Farmer Organizations:

Opportunities, Constraints and Pathways for Development

Report for the Sub Working Group on Farmers and Agribusiness (SWGAB)

By Adam Folkard Bountheing Virvong John G Connell Viengxai Photakhoun

November, 2011

Imprint

Title: Farmers Organisations: Opportunities, Challenges and Pathways for Development Year: 2011 Authors: Adam Folkard, Bountheing Virvong, John G Connell & Viengxai Photakhoun

Disclaimer The views, opinions and interpretations expressed in this report are those of the authors at the time of research and writing. They should not be interpreted as representing official or unofficial views or positions of the Swiss Agency for Development and Cooperation and its officers and representatives, or any other government or non-government organizations.

Report jointly produced by: Laos Extension for Agriculture Project (LEAP) and Small-scale Agro-enterprise Development in the Uplands of the Lao PDR (SADU)

For Sub Working Group on Farmers and Agribusiness (SWGAB)

National Agriculture and Forestry Extension Services (NAFES) Laos Extension for Agriculture Project (LEAP) P.O. Box 9159 Vientiane Lao People’s Democratic Republic Tel: +856 21 740 253 email: [email protected] www.helvetas-laos.org www.laoex.org

This study was funded by Swiss Agency for Development and Cooperation (SDC)

Executive Summary

The role of Farmer Organisations (FOs) is emphasised in the new Agriculture Development Strategy (ADS) of Ministry of Agriculture and Forestry and GoL has recently promulgated decrees that provide a formal basis for farmer cooperatives and associations. This study was initiated by the Sub Working Group on Farmers and Agribusiness (SWGAB) with the objective to better understand existing typology of farmer organisations and possible trajectories for their role in developing the agriculture sector. The study focused on FOs currently in operation in Lao PDR, selecting cases to represent diverse products, broad geographical areas, and forms of organization. The study team visited nineteen sites in north, central and southern Laos, with FOs engaged in production and marketing of field crops, livestock, NTFPs, horticulture and handicrafts. FO are characterised according to their ‘functions’ and the ‘added value’ that these functions generated rather than focusing on ‘structure’ that can disguise a lack of activity of groups. This led to the following classification: A. Informal farmer production groups Farmer Production Groups for receiving (FPG/R) Farmer Production Groups for trading (FPG/T) B. Formal farmer organisations Farmer Cooperatives (FC) Farmer Associations (FA) C. Value chain / private sector driven groups Farmer Group Enterprise (FGE) Constructive Contract Farming (C-CF) Farmer organisations did provide direct benefits to their members: access to resources resulting in increased production; higher prices through collective trading; and access to services and thus improved value-added being captured by farmers. The cases also showed that FOs can play an important role in rationalising agriculture production in Lao PDR; increasing smallholder productivity, achieving consistent, marketable quantities and qualities, and enabling constructive engagement between producers and (private-sector) buyers. But benefits were by no means general, and the opportunity for the various types of FO to contribute to farmers’ livelihoods and agriculture development at this point variedy. The FO’s long favoured by projects (FPG/R) generally did not persist once projects ended. Where they did continue with their production function (e.g. WUGs), they showed no indication to expand membership or evolve. FO's which were linked to markets were dynamic. The Farmer Production Group/Trading enabled farmers to bulk their product and to trade collectively, resulting in significant price increases (10-30%). This was gained not from stronger bargaining power, but due to the added value the bulking function provided to traders. Such FOs tended to seek additional members and encourage members to use improved practices, to increase both volume and improve quality. Thus they contribute to an improved sector. Such groups can be formed relatively easily without formal procedures and without much investment by the farmers. As such they represent an opportunity that could be supported in many areas. The FPG/Trading could provide a useful stepping stone towards development of Farmer Cooperatives and Associations. However, this transition should not be seen as an automatic - nor even a universally desirable one. These higher level FOs do allow farmers to capture greater benefits, but they require farmers to invest in equipment and market their product themselves. Thus they are exposed to quite some risk. However, there are some doubts whether they have the robustness and flexibility to survive the rough and tumble of the market place. These FOs do have a particular role to enable registration for Fair Trade and Organic certification to its member farmers to access value markets. However procedures to establish new farmer cooperatives and associations are not easy and time consuming. It is

ii also difficult to see that these will become widespread in the near future, except where committed assistance from an external organisation is available. The value-chain and private-sector-driven groups provide worthwhile alternatives to farmers' cooperatives and associations. These provide services, inputs at reasonable rates and markets access to the farmers. They can be mobilised quickly and are flexible without farmers having to invest funds or be exposed to market fluctuations. These have resulted in significant production increases, particularly in the rice sector. There were indications that as the groups initially formed by the private sector, became confident in their commercial levels of production, they begin to consider moving towards forming cooperatives or associations. Thus these ‘private sector driven groups’ may well be an indirect path towards emergence of farmer cooperative and associations. A numbers of confounding issues were also identified. All sites studied which had effective FOs, were areas with “open markets”. Market distortions (including concessions, monopsonies, exclusive trading rights and closed markets) severely limit FO to improve the market position of their members. Indeed, such market distortions hold back development of the agriculture sector overall, by supporting inefficient private sector operators. These are often entrenched and difficult to dislodge. Support for dynamic Farmers Associations could well be one of the strategy to expos and deal with market distortions at the local level. FO plays important roles both in enabling smallholders and developing the agriculture sector. Many challenges exist to the realisation of this potential. The study recommends proceeding within those areas where greatest potential currently exists. Two steps are ready for action and a third requires active development.  Support for establishment of ‘FPG for trading’. These have a wide applicability and are within existing capacity of many project and extension staff to facilitate. They require limited funds mainly to mobilise staff. They generate valuable experience for their members, and may be a stepping stone towards more formal structured FOs later.  Support for value-chain, private-sector-driven initiatives. Linkages between farmers and the private may need to be facilitated. As they become established the FOs can be strengthen to be independent of the private sector, and networked into Farmer Associations to provide a framework for farmers to dialogue with both the private sector and local authorities.  Continued exploration of the more complex FO types (especially farmer cooperatives) - support pilots when adequate facilitation is available, and then exchange to allow improved understanding of the processes needed for establishment of such FOs. Aside from activities aimed specifically at FO development, efforts need to be made to ensure the conditions that favour market distortions are eliminated. Persistence of such distortions will confound any attempt to develop FO in those areas, but is also necessary as a step towards development of mature and efficient agriculture and trading sectors.

iii Contents

EXECUTIVE SUMMARY ...... II CONTENTS ...... IV ABBREVIATIONS ...... V 1. BACKGROUND ...... 1 2. STUDY METHODOLOGY ...... 2 3. FARMER ORGANIZATIONS – TYPES, FUNCTIONS, AND BENEFITS ...... 5

3.1 INFORMAL FARMER PRODUCTION GROUPS ...... 5 3.1.1 Farmer Production Groups – Receiving (FPG/R) ...... 5 3.2.2 Farmer Production Groups / Trading (FPG / T) ...... 7 3.1.3 Lessons for Informal Farmer Groups ...... 9 3.2 FARMER COOPERATIVES (FC) AND FARMER ASSOCIATIONS (FA) ...... 10 3.2.1 Farmer Cooperatives ...... 10 3.2.2 Farmer Associations ...... 11 3.2.3 Organization and development of FCs and FAs ...... 12 3.2.3 Lessons and observations ...... 13 3.3 VALUE CHAIN PRIVATE SECTOR DRIVEN FOS ...... 14 3.3.1 Farmers Group Enterprises (FGEs) ...... 14 3.3.3. Constructive Contract Farming Groups (C-CF) ...... 15 3.3.2 Trader-forged market links / Bamboo Handicraft, Huaphanh ...... 16 3.3.4 Lessons Learnt ...... 16 4. SUPPORT AND ENABLING FACTORS ...... 19

4.1 SUPPORT FOR FO DEVELOPMENT ...... 19 4.1.1 Informal Farmer Production Groups ...... 19 4.1.2 Farmer Cooperatives and Farmer Associations ...... 20 4.1.3 Value chain, private-sector-driven FOs ...... 21 4.2 ENABLING FACTORS ...... 22 5. CONTEXT ...... 24

5.1 MARKET DISTORTIONS ...... 24 5.1.1 Concessions and monopsonies ...... 24 5.1.2 Closed markets ...... 25 5.1.3 Competing production ...... 25 5.1.4 Opportunities for improvement ...... 26 6. PATHWAYS FOR DEVELOPMENT OF FOS IN LAO PDR ...... 27

6.1 STARTING POINTS AND SUPPORTING TRANSITIONS ...... 27 6.2 MOBILIZING OPPORTUNITIES FOR FO IN THE IMMEDIATE FUTURE ...... 32 7. ANNEXES ...... 35

7.1 SITES VISITED FOR THE STUDY ...... 36 7.2 CASES ...... 39 Case No. 1. Collective cattle trading, Nonghet ...... 39 Case No. 2 “Green” vegetables production group, Khoun ...... 42 Case No. 3. Pig producer group, Nongbok ...... 46 Case No. 4. NTFP marketing group, Namor ...... 48 Case No.5. Coffee producer cooperatives and association ...... 52 Case No. 6. Bamboo handicraft, Viengxai, Houaphanh ...... 57 Case No. 7. Water user groups, agreements and rice millers, Nongbok ...... 61 Case No. 8. Farmers group enterprise, Bokeo ...... 65 7.3 CONCEPT NOTE ...... 69 7.4 SCHEDULE OF STUDY...... 71

iv Abbreviations

ADS Agriculture Development Strategy / MAF AGPC Coffee Producer Groups Association (of the Bolovens Plateau) CBO Community Based Organisation C-CF Constructive – Contract Farming CIAT International Centre for Tropical Agriculture DAFO District Agriculture and Forestry Office DoIC Department of Industry and Commerce FA Farmer Association FC Farmer Cooperative FEX Foreign Exchange Rates FGE Farmer Group Enterprise FO Farmer organisation FPG Farmer Production Groups FPG / R Farmer Production Groups for receiving FPG / T Farmer Production Groups for trading Ha Hectare Hd Head (of livestock e.g. cattle, buffalo) HH Households Kg Kilogram Kip Kip, Currency of Lao PDR LEA Lao Extension Approach LEAP Laos Extension for Agriculture Project MAF Ministry of Agriculture and Forestry MAFOP Market access for farmers organisations project MoIC Ministry of Industry and Commerce Mt Metric tonnes NAFES National Agriculture and Forestry Extension Services NAFRI National Agriculture and Forestry Research Institute NGO Non Government Organisation NTFP Non Timber Forest Products NUOL National University of Laos PAFO Provincial Agriculture and Forestry Office PM Prime Minister SADU Small-scale Agro-enterprise Development for the Uplands (project) SEA South East Asian SWGAB Sub-working Group on Farmers and Agribusiness THB Thai Baht (currency of Thailand) VECO Vredeseilanden (a Belgian NGO) WUG Water User Groups

v 1. Background

The MAF Agriculture Development Strategy 2011-2020 (ADS)1 states that the new strategic direction of MAF is to ensure a gradual transition from subsistence to commercial smallholder production. This is to be achieved through; (a) innovative technologies, and (b) creation of voluntary farmers organizations (FO). The ADS goes on to elaborate that these FO can have various forms including ‘formally legalized producer groups’, ‘cooperative groups or cooperatives’, and ‘commodity associations’. The legal basis for farmer organizations (groups, cooperatives, and associations) was lacking in Lao PDR, but has recently been put into place with two Prime Ministerial decrees (Nos. 115 and 136). The functions of these in relation to farmers can be briefly described as follows:  PM Decree No. 115 on Associations: Associations can act as an umbrella organisation for farmers or groups of cooperatives in two main areas; (a) to “carry out economic activities” and in particular to facilitate the export of agricultural commodities, and (b) “to protect the legitimate rights of its members”. In the case of farmers this could provide a mechanism for legitimate dialogue between state, private sector actors and farmers on constraints for agricultural development in general and to farmers gaining equitable benefits in particular.

 PM Decree No. 136 on Cooperatives: This provides a framework for farmers to pool resources to purchase various assets, which can then be used to provide services or trade for profit, with the profits being returned to members. Facilitation of FOs is expected to be a key function for NAFES under a new mandate currently under consideration. Formation of ‘farmer groups’ to receive information and training has long been a common extension intervention. However the ADS now envisages a wider, more proactive role for FOs, including provision of services, making connections with markets (trading), providing inputs and more interaction with the private sector. Thus the expectations for FO to contribute to agricultural development are now quite high. In support of these policies and mandates, the Government–Donor Sub Working Group on Farmers and Agribusiness (SWGAB) has organised studies on pertinent issues related to smallholder development. This study aims to increase understanding regarding the functions and benefits FOs can realistically be expected to provide to smallholders, exploring the following specific issues: member ownership, accessibility to FOs to different groups within communities (inclusiveness), and the enabling factors and support needed to facilitate evolution and/or development of autonomous, self-governed FOs. The observations from this study are intended to be more than of academic interest but to inform drafting of guidelines and form the basis for designing increased support by development partners. The concept note for the study is given in Annex 3. Many FOs are operational around Laos—an analysis of their viability and the benefits they produce can provide valuable lessons. The study, hence, undertook case-by-case analysis of functioning FOs to generate information and perspective to inform continued dialog and action.

1 MAF Strategy for Agriculture Development, final draft, 15th Sept. 2010 2. Study methodology

The researchers employed an ‘appreciative inquiry’ approach to capture what has worked within functioning FOs rather than to explore reasons for failed FOs. Promising FOs were identified through a short questionnaire submitted to PAFO in all Provinces and selected development organisations. The response to this was limited and additional selections were made with sites known to have functioning FOs. Despite this positive orientation, some non- functional FOs were encountered and lessons from these failures have been incorporated in the report. Sites were selected by leaders and agents within MAF and partners, and the resulting study list is not necessarily exhaustive of all good examples of farmer organizations in Laos. The researchers did not include known examples supported by the LWU, micro finance initiatives and other efforts. Field studies were made in 19 sites dispersed across Northern, Central and Southern Lao PDR. The schedule of the study and detail information on sites visited is given in Annex 2 and Annex 3. The sites included FO with activities on livestock, crop, horticulture and NTFP. Groups were also selected to illustrate different modalities, structures and special aspects (e.g. natural resource management). The study was conducted by a team comprising staff from NAFRI2, NAFES3 and two consultants with substantial rural development work experience in Lao PDR4. The study team met with officials in key agencies, donors, and NGOs for background information and further guidance. In reference to the concept note and TOR, the team formulated three broad questions  What are the group functions and benefits?  How the groups are structured (including who is able to join) and what factors give the FO an internal motivation?  What supports were needed to establish these groups and what were the enabling factors and context? Interviews were held with field staff who had been involved in establishing and supporting each group followed by meetings with group members in the villages. Each meeting was of about 2 hours followed by an informal transect-walk in the village. To validate findings, synthesize lessons learned and confirm observations, the team organized a ‘wrap-up’ session in each Province with participation from relevant line agencies and organizations. As join ‘owners’ of the research findings, key representatives from these provincial teams presented select cases in a Vientiane workshop organized by NAFES, with participation from various ministries, the development community, and several farmer organizations from around the country. The preliminary findings of the study were presented in a meeting of SWGAB and suggestions from the members were incorporated into the report. The report presents the background and methodology of the study in the first two sections. The functions of FOs, and the benefits and added value gained by participating farmers are covered in section three; each ‘typology’ of FO is described followed by a brief comments and lessons learnt. Section four discusses the support and enabling factors important to allow the formation of FOs. Section five analyses how market distortions effect and may be affected by FOs as well as the inclusiveness or accessibility of various FOs to different sub- populations of farmers. Trajectories for development of FO indicating potential role for each type of FO depending on its context and how this can be applied in a suitable manner is presented in section six. Eight specific case studies are presented in the annexes. The

2 Mr. Bounthieng Viravong 3 Mr. Viengxai Photakhun 4 Mr. John Connell and Mr. Adam Folkard

2 information, analysis, and conclusions within the main body of the report come primarily from these eight case studies but impressions and analysis informed by all 19 sites visited is informs the lessons and conclusions. There were inherent limitations in the study. This method did not obtain views from rank-and- file members or non-members in a community. So any potential dissenting voices may have missed. Inclusiveness and access to benefits of FOs by specific socio-economic groups (e.g. women, poorer households and ethnic minority groups) was not directly assessed. While the study does not serve as a rigorous evaluation of the impact of FOs, nonetheless carefully facilitated discussion and dialog exploring various aspects of groups revealed functions, benefits and weaknesses. Together, these created a solid foundation of understanding of the typologies of farmer organizations in Laos.

