Organic Agriculture (OA) and Biofuels in the Lao PDR

IV.1 Organic Agriculture in the Lao PDR

The level of certified organic production in the Lao PDR is very small, although in practice much of the agriculture is free of pesticide use and has low levels of external inputs in the form of inorganic fertilizers. There is also a strong policy commitment to “Clean Agriculture” through a differentiated regional approach. The policy is to promote certified organic agriculture in the Upland regions, to go for pesticide free production in the Mid-stream regions, and to target Good Agricultural Practices (GAP) and Integrated Pest Management (IPM) in the downstream or lowland regions.

In support of these goals a large number of Non-Government Organisations (NGOs) and donors are providing some assistance, much of which is small-scale and not particularly well coordinated (Helevetas, 2005). A review of the main stakeholders reveals significant differences in opinion on what is feasible and desirable in promoting OA or GAP, more generally.

The main commodity where OA can be developed is rice, although there is also some potential being realized for coffee and mulberry. For rice, the potential is for both white rice and sticky rice. Since the Lao PDR has the highest number of varieties of sticky rice in the world, this product has the potential to be marketed as unique products from the Lao PDR, a so called Geographical Indications (GI) product under WTO.

In this section we only look at rice, which is probably the one with the most potential.

The issues to be resolved in developing OA in the Lao PDR are basically to respond to the question: Can farmers improve net incomes if they go organic? This in turn will depend on what happens to yields, prices and the efficiency with which the products are marketed. Each is considered in turn below.

Impacts of OA on Yields

One the main areas of difference is over views about the impacts of low external input agriculture on yields. Some agents argue that yields can be increased with such a shift, as long as farmers are given training and supporting extension services. The Mennonite Central Committee, for example, which runs two programs in support of sustainable agriculture in Bolikhamxay, Pakngum and Xaythany, have helped the farmers find new sources of organic compost and, with better seeds, have increased yields of rice from 2 to 4 tons per hectare in the 4 villages where they are active. Likewise an Oxfam program promotes SRI, which has been discussed in greater detail for the Cambodian case. Their project sites are in Vientiane Province, Salavane and Xekong. One farmer using SRI reported a yield of 6 tons/ha., which may be exceptional, but is indicative of what can be achieved.

On the other hand a number of stakeholders have expressed doubts about the scope for increasing yields. The Lao Agro Processing Associations and the Champa Lao Company deal in the marketing of organic and other rice, including exports to Thailand and Vietnam. Yields for the wet season rice (which is the only one that can be grown organically) are only around 1.3 to 3 tons per hectare, which compares with 3.65 tons/ha. for unirrigated lowland rice, and 4.44 tons/ha. for irrigated conventional lowland rice. In the interviews carried out by Helevetas (2006), a farmer from Nakey village who farms 2 ha. of wet season rice with yields of 4.2 – 5tons/ha., (using 200 kg/ha) stated that turning organic would reduce yields to 3 tons/ha. The farmer does not have enough cow dung to raise the yields above 3 t/ha.. Making compost from weeds (e.g. Chromolaena odorata) is a possibility, but would require much more work. Other researchers note that there are other substitutes to cow dung. At the Thasano Research and Seed Production Center just North of Savannakhet, the director recommends cowpea and mung bean as the most likely green manure species for local conditions. Other inputs for soil fertility management available within the Lao PDR include guano and rock phosphate.

Several experts have recommended a move to lower external inputs rather than a complete ban on inorganic fertilizer. This was the position taken by the National Rice Research Program (IRRI), who argued that some fertilizer is needed to maintain yields. Similarly the Director at the National Agriculture and Forestry Research Institute (NAFRI) notes that varieties suitable for organic production are unlikely to exceed 2-3 tons/ha. without some external inputs. In this context, it is useful also to look at rice yields in NE Thailand, where background conditions are similar, and where some farmers have adopted certified organic practices for rice. Setboonsarng, Leung and Cai (2006) cite data showing yields at around 2.4 tons/ha. for conventional farms and 2.6 tons/ha. for farms that have been certified as organic. So at least some evidence indicates that a move to OA can sustain yields.

