Postharvest Practices: Maize Value Chain (Lao - Thailand)

Ass. Prof. Nongluck Suphanchaimat Post harvest Practices: Experiences and Best Practices in Israel and Thailand Mekong Institute 2 November 2011

• Postharvest value chain

• Free trade and Postharvest value chain of Maize

Supply chain VS Value Chain

• A value chain is a chain of activities for a firm operating in a specific industry. The study focuses on business unit for construction of a value chain. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value.

•supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.

Overview of the vegetable supply chain in Lao PDR

Source : Surveys in collaboration between AVRDC and MAF (Lao PDR), 2005. N=200.

Farmers

WholesalersCollectors

Grocery shops

Wet marketvendors

Streetvendors

Restaurants

Consumers

67%6%

61%

19%

95%

39%

26%

47%14%

Orange postharvest management

40 bht/kg

150 bht/kg

Value Chain

• Mapping actors (roles & responsibilities)

• rules & regulation• Cost and margin by actors• mapping constraints and possible solutions

Study of “the full range of activities which are required to bring a product or service from conception, through the intermediary phases of production, delivery to final consumers, and final disposal after use”

(Kaplinsky 1999, pg. 121).

VC: Mapping actorsInput ProductionCollectionWheel sale

retail

Production

Consumption

Export

Input tradesBankMoney lender

ActorFarmers

CooperativesVillagetraders

traderscentralmarket

Processor ConsumerExporter

Farmers/

CooperativeVillage traders Processor Consumer Exporter

Growing

Harvesting

drying

Collect

Store

transport

Storage

Processing

Distribution

packaging

- Storage consumer

-Grading

-Transport

-Storage

-packaging

VC: Roles of Actors

input production trading processing Consumers

export

- Mature

- Purity

- Non-toxic

- Color

- Size

- Moisture

- Color

- Size

- Uniformity

- Smell

- Grade

- Color

- Taste

- Package

- Product

- Quality

VC: Information of the chain

product

information

(1) Financial cost : monetary expense of production resources. (land, labor, capital)

land : rentlabor : wagecapital : interest

Cost : Financial cost

Opportunity cost

Opportunity cost : imputed cost to the value chain actor’s time land and capital.

Opportunity cost for labor : the cost incurred if a person is employedOpportunity cost of land : the return on leasing the land to another producer.Opportunity cost of capital : the interest rate that one would receive from a bank.

2. Opportunity cost

VC: Cost and margin

Cost : money that an actor in the VC contribute

Margin : money that an actor receive minus cost

Cost of entry : investment and operating cost required for an actor to enter the VC

e.g. border traders in Lao should have own truck and credit with gasoline station, register with trader association.

Marketing margins:

• the percentage of the final weighted average selling price taken by each stage of the marketing chain. The marketing margin covers the costs involved in transferring produce from one stage to the next and the profit of those doing the marketing.

Marketing costs:

• the costs involved in moving produce along the marketing chain for example,

• produce preparation

- packaging costs, - handling and transport costs

- storage costs, - processing costs,

- product losses, - fees and commissions.

Generally, the more complex and lengthy the marketing chain the higher are the marketing costs.

Profit margins (or profit or returns)

• the difference between total revenue and total costs calculated for each operator in the marketing chain

Free trade and postharvest value chain of Maize

• ASEAN Tree liberalization started in 1992

• In 2003 ACMECS framework Cambodia,

Lao, Myanmar and Thailand initialize to

utilize each countries’ strengths

• 2010 Free trade within ASEAN

Expectations of the Free Trade

• Increase competitiveness, generate growth along the borders

• Create employment opportunities• Facilitate relocation of agricultural and

industrial industries• Reduce income disparity between

countries• Countries act according to comparative

advantage

Xayaboury Province LaoPDR

Loei Province Thailand

Thailand

Laos

520 km NE of Bangkok.Feed corn area 68,300 ha in 2002 but 40,000 ha in 2007

Arawan district with same landscape as Laolarge drop of feed corn 43 registered farmerswere interviewed.

