WASH Supply Chain and Market Analysis Report An Analysis of Select Areas in Siem Reap, Battambang, Pursat Provinces
PREPARED BY: Emerging Markets Consulting in Cambodia DATE: August 2015
FINAL REPORT
© 2015 NOURISH Project
Save the Children No. 5, Street 242, Sangkat Chaktomuk Daun Penh, Phnom Penh, Cambodia
Cover photo by: Bimal Tandukar, NOURISH/SNV
Disclaimer: This study/report is made possible by the generous support of the American people through the United States Agency for International Development (USAID) under Corporative Agreement No. AID- 442-A-14-00006. The contents are the responsibility of Save the Children and SNV and do not necessary reflect the views of USAID or the United States Government.
Led by Save the Children, NOURISH is implemented in Cambodia in partnership with five local and international partners: Operations Enfants du Cambodge, Partners in Compassion, SNV, The Manoff Group, and Wathnakpheap.
Emerging Markets Consulting (EMC) is a consulting firm working with both development organizations and private sector firms. Since our founding in 2004, we have undertaken over 400 consulting projects across South- and Southeast Asia, and operate permanent offices in Myanmar, Lao PDR, and Cambodia, employing over 40 full time consulting staff. We have a keen interest in the life and livelihoods of rural consumers and small businesses, and sustainable solutions in sanitation, green energy and financial services through market orientated approaches.
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Table of Contents
List of Figures ...... 4 List of Tables ...... 4 List of abbreviations and acronyms ...... 5 Acknowledgements ...... 6 Executive Summary ...... 7 1 Introduction ...... 9 2 Methodology ...... 13 3 Latrine supply chain ...... 15 4 Water filter supply chain ...... 27 5 Hand-washing devices ...... 29 6 Finance ...... 30 7 Business Constraints ...... 31 8 Consumers ...... 33 9 Summary of findings ...... 43 10 Strategies and recommendations ...... 47 Appendix A – Locations of concrete producers in or near target areas ...... 59 Appendix B – Some relevant programs and organisations ...... 62 Appendix C – Smart Subsidies ...... 68 References ...... 70
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List of Figures
Figure 1: Map of the target areas and locations of field work ...... 10 Figure 2: Supply chain map (conceptual) ...... 19 Figure 3: Median latrine cost reported by latrine-owning households ...... 26 Figure 4: Water filter supply chain (illustrative) ...... 28 Figure 5: Proportion of interviewed businesses that currently have a loan ...... 30 Figure 6: Business constraints ...... 31 Figure 7: Why did you build a latrine? ...... 34 Figure 8: Households’ source of information regarding building a latrine ...... 35 Figure 9: Source of funds for building latrine ...... 36 Figure 10: Willingness to pay for a latrine, non-latrine owners ...... 37 Figure 11: Source of knowledge about latrine costs, non-latrine owners ...... 38 Figure 12: Source of sanitation related information, non-latrine owners ...... 38 Figure 13: Latrine benefits messaging received, by media ...... 39 Figure 14: Sanitation behaviour of the elderly and disabled ...... 39 Figure 15: Supply chain actors’ views on the main reasons households build a latrine ...... 40 Figure 16: Reported brand or type of water filter owned by the household ...... 41 Figure 17: Reasons for getting a water filter ...... 41 Figure 18: Water filter promotions received, by media...... 42
List of Tables
Table 1: Cambodian sanitation coverage estimates ...... 9 Table 2: Cambodian drinking water coverage estimates ...... 9 Table 3: Sanitation coverage in research areas ...... 9 Table 4: Background data on target communes ...... 12 Table 5: Field work methodology overview ...... 13 Table 6: In-depth Interviews – Total Sample ...... 13 Table 7: Background information on household sample ...... 14 Table 8: Origin of latrine pans sold by suppliers ...... 16 Table 9: Suppliers’ stated source and distance (km) for selected latrine materials ...... 19 Table 10: Average reported number of local competitors ...... 21 Table 11: Suppliers’ gross margins on certain materials ...... 22 Table 12: Material prices in different districts ...... 23 Table 13: Price paid by concrete producer for inputs ...... 24 Table 14: Price of concrete rings ...... 24 Table 15: Fees charged to build latrine ...... 25 Table 16: Labor required to build latrine ...... 25 Table 17: Costs, prices and margins for water filters in provincial capitals ...... 28 Table 18: Household sample background data ...... 33 Table 19: Households’ estimates of the cost of their latrine ...... 35 Table 20: Have seen messages/materials on benefits of latrines ...... 38 Table 21: Water filter ownership and messaging ...... 40 Table 22: Dedicated hand washing device knowledge ...... 43 Table 23: Overall supply chain assessment ...... 46
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List of abbreviations and acronyms
ADB Asian Development Bank CLTS Community-Led Total Sanitation EMC Emerging Markets Consulting EU European Union GDP Gross Domestic Product HARVEST Helping Address Rural Vulnerabilities and Ecosystem Stability program HH Household ID Poor a poor household as defined by sub-decree of the Royal Government of Cambodia IMF International Monetary Fund Lao PDR Lao People’s Democratic Republic MFI Micro-Finance Institution na not available NGO Non-Government Organisation No. Number ODF Open Defecation Free PVC Polyvinyl Chloride RGC Royal Government of Cambodia SME Small and Medium Enterprise SNV Netherlands Development Organisation UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for International Development WASH Water, Sanitation, Hygiene WaterSHED Water, Sanitation & Hygiene Enterprise Development WHO World Health Organization WSP Water and Sanitation Program, World Bank
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Acknowledgements
Special thanks to all the stakeholders, development agencies, and local government officials for their time and invaluable support during the project. Officials from the Department of Rural Development in each province facilitated and supported the fieldwork. Staff from Save the Children International, Operations Enfants du Cambodge, and Wattanak Pheap helped to execute the fieldwork and collect data. The research team would like to thank all the households and businesses interviewed for their time and cooperation in participating in this study. We would like to thank the representatives from the following organisations who provided their time to explain their operations and approaches: IDE, Hydrologic, WaterSHED, Live & Learn, and HARVEST. A number of other people provided comments on a presentation of findings to stakeholders, held in Battambang on 16 June 2015. We thank them for their feedback and participation. Last but not least, we thank Bimal Tandukar and Serei Ratha Chan from NOURISH/SNV, other staff from SCI, the government (PDRD, DoRD and CCs), staff of NGO partners (PC, WP, and OEC), who contributed greatly to the research and provided comments on the Draft Report. Emerging Markets Consulting team www.emergingmarkets.asia
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Executive Summary
Emerging Markets Consulting (EMC) was contracted by NOURISH/SNV to research and analyse the sanitation supply chain in selected target communes in Siem Reap, Battambang and Pursat. The supply of water filters and hand washing devices was also studied. In-depth interviews were conducted with a total of 122 households and 26 business actors in the sanitation supply chain. The result of the study was validated with representatives of the private sectors, government officials and other key stakeholders.
Overall supply chain assessment Supply chain Province/District Commune Comments relative strength Pursat No material suppliers or concrete producers. Centre of commune is 15-20km Koh Chhum Weak Kandieng from main district centre. Sya Medium Has a concrete producer around 10km away. Battambang District is on the road to Thai border, but commune is well off this road Andoeuk Heb Medium (15km). Material suppliers are at the central market on the main road. Ratanak Mondul Well off the main road. Material suppliers are at the central market on the Plov Meas Weak main road. Ta Taok Weak Both communes are remote (towards Thai border, but no road or Samlot checkpoint) and far from provincial centre (100km). A town 10-15km away Kampong Lpov Weak has 2 material suppliers and there are 2 concrete producers available. Siem Reap Norkor Pheas Strong Both are on a good, main road with material suppliers. No local concrete Angkor Chum producer but 1 nearby. The supply chain is strong in central villages, but Kauk Daung Strong further villages have slightly less access. Reul Strong Have access to the main centre of Puok (on the road from Siem Reap to Battambang) which is large and has many construction material suppliers Trei Nhor Strong and two concrete producers. Trei Nhor also has its own wholesaler and a Pouk Daun Keo Strong concrete producer not too far. Has its own central area with material suppliers (including largest supplier of Sasor Sdom Strong pans in our sample), and two concrete producers. Also higher household incomes and hence latrine demand.
For more poor households to own latrines, water filters, and hand washing devices, demand-side interventions are the most important. The Terms of Reference for this study states that “an appropriate WASH business model will be recommended”. Any such model should be flexible and should be driven, where possible, by the private sector businesses themselves. The model must enable private businesses to make a profit. Businesses should be free to offer differentiated products that appeal to different income groups. This increases the scale of their business, improving profitability potential and hence making working with NOURISH more attractive. Typical approaches in the study area involve: working with private sector sanitation businesses (often concrete producers); training them to make an affordable latrine product; training them to market their product (with ready-to-use material) and/or recruit sales agents; train them in certain business skills (sales and inventory tracking); coordination with CLTS or other behaviour change communication/demand creation strategies (sometimes including direct sales at village events); and engage village chiefs or other “sanitation champions” in behaviour change promotion and/or as sales agents. Some models also include capital-raising support, helping business access finance.
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Finding Possible response Businesses rely on other sources of income – Increase awareness of market opportunities. e.g. the potential they don’t view themselves as part of the market size from offering more affordable latrine options sanitation supply chain. Typical latrines are unaffordable for the poor. Pay in instalments, and/or Businesses have concerns about customers’ Encourage the provision of cheaper designs (such as cheaper late or non-payment. superstructure) Change this mindset by: Including a finance organisation in consumer sanitation Most (90%) non-latrine owners would not education; and/or consider borrowing to obtain a latrine. Coordination role to link a finance organisation with actors such that actors can offer latrines on credit Transport costs – even for multiple orders - Facilitate bulk ordering. Village chiefs may be used as a trusted add to cost of a latrine. party for coordinating this. Suppliers provide delivery for larger orders but On-site casting of bulk orders also helps reduce transport costs not for smaller orders. and breakage
Design generic marketing materials that are low-cost and easy for small businesses to carry and distribute. Passive sales approach and very little Use village chiefs as sanitation champions. marketing. Encourage suppliers to forge relationships with village chiefs. May include commission paid to chief for latrine orders. Labour can increase the cost of a latrine. Educate households about models that allow self-installation (recognising that many households may still prefer solid Households prefer to use own labour. superstructure) Partner with an existing provider of filters (eg Hydrologic) to There is no private sector supply of water filters leverage their sales network, and/or work with HARVEST’s in the target areas. agriculture input suppliers to get them to sell filters
The study focused on supply chain. Demand-side activities and hygiene promotion in addition to the above supply chain recommendations are crucial for overall improved sanitation and hygiene coverage.
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1 Introduction 1.1 Cambodia overview The Cambodian economy has grown relatively quickly over the last decade, with real GDP growth above 6% in most years (IMF 2015). As a result, the national poverty rate has fallen from 53% to 21% (World Bank 2014a). At the same time, sanitation and drinking water coverage have improved.
Table 1: Cambodian sanitation coverage estimates Urban (%) Rural (%) Total (%) 2005 2012 2005 2012 2005 2012 Improved facilities 59 82 17 25 25 37 Shared facilities 8 11 4 6 5 7 Other unimproved 5 0 4 3 4 2 Open defecation 28 7 75 66 66 54 Source: WHO/UNICEF JMP, 2014
However, a large proportion of the population live just above the poverty line, and 90% of Cambodia’s poor are in rural areas (World Bank 2014a). Sanitation and drinking water coverage in rural areas still have significant room for improvement.
Table 2: Cambodian drinking water coverage estimates Urban (%) Rural (%) Total (%) 1990 2012 1990 2012 1990 2012 Piped onto premises 15 67 0 5 2 18 Other improved source 17 27 20 61 20 53 Other unimproved 41 4 43 17 42 15 Surface water 27 2 37 17 36 14 Source: WHO/UNICEF JMP, 2014
The focus of this report is selected communes in Pursat, Battambang and Siem Reap provinces. In these areas open defecation rates can be as high as 72% (Table 3).
Table 3: Sanitation coverage in research areas No. of % pour flush % dry pit % share % open Province District Commune households latrine latrine latrine defecation Pursat Kandieng Koh Chhum 1,624 28.4% 0.4% 6.1% 65.1% Pursat Kandieng Sya 1,427 31.0% 0.4% 7.8% 60.3% Sub-total 3,051 29.6% 0.4% 6.9% 62.9% Battambang Ratanak Mondul Andoeuk Heb 1,122 36.2% 4.1% 4.5% 55.2% Battambang Ratanak Mondul Plov Meas 1,118 29.2% 1.8% 7.7% 55.8% Sub-total 2,240 32.7% 2.9% 6.1% 55.5% Battambang Samlot Ta Taok 581 41.7% 31.5% 5.0% 71.9% Battambang Samlot Kampong Lpov 781 22.7% 1.2% 9.6% 67.7% Sub-total 1,362 30.8% 14.1% 7.6% 69.5% Siem Reap Angkor Chum Norkor Pheas 1,749 63.4% 0.5% 3.2% 32.9% Siem Reap Angkor Chum Kauk Daung 3,154 39.6% 0.7% 3.5% 56.0% Sub-total 4,903 48.1% 0.7% 3.4% 47.8% Siem Reap Pouk Reul 2,998 22.1% 0.4% 4.9% 72.7% Siem Reap Pouk Trei Nhor 1,900 44.3% 0.0% 12.1% 43.7% Siem Reap Pouk Daun Keo 2,573 31.5% 0.2% 1.6% 64.7% Siem Reap Pouk Sasor Sdom 2,667 31.3% 0.0% 4.7% 60.1% Sub-total 10,138 31.1% 0.2% 5.3% 61.9% Source: NOURISH team.
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1.2 Study background
With funding from USAID and the U.S. Government’s Global Hunger and Food Security Initiative Feed the Future, NOURISH works to accelerate stunting reduction by focusing directly on several of the key causal factors of chronic malnutrition specific to Cambodia—poverty, lack of access to quality food and nutrition services, unsanitary environments, and social norms and practices that work against optimal growth and development. NOURISH aims to improve the nutritional status and well-being of women and children in 555 under-served, rural communities in Battambang, Pursat, and Siem Reap provinces, uniquely integrating health/nutrition, water, sanitation and hygiene (WASH) and agriculture. The project is implemented by Save the Children and partners including SNV. WASH is a major component of NOURISH. It addresses safe water handling to improve drinking water at point of use, hand washing with soap, and increased access to improved toilets. The project applies a market-based approach and creates sanitation demand at the community and household level using various tools and methodologies. 1.3 Purpose, objectives and geographic scope Emerging Markets Consulting (EMC) was contracted by NOURISH/SNV to research and analyse the sanitation supply chain in selected target communes of the three NOURISH provinces in north-west Cambodia (Figure 1). The supply of water filters and hand washing devices was also studied.
Figure 1: Map of the target areas and locations of field work
EMC was asked to: - Take stock of private sector sanitation entrepreneurs; - Assess service and products offered by the private sector, particularly: household water filters, toilet materials and other sanitation products, installation services; - Assess consumer preferences in rural areas of the selected districts;
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- Identify gaps and bottlenecks in the supply chain and potential market opportunities; - Develop criteria to identify potential local entrepreneurs; and - Recommend strategies, including business models, to work with local private sector entrepreneurs to upgrade the WASH supply chain in order to meet the market opportunities. This Final Report presents the outcomes of the above tasks and incorporates feedback from SNV and partners on a Draft Report and comments received at a presentation to stakeholders on 16 June 2015.
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Table 4: Background data on target communes
Total Water Water Water Accessible Distance (km) from % HH HH with HH with Water Approx No. Province/ District Commune house- from from rain from river, by sealed centre of ID Poor electricity batterya from wellsb MFI/bankc holds pond storage lake etc road District Province
Pursat Koh Chhum 1,665 29.1% 823 1,050 1,027 212 117 351 Yes 3 16 10 Kandieng Sya 1,485 30.0% 3 971 95 241 95 1,177 Yes 8 10 4 to 5
Battambang Andoeuk Heb 1,202 36.9% 0 889 451 175 16 514 No 8 43 9 Rattanak Mondul Plov Meas 1,619 42.8% 0 982 615 87 308 341 No 5 30 5 to 6 Ta Taok 805 59.0% 70 381 202 125 36 409 No 24 99 3 to 4 Sam Lot Kampong Lpov 1,299 30.8% 5 985 896 136 78 424 No 15 90 3 to 4
Siem Reap Norkor Pheas 1,716 18.4% 0 941 1,712 16 0 0 Yes 23 37 8 to 9 Angkor Chum Kauk Daung 2,970 17.0% 0 1,691 2,896 197 0 0 Yes 28 32 5 to 6 Reul 2,953 42.9% 0 1,361 2,920 0 1 65 No 13 29 6 to 7 Trei Nhor 1,861 40.8% 0 1,055 1,777 0 0 0 No 20 36 6 to 7 Pouk Daun Keo 2,723 36.9% 0 2,032 2,867 0 0 0 Yes 8 24 4 to 5 Sasor Sdom 2,585 12.3% 130 1,454 2,268 319 11 0 Yes 18 34 7 to 8 a Electricity data is for 2010. Some households have both mains and battery. b Combines pump wells, mixed wells, well water storage, ring wells and open dug wells. Some households have multiple water sources, so may sum to more than total number of households. c Commune may be served by agents from MFIs – they do not necessarily all have branches there. Sources: Commune chiefs; Ministry of Planning; EMC estimates.