Dr. Phouangparisack, Director General (DG) of the Directorate of Planning in the Ministry of Agriculture, Lao PDR, sees a relatively small role for OA. He sees more potential in conservation agriculture, which constrains the practice of tillage. The scope for such agriculture has been investigated in some detail by the Lao National Agro-Ecology Programme (PRONAE), in collaboration with Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD) of France. The aim is to develop innovative systems that will reverse the present resource-mining practices used in southern Xayabury, and to develop alternatives systems for higher plains and remote areas like those in Xieng Khouang province. This holistic approach emphasizes the process of adaptation and validation by farmer groups, meaning that priorities are defined by smallholders in light of the constraints of their farming systems and the overall environmental conditions. Pilot schemes in the high plains have been successful with mixed farming dominated by livestock, producing income equivalent to a rice yield of 1.8 tons/ha., which is considered good for that region (Lienhard et al., 2007).

Expanding conservation agriculture of this kind is seen by the government of the Lao PDR as complementary to attempts to foster OA and GAP systems such as SRI. A demonstration project has been expanded to cover 1000 ha. in the Upland and Mid-stream regions. The method does use some fertilizer and pesticides, but in limited quantities and under controlled conditions. There is presently a market for the output of such farms in France, where buyers will accept products with slightly higher residues than OA certification would allow. Similar deals may be possible within the Association of Southeast Asian Nations (ASEAN).³⁸

Impacts on Prices

The common view is that OA rice can be sold at a premium in the markets of the developed countries and also perhaps in Thailand. A study by Helevatas (Roder, 2004) looked at the potential for the Swiss market. They concluded that organic rice attracts a premium there in the range of 10-150 percent, which is of course a very wide range. Moreover the amount of this premium that would go back to the farmer is unclear. That will depend on the costs of certification, and the margins of the agents involved at other stages of the delivery chain. If the experience from Thailand in 2003 is anything to go by, premiums for rice to certified organic farmers are likely to be in the region of 40 percent (Setboonsarng, Leung and Cai, 2006). More recent Thai studies however, have come up with lower premiums of around 10 percent, although this fall may be partly due to the government's rice subsidy program.

In the case of Cambodia, interviews with experts from CEDAC indicate that rice, which may not meet the full organic certification, can nevertheless be sold at a premium in domestic and even international markets (Cambodian rice from the SRI program, for example, is exported in small quantities to France). The premium quoted is only around 10 percent. If this is correct, it has the important implication that, as far as the farmer is concerned, there will be benefit in going for the OA option as long as the premium is in the order of the 40 percent found in Thailand—even if yields are a little lower. If, however, yields are better maintained with GAP, and the price premium from OA is at the lower end of the range found in Thailand, the benefits of moving to GAP may be greater. This could be the case in some locations, particularly in lowland, irrigated rice ecosystems. On the other hand, for marginal upland farmers it may be appropriate to go for certified OA, in conjunction with continuing inputs support and help in obtaining certification. In both cases, as has been shown in a recent study for several Asian countries (including Cambodia and Lao PDR [Cai and Leung, 2007]), contract farming is likely to increase incomes.

Efficiency in Marketing

It is essential for an OA strategy that a market be identified for the products, and that the farmers be an integral part of the product chain. Often this is achieved by contract farming, in which the ultimate buyer contracts the farmer to produce according to certain conditions, sometimes supplying the farmer with key inputs, and guarantees to take the output on agreed terms. In other cases, a farmer may not be contracted, but nevertheless needs support to market the products, and ensure their output is delivered to the next stage in the chain in a timely and efficient manner. At present the rice market in the country is poorly developed, with weak transportation and communication links. This results in prices that vary a lot from one region to another, with supplies from regions of surplus to ones of deficit not always being made as needed. Often farmers will travel long distances by tractor to sell their rice, thereby adding to their costs. This results in higher margins for the middlemen and lower prices for the farmers (Lao Consulting Group, 2004).