3 Map of Lao PDR and location of cases selected for the study

4 3. Farmer Organizations – types, functions, and benefits

Among organizations active in supporting development in Laos, farmer organisations are mostly described in terms of structure and regulations. Structure and regulations of the FOs are important, but they should be seen only as a way to organise a group to carry out necessary functions. The team focused on functions of each FO as a basis for classification. To a larger degree these fit well with the terms used in the ADS, but with some variation. The functional classes and the cases illustrating each are shown in the Table below. It can be noted that several cases might exhibit more than one specific function. Table No. 1. Typologies of FO and illustrative cases Typologies of FO Acronym Illustrative Case Informal farmer production groups CASE 3 - Pig production group / Nongbok Receiving FPG/R CASE 7 - WUGs, seed producers and millers CASE 1 - Collective cattle trading / Nong Het Trading FPG/T CASE 2 - Green vegetables / Khoun CASE 6 - Bamboo handicrafts / Viengxai Formal farmer organisations CASE 4 - NTFP trading / Namo Farmer Cooperatives FC CASE 5 - Coffee co-ops and association Farmer Associations FA CASE 5 - Coffee co-ops and association

Value-chain private-sector driven groups

Farmer Group Enterprises FGE CASE 8 - Maize / Bokeo CASE 6 - Bamboo handicrafts / Viengxai Constructive Contract Farming C-CF CASE 7 - WUGs, seed producers and millers This following sub sections present the functions or ‘added-value’ and benefits members gain by participating in each type of FO. Schematic diagrams represent key functions of each type of FO.

3.1 Informal Farmer Production Groups

3.1.1 Farmer Production Groups – Receiving (FPG/R) Characterization Groups are formed mostly by outside agencies a vehicle to receive inputs (training, materials). The focus of the group is thus on management of these inputs and is production orientated.

There is little incentive to expand membership as this Inputs could dilute the input share for each existing member. Furthermore, since this type of FO is linked to a finite input, it will have little self-sustaining possibilities beyond the life of the outside project/agency supplying those No common property inputs. No registration

5

Functions Several groups no longer existed when the team attempted to make an appointment. This was despite the fact that they had been nominated by local staff as exemplary. These had been formed by projects but had ceased to operate after the projects ended.5 Most of the groups had the outward appearance of an effective group (e.g. committees, regulations, meetings Pig production group / Nong Bok (Case 3) etc.) but in fact had no joint activity As the SEA Games approached soft loans were where the group received any added allocated to stimulate pig production. In Nong Bok value other than to capture inputs district 228 HHs secured loans totaling 15B Kip. But when the games began, sales failed to eventuate from projects, banks, government etc. and farmers defaulted on their loans. Such inputs would include training, study trips, inputs, material assets etc. A project in the area attempted to build on the This is well illustrated by the pig remaining pig farmers, and a ‘pig group’ of 48 HHs was formed. The project provided substantial inputs production group in Nongbok (Case of; training; study trips (China, Vietnam, Thailand, 3). In this case considerable inputs Malaysia); and material inputs, including a small were provided to the members. meeting house (34 M Kip). Together these resulted Training in improved pig raising in a 70% increase in productivity. practices resulted in a productivity The ‘pig group’ has all the outward appearances of a increase of 70%, a significant group; a committee; regular meetings. However achievement. However all production these have no function that provides any added and trading remained individual value. All members produce and trade as member activities. Given the lack of individuals. Meanwhile the group continues to seek internal group functions this group more inputs as new loans from the bank. might become dysfunctional once project inputs end. Water User Groups (WUGs) are established along with construction of irrigation system to manage distribution of water and maintenance of the system. With their existing structure and experience of collective action, they have been expected to provide a framework to develop wider functions. Where WUGs do function they can provide substantial benefits to their members. The Naa Wangthong WUG (Case 7), manages irrigation delivery effectively and has used 50 M kip collected as water-use fees to expand irrigation canal and outreach. This performance however was only achieved after the original WUG was ‘revitalized’6. The group also has a sub-group for rice seed production. While this is a good instance of diversifying functions, it appeared that the selected members tend to contain this activity within the sub-group rather than expanding opportunities more broadly. In all WUGs visited, there was no evidence that WUGs would evolve to fill other functions and/or collective action. These groups collect and manage substantial funds. While the groups may wish to hold these funds for future repairs and upgrades a portion could be mobilised to purchase inputs in bulk or other collective actions. Yet even this simple innovation was not evident. While FPG/R have important production functions, they operate mainly to capture various supply-driven benefits which can result in distortions. In both the above cases the groups received capitol assets: the ‘pig’ group received 34 M Kip for construction of a ‘meeting house’ and the seed group received processing equipment worth 70 M Kip. These were provided as grants to be ‘common property’, but have remained contained within the group

5 These sites were not recorded with the 19 study sites in Annex 7.3 6 Caution is needs in expectations for WUGs. Many have been formed as part of irrigation development projects which focused on construction, and where support for WUGs formation was given second place. Thus they can often be under performing even for their original function.

6 or sub-group. This is not to suggest that the groups here deliberately hoard the assets, however the groups showed no interest in efficiently utilising and expanding their group membership to additional farmers that would extend the benefits more widely.

3.2.2 Farmer Production Groups / Trading (FPG / T) Characterisation Members formed these groups to respond better to market demand, but with no or limited external inputs (some training). The need to bulk their product for collective trading inspires active FOs. They expand membership and build members capacity to achieve greater volume and consistent quality. Thus they Market tend to be problem solving and develop better linkages with (Traders) outsiders e.g. traders, local authorities etc.

Functions and Benefits A cluster of sites in the north were found to have groups whose key focus was not production but Bulk product marketing of their products. This had led to a dynamic to sell internal organization and stimulated improved production. Groups in two sites illustrated this well: cattle fattening in Nong Het (Case 1) and ‘green vegetables’ in Khoun (Case 2). Market orientation was No common property also present in other groups with higher levels of No registration management, which are discussed in following sections. Notably, support for these groups came from organizations that have had a clear market orientation themselves7. In both the examples, staff working with development projects assisted formation and development of the groups filling several vital services: (a) facilitating identification key issues to be addressed (b) proposing group formation as a means to address issues (c) providing advice on group structure and roles and (d) back-up and mentoring once the groups had been established. Staff have attended group meetings, but not on a regular basis. Farmers in these groups had already developed their production base to a reasonable degree (i.e. higher than average yields) and so did not urgently need production assistance or training as is the focus with many FPG/R. Farmers, already producing efficiently, were in a position to respond to market demand. Thus ‘production’ and ‘capturing inputs’ were not the initial focus for farmers in these groups. Rather the issues they faced were market related: undependable traders, low prices, price discrimination within the same or nearby villages. The key objective the groups aimed to fill was to establish ‘collective trading’ of their products, with a single price being negotiated for the whole group. The main ‘functions’ of the groups were thus to (a) assemble product (or bulking) for easy pick-up by traders and (b) negotiate a common price. As a result of this the groups were able to achieve a minimum 10% increase in prices with some realizing 30% increases. As traders recognized these groups as reliable sources of output, during periods of oversupply traders tend to make them their first stop. As a result they are able to sell their product even in the peak production season, though at a reduced price. The bulking of the products by farmers provides significant savings for traders. Whereas they would previously need to visit many villages, and then have to negotiate prices at each producer, the producer groups now provide the product for them in a time and cost efficient manner. Described from a value chain perspective, the task of assembling the product has

7 These included SADU / CIAT ; Bamboo Initiative /SNV; EMRIP /SNV/Helvetas; Bitter bamboo shoots / IUCN

7 been shifted back along the value chain from traders to producers. Or on other words, this assembly function is a form of ‘value-added’, that farmers now capture themselves. When it comes to negotiating prices, it is easy to attribute the price increases gained to increased ‘bargaining power’ of the group. Price negotiation is generally carried out by group leaders on behalf of the members, and this does provide an advantage for those HHs who were weaker in this. But ultimately the improved prices gained are due to the efficiencies that bulking the product provides to the traders. Without this or some other efficiency, the opportunity for farmer groups to negotiate improved prices would be doubtful. The benefits these groups produced for members goes beyond good prices. Communication between the parties has also improved. Whereas traders might previously have used ‘poor quality' as an argument to beat prices down, farmers now seek trader comments on this to ensure their produce is sought after. In the case of the ‘green vegetables’, farmers consult with the traders on their requirements (types required and volume); preferred quality of vegetables; new types of vegetables consumers are buying and so on. As a result of this the group has begun to extend the range of vegetables they plant.

Group development and Cattle trading group / Nonghet (Case 1) organisation A group of 10 HHs in Phaluang village was established Each of these groups had relatively to fatten cattle using forages. The group met on a simple organizational structure monthly basis to monitor progress. When they had similar to many VBO’s with an enough cattle to make up a ‘batch’, farmers met and elected committee, a leader, two discussed the price they expected. One farmer deputies, and members. The bargained on their behalf, gaining at least a 10% groups had no common assets; increase in price. Other social benefits were judged as collect no fees8, and so had no important. need to register formally. At their Traders were ready to pay a premium price as this current level of activities–mainly saved them time searching to make up a load for internal organization and dealing export to Vietnam. with traders—registration has not ‘Green vegetables’ / Khoun (Case 2) been an issue. Both groups were Farmers in Ban Hoy had a long history of growing formed in 2010 and have not had vegetables using manure as fertilizer and no elections or changed committee pesticides. To gain higher and consistent prices they members. decided to sell collectively. Ensuring coherence and Farmers organized in units (10 HHs) assembling organization for collective trading vegetables on order. Unit heads received 2000 kip per basket for this function. Overall farmers gained price within the groups has been key. increases of 10-13%. Farmers have begun to use Thes is achieved somewhat traders to obtain market information to guide then in differently in these two groups due planning their planting strategies. to their different scales of operation:

Low volume trading: In Phaluang cattle trading was limited; the group had only sold 20 cattle in 4-5 batches. Group coherence was maintained through (a) specific planning at the beginning of the season, and (b) regular meetings (once every 1-2 months). Preparation for an actual sales event was done in advance and potential buyers were engaged only after trust between members had been established. High volume trading: Ban Hoy in Khoun traded vegetable on a daily basis in large volumes (5 trucks/day). Organization activities took place daily, with a unit Head distributing trader orders amongst members in the unit. With such a high level of daily activity group solidarity was achieved without group meetings.

8 The green vegetable group use packing bags marked with a logo of the group, but funds for this are collected as needed, not as a regular fee.

8 Both these groups were concerned to maintain their market position. They were concerned that sub-quality products could drag down prices for a batch damaging all members. Thus members tend to take an interest in fellow member’s performance, and share technical information on how to improve the quality of products. Achieving greater volume to trade is also important as this would give the group a stronger trading position in the market. The cattle group had increased from 10 to 20 members in 2011. Similar attempts to increase members was also evident in other market-oriented groups (organic vegetables/ Paek, bamboo handicraft / Viengxai, etc.).

3.1.3 Lessons for Informal Farmer Groups

 Functions - FPG / Receiving 1. The FPG / Receiving were initiated to receive inputs. This common type of FO, repeatedly supported by many projects and extension services, have a worthwhile function particularly when the sought outcome is ‘learning’. However these functions may be transient and we should not expect that the groups will persist beyond the input supply, and much less, that they will transform themselves into more dynamic FOs taking up new challenges and opportunities for their members. 2. When substantial material inputs are provided, it is common for members to capture these. This may encourage the group to contract rather than look for new members for wider sharing of impact. Better mechanisms for providing inputs should be explored to share benefits more broadly among community members and to engender increased ownership from the members. 3. Many of the FPG/R could be revitalized to become more dynamic by re-orientating them towards markets or other potential collective action by reviewing the management of material inputs where they have been substantial. Such reorientation would require revising the vision of the group on what they want to achieve jointly e.g. expanding membership, sharing of best practices, responding to market opportunities or dismissing the group etc.

 Functions - FPG / Trading 4. Initial objectives of these groups influenced their subsequent dynamics. The FPG/T aimed to improve trading through ‘collective selling’. The most important function the group performed to achieve this was assembling (bulking) the product, with price negotiations close behind in importance. 5. This assembly of products was effective in gaining price increases of 10% - 30%. This was due not so much to improved ‘bargaining power’ of the group, but to the savings this provided traders. Essentially, the FO is capturing some of the service value-added prices for its members. Without this saving or some other efficiency to offer, we should not expect groups to be able to negotiate improved prices.

 Production impacts 6. The groups also provide a positive stimulation on production that should result in increased volumes, higher productivity, and better quality products, all of which are important to market-oriented production and an expanding market economy: . Groups are interested to expand the number of members to increase the volume of the product they supply to consolidate their position as key suppliers. . Members encourage each other to improve their productivity both to increase volume and to provide better quality to ensure the batches they sell have consistent quality. . Groups could also be expected to be actively seeking improved technologies to further improve their production and would likely be very receptive to production-improvement- oriented extension services.

9  Structures 7. The organizational structures to perform the functions are simple, and their establishment does not require (a) funds for external inputs or (b) preparation of sophisticated business plans or application for registration as enterprises 8. While the organizational structures for these groups were simple, their internal organization (as in the case for green vegetables) can be quite complex and could not be designed by outsiders. Staff must take care not to over-facilitate, but to leave such internal arrangements to the groups themselves.

 Context and opportunity for development 9. Pre-conditions for development to take place:  Communities have already improved their production and so are able to orient towards and respond to market demand, providing their product in volume.  Products where assembly of the product will provide trading efficiencies and thus opportunities for price gains through collective selling will most likely be with higher value products (vegetables, livestock, bamboo handicrafts, etc.). It should be noted, that there are many opportunities to work with existing ‘production groups’, including WUGs, and it may be possible to facilitate expanding their objectives and functions to include collective action. This could then stimulate them to seek additional members and to internally encourage improved productivity.