FINAL REPORT
2 Methodology
2.1 Data collection After developing research tools to collect information from supply chain actors and from households, training of the research teams including NOURISH project staff members and representatives from the government, took place in Phnom Penh. Field work was undertaken in the target districts in May 2015. Three methods of data collection were used: in-depth surveys, key informant interviews, and telephone interviews.
Table 5: Field work methodology overview Methodology Main Activities Interviewee / Respondent Profile
Key informant interviews Unstructured or semi-structured interviews . NGOs and organisations involved in the WASH with key informants to understand issues supply chains affecting the supply chain . Local authorities
Quantitative data Surveys (in-depth one-to-one interviews) with Market actors along the sanitation supply chain: collection market actors and households in the three . Construction materials’ importers, wholesalers provinces with standardized questionnaires and retailers . Concrete product producers
. Masons
Households Telephone interviews Brief telephone interviews using structured . Retailers of water filters in the provincial capitals questionnaires to obtain supply chain . Masons in certain districts information and data that was not available in the target areas
2.2 Sample In-depth interviews were conducted with a total of 122 households and 26 business actors in the sanitation supply chain – including wholesalers and retailers of construction materials, concrete producers and masons. In addition, the team interviewed 20 staff from local authorities (provincial and district departments of Rural Development and commune councils)1.
Table 6: In-depth Interviews – Total Sample
# Wholesalers # Concrete # Local Province District # Masons # Households & Retailers Producers Authorities
Siem Reap Puok 4 4 - 39 5 Angkor Chum 1 2 - 22 4 Battambang Rattanak Mondul 2 4 2 21 4 Sam Lot 1 1 2 20 3 Pursat Kandieng 2 2 - 20 4 Total 10 12 4 122 20
The focus of this study is the supply chain. The small number of supply chain businesses in the target areas limited the sample size.
1 All data in the tables and figures in this report are from the study’s field research, unless stated otherwise. Page 13 of 71
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Phone interviews To supplement the above in-depth interviews in the target areas, EMC conducted 9 telephone interviews. The main reasons for these interviews was the absence of water filter retailers in the target areas and the difficulty of locating masons during the field work. Hence 6 phone interviews were conducted with retailers of water filters in the provincial capitals, and 3 with masons in the other target provinces.
Program implementers and WASH businesses Interviews were also conducted with six development agencies or businesses who are implementing relevant programs in the target areas or who are involved in the supply chains. These were: HARVEST, WaterSHED, Hydrologic, iDE and Live and Learn. Summaries of these interviews are included in an Appendix.
Household sample background data In our sample of households, those in Puok are more likely to have a telephone and less likely to contain a pregnant woman and/or a child under two years of age. Sample households in Pursat tend to be larger and, in Kandieng, are more likely to contain a pregnant woman and/or a child under two years of age. However, fewer households interviewed in Pursat are ID Poor2. More detail on the household sample is in Section 8.
Table 7: Background information on household sample % with Average No. Avg No. % ID % Have pregnant Province District people in females in Poor telephone woman and/or HH HH infant <2 yrs Siem Reap Puok 44% 87% 4.7 2.3 33% Angkor Chum 45% 50% 4.6 2.5 27% Battambang Rattanak Mondul 48% 67% 5.0a 2.6a 62% Sam Lot 50% 55% 4.6 2.2 30% Pursat Kandieng 40% 60% 5.9 2.6 70% Sampov Meas 40% 50% 5.4 3.0 40% Total 45% 57% 5.0 2.5 40% a. Excludes one household with 16 members, which skews the average to household size to 5.5 and number of females to 3.0.
2.3 Possible limitations of the data The data presented in this report may be limited by a number of factors. First among these is the small sample size3. For example, twelve concrete producers were interviewed in total across six districts, so comparisons across regions must be treated with some caution. As with most supply side surveys, the data may also suffer from selection bias. Those businesses that the team could identify or who were prepared to be interviewed may not be representative of the population. However it is not always obvious in what direction this bias might affect the data. Some interviewees may have believed that their answers could determine whether they would win future work from the NOURISH project. That is, they may have believed they were being interviewed as a prospective supplier to a program (since some actors in the sanitation supply chain have knowledge of, or experience working with NGO programs). Hence, it may be that some interviewees understated their
2. ‘ID Poor’ is defined by sub-decree of the Royal Government of Cambodia. It is based on a range of factors, not only income. See RGC 2011. 3 The size of the sample was restricted by: a) the project budget; and b) the small number of supply chain actors present in the target areas.
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business’s constraints and weaknesses, for example. Some interviewees may have been hesitant to reveal a lack of knowledge and so provided guesses rather than knowledgeable answers. Finally, the research location did not include the whole supply chain. For example, manufacturers and suppliers in Thailand and Vietnam were outside the geographic scope of the project, yet these businesses are a part of the chain. Construction material suppliers in provincial capitals (and some other towns) play a role in the supply chains studied but these were not in the selected research districts. Similarly, suppliers in Phnom Penh form part of the supply chain to rural areas.
3 Latrine supply chain
3.1 The supply chain actors
3.1.1 Manufacturers Manufacturers of most components for latrines are not in Cambodia (items such as latrine pans, steel, zinc sheeting, and PVC piping come from Thailand and China mostly). Bulk items such as sand and gravel are produced locally. As a result, there were no interviews with manufacturers.
3.1.2 Construction material suppliers (wholesale and retail) Importers/wholesalers are businesses that import construction materials (e.g. cement, ceramic pans, PVC tubing, tiles, etc.) from outside Cambodia for wholesaling. Retailers are shop-keepers in urban or rural markets who sell construction materials, including latrine components, usually directly to consumer households. Importers/wholesalers are usually located in Phnom Penh or provincial capitals and sell to retailers in the province, construction projects, and may also sell directly to households. Latrine related products are generally a small part of their product range and income. Some importers are in towns close to the border. Retailers are located in provincial towns and villages and are typically family-owned small enterprises. Usually they supply themselves from importers and wholesalers and their customers are almost all individual households. Some retailers also import directly themselves. The EMC research team interviewed a total of 10 construction materials suppliers. The interviewees were all the shop owner except one. Half of the interviewees were female. In our sample, construction materials suppliers employ on average six staff (the median is 5 staff). The largest (in Sompov Meas, Pursat) employs 19 workers, while the smallest (in Rattanak Mondul, Battambang) employs two. They have been in business for ten years on average (median 9 years), with four having been in business at least 15 years. Only two of the sample has been in business less than 5 years. Only two of the suppliers stated that they owned other businesses4. One sells fertilizer and animal feed, the other rice harvesting machinery. In Lao PDR, construction material business owners outside provincial and district capitals are more likely to be involved in multiple businesses (see EMC 2014a) – perhaps because income from the shop is insufficient and has to be supplemented with other activities. This does not appear to be the case with our sample. For the capital to start their business, “savings” and “loan from bank/MFI” are the most common sources. All nine of the owners interviewed stated that they used savings to start the business, with three of these also using a bank/MFI loan. One other used a loan from family or friends as well as their savings. The three that used a bank/MFI loan to start their business are all in Siem Reap (one in each of the districts studied). Financing is discussed further in Section 6.
4 It is not known if supplying construction materials is the primary or secondary source of income for these business owners.
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For many of the building material suppliers interviewed, latrines are a small part of their overall business. Five of the businesses (50%) estimate that latrines account for 10% or less of their revenue. Two think it is 30%-35% and another two 50%-60% (and one does not know). Note that none of those interviewed sells water filters or hand washing devices (see Sections 4 and 5). Latrine pans alone are likely to account for less than 5% of revenues for most suppliers.5 Most (70%) of the material suppliers interviewed estimate that they sold 50 to100 latrine pans and bowls in 2014. However, one supplier, in Sorsordom, states they sold 86,400 latrine pans in 2014, mostly to retailers. One supplier, in Som Lot, sold only 10 pans in 2014. Half of the suppliers say they are selling more pans in 2015 than the previous year. The vast majority of these pans are made in Thailand. Seven suppliers stated that 100% of the pans they sell are made in Thailand and a further one stated that 90% of pans are made there (the other 10% are from China). Interestingly, one supplier in Puok, Siem Reap says that all their pans are made in Vietnam; and one supplier in Pursat sells half from Thailand the other half from various sources. The origin of materials and the flow on latrine components are discussed further below.
Table 8: Origin of latrine pans sold by suppliers Percentage of latrine pans you sell are made in: Supplier Province District Thailand China Vietnam Other A Siem Reap Puok 100% B Siem Reap Puok 100% C Siem Reap Puok 100% D Siem Reap Puok - 100% E Siem Reap Angkor Chum 100% F Battambang Rattanak Mondul 100% G Battambang Rattanak Mondul 90% 10% H Battambang Sam Lot 100% I Pursat Kandieng 100% J Pursat Sampov Meas 50% 50%
Most of the material suppliers interviewed state that they are registered (9 are registered at the district level and 1 at the provincial level). Eight of the suppliers stated that households are their main customers for latrine-related products. One in Rattanak Mondul sells mostly to producers of concrete products, and another in Puok sells mostly to other retailers (and second in Puok also sells to other retailers). Five suppliers stated that they had been involved in a Government or NGO program in the last two years. However most did not provide details. One stated that they supplied zinc sheeting. One said they worked for a Korean organisation, another for KCDA, and a third for Lam Nao Than. One of the business owners is a former employee of Care. Three of the suppliers stated that they had participated in some form of business training, but did not provide details.
3.1.3 Concrete Producers Concrete producers are businesses that manufacture and sell concrete products such as prefabricated concrete rings for lining latrine pits and wells, concrete posts for house construction, and slabs for use in latrine construction. Some also make concrete bricks.
5 Revenues for these businesses are not known.
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Concrete producers are less prevalent in the research districts than construction material suppliers. Possible reasons for this include: insufficient demand for concrete products to support many producers; and upfront costs such as moulds and land for making and drying products.6 The location of identified concrete producers are shown in the maps in the Appendix. The concrete producers interviewed on average employ 2.5 staff (that is, in addition to themselves), and have been in business for around 5 years. Only two concrete producers have any female staff. One concrete producer had been in business for 20 years, 7 for five or less years.
Consistent with expectations (and other studies), latrines are more important to concrete producers than to construction material suppliers. The concrete producers interviewed estimate that the percentage of their businesses related to latrines (for example, concrete rings for the pit) is on average 47% (wholesalers/retailer is 24%), but there is wide variation. One concrete producer stated that 100% of his business is latrine-related. Six estimate that 50% to 70% of their business is latrine-related. The remaining five estimate that 10% to 30% of their business is from latrine construction. The concrete producers interviewed had, on average, 242 customers for latrine-related products in 2014 (median 110). This ranged from 10 for one in Rattanak Mondul to 1,000 for one in Norkor Pheas (Siem Reap). Eight of the twelve had at least 100 latrine-related customers last year. Concrete producers are more likely than material suppliers to reply on other sources of income. Eight of the concrete producers surveyed (67%) obtain income from sources other than concrete products. Four of these rely on income from some sort of farming, three from selling construction materials. One earns some income from being a mason, and another from other members of their family. Of the four who obtain their income only from concrete products, two are in Siem Reap, one is in Pursat and one in Battambang. Similar to construction material wholesalers/retailers, ten of the twelve concrete producers interviewed started their business mainly with their own savings. Three of these also used capital borrowed from family or friends. Only two used funds borrowed from a bank or MFI (both in Battambang: one in Sam Lot and one in Rattanak Mondul); and one borrowed from a money lender (Rattanak Mondul). Finance and borrowing is discussed in more detail in Section 6. In terms of supply chain flow, concrete producers mostly sell directly to individual households – eleven of the twelve concrete producers said that households are their main customer. The remaining one (in Puok) said that NGO or Government projects are their main customer. Three other producers also stated that in addition to households, NGO or Government projects are important customers. The majority (67%) had not received any training for their business. One producer in Pursat stated that they had received training from WaterSHED. Another in Puok said that IDE gave a training course in concrete production techniques. A third producer, in Siem Reap, stated that they had some construction/ engineering training but did not provide details. Concrete producers are more likely to be informal businesses. Half of the concrete producers interviewed are registered (five at the District and one at the Commune). This compares to all the material suppliers being registered.
3.1.4 Masons Masons are builders or construction workers who are contracted to build a variety of structures, including latrines. Masons can be divided into three groups: • Skilled masons: experienced workers with advanced masonry and construction skills and will typically lead a team in construction;
6 Material suppliers’ upfront costs include shop space and acquiring stock. It is not known how these costs compare to those for concrete producers.
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• Semi-skilled masons: workers with basic masonry and construction skills and able to construct simple structures but will typically work under a skilled mason; and • Unskilled masons: unskilled laborers, mostly farmers or otherwise unemployed, that offer their manpower to perform manual tasks. In the target areas, the research team found few skilled masons. Most masons in the target areas are unskilled and are iterant – they travel to different regions for work7. Masons build latrines when hired to do so by households. Though some also work for concrete producers, making latrine components. Households will sometimes ask concrete producers if they know of a mason that can build a latrine for them. The masons interviewed work for themselves and have no full-time staff. They might hire staff to work for them part-time when needed. Those interviewed have worked as masons for 10 years on average (the shortest is two years and the longest 20 years). All the masons interviewed were men. Latrine construction accounts for 25% to 100% of interviewed masons’ income.8 Most do not have sources of income other than construction work. One exception is a mason in Sam Lot who earns 60% of his income from mason work and 40% from installing antennas. The masons interviewed have no formal training. Most learnt on-the-job. Some were trained informally by concrete producers and others by family members. One, in Puok, was trained by IDE.
Latrines that masons build All masons stated that they can build entire latrines (substructure and superstructure). All of them stated that they use concrete rings for pit lining.9 All stated that the superstructure is made from bricks. One mentioned using tiles on the floor. Three masons said that they provide advice to customers on the type or size of latrine required. Masons’ estimates of the total cost of a latrine range from $100 to $725. Three masons said that sometimes they upgrade latrines for customers (including one who added a wash basin), and two do repairs. One said he did no upgrading, repair or maintenance of latrines. Interestingly, one mason said he had emptied latrines. Most masons state that they are busier in dry season, however one said that he was busier in wet season and another said there was no seasonality. None said they built more latrines in 2014 than in 2013.
3.1.5 MFIs and banks Micro-finance institutions (MFIs) and banks form an indirect part of the WASH supply chain. Obviously they do not provide WASH products or services directly themselves but, as shown above, they provide finance to a number of the businesses that do. According to local officials, all of the target communes are covered by multiple finance institutions (Table 4). This does not mean that there is a bank or MFI branch in every commune. In some cases an MFI provides financial services to an area through an agent or a mobile officer. Sam Lot and Sya are covered by the fewest finance institutions. Finance is discussed in more detail in 6. 3.2 Product flows As one might expect, the sanitation supply chain becomes weaker as one moves from more urban areas to less densely populated areas. Overall, the sanitation supply chain in the provincial capitals appears reasonably strong— there are many wholesalers and retailers, concrete producers and masons. This is to
7 This made it difficult for the research team to find masons to interview. 8 The mason who earns 100% from latrines earns some income from producing concrete products for latrines. He built 50 latrines in 2014. 9 EMC (2014) found that in Lao PDR there was a trend there toward lining with bricks.
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be expected, given the size and average incomes of these towns. The chain in district capitals is relatively more extensive – there are multiple wholesalers or retailers and at least two concrete producers in (or near) the district capitals of the target areas. However, outside of district centers the supply chain becomes quite limited with a small availability of materials suppliers and even fewer concrete producers.
Figure 2: Supply chain map Supply Chain Actors Location
Retailers • Remote district
• In remote Retailers districts, masons • Provincial district and concrete producers are often not available/work Retailers Wholesalers
only on request Masons base • Provincial capital city Concrete producerConcrete Importers
The origin of construction materials varies according to the material and for each particular target area. For example, proximity to Thailand can determine the origin.
3.2.1 Construction material suppliers In most of the research areas, Thailand is a source for some kinds of materials, particularly Puok. Only in Som Lot and in Angkor Chum did the businesses interviewed not source major latrine-making materials from Thailand.
