Value chain development in the context of the Lao PDR...

Value chain development in the context of the Lao PDR:Lessons learnt and recommendations for future support. Smallholder Agricultural-Market Development in the Uplands (SADU III Project) End of project workshop summary. 5th to 6th July 2012, Vientiane Capital, Lao PDR.

VALUE CHAIN DEVELOPMENT IN THE CONTEXT OF THE LAO PDR: LESSONS LEARNT AND RECOMMENDATIONS FOR FUTURE SUPPORT

SADU III PROJECT

Contents

Executive summary 2

End of project workshop 10

Proceedings of Day 1 11

Opening session 11

SADU and other Lao experiences in linking farmers to markets 15

International experiences in linking farmers to markets 20

Proceedings of Day 2 22

Summary of group work 25

Conclusion 30

Appendices 31

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SADU III PROJECT

Executive summary

IntroductionBetween 2003 and 2012, the International Centre for Tropical Agriculture (CIAT) with funding from the Swiss Agency for Development and Cooperation (SDC) worked with partners in Lao PDR and Vietnam to implement the Smallholder Agricultural-Market Development in the Uplands project, also known as SADU. In Lao PDR, the key partner at national level was the Agriculture and Forestry Policy Research Centre (AFPRC) of the National Agriculture and Forestry Research Institute (NAFRI). The project operated in partnership with the National Agriculture and Forestry Extension Service (NAFES), and Provincial Agriculture and Forestry Offices (PAFO) of Xieng Khouang and Luang Prabang Provinces, and with seven District Agriculture and Forestry Offices (DAFO).

Three components of the research-for-development project focused on:

1. Selected market chain development in order for:

• Private sector to take advantage of new opportunities

• Provincial and district government to address local market constraints and support smallholder integration into markets.

2. Supporting a conductive policy environment (AFPRC) for integration of smallholders into market chains.

3. Partnering with like-minded projects that work with market chains to ensure scaling-out of poverty impacts (NAFES), through integration of smallholders into markets.

To conclude the nine-year project, a workshop titled “Value chain development in the context of the Lao PDR: Lessons learnt and recommendations for future support” was held in Vientiane Capital from 5th to 6th July 2012. The objective of the workshop was to share lessons from the SADU project along with experiences from Lao PDR, Vietnam and other developing countries. A second objective was to explore what capacity and policy support is required to further the development of the agricultural sector and to strengthen the capacity of its smallholders.

The workshop brought together more than 100 delegates. Representatives from national, provincial and district government agencies participated including government officers of PAFO and DAFO and Deputy Governors from Xieng Khouang and Luang Prabang Provinces where most of the SADU work took place. PAFO of Champasak and Bokeo were also well represented. Delegates from research institutions, international non-government organisations (NGOs), local non-profit associations (NPAs) and the project donor, SDC, also participated in the event.

The aim of the workshop was to explore a range of key questions:

• What aspects of value chain approaches work best in the Lao context?

• What institutional arrangements work and under what conditions?

• What are the roles of different actors in the value chain? In particular, what role should the government play?

• How can a research agenda be developed to support smallholders? What are the core areas of research required?

• What kind of supporting policies are working? On what level? Which policies are counter-effective?

SADU project development goal: To improve livelihoods of marginalised smallholder farming households, especially ethnic minority groups, women and the poor, in upland areas of Northern Laos through increased market chain efficiency.

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Speakers from SADU (Laos and Vietnam), CIAT Asia and Colombia, Coffee Research Center /AFPRC/NAFRI, Helvetas Vietnam and SDC delivered presentations, sharing lessons learnt and raising questions for participants to consider in the context of the Lao PDR. Day two of the workshop featured group activities designed to give delegates the opportunity to explore four key issues drawn from the presentations and to formulate recommendations for the future.

This report summarises crosscutting themes and lessons shared during the workshop and records the recommendations proposed for future development of value chains and support of smallholder farmers.

Linking farmers to markets: a viable pathway for poverty reductionDonors, private sector, government and civil society are in broad consensus on the benefits of linking smallholders to markets.

Experiences shared during the SADU end of project workshop confirm market access to be a more sustained pathway through which rural smallholder farmers can increase agricultural production, profit from market opportunities and emerge from poverty.

In the Lao PDR, SADU III was implemented in 15 kumbans (village clusters) and 86 villages, totalling over 2,000 remote, upland households of which 50% are of ethnic descent.

SADU III supported stakeholders to better understand and respond to market dynamics in 13 forest and agricultural product value chains and linked smallholders to new market opportunities. This has affected production, increased income (Table 1 below) and improved trading relationships. These approaches have enabled communities to better link to markets, engage more confidently in market systems and capture a larger share of the value added along the chain.

Table 1: Income increase per market chain during SADU III

SADU III supported stakeholders to better understand and respond to market dynamics in 13 forest and agricultural product value chains and linked smallholders to new market opportunities.

Value Chain or Service

Number of Households (HH)

Income 2009 (million kip/HH)

Income 2012 (million kip/HH)

Percentage Increase

Vegetables 170 6.4 10.9 70%

Maize 96 4 7 75%

Banana 78 0.1 1.7 1600%

Cattle fattening 180 6 9 50%

Chilli 264 1.1 5.3 382%

Poultry 380 0.2 1.2 500%

Animal Health Service Providers (AHSP)

40 0 1.9 -

Coffee 375 0.3 0.5 67%

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“By understanding market demand, farmers realised they could sell much more than they thought they could. They then increased production with the security of knowing there is a market for their products.” SADU project, Lao PDR

Factors contributing to the increased income amongst households include targeted support from the SADU III project and external factors such as changing market forces and prices fluctuations. Targeted support has enabled stakeholders to:

• Improve organisational development of smallholder producer groups and associations. This has resulted in organised sales and increased negotiation power.

• Develop ability to make informed production decisions based on market information.

• Develop skills in production planning.

• Capture a greater portion of product end value by value adding such as processing, packaging etc.

• Develop more efficient production techniques (livestock fattening, AHSP etc).

Presenters at the SADU workshop also shared many other success stories of linking farmers to markets Lao PDR and beyond. These examples demonstrate that it is possible for smallholder farmers – including upland communities, ethnic people and women – to profit from market access on the condition that they are given the right type of targeted support and can enjoy an environment enabling profitable trade.

Opportunities for the agriculture sector in Lao PDR

The workshop identified many opportunities for the agricultural sector in Lao PDR. No longer an isolated, landlocked country, Laos is now seen as a “land-linked’ country, bordering three burgeoning economies - China, Vietnam and Thailand. The economy of Laos itself is growing rapidly and changing consumer preferences will continue to present opportunities for the agricultural sector.

Presenters highlighted opportunities to capitalise on Laos’ unique strengths, which were identified as:

• A more pristine environment than neighbouring countries

• Rich agro-biodiversity which no longer exists in many other countries i.e. Non-Timber Forest Products (NTFPs)

• Potential for clean, high quality production

• Availability of land and other natural resources

• Climatic conditions

• Potential for high-value, niche crops that capitalise on traditional, natural and wild.

How can stakeholders be enabled to seize these opportunities?On the condition that stakeholders receive targeted support and enjoy an environment enabling profitable trade, farmers in Lao PDR will be able to supply markets in an efficient and competitive way.

The recommendations for targeted support and improvements to the enabling environment below address the key constraints faced by stakeholders and summarise recommendations formulated during the SADU end of project workshop.

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Recommendations for targeted support

‘Agro-Enterprise Development Approach’

The SADU project built upon and modified the Agro-Enterprise Development Approach (AEDP) developed by CIAT. The process involved:

1. Product selection:

• Starting with identifying “known” commodities with market demand was seen to be advantageous particularly for smallholders.

• Quality, as determined by the customer, is essential to product selection. If product quality cannot meet the standard required by the market, supply chain interventions will be ineffectual.

• Quantity: is there capacity to meet demand?

2. Market chain studies:

• Participatory market assessments, feasibility studies and value chain analysis.

3. Develop action plan and interventions:

• Support can be beneficial at any point in the value chain, however support should be based on needs and identified constraints.

• Develop market-led facilitation services and build capacity of all stakeholders in market analysis.

• Improve coordination between the value chain actors.

• Deliver technical guidance to farmers to address production and supply issues in the context of the marketing linkage.