3.2 Farmer Cooperatives (FC) and Farmer Associations (FA) The study team didn’t encounter many cases of formally registered FO. This is due partly to the recent promulgation of the relevant decrees, but may also be due to the social readiness of farmers to formally organize for collective activities. The association studied filled functions to facilitate production and marketing, with no activities related to social protection of member rights.

3.2.1 Farmer Cooperatives

Characteristics Market Group collects products from its members and trades on their behalf. Fees are collected for this and other services (e.g. post-harvest processing) provided. The group buys product from its members and sells in the upstream market with an agreed margin. The Bulk margin is invested in providing services e.g. post- products harvest, certification, social (such as schools). The management of common assets (equipment and funds), and handling of large volumes of product require formal structures and procedures of cooperatives and associations. Common assets Services to members Two cases were studied:  NTFP trading group in Ban Nampheng, Namo district (Case 4). Trading bitter bamboo shoots and cardamom, this group formed well before the PM decree 136 was promulgated but has all the characteristics of a cooperative; registered with an agreement from PAFO and the district governor.  Village coffee producer cooperatives and coffee producer association in the Bolovens (Case 5), association registered with a special directive from MAF.

10 Functions and Benefits Both these groups had been through a process of development over many NTFP marketing / Namo (Case 4) years and objectives changed along the Collection of NTFPs is a common seasonal income way. But their original issues centred for poor upland farmers. Nampheng village, around the sale of their product: how to Namo decided to sell the NTFPs they collect; resolve uncertainty in trading, gain ‘bitter bamboo shoots’, cardamom and red higher price and reinvest the income for mushrooms, collectively and so formed an “NTFP Marketing Group”. the members. The co-operative-like group ‘batches’ the bitter Their key function was ‘collective trading’ bamboo shoots for sale, obtaining 4,500 k/kg as was case for the producer groups this yr., nearly 30% higher than individual HH described earlier. They can be sales. For this service the group collects a fee of differentiated from the producer groups 300 k/kg. Fees collected go into a village by their; (a) direct handling of product for development fund, and part of this has been trade on behalf of members; and (b) used to re-invest in their NTFP trade, including building a warehouse, building school and management of common assets. These provision of electricity by operating generator. FOs collected products (NTFPs and coffee) from farmers without immediate To protect their wild bamboo resource, the group established regulations for harvesting the shoots. payment. They then traded these on, They have now applied similar regulations to ‘red with the payments to farmers being mushroom’ collection. dispersed after onward selling, and after the cooperatives extracted a fee services. These groups had additional supporting functions. In the case of NTFP group, they had developed highly effective natural resource management strategies to ensure members didn’t deplete key resources. The coffee group was providing post-harvest services in addition to marketing services. Through the fees collected, the cooperatives had established well-endowed village development funds available to members for personal credit to help relieve some of the pressures farmers face to sell early at low prices. But the bulk of these funds had been used for community projects, and to re-invest in the enterprises. These investments were substantial: a warehouse for collecting NTFPs until sold, social service infrastructure such as schools, purchase and operation of an electric generator, and wet processing facilities for coffee. These investments provided capacity for value-added activities and benefits to members as well as enabling the cooperatives to act more flexibly Premium market in the market place. Such re-investment is perhaps (Fair Trade, one of the hallmarks of a mature cooperative. Board / farmers Organic)

3.2.2 Farmer Associations Professional Management Characteristics The association studied assembled product from member cooperatives / groups, processed documentation and exported product. Member services included certification such as organic and fair trade. Due to the requirement of these specialised functions (logistics, documentation, marketing) a professional administration unit was employed. This worked under the direction of a board elected from the producer cooperatives.

The Boleven Plateau Coffee Producers Association Common assets (AGPC) developed out of earlier producer groups that Services to members over the last decade were supported to improve their production (improved varieties and processing). The association was formed in 2007 was

11 planned to continue go through a phase-out of external support to reach independent operation by 2015.

Function and benefits In the case of the coffee cooperatives and association, functions were spread between the village-level producer cooperatives, and the umbrella association, AGPC. The village cooperatives had facilities for wet milling and drying to produce parchment coffee. This was transferred to the AGPC for marketing and export. The AGPC had agricultural staff who provided members with technical advice to improve production. The AGPC processed all documentation necessary for export of coffee from Laos to its international buyers. It had succeeded in obtaining certification for ‘Fair Trade’ and ‘Organic’ products, giving it access to these protected markets and their premium prices. Fair Trade markets pay an additional $0.44/kg and organic markets add another $0.22/kg on green coffee beans. These are substantial premiums when the farm-gate price for parchment coffee is < 5000 kip/kg (around $0.60). The AGPC was able to operate within the international market place and was in the process of identifying additional new markets. The association was further distinguished from the cooperatives by employing professional staff for the management and marketing of the coffee. The coffee producers association, AGPC, faced many challenges. Payments from Fair Trade and Organic sales were received in instalments throughout the year, creating cash- flow difficulties for farmers. The revolving fund was critical to help fill-in the gaps between payments. An unresolved question was whether the association could compete in the ‘rough and tough’ of the global market place. The Fair Trade and Organic trade provide higher prices and to some degree are captive markets for the association (this is a special case for coffee and will not apply to other associations). However, farmer members could still be tempted by offers of higher prices and immediate payments from competing buyers. While perhaps only temporary departures, decreased loyalty of members to the association would reduce the association’s ability to fulfil contracts. This is just one example of the business challenges it will face. An association may always be disadvantaged due to its need to operate transparently, delays inherent in participatory decision-making, and limits on capitalization. The AGPC was still being mentored by a donor-funded project. Although the support was fairly indirect, the association had not yet been fully tested.

3.2.3 Organization and development of FCs and FAs Given the large volume of materials and funds these groups handled, their organization exhibited additional features over the producer groups. These included more robust organizational structures, with additional ‘units’ for specific functions put into in place. Specifically because they handled product and cash on behalf of farmers, clear administrative units and procedures were needed ‘to prevent mistakes’ and of course discourage any tax-evasion. Along with effective accounting procedures the groups used other measures to provide transparency so that members stayed informed and there were no reason to raise suspicious about mismanagement. These included (a) public boards to announced prices and sales; (b) monthly meetings where accounts were reported and; (c) elections for committee which had changed over the year, indicating they were not entrenched positions. In the case of AGPC this included the election of the board that oversaw the professional administration unit. The above factors apply to both FCs and FAs. The association studied, AGPC had another level of organization. By accumulating product from the member cooperatives the AGPC began to deal with very large volumes with associated high values. In addition to this, the product was destined for export markets demanding detailed documentation, identifying markets etc. An important part of the market identification function was to process the

12 registration for Fair Trade and Organic certification. To deal with the logistics and accounting requirements for this, a professional administration unit is necessary. While this unit provided this high function, it sat under the direction of a farmers' board, elected form the member cooperatives. These levels required both time to prove themselves and for the farmers in the member cooperatives to understand their significance. As a result AGCP was in the middle of a 10 year, externally-supported development process that was still not completed.

Gender inclusiveness in FO Although the study didn’t specifically assess gender inclusiveness in all the FO visited, it did assess this issue at least in some. The involvement of women was noted in several groups; pig raising in Nong Bok (nearly 50%), coffee producers where it was noted women make better negotiations. The pig producer group in Namor was all women. However women were not encountered as committee members except in the ‘green vegetable’ village (B. Hoy, Khoun) and the coffee group (B. Tan Tai, Khoun), both of which were facilitated by the one woman staff member. This suggests positive action could result an increase in women as committee members In the commercial oriented groups, participation of women was not only as members but also in the group management structure making decisions and leading the group. In Bokeo it was specifically stated by the facilitating agency that no attempt was made to influence inclusion of women in FGEs, as these had to be based on investment of funds and were self-selecting. Yet in the Phak Ngao FGE, members) there were a number of women investors. Head of the Rice Millers Association (Khammouane) as well as Famers Association for Sustainable Agriculture Promotion (Khoun) were woman and regarded as being effective in their role. A prominent role for women within FOs is thus by no means structured in at this point. This is one area where agencies that support the development of FOs could make pro-active specific efforts to encourage.

3.2.3 Lessons and observations

 Functions 1. FC and FA become appropriate FO structures when the group will collect and trade on behalf of members, and where common assets are to be used. Trading in bulk gives assess to bigger market and higher prices with stronger positions in the market place. The FC and FA structures provide more rigorous procedures and transparency that allow this type of service to function effectively with trust from members. 2. The fees collected for services or margin from trading can accumulate and be used for various purposes for its members. Importantly they enable the group to re-invest in equipment which enables them to handle larger volumes of product, or in the social sector that benefits the whole community. This further helps to gain member confidence in the organization. 3. Many projects have attempted to institute NRM but with limited success. Here the market links were formed first, giving the community a reason for instituting and enforcing sustainable harvesting regulations. This suggests that projects attempting to establish NRM should support ‘collective trading’ as a step towards gaining consensus in the community for NRM.

 Group establishment and organization 1. Farmers are hesitant to allow others to trade on their behalf and suspicious when ‘service fees’ are collected. Considerable external support is needed to explain the

13 operation of these mechanisms and the potential benefits throughout the first year, after which the benefits should begin to be observable. 2. To ensure smooth on-going operation of the FCs or FAs, mechanisms that provide ‘transparency’ and accountability of operations in an accessible and on-going manner must be established. Examples of these are ‘trading boards’; regular reading of accounts, changes in committee membership. These illustrate activities and prevent corrosive suspicions arising. 3. FC and FA, as they are formally registered, can directly and legally export product because they can process necessary documents. They can also act as a hub for a product certification system for members enabling them to achieve higher price premiums (e.g. organic, fair trade) which will be less accessible to commercial operations. 4. Development of independent FCs and FAs requires substantial and committed support during establishment, and then rigorous technical training in accounting and management skills during formative years. This level of support is outside the capacity of local authorities. As a result formation of sizeable FCs and FAs will require dedicated projects to support them for the foreseeable future. At the same time FCs and FAs on a more modest scale may be possible where local staff have previously worked with project-supported initiatives.

3.3 Value chain private sector driven FOs Private sectors actors prominent in a value chain can be driving forces for agriculture change and even lead to increased farmers’ incomes. Three sites were studied where this was the case. The functions of the organizations in each site were similar but varied in their emphasis in provision of inputs and links to markets. The FOs established in these cases were dependent on the private sector activity and in some cases had been formed by the private sector. This doesn’t sound encouraging for farmer ownership of their groups, but closer inspection reveals mitigating circumstances that improves the likely benefit to farmers from these entities. Both agriculture and commerce line ministries were active in establishing these new models.

3.3.1 Farmers Group Enterprises (FGEs) Characterization

Groups of better-off farmers establish commercial enterprises that then Farmers / investors provide services to other farmers. The farmer-owned enterprises improve provide services agriculture production by provision of services and creating dependable, local-demand.

Functions and benefits Farmer Group Enterprises are formed by better-off farmers who pool their resources (cash and equipment), forming a profit-seeking venture. They provide services that enable farmers to increase their production: ploughing and land preparation, supply of inputs, shelling or other post-harvest services, and marketing. The maize FGEs typically had less than 10 members or investors, which serviced a domain of 4 or more villages. These FGEs initiated informal producer groups at the village level to coordinate service delivery and product purchase. As a result more farmers cultivated a larger area of maize, obtained higher yields, and received better prices. At its peak in 2008, one cluster of villages saw eight-times the pre-FGE income from maize (Case 8).

14 External Constraints to FGEs Despite registration as enterprises the FGEs faced constraints to trade. The maize FGEs generally did not exercise their right to export directly to Thailand due to variable market and legal conditions in Thailand. Internal trade procedures also remained complex and time consuming. On top of this they faced the normal market challenges of dealing with rising costs and falling commodity prices. This led to falling maize production directly decreasing the income to the FGEs, with the result that the capital equipment has becoming under- utilized and idle in some cases. These challenges could see some of the FGEs fail. Committee members are now searching for ways to diversify to other commodities they can service and trade. Those FGEs that achieve this flexibility by identifying new commodities will in-effect have carried out a ‘market appraisal’ and so provide a further function of introducing a new production/income opportunity. The FGEs thus can be seen to be providing a privately-run ‘market information and development systems’.

3.3.3. Constructive Contract Farming Groups (C-CF)

Characterization End Market Traders (or investors) provide services (materials, training, market access) to secure a sustained supply to their business. In the process of this they recognize the importance of farmer viability to ensure a long-term supply, and may evolve towards recognition of a degree of partnership with farmers Trader that extends beyond the ‘+3’ inputs. FOs often facilitated this development. However, if they are to become genuine partners with the investors, they need time and support to mature and Inputs (+3) become more independent. An innovative project, EMRIP, focused on supporting millers as the entry point to improve the rice value chain (Case 7). The heart of this was the development of constructive relationships between millers and rice farmers, with the millers providing basic services:  Providing inputs of fresh improved seed and fertilizer to farmers on credit  Agreement for farmers to repay the credit as rice at a guaranteed minimum price, with potential to be increased if market prices are higher at harvest  Mobilizing technical advice (outsourced often to DAFO staff, key farmers, or mill staff) on how to use the inputs and improve productivity. The millers recognised the need for farmers to produce effectively (volume and quality) and thus structured their support to achieve this. They made no attempt to profit from input supply, preferring to see farmers use these to produce effectively. Their support often included soft loans related to production (repair to canals etc.). The overall relationship between millers and farmers was constructive. This resulted in benefits for both farmers and millers. Farmers reported significant increases in rice yields (30-50%), due to fresh improved seed and better practices. Millers secured increased supply to their mills and rice of a single variety (from the seed supplied). As a result they achieved a higher recovery (+9%), and had a product with higher value than previous mixed grades. FPGs were formed in the villages by the millers to respond to their needs: planning production and necessary inputs, disseminating improved practices, and assembling the

15 harvest for pickup. Again small payments were provided to the FPGs for bulking the rice for pick-up. As these FPGs are now maturing, there are indications they would evolve into more dynamic groups to set agendas that will serve their communities as well. In Khammouane, 17 millers formed a Rice Millers Group. These provided commercial benefits (access to large contracts, loans etc.). One of the conditions of membership was that new members would also form constructive relationships with their producer network, and foundation members were committed to actively advising them how to apply this in practice. Thus the miller groups have the potential to be drivers for improved production and with increased benefits for farmers.

3.3.2 Trader-forged market links / Bamboo Handicraft, Huaphanh Characterization End Market Commercial traders solicit large volume orders and allocate these among a network of FPGs. The FPG’s provide internal organization that enables farmers to respond efficiently to large orders and negotiate prices. Trader Function and benefits Group The promotion of artisanal use of bamboo in Huaphanh was led by the Department of Orders (not inputs) Industry and Commerce, along with Depts. of distributed Planning, Finance, and the PAFO, with support from SNV. This included forming ‘bamboo weaving groups’ in Sam Neua,and Viengxai districts (Case No. 6). These received training in new standardized designs, and in simple group organisation skills. To enable quick response to orders the groups prepared their raw material, the bamboo, so that it was ready to weave without delay. The group also ensured that members produced products consistent to the design and quality standards. Farmers now sell 3-5 times the volume of product they used sell to passing traders, and at prices that are 30% higher than they obtained for their traditional designs. Selected provincial traders were also supported to establish links with large handicraft markets in major tourist centers: Louang Prabang, Xieng Khouang, and Vientiane. It is these traders then, who obtained substantial orders for the bamboo products, which they passed onto the village bamboo weavers. The prime function of the traders then was distributing the orders amongst a network of bamboo weavers. Without these orders the weavers would not have been able to sell in volume or at higher prices for their quality products. At the same time the traders, without having access to the network of producer groups would have been unable to accept orders from the new markets.