Table 9: Suppliers’ stated source and distance (km) for selected latrine materials Province - Latrine Pan Cement Steel PVC pipe Zinc sheet District Pursat Kandieng Battambang (110km) Battambang Poipet (135km) Pursat (10km) Pursat (15km) (170km)
Battambang Rattanak Battambang (43–50km) Pailin (50km) Battambang (43–75km) Battambang (75km) Battambang (75km) Mondul Battambang (75km) Phnom Penh (350km) Phnom Penh Thailand (70km) Kampong Cham (400km) (350km) Phnom Penh (350km)
Som Lot Battambang (50km) Battambang (70km) Battambang (75km) Battambang (75km) Battambang (75km)
Siem Reap Angkor Chum Siem Reap (23km) SorSorSdom, Puok Siem Reap (60km) Siem Reap (60km) Siem Reap (60km) (60km) Puok Siem Reap (16km) Poipet (135km) Siem Reap (16km) Siem Reap (16km) Siem Reap (16km) Poipet, Thailand (135km) Poipet (135km) Phnom Penh Poipet (135km) Phnom Penh (350km) Phnom Penh (350km) (350km) Phnom Penh (350km) Note: multiple distances for the same source result from two or more suppliers in the district who are not close to each other.
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Most of the interviewed suppliers buy their latrine pans from wholesalers within the same province. An exception are three retailers in Puok who buy direct from Thailand (another retailer in Puok buys pans either locally or from Phnom Penh). As illustrated in Table 8, most of the latrine pans sold are manufactured in Thailand. The retailer interviewed in Sompov Meas, Pursat also buys latrine pans from Poipet, Thailand but refused to divulge any other information on its suppliers (and so is excluded from the table above). Some products are sourced locally, particularly bulk commodities such as sand and gravel. These items are typically sourced from less than 20km away. An exception is suppliers in Battambang who typically buy sand and gravel from Pursat, 170km away. Bricks are typically sourced from 60km to 80km away. Exceptions are Kandieng (15km) and Angkor Chum (25km). Tiles are generally bought from Poipet but are also available from Pailin, Battambang and in Pursat. No businesses reported buying tiles from Phnom Penh. Latrine doors are available from Siem Reap, Battambang and Phnom Penh, or Pailin. Curiously, a retailer in Pursat buys them from Takeo.
Pursat The supplier in Kandieng, Pursat has their own truck for transporting the materials they buy. Most are bought in Battambang but they also buy PVC piping, zinc sheeting and tiles from a wholesaler in Pursat. There is a brick factory 15km away.
Battambang The suppliers interviewed in Battambang generally buy from other wholesalers within the province. One exception is the supplier in Anderk Haeb in Rattanak Mondul district, who sources their materials more widely and from farther away: they buy from Phnom Penh, Pailin, Thailand and even Kampong Cham. The other supplier in Rattanak Mondul (in Traeng) buys everything in Battambang (except sand).
Siem Reap The suppliers interviewed in Puok source their materials from a range of places. All buy their latrine pans, cement and tiles from Poipet, but they differ in sources for other items. One buys steel and zinc sheeting from Thailand and the others buy these from Phnom Penh (with one of these also buying in Siem Reap). Two buy PVC piping in Siem Reap while the other two buy it in Phnom Penh. The supplier interviewed in Angkor Chum buys mostly from Siem Reap. Exceptions are cement and tiles which are sourced from Puok (from a wholesaler in SorSordom), and sand, gravel and bricks which are bought more locally.
3.2.2 Producers of concrete products Concrete producers are more likely to buy their cement locally. On average they buy cement from a supplier 19km away (and the median in 8km). In Kandieng, one concrete producer buys cement from a retailer there, while another buys from Pursat (19km away). Both concrete producers in Angkor Chumm buy locally (from a supplier 12km away). In Puok, one buys locally and another buys direct from Thailand (the only concrete producer interviewed who buys from Thailand). Three concrete producers in Rattanak Mondul buy from suppliers very nearby (1–3km) and one from 15km away. The concrete producer in Sam Lot buys from a nearby retailer/wholesaler. Sand and gravel for concrete producers are also generally sourced locally, except: One concrete producer in Rattanak Mondul and one in Sam Lot buy sand from Pursat, 105km away; and
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One concrete producer in Puok buys gravel from 65km away (though the other Puok producer buys locally). Concrete producers generally get their moulds from Phnom Penh or Battambang, except the two in Kandieng who got their moulds from NGO. 3.3 Market structure and environment
3.3.1 Competition and margins There appears to be reasonable competition in most districts, particularly in the construction material part of the chain. Kandieng is the only one that stands out as having few suppliers. However, gross margins there are not unreasonably high. There is much less competition among concrete producers in all districts.
Competition between businesses The extent of competition varies between the research areas. More remote and poorer areas might have only one construction material supplier — sometimes because the size of the market can support only one. Overall, there is more competition among material suppliers than concrete producers and masons (Table 10). Concrete producers may have one other competitor in their area, but most construction material wholesalers or retailers report having three or more competitors (except in Kandieng).
Table 10: Average reported number of local competitors Province/district Material suppliers Concrete producers Pursat Kandieng 2.0 1.0 Battambang Rattanak Mondul 3.5 1.7 Som Lot 3.0 Na Siem Reap Angkor Chum 9.0 1.0 Puok 3.0 0.5
All but two material suppliers interviewed reported that there were other similar businesses in their commune (although these potential competitors are sometimes very small businesses, run from the family home). However, only six of the material suppliers (60%) said these other businesses compete with them much (four of these saying they compete on price). Two concrete producers said that they have no competitors. Only half of the concrete producers (six of twelve) say they know the prices charged by their competitors. Although some concrete producers in Puok reported having a competitor, the research team observed that each has it’s own geographic area and that they do not appear to compete with each other. For masons, there appears to be few skilled masons in the research areas but many unskilled workers available for construction. From the household surveys, nearly 80% of non-latrine owners stated that there is a mason in their area who can construct a latrine for them (see Section 8). However, it seems many of these were referring to relatives or neighbours who would be able to build it for them or help them build it, not necessarily a skilled mason.
Upstream competition Ask discussed above, retailers and wholesalers in some areas have multiple options for sourcing products from upstream suppliers. For example, one material supplier in Rattanak Mondul buys steel and bricks
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from multiple suppliers. Six (60%) stated that their suppliers compete with each other to sell products to them. They said that there was no differences in product quality among potential upstream suppliers.10 When asked about potential upstream suppliers, concrete producers tend to report fewer options. They have either 1 or 2 potential suppliers of cement (except one in SorSorSdom who has 4 potential suppliers and one in Kandieng who has 3). There are more potential sand suppliers (average 2.25) but only 1 or 2 gravel suppliers. Suppliers of moulds (a far less frequent purchase) are rarer (average 1.3). Masons typically do not purchase materials for the construction of latrines (their customers do). However, two masons did report that they regularly buy from the same building material suppliers and that these suppliers offer them incentives; both discounts and credit.
Margins Margins are higher on some latrine materials than others, and in some areas than others (Table 11). Though averaging across the materials, there is little difference in margins between the districts. Som Lot seems to have the lowest average margins11.
Table 11: Suppliers’ gross margins on certain materials PVC pipe PVC pipe Zinc Sand Gravel Cement Steel Bricks Doors Tiles (large) (small) sheet Siem Reap Puok 24% 14% 4% 15% 8% 15% 9% 14% 10% 13% Angkor Chum 28% 13% 1% na 10% 16% 11% 5% 15% 33% Battambang Som Lot 5% 5% 12% 9% 5% na 12% 5% 12% 9% Rattanak Mondul 17% 22% 4% 8% 10% 12% 16% 9% 10% 12% Pursat Kandieng 3% 38% 5% 10% 21% na 10% 17% 13% 9% Average 19% 17% 5% 12% 9% 14% 11% 11% 11% 15% Median 18% 16% 4% 13% 8% 14% 10% 10% 10% 12%
Differences in margins might be explained not by the extent of competition, but by other market factors. They could reflect the cost of stores having to carry slow-moving products for longer. Furthermore, margins often incorporate transportation costs, in two ways: Many suppliers offer free delivery within a certain radius (transport fees are discussed below); and Some shops use their own transport to get goods from their upstream supplier, and this cost has to be recouped. Shops that instead receive delivery from their supplier will have the cost of this included in the wholesale price they pay (resulting in a higher wholesale cost and lower margin for a given sales price). Furthermore, the presence of multiple suppliers is not always a guarantee of competition and there may be some collusion. In general the margins in Table 11 are reasonable (or even sometimes low). They do not suggest that businesses have market power.
3.3.2 Trade credit It is not unusual for small businesses to receive goods on credit from their suppliers and to offer credit to their customers (see, for example, EMC 2014a). However, in our sample only three material suppliers (33%) said they receive credit from their suppliers. They said that they have 30 days to pay for the goods they receive. Interest is not charged. In turn, material suppliers offer credit to their customers; usually on similar terms to those that they receive themselves: 30 day payment, no interest.
10 Though one noted that some upstream suppliers are “authorized” distributors of certain products. 11 It must be remembered that only one business was interviewed there. The small sample size
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In contrast, ten concrete producers (83%) said their suppliers give them credit. Their repayment terms vary: some have one month to pay, one has 1 week, and two said they have four to six months (particularly in wet season when business is slower). Some suppliers limit the amount of credit (to 50% of the total order, for example). As with material suppliers, they are not charged interest. Nine concrete producers (75%) offer credit to their customers. They generally allow their customers 15 to 30 days to pay, though some allow two to three months. They might cap the amount at credit in dollar terms (for example, $1,000) or as a percentage of the total order (usually 50% but some allow more and others less).12
3.3.3 Marketing and sales promotion The construction material suppliers and concrete producers interviewed have a very passive approach to sales. And to the extent that they do any marketing, they are not marketing sanitation per se. However, three material suppliers did say that they had in the past paid a commission for someone referring a customer. These were in Puok and Rattanak Mondul. Only one material supplier stated that they did marketing (in Sam Lot). Some larger upstream suppliers do provide marketing materials to promote products. Half of the wholesalers/retailers interviewed said their upstream suppliers provide them with marketing materials to promote their products. Typically it is manufacturers (of products such as tiles or cement) who market their products and give wholesalers and retailers materials to display. Tile manufacturers provide businesses with visual displays of their product range. All the concrete producers stated that they relied on word-of-mouth and/or their location on a main road for customers to know about them. Two noted that they have name cards. Some concrete producers also rely on NGOs for promotion. Two concrete producers in Kandieng mentioned WaterSHED and one in Puok and one in Angkor Chum mentioned IDE. Masons generally do not market their services, relying on word of mouth. Two stated that because they had built commune halls or schools they are known in their area. One mason in Rattanak Mondul had worked for NGOs. 3.4 Latrine costs
3.4.1 Material prices Prices of various materials are fairly uniform across the districts. Sand in Kandieng stands out as being considerably cheaper than elsewhere. Sand and gravel are much more expensive in Sam Lot than elsewhere. Bricks are more expensive in Battambang, while zinc sheeting and floor tiles are most expensive in Kandieng.
Table 12: Material prices in different districts (average of suppliers’ selling price), US$ Sand Gravel Cement Steel PVC Pipe Brick Zinc sheet Door Flooring
(1m3) (1m3) (1 ton) (1 piece) (1 piece) (1 brick) (1 sheet) (1 door) (1 case) Pursat Kandieng 7.50 16.50 93.50 5.00 8.50 0.05 2.75 21.25 5.81 Battambang Rattanak Mondul 14.37 15.27 90.00 6.10 7.50 0.06 2.25 26.00 4.62 Sam Lot 20.00 20.00 100.00 4.40 7.50 0.06 2.50 32.50 5.50 Siem Reap Angkor Chum 12.50 15.00 93.00 5.00 7.50 0.04 2.37 25.00 5.50 Puok 11.00 18.25 94.12 4.82 8.10 0.05 2.60 26.00 4.63 The concrete producers interviewed don’t necessarily pay the above prices for their inputs (Table 13). The producer in Kandieng, for example, buys sand much more cheaply by sourcing it from the upstream sand
12 Terms might depend on how well the customer is known and trusted, but also on how badly the business needs the sale.
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supplier rather than local retailers/wholesalers. Similarly, gravel can be sourced more cheaply than buying from retailers/wholesalers, except in Siem Reap. Concrete producers in Kandieng, Rattanak Mondul and Angkor Chum appear to be paying more for cement than local suppliers are charging.
Table 13: Price paid by concrete producer for inputs (average of suppliers’ buying price), US$ Sand Gravel Cement Mould (1m3) (1m3) (1 ton) (1 Mould) Pursat Kandieng 4.68 15.00 98.75 95.00 Battambang Ratanak Mondul 15.83 11.18 94.00 137.00 Sam Lot 18.75 16.00 100.00 160.00 Siem Reap Angkor Chum 10.83 16.00 96.83 190.00 Puok 10.00 19.00 93.50 170.00
One of concrete producers’ biggest single costs is moulds. These vary, depending on quality. The Kandieng concrete producer’s mould is lower quality than others. According to the prices quoted by those interviewed, concrete rings are considerably more expensive in Siem Reap than elsewhere (double the price in Kandieng).
Table 14: Price of concrete rings (average of producers’ selling price), US$ 80cm 100cm concrete 80cm 100cm concrete ring ring concrete lid concrete lid Pursat Kandieng na 7.50 na 5.00 Battambang Ratanak Mondul 8.75 8.75 6.25 7.08 Sam Lot na 8.75 na 7.50 Siem Reap Angkor Chum 12.08 15.83 4.58 5.83 Puok na 15.00 na 9.38 na: 80cm rings not produced by interviewed concrete producers in these districts
3.4.2 Transportations costs Transport of goods to the supplier is either provided by the upstream seller or the wholesaler/retailer sends their own truck. Six businesses said that they had to pay for this transport. Transport from Phnom Penh to Kandieng, for example, costs $20 per tonne. One business in Rattanak Mondul pays $50 for a large truck load from Battambang (35km), and $12.50 for a small truck load (precise size or weights of the load were not provided). All materials suppliers interviewed provide delivery for their customers (they all have their own truck). Sometimes this delivery is free (if the customer is not far). Other times they might add 5% or 10% to the total price of the order to cover delivery (for example, if delivering 20km or 30km). However no business in the target areas provided sufficient detail to estimate transport costs per kilometre for the materials to construct a latrine. EMC understands that a medium size truck can transport six to seven basic low-cost latrines, excluding superstructure. Smaller trucks (which may be necessary to reach remoter areas, particularly in wet season) can transport three to four basic latrines. If superstructure is also included, transport costs per latrine are significantly higher (because fewer latrines can fit on one truck). Number of latrines per truck then depends on the size and materials of the superstructure. Assuming superstructure materials (such as bricks, door and zinc sheeting) take as much
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space as the latrine core, then transport costs double (but transport costs as a percentage of latrine cost do not double — in fact they decrease where the superstructure costs more than the core). Hence flat-pack superstructure options can be attractive in that they involve lower unit transportation costs. However these might not appeal to consumers. However, transporting prefabricated concrete products such as latrine slabs can be difficult due to the possibility of breakage when the road quality is bad. Onsite casting is one option around this. Transporting all the inputs, as well as moulds, will still involve considerable cost, but it is possible total transport costs would be less.
3.4.3 Construction costs Mason’s fees for constructing a latrine are based on a daily rate. The masons interviewed charge $6.30 to $9.70 for a day’s work from a skilled mason. Battambang is both the cheapest and the most expensive for masons’ services. However, variation in daily fees could result from differences in mason skill, experience or reputation as much as from underlying cost differences of the different areas (and our mason sample is very small).
Table 15: Fees charged to build latrine (rate per day), US$ Fee skilled Fee unskilled
worker worker Pursat Kandieng 7.50 N/A Battambang Ratanak Mondul 6.30 5.60 Sam Lot 9.70 6.30 Siem Reap Angkor Chum 7.00 N/A Puok 6.62 N/A
Masons estimated that a latrine can be built by one person in 7.5 to 10 days, with the superstructure taking the vast bulk of this time (also indicating that masons are used to building more elaborate latrine structures than basic low-cost models). The amount of time for the sub-structure depends on the soil – hard soil will take longer to dig the pit. Using their quoted fees, it would cost $56 to $80 to build a latrine, with the areas in Pursat the cheapest and Battambang the most expensive
Table 16: Labor required to build latrine Total cost to build # workers Days - substructure Days - superstructure latrine Pursat 1.0 0.5 7.0 56.25 Battambang 1.0 1.0 9.0 80.00 Siem Reap 2.5 0.5 3.5 68.10
According to a mason in Siem Reap, the cost also depends on the number of latrines that are being built. Bulk orders could result in lower fees. Some of the interviewed households had used mason to build the latrine (see Section 8). The amount they spent on the mason’s services varied greatly, from $5 to $400, with an average of $132 (the median cost of $75 is consistent with mason estimates in the table above).
3.4.4 Total costs Masons provide a wide range of estimates for the total cost of latrine: from $100 to $725. This obviously depends on the size and type of latrine and the quality of the materials used (whether it includes tiles for example). One mason in Rattanak Mondul said that $118 would buy a basic latrine core (substructure and
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platform, no superstructure). Another in Rattanak Mondul quoted $220 and this included a pit with five concrete rings. The average latrine cost for interviewed households that have a latrine was $415 (median $338) – excluding those that mentioned receiving some subsidy or assistance. In Pursat the typical latrine cost $413, in Battambang $375 and in Siem Reap $250.