• Facilitate development of equitable business models between smallholders and the private sector.

Market integration is complex and that there is no “one-size-fits-all” solution. Interventions and investments in market chains must be gradual and context-specific, with particular regard to economic, cultural and political settings. Great attention must be paid to gender equity and inclusion of poor and ethnic households.

SADU has produced a toolkit for implementing AEPD in the Lao context. “Starting an Agro-Enterprise Development Process Field Facilitators Guide” (available in Lao and English).

Capacity building in market analysis for all stakeholders

Previously, agricultural extension has focussed on providing technical production support to farmers, with little attention given to the market and the development of skills needed to analyse market drivers. To equip farmers and their supporters to answer questions of product quantity, quality and timing, development of skills in market analysis is essential.

• Development of market-based skills is required for all stakeholders.

• For value chain interventions or business investments to be successful and sustainable they must respond to real (and changing) market demand.

• Reasoning from market demand, downwards to production is key.

• Early market analysis is essential.

• Domestic and regional market opportunities should not be over-looked or

“Before we didn’t understand the needs of farmers well and we focused mainly on production extension and not much on markets. With the new way of working we take farmers as the centre. We don’t make a decision for them but facilitate to understand and make their own decision”. DAFO Technician, Xieng Khouang

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“Making people aware of who is in the value chain had some of the biggest impacts in improving market chain efficiency.” SADU, Lao PDR

underestimated. It is easier to access local and regional markets than to export to the USA and EU.

Link delivery of extension with market-led facilitation services

In order to help smallholders capitalise on market opportunities, extension officials must develop an understanding of market analysis and then build their capacity to deliver market-led services in addition to technical extension.

It is now also increasingly common for these services to be delivered by private sector actors (motivated to increase efficiency and profit along the value chain), as well as by government agencies. The following recommendations are made for both public and private sector actors in order to strengthen the capacity of smallholders and producer groups.

Cultivate the right attitude

• Facilitate engagement that is farmer centred, gender sensitive, and youth and poor inclusive.

• Understanding the needs and reasoning of farmers is essential.

• Foster a mind-set to see farmers as “agents of development”, not only as recipients of programs.

• Facilitate women’s engagement without increasing their workload and capitalise on women’s strengths in managing small-scale market activities, especially among ethnic groups.

• Encourage community leadership.

Facilitate, don’t direct

Workshop participants observed that local authorities have been too directly involved in the selection of trade conditions and price setting in the past. Placing restrictions on the choices of farmers, thus reducing farmers’ initiative and ownership, was seen as counter-productive to progress in commercial agriculture. When providing support to smallholder farmers, facilitate informed decision-making rather than impose decisions on farmers.

Technical advice and inputs

• Ongoing technical support to help farmers comply with market demands (volume, time and quality), processing and other bottlenecks to production and sales is required.

• Improve production planning in order to access markets when prices are good. Also, by producing a crop in off-season, farmers may access a niche market.

• Facilitate entry points to value adding to products or trading.

• Introduce farmers to improved techniques and equipment.

• Improve access to quality inputs.

Bridge communication

• Broker study tours and events that facilitate introductions between actors in the value chain. Dialogue between actors is essential in order for issues to be identified and to enable improvements to be made in chain linkages.

• Making stakeholders aware of which other actors are operating in the value chain is an essential step to improving market chain efficiency.

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• Government agencies and private sector can play a role in helping stakeholder access regional markets and market information.

• Linking and matchmaking of producer groups to other chain actors (traders, banks, extension) is crucial.

Support collective action

Collective action is essential to furthering the integration of smallholders into commercial agriculture. When acting alone, farmers in Laos have virtually no bargaining power. Small farmers cannot produce the volumes necessary to satisfy the needs of buyers that want to reduce transaction costs, increase economies of scale and obtain a reliable supply.

Producer groups and cooperatives increase farmers’ bargaining power and improve their ability to organise themselves around market issues. When acting collectively, smallholders may be in a better position to reduce transaction costs, obtain market information, access bulk inputs at a reduced cost, secure access to new technologies, add value (processing, packaging, branding etc) and tap into high value markets.

In Xieng Khouang Province, working collectively has helped farmers to gain and share market information, plan and produce systematically towards markets, and add value through processing and packaging. By working collectively, vegetable farmers in Khoune District have been able to gain benefits and capture a greater portion of product end value. For the 170 families in the vegetable group, average income increased from 6.4 million kip per household (2009) to 10.9 million kip per household (2012).

Also in Xieng Khouang, 180 households participating in cattle fattening groups now earn 9 million kip per household through collective trading: 30% more than three years ago from free ranging cattle. The 2010 Decree supporting the emergence of cooperatives has resulted in four farmers’ groups progressing to cooperatives in Khoune District, facilitated by DAFO, PAFO and NAFES.

Private sector and government can support and strengthen groups and cooperatives by:

• Assisting groups to strengthen organisational capacity and to develop policies on how to work together.

• Supporting groups to upgrade into cooperatives in order to increase market access and quantities produced.

• Facilitating access to finance or assisting groups to develop their own forms of finance or insurance.

• Assisting groups to perform new functions in the value chains (processing, trading).

Recommendations for effective group functioning:

• Groups will only function effectively and become sustainable if the direct needs and expectations of their members are addressed and if tangible benefits are derived from membership.

• External agents should not instruct or direct participation.

• Support inclusion of the poor, women and other marginalised groups, noting that there may be direct and indirect costs that prevent some farmers from joining. Membership fees may be prohibitive for poorer farmers and there may also be cultural barriers to inclusion.

“Previously, traders cheated us but now we are working in a group, we get the prices as agreed with traders. Now we produce more and we aren’t afraid that we won’t be able to sell our products. We are more organised now.” Vegetable group member, Xieng Khouang

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Recommendations for the enabling environment

Supportive policy framework

A supportive policy framework is an essential component of an enabling environment for commercialised agriculture and pro-poor socioeconomic development.

Government endorsed monopsonies were discussed in depth and a draft policy brief reviewed by a focus group. The group commented that monopsonies have an adverse effect on the bargaining power of producers and result in significant lower price setting. Moreover, monopsonies reduce trade volumes and reduce revenue collected by local authorities. Presenters noted that the impacts of market chain investments and interventions in the SADU project were severely limited in districts that impose trade regulations. Workshop participants, including the Deputy District Governors present, agreed that open trade encourages economic growth and could help ensure benefits are shared more equally among stakeholders.

The workshop recommended that open trade be standardised across the country and measures put in place to ensure implementation. Capacity building in trade management and record keeping amongst government officials was also recommended.

Proposed policy research agenda

A second group activity focussed on drafting a research agenda for the proposed IFAD/NAFRI Lao Policy “Think Tank” that would support smallholder integration into a commercial agriculture sector.

The group proposed that the following topics require policy research:

1. An impact assessment of removal of barriers to facilitate trade.

2. A study of the various factors required in order to move towards commercial production of agricultural products.

3. A study on contract farming arrangements. What are the conditions required for fair and pro-poor contract farming?1

4. How can producer groups be strengthened in order to increase bargaining power? 2

5. Coordination of different stakeholders in the value chain.

Workshop participants recommended that research be undertaken into foreign traders and investment projects in light of impacts to Lao producers, Lao traders and the development of domestic agro-businesses.

A delegate from the Faculty of Agriculture of NUOL recommended that the presentation delivered by Rik Delnoy - Farmers’ access to markets and value chain development: “7 guiding principles” - be used to develop a policy brief.

A participant recommended research into export promotion policies: How can the government guarantee sales of farmers’ products? And how can it improve bargaining power of farmers and farmers’ groups?

1 See also “Contract Farming in Lao PDR” by David Fullbrook. A study organized by sub sector working group on farmers and agribusiness. The report is available at http://www.laofab.org/document/view/1566

2 See also “Beyond production: Facilitating market access through farmers groups”, by URDP/NAFRI. Policy Brief No 01, available in Lao and English languages on the NAFRI website: www.nafri.org.la

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Access to credit

Lack of access to affordable, timely and appropriate finance was identified as a key constraint that must be addressed. If Lao farmers and traders are not supported to access investment finance they will not be able to benefit from improved market opportunities and access.

It was recommended that the government could forge cooperation between the Ministry of Industry and Commerce and the Ministry of Agriculture and Forestry in order to help facilitate farmers to access fair and appropriate finance.