3.3.4 Lessons Learnt 1. The private sector played an effective role where the constraints to farmers’ production were (a) lack of services, (b) lack of access to inputs, and (c) distant end markets. Mechanisms such as cooperatives and associations have the potential to perform functions similar to the private market, but may take longer to establish, and require committed support. Mobilizing the private sector, either through transforming farmers into FGEs, or by working with traders themselves, is likely to be quicker, require less funds and possibly be more sustainable. Thus in situations where the above constraints apply, enabling the private sector should be considered.

2. To balance the strengths of private sector actors and move towards a more mature and rationalized value-chain, the various private-sector-driven FPGs should be

16 strengthened. This should be within each village (as per bamboo handicraft model), and to go beyond this as cross-village Farmer Associations. They could then access inputs directly where needed, and have a stronger voice to negotiate contracts.

3. DoIC has played important roles in each of the cases where there private sector- driven models have been established. This suggests that the DoIC should become less of a ‘gatekeeper’ as it is in many other cases, and become more of an ‘enabler’ by (a) finding ways to streamline procedures and (b) actively supporting enterprise development. It is likely that the agriculture line ministry will continue to lead in assessing issues affecting farmers, but should then be proactive in working with DoIC to engage with private sector actors. Such cross-sector cooperation does not come naturally, and models for this must be developed.

4. The mechanism of share ownership provides an effective structure to (a) indicate ownership and thus allocate distribution of profits according to shares, and (b) allows members to increase their investment as the enterprise grows, through additional members or increasing the value of each share (i.e. members contributing additional funds). This should be seen as a mechanism that projects could use in place of simply grants, where ownership is diffuse and can be appropriated by influential groups within a community.

5. Mobilizing the private sector has huge potential but also poses potential risks for smallholders. If these models are to be used then other mechanisms should be applied to mitigate such risks:

 Monopsonies: these can play a valid role to allow new enterprises time to develop a value chain and farmers to become efficient producers. However open trading should remain the geenrl rule, so that any monopsonie should can be in place for only a short period (1-3 yrs, depending on the product)

 Collusion between traders: while there may be good intentions initially it will be easy for traders to succumb to the temptation to abuse their position. This can be moderated through by establishing farmer associations and market information systems (MIS) in parallel. This will improve transparency and ensure farmers have a voice.

6. Where farmers are encouraged to invest their own funds to become ‘service providers (e.g. FGEs in Bokeo) they need to be aware of the risks involved. Areas of concern include: over investment in equipment (which co-financing can actually exacerbate), and purchase of equipment useful to only a single commodity (rendered useless if trade in this commodity fails). Such risk scenarios should be discussed thoroughly as part of the facilitation processes.

7. Obtaining registration and a license to export are not guarantees to a successful enterprise. Export conditions can change and undermine exports. Internal procedures can cause delays and losses, and at the same time offer no protection from pirating competitors. There is no easy way to address these issues. Formation of associations may enable the voices of farmers and FGEs to be better heard, but a political willingness to provide a transparent and rational system of trade must also develop.

17

Are FOs benefitting the poor? The FPG/R should be serving the interest of poor and disadvantaged groups as passive recipient, but in most cases are less likely to benefit these broader groups, especially when inputs are captured by select groups in the community. However the FPG/T to a larger degree allows poorer HHs to participate: FPG/T try to increase their volumes for collective trading and so are keen for additional HHs to join. As long as poorer HHs can have access to inputs/technologies, they should be able to participate. Poorer HHs are probably weak in price negotiations. Thus they should benefit even more from increased prices gained through collective trading. However, there are chances that poor household may need immediate cash and cannot wait as long as other members to sell collectively. The ability of Farmer Cooperatives in regards to poorer HHs is not clear. While this structure captures the greatest level of benefits for its members, poorer HHs may be shut out of FC as they will be less able to provide capitol to invest in equipment. While FC guidelines require that membership is voluntary, this does not mean that all members of a community will be members of the FC. If poorer HHs are to be able to join, then share prices should be kept small enough to allow them to contribute. However this is not always applied. In the cases of the private sector interventions - FGEs and C-CFs - most HH will not participate as members of the group directly. However as the enterprises make services more accessible, including inputs on credit, poorer HHs may well be in a better position than they had been in the past. In general each form of FO has potential to enable poorer HHs participation in activities access to benefits. It should also be recognized, however, that it is difficult to accommodate the very poor with every broad organization structure. Rather, specific mechanisms could be used to allow the poorest HH access to the benefits and opportunities rather than attempt to adjust the broader structures.

18 4. Support and Enabling factors

4.1 Support for FO development

While it is possible for there to be cases of spontaneous development of traditional FOs (eg traditional irrigation management group, labor sharing groups etc), no evidence for this was found during the study. On the contrary the hoped-for dynamic action by farmers didn’t materialize9. Thus while FOs are still novel there does seem to be a very useful role for GoL staff to directly support and foster their development. The degree of support appropriate will vary according to the type of FO. In most cases staff from MAF will take the lead in this, but there is a strong case for staff of other line ministries to also play a role (see 4.1.5). As mentioned in an earlier section, extension and other field officers have tended to describe FO in their area in terms of structure and regulations. Thus it appears that when they replicate FOs in new communities, they continue to use structure and regulations – form - as the entry points. These structures may imporess but provide no ncentive for farmers and indeed may easily overwhelm farmers. A case that can illustrate this is the “NTFP Group” in Nampheng, Namo. The group realises compelling benefits for its members through collective trading of bitter bamboo shoots, a common product in the uplands. However formation of a cooperative for collective trading has not spread to other villages, despite having many visits to Nampheng to learn from them. The question here arises why the success of bamboo group isn’t replicated in other villages with similar conditions? Is it because everyone emphasizes on the committee, its structure and duties when they introduce the group? The group is impressive, but its formalized, complex structure, which recieved exceptional support for its establishment and then has continued to develop over time, may well put-off prospective villages who see it as being too difficult. Thus one of the key points is for staff members themselves to be aware of the functions of various types of FO, and the benefits these functions can bring. Once they have this orientation, a broad process can be mapped out for supporting new FO of various forms.

4.1.1 Informal Farmer Production Groups

FPG / R play worthwhile roles for the groups concerned, but are generally formed by outside agencies to deliver inputs. Thus this external support is implicit in their formation and once it ends so, too, does the group (other than for WUGs which produce on-going benefit for their members). This type of support is well-known and does not need much comment here, other than in relation to the provision of inputs. As noted earlier where material inputs are provided there can be a tendency for sub-groups to capture these. Consideration is needed to find ways to modify the common mechanisms for providing material inputs to ensure broader benefit10. The FPG / T can be expected to develop as more dynamic and sustainable groups. While they are more self-motivated (groups looking for ways to engage with markets), they still benefited greatly from support by DAFO staff:  Facilitating villagers to envision benefits of collective trading  Facilitating stakeholder meetings (farmers, traders, authorities)  Advising on options for structure and activities of to achieve objectives.

9 Such as (a) WUGs failing to use their accumulated funds to purchase inputs and so avoid credit costs; and (b) opportunities for collective trading to gain better prices which villages had not initiated) 10 These could include (a) inputs developed to the village and users pay a fee for access/use; (b) lend-lease arrangements, where once a piece of equipment is proven it can be sold to an individual who then operates ti as a service.

19 This support is of social importance as it helps villagers to know that formation of such groups is acceptable to local authorities. In some cases this approval can be formalized with official communication and recognition by the district government. There is a limit to productive support and staff will need to know when to hold back. Once the broad group structure has been established the details of internal arrangements should be left to the members. These arrangements may be quite complex, making it counter- productive for outsiders to be involved in too much minute detail, although advisors may continue to provide occasional backup. This level of support for ‘production / trading’ groups is well within the existing capability of staff, so could well be carried out as part of normal activities for DAFO. Two caveats should be noted. The officers involved should be experienced in using participatory methodologies with farmers (i.e. listening to farmers, providing options and guidance rather than dictating each activity) and should have skills and experience in conducting market analysis. Given these skills, officers may be able to facilitate identifying opportunities and facilitating productive interaction with private-sector actors. This type of activity could be replicated in many areas where it is appropriate. While a nascent capability would already exist in most DAFO, some capacity building could still be needed. This could include development and training in specific tools:  Tools to identify conditions suitable for development of ‘production / trading groups  Guidelines that could be used to facilitate such groups  Steps for making connections between these groups and traders. In addition to these specific tools, training for staff in market chain assessment would provide useful background experience. This will not be possible to institute quickly, but could first be developed within an appropriate unit within each PAFO that could assist DAFO.

4.1.2 Farmer Cooperatives and Farmer Associations

FCs and FAs are substantially more involved structures that require more complex decision- making, entail significant investment of time and resources, and accordingly expose members to more risk than the less formal structures. Accordingly, the right conditions for the successful formation of FCs and Fas, and supporting these organizations requires more skill and longer commitments. Many FCs and FAs will purchase equipment or have other common assets (such as sheds, drying pans etc.). Any staffs who advise farmers should be aware that committing funds to purchase equipment or to establish working capital, involves some risk for them. Support staff should take care not to encourage formation of cooperatives or associations, until farmers appreciate their additional functions the new organization perform, and the risks they will face. Because of these increased complexity farmers forming FCs and FAs need additional support. It is worthwhile to note the type of support needed for the establishment of these FO and then the advice that will enable them to continue to function:  Support during start up when villagers are suspicious of the role of cooperatives and associations, especially where this involves handling of farmer products and funds.  Guidance in preparations of business plans, developing by-laws, proposals for registration as enterprises, cooperatives; trading license etc.  Training in organizational management and accounting procedures that avoid ‘errors’ and ensure transparency.  The development of ‘business plans’ should not be a pro-forma exercise, but be used to enable farmers to analyse commercial risks, including the dangers of over- investing, risks associated with single-commodity equipment; minimum

20 prices/volumes needed for profitable operation, market volatility, etc. Tools that create scenarios of these and similar risks could be used by staff when advising FC and FA leaders on forming business plans. The level of support needed for these FOs is thus high and cannot be expected to be applied generally by local staff without support (technical and financial) of a dedicated project at this stage. But having said this, this work is not outside the possibility of local personnel to develop. In other words where projects have worked in this manner they have done so through local staff. These individuals would be able to continue to work in this manner if they had the means (funds etc.) and political support. The formation of a FA for export to international markets requires another level of support as was the case for AGPC. This requires quite high levels of management and accounting, and in the end must be carried out by professional staff working under a farmers’ board. Support for this goes beyond training. It is likely to require support over a period of 5-10 years, with a clear plan to phase out as members build their capacity. This remains challenging and will require a project specifically committed to one site for the foreseeable future. However FAs do not always need to aim this high, or have export marketing as their main focus. There are growing instances where farmers are interested to work together to address local market and production issues. These issues include awkward regulations for trading, unfair practices of commercial operators, limited access to inputs and information, and access to technologies. Formation of associations can enable farmers to address these issues. Some FAs will remain focused on basic issues of access to information and inputs; others may work directly on more contentious issues of market distortions; still others may use experience on basic issues to build an effective organization and begin to work on the more structural issues when they have experience. This progression has clear precedence in Laos, with vegetable-growing groups using their unity to voice their concerns about unfair and market-distorting policies. Thus FAs have a significant flexibility in both form and function, and can allow members to have a clear voice, and provide a legitimate way for their concerns to be submitted to local authorities. FAs with this more local focus could dispense with professional management and exhaustive training. Support required for this will be limited to facilitation of the development of the association’s charter and other documents for registration. This falls within the range of a normal facilitation process and could be supported by staff with background in participatory approaches.

4.1.3 Value chain, private-sector-driven FOs

The private sector has many actors active in developing FOs to ensure agricultural input to their production chains. FOs filling this role have a rather limited complexity and function, and as such require little outside support. However such FOs do emerge as being ‘market orientated’, supplying the trader with bulked goods according to agreed standards. There is good opportunity that these FOs could develop further as they mature, to begin to manage their own input supply, improve their productivity, and then negotiate or trade themselves. The support to make this transition would be similar to that needed for FPG/T. In some cases studied projects have supported development of new value chains. This was the case for (a) bamboo handicrafts / Huaphanh and (b) organic vegetables in Paek. This requires the agencies focus on several levels:  Develop new products (e.g. non-traditional bamboo products, organic vegetables)  Train farmers in new production techniques  Facilitate formation of farmer producer groups  Facilitate stakeholder meetings  Support traders (who may be farmers, as in the case of organic vegetables).

21 The farmer’s production groups did play key roles with these initiatives. However the main challenge was keeping a balance between the supply and demand.11 It is not likely that similar interventions will be common outside of dedicated projects for the time being. Nonetheless it is worthwhile to recognize the challenges that such initiatives pose and the specialized support they require. Where focus has been on private sector development the Department of Commerce and Industry becomes important (eg bamboo handicrafts / Huaphanh, rice millers / Khammouane). In these sites DIC was proactive in supporting more efficient trade through (a) creating enabling conditions for trade (facilitating tax reductions, traders’ attendance in trade fairs) and (b) taking up new models and expanding these to other districts. These proactive roles for the DIC found in Huaphanh and Khammouane were quite the exception. There is a clear role for DIC to lead the processes of registration for production groups and cooperatives as enterprises. However even at this level, many Provincial DICs were not clear which procedures to use. In general these departments appeared to see their role more as ‘gate-keepers’ (e.g. registering enterprise, controlling market price etc.) rather than being proactive in generating new organisations to stimulate production and trade. There are many constraints for efficient trade. These affect all traders, but bear down on FOs more heavily. There is much that DIC could do to improve trade procedures. Of particular concern is the authorization of monopsonies through granting of exclusive trading rights. Another area of concern is the issuing of concessions to companies for enterprises that will compete with local production. While these should not be rejected, such external concessions should not be granted special conditions - such as tax exemption, import of cheap outside labour, etc. - that will favour them over local production. The Dept of Planning and Investment has a key role in this. There is a clear need for mechanisms to ensure consultation between the Department of Planning and Investment and PAFO.

4.2 Enabling factors

Enabling factors are not magic bullets that make evolution of independent FOs automatic, but rather are factors that allow development assistance and government actors to design support mechanisms in the right circumstances that make successful formation and self- sustaining FOs more likely. . Pre-conditions Agencies should consider support for establishing FOs only after examining whether the pre- conditions for the particular type of FO are present (e.g. in the case of production groups / trading; the village must have capacity to respond to market demands).. . Clear goals and functions: Agencies can help farmers articulate their main objectives, and then consider whether establishing an FOs will assist. Discussion can then begin on what value-added will be gained from working as a group, and what functions the group must perform. The organizational structure and regulations then follow. . Leadership Good leadership is an essential element of an effective group. This is present in most communities but in various degrees. Castella12 well states that “Human capitol like social capitol cannot be imposed by a decree. However leadership can be discovered, recognized

11 So that farmers do not produce the product and find no market, or buyers express interest but then cannot obtain supply and then loose interest. 12 Managing the transition from farmers groups to agricultural cooperatives in Lao PDR, Castella J.C.; Bouahom B.; Keophoxay, A; Doungsavanh, L.