Figure 3: Median latrine cost reported by latrine-owning households
$450 $413 $400 $375 $338 $350 $300 $250 $250 $200 $150 $100 $50 $ - Pursat Battambang Siem Reap Median
Note: Total latrine cost (includes superstructure but the cost of basic core component ranges US$50 -60).
Particularly given the small sample, differences between the provinces could be driven by differences in latrine size and quality rather than local material and construction costs. The above data are total cost, including superstructure. Most households were not able to provide a separate estimate for the core (substructure and platform). Of those households that did, three said they received the core for free and then paid for the superstructure themselves. These households paid an average $80 for the superstructure. From data provided by five households, the average amount spent on a latrine core was $56 (median $63), significantly lower than the total costs above.
3.4.5 Affordability “Affordability is a function of two main factors: (a) cost of the product relative to net income and (b) the perceived value of the product in the eyes of the consumer.” (IDE 2007). It is also a function of payment options (that is, the ability to pay in installments). The latrine costs in the figure above are beyond the means of poor households. The World Bank (2014a) estimated a rural poverty line in Cambodia of 3,914 riels per person per day (in 2009 prices). Assuming 5% per year inflation since then, a five-person household living at the rural poverty line would have to spend nearly ten weeks’ total income to acquire a $338 latrine. And many households in the target area live below this poverty line. It is apparent that the ‘commonly built’ latrine is out of reach for many poor households. A $55-60 basic latrine core is much more affordable. However, transport costs to more remote areas make the latrine even more expensive than these costs. Expensive materials are also often used because suppliers are accustomed to serving higher-income clients. Low-cost designs exist that are within many consumers’ willingness to pay (see below), however these designs usually do not include a shelter. Shelters can be important for consumers13.
13. For example, a 2014 study in Lao PDR found that 83% of non-latrine owners would rather pay more for a solid superstructure (brick) than an inexpensive option (bamboo, palm or wood). See EMC 2014b.
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Interviewed households that do not have a latrine stated that, on average, they are willing to pay $91 for one (excluding those that answered zero). The median willingness to pay was $50. Hence a basic low-cost design could potentially reach a greater proportion of the target population. This is discussed further in later sections.
4 Water filter supply chain
The private sector water filter supply chain does not extend to the target communes. The research team could not find any private retailers or wholesalers of water filters. However, households in the target areas do own water filters (see Section 8). These have typically been provided by NGO programs. 4.1 The supply chain actors
4.1.1 Manufacturers Some water filters are made locally in Cambodia and others are manufactured internationally (including by Korean and Japanese companies). Local manufacturers include Hydrologic (owned by IDE) and RDI. There are two main kinds of water filters: ceramic or mineral. There are a number of brands available in Cambodia at different sizes. They include “Rabbit”, “Seoul”, “Tonsay”, “Nova”, and “Mistu”. Manufacturers sell to importers and wholesalers, to NGOs, or have their own sales distribution networks selling directly to households.
4.1.2 Importers/wholesalers Mineral filters are often imported from Vietnam and Thailand. Importers are general traders, importing a variety of products, including kitchenware or daily consumption items. Importers can also be wholesalers, or they have relationships with wholesalers in Phnom Penh. There are many wholesalers in major Phnom Penh markets who stock water filters. There are also businesses in the provincial capitals selling water filters. Large Phnom Penh wholesalers can sell hundreds of water filters per month, typically to provincial retailers (EMC 2009).
4.1.3 Retailers Retailers stocking water filters are small or micro-enterprises based in the provincial town. As mentioned, no retailers stocking filters were found in the research areas. Retailers outside the provincial town have low awareness of water filter products. Retailers are usually general stores and pharmacy shops. They are family-run businesses and usually have no hired staff. Retailers may not be averse to stocking filters if they fall within their product range (for example, retailers selling household goods or health-related retailers such as pharmacies), and if they believe the stock will sell quickly enough. General stores can be introduced to filter products by their suppliers in Phnom Penh with whom they usually have a good relationship (EMC 2009). Sometimes the retailer will have to arrange transport themselves to collect new stock. The water filter wholesalers/retailers interviewed in the three provincial capitals sell a number of brands, including Rabbit, Mitsu, Seoul, Karrabin and Korea King. These come in various sizes. These retailers buy from wholesalers in Phnom Penh, except those interviewed in Siem Reap who also obtain filters from or other businesses in their provincial capital. For example, one retailer in Siem Reap buys Mitsu filters from Phnom Penh but Rabbit filters from a local supplier. One retailer in Pursat buys Seoul brand filters from Neak Leoung. However, Hydrologic believes that selling filters through retailers does not work. User education and after- sales services are said to be required, which normal retailers are unable to provide (see Section 9).
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4.1.4 Direct sales Some water filter products are distributed by direct sales to the final consumer. This might involve the local manufacturer or national distributor of the filter employing its own sales team. Also, peddlers on motos buy a range of household items from a retailer or small wholesaler and then travel to more rural areas, selling door to door – though it is unlikely they would carry a bulky filter that might not sell. 4.1.5 NGOs NGOs form part of the distribution network for filters. Organisations such as Plan International and World Vision have provided filters to households in Cambodia. They might buy from manufacturers, or from wholesalers.
Figure 4: Water filter supply chain (illustrative)
Most households (69%) interviewed for this project obtained their water filter from an NGO, their village chief or the government. Those that named the NGO mentioned Vision Fund (in Pursat), KCDA (in Battambang), Carritas (in Battambang), and Rik Reay, KrouSaYerng, and VIR (all in Siem Reap). See Section 8 for details. 4.2 Filter types, costs and margins Retailers provided cost and price information for a range or filter brands and sizes. The margins they are earning on these products are low (Table 17), particularly given that these are slow-moving items (a household does not need to buy one very often)14. If margins were higher, more retailers might be encouraged to carry these products.
Table 17: Costs, prices and margins for water filters in provincial capitals Location, brand, size Buying price Selling price (retail) Gross margin Siem Reap Rabbit 15.0 16.3 7.7% Super Rabbit 33.0 35.0 5.7% Mitsu 23–25 27–28 12.7% Pursat Seoul 15l 13.0 14.5 10.3% Seoul 17l 13.8 15.4 10.6% Seoul 23l 20.0 23.0 13.0%
14. Gross margins of 25% to 35% are not unusual for products successfully reaching the bottom of the pyramid (Hystra 2013).
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Battambang Rabbit na 23.0 - Karabin na 15.0 - Korea King 12l na 36.0 - Korea King 15l na 38.0 - Korea King 19l na 42.0 - (Some retailers would not provide the price at which they buy filters, so some margins are not available.) One business in Battambang will sell the Rabbit filter for $21 for wholesale orders of 10 units or more, and the Karabin filter for $12.
4.2.1 Transportation costs Many of these retailers have to pay for transportation of their orders from Phnom Penh and so the above margins have to cover this. For others the cost of transportation is included in the price they pay. One retailer, in Siem Reap, estimates that it costs between $2 and $4 to transport a box of Mitsu filters (6 to 10 units) from Phnom Penh. Hence transportation costs are only a small proportion of the price. However, getting filters from these provincial centres to the target communes is more difficult and unit transport costs could be expected to be much higher. Also, transporting ceramic filters to remote areas has the additional problem that they can break en-route, resulting is significantly higher unit costs.
4.2.2 Affordability Those households interviewed who do not have a water filter said that, on average, they would be prepared to pay $14 for one (see Section 8). Hence the filters in the above table are out of the range of many target households. Around 35% of households without a water filter would only be prepared to get one if were free (perhaps reflecting their knowledge of free supply of filters in the past or currently in other areas).
5 Hand-washing devices
As with water filters, a private sector supply chain for dedicated hand washing devices does not exist in the target communes. The research team could not find any retailers or wholesalers of dedicated hand- washing devices. Furthermore, no household interviewed owns a dedicated hand-washing device (see Section 8). The reason is that very few dedicated washing devices exist in Cambodia (or many countries). Hand washing devices, to the extent that they exist in Cambodia, are typically home-made from commonly- available materials such as a bottle, can or pot (see Bruni 2012 for examples). A few Cambodian households do have dedicated equipment for hand washing, such as a raised sink with a tap from a water tank (5% of households surveyed in one study, see Jenkins et. al. 2013). However most households transfer water stored in large jars (“peang”) to a smaller bowl or basin. Construction material wholesalers and retailers in the target areas do stock the necessary components to make improvised hand washing devices (such as the “tippy tap”). However households do not make them. Households do not appear to be aware of any benefits of these devices over simple hand washing at the peang (see Consumer section below for more).15 There is one new dedicated hand washing device now available in Cambodia: “HappyTap” – also being marketed as “Labodo”. This product was developed and manufactured in Vietnam and is now being introduced to Cambodia by WaterSHED Ventures. In Vietnam the HappyTap device was sold for $10, with customers paying the full price (no subsidy) and distribution by the local private sector and the product sold through retail outlets.
15 One organisation is promoting basic improvised hand washing devices in Pursat.
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6 Finance
As shown in Table 4, all of the target communes are served by at least three banks or MFIs (and around six on average). Banks and MFIs may not have branches in the communes, but local authorities report that officers from financial institutions serve their communes. However, access to finance is reported as a constraint by some of the businesses interviewed – see discussion in next Section on constraints. Despite this, many of the businesses interviewed do have a loan: 40% of material suppliers and 75% of concrete producers in the sample reported currently having a loan from either a bank or an MFI.
Figure 5: Proportion of interviewed businesses that currently have a loan
80% Bank 70% MFI 25% 60%
50%
40%
30% 20% 50% 20%
10% 20%
0% Wholesaler/retailer Concrete producer
Banks loans are mostly from ACLEDA (one from Canadia), and MFI loans are from AMK, Prasac, Satha Pana and Hatha Kaksekor. Masons typically do not access formal credit, perhaps because they have less need of it less but also because they are almost always unregistered, and also cannot provide collateral. If masons borrow, it is most likely to be from informal money lenders. The proportion of concrete producers with a loan is particularly high. By comparison, in 2012 31% of small businesses in Cambodia had a loan (up from 18% in 2007; see World Bank 2014b). Perhaps concrete producers have a stronger need for credit because of the necessary capital expenditure required by this type of work (moulds and tools, etc). Or it could be that the concrete producers that our research team identified are stronger businesses and therefore can access credit (that is, selection bias). According to the World Bank, banks in Cambodia have difficulty in lending to smaller-size businesses because enforcing loan agreements is difficult, liquidating collateral very uncertain, and weak accounting standards and the absence of a credit information sharing system limits the ability of banks to evaluate the creditworthiness of borrowers. It is even more difficult for unregistered businesses. Typically complex application procedures and high interest rates are usually what dissuades businesses in Cambodia from applying for a loan (World Bank 2014b). On the demand side, two households said they had borrowed to finance their latrine. Only six households without a latrine said they would considering borrowing from a bank or MFI to fund a latrine purchase (and another three from private money lenders). However, there is evidence that although many households
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initially do not want to borrow to purchase a latrine, this attitude can change as they are given more exposure to the concept. Pilots in two Cambodian provinces of a sanitation financing approach that included MFI officers attending group sales meetings (and offering loans for latrine purchases) found that in one province there was a strong preference for buying latrines on credit; and in the other province the number of latrines bought on credit grew strongly late in the pilot (EMC 2014c and Path 2013). The potential role of finance in NOURISH’s program is discussed in Section 10.
7 Business Constraints
The supply chain actors were asked about constraints to their business. All construction material retailers/wholesalers and all concrete producers cited at least one constraint. Their most commonly cited constraints were access to finance and the quality of roads. Masons, however, tended not to mention any constraints.
Figure 6: Business constraints (frequency of factor reported as a constraint)
12 10 8 6 4 2 0
7.1 Access to finance As noted in the above section on Finance, many actors interviewed have had a loan from a bank. However, some also say that access to finance is a constraint to their business. It is the most common cited constraint along with the quality of roads. Finance is particularly an issue for concrete producers, seven of whom cited it as a constraint compared with three material suppliers. It is less of a problem for masons, partly because they have lower capital requirements. It is not uncommon for small businesses, regardless of industry and country, to cite access to, or cost of, finance as a constraint.16 Around 8% of Cambodian companies rated cost of financing as their top constraint in 2012 and another 22% rated it as the second or third constraint (World Bank 2014b).17 Even in developed economies, such as the EU and the United States, small businesses report access to finance as a constraint (see, for example, O’Toole et. al. 2014).
16 In our survey, businesses were not presented with the option of ‘cost of finance’ as a constraint. Some of those citing access to finance might therefore have been referring to the cost of finance. 17 This is for all firms. The problem is usually more acute for small firms and unregistered businesses.
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“SMEs complain more about access to finance – a finding that is consistent with many other studies. However, finance is different from the other constraints; bigger complaints by SMEs could reflect a financial system that is poorly equipped for evaluating the projects of small firms, or the existence of a well-functioning financial system that requires collateral and a track record before lending.” (Carlin et. al. 2006). The higher incidence of this constraint for concrete producers is interesting. It may reflect the necessary capital expenditure required by this type of work (moulds and tools, etc), or it could be that either their informality, lack of collateral, or insufficient regular income prevents them from accessing credit, compared with material suppliers. Yet more concrete producers interviewed have a bank loan than material suppliers. 7.2 Roads Poor quality roads can limit the potential market for sanitation products by increasing prices (through high transportation costs) and preventing access to many villages. Market penetration of the supply chain is therefore limited, consistent with the literature relating sanitation coverage to road access. Material suppliers cited bad roads as a constraint more often than any other factor (eight suppliers reported this was a constraint). It was a smaller issue for concrete producers (only two reported it as a constraint). Around 24% of Cambodian businesses think transportation is a “major” or “severe” constraint (World Bank 2014b). 7.3 Competition Although not a major constraint, five material suppliers did mention that competition is a problem for their business. No concrete producers thought it a constraint – consistent with the observation above that there are more material retailers and wholesalers than makers of concrete products. The fact that few actors, especially concrete producers, report competition as a threat suggests that there may be some issues with insufficient competition in the supply chain (see section on competition above). 7.4 Insufficient demand Four concrete producers said that their business had problems with insufficient demand (one in Pursat and three in Siem Reap). Given that they don’t think there is a problem with competition, it cannot be that other businesses are getting the customers (that is, there is not enough demand to go around), but rather the total level of demand is insufficient. Only one material retailer/wholesaler noted demand as an issue. This suggests that there might be spare supply capacity in the concrete producer part of the chain that can respond to any increase in demand (perhaps arising from consumer awareness and behavior change programs). 7.5 Customers not paying Two material suppliers reported problems with customers not paying (most offer limited credit to their customers, discussed above). Because they may offer their customers better trade terms than they receive from their suppliers, this constraint can affect their working capital requirements. Access to sufficient working capital is a common constraint for most small businesses. 7.6 Labour availability Problems with labor availability were reported by two concrete producers (work that is more labor- intensive than material supply). On the other hand, masons said that if customer demand increased they would just hire more workers.
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Labor constraints are not a problem unique to the sanitation supply chain problem. It is not unusual for businesses in Cambodia to face labour constraints. Though the problem tends to be more the availability of skilled labour, or labour with the necessary skills. In 2012 20% of Cambodian businesses cited skills and education as a “major” or “severe” constraint (World Bank 2014b).
8 Consumers
In total, 122 households were interviewed in the target areas for this study – 61 in Siem Reap, 41 in Battambang and 20 in Pursat (Table 7). At NOURISH/SNV’s request, approximately 80% of the households surveyed do not have a latrine. Households in the sample that have a latrine appear to be wealthier and perhaps live in more urban areas than those that do not have a latrine. Specifically, only 29% of households that own a latrine are ID Poor, compared with 49% of non-latrine owning households (Table 18). Of households with a latrine, 79% have a telephone; of households without a latrine, 52% have a telephone. Households without a latrine also tend to be smaller. They are slightly more likely to have pregnant women or young children, but less likely to have elderly or disabled persons.
Table 18: Household sample background data Have latrine Don’t have latrine Total sample Total # households in sample 24 98 122 % ID Poor 29.2 49.0 45.1 % have telephone 79.2 52.0 57.4 Average # people in household 5.7 4.8 5.0 Average # females in household 2.6 2.5 2.5 % households with pregnant women and/or infant < 2 years 37.5 42.9 40.2 % with elderly or disabled persons 20.8 13.3 14.8
Often participate in sanitation community meeting 83.3 77.6 78.7 % practicing open defecation - 84.7 62.3 % using shared latrine - 22.4 11.5
% with water filter 50.0 37.8 40.2 % seen advertising or promotion for water filters 54.2 68.4 65.6
% with dedicated hand washing device 0.0 0.0 0.0 % who know what a dedicated hand washing device is 20.8 7.1 9.8 % seen advertising or promotion for hand washing devices 12.5 6.1 7.4
Households with a latrine are also more likely to have a water filter, and are more likely to know what a dedicated hand washing device is (though no household in the sample has one). Curiously, a higher proportion of households without a latrine has seen advertising or promotions for water filters. 8.1 Latrines
8.1.1 Latrine owners As illustrated in Table 3, sanitation coverage in the target communes is not high. According to local officials, none of the target communes has more than 50% latrine ownership. Latrine ownership averages 29% across the communes, according to officials’ estimates.