Multi-stakeholder cooperation• Facilitate multi-stakeholder forums to enable joint dialogue, mutual

learning and coordinated action. The “Learning Alliance” which fostered coordination between government staff, actors in the value chain, development projects and INGOs is one such example from the Lao PDR.

• Support private sector to develop improved trading models and contract arrangements that are effective and fair for small producers. Speakers gave examples of inclusive business models where traders are allies in the value chain, performing crucial functions such as providing market information, inputs and/or credit and guiding on quality requirements.

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Time Topic Speakers

DAY 1 - 5 July 2012

08.30 Registration

09.00 Opening speech Assoc. Prof Dr. Linkham Doungsavanh DDG of NAFRI

09.15 Key note speech Dr. Liliane Ortega, SDC

09.30 Key note speech Dr. Rod Lefroy, CIAT

09.45 Introduction and agenda workshop Mr. Martin Greijmans, SADU/CIAT

10.15 Break

Session 1: SADU and other Lao experiences in linking farmers to markets

10.30 Video + SADU results in Xieng Khouang Mr. Viengsouk Lowbreyyoa, DAFO Paek District, Xieng Khouang

SADU Lesson learnt: policy and ways forward Mr. Nalongsack Xayalath, SADU/CIAT

11.15 Effect of Farmers Participation to the Sustainability of Coffee Production Groups in Paksong District, Champasak Province

Ms. Soulyphone Sidavong Coffee Research Center/ AFPRC/NAFRI

12.00 Lunch

13.00 Farmers access to markets and value chain development: 7 principles

Mr. Rik Delnoye, Royal Tropical Institute

Session 2: International experiences in linking farmers to markets

14.15 Marketing experiences from Vietnam Mr. Dominic Smith, HELVETAS Swiss Intercooperation Vietnam

15.00 Break

15.15 Smallholders in the uplands of Vietnam: Market linkages before, during and after SADU

Ms. Thuy, Cu Thi Le, CIAT Vietnam

16.00 LINK Methodology: A participatory guide to business models that link smallholders to markets

Mr. Mark Lundy, CIAT Colombia

16.45 Questions and Discussion

DAY 2 - 6 July 2012

09.00 Welcome and remarks Associated Prof Dr. Linkham Doungsavanh, DDG of NAFRI

09.15 Introduction to group work around key questions AFPRC and SADU staff

09.30 Group work Facilitators

10.30 Break

10.45 Continuation group work + document discussion results Facilitators

12.00 Lunch

13.00 Plenary sharing results group work Representation per group

15.00 Break

15.15 Discussion and questions Participants

15.45 Plenary formulation of major lessons and conclusions AFPRC and SADU staff

16.45 Closing remarks Secretariat and Associate Prof Dr. Linkham Doungsavanh DDG of NAFRI

End of project workshop With the SADU III project coming to an end in August 2012, the implementing organisations arranged a national level workshop to share lessons from the SADU project, along with experiences from Lao PDR, Vietnam and other developing countries. Day two of the workshop consisted of facilitated group activities designed to give delegates the opportunity to explore four key issues in-depth and formulate recommendations for the future. The workshop was held on the 5th and 6th of July and was attended by over 100 participants from international, national, provincial and district level organisations.

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Proceedings of Day 1 Opening speech

Assoc Prof Dr. Linkham Doungsavanh, Deputy Director General of NAFRI

The agricultural sector in Laos has changed dramatically over the past decade. A relatively short time ago subsistence-based farming dominated, especially in the uplands, but recently commercial farming has been making in-roads in rural Laos. However, these developments have not been uniform across the country. The majority of cash cropping is carried out in the lowland, accessible areas and families engage in commercial agriculture only if they already have food security and can afford to take the risks associated with commercial production.

In the uplands of the Lao PDR, commercial agriculture is not yet broadly practiced. Despite increased trade figures, malnutrition amongst children in rural areas remains at unacceptably high levels. Food security is high on the agenda of the Government of Laos and taken very seriously by the Ministry of Agriculture and NAFRI.

The process of connecting farmers to markets is not easy but if seriously supported by local agencies, upland, ethnic and women farmers can escape poverty by producing for the market. A customised approach that takes the local context into account is required.

Dr Lingkham reported that SADU had been at the frontier of the market-based approach in Laos since 2003. SADU was a learning ground that enabled AFPRC and NAFES to take many findings back to the Ministry of Agriculture and Forestry in order to improve policies to benefit Lao farmers. Through the SADU project, practical experiences were fed into policy advice. MAF and NAFRI will carry on the work of SADU by continuing to provide the Government with evidence-based policy advice.

In closing, Dr Lingkham thanked SDC and CIAT for their vision in launching and supporting the SADU project and praised the innovative approach developed.

What did SDC learn from the SADU project?

Key note speech by Dr. Liliane Ortega, Deputy Country Director - Laos, Swiss Agency for Development Cooperation (SDC)

Dr. Ortega highlighted that Lao farmers are disadvantaged in multiple ways: from lack of experience, education, information, choice and organisation. Furthermore, engaging in commercial agriculture involves many risks for smallholders as markets are poorly structured and prices are volatile.

From the SADU project, she observed that marketable products promise more immediate and tangible returns to the farmer who invests in adopting new technologies. Producer groups are a potential vehicle for facilitating market linkages and improving the position of producers in the market.

In the Lao context, she noted that local authorities are too directly involved in the selection of trade conditions and price setting. Restricting choices takes initiative and ownership away from the farmers; this will never lead to progress in commercial agriculture.

Dr Liliane Ortega, SDC, Assoc. Prof. Dr Linkham Doungsavanh, DDG of NAFRI and Dr. Rod Lefroy, CIAT.

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Many foreign direct investment projects threaten the market position of Lao producers/traders and hamper the development of domestic agro-business. She recommended that the impact of such investment projects be reviewed.

Dr. Ortega emphasised that trade regulations are obstacles to the development of commercial agriculture in Laos. Government endorsed monopsonies have an adverse effect on the bargaining power of producers, result in significant lower price setting and reduce trade volumes. They create and/or maintain poverty at the farmer level and reduce revenue collected by local authorities.

She highlighted that the efforts of development agencies such as SDC to improve local commercial agriculture were limited by such constraining local policies.

Dr. Ortega’s recommended four entry points to support value chain development. Firstly, the creation of a supporting environment to enable free choice by farmers (of crops, buyers and contracts) and the facilitation of access to affordable, timely, appropriate finance.

Secondly, investment in human resources was recommended. Capacity building is required to ensure future agriculture technicians develop market-oriented skills. Support for the development of farmer organisations was also recommended to increase farmers’ abilities to organise around market issues.

Dr. Ortega recommended support to facilitate women’s engagement (on the condition that it does not increasing their workload) and highlighted the challenges present when men lead in external negotiations and legal issues.

Dr. Ortega identified potential for Laos to develop more niche markets to capitalise on unique strengths (traditional, natural, wild) and agro-biodiversity, which no longer exist in other countries.

Development of the SADU Project

Key note speech by Dr. Rod Lefroy, Regional Coordinator for Asia, CIAT

Dr. Lefroy gave an overview of the history of the SADU project, which was launched in Lao PDR and Viet Nam simultaneously in 2003. The SADU project had a poverty focus and targeted the least accessible areas, ethnic minorities, women and poor households.

Dr. Lefroy emphasised that SADU is a research for development project rather than a development project. The focus was not to develop improved value chains but to understand how to improve value chains. In order show the how the process works, the SADU project had to demonstrate with good examples. SADU worked in multiple locations and multiple value chains, as each combination has different problems and solutions. Over a nine years period, SADU worked in two countries, five provinces, eleven districts and many value chains.

Key questions can be summarised as:

• Who are the stakeholders in the value chains?

• What is the demand: quantity, quality, and timing?

• How do prices vary?

• Who is involved (farmers, traders, processors, retailers, government)?

• How should they be involved?

Focus areas of the SADU project in Lao PDR and Vietnam

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Key issues can be summarised as: Information / Learning / Knowledge / Trust.

In closing, Dr. Lefroy thanked all workshop participants; SDC for supporting the SADU project for nine years; to NAFRI and NAFES as partners at the national level; PAFO and DAFO; to traders and processors with whom SADU interacted with; and to the smallholder farmers involved in the project. At a personal level, he thanked all CIAT staff involved in the project.