30,000 ha of feed corn area52% of Xyaboury area

48 farmers in villageTak dad, Bung Ma Hui Tang Paklai district were interviewed based on

headmen selection

china

VN

1980Adopted improved seed “Suwan1”

from Thailand

1998 Adopted hybrid seed “888” from Thai private company

2007 Hybrid seed from Vietnam, China are also available

2010 Cassava has become competitive crop

In Lao

Maize import tax to Thailand

Before 2003

• Import tax 2.75 bht/kg• Require Phytosanitary

certificate• Complicated custom

procedure

After 2003

• Tax free• Require Phyto.

Certificate• Require certificate of

origin• Relax custom

procedure

Figure 3 Feed cron expansion in Lao

0

100,000

200,000

300,000

400,000

500,000

2000 2001 2002 2003 2004 2005 2006

To

n o

r h

a

0

1

2

3

4

5

To

n p

er h

a

Cultivated area (hectare) Production (Tons)

yield (ton/ha)

Thailand Lao

0

1,000

2,000

3,000

4,000

5,000

2000 2001 2002 2003 2004 2005 2006 2007

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

Planted area 000 ha Production 000 ton

Yield (ton per ha)

Feed corn production and yield in trading countries

Thai production is declining while Lao has increased even without chemical fertilizer. Area expansion in Lao is obvious after 2003

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007

0

20

40

60

80

100

120

Farm price (US$ perton)

% import from Lao

Import from Lao and farm gate price in Thailand

Increase in farm gate price in Thailand despite an increase in import volume from Lao

-100,000.0200,000.0300,000.0400,000.0500,000.0600,000.0700,000.0800,000.0900,000.0

1,000,000.0

2003 2004 2005 2006 2007 2008 2009 2010

To

n

0.01.02.03.04.05.06.07.08.09.010.0

Bh

t/kg

Import Export Import pr Export pr

Thailand Import Export of Maize

After free trade Thailand import more andre-export also increase. Each year Thailand needs about 1 million imported maize volume for domestic use

Full contract

In Lao

Incomplete contract in Thailand

inputs Provide from contractor

same

technique yes yes

Buy back product

yes Not necessary

Contract farming

Lao feed corn have to be mixed with Thai product at 1:1 ratio

ThaiLao

mapping actors : MaizeProdu

ction

Collection

Consumption

Lao Maize growers

On farm feed consumption

Traders in Lao (23)

Border

trader (16)- Uncobbed

Trader with silo - Clean

& mix Export Animal

feed

processing

Thai Maize growers

compare yield and cost

5.6

4.9

113.7

137.3

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

Lao (n=45) Thai (n=43)

0

20

40

60

80

100

120

140

160

Average yield(ton per ha)

Total cost (US$per ton)

Thai

21%

8%

24%

39%

7%

Land preparation Seed Labor cost Chemical Interest

35%

11%

37%

6%

11%

Lao

Thai use more chemical input and use seedlingmachine

1,000.0

1,050.0

1,100.0

1,150.0

1,200.0

1,250.0

1,300.0

1,350.0

1,400.0

2006 2007 2008

5.0

5.1

5.2

5.3

5.4

5.5

5.6

5.7

Lao Thai

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2006 2007 2008

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

Rainfall (mm)

Yield (ton/ha)