22 and then nurtured.” Rather than trying to judge the quality of leadership it may be better to simply ensure there are no major conflicts within the community that would undermine or exclude villagers from the group. . Payment for services within the group Managing tasks and providing services to groups take substantial time and effort. These should not be expected to be done on a voluntary basis and should be paid for. This can help ensure they are performed effectively, and increases legitimacy of those providing such services within the group. . Group funds Funds that are available to members as personal loans mobilized by internal savings from the members or from service charges can help to bond membership to the group. This can also help avoid individual members having to break ranks and run to more immediate— though usually lower long-term returns—returns from a competing trader. This fosters and enables loyalty, creating a win-win situation for members and the groups as the group also increases capital and overall activity. . Group investment shares Groups can mobilise investment funds from the members, increasing capital, allowing faster growth, creating bonds among members, and improving the likelihood of long-term success. These are not without risks, but when used well offer a powerful tool.13 . Regular meetings These can serve the prime function of monitoring and reporting on activities. Indirect, on- going exchange will assist in identifying best practices and so improve members’ ability to work together. Importantly regular meetings provide a means for members to meet face-to- face, learn from each other, build trust and confidence, increase their interest in supporting each other when key decisions are to be made. . Transparency If FO’s trade on behalf of members, have accumulated assets, or handle finance, there will always be concerns about whether financial transactions are fair and equitable. Various reporting mechanisms (regular reporting in meeting, public notice boards) that display financial dealings provide transparency. Such transparency should reduce inclination and opportunity for any member to misuse funds, and also reduce the emergence of corrosive doubts within membership.

13 This also reflects a point noted by Castella, that where there is direct investment by members this helps

23 5. Context

FOs do not operate merely to organize activities within their village. The complex interactions involving farmers and FOs determine the relative effectiveness of cooperation and ultimately the viability of each organization. External factors include the following: political / administrative, economic / market, and physical / geographical. Internal group dynamics include structures, regulations, and functions. The success of each FO depends on how it interacts with outside agencies (GoL, private sector, etc.), and how each is able to function within the external environment14. These provide the context for FOs.

5.1 Market distortions Most of the cases where FOs were operating and providing farmers benefits, occurred in sites where there were open markets. In other words where farmers are free to select which traders they wished to sell to and negotiate directly prices and conditions of trade. Other sites where this was not the case did not have effective, operational FOs. These ‘closed’ or distorted market systems occurred in a variety of ways, including concessions, monopsonies, and exclusive trading rights, occuringly singly or in concert. Thus the existence of ‘open markets’ will strongly affect whether FOs can be established or function to farmers’ benefit.

5.1.1 Concessions and monopsonies Notably, sites where restrictive concession existed were not visited, as no functioning FO's were recommended from such sites. However a number of instances where traders used concessions to depress prices were noted from previous missions and anecdotal reports. While this conditions obviously directly affect farmer incomes, they can also negatively affect overall production output of a district. Examples are illustrative of this:  Phonexai district (2011): A Chinese Company was granted concession to trade all agricultural products for 180 M Kip/yr. As a result production of various products declined and in some cases halted.  Samphanh district (2009): concession for trading cardamom resulted in farmers not collecting that season. Prices were depressed to the degree that farmers ceased production altogether. There would be many more cases where farmers continue production, but do so with low inputs and thus low productivity. Such concessions are granted by local authorities who then enforce them by preventing farmers trading elsewhere. One of the key opportunities for FOs—bulking their product for collective trading—is dependent on farmers being able to select traders and negotiate the terms of trade. This is prevented in areas were such distorting concessions are applied, and dramatically reduces any incentive for farmers to form FOs. The FGEs in Bokeo were awarded exclusive trading rights along with their registration. However here there was no instance of extreme price depression, (although self-financed farmers reported they could obtain better prices spot trading, there were still required to sell through the FGEs). This may be due to the fact that the FGEs owners are also part of the communities they serve and so will face social pressures to offer decent prices. However ‘community spirit’ cannot be relied upon, and other mechanisms need to sought that will discourage unfair practices. There is further reason for reconsidering the way concessions are granted. These allow inefficient traders to persist by relying on margins from depressing prices, rather than improving their own performance to become more competitive. In many districts, local

14 See for example Rita Gebert, Farmers bargaining power in Lao PDR - possibilities and pitfalls, February 2010

24 traders are being forced out of the market place by traders from neighbouring countries (China and Vietnam). While these offer better trades to farmers in the short term, in the longer term it does mean loss of control of the trading environment, and value added by trading is lost to these other countries. Provincial governments will be doing the economy a favour in the long run by ending concessions and requiring local traders to learn to operate more efficiently.

5.1.2 Closed markets Several districts had regulations to prevent farmers from trading outside of the district where markets offered far higher prices. Such regulations are aimed at maintaining low prices (for food products, such as pork) in an area. This however limits incentives for farmers to improve their production. One example of this was encountered in Namo district. District regulations prevent farmers exporting pigs to markets outside the District, such as Louang Prabang, where demand is strong and prices higher. At the same time, the District forbids import of pigs, something it regards as providing balance.. One ‘pig production group’ (Site 16, Annex 7.5), had obtained a group loan to purchase pigs for fattening, increased their productivity significantly and gained increased income from this. However if just half a dozen villages adopted similar strategies, the Namo market would be over-supplied. Thus while the ‘closed market’ keeps local pork prices low, it denies large numbers of poor villagers opportunity to earn income from pig fattening, one of the few commercial options open to them. Concerns to ensure low food prices are understandable. But to deny opportunity to a large group of the population is counterproductive in achieving widespread reduction of poverty. By damping the market incentive farmers would otherwise experience to increase production, this policy actually reduces pork production. Thus this policy actually has no observable benefit and undermines economic growth for the entire community.

5.1.3 Competing production Again and again, concessions are made (mainly to foreign companies) to produce the same products that local farmers are already producing and attempting to trade. The ‘green vegetable’ group in Ban Hoy, Khoun, is an example of this (Case 3). These external operations have access to massive capital supplies and apply inputs to quickly achieve high outputs. This output can be dumped and thus undermine local farmers’ efforts at commercial production. The ultimate result is a foreign commercial farming operation, surrounded by local farmers with decreasing opportunities to emerge from subsistence farming. Such agreements with outside investors do not prevent FOs from operating, and in an open market place it is difficult to argue against them. However the concessions often grant ‘special conditions’ to the investing company that are not available to the local producers. Furthermore, the outside investors often also compete directly with local farmers for the same resources (land and water), as in the case of Ban Hoy. The practice granting of such concessions indicates (a) lack of confidence in local producers (Lao farmers), and (b) taking an easy solution to achieve production, sometimes in return for rent seeking. In some cases these concessions directly undermine emerging local commercial production carried out by Lao farmers. Issuing of such concessions is primarily the role of District and Provincial Departments of Planning and Investment. Coordination mechanisms are needed between departments concerned, to allow all issues related to granting of competing concessions to be assessed. Farmer Organizations can play an important role in moderating competing concessions. By forming production/training groups, they will produce and trade more efficiently and thus be more competitive. But they can go a step beyond this. Where such groups form associations they will be in a better position to make submissions to local authorities and have their voices heard. This may allow decision-makers reason to reconsider issuing concessions and

25 look for locally-driven production solutions. Then it is the function of FOs presented here to engage in commercial production using all available local resources to present a viable alternative path to granting concessions to outside actors.

5.1.4 Opportunities for improvement The issues related to market distortions presented here are very much related to general status of governance in Lao PDR: transparency, the rule of law, and the role of civil society. These are under constant review. Specific points that can be considered in relation to the issues outlined above are as follows.  Local authorities need a more informed understanding of basic economics so that they understand the economic implications their decisions to apply mechanisms such as closed markets. . While the NEM was introduced in 1986, many of the mechanisms that pre-date this persist. Local authorities would benefit from training in a few areas such as ‘supply and demand’, and exchanging experiences in areas where open market models operate. This should help them to think beyond activities and operating budgets towards enabling their constituents to produce and generate value added, and so reduce poverty and contribute to a more dynamic economy.  Specific review of the impact of concessions on smallholders should be made. This should include various issues: circumstances under which they are made; the positive and negative effects; ways their use could be moderated; potential role for FOs to moderate or partner with outside investors to create win-win situations. This should be used to provide policy feedback and reform.  Local authorities need to support local production by local producers. This mean that decisions on concessions should improve: o procedures should accommodate thorough vetting by PAFO o Require public notification and comment before final approval; o Measure the impact on local resources available to local farmers, with compensation required for any reduction. o Other conditions should be in place that ensures local standards are complied with.  Finally, there should be a platform for open discussion amongst different stakeholder including authorities at all levels to recognize issues raised by FO.

26 6. Pathways for development of FOs in Lao PDR

The study found that FO of various types can provide significant benefits to smallholder farmers. These include  Access to inputs and services for production  Increased prices through collective trading  Constructive relationships with traders and better access to markets,  Funds to invest in local infrastructure and  Mechanisms for farmers to have their voices heard.

These benefits add up to more economically and socially empowered farmers. The current production/trade situation, where products are sold by individual farmers in ‘spot markets’ does not allow messages from the end market to reach the farmers or for production and trade to be rationalized. FOs thus do appear to have an important role to play in development of the agriculture sector in the Lao PDR, by enabling it to produce and trade efficiently. This applies not only for export, but also for domestic consumption, a large proportion of which is currently supplied imports. Apart from production/trade, FOs also can play an important role in delivering different services to its members, advocating members’ rights and connecting with institutions. The study found that there is a range of FO’s operating, which can best be designated according to their functions. These all have a particular value depending on farmers’ production maturity and local context. It is necessary then that agencies prepared to support farmer organizations, to first appreciate the existing context, and what group functions might benefit farmers, before proposing a particular group type. It should also be emphasized that poor governance can make all attempts to support FO development futile. Farmers will always face challenges in the market place, but these are external factors and FOs will help farmers to meet these. Instead it is often the internal trade conditions and local jurisdictions (concessions, exclusive trading rights, and closed markets) that initially foster or hinder the development of self-governed, autonomous FOs. The very government agencies that have the responsibly to support FOs are those that also have roles in allowing these market-distorting mechanisms to persist. A serious review of priorities is needed in regards to these, as well as clear requirements for coordination across agencies to allow FOs to emerge. Given that the above can be addressed, this section attempts to indicate the function of each type of FO and how each one fits into an overall context of enabling smallholder farmers.

6.1 Starting points and supporting transitions The FPG / Receiving have been a common intervention of projects and extension services. These have an external motivation (from the provider) and an internal focus (to receive). As indicated earlier they have a worthwhile function where ‘farming learning’ is the main objective. Where such activities do succeed in enabling farmers to achieve improved productivity, with excess for sale, they will have provided a basis for farmers to consider how to best access markets or sustainable sources of inputs (borrowing credit from banks) and so evolve to become FPG/T.15 However the groups as structured are unlikely to persist once inputs end (apart from WUGs). Nor are these groups likely to mature or evolve towards more dynamic FOs on their own.

15 The above suggests that we should initiate ‘transfer of technology’ to build production base before engaging with markets. Work by SADU and others have good evidence to suggest that the opposite can be true. In other words by exposing farmers to market opportunities, they become committed to improving their productivity to access what is now a more concrete opportunity. In fact this may well be a more fast-track approach. Of course any group established for such exercises would still be of an informal FPG/R or learning group

27 The FPG / Trading appeared as a genuine dynamic form of FO. The FPG/T have an internal motivation (from the members) and an external focus (on the market). As a result they are more problem-solving than task-orientated. The groups’ main function is to bulk their product for collective trading. This directly benefits farmers through price increases of 10-30%. Improvements in productivity can be expected as groups attempt to maintain market position:  Groups tend to increase their membership as a means to increase the volume of the product they supply.  Within the group, members seek and encourage use of best practices, both for increased output and improved quality.  More constructive relationships between the group and traders develop with members seeking traders’ assessment of quality and market demand.  The private sector may be more willing to invest in farmers (provide inputs, information) when they operate as a group than they would to support individuals (similar to group loans from banks). Together the bulking, focus on improved productivity and better information flow are characteristics of a more rationalized market-oriented production system. Initiation of FPG/Trading does often depend on outside support. This can be provided by DAFO staff with experience in participatory approaches and market assessment. Support requires little budget, other than normal operating expenses to mobilize local staff. Little effort is required for these groups to be recognized locally. As a result FPG/T could develop on a relatively widespread basis with limited budgets. FPG/T will not be suitable for each and every site. There are pre-conditions and these appear to be; (a) farmers production skills established and able to to be scaled-up, and (b) the products are high value, where bulking will provide added value for traders. Not all FPG/T develop from FPG/R, some were initiated directly through value-chain entry points. At the same time applying this approach to existing FPG/R could re-orientate these to become more dynamic, provide incentive for increasing membership and encourage internal dissemination of best practices to increase production and quality. The FPG/T could provide a stepping stone for establishment of Farmer Cooperatives,and so could be a good place to start. This will help establish a firm production base, internal trust and confidence amongst members and recognition as a reliable supplier. A dynamic FPG/T may wish to further increase benefits by forming a Cooperative to trade directly with the markets. However there are risks along with the opportunities, and it may be advisable for many FPG/T to remain informal organizations and/or progress very slowly. The main functions for Farmers Cooperatives (FC) are to provide services to members and to trade on their behalf as a formal entity. This ultimately allows farmers to capture the greatest possible share of the value chain, (in effect vertical integration). While this presents an ideal picture, there are considerable risks and challenges:  Farmers must be prepared to invest in equipment; transport; processing; storage etc.  Where market conditions change the investments may become non-productive (e.g. maize shellers unused as maize prices drop) and lock up farmers capital.  The organization must take on new functions, in particular the processing and distribution of their product. Real skills and knowledge are required to distribute products, and these should not be underestimated.  New organizational arrangements will need to be made, where farmers allow the Cooperative to handle their produce and funds. This requires trust, effective procedures and transparency. Where these are not evident within a community, internal stresses may cause a cooperative to fail with substantial damage to members.