Outcomes and impacts of the SADU project and workshop agenda

Presented by Mr. Martin Greijmans, Project Coordinator SADU III - Laos, CIAT

Martin gave an introduction to the SADU project and reported on the results and outcomes of the SADU project in relation to project objectives.

In the early days of the SADU project, smallholders were not urged to think commercially to the same extent they are today due to a rush on resources (land) and commodities (maize). As SADU evolved, its focus shifted towards addressing these changes and increasingly towards addressing policy issues.

SADU I, which operated from 2003 to 2007, modified and tested an Area-based agro-Enterprise Development Process originally developed by CIAT Latin America. SADU II (2005-2008) was a transition phase with focus on consolidation of learning from the previous phase and continued activities in specific market chains. In its final phase, SADU III (2009-2012) built on the lessons learnt and impacts of Phases I and II.

The Agro-Enterprise Development Approach (AEDP) process involved: product selection; market chain studies; action plan; and interventions. Production issues were not the focus of the interventions but were addressed in the context of linkages between production and marketing issues.

The capacity building focus of the project included: improved delivery of technical advice (production, processing); improving smallholder effectiveness in the market chain (actor relations); & organisational support (collective action).

Market chain development SADU worked in the following commodity value chains: banana, peanuts, paper mulberry, chilli, coffee, cattle, AHSP, vegetables, passion fruit, broom grass, maize, pigs, tea and poultry.

Some commodities left the market scene in the areas where SADU worked, while other commodities expanded rapidly. Markets keep changing. It should not be considered a failure if a farmer abandons a commodity. What is important is that smallholders are equipped and able to change in a timely manner in order to keep benefiting from market opportunities.

Strategies to improve pro-poor impact of market chains

Vertical integration in the chain: - Promoting community based processing (and value adding) of primary produce (coffee, tea, chilli, soybean).

Horizontal integration in the chain: - Strengthening farmers’ position in the markets through promotion of producer groups engaging in collective production and marketing of produce (maize, soy bean, banana, chilli, livestock).

“In developing the capacity and attitudes of local authorities towards the development of a market economy, smallholder farmers and local traders have benefitted.”

SADU, Lao PDR

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“The floods in Thailand in November 2011 wiped out the local chilli crop. Having access to market information allowed chilli farmers from Xieng Khouang Province to increase production in response to the demand from Thailand. This has enabled them to increase income five-fold.”

SADU project, Lao PDR

1# Immediate opportunities: Linking actors, starting the dialogue; bulking for pickup/shelling; and labour saving equipment.

2# Intermediate opportunities:Service providers and investment.

3# Long term opportunities: New markets and relationships; and governance issues (procedures, regulations etc).

Benefits of the SADU project in Lao PDR

• 2,000 households (direct)

• Income increase (see Table 1)

• 50% of ethnic origin

• 400 direct beneficiaries are women

• 73 producer groups were formed to facilitate farmers’ market linkages

• 40 commercial animal health service providers in 8 village clusters serving 30 villages (1,000 households)

Policies benefiting market actors Studies and experiences of working in market chains from the SADU project resulted in the development of responsive policies that have enabled smallholders to link to markets and engage in market systems. This has affected production, income and trading relationships positively. In some cases, this has resulted in new pathways for the development of new markets and/or changes in trade procedures through improved economic governance (such as removing checkpoints for livestock in Xieng Khouang).

The new decree supporting the emergence of cooperatives resulted in vegetable groups evolving into cooperatives in Khoune District, facilitated by DAFO, PAFO and NAFES. Vegetable cooperatives are enabling farmers to capture more profits from their vegetable business as well as to become more effective farm enterprises.

Throughout the project, SADU developed a body of resources including policy briefs, policy research, case studies and toolkits. See Appendix.

Scaling-out The “Learning Alliance on Agricultural Market Development” was developed to enhance members’ knowledge on economic development in the uplands, to improve agricultural production, marketing systems and the sustainable management of natural resources. It enabled different stakeholders to exchange knowledge and experiences, and also to engage in dialogue with authorities, private sector and development partners.

The SADU project forged partnerships in market chains with:

• LEAP and UDIN: implemented by Helvetas, farmer organisation support

• RISE: adding value (solar dyers were tested for chilli processing)

• TABI: tea sector development.

In closing, Martin thanked: Dr. Liliane Ortega, SDC; Dr. Bountong Bouahom, Director General of NAFRI; Dr. Linkham Douangsavan, Deputy Director General of NAFRI (Head AFPRC during SADU III); Mr. Somsay Sisanoh, Deputy Director General of NAFES. He also gave a special thank you to the government officers of PAFO and DAFO in Xieng Khouang and Luang Prabang.

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Session 1: SADU and other Lao experiences in linking farmers to marketsModerated by:

• Mr. Somphan Chanphenxay, DG, Department of Planning MAF

• Dr. Liliane Ortega, Deputy Country Director - Laos, SDC

• Mr. Kharm Pharlakhon, Director General PAFO, Bokeo Province.

Xieng Khouang value chain development progress

Presented by Mr Viengsouk Lowbreyyoa, Deputy Director, DAFO Paek District, Xieng Khouang

Mr. Viengsouk presented the background of the SADU project in Xieng Khouang, which was implemented between 2003-2012 under the provincial social and economic plan cycle in the agriculture sector. Studies and pilots were conducted followed by scaling out to support farmers to access markets more efficiently.

An Agro Enterprise Development Process (AEDP) manual was developed, tested and disseminated. Training sessions on agricultural markets were organised and market exchange forums held. This has provided government officers and value chain stakeholders with a deeper understanding of markets and has enabled them to make improvements in their operations.

Highlights of project outcomes in Xieng Khouang

• District and provincial level policies were updated to favour trade. This resulted in improved document procedures, removal of checkpoints and piloting of a one-stop service.

• Tax reduction for livestock trade.

• Livestock collectors have become more active and are collecting larger volumes.

• DAFO technicians gained market-based experience and have become trainers in market chains.

• Farmers have improved production by planning according to market signals.

• Farmers have organised into groups and are now more empowered in trade activities and negotiation.

Mr Viengsouk noted how livestock production practices have changed due to the adoption of planting forages, planned cattle fattening and the use of (commercial) animal health services. The project directly supports 162 households in Xieng Khouang but at least 200 households are following the practices of forage planting and stall feeding after they observed the successful results achieved by neighbours.

At the government level, impacts of SADU have included the application of better policies by removing checkpoints and establishing a one-stop service. This has improved trade efficiency, reduced transaction costs for traders (from 50,00 Kip per head to 25,000 Kip per head) and increased income for farmers.

Xieng Khouang Province has become the hub for livestock export with a livestock export gate to Vietnam at Namkan.

“The provincial authorities created a more convenient business environment for cattle traders by removing the various check points, saving us time and money. Now cattle farmers also benefit because we can pay them better prices: it is a pro-poor intervention!” Cattle trader, Paek District, Xieng Khouang Province

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In the coffee market chain, market information from Pakxong District resulted in a price increase in Keoset Village Cluster. The increase in farmers’ income motivated farmers to increase the planting area. Group formation has helped farmers to be more organised, share processing facilities and work systematically towards accessing markets.

Factors for success in Xieng Khouang

• The local authorities took into account and applied the market methodology to support farmers.

• Once farmers gained market knowledge, they began planning and producing according market demand.

• The project provided technical advice and budget for implementation.

• Private sector took up new roles in providing market information to farmers.

• Xieng Khouang Province did not apply a monopoly model.

In closing, Mr. Viengsouk recommended that the government take more action to manage illegal foreign traders (livestock traders from Vietnam) and assist in finding agricultural markets to encourage supply.

When providing support for the commercialisation of the agricultural sector, adoption and application of the lessons from SADU is key. Strengthening the capacity of authorities and farmers towards markets is required. The promotion of commercialisation should be based on farmers’ capacity and farmers’ decisions.

SADU Video

SADU produced a 20-minute video which highlights some of its successes as a result of developing market linkages for smallholders in Xieng Khouang Province. A range of project beneficiaries and local practitioners tell their story and show examples of what has changed in four different value chains and what they expect will happen next.