Comparison of farm gate price in Lao and Thailand

118.9

152.6

99.4

122.0

153.7137.1

0.020.040.060.080.0

100.0120.0140.0160.0180.0

2006 2007 2008

Lao

Thai

Farm gate price in LaoIs related to the Thai market

Logistic cost Maize traders in LaoShipping cost of maize to Thai border

Item Amount kip/ton

1 Shipping form Local trade office 100,000 kip/form   5,555

2 Certificate of origin Local trade office 80,000 kip/200 ton

  400

3 Certified form Local ag office 100,000 kip/form   5,555

4 Exporter fund Trade union 10 kip/kg   10,000

5 Business tax Local fiscal office 3.5%/kg (std price

600 kip/kg) 21,000

6 Shipping service   100,000 kip/200

ton   500

7 tax Tax office 20,000 kip/100 ton 200 

8 Crossing border fee   282,000 kip/truck

(18 ton/truck) 15,666

9 gasoline   120,000 kip/truck   6,667*

65,543

* Shipper own truck 256 kip = one bhtAbout 256 bht per ton

Value Chain Actor

Costs Revenues

Profits Margins

Unit Total Cost

Added Unit % Added Cost

Unit Price Unit Profit

% Total Profit

s

Unit Margi

n

% Retail Price

Cost*

Farmers A - #VALUE! G G-A (G-A)/(K-

F)

G G/K

Assemblers

G B #VALUE! H H-B-G (H-B-G)/(K-

F)

H-G (H-G)/K

Processors #VALUE! C #VALUE! I I-C-H (I-C-H)/(K-

F)

I-H (I-H)/K

Traders #VALUE! D #VALUE! J J-D-I (J-D-I)/(K-

F)

J-I (J-I)/K

Retailers #VALUE! E #VALUE! K K-E-J (K-E-J)/(K-

F)

K-J (K-J)/K

Total  F=(B+C+D+E)

100   K-F 100 K 100

 

Lao farmer Lao trader Thai Thai Exporter/processor

Feed mill (10)

Selling price 4.5 5.3 6.3 88

cost 3.5 0.25 0.4 1.45 

Margin %   18% 19% 27% 

unit profit 1 0.55 0.6 0.25 

% profit 17% 9% 10% 4% 

VC –Maize in Oct 2007

VC -MaizeFarmer Lao

tradersThai Trader processor Consumer (10)

activities

plant Sell input on credit

Buy output and service transport

Sell input provide credit

Buy outputUncob (1 kg of feed corn contains 0.7 - 0.8 corn grains)

Clean mix(Thai & Lao at 1:1) and store

Export grain or sell to animal feed mill

Regu lation

Plant on slope less than 38 degree

Sun dried before harvest

Store with cob

Collect contracted farmers first

Deduct debt from farmers’ income

Price mixed grade for Lao maize

Price by grade for Thai product

Must pay back debt before receive new seed

Must deliver as grain

Identify origin

Price by grade

Free of Alfa toxin

Moisture less than 14%

Impurity less than 5%

Farmers Collector Border Trader

Trader exporter

Farmers Exchange labor

Receive credit use trader machine

Exchange in cash

no

Collector Provide input credit

Buy at mixed grade

Trade in regular areas

transport to trader

Cash advance

no

Border Trader

no Collector act as agent in the village

Meeting

set up fund

Share trucks

exchange

Trader exporter

no no Declare export amount

Price by grade

meetingExchange info

VC: Example of roles & regulation

inputCorn

productionprocurement processing

activities Sale on credit

-Farm plan

-Herbicide application

-Un-cobbed

- dried

-Transport

- clean dry mix

Difficulties -Lack of cash

- too expensive input

-Dry spell

-Lack of production techniques

-Poor road

-High transportation cost

-Aflatoxin

-rainfall

-Lack of drying technology

possible solution

-Credit lending service

-Contract farming

-cooperative

-road improvement

-Farmers field days

-Provision of farm pond

-covered storage -silo

- Mix corn from various sources

Mapping constraints and possible solutions

• Although open markets and economic integration can enhance rural growth but at the same time encounter risk of economic losses to superior competitors, instability, and worsening inequality

•(Rosegrant and Hazell 2001).