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Reasons for building a latrine The main reason given for building a latrine was convenience or comfort (18% of total reasons18). Many of these particularly noted difficult in defecating at night. The health benefits from latrines was the second- most common reason, closely followed by subsidised provision. One of those who cited subsidized provision stated that they received their latrine through an NGO that was providing assistance to disabled persons. Note that some other households received subsidised latrines but did not mention this as a reason for building one.
Figure 7: Why did you build a latrine?
Other family Education member program influence 12% 3% Sales Convenience/ promotions comfort 3% 46% Subsidised/free 15%
Health 18% Regulations 3%
Note: Respondents could give multiple reasons, and did not rank them.
No household said they built their latrine because they wanted to emulate others. The one household that cited ‘Other family member influence’ noted their daughter’s embarrassment at not having a latrine.
Sources of latrine building information Although only 12% of respondents stated that education programs were the reason they built their latrine, most households do rely on NGOs and their local village chief for information regarding constructing a latrine.
18 Some respondents gave multiple reasons. A total of 33 reasons were given by the 24 households.
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Figure 8: Households’ source of information regarding building a latrine
Relative 18% Self educate 14% Neighbours, others 9%
Village chief 27% NGO 32%
Latrine costs As noted in the section on latrine costs above, there is a wide variation in the cost of the latrines built by these households. Some got their latrine free, others paid up to $1,500.19 Excluding those that paid nothing, the median total cost of the latrine to the household was $275 and the average $373. Most households were not able to provide separate cost estimates for the core (substructure and platform) from that for the superstructure. Of those households that did, five said that the average amount spent on a latrine core was $56 (median $63). Three households said they received the core for free and then paid for the superstructure themselves (these households paid an average $80 for the superstructure). Excluding households that received a subsidy, the cheapest superstructure was $45 and the most expensive $500.20 On average, these superstructures cost $180 (median was $110).
Table 19: Households’ estimates of the cost of their latrine Total latrine cost Core cost Superstructure cost Mason cost Average $373 $67 $180 $132 Median $275 $65 $110 $75 Lowest $13 $30 $45 $5 Highest $1,500 $100 $500 $400 Core: substructure and platform. Notes: Excludes those that paid nothing but includes those that received part subsidy. Core and superstructure-only estimates are for much smaller samples (many didn’t know) and each are different samples, hence comparisons across the columns cannot be made.
Ten of the latrine owners (42%) hired a mason to construct their latrine for them (or for at least part of the work). On average this cost $132 (median $75), with the most being $400. The average total latrine cost for those that used masons was $549 – so masons on average accounted for 24% of the total cost. The
19 Two respondents stated that they built their latrine as part of building a new house. They did not estimate the latrine cost. 20 Some say that the superstructure was 100% of the total cost. It is not always clear if this is because the substructure was fully subsidised or if they misunderstood the question. Seven respondents did not know or could not remember the cost just for the superstructure.
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household that paid $400 for a mason spent a total of $1,200 on their latrine. Whereas the household whose latrine cost $1,500 reports only spending $75 on a mason.
Subsidies Of those respondents that noted receiving a subsidy (29%), four paid nothing for their latrine (that is 100% subsidy). One respondent received the latrine core and substructure (pan, rings, etc.) from an NGO and estimates that they spent $13 of their own money to complete the latrine (they used their own labour for construction). One contributed $65 of their own money and another $100. One household received the substructure free and paid $250 for the superstructure.
Availability and proximity of suppliers Eleven of the latrine owners (46%) stated that all of the materials for constructing their latrine (excluding superstructure) came from the one supplier (this excludes those receiving subsidised latrines). This is interesting, since a common view in the literature is that the latrine supply is “fragmented”, that households have to deal with more than one business to acquire a latrine.21 Consumers have to travel varying distances to suppliers of latrine materials. Six (of 18 that answered) state that suppliers of latrine materials are 5km or less from their home. For eight respondents, the supplier of latrine materials is 10km or more away. No household interviewed was more than 17.5km from a supplier. Two stated that materials can be delivered to their home.
Financing the latrine Most households paid for their latrine with their savings. Only two borrowed from an MFI or moneylender to acquire their latrine (one from AMK, the other didn’t state). One household sold an asset (a ring) to pay for their latrine.
Figure 9: Source of funds for building latrine
Profit from Savings business/ 39% harvest 13% Loan (MFI, money lender) 6% Other 6% NGO subsidy Assistance from 23% relatives 13%
Note: Some respondents had multiple sources. Hence NGO subsidy is 23% of sources yet 29% of households received a subsidy.
8.1.2 Non-latrine owners Of the 98 non-latrine owners, 85% practice open defecation and 22% share a latrine (some do both). However, most would like a latrine: 95% stated that they are considering building a latrine.22
21 This might still be the case, since the survey question was only asking about the core and substructure. 22 It is to be expected that few would say no to this question.
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Knowledge of latrine costs A little over half (57%) stated they knew how much it would cost to build a latrine. On average they thought it would cost $251, but estimates ranged from $50 to $800. This range reflects differences in the style and size of the desired latrine as much as it does knowledge of true costs. These cost estimates are mostly based on information from relatives or neighbours, but NGOs and mason can also be a source of information (Figure 11).
Willingness to pay Despite these estimates of cost, most households are not prepared (or able) to pay that much for a latrine – which may be one explanation for why they don’t have a latrine. The average willingness to pay for a latrine (excluding those that answered zero) was $91 (median $50). Some households gave their answer in terms of “half the full price” or “100% of the full price” but did not know or state what that price might be. Respondents who say they know the price of a latrine are willing to pay significantly more for one than those who do not know the price ($124 compared with $39; Figure 10).
Figure 10: Average willingness to pay for a latrine, non-latrine owners
$140 $124 $120
$100 $91
$80
$60 $39 $40
$20
$- Know how much it Don’t know how Total sample costs much it costs
Some people had very precise ideas about latrine cost. A number of people in Puok, for example, stated that they would be willing to pay $13 for a latrine. It may be a coincidence that this is the same amount that someone with a latrine contributed to their subsidised latrine.
Source of financing Just over 25% of households in the sample without a latrine stated that if they did not have the money to buy one they would search for financial support. Of those, ten (39%) would seek support from family or relatives; six (23%) from MFIs or banks; three (12%) from private money lenders; and five (10%) from NGOs.23
Availability of masons Nearly 80% of non-latrine owners stated that there is a mason in their area who can construct a latrine for them. However, it seems many of these were referring to relatives or neighbours who would be able to build it for them or help them build it, not necessarily a skilled mason.
23 Some listed more than one possible source of financing.
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Figure 11: Source of knowledge about latrine costs, non-latrine owners Self-estimate 7%
NGO 17%
Relative/ neighbour Village meeting 50% 6%
Is/was a mason 7% Mason 13%
Sanitation messaging Just over 75% of non-latrine owners have seen some form of sanitation message or latrine promotion. More respondents in Siem Reap had seen such messaging than in Battambang.
Table 20: Have seen messages/materials on benefits of latrines Province Percent of respondents Pursat 75.0 Battambang 69.7 Siem Reap 79.6 Total 75.5
The source of this message was most often local authorities (55%) and NGOs (38%). However some of these could be unsure as to whether the message came from the local authority or an NGO (16 answered both), because the most common medium for receiving this message was at a village or community meeting (which may be co-organised between an NGO and local authorities).
Figure 12: Source of sanitation related information, non-latrine owners
Family and NGO neighbours 38% 4% Latrine suppliers, sales agents 2%
Local authority 56%
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Figure 13: Latrine benefits messaging received, by media 65
10 4 3 3 0 0
Non-latrine owners are significantly more likely to have received information regarding the benefits of owning a latrine from village meetings than any other medium (Figure 13).
8.1.3 The elderly and disabled Eighteen of the households interviewed have an elderly or disabled person. Of these, five have a latrine. For those that do not have a latrine, six of the elderly/disabled persons open defecate (sometimes with the help of a family member); six use a neighbour’s or shared latrine, and one uses some form of bed pan and the excrement is subsequently buried.
Figure 14: Sanitation behaviour of the elderly and disabled
8.1.4 Supply chain actors’ views of latrine consumers Supply chain actors believe that households get a latrine mostly because of education programs. This contradicts the views above of the households themselves. As with households’ views, convenience and comfort is considered more important than health as a reason for obtaining a latrine.
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Figure 15: Supply chain actors’ views on the main reasons households build a latrine
Education program Other family 34% member influence 6% Support from NGO Convenience/ 3% comfort 25% Emulate others 13% When hosting a Health celebration 16% 3%
Note: Actors could give multiple reasons, and did not rank them.
Material suppliers are more likely than masons to include Health as a reason. No actor mentioned either Sales Promotions or Regulations as a reason households build a latrine. 8.2 Water filters According to local officials, water filter ownership in the target communes ranges from under 5% of households (Sya, Kok Dong) to over 95% (Ta Toak – however, 60% to 70% of these are now broken). In some communes, officials estimate more households have water filters than have latrines (Ta Taok, Kampong Lpov, Reul, and Doun Keo). Slightly over 40% of households interviewed have a water filter.24 Water filter ownership is greater among those households with a latrine than those without. Households in Siem Reap are much more likely to own a water filter than in Pursat or Battambang. However, households in Pursat are most likely to have seen advertising or promotions for water filters.
Table 21: Water filter ownership and messaging % HH that own a water filter % HH seen advertising/promotion for water filter Have Latrine Don’t have latrine Total Have Latrine Don’t have latrine Total Pursat 75.0% 18.8% 30.0% 100.0% 80.0% 89.5% Battambang 0.0% 27.3% 22.0% 0.0%a 67.7% 61.8% Siem Reap 75.0% 51.0% 55.7% 75.0% 67.3% 68.9% Total 50.0% 37.8% 40.2% 54.2% 68.4% 65.6% a Some did not answer the question. Note: the sample for those that have a latrine is very small (4 in Pursat, 8 in Battambang and 12 in Siem Reap).
8.2.1 Owners of water filters Of the 49 households with a water filter, 24 have a Tonsay filter. These are in different communes of the target area. Seven households have an RDI water filter, all of whom are in the village of Kouk Pnov in Doun Kaev commune, Puok, Siem Reap.
24 Though one reports that theirs is broken.
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Figure 16: Reported brand or type of water filter owned by the household
Don't know 17% Cement RDI water filter 12% 14% Seoul 2% Nagawa 2% BioSan 2%
Water filter Tonsay with sand 49% 2%
Most households (69%) obtained their water filter from an NGO, their village chief or the government; 76% of these paid nothing. Many of the rest paid just $1, stating that the water filter was free but this fee was for transportation. Those that named the NGO mentioned Vision Fund (in Pursat), KCDA (in Battambang), Carritas (in Battambang), and Rik Reay, KrouSaYerng, and VIR (all in Siem Reap). One respondent in Puok, Siem Reap stated that an NGO had been providing cement water filters there since 2009. In Siem Reap a number of villages had received free or subsidised ceramic water filters about three years ago. It appears that most villagers there whose filter has since broken have reverted to boiling water. Only 20% reported buying their water filter privately. One bought theirs in the Pursat provincial capital, and three in the Puok market. Three purchased filters from door-to-door salesmen. The price reportedly paid for privately bought filters varies up to $200 though the typical price is $25 to $45. The overwhelming reason given for buying a water filter was that it was provided free (45%, 22 households). Only six households specifically mentioned health (5 in Pursat), though a further eight stated they “wanted clean water” without specifying if this was for health reasons. Seven noted ease of use and saving time (by avoiding having to boil water). One specifically mentioned taste.
Figure 17: Reasons for getting a water filter
Ease, time saving 14% Want clean Health water 12% 17% Taste 2% Sales promotion, advertising Don't know 4% 6% Provided free 45%
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8.2.2 Non-owners Fifty-five (75%) of households that do not have a water filter stated that they would consider getting one (and 16 named Tonsay as the likely brand). Eighteen respondents said they would not consider getting one, and seven of these stated that they were happy to boil water (one even said boiling was better). One household expressed concerns about the chemicals in water filters, and the time it takes for the water to be filtered. Five said they drink bottled water and would continue to do so rather than buy a water filter. Three households specifically mentioned that they did not have the money to buy a water filter (though others might also not have the money but instead answered that they were happy to continue boiling water). Households who do not have a water filter expect that to get one would cost $61 on average (estimates range from $4 to $288). However, their willingness to pay for a water filter is $14 on average (with a range from $0 to $125). More than 35% of those who would consider getting a water filter and who gave an estimate said that they are not prepared to pay anything for it. Almost 45% said they knew where or from whom they could buy one.
8.2.3 Advertising Of those respondents that have seen advertising for a water filter, 31 (39%) said that the brand was Tonsay. These were mostly in Pursat and Siem Reap (only 3 in Battambang). Three named RDI (all in Siem Reap) and some simply mentioned “cement water filter” or similar. Thirty-six respondents (45%) could not remember the brand. Most households water filter promotions at village or community meetings (as with latrine messaging). Many also heard water filter promotions or advertising on TV or radio (unlike latrines). Door-to-door contact is also more common in water filters than in latrines.
Figure 18: Water filter promotions received, by media
40 38 35 30 28 25 20 15 10 8 3 5 1 1 0 0
In addition, one respondent mentioned CEDAC NGO, and another “company” rather than the medium for the water filter promotion. 8.3 Hand washing devices As illustrated in Table 18 at the start of this section, no household in the sample has a dedicated hand washing device. Furthermore, only a minority know what a hand washing device is (they were shown pictures of one). Few had seen any advertising or promotion of such devices. This is perhaps not surprising, given that the research team could not find any retailers selling hand washing devices in the target areas.
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Knowledge of hand washing devices is greatest in Siem Reap, though this is entirely in the district of Puok where over 25% of respondents knew what one was. No one in Angkor Chum reported knowing what a hand washing device is.
Table 22: Dedicated hand washing device knowledge Know what a hand washing device is Seen advertising/promotion for hand washing device Have Latrine Don’t have latrine Total Have Latrine Don’t have latrine Total Pursat 25.0% 0.0% 5.0% 25.0% 0.0% 5.0% Battambang 0.0% 3.0% 2.4% 12.5% 6.1% 7.3% Siem Reap 33.3% 12.2% 16.9% 8.3% 8.2% 8.5% Total 20.8% 7.1% 9.8% 12.5% 6.1% 7.4% a Some did not answer the question. Note: the sample for those that have a latrine is very small (4 in Pursat, 8 in Battambang and 12 in Siem Reap).
Of those nine households that have seen advertising or promotion of hand washing devices, six saw this on TV or heard it on radio. One saw a poster at a government office or health facility and another saw or heard an NGO announcement (but didn’t state via what medium). Despite little knowledge of specific devices, the majority of respondents (80%) have soap for washing their hands regularly. Latrine owners are more slightly likely than non-latrine owners to have soap for regular hand washing (88% compared to 79%). However, this is mostly the result of non-latrine owners in Siem Reap, of whom only 65% have soap for regular hand washing compared with 94% and 91% in, respectively, Pursat and Battambang. Many people in the sample seem to use a jar (“peang”) for hand washing – 38% of those regularly washing hands with soap report that they keep their soap “near the jar”, sometimes in a hanging basket. Just over 11% say they keep their soap near their well (nearly all these are in Siem Reap) and 12% keep the soap in their toilet or bathroom. Most people stated they use soap before cooking and/or eating. Only 23% of those that use soap stated that they use it after defecating.
9 Summary of findings
Specific research findings have been discussed in the preceding sections. These are summarised below in a “6Ps” framework. That is, they are classified as product, price, promotion, place, policy and partnership. Section 10 then discusses actions to address some of these findings. 9.1 Product
Supply The supply chain provides some variety of latrine products in the target areas. For example, squat latrines as well as bowls are available (both pour-flush). Some households have dry latrines. A number of different materials for latrine shelters are available. Toilets with cisterns and push-button flush are available at wholesalers in provincial capitals but not the target areas. However, water filters are not available in the target areas. Basic products such as buckets are available for improvising hand washing devices (though no households appear to do this), but dedicated hand washing devices are not available. Many businesses do not view themselves as part of the sanitation supply chain. Concrete producers in particular rely on other sources of income.
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Demand Sanitation coverage and water filter use has increased in some communes, according to local officials. Households interviewed that have a latrine tend to have an expensive one. Households build a latrine for convenience or comfort more than for health or other reasons. Households with a latrine are more likely to own a water filter than households without a latrine. Water filter ownership is much higher in Siem Reap than Pursat and Battambang (most got their filter from an NGO). Tonsay brand is the most commonly owned water filter. Households do not have dedicated hand washing devices. Most keep soap near their peang or well. Only 23% of those that use soap stated that they use it after defecating. Regular hand washing with soap in critical time is much less common among interviewed households in Siem Reap than those in Pursat and Battambang. 9.2 Price
Supply Latrines most commonly built are expensive, largely because of the superstructure. These latrines can cost over ten weeks’ income for a poor household. The cost of just a latrine core (substructure and platform) can be $65. Concrete rings in Siem Reap appear much more expensive than Pursat and Battambang. Labour (hiring a mason) can increase the cost of a latrine by $55 to $80. Bulk purchases of construction materials can result in lower transportation costs, but transport costs to remote areas can still add significantly to costs. Gross margins on latrine components are not excessive and do not suggest market power. Gross margins on water filters are low (and may make them unattractive to sell).