The video can be viewed in two parts at: Part I: http://www.youtube.com/watch?v=TyJzphrIFs8&feature=youtu.be Part II: http://www.youtube.com/watch?v=kqf_gU0Dcpk&feature=youtu.be

Screen shots from the SADU video

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SADU lessons learnt: policy and ways forward

Presenter: Mr. Nalongsak Xayalath, CIAT, SADU Senior Research Assistant

Mr. Nalongsak worked with SADU to implement activities in a number of districts in Xieng Khouang and Luang Prabang Provinces that operate with differing trade arrangements. He observed that the most successful outcomes have been in districts with open trade policies. He considers that the success of pro-poor market chain development is contingent on the absence of trade barrier such as monopolies. If governments cannot remove trade barriers in some provinces or districts, he recommended that those environments are not suitable for market chain development.

Projects should promote sustainable livelihood development and not foster a culture of dependency. The SADU project developed a network of commercial animal health service providers and the system has proved to be financial sustainable and effective in improving animal health. However, in some areas where SADU has worked, other projects have implemented free (subsidised) animal health service provision and this has harmed the success of the commercial program. He recommended that province and district offices should understand the approach of projects operating in each area and ensure that conflicting projects are not implemented.

Mr. Nalongsak emphasised that when working with farmers, a much less official approach is required.

Implementers at the field level need to work in a way that is farmer-centred, gender-sensitive and youth-inclusive. It is important to develop a mind-set to see farmers as “agents of development” and not only as a receivers of development programs and extension services.

Taking farmers to see and learn together with officials has been beneficial in the context of SADU. Facilitators need to be aware of the power-relation between participants and work to reduce the power gap.

As people have different preferred styles of learning, apply multiple methods when delivering information to farmers. Games, illustrations, video and village theatre are all effective ways to stimulating learning.

Mr. Nalongsak emphasised the importance of community leadership in the context of market chain development. Community leaders can function as the most effective channel of communication regarding issues facing the community and in mobilising and organising the community for collective action. He recommended that projects support community leaders to fulfil an integral role in all phases of the project from design through to implementation and evaluation.

Farmers’ participation in coffee production groups in Paksong District, Champasak Province

Presented by Ms. Soulyphone Sidavong, Coffee Research Center/NAFRI

Producer groups are regarded as an important vehicle to improve the income of smallholder farmers. Working collectively has enabled farmers in coffee producer groups in Paksong District to share post-harvest processing facilities and benefit from value adding. By providing members with access to shared equipment (such as shelling and packaging machines) groups can perform

“Games, illustrations, video and village theatre are all effective ways to stimulating learning.”


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activities further up the value chain leading to an increase in group income. Ms. Soulyphone gave examples of groups moving on to perform collector and buyer roles in the value chain.

Access to affordable and fair credit is a major challenge for coffee farmers and small traders. Lack of fair credit not only impacts every aspect of smallholder production but also limits the development of the Lao coffee sector.

Ms. Soulyphone noted that poor farmers without sufficient capital may not able to participate in groups/cooperative and are therefore unable to access the benefits of working collectively. Relatively high costs of participation against low gains in terms of increased income may prevent some farmer from participating in groups. Group facilitation should be well-managed and inclusive to address the real needs of members, especially poorer farmers.

Farmers’ access to markets and value chain development: “7 guiding principles”

Presented by Mr Rik Delnoye, Sr. Advisor Sustainable Economic Development, Royal Tropical Institute

Rik presented findings based upon an assessment of experiences gained through three projects in Laos: the SNV-HELVETAS EMRIP Project (industrial rice); VECO’s Farmer Group Enterprises (maize); and CIAT’s SADU project (various commodities). Drawing from the lessons learnt, he presented seven guiding principles.

Principle 1: Value chain development is not only about farmers and traders

A key theme presented (and reinforced by other presenters) was the need to clarify roles of the different actors. Enabling a dialogue to foster coordination between chain actors is helpful (such as the Learning Alliance).

In all three projects technical guidance to farmers has proven to be necessary. Access to financial services was mentioned as crucial for all chain actors. Access to inputs has proven to be a bottleneck. Working with provincial and district level supporting agencies is crucial. Parallel efforts should be employed to improve the enabling environment.

Principle 2: The market is leading and not the supply

Myth #1: Mountains of unused raw produce plus processing will equal an instant, ready-made market.

Market assessments, feasibility studies and value chain analysis are essential starting points. All three projects have approached traders as allies in value chain development, acknowledging they perform crucial functions. Tangible (economic) benefits, for farmers as well as for enterprises/traders, are the only pathway to sustainable value chains.

Principle 3: The importance of domestic and cross-border markets

Myth #2: Export of fresh produce to the EU and US is the “holy grail” of development.

In all three cases domestic (EMRIP, SADU) and cross-border markets (VECO, SADU) are main drivers. In none of the three cases accessing markets in the West has contributed to success. Significant opportunities exist in within Laos and in neighbouring markets of Thailand, Vietnam, China etc.

“Developing the capacity of chain actors to make an informed choice is more important than developing a concrete chain. For example, do not measure success by counting farmers growing maize.”


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Principle 4: The importance of value adding

Local value adding by adopting up-chain activities was crucial to success in the VECO and SADU experiences.

Principle 5: Capacity building of all stakeholders is key

Linking actors and facilitating innovative partnership arrangements has proven to be crucial in all three projects. The capacity of chain actors to make informed choices is more important than developing a concrete chain. For facilitators (DAFO), facilitation skills and the right attitude are considered at least as important as knowledge.

Principle 6: If you walk alone you get lost (or the importance of collective action)

In all three projects, investment in group formation and collective action was crucial to success.

Farmers in Laos have virtually no bargaining power. The private sector faces constraints (quality control) and high trans-action costs in dealing with individual farmers. Linking and matchmaking of producer groups to other chain actors (traders, banks, extension) is crucial.

Principle 7: Think big but start small (risk mitigation is crucial)

The SADU project, in particular, had a clear philosophy of piloting before scaling. Investments in commercial agriculture have proven to be risky to farmers and traders (SADU, VECO). Starting with “known” commodities has advantages (SADU, VECO), particularly for smallholders.

Projects have to adapt to the pace of change of stakeholders and not the other way around. Understanding the abilities and reasoning of farmers is crucial.

In order for Lao farmers to benefit and capitalise on rapid development of agricultural markets in terms of poverty alleviation, food security and livelihood improvement for the rural poor a context specific and gradual approach is required.

Presentations and group activities at the SADU end of project workshop

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Session 2: International experiences in linking farmers to marketsModerated by:

• Dr. Rod Lefroy, Regional Coordinator CIAT in Asia, International Center for Tropical Agriculture

• Dr. Silinthone Sacklokham, Faculty of Agriculture, National University of Lao PDR

• Mr. Supany Siripanyo, Director General of PAFO, Champasak Province.

Marketing experiences from Vietnam

Presented by Mr. Dominic Smith, HELVETAS Swiss Intercooperation, Vietnam

Dominic shared his experience of working with smallholder farmers in Vietnam, in particular from the HELVETAS “Making markets work better for the Poor project”, and also as a processor and exporter of agricultural products from Vietnam. He has worked on a number of value chains – including tea, rice, cacao, handicrafts, beef, vegetables and fruit - produced by ethnic minority people in upland rural areas of Vietnam.

Value chain analysis is a way at looking at a whole system from the farmer through to the consumer. Value chain support can be at any point in the value chain, however support should be based on needs and identified constraints. Quality and post-harvest handling are areas where problems often arise.

Regional markets and domestic markets are growing rapidly and consumer tastes are changing. This presents many opportunities for smallholders in the Lao PDR. Dominic emphasised the point that it is easier to sell to domestic/regional markets than it is to enter European or US markets.

An example from Vietnam illustrated the importance of early market analysis. Helvetas had begun to invest in finding a market for Vietnamese green tea in Switzerland. The market for the product was small and hard to access; the need for market analysis became apparent. Findings indicated that demand for the type of green tea produced (whole leaf green tea) was much greater in Kunming, China than in Switzerland, see table below. Moreover, the average wholesale for high quality tea in Kunming is higher than the wholesale price in Europe.