Impact from free trade

Impact of free trade on Thai-Lao farmers

• Large expansion into sloping areas• increase use of hybrid seed and herbicide

Lao PDR

Myanmar

Cambodia

Vietnam

Malaysia

Indonesia

Taiwan

SingaporeFlow outFlow in

Commodity flows after free trade

0.40.16

0.1

1

Planted Area in mllion ha

Problems in market credit link

• Thai traders buy Lao product at mixed grade. • For Thai product, 14% moisture is standard and

price will reduce about 0.12 bht/kg for each 1% increase in moisture.

• In bad year, Lao farmers have to wait for traders who provided credit who tend to prolong their collection or wait for the price to increase. Indebted farmers will be affected most since they generally depend on maize income to buy rice and pay back debt.

Problems in logistic• High fixed cost in transportation and poor road limited investment in transportation services in Lao, traders should have own vehicles• 40-60% of the operating costs of traders were on fuel. So, concerns over fuel efficiency is necessary.• Causes of fuel inefficiency are empty running, Lao traders transport construction material from Thai•Inefficient border procedures causing delays and double-handling. This has been solved. Lao vehicle is allowed to load products across Thai border and stay for a few days, Border staffs work overtime. • Other problems are access to loans and credit,  high interest rates 3% per month in Lao

Governance of the Value chain involve

improvement of efficiency of the chain

and relations of actors.

Chain management process

Rules and regulations

Value chain improvement

Investments to improve the value chain

• Develop trust, Thai traders receive credit from bank and suppliers so able to provide credit for seed and cash advance to Lao traders based on hybrid seed purchased. Initially, credit service is provided among acquainted trading partners.

• Rely on initiative and leadership of a private company for sustainability of a chain project. Lao traders initiate trade union and try to develop mutual fund.

• Provide incentives price by grain quality

Differentiation of food products

• In recent year, the use of geographic branding and certification has become a common tool to protect and differentiate high quality food products. Advantages are: 1. it enables producers to control supply which has

obvious advantages. 2. it enables groups of producers within the region to

collectively decide how to improve the quality or process.

3. the producers learn how to produce and market a highly differentiated product that could be extended to other products.

 

Guarantee price

Mkt ref price

subsidize

d vol

Avg amount per farmer (Max vol)

2008 8.5 7.3 750,000 ton - 

Oct 2009

7.1 5.55  - 10 ton per farmerMax 20 ton

Guarantee price of feed corn in Thailand

• Due to high oil price in 2008, the Thai gov’t supported farmers by setting high mkt price endedup high gov’t stock and had absorbed feed corn from neighboring countries.

• In 2009, gov’t change to support price system, Registered Thai farmers can receive subsidized

price. Actual market price was lower.

Under free trade gov’t intervention

cannot confine to only domestic

market

How farmers are better linked to the chain?

• Lao traders invested in shelling equipment facilitate un-cob maize help left maize cob to replenish the soil

• Lao government promote traders with silo to invest in the planting location.

• Allow competitive market for good hybrid seed

• Promote farm credit through Agricultural bank

.

Challenges

• How can small scale farmers in Lao benefit from the value added process?

• How can marketing competitiveness can be improved in both countries?

References• Rosegrant, M. W. and P. B. R. Hazell. 2001. Transforming the rural

Asian economy: The unfinished revolution. 2020 BRIEF 69. IFPRI.

• Suphanchaimat N and Khonesavanh Vongxay 2010, Impact Analysis of free Trade on Farming Systems in Northeast Thailand and Northern Lao PDR in Masuo Ando.edited Impact Analyses of economic integration on agriculture and policy proposals toward poverty alleviation in rural East Asia. Japan International Research Center for Agricultural Sciences Tsukuba, Ibaraki, Japan. pp 11- 24

• Department for International Development. 2008. Making Value Chains Work Better for the Poor: A Toolbook for Practitioners of Value Chain Analysis. A publication financed by the UK Department for International Development (DFID). Boonruang Song-ngam, Desktop Publishing. Cambodia.145 p.