Demand Non-latrine owners are willing to pay $50 for a latrine, but those who know the cost will pay $124. Non-water filter owners are willing to pay $14 for a filter. 9.3 Promotion
Supply Businesses do very little or no marketing (and there is no use of sales agents). They rely on word of mouth and/or their location for customers to find them.
Demand NGOs and village chiefs are an important source of sanitation information for households buying a latrine. Village chiefs often act as sales agents. Local authorities support the use of village chiefs as sanitation champions or agents. Three-quarters of interviewed households have seen messaging on the benefits of a latrine, mostly at village meetings.
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9.4 Place
Supply There is more potential competition among material suppliers than concrete producers. Businesses tend to have multiple upstream suppliers; material suppliers more so than concrete producers. There is an absence of skilled masons in the research areas. Masons can be transient, travelling far to work for extended periods. Roads are reported by businesses as a major constraint. Some districts are only accessible by dirt road. The supply chain is not present in the communes of Koh Chhum, Plov Meas, Ta Toak, and Kampong Lpov. See Table 23 below.
Demand Some of the target populations are removed from the nearest market hub or district capital. Communes in Sam Lot are particularly far from the provincial capital (90km+) and are not accessible by sealed road. 9.5 Policy
Supply Government and NGO programs are part of the sanitation and water filter chains. Almost 30% of latrine owners reported receiving some form of subsidy. Subsidies distort market incentives (see Section 10). One Siem Reap business (during the validation workshop) stated that the fixing of latrine and concrete ring prices by NGO programs was a problem. This reduces market incentives, flexibility, and the ability to offer a diverse product range. No businesses said government regulation is a constraint.
Demand Government policy is that households are responsible for their toilet construction. There is one area in Siem Reap (part of Daun Keo commune in Puok) which is a conservation zone. Households there are prevented from digging latrine pits and wells. Neighbours just outside the zone can have latrines, but those inside cannot. 9.6 Partnership
Supply Some supply chain businesses have or have had relationships with NGO and government programs. There are a number of WASH programs operating in the target provinces (see Appendix). They – and perhaps non-WASH programs – are potential program partners (Section 10). The finance sector also has a relationship with the WASH supply chain. Although businesses report access to finance as a constraint, many concrete producers (75% of those interviewed) have loans.
Demand Most (90%) non-latrine owners would not consider borrowing to obtain a latrine. Some programs have successfully changed this mindset.
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9.7 Other findings Other findings from this study which do not fit into the 6Ps approach above include: All material suppliers interviewed are registered, but only half of concrete producers. Most businesses are relatively small. Those interviewed tend to have less than 5 employees, but there are other retailers who are even smaller. Those in the supply chain have little or no training, other than on-the-job. Some businesses have concerns about customers’ late or non-payment. Households prefer to use own labour or think someone locally can build a latrine for them. Access to water is an issue mainly in Siem Reap. 9.8 Overall supply chain strength The table below presents overall assessment of the sanitation supply chain in each commune. We have tried to synthesise a number of factors to give a single assessment of weak, medium or strong for each commune. These assessments are somewhat arbitary but are mainly determined by the availability of relevant businesses in the commune; and the distance and quality of the roads between the commune and the businesses.
Table 23: Overall supply chain assessment Supply chain Province/District Commune Comments relative strength Pursat No material suppliers or concrete producers. Centre of commune is 15-20km Koh Chhum Weak Kandieng from main district centre Sya Medium Has a concrete producer around 10km away. Battambang District is on the road to Thai border, but commune is well off this road Andoeuk Heb Medium (15km). Material suppliers are at the central market on the main road. Ratanak Mondul Well off the main road. Material suppliers are at the central market on the Plov Meas Weak main road. Ta Taok Weak Both communes are remote (towards Thai border, but no road or Samlot checkpoint) and far from provincial centre (100km). A town 10-15km away Kampong Lpov Weak has 2 material suppliers and there are 2 concrete producers available. Siem Reap Norkor Pheas Strong Both are on a good, main road with material suppliers. No local concrete Angkor Chum producer but 1 nearby. The supply chain is strong in central villages, but Kauk Daung Strong further villages have slightly less access. Reul Strong Have access to the main centre of Puok (on the road from Siem Reap to Battambang) which is large and has many construction material suppliers Trei Nhor Strong and two concrete producers. Trei Nhor also has its own wholesaler and a Pouk Daun Keo Strong concrete producer not too far. Has its own central area with material suppliers (including largest supplier of Sasor Sdom Strong pans in our sample), and two concrete producers. Also higher household incomes and hence latrine demand.
9.9 Challenges according to officials In addition to the above findings, local authorities were asked about the challenges of increasing sanitation coverage in their commune. They gave a range of answers: changing habits of people is not easy; education programs are not widely spread (and are not regular enough);
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some officials implied that for many households, lack of money was not the reason for not having a latrine, but rather awareness or attitudes, whereas other officials did cite lack of money in their commune; people have latrine but not use it; NGO programs are not long-term and are not sustainable, there is no follow-up; people wait for subsidies; lack of water in Kandieng and Ruel (in Ruel, the official says people want a dry latrine but hard to get ash); absence of incentive for commune officials to educate villagers (NGO staff get incentive), and commune staff don’t have equipment such as materials and microphone; private sector needs to build better-quality latrines. Local authorities suggested that to improve sanitation coverage, more education and awareness is required, some suggesting monthly meeting on hygiene and sanitation (another said weekly). Some suggested house-to-house education or educating children at school (easier than educating their parents and they will ask parents for a latrine). Some suggested that programs should use respected or popular locals, such as monks, village chiefs or public health officers (as some programs already do). More than one local authority thought there should be policy or law to force people to build latrines. Some think subsidies particularly for poor are required.
10 Strategies and recommendations
10.1 Introduction One of the main causes of problems for the supply chain is a lack of scale. Most WASH supply chain problems appear to stem from this. The market is simply too small.25 Lack of scale is not particular to sanitation, it is a problem faced by many industries in Cambodia, but it is even more acute in WASH products, given the nature of the product (infrequent purchases) and current low penetration. Hence many businesses supply other products and/or services besides latrines and water filters. There is not enough business from latrines or filters alone for most of them to specialize. For more poor households to own latrines, water filters, and hand washing devices, demand-side interventions are the most important. The local supply chain should respond to an increase in demand, because: The private market is already supplying many latrines and water filters; Barriers to entry are not too high; . The required capital to start a small business is not excessive and formal finance is available, . There are few or no regulatory barriers; and According to businesses, the market has been growing. However, past evidence from CLTS programs show that supply may not respond adequately to demand- only strategies. Hence, while demand-side initiatives are paramount it remains important to augment demand-side strategies with some supply chain actions. The possible reasons for supply not responding to demand-only strategies are summarised in the diagram below. If there is demand for WASH products but the supply chain is not serving that demand then it is either not sufficiently profitable to do so, or the market is failing, or the government (or others) is preventing the market from functioning efficiently. (The ticks, crosses and question marks in the diagram are EMC’s assessment of the likelihood of each factor limiting the supply chain).
25 “Market” defined here as the number of latrines being bought. Potential demand for latrines is greater if affordability can be improved (as well as offering product variety that caters to different consumer tastes). That is, the addressable market is un-penetrated.
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Not Not profitable at all sufficiently Less profitable than ? profitable alternatives ? Information asymmetry √ Latrine Market Market power demand not X served failure Public good X Externality √ Regulatory/tax Govt/Policy barriers to entry X failure Subsidy distortion ?
Profitability? It is possible that some of the potential market cannot be profitably served, particularly given transportation difficulties in remote areas. In more accessible areas, the private sector does provide products and services, so it must be profitable. But it may not be as profitable as alternative products or business activities, resulting in less focus on WASH products and services than desirable. Improving the profitability of WASH products is important. This is more likely to be achieved by lowering costs – through product design changes, business and financial management improvements, increasing scale (ie demand) – than through increasing prices.
Market failure? In general, the sanitation supply chain market does appear to function efficiently. Margins are reasonable and there is not strong evidence of significant market power and lack of competition. However, there may be some information asymmetry, with businesses unaware of cheaper latrine options and the potential demand for them. There are externalities in the provision of sanitation (positive spillovers26) — though this does not explain the problem of unmet demand.
Government failure? No evidence was gathered of any significant regulatory barriers to market entry or other government action inhibiting the business environment (with the exception of conservation policy restrictions on digging in Daun Keo). No actor suggested the government could improve the business environment. Subsidies are, and have been, present in the market, which does create some distortions. These are more likely to have affected demand (people waiting for a free latrine or filter) than to have detrimentally altered the supply of WASH products and services. It is possible that some businesses do not engage in marketing, preferring to wait for programs to create demand for them, though none said this explicitly.
26 The health benefits from WASH product ownership accrue not only to the owner but also to others in the village.
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10.2 Supply Chain Strategies – Guiding Principles Notwithstanding that where there are market failures there could be a role for government or NGOs, in general to ensure sustainability we believe interventions should be as market-based or ‘hands-off’ as possible. The following principles should be observed:
Facilitation rather than delivery It is rare to have all the resident expertise that can provide assistance for a diverse set of constraints or training for a wide range of competencies. Furthermore, investment in program delivery personnel and assets makes it more difficult to react proactively to changing market demands. A facilitation role that can utilise a coordinating position in the supply chain would therefore be more consistent with market-based and sustainability principles. It would enable the NOURISH project to more effectively work with private sector organizations in the delivery of services. It is unlikely private businesses are using materials wastefully. How can businesses do better with a product that is a slow-moving consumer durable (i.e. low-frequency, lumpy sales) in an environment with high transport costs? There is no simple solution. Change will take time. Helping businesses grow organically – in response to demand-side initiatives – may not deliver large immediate results, but will be more sustainable and will involve much lower per-latrine program costs.
Services rather than products The emphasis for NOURISH needs to be on responsive services that enable the supply chains to function, not on replicating parts of the supply chain or on the direct provision of latrines (or latrine components), water filters and hand washing devices. Strategy should try to provide services (or encourage others to provide services) that help the market reach poor households. The private sector should provide products. It is up to NOURISH and government to provide services that help it do that.
Treat supply chain businesses and households as customers not program beneficiaries Key to providing meaningful support is to view the supply chain actors as customers rather than beneficiaries, and to be responsive to their needs. Facilitating the provision of services that are needed - either by actors seeking specific skills or in areas where suppliers’ demand for product and services is real - is critical to long-term sustainability and success. It is therefore important to understand the desires of and constraints faced by the supply chain businesses. This means engaging with them regularly, listening to them and responding accordingly – allowing the businesses to drive the services that will meet their needs, not the other way around. A focus on actors’ needs will encourage more of them to become involved in a sanitation program and also will improve longer-term sustainability. Similarly, households need to be treated by the supply chain as customers not as beneficiaries. Building reputation as a trusted supplier is important. In one of the target districts, locals feel that an NGO program has not delivered on its promises. People in this district, including local officials, are now wary of any NGO program (making it harder for NOURISH). In this approach, it is also important to be flexible, going where ‘customers’ require. Provide services where they are most useful, where they are least disruptive, and in ways which focus on improving businesses’ bottom line.
“The sustainability of the small scale sanitation providers is always vulnerable making the need for a supportive, flexible and understanding relationship with the private sector an essential factor for success. It is imperative that the they are represented in programme design decision making processes.” - Jenkins & Sudgen 2006, p.28.
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NOURISH should therefore be willing to see and to encourage competition within the supply chain. The overall goal is to increase the number of household’s accessing improved sanitation facilities. It should not matter if this is being delivered by fewer, larger suppliers or more, smaller suppliers.27 Where possible, working with a larger number of actors is advisable, as there can be greater risks of market distortion by picking one or two ‘winners’. No promises should be made that there will be a certain sized market for actors participating in a program. However, market intelligence, such as the size of the potential market and the expectation that it will grow (because of demand-side activities) should encourage actors to attempt to capture some of this growth.
Private sector focus Finally, it is imperative that supply-side interventions invoke a private sector, customer-facing, results- oriented culture. NOURISH, government sanitation officials and development partners should seek to encourage the private sector and facilitate it where possible. On the demand side, NOURISH and government will likely have a stronger role, but should still engage the private sector in this where possible. 10.3 Business models The Terms of Reference for this study states that “an appropriate WASH business model will be recommended”. EMC believes any such model should be consistent with the above principles. As such, it should be flexible and should be driven, where possible, by the private sector businesses themselves. Hence specific prescriptions of what a WASH business should look like should be avoided. It may be necessary over time to iteratively change the approach. The model must enable private businesses to make a profit (though not every business everywhere always makes a profit. Some entrepreneurs may not be suited to the business and these should not be propped up indefinitely). Businesses should be free to offer differentiated products that appeal to different income groups. This increases the scale of their business, improving profitability potential and hence making working with NOURISH more attractive.28 Typical business approaches in the study area involve: working with private sector sanitation businesses (often concrete producers); training them to make an affordable latrine product; training them to market their product (with ready-to-use material) and/or recruit sales agents; train them in certain business skills (sales and inventory tracking); coordination with CLTS or other behaviour change communication/demand creation strategies (sometimes including direct sales at village events); and engage village chiefs or other “sanitation champions” in behaviour change promotion and/or as sales agents. Some models may also include capital-raising support, helping business access finance. However, while reinventing supply chain businesses such that latrines become their primary (or only) activity can help address some of the identified problems, the main problem is not the businesses themselves. Changes to businesses (such as changing their product offering to include a complete latrine, or changing their sales approach to include marketing or sales agents) may achieve incremental improvements in the supply chain, but some major issues (household awareness and willingness to pay; supply chain not reaching remoter areas; poor quality roads) will not be resolved. Delivery of latrines to
27 Within a limit. Monopoly supply is generally not desirable. 28 A challenge is to ensure that businesses do not only focus on wealthier consumers. Serving poor customers must be sufficiently profitable. One program in Cambodia found it necessary to widen their businesses’ geographic areas because of too few profitable customers in the original areas (Pedi et al 2013).
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some areas will still be difficult and very expensive. Hence the introduction of a financing component may be necessary, partnering with a MFI (see below). Actions that address some of this report’s findings are summarised in the table below and then explained in the following sections. The business model should seek to incorporate or leverage these.
Finding Possible response Businesses rely on other sources of income – Increase awareness of market opportunities. e.g. the potential they don’t view themselves as part of the market size from offering more affordable latrine options sanitation supply chain. Typical latrines are unaffordable for the poor. Pay in instalments, and/or Businesses have concerns about customers’ Encourage the provision of cheaper designs (such as cheaper late or non-payment. superstructure) Change this mindset by: a) Including a finance organisation in consumer sanitation Most (90%) non-latrine owners would not education; and/or consider borrowing to obtain a latrine. b) Coordination role to link a finance organisation with actors such that actors can offer latrines on credit Transport costs – even for multiple orders - Facilitate bulk ordering. Village chiefs may be used as a trusted add to cost of a latrine. party for coordinating this. Suppliers provide delivery for larger orders but On-site casting of bulk orders also helps reduce transport costs not for smaller orders. and breakage
Design generic marketing materials that are low-cost and easy for small businesses to carry and distribute. Passive sales approach and very little Use village chiefs as sanitation champions. marketing. Encourage suppliers to forge relationships with village chiefs. May include commission paid to chief for latrine orders. Labour can increase the cost of a latrine. Educate households about models that allow self-installation (recognising that many households may still prefer solid Households prefer to use own labour. superstructure) Partner with an existing provider of filters (eg Hydrologic) to There is no private sector supply of water filters leverage their sales network, and/or Work with existing potential in the target areas. agriculture input suppliers to get them to sell filters
This is a supply chain report and these are recommendations for supply chain actions. Demand-side activities including hygiene promotion are crucial for effective sanitation promotion.
10.3.1 Sanitation financing Two of the actions in the table above suggest the involvement of a financial institution. Other program implementers that were interviewed also partner with MFIs (for example WaterSHED and Hydrologic. See Appendix). Being able to pay in instalments makes latrines more affordable for many. Instalments have proven to be attractive with households as part of sanitation programs in Cambodia and Indonesia. However, the businesses in the supply chain are unlikely to be able to manage instalment schemes themselves. Furthermore, the businesses already complain about customers’ late or non-payment (and such concerns are likely to be even greater when selling to customers in poor rural areas). By partnering with a bank or MFI, actors are able to supply latrines on formal credit with the payments spread over time (which is attractive to consumers) and do not bear credit risk from non-payment (attractive to the businesses). This model has already been used in Cambodia – for example “SanFin” and
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“Wash Loans” (see EMC 2014c). Households agree to buy a latrine and apply for a loan at the same time, the MFI approves the loan and pays the business, and the household repays the MFI over time. This model may involve a commission paid to the loan officer, increasing their incentive to find latrine customers. An issue is how to make it attractive to the MFI. They have experience dealing with credit risk in rural areas. Many MFIs have found group loans to be one effective way to manage this. Another might be to involve a trusted local (i.e. the village chief) in the transaction. The MFI takes comfort that the chief has vouched for the borrower, and the borrower is more likely to repay when the chief is involved. Greater involvement of village chiefs in sanitation marketing is discussed more below.
