Production and Marketing in the Lao PDR

Crop production systems in the Lao PDR remain primarily subsistence oriented, with minimal use of improved varieties, fertilizers, and pesticides. Although the use of modern inputs is increasing, their adoption has largely been confined to production in the Mekong river corridor (Schiller et al., 2006). Farmers are generally excluded from the growing markets for high-value crops due to the lack of extension mechanisms and credit provision systems. Adoption of new technologies by risk-averse subsistence farmers is also constrained by the absence of risk-sharing strategies.

Figure 1: Average Sources of Rural Household Income in the Lao PDR [ PDF 16.5KB | 1 page ]

In 2004, average annual productivity (agricultural GDP/agricultural population) was $235 per worker, compared with $148 in Cambodia, $159 in Viet Nam, and $413 in Thailand (FAO, 2006). At the province level, however, there is significant variation in agricultural productivity. While national average productivity (measured in terms of gross revenue from agriculture) is $0.14 per hour worked, the provincial averages range from $0.09 per hour worked in Saravane to $0.26 in Xayabury and Bokeo (NSC, 2005). The comparatively high productivity in Xayabury and Bokeo can be attributed to the prevalence of contract farming and crossborder exports in those provinces, suggesting the potential of market-oriented production to increase productivity and income. Overall, the border districts of the Lao PDR show stronger economic activity and have lower poverty headcounts than non-border districts (World Bank, 2006).

The lack of a functional marketing system is a major barrier to improving the productivity of Lao agriculture. Agricultural marketing is generally on a small scale with short marketing channels. Only 5% of the country's total rice production (approximately 110,000 tons) is commercially marketed (MPDF, 2004). The commercial trade in rice is dominated by a stateowned enterprise, the State Enterprise and Food Crop Promotion (SEFCP), which controls 70% of the market. The SEFCP has historically constrained the growth of trade and output growth by fixing the prices of food commodities (often below production costs) and restricting private sector trade between provinces (ADB, 2006).

Small farms typically sell paddy to traders who visit rural areas or deliver paddy to mills located along the main road or near larger towns for consumption or direct sale in the village. Due to the predominance of spot markets, prices are set by traders based on the previous season's price or production costs, and price fixing among traders is common. As a result, there is the widespread perception that traders are exploiting farmers (Oraboune and Nanthavongdouangsy, 2006).

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1. Axelle Boulay
   (posted 22 September 2008 / 01:44:23 PM)
   
   Thank you very much for this publication that analyzes in-depth the impacts of contracts on adopters' livelihoods.
   
   You write: "contract farmers would have lower profits than non-contract farmers if they operated outside of the contract." and you deduce from this finding that "better-off farmers choose to produce independently rather than taking on the burden of fulfilling the requirements of a contract." I think it is important to mention that this deduction is only valid in the context of contract arrangements that include a provision of credit to contract farmers.
   
   In the context of my PhD, I conducted a study of contract farming for eucalyptus in Thailand. Contracting companies, which are using eucalyptus wood for pulp and paper production, do not provide credit to contract tree farmers. Based on an household survey of 450 eucalyptus tree farmers, I found that better-off farmers are more likely to adopt a contract because they have the financial capacity to comply with the terms of the contract (such as a minimum rotation length).
   
   Axelle Boulay, PhD scholar
   Australian National University