28 The procedures to establish a cooperative are difficult and time consuming as it requires formal registration as an enterprise. While it is unlikely that DAFO staff will be regularly expected to advise FCs there is very few people in Laos technically competent with both group facilitation and organizational procedures to be effective advisers. As a result establishment of farmers’ cooperatives probably would need committed projects with experienced staff to support this for the foreseeable future. An alternative to Farmer Cooperatives may well be Farmer Group Enterprises (FGEs) as was piloted in Bokeo. These also require farmers’ investment, but rather than mobilizing a broad group in the community, it is the better-off HHs who commit their funds. Such mobilization can be quite rapid, in comparison to FCs; the Namo NTFP trading Group or Coffee Producer Cooperatives took some years to accumulate sufficient funds to invest in capital. The benefit smallholders receive will be the new services and an accessible market that will enable scaling up of production. This form of FO will not necessarily return the optimum value-added directly to farmers as a cooperative would, but it would also not expose all beneficiaries to as much financial risk. The FGEs in their function, are little different from other private commercial ventures, but, as they are based within the same communities as their clients, it appears they feel some pressure to avoid gross exploitation. Some support is needed for establishment of FGEs. These do not appear to be difficult or time-consuming to establish, perhaps due to compact size of the FGEs (typically <10 investors) and the rapidity with which they can mobilize funds. Less technical and group facilitation is needed and thus support for FGE formation does appear to be within reach of local DIC officers taking lead in establishment. Farmers Associations (FAs) are still a very novel idea in Laos and one that has yet to be fully tested. But on the basis of the experience (AGPC) and the PM Decree 115, it offers two functions to farmers:  A trading service16 for farmers where large volumes will be required as in export to overseas (i.e. not cross boarder) markets, such as for coffee  A means for farmers to resolve social issues: “protect their legitimate rights” and to “report and verify equity issues” according to Article 18.17 The expectation has been that the main function of FA will be to provide additional services and enable trade. Trade may in fact be difficult to achieve as they must compete with private sector operators, except where they are taping a niche market (i.e. Fair Trade and Organic certified markets). A further challenge is their need for professional management teams to perform the export and trading on behalf of members. These are difficult to establish and require extended support. As these are relatively new, local authorities don’t have knowledge and experience in supporting development of an association. There is potential, however to mobilise registered associations (NPA) who already have experience of developing and registering their own association to help mentor new FAs. On the other hand farmers increasingly are facing social issues (loss of access to productive resources from commercial entities; competition from concessions, etc.). Thus the other main role FA can play may well be to provide a voice for farmers to attempt to address these distortions. Requirement for a separate management team should not be necessary and the establishment for such administration should be less complex than for export trading. Likely trajectories will include FAs first filling local trading, access to input, and access to

16 Association are non-profit seeking - properties and revenues are obtained from an association’s activities after deduction of administrative costs and the balance is not distributed to its members but applied towards the objectives set out in the association’s charter – Article 3, PM Decree NO 115

17 PM Decree NO 115, Decree on Association

29 technology functions, gaining experience, and then addressing more social issues after forming a more unified membership. Constructive-Contract farming provides services to farmers for production and trading, and is organized as a commercial enterprise. As distinct from the FGEs, they are external to the communities, but choose to enter into constructive arrangements with farmers to ensure they gain improved and consistent supply for their own operation. The ‘constructive arrangements’ they form with farmers include agreed/contracted prices, inputs on credit, and technical advice. These can be applied without any FO in place—contracts may specify general conditions for a group of farmers, but without requirements for group repayment in case of defaults. This is a strategy used by and for the private sector. It entails a shift from a short term strategy of maximizing returns from individual transactions (trading) (e.g. lowest prices), to achieving volume and quality which then allows them to have improved trade positions and feed into local processing (investing). The examples to date have required committed technical support, but as this model gains more traction it can likely be replicated relatively easily both by GoL agencies (particularly DIC) and through trader associations who can encourage similar constructive behaviour amongst members. However, FA here can also play a crucial role in balancing the risks and protecting the general welfare and rights of smallholder farmers from private sectors.

30 Fig. 2 Opportunities and transitions

FA for trading have yet to be shown viable FPG / R

Farmer Association /Trading

Mark ets Board Profession al Admin

Farmer Cooperative Market FPG / T

Farmer Association /Social

Province Board

FPG/T deliver significant benefits in themselves, and could be a There is a growing transition to FCs and FAs. However FCs, where capital investment is demand for a required does expose farmers to new risks mechanism for farmers to address market distortions. FA provide a legitimate mechanism for this Alternative PPP mechanisms

FGEs

Market )

Trader

Farmer Association /Social CCFs

Market Province ) Board

Trade

The private sector led mechanisms do enable farmers to scale up production. While these have not actively depressed prices or taken advantage of farmers, formation of farmer associations would be a useful to buffer against this emerging in the future.

31 6.2 Mobilizing opportunities for FO in the immediate future Given the characteristics of the FOs outlined above a comprehensive strategy can be suggested.

Immediate Activities Focus on establishment of FPG/T which should be applicable on a widespread basis:  Require minimal budget to initiate, and once established appear to have internal dynamics that lead to their consolidation and further development with direct benefits to smallholders  Provide an important contribution to development of a more rationalized agriculture production/trade system in Lao PDR.  Can be an effective stepping stone from which Farmer Cooperatives or Associations are built, according to need for these. Considerations to take into account for such a strategy include;  Identify sites where the pre-conditions for FPG/T exist (existing production capacity and high value products). These might include FPG/R and WUGs that would benefit from re-vitalization  Staff should have experience in using participatory approaches and a background in value-chain / market development approaches. The FPG/T's have functioned well enough with local notification, and do not appear to require any more elaborate formalization. However some simple process for formalization (e.g. in the village level) might help to rationalize these and facilitate private sector actors to investment in cooperation. Any formalization of this should be seen as having an enabling or clarifying function, rather than posing a new hurdle to be surmounted. (The draft decree for Farmer Production Groups proposed by NAFES may be re-examined in this regard.)

Alternative mechanisms Both Farmer Group Enterprises (FGEs) and Constructive Contract Farming arrangements (C-CFs) have the capacity to provide services rapidly, with, usually, attractive terms for farmers. These should be:  Endorsed so that local agencies concerned can support their registration and other procedures have FA – social  Established in parallel to provide a mechanism for farmer input to assist in achieving equitable and efficient production and trade arrangements.

Longer term strategies Farmer Cooperatives: FCs represent an ideal form of FO capturing maximum benefits for farmers. However it presents risks (farmers funds for investment), entails challenges (capacity to distribute product to end users), and requires a high level of management. As a result it requires skilled support over a long period. It is something that could still be applied within specific projects. A ‘soft entry’ into cooperatives might be to focus first on service provision within the group, before attempts to trade. Any activities here should be regarded as ‘pilot’ activities and receive adequate support from NAFES or committed projects. Farmer Associations - for trade face similar challenges, to FC, and these are compounded by the need for professional management teams. There is still some doubt whether they will be viable in the rough and tumble of the market place. One initial area to target could be sites with potential for Fair Trade and Organic products. Establishment of FA will be an important step to gain registration and recognition in the market place. Any activities in this area should again be with specific project support.

32 Farmers Associations - for social issues should be less technically challenging to establish, and will respond to a growing need for farmers to have a voice. They could provide an important mechanism in achieving less distorted market environments, or enhance rights of members to access natural resources, or an aggregate voice to influence policy reforms. This is still a new area, but should be actively pursued, and support for this should be sought specially capitalizing the experiences and in partnership with CSO operating in the country.

Agencies involved At the field level DAFO and PAFO staff will take the main role in enabling FPG/T. As these do not require formal registration it should not be necessary to involve other agencies for this. Likewise, they should take the lead in identifying FGEs and FCs. However other agencies will then need to be involved in processing the registration, (DAFO, DIC) while these are specified in relevant decrees, mechanisms and guidelines for their coordination are still needed. In the case where there is application by commercial entities for concessions etc. clear mechanisms for coordination with departments of planning and investment, are needed to ensure these do not undermine local production capacities. There is a potential role for non-profit associations (NPA) to support development of autonomous and self-governed FO (association types like them) at the local level which is yet to be harnessed.

Developing Staff capacities Staff in the agriculture sector will require skills in (a) participatory approaches for working with farmers and (b) assessment of value chains. While the first should be available in most DAFO, the second is still rare. Establishing a support unit with these skills at the central and provincial levels could then directly support and build DAFO capacity. NAFES has approval to support such a network across the country, forming an Agri-Business Advisory Service (ABAS) but capacity-building support and resources are yet to be identified. Guidelines and tools should be developed for agriculture staff to (a) analyse needs of communities in relation to FOs; and (b) processes that can be used to support FO development. Similar guidelines and tools are needed for DIC staff and civil society organizations in supporting establishment and promotion of FGEs, FA and FCs. All these require a lot of work. A department within MAF should be identified and given the lead role for the fostering the development of FO. Specific responsibilities for such a department would include: A. Develop tools and guidelines for the field staff to support different types of FO B. Organise capacity development programme for local offices C. Support / coach local officers in facilitating development of FOs D. Coordinate support from different sectors and line ministries for FOs E. Provide regular monitoring and follow up of FO.

Improved governance Weak governance systems, including distorted trade environments and irregular implementation of policy, pose the main obstacle to mobilizing FOs. These issues have been noted many times in the past, but finally the trade environment in Lao PDR is changing, albeit slowly. If the local concessions and closed/controlled markets are allowed to continue, this will hinder development of an effective agriculture sector, with production likely to increasingly be dominated by outside companies. FOs can present one piece of a locally- based alternative wherein local producers efficiently and competitively engage with the commercial market place and build win-win partnerships with outside investors.

33 FOs should be promoted from the beginning as autonomous and voluntary organizations, accountable to its members (not the representative of an agency or development partner that is supporting it). This is essential if FOs are to fulfil their promising role as enabling farmer voices and improving their engagement in decision-making about the disposition of local resources. Local agencies need to see their role not as ‘gatekeepers’, but as enablers for mobilization of FOs. This will require: A. Explicit direction to local agencies that they support mobilization of FOs B. Streamlining of existing procedures C. Establishing mechanisms for coordination between agencies (for instance at provincial level; PAFO; DoIC and Planning and Investment). To affect this change a study should be considered that would review and illustrate through case studies, the constraining effects of these market distortions on livelihoods; agriculture production/trade; and finally on the broader economy. This could then recommend opportunities for streamlining procedures and new mechanisms for coordination between agencies.

34 7. Annexes

35 7.1 Sites visited for the study

Site Date Site Product Group structure Key functions Common Formal Supporting Support type (village/district assets Registra agency/ies /Province) tion Team 1a (Connell / Photakhoun) 1. 09/05 B. Phaluang / cattle Village committee Trading as group none No SADU/ Suggestion to form trading Nonghed / DAFO group / occasional staff visit Xieng Khouang Monthly meetings Support within group to (<1 yr) improve production 2. 10/05 B Hoy / Khoun / Xieng ‘green’ Village Cluster Trading as group (assembly of None No SADU/ DAFO Suggestion to form trading Khouang vegetables committee: 3 rep. / 4 orders) group / occasional staff visit village) Use logo -marked packing (<1 yr) Village Com. + nuay bags 3. 10/05 B. Tan Tai Organic coffee Village committee + Improved and expanded De-huller No SADU/ Study Trip/Training / group nuay production of coffee machine DAFO formation / support visits / free machine (< 1yr) 4. 11/05 Organic veg. market / Organic veg. Village cluster Internal commitment for none No Helvetas / Extensive training, study Phonsavanh committee + village organic production DAFO trips, back-up by staff committee committed to project. (2+ Trading of organic veg. yrs). 5. 13/05 B. Phousane / Bamboo Village committee Production of bamboo None No SNV/DAFO Extensive trng , study trips, Viengxai / Huaphanh handicraft handicraft + management of staff committed to project. resources (3+ yrs). 6. 17/05 B Don Moun / pigs Village Cluster None Meeting No SHDP/DAFO Extensive: training, study Nongbok / committee (45 mbr. / house trip, building meeting house. Khammouane 11 vill.) (34MKip) 7. 17/05 B. Naa Wangthong / Rice seed WUG Little: Management of seed Processing No SHDP / Extensive: training, study Nongbok/ processing equipment equip. (70 DAFO trip, donation of equipment Khammouane (provided) MKip) 8. 18/05 B. Naa Tai Rice Village Committee None none No SHDP/NT2/S Extensive: training, study (commercial) NV/DAFO trip, etc. 9. 19/05 B Donpalart / Rice WUG None (other than water none No SNV/ DAFO Technical production training Nongbok/ Khmn (commercial) management)

36 Site Date Site Product Group structure Key functions Common Formal Supporting Support type (village/district assets Registra agency/ies /Province) tion Team 2 (Folkard / Viravong) 10 16/05 Pakse Coffee (AGPC) Apex of cooperatives Processing, export Mill, Yes PCADR/ MAF V. Extensive; Training, TA, warehouse facilities, operational costs 11 17/05 Ban Coffee Village level Group contracts with exporter, Wet mill, de- Oxfam/DAFO Extensive, input supply Katoud/Paksong/Cha committee structure. group processing, loan fund huller, /SAFREC/AT (seedlings), donation of mpassak management. roaster, mtg. J equipment, training, room 12 17/05 Ban Nongsoon Cabbage Village Prod. group Limited, production targets, None No SHDP/PAFO/ Production training, group (leader & dpty.) price info?, cultivation timing DAFO establishment training. functioning roles etc.? 13 18/5 Sanasomboun District Rice Planned cooperative Not yet registered 60 MKip Pending Cooperative estab. + reg.’ (9 villages) (share value) by-law development etc. 14 18/5 Ban Nongkhen Handicrafts None Receipt of training, inputs Electric No LWU/DIC Training in new products, Sanasomboun bamboo strip market assessment visits (4 units) (Thai), equip. supply, 15 19/5 Ban Maisaysomboun Coffee Village Cooperative Management of group Wet mill, As part AGPC/PCAD Intensive: input supply processing facilities, group drying of AGPC R (seedlings), wet mill, sales, financial management, facilities cultivation training, loan fund management. Team 1b (Connell / Viravong) 16 14/06 B Nam Dtong pigs Village committee Access credit none No Encourage mbr. to produce to avoid default 17 14/06 Nampheng NTFP Village committee Manage resource (harvest warehouse UCN/DAFO Initial idea, group formation, (Bamboo times) management training shoots) Marketing of product

Manage funds for the enterprise and vill dev. 18 16/06 B Dinchee rubber Village committee Access funds, planting Revolving No DAFO Materials, tech material, tech. fund

37 Site Date Site Product Group structure Key functions Common Formal Supporting Support type (village/district assets Registra agency/ies /Province) tion Manage production Group trade 19 18/06 Phak Nyao Maize / NTFPs Business Consortium Service provision (plough, Sheller, Business VECO/DAFO Consultation / idea shelling, trade) tractor, six Training, funds (200,000 wheel truck THB)

38 7.2 Cases

Case No. 1. Collective cattle trading, Nonghet

The cattle fattening group in Phaluang village gain higher price (at least 10%) by trading collectively. Traders pay higher price as buying in batches save time and logistics. Other groups also aspire to trade collectively, but the key success factor of this group is joint production planning of batches and periodic meeting to monitor cattle fattening.

Background Cattle raising is widespread in Xieng Khouang particularly amongst Hmong communities in the uplands. The dirt road, steeply rising and falling to Phaluang village18 is in good condition, but almost impassible in the wet season. Of the 53 HHs, 45 raise cattle and sale of these is the main source of income.

Changes in cattle fattening practices Farmers are using forages to improve fattening. Forage plots can be seen scattered around the village. Cattle are housed in pens and hand-fed with bundles of forages stacked close by the pen. These improved practices are spreading quickly between members of the group.

Farmers raised their cattle free-range, in areas set away from the upland rice. Cattle raised by Hmong farmers are substantially larger than those raised by Lowland Lao and double up to compete in traditional bull fight competitions. Farmers select a promising candidate which is then housed in a pen and hand-fed on local grass, with supplements where available. Fattening times are long, 6 to 12 months. Animals winning a fight are sold at a higher price. Defeated ones are sold off as beef to passing traders.