Market attributes Switzerland Kunming, China

Tea retail price E100 per kg -

Population 7 million people 6.5 million people

Tea Consumption 200g/person/yr 800g/person/yr

Market Size 1,400,000kg/year 5,200,000kg/year

Market Size 1,400 tons/year 5,200 tons/year

Teabags 95% of consumption 10% of consumption

Leaf Tea 70 tons/year 4680 tons/year

Black Tea 90% of Leaf Tea 20% of Leaf Tea

Whole Leaf Green Tea 7 tons per year 3744 tons per year

Average Wholesale Price E6-8/kg E2-10/kg

Table 2: Market analysis for green, loose leaf tea

“Good quality is key to success. Quality is determined by the end consumer.”

Helvetas, Vietnam

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Projects need to be able to quickly adapt to changing situations and to have flexible expectations regarding outcomes and outputs. Interventions should be as non-distorting as possible.

Key messages:

1. Support to value chain development should be flexible and sustainable.

2. Value chains can be supported at any points in the chain, based on prioritised needs.

3. Value chain support should be defined by the needs of the market.

4. Improved quality is an important success factor.

5. Collective action can empower smallholders.

Related websites: www.helvetas.org.vn www.markets4poor.org

Smallholders in the uplands of Vietnam: Market linkages before, during and after SADU

Presented by Ms. Cu Thi Le Thuy, CIAT Vietnam

Ms. Thuy shared experiences from the SADU project in Vietnam 2003-2009.

Cassava Contract Farming in Krong Bong, Daklak, Vietnam. In 2006 a government-owned factory signed contracts with 1,700 farmers who each owned 1 hectare (approx) and were from ethnic minority groups. However, the contracting system was difficult and costly to manage: coordinating 1,700 small contractors and a highly perishable commodity is complex and time-consuming. The factory was understaffed, disorganised and could not implement the contract. Problems included transport and payment delays.

SADU worked with the factory to develop improved vertical coordination strategies, improve communication with farmers, improve technical advice to farmers and introduce improved harvesting/processing tools.

These interventions resulted in improvements to chain efficiency. Farmers are now able to decide the planting and harvesting dates and can produce an off-season crop. Direct contracts have been made with selected traders instead of 1,700 farmers and transaction cost (registration, harvest, transport/delivery of fresh roots, payment) have been reduced. Capacity for delivery of technical services has improved amongst local extension staff and factory staff.

The case study highlights that for firms engaging in contract farming significant capacity is required. Skill and capacity in financial, technical and human resource management, marketing, business strategies are essential, together with farmer/community relation capabilities.

Chayote value chain In 2007, SADU piloted chayote with 175 farmers in five communes, located in remote upland areas with no market linkages. The rationale for selecting chayote was based on high market price, suitable agro-climate conditions and the crop is easy to grow.

SADU strategy and interventions 2008–2009 included market research, provision of market information, skill development, market linkage facilitation, advisory and mentoring services, and policy advice. SADU worked with input suppliers, collectors, large farms/large trader firms, wholesalers and smallholder farmers.

“For companies engaging in contract farming significant capacity is required. Skill and capacity in financial management, technical and human resource management, marketing and business strategies are essential, together with farmer/community relations skills.”

SADU, Vietnam

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Initial attempts to instigate collective action at the farmer level failed. Women feared working with traders and the upland geography made it difficult for people to participate. Later, farmers were mobilised and mentored to become chayote collectors/traders, resulting in sales of 12 tons of chayote during the first 6 months at a high price. Interventions that followed included facilitated linkages to wholesalers in Hanoi; facilitated investment linkages; on-farm advisory services and post-harvest advisory services.

In a post project assessment in July 2012, SADU observed that production has expanded dramatically. The number of large traders operating has increased and farmer-collectors decreased. Direct interaction between wholesalers and farmers has become routine, thereby showing that since SADU ceased project activities in 2009, actors (farmers and private sector) have become capable to manage sustainable relations in the value chain.

Positive effects from the presence of large farms include increased competition for farmers’ produce, shorter product chains, reduced marketing costs, introduction of new crops (demonstration effect, transfer of know-how and skills) and improved employment opportunities.

Ingredients for successful value chain development in the uplands of Vietnam

• Innovations that generate win-win outcomes

• Flexibility and opportunism

• Gradualism and pragmatism (sequential approach to innovation)

• Strategic use of subsidies (address barriers to innovation)

• Perseverance.

Proceedings of Day 2

Session 2 (continued)

Reflections on smallholder participation in markets: Value chains, business models and implications for Lao PDR

Presented by Mr. Mark Lundy, CIAT Colombia

Mr. Lundy built upon the earlier presentations and presented a series of tools that complement value chain development. He also presented several case studies from South America, India and Africa.

Several examples from the private sector illustrated how market-based models are not only being adopted by development projects; they are becoming part of central business practice. Market-based models create long-term incentives and rewards, resulting in compelling success stories in livelihood generation.

The presenter highlighted that the goal is not to link the poorest farmers to the most highly demanding markets but to invest in moving farmers up the value chain and make markets more accessible.

The diagram below shows some of the possible roles and functions that rural people can play in the value chain. On the horizontal x-axis, roles range from labourers (little participation in the chain) at one end, to small entrepreneurs (high participation) at the other end, with various forms in between. The vertical y-axis shows what function these rural people are engaged in, from

“Farmers were mobilised and mentored to become chayote traders. Five farmers became collectors and sold 12 tons of chayote during the first six months”.

SADU, Vietnam

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merely supplying raw materials to intense engagement in developing high value products. The starting point of each project is to identify where in the diagram rural people are presently situated. Through a range of assessments and planned interventions the project should identify where it wants to move towards and develop an inclusive business model approach that considers the changing roles of rural people and the functions they intend to hold.

The underlying question for Laos is where does it want its farmers to be in the next decade.

Elements for inclusive business models for sustained trading relationships include:

• capable farmers (skills, capacity and organisation);

• willing buyers (private sector policies); and

• an enabling environment (public/donor policies).

Business models The “business model” tool is used to analyse the functioning of a specific link in the value chain. A business model shows how the link creates, captures and delivers value to both the end customer and smallholder farmer.

Trading relationships (and their health) are largely a function of the business models of the firms involved. Understanding those business models and their capacity for and resistance to change is key to successful linkage of small-scale producers to coordinated chains with sustainable trading relationships. New business model principles can then be used to help guide selection of mechanisms/policies.

Double-facing value proposition for fair and sustained trading relationship Inclusive business models need to be responsive to the realities of smallholder production as well as to market demands. It is important to look at the value proposition from at least two perspectives:

• For the farmer: What products, strategies, activities or purchasing practices can promote smallholder inclusion? Are we a preferred buyer?

• For the buyer: Is there assurance of supply, safety and quality? Do the products support the brand and provide differentiation in the marketplace?

Small farmers as active

participants

Rural people as labor for

others

Low value, raw materials

Higher value products

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CASE STUDY Cuatro Pinos, Guatemala Contract agriculture, input & service provision

Cuatro Pinos is a successful farmer-owned Cooperative with nearly 30 years experience in the vegetable export business. The cooperative has evolved into what can be termed a “social intermediary” that performs a vital role in linking farmers to international markets. Cuatro Pinos manages a diverse portfolio of vegetables supplied by approximately 7,000 smallholder farmers organised into more than 220 farmer groups including cooperatives, associations, lead farmer informal groups and NGO-led firms.

Recently the Cooperative has succeeded in opening large markets for several products in regional markets, US and Europe and has achieved an annual growth rate of 50% in vegetable exports over the past three years. Much of its success is can be explained through attractive value propositions to both smallholder farmers and buyer markets. For both groups, Cuatro Pinos offers a low-risk, high return way of engaging with the other through supply chain coordination, transparent chain governance, market linkages and critically, access to services.

Value Proposition for FARMERS

Technical support, input provision and formal contracts Cuatro Pinos manages its purchasing from small holders through formal contracts, specifying quantity, quality and a production schedule as well as providing a fixed price for the product. This fixed price contract has been shown to consistently return 7–10 per cent above the spot price market. Additionally Cuatro Pinos provides in-kind credit for seeds and inputs, technical assistance, insurance and marketing services. Recently the Cooperative has also accessed government supported weather insurance to help cover crop-related risks.

Value Proposition for BUYERS

Reliable supply and quality To ensure supply, scalability, and product quality, Cuatro Pinos identifies existing farmer groups in favourable environmental niches, works with them to test production schemes and then contracts those that show an ability to meet quantity and quality targets. The cooperative is the only farmer organisation in Guatemala that has had both farm and processing level Global GAP certification as well as an on-site pesticide residue lab.

