AGRICULTURE INVESTMENT TRENDS-THE ROLE OF PUBLIC AND PRIVATE SECTOR IN Lao PDR

By Linkham Douangsavanh, Ph.D

Mr. Pasalath Kunsy

☞Average GDP Growth: 7.9% per year

☞Inflation rate has decreased steadily, averaging 5.15%

☞Total Investment: 28.8% of the GDP per year

☞Budget Revenue: 16.5% of GDP and public expenditure 21.2% of GDP

☞Budget deficit 4.7% of GDP

☞Trade deficit 5.4% GDP

☞Foreign Reserves covers 6 months of imports

Achievements of the 6th NSEDP Stable Macroeconomic Growth

• Total Public Investment: 24,747 billion kip (US$ 2.9 Billion) of which,

☞Domestic (Government) financing 3,982 billion kips; (US$ 468 Million)

☞ODA 20,765 bill. kip (est. US$ 2.4 Billion, average US$ 488 million per year);

• Total Private Investment; approved private domestic and

foreign direct investments in the past five years stood at US$ 9.7 billion USD, of which

☞FDI amounted to US$ 8 billion ☞Private domestic investments amounted to US$ 1.7

billion

Achievements of the 6th NSEDP Domestic and Foreign Investments

Enabling Environment for Business

• Agriculture Law • Foreign Investment Promotion Law • Enterprise Law • Ministry of Planning and Investment

– Investment Promotion Department • Committee for Promotion and Management of

Investment

• Investment promotion incentives: profit tax exemptions for different zones

Lao Agriculture is Open to Investment

Core agribusiness sectors of economic interest: production

• China – Mostly in the North – Rubber, tea, vegetables,

livestock, NTFPs – Rubber processing

• Europe – North, South – France: Jatropha, benzoin – Hungary: livestock

• Japan – Central, South – Eucalyptus, Acacia, vegetables

• Korea – Central, South, North – Jatropha, NTFPs

• Singapore – South – Trade zones, coffee

• Thailand – Central, South – Sugar cane, coffee, vegetables,

cassava, pigs, cattle, maize, macadamia nuts, oil palm, peanuts, castor bean, cardamom

• Viet Nam – South, North – Cassava, rubber, livestock,

forestry, NTFPs, maize, cattle, buffalo

Rubber trees in perspective

• Total land area = 23.08 mil ha (FAO)

• Total forest area = 15.986 mil ha (FAO)

• Forest cover target in 2020: 15 mil ha (Lao sub-working group on forestry)

• DOF forest cover target for 2010 = 12 mil ha

• Total agriculture land = 2.129 mil ha (FAO)

• Total arable land = 1.170 mil ha (FAO)

• Concessions as of 2009 = 1.5 mil ha

• MAF industrial plantations target 2020 = 0.5 mil ha (Barney, 2007)

• Rubber planted = 0.4 mil ha (LaoFAB, 2009)

Core agribusiness sectors of economic interest: processing

• Agro-processing: North – Organic tea to

China

– Rubber to China

– Maize to China, Thailand, Viet Nam

– Soybeans to Thailand

– White sesame to Thailand

– NTFPs to China, Japan, Korea

Core agribusiness sectors of economic interest: processing

• Agro-processing South – Okra to Japan – Coffee to Hongkong, Europe,

Thailand – Cabbages to Thailand, Viet

Nam – Bananas to Thailand, Viet

Nam – Cotton indigo products to

Japan – Peanuts to Thailand, Viet

Nam – Cassava to Viet Nam – Rubber to Viet Nam – Soybeans to Thailand, Viet

Nam

Core agribusiness sectors of economic interest: processing

• Agro-processing: Central – Maize to Thailand

– Sweet corn to Europe

– Vegetables to Europe

– Peanuts to Thailand

– Cassava to Thailand

– Black glutinous rice to Europe, some organic

Observations on investments and investors

• Successful agribusinesses are well financed and have a good working relationship with Government

• Beer Lao is the model for mega-projects

The Cast of Characters • Coffee

– Dao Heung – Sinouk – Lao Mountain Coffee – AGPC – Olam International (Pakxong

Highlands??? )(Thai-Singapore)

• Vegetables – Lao Agro Industry (Vientiane

Province) – Mme. Inpeng (Champasak) – Taniyama-Siam (Sekong)

• Textiles – La’ha (cotton indigo)

(Savannakhet) – Lao Sericulture (Mulberries)

(Xieng Khouang) • Benzoin

– Agroforex (Houa Phanh)

• Sugar cane – Mitr Lao (Savannakhet) – Khonekene (Savannakhet) – TCC Capital Land

(Champasak) • Jatropha

– Kolao • Tree plantations

– Oji – Stora Enso

• Cassava (South) – Binh Dinh Pharmaceutical

and Medical Equipment Company (BIDIPHAR)

– CBF Pharma Company (a Lao-Viet Nam joint-venture)

– Ou Phu Ko Co. (Viet Nam)

• Rubber – Dak Lak Rubber Co.

