Point d’Application des Bolovens (Boloven Application Point) & Agence Française de Développement .

Warner, D. K. (June 2007). INTERNATIONAL OVERVIEW Gaining Much from Little: How ‘Minor’ Forest Products Can Have a Major Impact on Poverty Alleviation and Promote Biodiversity Conservation. The Role of NTFPs in Poverty Alleviation and Biodiversity Conservation (p. 16). Ha Noi: International Union for Conservation of Nature and Natural Resources.

Xayalath, R. D. (2010). Case Study: Green Vegetables, Khoune District. Vientiane: Smallholder Agricultural Market Development in the Uplands of Laos (SADU) Project.

Xayalath, R. D. (2007). Case study: Using market information to stimulate production and new trade relationships: Poultry in Samphanxai Kumban Khoun District, Xieng Khouang. Vientiane: Smallholder Agricultural Market Development in the Uplands of Laos.

Xayalath, R. D. (2010). Getting trucks to stop at the village: Bananas in Sui-Viengxai Kumban Phou Khouth District, Xieng Khouang. Vientiane: Smallholder Agricultural Market Development in the Uplands of Laos.

Zola, A. M. (August 2009). Scoping Study on Crossborder Agribusiness in Lao: Focus on Champasak Province. Vientiane: National Implementation Unit, the Department of Production and Trade Promotion, Ministry of Industry and Commerce and the World Bank.