Farmers generally aim to sell between November and February when supply of animals to the market is low and prices are still higher. But often they must sell early if some reason a need for funds arises (e.g. medical expenses etc). Traders regularly visit and farmers have

18 Phaluang village, 53 HHs, Hmong ethnic group, located 7 km east of the main road to Nonghet

39 the opportunity to accept or reject prices offered. Once they decide to sell, the farmer wait for a trader to visit the village and price depends on his ability to negotiate. This determines the final return farmer realize from raising cattle.

Group formation As cattle are key source of income, staff from DAFO proposed farmers that they enhance this by forming a “cattle fattening group”. The aim of the group would be to; (a) pen and fatten animals specifically for sale; (b) sell collectively to negotiate a higher price; and (c) organize themselves for services such as vaccinating their animals.

A group of 10 farmers (all men) agreed to try this, and with advice of the staff elected a head and two deputies. The village headman was a member, but not head of the group. There were few rules, except that members have definite cattle fattening plans, including identifying specific animals for fattening and participate in the monthly meetings.

It would be easy for these monthly meetings to be inconsequential and lapse. But the group has continued to meet each month to keep up with the progress of each member in fattening. Meetings may include inspecting pens. In one case last year, the group suggested a member to change the animal as it was not responding, and would depress the price of the batch when offered for sale. Forages had been introduced to the village by past project19 and these were used produced by some members.

Group Organization Cattle fattening group has a simple structure of a Group leader and two deputies. The duties of these are mainly to ensure the members do work together, such as attending the meetings, achieving the batches for sale, and simple record keeping. There is little apparent burden in all this. In the early stages of the group’s development, DAFO staff joined the monthly meetings, but these now often take place without staff attending.

The role of the group’s monthly meetings should be emphasized. Fattening groups are established in other villages also but are not doing collective selling. While these groups did aspire to collective selling they had made no specific plans for this. Simply when any farmer wanted to sell, they looked for others who might sell together. But as others were not prepared they would end up selling independently. Thus selecting specific animals for fattening; planning a batch for selling; reaffirmed by monthly meetings, was the key for this occurring.

The group at present has no common assets or collect any fees from the sale of cattle. Activities related to vaccination have yet to be mobilized and this may then require some additional organization.

Benefits In first year, the group sold 20 cattle in batches of 4-5 cattle for a total of 128 M Kip. Prior to selling each batch, members identified animals to be included in a batch and price the owner would be satisfied with. Selling this way, the group gained a signification increase in price. This was best illustrated by one batch of three cattle. The farmers first rejected the lower prices offered by a trader, who left, but then returned the next day to pay the price asked. The acceptance of farmer asking price is considered the ‘batch effect’ as shown in the table below. Batch effect was 10% higher than what traders offered.

19 Forage and Livestock Systems Project (FLSP), CIAT/NAFRI

40 Farmers Traders Final sale Batch asking price offer price effect % 6,000,000 5,500,000 6,100,000 + 11 6,200,000 5,700,000 6,200,000 + 09 2,300,000 2,000,000 2,300,000 + 15

Other advantages for selling as a group that the farmers highly rated were: (a) Member of the group could sell a batch on behalf of the group. This meant a farmer could be away working and his animal still sold at the desired price (b) Where a member required cash urgently, other members could provide the needed fund. This ensured that the group would maintain the number of animals it needed to make up a good batch.

These social benefits are not insignificant. They provide the farmers with greater flexibility, and overall remove the effect of farmers being in a situation of having to make a forced sale. As a result a second group formed in 2011. As the year has progressed two groups are beginning to merge and evolve further. Fattening had not begun at the time of interview but the combined groups (19 active members) had identified 23 cattle for fattening.

The new focus on penning for fattening rather than preparing a champion fighting bull has affected farmers’ practices. Months for fattening have shortened to 3 - 4. This has been possible with the usage of forages as feed (napier and guinea). Group members have established new areas of forages (more than 8 ha). The approach to the village is now dotted with forages plots and bundles of forages stacked beside the pens, ready for feeding.

These changes in fattening practice have taken place quickly, over the space of just one season. Such sharing of improved techniques between farmers does not always occur. Because farmers are now selling collectively, it is in their interest to ensure that all members produce efficiently so that they present an attractive batch to traders. The monthly meetings act as forum where improved practices are noted and shared amongst the members. New technical challenges can be expected to emerge in the future; how to maintain productivity of the forages when harvested heavily over a number of years; what supplement might be used to improve fattening rates; what strategies farmers might use to enable fattening through the dry season, etc. The fattening groups will be an ideal forum for extension workers to work with farmers to test and evaluate such technical options.

Lessons Learnt The group must receive tangible benefit working collectively - The group started with a focus on production – fattening cattle. There was a gradual transition of the group from production to marketing by selling cattle collectively in small batches. Higher price received by group is the key driving factor that keeps the group functioning. Selling collectively also gave members flexibly in their work schedule as other members could sell on their behalf if they were away from the village. Members share ‘best practices’ to ensure all animals in a batch are up to standard resulting in improved productivity. The key to group’s effectiveness were:  Planning - group members selected specific animals for sale in a specific time  Monthly meetings - to monitor progress; reaffirm plans for sale, and exchange ‘best production practices’  Simple group structure – group was formed with minimal external inputs from DAFO using participatory approach. Group members decided detail arrangement themselves to move forward.  The group operates in an open market system, with no distortions from concessions or other overlays. The DAFO head actively supports participatory approaches and so this is endemic within the office.

41 Case No. 2 “Green” vegetables production group, Khoun

Farmers in Nyoun kumban produce pesticide free vegetables and distinguish their product packed in bags with a logo. They trade collectively; assembling a truck load, negotiate price 10-30% higher than other villages. The group members encourage each other to improve production and maintain quality. The group is considering registering as a cooperative and opening a retail outlet in Vientiane market.

Background The fresh market in Vientiane struggled to maintain their supply of vegetables, particularly green leafy vegetables in the wet season. As recent as 2008, up to one third of the vegetables traded in the market were imported from Thailand20.

A cluster of 4 villages21 in Nyoun Kumban produce vegetable and also supply to Vientiane market amongst others. 224 households are producing and supplying over 6T of vegetable everyday to Vientiane earning an annual income of 40 M Kip by some households.

Ban Hoy, a lowland Lao village is one of village located at 1100 masl. Farmers can grow vegetables during the wet season without pesticides, as pest and disease damage is minimal in the cool temperature at this high altitude. They use farm-yard manure to fertilize, so the vegetables are considered ‘green’. ‘Green’ vegetables also have excellent flavor and keeping qualities, lasting 3-4 days. This is no doubt due to the cool temperature and natural growing conditions in the village.

Members of Ban Hoy vegetable growers committee The committee checks weekly price and communicates this with all units. Unit heads assemble the loads when they receive orders from traders. The groups’ main concerns are competition for water from a Chinese concession next to the village and competition from other Chinese concessions growing vegetables.

20 “Vientiane marketing opportunities for Xieng Khouang vegetables”, Faculty of Agriculture, NUOL, 2009 21 Ban Hoy, Ban Tum, Ban Kosri and Ban Naator

42 This production base was built up over several decades. The village began growing vegetables in smaller areas to sell in the local markets in 1975. This gradually expanded, by 1990 all HHs were growing vegetables. As they expanded production they began to supply to Provincial town of Phonesavanh and then in 1999 to Vientiane market. Despite this impressive development in production, trading remained chaotic. Traders visit were not planned and the price farmers received varied according to the individual’s ability to negotiate. In effect the farmers were competing amongst themselves.

While the vegetable have excellent characteristics sought after by consumers (flavor, keeping quality), their product was not recognized in the market place. It was simply lumped with vegetables from other places.

Group formation and operation Nyoun village cluster has been the focus for several projects in recent years. The Faculty of Agriculture, NUOL studied vegetables supply chain in 2008. They piloted branding of vegetable by using plastic bags marked with a distinctive logo representing the geographical indication of the cluster. Farmers felt this helped gain recognition for their product. They ran out of plastic bag as the project ended and stopped branding their vegetables.

In 2010, DAFO staffs with support from SADU project facilitated assessment of opportunities and challenges where they identified branding vegetables to increase the market share. Staff agreed to if but discussed a second option; that they form a group to negotiate collectively and gain a common price.

The villagers agreed with the idea of group formation. Group was formed in each of the village with a simple structure of a head and two deputies. DAFO staff mentored the group but left details to the village to develop on their own. The detailed arrangement for pricing and assembling vegetables is something that can be done best by the members.

A committee of 3 members was formed is to consult a common price in all these villages. Price was based on actual retail price in Vientiane and a margin to the traders. The members of the committee informed all the villages of the price information. There was little face-to-face meeting, but a continual flow of price information between committee and members.

As part of the negotiation of a common price, the farmers agreed to supply the vegetables in batches. While much attention is given to the use of the branded packing, the main function of the group is to assemble vegetables for traders. This has already developed into quite a complex system: - traders phone in their orders which specific type and quantity of each vegetable they want to make up a load - head of each unit of 10 HHs assess its capacity to fill the order. This takes into account the maturity of each plot, making sure those reaching maturity are given preference. - When the unit or village cannot fulfill a full load, this is reported back to trader so they can make up the shortfall from other sources.

On a day-to-day basis, it is the unit heads that play the most active role assembling loads of vegetables for pickup. It is an important but time consuming task for which they are paid 2000 kip/basket. Farmers are paid directly by traders.

Committee members don’t collect any fee. Group has no formal registration or no common assets. The group does have a bank account which is used to collect fund from the members to pay for printing plastic bags. Payment for printing is done by transfer through this account.

43

Benefits Farmers claim a significant increase in price. When other villages receive 18,000 kip per basket of Chinese cabbage, Nyoun cluster receives 20,000 kip/basket. In addition to the higher price, traders prefer to buy from Nyoun cluster because of better quality. Even in the flush production season, the group is able to dispose of their product. On some days there may be as many as 4-5 trucks, each loaded with 120-200 baskets22 of vegetables leaving Hoy village. Although capacity of each household differs, annual trade of a unit (10 hh) is about 200 M Kip. Nyoun cluster is now a significant supplier to Vientiane market. Without such organization it would be difficult for the traders to collect and deliver in such volume to Vientiane market.

Interaction between the group members is encouraging members to improve productivity. Traders pay according to quality of vegetables, members observe and encourage growing better quality vegetables to ensure consistent quality in each load.

The relationship between farmers and traders has changed. In the past, traders used to criticize quality to depress price. Farmers depend on trader to assess their product quality to ensure that they maintaining quality standards to be competitive. Farmers also use traders as a source of market information; inquiring the demand for different vegetables. The units plan their production based on the information from traders and some members have begun to trial new vegetables, such as ‘purple leafed cabbage’.

Improved practice and branding Within the group farmers encourage members to improve practices to have consistent batches to sell to traders. Vegetables are produced with organic fertilizer and no pesticides. They pack these in bags marked with a brand for geographical indication.

Emerging issues

Pressure for expansion As the profitability of vegetable production in wet-season is higher farmers are investing for expansion (some also invested on sprinkler irrigation system) and more upland area is being committed for vegetable production. The main challenges for the group are ‘social’ ones: a. internal land-use issues; ensuring that expansion of production does not infringe on key watersheds in the village and b. competition for resources with the companies to access water

22 Each basket or meun holds 12 kg

44 Competition with foreign concessions More pressing issue is emerging from competition with concessions granted to foreign companies within Ban Hoy for mushroom, tobacco and fish farming. Group members are concerned how this will affect access to and sharing water for vegetable production. Companies with concession in Khoun and Paek districts have started vegetable production that is competing with smallholder farmers. These companies use hi-tech production methods producing a higher volume of attractive looking vegetables at lower cost. With their attractive looking cheaper vegetables, the flavor and keeping quality of green vegetables produced by the group appear to be less competitive.

Formalizing group Four villages are considering if they should transform into a agriculture cooperative. Their primary aim to form a cooperative among others is to formally propose to authorities not to provide concession to foreign companies that will directly compete with smallholder farmers. Cooperative will also allow them to trade directly establishing their own outlets in Vientiane market. This allows them to highlight special ‘green’ attribute of their vegetable and better eating qualities. This will require significant adjustment to the group structure to manage new functions of fee collection, trading on behalf of members etc. There are real economic risks in this as villagers take up new functions of product distribution and marketing. Any support for such a step should include enabling villagers to assess associated risks, as well as the opportunities.

The issues identified about e.g. competition for resources, market, etc could best be dealt by formation of an association e.g. ‘green vegetable farmers association’ across the villages or district. This will provide an appropriate framework for farmers to raise issues with the authorities.

Lessons learned The main function of the group is to plan production and sell collectively. This is achieved by assembling loads as per order and negotiating a common price. This has resulted in significant advantages: - bulking vegetables and collective trading resulted in farmers gaining 10 - 30% higher price - group dynamics positively affect productivity (a) members encourage each other to use ‘best practices’ to ensure quality and volume; (b) farmers expand area they cultivated and invested in infrastructure (sprinkler systems); (c) farmers trialed new types of vegetables in response to traders information. - relationship between group and traders become more constructive. Farmers now seek traders’ assessment of quality and traders regard the group as a reliable source of supply where they buy preferentially.

Farmers initially were keen to create an identity of their product in the market by branding. The main objective that has driven the group was marketing to get better price common to all members.

The group is structured as a informal group without registration, no fees collected or common assets managed. Internal arrangements to assemble vegetable from individual members are quite complex. External support to farmers in establishing groups should be focused on providing options of different possibilities e.g. collective trading, group structure etc. However final decision to select the best option and manage complex internal arrangements should be left to farmers to decide.

45 Case No. 3. Pig producer group, Nongbok

The ‘pig producer group’ has limited function of member working collectively. The group has a committee, holds meeting and collect fees. Members have improved their productivity for pig raising, but there is no on-going group function.

Background As the SEA Games approached in 2008, the government used different strategies to stimulate food production for the large number of expected visitors. One of these was to encourage pig production with special provision of loan through existing banks23 to the farmers.

11 villages in Nong Bok district were provided a loan of 15 B Kip to 228 farmers. Farmers used this fund to construct pig pen, purchase piglets, feed as well as in other activities not related to pig production. SEA game was a narrow window to target for a surge in production. When the game begin, pig traders purchase from their old and trusted sources including import from neighboring countries, leaving the Nong Bok producers holding their stock and heavily in debt.

Members of Pig Production Group, Ban Moun Some of the committee members discuss the difficulties in repaying the SEA Games loan. Since then they have receive many inputs of training, study trips and construction of the meeting house seen here

Group formation Local authorities and agriculture development project24 tried to assist these farmers to recover from debt. Interested HHs was assisted to form a ‘pig raising group’. Only 48 HHs (out of 228) who took loan joined the group. Assistance provided to the group included training in improved pig production, study trips to Thailand, Malaysia, Vietnam and China. Group was also supported to start production of value added meat products e.g. sausages. They received 34 M Kip to establish a processing facility in a village (B. Moon). The group constructed a small house which is also used to hold group meetings.

