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Lao PDR Country PaperLao PDR Country Paper

Value Chain Training MI Value Chain Training MI September 2010 2010September 2010 2010

National Flower

Geographical Location

Thailand

(1,835 km in the west)

Cambodia

(435 km in the south)

China

(505 km in the north)

Myanmar

(236 km in the north west)

Vietnam

(2,069 km in the east)

04/19/23 DLF profile and Developement 2

Key Demographic Info

• 18 Provinces• 147 districts• Population: 6,6 million • Population growth rate:

2.3%

Lao Dual Rural Economy

• Lowlands - Plateau– Transformation started– Commodity markets

operating– Beginning of farming

systems diversification

• Uplands– Subsistence rural

agriculture;– Limited market

access;– Traditional farming

systems;– Rural poverty

Key Economic Factors

• 80% of the Lao population lives in rural areas/ farming

• In 2009, economic growth was 7.5%: – agriculture = 44.3% of GDP; – industry = 30% of GDP– manufacturing & services =

25.7% of GDP; • Services sector is growing

8-9% annually; • Energy sector is growing

rapidly (hydropower);• Mining sector is fastest growing

industrial sector: expanding 12% annually:

– minerals include: gold, silver, copper, coal, zinc, tin, iron, sapphire, bauxite ore;

Agricultural Production

Trends in area planted and production of major crops

Crop 2005 2006 2007

Planted (ha)

Production(tons)

Planted (ha)

Production(tons)

Planted (ha)

Production(tons)

Paddy rice 793,980 2.57 mil. 808,640 2.66 mil. 812,617 2.71 mil.

Maize 86,000 296,860 113,815 403,585 154,255 620,550

Coffee 55,085 25,000 55,465 25,250 58,385 33,200

Peanut 16,650 26,990 18,385 27,600 15,965 35,070

Job’s tears 11,900 19,720 10,620 25,450 14,845 36,715

Cassava 6,765 51,300 16,880 174,490 11,015 233,420

Soybean 9,535 11,100 8,920 11,955 8,040 10,455

Cardamom 8,220 2,010 6,955 2,010 6,745 1,605

Cabbage for ExportA future for Champassack Province?

Packaging&Loading Operations

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– Long term relationships => trust– Credit in kind <=> commodities for trading– District initiatives:

– organize & register farmer groups – arrange credit– organize primary market

Farmer Group Applications:

Cabbages in Champasak

Agricultural Primary MarketPakxong District

Suppliers:–13 villages: 2 large farmer groups;about 150 families– Products: Cabbage & Chinese Cabbage– Production inputs:Seed, fertilizer

Buyers/Exporters:– Mme Inpeng

– Mr Bountieng

Markets: – Ubon, Thailand

– Vientiane

Service companies:– 2 firms in Paksé– process forms

Key factors:

Vang Tao Market

Mapping Value Chain of Vegetable for Export

Input supply

Production Collection Trading (L) Trading (T) Retailing

Act

ors

Fun

ctio

ns

Thai TraderFarmers collectors Lao Trader

Seed & Fertilizer SuppliersCollectorsLao/Thai Traders

Retailers

Act

iviti

es

Seed supplyFertilizer supply

Veg collectionVeg selling

GrowingHarvesting

SPS documentExport docsExporting

GradingPackagingTransportingImporting

Selling To

consumers

Actors Rules & Regulations

Supplier Farmer Collector Trader (Lao)

Trader (Thai)

Supplier None Agreement None None None

Farmer Agreement Group member- ship

Agreement Agreement Exchange info

Collector None Agreement Exchange info

Agreement Exchange info

Trader (Lao)

None Exchange info

Exchange info

Exchange info

Contract Farming AECMECS(?)

Trader (Thai)

None Set price Set price Contract FarmingAECMECS (?)

Exchange info

Cost & Benefits of Vegetable Value Chain

Supplier Farmer Collector Trader (Lao)

Trader (Thai)

Total Cost

Cost

Revenue

AverageSale/year

Smallholder farmer key marketing constraints

Farmers’ perspective: • Insufficient capacity in production

planning (quality & quantity) to meet market demand;

• Insufficient understanding of markets;• Limited technical knowledge of post-

harvest handling and marketing techniques;

• Difficulty in accessing financing for market-oriented farm-based activities.

• Labor is becoming scare due to industry competition for workers (especially garment industry).