Promoting Organic Rice in the Lao PDR³⁹

In the Lao PDR, organic rice is being developed under the “ProRice Program,” referred to as PROFIL. The program is being carried out by Helevatas and the Department of Agriculture. The goal is to produce and market good quality organic rice produced in the marginal rain fed rice growing environments of the Lao PDR. It aims to do this by:

1. Providing farmers with the rice varieties that are demanded in the market, and giving them the production technologies necessary for this purpose.
2. Assisting farmers with the management of soil fertility under organic conditions.
3. Organizing producers so they can have a voice in the marketing of the rice and in the terms of the certification.
4. Establishing appropriate and responsible structures, so that the rice can be sold under credible labels in the national and international markets.

The project started in 2006 and will be completed by 2009. By the end it will involve 600 producers, producing 850 tons, of which 800 will be exported. Since the aim is to help farmers in the poorer areas, the project will have to pay considerable attention to the logistics of collecting the surplus production and transferring it to the relevant distribution points. Yet the budget for the projects is relatively modest – about US$350,000 over the four years. If the project can achieve the goals set out, it should increase the incomes of the farmers considerably, although no estimate has been made of that increase.

Another project that is seeking to do something similar under the ProRice program is being implemented by the Government in 10 villages in Santhong district, close to the Thai border. It covers 958 families, who derive 70 percent of their income from lowland rice. The total area is 952.6 ha., of which 83 percent is lowland rice, and 8.5 percent upland rice. The program aims to improve yields within an organic context, to develop a better relationship between millers and farmers, and to promote the output under a local certification label. The cost of this component of the ProRice program is not known.

Given these initiatives, what is the potential for organic rice and how much can farmers hope to gain from it? This is difficult to answer given the limited data, but a rough estimate based on the two Missions to the Lao PDR and on the data provided, is given below.

First, we recognize that the Lao PDR is now at a stage where it can reasonably hope to export a significant amount of its rice production. Until a few years ago the Lao PDR was an importer of rice, but with increased productivity, the country now exports rice to Thailand, Vietnam and PRC. Since exports are largely unofficial, it is difficult to get an accurate measure of how much is being exported. One estimate says 100,000 tons per year go to Vietnam and more than 50,000 tons to Thailand. According to government officials in provinces bordering the PRC, there has been a big increase in the export of sticky rice there in recent years. In terms of self-sufficiency, the Lao PDR needs about 160 kg per person (Helevatas, 2005); making the minimum domestic requirement about 0.9 million tons. In 2005, paddy production was almost double that, and although some areas were ones of deficit and some of surplus, transfers were not always carried out effectively from the one to the other.

Given the partial information, one can conclude that an official export target of 250,000 tons by 2010 is not unreasonable. Of this, 25 percent could be organic and the rest GAP rice. With improved efficiency in marketing and distribution, farmers can expect a 10 percent premium on the current price rice in both cases. In addition one can expect some gains from the improved marketing and communication. We conservatively put those gains at 5 percent of the price, making the total premium 15 percent. If yields do not decline (and there is a reasonable expectation that, with support in the form of extension services the yields will not decline) we can estimate the increase in incomes and the numbers taken out of poverty as follows (Table 7 [ PDF 47.7KB | 1 page ]):