(Viet Nam)

– Seunly Company (China)

– Sino-Lao Rubber Co., Ltd. (China)

– Natural Rubber of Yunnan (China)

– Zenhua Rubber (China)

– Siphan Salika Rubber Development

– Jianfong Rubber Development Co., Ltd.

The Cast of Characters

How to proceed

The next phase of agribusiness development

Entering the Lao value chain • Emphasize commodity-based projects • Corporate taxes can be negotiated based on social

sensitivity of the agribusiness • Lao version of CSR: Corporate Social Responsibility

Examples: • Contract farming with producers • Transfer of technology to producers • Micro-financing for producers • Training of officials for accredited certification • International standard SPS laboratories: BOT basis =

build operate and transfer (to GoL) • Value-added processing in country • Profit sharing with producers

P-P-P-P • A network of PARTNERSHIPS • Public & public: Government to Government

– MOU: Lao Government and Singapore Government

• Public & private: Government to private company: – MOU: Lao Government and private company

• Private & producers: Private company to producers – Contract farming: Private company and producers

How to proceed Prerequisite: • Role for the Lao Government at the

policy level – GoL sits on the board – GoL coordinates, facilitates, arbitrates,

resolves problems – GoL assists with negotiations with

farmers during start-up and with problems as they arise

How to proceed Alternative #1 -- Terms and conditions: • Management contract

for 1 or more irrigated areas – Minimum size = 5,000

ha

– Experienced producer groups are in place

– Contract farming are with producers or producer groups

Case Study: Gnommalath Plain,

Khammouane Province

How to proceed Alternative #2 -- Terms and conditions: • Barren land available as a

land concession – 30 year renewable lease

– 30 ha – 1,000 ha

– Operate as a nucleus estate

– Contract farming outreach program with local farmers

– Lease land from farmers

– Use farmers as workers while transferring technology

Case Study:

Taniyama-Siam, Thateng District, Sekong Province

Okra: Sekong to Japan in 72 hours

policy recommendations

The Sixth Plan (2006-2010) was translate programme into actions and methods for economic development that incorporate foreign investments. There will be an immediate materialization of laws

related to foreign investments. The 5th National Assembly already made some changes to the

mechanisms, policy, plans, procedures for granting investment permits, etc. These will be monitored regularly for further improvement and to enlarge the investment environment. This will create fast

investment procedures, which will become simpler.

Agricultural development Targets - Reform the laws and regulations involved in setting up enterprises and streamline the process; - Finalisation, implementation and enforcement of the implementing regulations for the Business Law; - Improve the quality and professionalism of public service provision; Increasing transparency; - Hold regular meetings between the central and local level Government and the private sector; - Reform regulations and administrative constraints that give rise to monopolies such as: lift restrictions on the movement of goods between provinces; and abolish limitations on restricting provincial contracts to local firms; - Lift some restrictions on foreign workers; - Reform the tax system, setting up proper monitoring agencies; - Increase foreign investment; - Continue to develop regulations and business operation laws and improve the business licensing processes; reduce unnecessary procedures; and increase fast and convenient services to businesses and entrepreneurs; - Promote the establishment of enterprises, cooperatives and family businesses in all areas permitted by the Government; Increase people’s access to financing.

Lessons learned

• Technology driven market-transition has been risky • Cash crops should not be promoted unless the market

is well-understood • Local-level organization should focus not only on

production, but also processing and marketing • Equity in access to opportunities is key to

understanding the economic impact of markets • The skills to support market-oriented production are

still lacking at the local level – need for not only technical expertise, but also experience with contracts, marketing and negotiation

• Improvement in the capacity of research centres and seed multiplication stations to sustainably produce large quantity of high quality seed according to demand of the most appropriate varieties for the different Lao conditions

The End

Thank you