In closing, Mr. Lundy presented a series of questions to delegates and asked them to consider “What kind of agriculture sector does Laos want?”

1. What aspects of Value Chain Development work best in the Lao context?

2. What are the roles and responsibilities of different actors – public sector, private sector and development projects?

3. Who leads, who facilitates and who pays for necessary investments?

4. How can fair and sustained trading relationships be supported in Laos?

www.linkingworlds.org/nbm-fieldguide

“Inclusive business models need to be responsive to the realities of smallholder production as well as to market demands.”

CIAT, Colombia

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Summary of group workFollowing the completion of the presentations on Day 2, four group activities were conducted. The aim of the group work was to draw lessons from previous sessions and validate these with practitioners, policy makers and supporters engaging in the promotion of market access for smallholder farmers. Suggestions and recommendations for the future were developed and documented by each group, and reported back to the workshop participants.

Moderated by:

• Mr. Mark Lundy, CIAT

• Dr. Thavon Inthavong, DG of AFPRC.

Open versus closed trade (monopsony) arrangements

Participants in Group 1 reviewed and discussed a draft policy brief examining regulated trade (monopsony) arrangements versus open trade arrangements in the Lao PDR. There was agreement amongst participants, including Deputy District Governors present, that open trade policies encourages the economy to grow and ensure benefits are shared more equally among stakeholders: farmers, traders and government.

In Xieng Khouang Province, open trade is practiced in most districts especially in relation to farmers’ production of crops and livestock. Limits and regulations are only in place for NTFP and others sensitive forest products.

In Luang Prabang Province, some districts are open while others are closed or half closed. The Deputy District Governors expressed that the districts have faced constraints due to weaknesses in trade management systems. The revenue collected per unit of trade (product volume) has not been identified and recorded well. It was viewed that districts that apply a closed trade system have an easy way to secure income for the government that can be implemented each year. At the end of each year, traders are invited to bid for a licence to buy livestock. For example, the district government sets the licence fee for the right to buy livestock at 500 million kip. Up to ten traders may share the licence fee and gain the right to buying livestock with farmers in the district. The other traders who are not involved in this way are not allowed to buy livestock.

Recommendations:Participants, including Deputy District Governors present, agreed that open trade encourages economic growth and ensures benefits are shared equally among stakeholders. It was recommended that open trade be standardised across the country and measures put in place to ensure implementation. Capacity building in trade management and record keeping amongst government officials was also recommended.

Prepare a policy research agenda

Earlier sessions discussed how policies regarding trade regulations on livestock in Xieng Khouang were adjusted based on SADU studies and experiences working in the market chain. In bringing experiences and issues to the provincial government, this led to the abolishment of checkpoints (all over the country), with a large, positive effect on trader and farmer income.

Participants in Group 2 focussed on drafting a supportive research agenda for the NAFRI Lao Policy “Think Tank”.

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The group explored a series of questions:

• What “hot issues” would you recommend the NAFRI/AFPRC Lao Policy “Think Tank” research, analyse and develop guidelines for?

• Can you also think of issues that need to be better addressed in policy research to stimulate smallholders more to engage in market chains?

• What commodities (cash crops) and/or contexts (farmer cooperatives, contract farming and foreign direct investment) need urgent attention and policy recommendations?

• How would this support smallholders and the private sector?

Recommendations: The group proposed that the following topics require policy research:

1. An impact assessment of removal of barriers to facilitate trade.

2. A study of the various factors required in order to move towards commercial production of agricultural products.

3. A study on contract farming arrangements. What are the conditions required for fair and pro-poor contract farming?

4. How can producer groups be strengthened in order to increase bargaining power?

5. Coordination of different stakeholders in the value chain.

Workshop participants recommended that research be undertaken into foreign traders and investment projects in light of impacts to Lao producers, Lao traders and the development of domestic agro-businesses.

A delegate from the Faculty of Agriculture of NUOL recommended that the presentation delivered by Rik Delnoy - Farmers’ access to markets and value chain development: “7 guiding principles” - be used to develop a policy brief.

A participant recommended research into export promotion policies: How can the government guarantee sales of farmers’ products? And how can it improve bargaining power of farmers and farmers’ groups?

“How can value chains be developed in Laos?”

Group 3 discussed value chain development in the Lao PDR. As a starting point for discussion, the group looked at:

• What (aspects of) value chain development approaches work best in the Lao context?

• What measures work and under what conditions? (i.e. farmer organisations, contract farming).

• What should future market linkage take on board?

The group worked together to draw out lessons from the examples presented. They examined how these lessons could be applied to the Lao context (Table 3) and prepared an application plan.

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Application plan proposed by Group 3

1. Identify pilot province, district and implementation body from national/ international organisation. The groups recommended looking to local/domestic and neighbouring markets.

2. Identify value chain for value adding.

3. Analyse market demand and choose products accordingly. Select potential product and community mobilisation.

4. Sub-working groups with all value chain actors represented plus government officials and extension officers.

5. Quality improvement and processing for value adding.

6. Propose a revision on policies to support domestic investment and facilitate access for remote communities.

Roles of actors in the value chain

The group activity for Group 4 began with a facilitated discussion around the following questions:

• In order to develop the market chains in Lao PDR what are the key functions of the government? And what of the private sector? And what of the farmers?

• How do you envision these roles will develop in the near future? Will it stay the same? What functions will change?

• What key skills are needed to develop and make smallholders ready for future market developments? And who will build those skills? Do facilitating agencies have the expertise/skills to transfer these? If not, what should be done about that?

Lesson learnt from the examples from Vietnam

Strengths Application

Generally, Vietnamese people have a strong entrepreneurial spirit.

Start small and increase step by step.

Analyse market demand and choose products accordingly.

They have capacity and knowledge on value chain.

In Lao farmers have traditionally produced a product then looked for a market.

Adapt the lesson of the market demand analysis and capacity building on value chain.

They are able to identify clear roles of each different actor in the chain.

They have strengths in coordination between stakeholder (government, private sector, community)

Policy makers should take lessons learnt from civil society and the success of farmers’ organisations.

The methodology of extension staff in capacity building.

Transfer of technical knowledge: Teach them how to fish rather than give them a fish.

This lesson should be applied in Laos.

Vietnam’s project demonstrated an understanding of market demand before starting the intervention.

They are able to access market extension, apply clear policies to support

Facilitate access to market information.

Table 3: Summary of lessons learnt produced by Group 3 participants

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Group 4 discussed the roles of the different actors: private sector, smallholders, and particularly what role should the government take in developing value chains/market linkages? The group recorded their ideas and opinions, and reported back to the workshop, as summarised below.

Role of farmers

• The role of farmers was seen as to produce and sell to buyers/traders, complying with market demands (volume, time and quality).

• There was consensus on the need for farmers to develop understanding of market demand in order to make their own informed production choices and also for farmers to have a degree of entrepreneurial spirit.

• Key constraints for smallholders were identified as lack of: market intelligence, market information, access to inputs, improved technologies and access to credit.

• When acting alone, farmers in Laos have virtually no bargaining power. Small farmers cannot produce the volumes necessary to satisfy the needs of buyers that want to reduce transaction costs, increase economies of scale and obtain a reliable supply.

Producer groups and cooperatives

• Collective action increases farmers’ bargaining power and improves their ability to organise themselves around market issues..

• When selling in groups, farmers have more strength, leverage and bargaining power.

• Better access to inputs. Ability to buy in bulk and access discounts.

• Future roles of farmers groups:

• Seek access to formal finance.

• Set up outlets in urban areas to sell produce.

• Develop a brand and promotions campaigns for their products.

Support to producer groups (by government and private sector)

• Help develop a policy on how groups can work together.

• Upgrading into cooperatives in order to increase market access and quantities produced.

• Introduction of new technologies to the group.

• Scale up in order to compete.

• Support access to finance.

Role of traders

• Buy from farmers and farmer/producer groups and cooperatives.

• Set and communicate requirements with farmers.

• Provide market information and guidance on quality requirements.

• Be sincere about price.

• Future roles:

• Traders could also act as a group to formalise operations.

• Clear and fair agreements with farmer groups.

• Provide a convenient place to buy/sell in bulk.