1. The average holding of farmers is 1.6 ha. (Govt. of Lao PDR, Agricultural Statistics, 2006).
2. 50 percent of the households in the program are in the lowlands and 50 percent in the uplands.
3. The average yield in the lowlands is 3.0 t/ha., while that in the uplands in 1.8 t/ha. (Helevatas, 2005).
4. Gross income per ha. in the lowlands is US$450 at present, while in the uplands it is US$270 (Helevatas, 2005). Net income figures are not available, but based on Cambodian data, one could expect them to be around US$120 in the lowlands and around US$40 in the uplands.⁴⁰
5. The poverty rate among lowland farmers is the same as the national average (39 percent. World Development Indicators [WDI, 2006]). The poverty rate among upland farmers is taken as 100 percent.
6. The program would benefit about 105,000 households and generate an additional US$5.6 million in incomes. The lowland household incomes would increase by 56 percent, but those in the uplands would double (given the lower initial net income in the uplands, the gain in price is worth more in percentage terms). The estimated impacts on poverty are speculative, but the figures indicate that perhaps about 7,300 rural lowland households could be taken out of poverty, while as many as 26,000 upland households would benefit.
7. The costs of such a program can be estimated roughly, based on a scaling-up of the Helevatas project, which deals with 600 households and costs US$350,000, while allowing for some economies of scale (see similar calculations for Cambodia). The scaled up cost would be about $52 million. However, with annual benefits of at least 5.6 million the “rate of return” would be about 7.5 percent.⁴¹ This may not seem high, but the benefits are to lowincome households and there is clearly a premium in equity terms that needs to be taken into account. There are also other benefits in terms of an improved environment, better health of the households, and the demonstration effect on other households (who would copy some of the practices introduced to the selected farmers).
8. IV.2 Biofuels in the Lao PDR

Jatropha

The government of the Lao PDR has chosen to develop jatropha as the crop of choice for the production of biodiesel. Research and development is being undertaken on the entire supply chain and about 8,000 ha. were being targeted for production this year. The aim is to cover 40,000 ha. by 2008. Based on the calculations reported for Cambodia, the former would yield between 10 and 26 million liters of biodiesel, or between 3 and 8 percent of fuel oil imports. The areas selected for the program are in the wastelands of the country, not suitable for agriculture. But there is also a potential for intercropping on some agricultural land.

Similar to Cambodia, the interest in jatropha from the private sector is strong in the Lao PDR. The Ministry of Energy and local private companies involved in renewable energy, such as Sunlabob, report many inquiries from private investors. A Korean company “Kolao” has “plans” to invest US$30 million to produce 400,000 tons of biodiesel (implying a need for plantations covering at least 144,000 ha.!). The program was initiated 3-4 years ago, but so far there has been virtually no production and only 200 ha. have been planted.

Overall, one is left with the strong impression that the expectations for expanding jatropha production are grossly exaggerated. Discussions with Sunlabob, a company that is undertaking research into jatropha in the Lao PDR, revealed that a great deal of R&D is needed before successful large scale production can be implemented. In its view, the necessary research will take in the order of 3-4 years, and the goal of having 8,000 ha. in production this year and 40,000 ha. by 2008, are totally unrealistic. It has prepared detailed plans for its own program, carried out through its research branch, Lao Institute for Renewable Energy (LIRE). This is estimated to cost about US$2 million.

The Ministry of Energy is allocating some modest resources to research in renewable energy. It is also in the process of drafting a policy for bioenergy, which should be available soon. At present, the only government program in this area is in Sanyaburi province, where a 10 kilowatt (kW) biodiesel generator has been installed.

As in Cambodia, an important issue for the government's bioenergy policy is to decide how to structure involvement by the private sector. And as in Cambodia, there are serious concerns with the allocation of large concessions to private developers. These have already been given for many activities in the areas of hydropower, mining, agriculture and forestry. A Lao-German land policy report concludes that there is a lack of transparency about the process of giving concessions, and indeed a comprehensive land inventory is missing. Model agreements that meet international leasing standards are only available for hydropower. Furthermore, concession fee rates, usage charges for natural resources and royalties do not reflect supply and demand and are not determined according to any clear set of guidelines (Schumann et al., 2006). The WWF (2007) report identifies similar problems with land concessions in the Lao PDR and Cambodia—a lack of clarity in awarding contracts, conflicts with local communities, and increased environmental damage. As one commentator has written, “the current process for allocating concessions in the Lao PDR is far from clear and administrative responsibilities are ambiguous.”⁴²

In view of these observations, one has to conclude that much preliminary work has to be done on the institutional side, in addition to the physical science and technology side, before major growth in the production of jatropha can be realized. There is no doubt, however, that the potential exists, not only for the use of biodiesel for transport and operating machinery, but also for supply of electricity. Sunlabob estimates that jatropha, along with other energy crops, could supply up to 40 percent of the country's rural off-grid electricity needs.