Implementing a financing scheme The involvement of a bank or MFI allows customers to pay by installment, but without the supplier having to manage this process (and bearing the working capital requirements). Such an approach has been implemented elsewhere, such as the SanFin project in Cambodia. This section draws heavily on this experience — see in particular EMC 2014c and Path 2013. That project ran two pilots if different areas, using two different MFIs and has valuable lessons from this experience. The steps to implement such a program include: Finding a bank or MFI to partner with, and designing the pilot program with them. Loan design (maximum amount, interest rate, duration, repayment frequency, etc.). The bank/MFI will be involved with this. Previous Cambodian experience will also be useful. Hire and train staff to help manage the project and coordinate with the bank/MFI partner; Train MFI field staff (loan officers) in the sanitation loans (the MFI itself can help with this). They should also be made aware of the broader sanitation activities being implemented (such as CLTS etc), to understand the context and that there will be increased demand for latrines. Develop materials to explain program to material suppliers and concrete producers. They need to know in advance to expect an increase in demand. Develop materials to explain loan to households. Develop monitoring and evaluation tools and systems. This includes what data from the bank/MFI will be required. To make it more attractive to the MFI, in Cambodia Path helped design a client retention program, such that households would remain customers of the MFI after the sanitation loan had been repaid. Coordinate the sanitation loan pilot program roll-out with demand-side activities. That is, when conducting CLTS etc. in a village, the bank/MFI loan officer should attend and the loan product can be explained to households, who can apply for the loan on the spot. Path developed a standard latrine product that would be eligible for the loan at a consistent price. However, this is not necessary for such a program. And any wide variation in transport costs make consistent pricing difficult. Path found this process difficult and that households wanted a better superstructure. An important lesson is the importance of the bank/MFI field staff. They need an incentive to take on this extra workload. One option is to pay them a commission for sanitation loans. They will then become sanitation champions themselves. One MFI found that it was better to have dedicated sanitation loan officers, rather than adding to the duties of regular staff (who didn’t have sufficient incentive to be involved in sanitation lending). The timing of when the loan paperwork is processed is also a key operational issue because it relates to “capturing” the customer when their commitment to buying a latrine is high. Similarly, the number of steps involved in evaluating and approving the loan is important because it influences the delay a customer experiences which can create canceled orders. Reducing the number of steps also has the benefit of
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reducing the overall costs for the MFI which improves the financial sustainability of the model. On-site approval, where possible, is recommended by Path. Path also recommends that village chiefs be included in future efforts. However, such a sanitation financing approach will not reach the extreme poor, whom banks and MFIs will not lend to. Hence subsidies are necessary if these households are to be targeted. Furthermore, if sanitation loans are implemented concurrently with a subsidy, this will reduce some of the risk for the bank/MFI, encouraging their participation. NOURISH may therefore consider two broad approaches: 1) market approach for non-poor who are living in accessible areas; and 2) targeted smart subsidy for poor households living in remote areas (see below).
10.3.2 Market intelligence dissemination The main constraint to the scaling up of private sanitation to the poor and realization of the market’s potential is the fact that businesses are not offering households products and services they want to buy. Many poor (and not-so-poor) people are unwilling (or unable) to pay for the kinds of improved sanitation solutions currently available. As currently structured, the supply chain delivering these solutions appears unable to offer better value (Sy & Warner 2014). “In a market economy, where there is effective demand (willingness and ability to pay) for a product or service, entrepreneurs will take steps to make profits by serving the demand” (IDE 2007). In the target areas there is effective demand for latrines below around $6029. As discussed above, the fact that entrepreneurs are not taking steps to serve this demand suggests that either: it would not be profitable to do so; or there is some form of market failure. This market failure is most likely in the form of information asymmetries. NOURISH should seek to overcome such information asymmetries by providing market information (opportunities, potential market size, etc.) to encourage more investment or the entry of new actors, particularly bigger players. Further, informing the market that demand-side interventions are being undertaken will encourage businesses about the possibility for demand growth. Supply chain actors should be given information on which villages in their area will be subject to CLTS or other behaviour change programs and the timing of these activities. They can then plan for capitalising on this increase in demand. Some may even plan to expand their operations into new areas where demand-side activities are to take place. During the validation workshop one business said it might move closer to customers in a particular area. While such a move is pleasing, it is entirely up to the business. Business relocation can be risky. NOURISH should think carefully before devoting funds to or even encouraging businesses to move. Provide the businesses with information and let them decide where to locate.30 Also, information should be disseminated about the types of latrine options that can satisfy the currently unserved demand. Given high labour costs, these more affordable designs should also be quicker and easier to install. More affordable designs already exist and have been introduced in certain areas. Superstructure costs can be reduced by using zinc or fibro-cement sheeting with a metal or bamboo frame, instead of bricks. However, it must be kept in mind that the margins from selling these products must make it worth the actors’ while. Latrines compete with not only the demand priorities of the consumer but also the sales priorities of the businesses. A latrine that is profitable to sell is not enough – it must be sufficiently profitable. That is, more profitable than the alternative for the business, which may be to spend their time and resources selling non-latrine products.
29 Median willingness to pay for a latrine was $51. 30 Small business failure is quite common in all industries. If a business moves to a new location it might not be a success. NOURISH could suffer reputational damage if it encouraged the business to move (and NOURISH should not prop up unprofitable ventures, but let the market work).
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It is unlikely that the very poor in remote areas can be served profitably. If these are part of the target population, dry pit latrines might also be considered as part of the strategy (although they not typically a private sector supply chain product). Furthermore, shared facilities should not be ruled out.
10.3.3 Village chiefs as champions and coordinators Village chiefs should have a role as local sanitation champions. The supply chain actors will value having a trusted promoter. Supply chain actors should be encouraged to form relationships with village chiefs. Using chiefs help build trust: trust from suppliers that villagers are more likely to pay; and trust from the villagers that the supplier is vouched for by the chief. Village chiefs can play a role in coordinating bulk orders. Bulk purchases can increase the size of the market and take advantage of any scale benefits. This helps overcome the problem of high transport costs. Suppliers may not deliver for small orders, but delivering can be attractive to customers31. Direct bulk purchases are discouraged however, for the same reasons that direct subsidies are not favored but also because they remove the relationship between the supplier and the consumer. However, by only playing a coordinating role in helping a group to simultaneously acquire latrines, the relationship between customers and businesses remains intact. Local suppliers should be used where possible, with purchasing at market prices. Bulk purchasing might also enable on-site casting. On-site casting of bulk orders also helps reduce transport costs (and breakage). However, even with multiple deliveries, transport costs can still be high. Only a limited number of latrines (or their components) can be delivered per truck; and only smaller trucks are able to access some villages. The role for NOURISH is to introduce officials to the concept and facilitate their interaction with the supply chain. This should be coordinated with demand-side activities (that is, roll it out in CLTS villages for example), ensuring that group orders are resulting from demand creation or behavior change strategies.
10.3.4 Marketing and sales Supply chain actors do very little, or no, marketing of their products and services — not only sanitation marketing but any kind of marketing.32 The generic nature of the materials, and small size of most suppliers, means that sanitation does not lend itself to branding. Coordinated marketing is beyond many businesses in the supply chain. Few businesses have the desire or skill to invest in marketing. By making village chiefs champions of sanitation, they can take on some of the role of promoting latrine products, and recommending suppliers. The supply chain businesses do not have experience with hiring sales agents or paying commission so there is a role for NOURISH in initially promoting this approach. However, getting the supply chain to understand the benefits of marketing is important for longer-term sustainability. Involving respected upstream partners in marketing has proven is helpful in other development programs33. Larger companies often have extensive distributions networks throughout the country, which could be used to disseminate marketing information. They might feel that being involved in a large sanitation project is good for their brand. Using these organisations’ distribution channels, and being associated with their strong brands, could provide novel and effective means of improving knowledge. Finally, any public sanitation marketing and education campaigns should include materials that can be used by small-scale providers of private sanitation services.
31 Around 60% of non-adopters in one Cambodian study said that delivery was important (Pedi et al 2013). 32 Some of the larger upstream players in the chain, such Thai manufacturers, are more active in marketing. 33 Such as the Cambodia MSME Project, funded by USAID.
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10.3.5 Capacity building There is a role for capacity building to help businesses with planning and financial management. Improving the efficiency of businesses in the supply chain could help lower their production costs, developing different designs including cheaper options while maintaining or improving margins – making the business more attractive. Furthermore, workshops hosted and/or sponsored by large private sector providers (such as cement companies), or visits to other businesses can increase market and technical knowledge while also fosterer links through the supply chain. Closer links to larger actors could also result in agency, distribution or sub- contracting networks, helping address some capacity and commercial challenges.
Implementing capacity building This could be done through formal training, or via mentoring, or both. Capacity building can also be encouraged through networking events. In keeping with the guiding principles, capacity building should be delivered by the private sector where possible. Training providers already exist that have developed courses for teaching various aspects of business to SMEs. However, initially careful thought must be given to the objectives and goals of the capacity building. Generally, there are four stages that should then be followed: 1) conduct capacity needs assessment; 2) program design; 3) delivery; 4) monitoring/assessment.
Needs Design Delivery Evaluation assessment
The best capacity development programs have a very clear understanding of the program objectives and a rigorous assessment of the capacity needs of the potential participants. The needs assessment phase should identify desired capacity, assess existing capacity and hence identify capacity gaps. In terms of design, this might already have been done if an off-the-shelf course exists that can be provided by a training firm. This could be adapted and tailored to be more specific for material suppliers and concrete producers (based on the needs assessment, but might, for example, include stock control and managing working capital). It is possible that following the training, there could be ongoing support through implementation mentors. This helps ensure that the training is transferred into the actual operation of the business. Workshops hosted and/or sponsored by large private sector providers have been used by other development projects such as the Cambodia MSME project. The large upstream supplier presents it products, making use of a good marketing opportunity, while the actors further down the chain are brought together and encourage knowledge brokering. A larger version of this would be to organize a sanitation trade show in each region or province. All upstream suppliers should be invited and encouraged to attend. This could include local representatives of Thai companies. As part of the trade show, there could be seminars specifically on latrines. A trade show pays for itself, with exhibitors paying to attend. NOURISH could work with vendors on presentations that promote the vendors’ products but also build capacity among local businesses. A networking element also helps foster links through the supply, resulting in the sharing of knowledge and a stronger chain.
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10.3.6 Business model for water filters and hand washing devices Water filters and hand washing devices will require some different approaches from latrines. However, as with latrines, demand creation strategies are paramount. Hydrologic’s experience with water filters is that sales demonstrations and after-sales service are important in maintaining demand. For water filters and hand washing devices there may exist partnership opportunities with to work with existing organisations that are operating in the supply chains (the activities of a number of organisations are described in an Appendix). In particular, Hydrologic has an existing sales distribution network that could be leveraged. Hydrologic is a commercial (social) enterprise, so NOURISH would need to make any cooperation worth their while. Hydrologic’s sales staff could be invited to NOURISH villages to demonstrate their products and make sales. This might be attractive for Hydrologic if it knows the villagers will have already received some form of BCC or CLTS and so the likelihood of sales is greater (provided villagers have sufficient income). The HARVEST project works with agricultural input suppliers. These businesses may be interested in broadening their product range to include water filters and/or hand washing devices. However, it must be sufficiently profitable for them to do so. Furthermore, Hydrologic’s view that water filters are not suitable for simple retailing may argue against using existing agriculture businesses. One option is to run two pilots: one pilot using Hydrologic’s sales network and other using existing agricultural input suppliers. After a specified period the results could be compared and the better approach scaled-up. For hand washing devices, WaterSHED Ventures may also present a partnership opportunity. However this company, at least initially, is not targeting poor households. However, the company may be interested in opportunities in the target areas, especially if there were to be demand-side activities dedicated to hand washing. For poorer households, cheaper improvised hand washing devices should be encouraged. Wholesalers and retailers in the target area already stock items such as buckets from which these could be fashioned. Demand-side strategies to educate households about their benefits and how to make and use them will be most important. 10.4 Selection criteria In choosing which businesses to work with, the following criteria should be considered34: Businesses with other sources of income. It may be that WASH products are unable to sustain a full-time business); Willing to make an up-front investment. This will signal that they are serious and by having “skin in the game” they will be strongly motivated to make it work and find innovation solutions; Businesses that have tried to sell a new or modified product, or done any marketing. This is a good sign of entrepreneurship and also signals that they might be amenable to learning new products or skills; Businesses that have worked with NGO programs before. This signals that someone else has (or should have) previously vetted them, and it may also ensure businesses understand how NGOs operate. However, they will need to understand that they are not being employed as a contractor. A reputation or a concern about product quality; and Willingness to expand their business to rural area. Working with the wrong actors can severely limit project effectiveness: “Some 1,700 small providers, including masons and sanitarians, were accredited and encouraged to use the “WC-ku sehat” (“My Latrine is Hygienic”) logo in their marketing materials. Newly trained masons introduced innovative and affordable products to market. This approach did not achieve the expected results. For example, of 1,700 people
34. A number of these criteria are based on UNICEF Guidance Note 4, Private Sector Development.
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trained, more than 97 percent were reported to be either inactive or utilizing their improved skills in other sectors or areas. The selection process for trainees was one factor in this disappointing outcome. Another factor was that few trainees had the ideal mix of dynamism, ambition, people skills, and technical capacity.” (WSP 2012d). 10.5 Organising chosen businesses To organise the selected businesses and to implement a number of the recommended actions, NOURISH could support the formation of a business association. This would be made up of businesses using the above selection criteria. The association could be responsible for capacity building as discussed above. It would help with networking of members to share experiences; visits to larger or more successful members to learn from them; visits to other businesses (ie non-members); product demonstrations from larger upstream businesses and other organisations; and could help members to access formal credit (such as helping them develop a business plan, and hosting a group meeting with a bank credit officer). Such as association could be one way to ensure the sustainability of capacity building activities. However, to ensure ongoing sustainability, businesses might have to contribute financially to the association. Alternatively, the association could also establish its own revenue streams. There are a number of options for this. One might be for the association to act like a savings club for its members. They each contribute a modest sum on a regular basis to the Association’s fund. This fund can then be used by members as a loan when required. The association would make a small profit on the loan. The association could charge fees for some other activities to help with its sustainability.35 A vital success factor for any association is strong leadership and governance standards. NOURISH can assist with this initially, and in time the Association may be able to manage itself. 10.6 Comments on some other issues
10.6.1 Direct subsidies Market-only approaches do have their limitations. Poor households typically have a lower rate of adoption of improved sanitation than non-poor households. One way to increase the size of the market is to directly subsidize latrines. However, subsidies generally create distortions and lead to outcomes that are not sustainable. They do not result in viable private sector supply or lasting demand. Households tend to expect or wait for subsidized provision of latrines. WSP (2013) found that “respondents in all sites cited ‘never offered a toilet’ as a reason for not having one.” Artificially increasing demand temporarily is not consistent with the guiding principles discussed above. However, improved sanitation does involve positive spillovers (“externalities”), which provides some justification for financial support. Further, the poorest households are unlikely to be able to afford a latrine without support. Any form of financial support should not disrupt that link between supplier and consumer. Hence systems involving vouchers for consumers to purchase a latrine from the private sector may be preferred. Vouchers can be an effective mechanism for transferring subsidies via the demand side to ultimately support the supply-side of the market, allowing beneficiaries to select service providers based on price and preference, rather than being dependent on program driven decisions. Although we do not recommend subsidies, if they were to be adopted, they should be ‘smart subsidies’. These are explained in the Appendix.
35 This is based on the activities of CiC, an association of 100 Cambodian entrepreneurs. In that case they each contributed $1,000 up front to form the association. This would be beyond many or most sanitation businesses, hence a savings group with smaller contributions is suggested.
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10.6.2 Business environment improvements and national-level policies/strategy The business environment does not appear to be a binding constraint to investment in the chain. Few actors mentioned government regulations as a constraint. However, WSP (2012e) found that “a supportive enabling environment was an essential element of large-scale rural sanitation programs” as “the countries with the strongest enabling environment made the most progress”. There are number of reforms and other policies that could help the sanitation supply chain. Generally these involve improving the business environment. We recognise this is not the main scope of this report; however, NOOURISH does work with government. Business environment reforms should be supported in various fora where possible.