Government’s perspective:• Farmers do not adopt modern production

techniques; • Farmers do not diversify cropping

patterns; • Extension technicians do not meet

technical needs of farmers’ organizations;• Foreign agribusiness investors lack

experience working with Lao farmers; • Public sector lacks a regulatory framework

to administer farmer groups;

Agribusiness perspective: • Farmers provide only poor quality and

insufficient quantities of raw materials;• Farmer production and marketing

groups are disorganized, poorly administered and regulated, and lack the ability to respond to agribusiness needs;

• Farmers refuse to undertake post-harvest handling at the farm level;

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Pakxong Cabbage Farmer Issues

Challenges:• Seasonal price slump• Cooperation of business• Administration of markets• Uncoordinated farmer

groups

Proposals / Solutions:• Crop diversification by farmer

groups to overcome price slumps

• Cropping calendars• Trade concessions =

incentive to deal with farmer groups– Public-private partnership

• Organization of farmer associations

• Post-harvest handling & simple processing at the local level to retain value added

Smallholders in the Agriculture & Forestry Sector Strategy4 Goals & 13 Measures

Goal 2: Commodity Production:

Supply raw materials & agriculture & forestry products to processing industries & the service sector.

Increase export share of agriculture & forestry products to 1/3

(approximately US$1 billion) of the total export value of commercial & services sectors (US$3.48 billion)

by 2010.

The Dual Rural Economy

The LowlandsThe LowlandsTransformation

StartedCommercial factor

and product markets operating

Beginning of farming systems diversification

The UplandsThe UplandsSubsistence rural

economyLimited marketsRural povertyTraditional farming

systems

04/19/23 DLF profile and Developement 16

Minister

Vice-Minister

Permanent Secretariat

Department of Inspection

Department of Planning

Department of Agriculture

Department of Personnel

Department of Livestock and Fisheries

Department of Forestry

Department of Irrigation

National Agriculture & Forestry Research

Institute

National Agriculture & Forestry Extension

Services

Ministry of Agriculture and Forestry

Board of Science and Technology

Vice-Minister

Secretariat of Science and Technology

Cross-cutting Policies and Strategic Issues – Direction - Supervision - Coordination

Technical Issues

Support to Policy Research, Technical Innovations, Implementing

Department of Forestry Inspection

National Agricultural &

Forestry Extension

Service

Administration Division

Shifting Cultivation & Stabilization

Division

Agriculture & Forestry

Training Centre

Provincial Agriculture &

Forestry Office

Extension & Information

Division

Planning & Cooperation

DivisionProjects

Provincial Agricultural &

Forestry Extension

Service

District Agriculture &

Forestry Office

District Agricultural &

Forestry Extension

Service

Structure of the National Agricultural and Forestry Extension Service

Piloting work with smallholders: Smallholder Development Project

SHDP Description

Addresses supply-side and demand-side constraints within the agriculture sector.

Promotes agricultural commercialization through extension and training.

Supports growth of value-added enterprises. By improving access to information and markets.

By creating an enabling environment for investments in agribusiness.

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Project Goal and Objective

Goal : Increase in rural incomes and long-term reduction in rural poverty Economic growth

Objective: Increasing production and marketing of diversified, non rice dry

season cash cops; livestock and fisheries Improving smallholder access to domestic and international

markets and to market information and Increasing investment in value-adding agribusiness.

1. Farmer Support Services

• Formation of Farmers Production and Marketing Groups (FPMGs)

• Farmers’ trainings and study tours• Strengthening of extension staff capacity• Extension and Demonstration• Post-Harvest technology

2. Agribusiness & Marketing• 6 primary markets• Agricultural Market Information System• Agribusiness database (120 businesses)• Trade fairs for agribusiness promotion• Contract farming opportunities and modalities

identification• Development of linkages with agribusiness, farmers

and Lao National Chamber of Commerce• Identification of alternative crops for diversified

production (out of season export crops for neighboring countries, organic high value export,…)

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Scope of project intervention

Input supply

Production Collection Trading (L) Trading (T) Retailing

Act

ors

Fun

ctio

ns

Thai TraderFarmers collectors Lao Trader

Seed & Fertilizer SuppliersCollectorsLao/Thai Traders

Retailers

Act

iviti

es

Seed supplyFertilizer supply

Veg collectionVeg selling

GrowingHarvesting

SPS documentExport docsExporting

GradingPackagingTransportingImporting

Selling To

consumers

Entry point for project intervention

Vangtao Border Market

Conclusion: key challenges when working with smallholders

• Difficulty to organize farmers in groups (legal framework still unclear, powerful private commercial interests, lack of understanding from both farmers and extension staff); lack of understanding of value chain approach.

• Farmers have low access to information, technology (on farm process) and knowledge, finance, labor and land (land titling and mapping is in progress and needs to be continued).

• Linkages between agribusiness and farmers are not easy to establish: – trust does not exist (farmers or companies don’t respect contracts), – paradigm shift for agricultural extension organization (now need to look at the market,

not only at production),– Agreed quality standards are still to be established– Infrastructure needs further improvements

Thank you