In terms of benefits, the program's economics should be similar to those in Cambodia. Smallholder programs can generate benefits of US$30 to US$98 for an average farm of 1.5 ha. if 15 percent of their land is allocated to jatropha; the exact amount depending on the yield achieved. Taking the lower end of the range, farmers' net incomes from land would go up 25 percent in the lowlands, and 75 percent in the uplands. This would guarantee that most farmers participating in the program, who were poor, would be taken out of poverty. With programs involving large concessions, employment generated could be around 0.9 persons per ha. devoted to jatropha. All such people should be able to earn enough to take them out of poverty. Exact estimates of the numbers who benefit and are taken out of poverty, however, are not possible given the data available. The problems facing any program will be the economics of obtaining a reasonable return on the capital invested. This in turn will depend on the price of biodiesel. At a price of US¢40/Liter the Cambodian program was only marginally viable for smallholders, but was viable for concessions. As in the case of Cambodia, some subsidy or support may be needed for smallholders if the program is to be viable.

Cassava

Although the government has not targeted cassava as a biofuel crop, there can be significant benefits from providing advice and support to increase yields and to assist in the transport and marketing of the chips for export. At present cassava is the third most important crop in the Lao PDR (after rice and maize) and production is in excess of 56,000 tons on 8,000 ha. (data are from Food and Agriculture Organisation Statistics (FAOSTAT) for 2004) representing a yield of 6.8 tons/ha. As we noted in the previous section yields in Cambodia are in the range of 17.8ton/ha. and there is believed to be scope for raising them further. Indeed the Lao PDR has the lowest yield for cassava in Asia, with the exception of Timor-Leste (Howeler, 2006).

A simple calculation can show substantial benefits from increasing yields and improving the marketing of cassava root for export. Assuming current yields of around 6.8 tons/ha., and assuming an increase of 50 percent can be realized through extension and support, we would see a further 27,200 tons of roots available for sale. If current production is enough to meet domestic needs for food and animal feed, the surplus can be exported. Currently prices in Thailand for cassava roots are around $26/ton. There are duties levied on sales to Thailand of around 20 percent, which would make the price (net of duties) that could be received by the Lao seller $20.8/ton. Even with this disadvantage, the net gain to growers is US$560,000, or an additional US$70.7/ha.. We do not have access to detailed net income data per hectare for the Lao PDR, but such an increase is certain to be large relative to current returns. Moreover, the contents of a program to improve yields are well known and could be put in place relatively easily. The program may also be tied in with private investors interested in buying and processing the roots into alcohol, modified starches, etc. The calculations for Cambodia show that such investment, while desirable, is not essential to realize a major part of the benefits of improving cassava yields and the infrastructure for marketing the output.

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Comment(s)

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1. Chumroen Benchavitvilai
   (posted 16 May 2009 / 05:44:46 PM)
   
   In fact all the LDC government must realize that the cost of Biofuel is /will be much more expensive than the mineral fossil fuel at any time.
   If the LDC like Lao,Cambodia and Myanmar wants to promote the Biofuel utilization as the national agenda .The policy makers in all countries must be able to find the satifatory answers to the following questions.
   
   (1) Do the people in the poorest countries of LDC really need to pay for the expensive / high cost of Biofuel as teh real cost is w/o governemtn interention ?
   
   (2) Will the governments of the LDC provide subsidies for Biofuel to keep the Biofuel not to be too much more expensive that the mineral fossil fuel ?
   The subsidies are both in term of production subsidies for lower production cost and consumer subsidies by waiving all related taxes eg energy tax, exile taxes VAT ,Energy fund etc.
   
   (3) It is doubtfully that the governments in all LDC are able to effort to provide any sbsidies for Biofuel .
   Normally the income from the energy usages is one of the main stream for revenue.
   All government in LDC are haing the deficit budget forever.
   Althrogh they may want to promote Biofuel and cover all the subsidies.
   It is impossible to survive.
   
   LDC countries should be the exporter of the Biofuel not teh teh end user of the Biofuel.