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Appendix A – Locations of concrete producers in or near target areas
Battambang
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Pursat
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Siem Reap
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Appendix B – Some relevant programs and organisations
A large number of development agencies and other organisations have WASH activities in the target provinces and districts. According to local officials, the following are active in WASH in their areas: RACHA; SSI; Sarat Cambodia; Plan International; Center for Development; IDE; WaterSHED; Lom Nov Than; Asian Development Bank; Caritas; UNICEF; Trous Tray Angkor; World Vision/Vision Fund; Keatsona; KCDA; Neary Khmer; Caritas; Roum Dai Knea; Banteay Srey; Habitat; and Teok Pleang; Srey Khmer. As part of the scope of this project, some of these development agencies and other organisations were interviewed to understand their WASH activities and their approaches. These interviews helped inform this report’s recommendations. Most of the organisations interviewed are active in at least some of the target provinces. The organisations interviewed are: IDE; Hydrologic; WaterSHED; WaterSHED Ventures; Live and Learn; and HARVEST. iDE
Background iDE helps rural families afford a toilet through sanitation marketing. IDE’s sanitation marketing program does not cover Battambang and Pursat, but it covers Siem Reap (Puok district).
IDE works with local enterprises to address the untapped rural sanitation market. IDE’s sanitation marketing focuses on both demand and supply. On demand side, it has independent sales agents (not iDE staff) to perform door-to-door sales as well as group sales through village meetings by using sales tools produced by iDE. On supply side, iDE works with SMEs (concrete producers) to build their capacity on latrine business. Sales agents receive commission from latrine producers of $4 to $5 per latrine sold. A recently completed project in Cambodia demonstrates that rural households, even poor households, would invest in latrines that met their aspirations and that local enterprises were willing to invest their own resources to address the burgeoning demand. IDE has secured funds for a major scale-up of the model within Cambodia and have also received funding from the World Bank, UNICEF, and others to begin planning and piloting sanitation marketing projects in other countries.
SME selection criteria and support iDE has no strict selection criteria to select SME to work with. Generally, there are simple criteria such as: SME needs to have strong commitment toward latrine business.
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SME needs to place initial investment $1,000 at least. In each district, iDE decides to choose 2 to 3 SMEs to work with. This means that each SME could cover 2 to 3 communes to have decent market size. iDE works with SMEs by supporting following activities: Offering technical training on how to produce quality Easy Latrine. Offering other business management training including production management, materials acquisition, stock keeping.
Challenges IDE reports no significant dropout rate amongst SMEs. In some areas, SMEs need to phase out from the business due to market saturation. There are some challenges: Latrine subsidy from ADB and other donor’s funded programs. There is still a significant lack of effort among SMEs to do product marketing. They typically wait for customers to come to them. Sometime, sales agents are not active enough as they do not have base salary. They are less motivate to promote and sell toilets in highly saturated areas. Hydrologic
Background Hydrologic is owned by iDE. Hydrologic is in the business of getting cleaner water for more people. And they believe that business is a powerful way to do that. Hydrologic operates in all three target provinces. Hydrologic supplies two types of water filters – Super Tunsay and Original Tunsay. Super Tunsay are sold to NGOs at $25 per unit without offering transportation (it means that buyer needs to pay for transportation). It is sold to individual end user at $36 per unit. For retailers, the price will be $27 per unit if orders from one to 20 units, and $25 per unit if orders from more than 20 units. There will be free delivery for retailers in Phnom Penh. For Original Tunsay, it is sold to NGO at $12 per unit (no delivery). It is sold to individual end user at $18 per unit (no delivery). For retailers, the price will be $15 per unit if orders from 20 to 99 units, and $12 per unit if orders from 100 units. There will be free delivery for retailers in Phnom Penh only. Since 2010, Hydrologic has sold about 300, 000 water filters.
SME selection criteria and support Hydrologic used to promote water filters through both retailers and their own sales network. Interestingly, selling water filters through retailers proved unsuccessful, while selling through sales network proved much better. This is because there is no product marketing efforts amongst retailers, while there is a huge product marketing effort through its sales network (retailers just wait for clients to walk to them, while sales network walk to clients and promote water filters). Also, water filters require after-sales service, which retailers do not provide.36 There is no criteria for selecting retailers, but generally they are pharmacies, household appliance retail stores, etc. They do not sell water filter as a leading item (water filter is just one of their product mix) and there is no after sales services. While there is after sales services from sales network. There is no supports from Hydrologic for retailers, and Hydrologic is shifting its focus to sales network as it proved more successful than retail sales.
36. The need for after-sales service was highlighted by a local official from Sam Lot who said that in his commune 95% of households had a water filter, but 60% to 70% were broken.
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Sales network Hydrologic has its sales network in Pursat, Battambang, and Siem Reap. In each province, there is a team of 6 persons: One supervisor to supervise whole team. Three Clean Water Experts (CWE) to educate households about clean drinking water as well as promote and sell water filter. One quality controller (QC) to do quality check and offer maintenance services. One transporter to transport water filters to clients.
Hydrologic has used a professional sales consultant to develop sales tools and techniques for its sales force.
Pricing Hydrologic used to pilot price sensitivity testing amongst rural households. There were different price discounts through retailers (between 10% and 30%, between 30% and 50%, and between 50% and 70%). Result shows that there were no differences in sales uptake. Sales through their own network without discounts has better uptake. Because there are clear explanations about benefit of water filter toward their health, accessibility to financing facilities from MFIs (VisionFund Cambodia, and iDE Credit. iDE credit is a credit program under iDE), as well as maintenance services.
Financing facilities Hydrologic sells water filter to rural household through financing partnership with VisionFund Cambodia, and iDE credit. VisionFund has geographical coverage all over the country, while iDE credit is available in all districts in Battambang and Siem Reap. Loans are disbursed to groups rather than individuals (group loans have proved very successful for MFIs in Cambodia. And in this case, individual required amounts are small, so group loans spread the MFI’s fixed cost).
Challenges Selling water filter through retailers does not work. Water filter distribution needs to go along with user education. Therefore, sales networks plays a key role. The main challenge in selling water filter is to offer sensible user education and after-sales services, which require large investment. WaterSHED
Background WaterSHED (“Water, Sanitation & Hygiene Enterprise Development”) implements sanitation marketing programs in eight provinces including Pursat, and Battambang (in Battambang they are active in both target districts). WaterSHED has a “Hands Off” approach to sanitation. In summary, WaterSHED has: 159 active local sanitation enterprises (SMEs or concrete producers) currently supported by the program. (The number in the NOURISH target provinces is not known). 320 sales agents doing village-level promotions. $42 USD average household investment in a low-cost ‘core latrine’ model. More than 6,600 sales events have been held in over 6,000 villages encouraging latrine adoption and informing where they can purchased. Over 100,000 toilets sold by project-supported enterprises. Thousands of latrines financed through partnerships with local microfinance providers. There is no subsidy for latrine purchase.
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SME selection criteria and support SMEs have diverse profiles, therefore there is no strict selection criteria (as with iDE). In general, WaterSHED works with SMEs who: Have some capacity to produce slab and latrine core. Willing to learn how to produce quality latrines and do latrine promotions. Willing to invest and expand their businesses.
WaterSHED works with SMEs by supporting following activities: Offering one-on-one business consultation through conversations to see their needs’ get support. Helping them to understand market opportunity to expand their businesses, so they have more commitment to the business and willing to invest more. Offering market linkage with MFIs to finance latrine purchases. Training on how to manage labor, finance, logistics, packaging and delivery, installation, and produce quality products. Another key aspect is coach them to do product marketing. It means taking products/services to customers, not to adapt the traditional passive marketing approach (of waiting for customers to knock on their doors).
Challenges Overall, WaterSHED reports a low dropout rate amongst SMEs, but there are some challenges: Some large SMEs significantly focus on large contracts, e.g. road and bridge constructions, therefore less concentration on latrine business. There is a tendency amongst SMEs to focus on small geographic location to reduce transportation costs, but sometimes there is not have enough business in this area (small market for them). There is a struggle to find masons, many masons migrate to work in construction sector in provincial towns or cities like Phnom Penh. There is still a significant lack of efforts amongst SMEs to do product marketing.
WaterSHED Ventures
Background WaterSHED Ventures is a social enterprise owned by WaterSHED, in the same way that Hydrologic is owned by iDE. WaterSHED Ventures is a newly established company selling water filters and hand washing devices. Its water filter’s brand is Amret and hand washing device’s brand is Labobo (previously known as Happy Tap).
Distribution channel/sales strategy The company sells water filters through a retailer network with following price scheme: 1) if a retailer buys less than 12 units, price will be $27 per unit; and 2) if a retailer buys 12 units, s/he will receive one free unit. The idea is to test who are potential wholesalers in next six months. This evaluation is based on quantity of order during the six months period – that means the more they order, the opportunity for them to become wholesalers. Retailers sell water filter to end user at $30 a unit which means they earn $3 (10%) margin if they buy water filter less than 12 units, but if they buy a dozen they will earn $5 (17%) margin as cost per unit goes down to $25 (due to they get one free for every dozen of order). In contrast with Hydrologic, WaterSHED Ventures does not envision a viable business to have its own sales network (sales agents) to sell water filter directly to end users, therefore, it will keeps the strategy of selling through wholesalers and retailers.
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The company is in an early stage to think how it enters market for hand washing device (LaBobo). The LaBobo is manufactured in Vietnam. It is the world’s first purpose-built, mass-produced hand washing station. WaterSHED Ventures is considering first entering the luxury market through a pilot with Toys&Me (a toy and student’s equipment retail store in Phnom Penh) which targets middle and high income groups. LaBobo is “aspirational” and may not suit low income households. LaBobo can be sold to Toys&Me around $20 per unit. WaterSHED Ventures plans to rollout products (water filters and hand washing devices) in all provinces and cities. Currently water filters are distributed in Kampong Cham only, while hand washing device is in initial stage to pilot in Phnom Penh. They are interested to discuss with SNV to see how they could do business with their WASH program (in Pursat, Battambang, and Siem Reap).
SME (retailer) selection criteria and support There is no other support beside commercial incentive for retailers. They are not taking an NGO’s approach by selecting retailers with strict criteria before working with them. Therefore, they are trying to tempt retailers with commercial incentives by offering high profit margins from selling products.
Challenges Management come from a private sector background and like to take a commercial approach to make the market viable. But due to selling social products, they have difficulty in convincing NGO/development partner to actually understand accept commercial approach.
Other thoughts The company’s ideas are in a nascent stage of execution (has been executing just for three months), and it is not really clear if it works well and sustains in the long term. According to Hydrologic, selling through retailers does not work as there is a need to have proper consumer education. Live and Learn Organization
Background In 2008, EWB and Live & Learn commenced a long-term research and design project to address sanitation in flood-prone environments and identified other potential beneficiaries currently not serviced by sanitation and energy technologies. The organisation is active in Siem Reap but not the other target provinces. Since 2008, EWB Australia and Live & Learn Environmental Education have developed the Bio-digester Toilet System comprising of: A simple, appropriate toilet interface A solid-waste collection system and adaptable bio-digester to treat human and animal waste, to produce biogas for stoves and lamps, and fertilizer for agricultural use Adaptable installation techniques conductive to use in a range of challenging environments. The overall goal is to create an ecosystem conducive to the sustainable production, distribution and outreach of bio-digester toilets in order to address the lack of sanitation and provide households with a convenient cost-effective form of renewable energy.
SME selection criteria Live and Learn wants to use concrete producers as sanitation extension agents to promote sanitation amongst rural households. Therefore, concrete producers should have: Technical skills to build latrine. Knowledge of sanitation to promote and convince households to build a latrine. Has good relationship with local authority and work closely with them to promote sanitation.
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Willing to offer after-sales services and keep long term commercial relationships with customers.
Other Live and Learn used to distribute water filters to households for free (water filters were purchased from Hydrologic). Besides offering water filters for free, Live and Learn also embedded sanitation, waste management, and hand washing education amongst students and teachers through partnerships with public schools. HARVEST
Background Cambodia HARVEST is an USAID-funded program that works in provinces around the Tonle Sap Lake, where there is a high percentage of poor and food insecure families. The program is currently working with over 94,000 clients in approximately 1,500 villages throughout Battambang, Kampong Thom, Pursat, and Siem Reap provinces. In Pursat, HARVEST is active in Kandieng, and also in many districts of Battambang. The program started in 2011, and will finish in June 2016.
Goals and Objectives The goals of Cambodia HARVEST are to improve food security; strengthen natural resource management and resilience to climate change; and increase the capacity of the public and private sectors and civil society to support agricultural competitiveness. Specific objectives include: Increase incomes for 100,000 rural households; Accrue economic benefits for 283,500 people; Develop income-generating activities for 8,500 "extreme poor" households; Diversify cropping systems for 56,000 households; and Generate $40 million in incremental new agricultural sales. Private sector players that Harvest works with includes agriculture input suppliers, and rice millers.
SME selection criteria and support Harvest selects agriculture input suppliers who have physical presence in villages the program operates. Its supports includes: Facilitate and conduct business and technical skills trainings to MSMEs and farmers groups/organizations. Conduct regular field visits and mentoring to target MSMEs and farmer organizations, working with them to address the specific needs and issues related to the improvement of their business operations. Facilitate the development of relationships and networks among target MSMEs, other private sector enterprises and public sector agencies working in the USAID-HARVEST value chains. These activities can be conducted through meetings, workshops and field visits.
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Appendix C – Smart Subsidies
Willetts (2013)37 presents the following criteria for the design of a “smart subsidy”: Practicable and suitable for the local context (factors including culture, availability of microfinance, current role of private sector and product availability) Optimizes use of public/NGO funds (minimum % public/NGO funds as a proportion of the cost of sanitation adoption) Costs are affordable for beneficiaries (beneficiaries able to cover remaining costs beyond that provided by the subsidy, and sufficient members of the population targeted to ensure the near- poor can also afford toilets) Ensures effective targeting of the poor (appropriately targets the poor and is effective in doing so). Financially sustainable (government could support the approach in the long-term without external support) Scalable (the design and management are possible at much larger scale; the financial approach could be scaled up across the country at a reasonable cost) Incentivizes desired behavior change (supports long-term behavior change outcomes to use and upkeep sanitation facilities) Aligns with broader project approach (avoids undermining motivation of non-targeted households, supports and avoids undermining suppliers and market development) Maintains accountability and decision making at lowest level (ensures targeting, implementation and monitoring occur at lowest possible level). The essential way that a voucher system works is that: 1. Household applies for voucher; 2. Program staff check eligibility, then issue voucher; 3. Household takes voucher to supplier of latrine materials and acquires necessary materials (supplemented with their own funds if necessary); 4. Latrine is built; 5. Supplier takes voucher to program staff, who check latrine was built and then disburse funds to supplier. The voucher does not specify particular materials, only the amount. This allow households to choose their preferred design and doesn’t disrupt the market. A number of issues must be addressed at the program design phase. This includes who is to receive the subsidy. Should only households considered “poor” by government standards receive it? This can create conflict in the village.38 Hence the use of local involvement to decide recipients may be an option. Availability may also be driven by the total budget available for the subsidy. How much is to be spent on the subsidy, and how many households are to be targeted? This is turn affects the amount of subsidy for each household. A related issue is then whether this subsidy amount is sufficient, particularly given transport costs in some areas. Should more remote areas receive a higher subsidy to overcome transport costs? If so, this will require detailed study to estimate subsidy amounts, increasing total program costs. The steps to developing the subsidy program include: Deciding on budget, and subsidy amount
37. This Appendix draws heavily on this report. 38 One local government official noted that some households had been “cheated” in some way by a sanitation program.
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Agree on selection criteria (and design community level process to select eligible households if this is to be included) Decide on timing of roll-out (should be coordinated with demand-side activities). A pilot should be run first. So it will be necessary to choose pilot villages. Decide which agency is responsible for implementation. This includes from which department’s budget the subsidy will be paid. Design monitoring and evaluation tools and systems. In particular, oversight/governance processes are important to ensure funds reach the intended. Train staff in running the program, including handling of the disbursement of funds to suppliers. Produce materials to explain the voucher program to materials suppliers and concrete producers. They must have faith that they will get paid. Program design should also encourage the bulk ordering by households, to minimize transport costs. An issue to consider is whether vouchers will be redeemable at all suppliers or only certain, selected ones. The latter greatly increases program costs because eligible suppliers will have to be identified in advance. Households may need education on component costs (to ensure suppliers don’t inflate costs). However, provided there are a choice of suppliers, competition between them should ensure this is limited. Households quickly learn – and tell others – which are the best suppliers. Even in areas with only one supplier, since the subsidy is not for a complete latrine but for a specified amount, there is still an incentive for the buyer to ensure they are getting a good price (since they will have to cover the remaining cost of the latrine). Another form of subsidy is output based subsidies. A problem with these is that households must pay for latrines up-front, excluding many poor. They can also be complex to administer (though voucher schemes are not exempt from this either). However, a voucher system can be linked to the achievement of outputs. For example, if the village reaches 60% ODF, then vouchers are provided to remaining households. However, those households that obtain latrines first don’t get the subsidy — there is no extra incentive for them (why build just so poor neighbours can get a subsidy?). Some additional community-wide reward for achieving ODF might be required (increasing costs further). It also means the poor have to wait to get latrines, and might also reduce options for bulk orders. In any event, some of the poorest villages are unlikely to meet such a target, so if they are part of the target population, the voucher system for them would have to be applied without an output target.
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