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In addition to the observations recorded by group 4 above, workshop presenters made the following comments on the role of traders:

The private sector is increasingly investing in extension services as a means to ensure and improve profit. Speakers gave examples of inclusive business models where traders are allies in the value chain, performing crucial functions such as providing market information, inputs and/or credit and guiding on quality requirements.

Examples from Lao PDR and Latin America demonstrated the role that private companies can play in pro-poor value chain development and social investment. In the EMRIP project in Lao PDR, rice millers who provided quality seed to farmers, thereby benefitted from a supply of higher quality rice sold back to them. In one arrangement from Colombia, farmers benefitted from inputs, credit and technical assistance provided by the company together with a risk management fund to insure against loss from natural disasters. The presenters noted that these serviced are not subsidised: the costs of these services are factored into the cost of doing business.

The role of government

• Develop a policy environment that benefits all stakeholders in the value chain.

• Assist in strengthening producer groups and cooperatives.

• Agricultural extension staff need to introduce farmers to innovations and techniques to meet demand.

• Link technical extension with market-led facilitation services.

• Bridge communication of information between farmers and traders.

• Forge cooperation between the Ministry of Industry and Commerce and the Ministry of Agriculture and Forestry in order to help facilitate farmers to access fair and appropriate finance.

• Mobilise resources from the private sector.

Role of projects

While Group 4 did not directly address the role of projects in value chain development, it was discussed in presentations and is summarised below.

• Support market research.

• Facilitate multi-stakeholder linkages.

• Build capacity of all stakeholders.

• Support the development of fair and sustained trade relationships in Laos.

• Facilitate women’s engagement without increasing their workload.

• Capitalise on women’s strengths in managing small-scale market activities (among many ethnic groups).

• Be as non-distorting as possible.

• Develop the capacity of chain actors to make an informed choice. This is more important than developing a concrete chain. For example, do not measure success by counting farmers growing maize.

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Conclusion During the past nine years the SADU project has made great progress in deepening the understanding of value chains and how they can be made to work better, especially for the poor.

At the local level, these approaches have enabled communities to better link to markets and engage more confidently in market systems. This has affected production, income and trading relationships. In some instances, this has provided a pathway for the development of new markets and changes in trade procedures through improved economic governance.

The learning and results from SADU show promising indications of expansion and extension beyond the end of the project. The Xieng Khouang Provincial Agricultural Office stressed their intention to extend the SADU methodology to the entire province. Many other development projects have already begun to use the SADU approach and the methodology has become part of the curriculum at the Luang Prabang Agricultural College. Expansion of these approaches has been facilitated by events such as the highly effective “Learning Alliance” involving government staff, development projects and INGOs. NAFRI expressed that it will continue to provide the Government with evidence-based policy advice in favour of smallholders, as pioneered by SADU.

More than 100 delegates at the SADU end of project workshop shared ideas in a vibrant and engaged way. Presentations and facilitated group activities provided participant with many take home messages to enact in their own locality, project or office.

However, there are still many real barriers that must be addressed. In the final session of the workshop, delegates formulated recommendations to address the enabling environment for the further development of the agricultural sector.

In the policy environment, the removal of trade regulations such as monopolies was recommended and a supportive policy research agenda for the new NAFRI Lao Policy “Think Tank” was drafted. Consistent policy application and enforcement was identified as a major challenge to be addressed.

Access to fair and affordable investment capital for smallholders and Lao traders was seen as critical element of the enabling environment. Producer groups and cooperatives were considered essential to further the integration of smallholders into commercial agriculture and thus warrant ongoing strengthening and support. Capacity building of all stakeholders in market-based skills and the linking of technical extension with market-led facilitation services were recommended.

It is hoped that the lessons learnt from the SADU project and workshop will inform other projects in the field of commercial agriculture and promoting market access for smallholder farmers and that recommendations will feed directly into new initiatives like the Think Tank on Agricultural Research for Development hosted at NAFRI.

The economy and agricultural sector is changing rapidly which brings both challenges and opportunities. Government, private sector, projects and smallholder farmers are encouraged to continue to share what they have learnt and build on the approaches developed in value chains and market linkages for smallholder farmers.

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SADU III PROJECT

Case studies (Lao, English) Phase

ACHIEVING RELIABLE ANIMAL HEALTH SERVICES, Piloting ‘Animal Health Service Providers’ in Xieng Khouang

SADU 2

STREAMLINING TRADE PROCEDURES TO ACCESS NEW MARKETS, Livestock marketing in Xieng Khouang

SADU 2

GETTING THE TRUCKS TO STOP AT THE VILLAGE, Bananas in Sui-Viengxai Kumban, Phou Khouth District, Xieng Khouang

SADU 2

HELPING TURN A SUBSISTENCE CROP INTO INCOME, Maize in Nong Ped Kumban, Paek District Xieng Khouang

SADU 2

CULTIVATION OF NON-TIMBER FOREST PRODUCTS GIVES FARMERS A BETTER INCOME, passion fruit in Samphanxai Kumban, Khoun district, Xieng Khouang

SADU 2

USING MARKET INFORMATION TO GAIN RAPID INCREASES IN PRODUCTION, Peanuts in the Nong Ped Kumban, Paek District, Xieng Khouang

SADU 2

INCREASING HOUSEHOLD PIG PRODUCTION TO MATCH DEMAND FROM TRADERS, Pig marketing in Luang Prabang

SADU 2

USING MARKET INFORMATION TO STIMULATE PRODUCTION AND NEW TRADE RELATIONSHIPS, Poultry in Samphanxai Kumban, Khoun District, Xieng Khouang

SADU 2

LEARNING ALLIANCE ON AGRICULTURAL MARKETING: FACILITATING MULTI-STAKEHOLDER EXCHANGE AND LEARNING IN THE LAO PDR

SADU 3

THE REVIVAL OF COFFEE GROWING IN KAEW SET, XIENG KHOUANG PROVINCE, Coffee in Kaew Set Kumban, Khoune District

SADU 3

Green Vegetables, Khoune District SADU 3

Toolkits Language

VOLUNTARY GROUP FORMATION: FIELD LEVEL GUIDELINES L/E

FIELD FACILITATOR’S GUIDE, ESTABLISHING NEW SERVICE PROVIDERS FOR THE AGRICULTURE SECTOR.

E

EXERCISES FOR CAPACITY BUILDING ON AGRICULTURAL MARKET DEVELOPMENT, TOOLKIT FOR FACILITATORS

L/E

Policy Briefs (Lao, English) NAFRI number

‘Commercial Animal Health Service Providers’: A sustainable and self-supporting approach 10/2012

Regulated versus open trade: A comparative study 7/2012

Facilitating a process towards commercial fattening of cattle in the uplands of the Lao PDR 9/2012

Securing production and purchase agreements through contract farming 8/2012

Planning for sustainable Jatropha production and processing in the Lao PDR: an assessment of opportunities and risks

The role of traders in different production and marketing arrangements for maize in the Lao PDR

Promoting smallholder participation in coffee producer groups in the Bolaven Plateau, Lao PDR

Appendices

SADU Publications

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Websites National Agriculture and Forestry Research Institute (NAFRI)www.nafri.org.la

CIAT: International Center for Tropical Agriculture www.ciat.cgiar.org

National Agriculture and Forestry Extension Service (NAFES) www.laoex.org

Swiss Agency for Development and Cooperation (SDC)www.sdc.admin.ch

SADU III Project www.saduproject.org

SADU Video on YouTube: Part I www.youtube.com/watch?v=TyJzphrIFs8&feature=youtu.be Part II www.youtube.com/watch?v=kqf_gU0Dcpk&feature=youtu.be

LaoFab Document Repository www.laofab.org

LaoFAB is a forum for sharing information about Farmers and AgriBusiness in Laos. Members include Government officials, staff of donor agencies and NGOs, project experts, academics and business people. To get access to the document repository, you first have to sign up as member of LaoFAB.

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Published in Vientiane in August 2012 by the SADU III Project.

National Agriculture and Forestry Research Institute (NAFRI) PO Box 7170, Vientiane, Lao PDR Email: [email protected] Website: www.nafri.org.la

National Agriculture and Forestry Extension Service (NAFES) Thagnon Road, Ban Houay Nhang, Xaythani District, Vientiane Capital, Lao PDR Email: [email protected] Website: www.laoex.org Phone: 021-732072

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