24 Smallholder Development Project NAFES/ADB

46 Group organization The pig production group with 48 members from 11 villages across Nong Bok district is an unregistered production group. 22 members of the group are women. The group has elected a committee with Head and 2 deputies. All the group members meet on the 7th of each month. The group operates a ‘round robin’ fund (hooey) with each member putting in 50,000 kip into the poll each month and borrowed to members.

Benefits The group members have made some significant improvements in pig production. The fattening rate has improved (85-90 kg in 4 months to 100–110kg in 3 months) and pig mortality rate has decreased (10 in 100 to 1 in 100 pigs). Within the group, 4 HHs produce only piglets and sell to the members supplying about 25% of their piglet needs. Improved productivity and better quality has, as the group estimates, has improved their income by 70%.

The farmers however produce and trade independently - each HH selling pigs to traders according to their own schedule. The group currently supplies about 2000 pigs per month to Vientiane with an average of about 70 pigs per day. Establishing collective trade is not easy as the pig supply chain is complex with many actors. There are opportunities – a trader from Vientiane offered to purchase from them if they would supply 300 pigs per day. As their production scale was much below this they couldn’t take up the offer.

Group meetings are dominated by discussion of strategies to manage their outstanding loans. With their improved production, members believe they could increase their output if they had funds to expand further, and have sought a group loan. Banks however refused any new loans until outstanding loan are repaid. Group has continued to explore strategies to eliminate this deadlock, including requesting assistance from the province to write these off.

Despite having all the appearances of a ‘production group’, (structure, meetings) the group has no collective function other than to receive inputs from development projects luckily in the area. The inputs they have received have been considerable. But it is only technical production training that has produced significant results. Thus in this respect this group can be regarded as a less functional group.

Lessons Learnt The outward appearances of a group; members, committees, regular meetings do not in themselves make a group functional. Members should have clear objectives that they want to achieve together as a group. It can then decide which course of activities and functions will lead them to achieve the set objectives. Group structure, regulations etc are mechanism to enable the group to perform its functions. To emphasize, setting up a group is not the end but a starting point as a mean to achieve an objective jointly.

Learning group, as the pig group was when it received training, would have served the valid purpose. However groups are, many times driven by outside support. Once project support ends or members achieve their joint objectives, the need for the group may no longer exist. We should not expect all groups to evolve into a dynamic self sustaining group. It will only take place when members proactively develop new orientations for new objectives they want to achieve jointly.

47 Case No. 4. NTFP marketing group, Namor

NTFP marketing group has a informal recognition but operates as a formal cooperative. The main function of the group is to trade collectively and establish procedure to manage their natural resources. Members have received higher price for their product and established a village development fund for social improvements e.g. school, generator for electricity supply etc in the village. The group established more than 15 years ago is still functional.

Background Nampheng village is located 22 km from the small district township of Namor in Oudomxay province. The area is unrelentingly hilly and well forested. This Khamu village relies entirely on swidden cultivation for rice. Despite straddling on the main road, the village had remained poor.

Collection and selling NTFPs is their main source of cash income, with bitter bamboo shoots and cardamom the main species harvested. These are collected in the dry season when villagers had free time from other activities. Each HH sold their own harvest to passing traders and had to wait sometimes a whole day to sell. The price they received depended on their ability to bargain and the urgency of each HH to sell for cash.

Group formation DAFO with support from an IUCN25 project conducted a PRA in 1996s which identified poverty and declining forest resources as key issues. To address these twin issues staff proposed the village to form ‘NTFP marketing group’ to manage and trade NTFP’s. After discussion with the community objectives of the group were set (a) to market NTFPs collected as a group and negotiate a common price; (b) mange the resources for sustainable harvesting; (c) establish a ‘village development fund’. The groups would use this for all NTFPs but first focused on the bitter bamboo shoots and cardamom.

Warehouse build by NTFP Marketing group The group collects a fee for trading on behalf of members. This has been used for major works in the village including construction of warehouse for storage of NTFPs waiting for sale.

The group with support from project and district authority formed a committee, NTFP trading process and resource management strategy. Series of trainings were provided for the committee in both technical and management aspects (use of scales, book keeping; sustainable harvesting etc).

25 International Union for Conservation of Nature

48

The group has significant responsibility and manages considerable resources. The committee of the group has three members one of which is the village head. Three units support committee. (a) trade unit: with duties to identify traders, establish agreements and prices. This has included making trips into neighboring China; (b) monitoring unit: which monitors actual trading to ensure transparency and enforces sustainable harvesting practice ; (c) accounting unit; which collect products and manages funds.

Committee members are elected every 3 years, unless someone is not performing and change is made earlier. Each unit has 3 people. Changes in the committee do take place, although the village headman has been head of the committee since the group was established.

Initially, trading through the group where each HHs gave NTFPs they collected to the group as not easy for members to accept. Series of discussions were organized with the community including individual HHs to overcome their doubts. Villagers’ confidence continues to be maintained through ensuring transparency in its operations. Prices they receive for each batch of NTFP are posted on a board in the collection point. Group committee meetings are held every 3 months attended by all the members where accounts are reported.

The committee and its supporting units functions both in relation to trading and resource management. The committee strictly enforces the harvest windows. Where HH are found to have collected outside of these, all proceeds from the sale are confiscated by the group. They have also penalized the respective traders as well. In 2002 the group extended resource management to red mushrooms using a similar ‘harvest window’ strategy.

The group was developed before PM decree No. 135 on Cooperatives and is registered with the district governor’s office and PAFO. The group owns and manages assets (including its natural resources), trades on behalf of the village and invested on building infrastructures. In many ways, it operates as a cooperative.

Benefits The group in effect operates as a middle man, collecting NTFP products to sell on to traders in bulk with a margin. Currently, the group keeps 300 Kip/kg26 as service charge. The group pays a higher price to its members than what traders are paying to individual collectors in neighboring village. This year, for example, the group collected bitter bamboo from members at 4,200Kip/kg and sold to traders for 4500 kip/kg. Prices in neighboring villages where farmers sold individually were 3,500 Kip/ kg, or even less. Price increase gained by group trading is about 28% higher. A similar process is used for cardamom, but due to its higher value the fee collected is 500 Kip/kg (in 2002 cardamom was sold @ 17,500 to traders, with farmers receiving 17,000 Kip/kg)

The price increases were not gained simply due to the ‘bargaining power’ of the group. They come from a culmination of changes the group has made in trading NTFPs. This began with the basic change of shifting from selling by the ‘bunch’ to the use of scales to sell by weight and grading of their product before sale. The group supplies bamboo shoots in bulk (saving traders time and fuel), sold while still fresh and of a consistent quality. This is in comparison to neighboring villages who still sell in small lots and inconsistent quality (size and

26 This began as 100 kip/kg in 1997 the first year of the group. It increased to 200 kip/kg the second year and then again to 300 kip/kg in 2005 for bitter bamboo. .

49 freshness). The group has an improved product which provides the basis for them to negotiate a higher price.

The fees collected now amounts to a sizable sum. For the bitter bamboo shoots alone, the group collected fees of about 15 Mkip in 2010, with a total of over 200 MKip collected since the group began. The bulk of these are allocated to village development fund27. These are available for small loans within the village (< 2 m Kip/HH), but mainly used for village improvements. The major projects include; installing a diesel powered electricity system in the village, clean water supply, warehouse for storing NTFPs, improvements to the school and teachers’ salaries. These have direct impacts on village livelihoods, but perhaps more importantly have had an immeasurable effect on the villagers’ self-esteem and confidence to deal with many issues.

Management of the village’s forest resources began following a land allocation exercise in 1997. The zoning protected the forest areas from swidden cultivation, as well as giving the village exclusive rights to use NTFPs. This formed the basis for further management of the NTFPs. Control of unrestricted collection of NTFPs was halted. Early in each season there always was a scramble to collect young and less astringent shoots which fetched a higher price. If harvested too early, secondary shoot formation was inhibited and the plant cannot regenerate leading to extinction of the species. To prevent depleting the stock of bitter bamboo a ‘harvest window’ was set (15 December to 30 March). This delay allows multiple shoots to form before harvesting so that the bamboo can regenerate. Similar measures are used for red mushrooms another highly valuable species. Establishing ‘harvest windows’ is a simple mechanism which avoids the need to carry out difficult inventories and set quotas, and is easy for the committee to monitor.

These benefits have begun to transform the economy of once poor village. In the past most HH lacked rice for 3-4 months but with the increased income from NTFPs, this is “no longer a worry”. Already by 2002, 5 HHs had stopped shifting cultivation and most other reduced significantly. Villagers invested in paddy and now the village has more than 10 ha of paddy field. Overall the number of HH classified as poor dropped from 33% in 1998 to 13% in 2006. Nampheng village has benefited from a number of projects28, but the changes in trading and management of their NTFPs has been the basis for their overall transformation.

Lessons learned

Functions and benefits The main function of the group is to collect NTFPs from members and provide service of trading them in bulk. In addition, the group has instituted a range of improved practices including grading. They can offer improved product to trader (bulked and graded quality) which provides the basis to negotiate higher prices, close to 30%.

Getting started and sustaining functions Bulk marketing process where farmers handed over their product to the group to sell and receive payment on their behalf was something villagers initially were in doubt. It is important to provide special support in this initial period until the marketing processes have proven themselves. Explanations from staff provided a type of external guarantee and transparency well maintained. This cannot be achieved just by training inputs but need a lot of coaching and facilitating support.

27 The services fees collected are used for administration of the group (20%); fees for committee (10%); village development fund (70%). 28 Red Cross (1999 – 2006) – village medicine chest; UNFPA (2002 – 2006) - health care and family planning; ADB/WFP (2002- 2005) - school feeding program.

50 The support needed in the early stages of establishing a group which has product handling and fund management function is substantial and delicate. This is not something all DAFO or PAFO staff can provide. Dedicated support from project (such as was the case with IUCN) with experience and resources for this is needed to build the staff capacity.

Project support ended after three years and the group has continued operation well beyond this. Group solidarity has been maintained through mechanisms that ensure transparency. These include: public notification of price and volume sold, clear accounting reports and opportunity to change the committee members through elections.

The functions of collection and trading of the product are onerous. The committee and its support unit structure should be substantial to take up their responsibility. To ensure committee takes these tasks seriously it is appropriate that they be compensated for their time and effort.

Despite the substantial benefits gained by the Nampheng NTFP Marketing Group, these have not been replicated widely, even though many villages in the district have made cross visits. Staff tends to focus on formal structures, regulations and role of committees when introducing the group to other farmers. These may well overwhelm visiting villages. Introduction should be provided first of functions of the group and the benefits its members derive. If visitors wish to replicate and achieve similar results, the group structures, regulations etc can be introduced as means to achieve this.

51 Case No.5. Coffee producer cooperatives and association

Coffee producer groups supported members to improve productivity and quality through wet processing. These producer groups have become cooperatives and together formed an association. The association (AGPC) has a professional management team and is responsible for export procedures and marketing. It is Fair Trade and Organic certified and accesses a premium price.

Background Coffee markets on the Boloven have been dominated by a small number of larger exporters, with farmers selling their coffee as dried cherries to them or their agents. The farmers have little bargaining power and prices fluctuated. Borrowing against future harvest or sale of ‘green coffee’ was reasonably common further disadvantaging smallholder producers. The Boloven Plateau Coffee Producers’ Groups Association (AGPC), is an association of 53 coffee ‘producer groups’. Each of these supports its members in use of improved production techniques and wet processing. The product is then passed onto AGPC to be traded. There are two levels of organisation; (a) the producers’ groups and cooperative and the (b) association.

Coffee producer group plantation Coffee producer groups improve productivity and quality through supporting members to convert to Arabica and wet Groupprocessing. Formation The second tier organization AGPC markets Fair Trade and Organic certified coffee in premium market. Ban Maysaisomboun Coffee Cooperative Ban Maysaisomboun is mixed ethnic groups (Lao Loum and Lavey) village located at 1,000 masl. some 22 km from Paksong district along an unpaved road. The village has significant

52 old Robusta coffee plantations with more recent Catimor cultivation. Coffee production is estimated to supply over 90% of the village income. It is the single largest cooperative supplier to AGPC with its 2010/11 sales equivalent to some 20% of AGPC exports. The cooperative was established in 2006 prior to the AGPC with 43 members. This has since expanded to 70 HHs with 12 just joining last year. The initial support to establish the Cooperative was provided by the PAB project. The focus then was on developing intensive production of organic coffee, and wet processing for improved quality. Specific support included; (a) supply of Catimor seedlings and training in their propagation; and (b) installing a wet mill ($20,000) along with training in it operation. This enabled the village to begin to produce parchment coffee for sale. Approximately 30 MT of parchment was produced in the first year, which has increased to 118 MT of Catimor in 2010/11. Based on 2009/10 prices the Catimor sales equalled some Kip 2.3 B Kip, averaging some 33 million Kip per member.

Boloven Plateau Coffee Producers’ Groups Association (AGPC) AGPC was formally established in 2007 following a value chain analysis of Lao coffee which indicated opportunities for increasing farmer incomes through improving production and quality of the coffee. “To see these changes taking place with many farmers would need coordination through a centralised quality assurance and marketing structure” - this has been the main role of AGPC. AGPC was established through a special PM decree in 2007. With the declaration of PM decree 115 on Non profit association in 2009, the status of AGPC was re-structured. The organisation structure of the association is given in Figure 1. It has 53 member cooperatives of about 2700 members from 3 districts in the Boloven Plateau. AGPC provides technical assistance to member cooperatives, as well as direct marketing of green and roasted beans.

53 groups of producers – 2,650 members

SavingsGeneral Assembly Control committees

Board of Directors (x3)

General Manager

Trade Department Production Department Administrative Department

 Export market production  Administrative support  National Market  Agronomic Support for groups  Promotion  Wet process support  AGPC administration  Communication  Dry process factory  AGPC accountability  Certification  Roasting factory  exportation

Figure 1. Structure of AGPC AGPC is operated by professional manager and technically qualified staff. The team including the general manager is comprised of 20 staff of which 6 are agronomist. Overseeing the management team is a board of 3 farmers who are elected by the members of all the cooperatives. These have not been static, with new persons elected into these

53 positions as farmers gradually appreciate the role of the board within the association. At this time AGPC still receives funding support from the project. Ninety percent of the administration costs are currently provided by the project, but will reduce to zero by 2015. In other words the member cooperatives will be funding the AGPC, and its professional management team. It estimates that it must export 1000 MT of green bean, and 50 MT of roasted coffee to achieve financial sustainability. It aims to achieve this by 2014. Sales have increased from 134 MT in 2007/8 season to 500 MT in the 2010/11 season.

Organisation

Cooperative Cooperative main functions are to support production, processing and village development fund which includes other activities besides coffee. Structure of Cooperative reflects this (see Fig.2). All members pay an annual fee of 100,000 kip. Any expenses of committee members related to cooperatives are reimbursed and they also receive a bonus at the end of each year (1-3 M Kip depending on position).

Cooperative assesses production from its members each year and informs AGPC for marketing. At harvest it record members coffee cherry collection and manage wet mill, charging 100 k/kg for the service. Members are formed into four units to ensure that each unit has timely access to the wet-mill.

All financial records, payments from AGPC and disbursement to members are maintained by the Cooperative. Meetings are conducted each month where financial records are reported to members. A general meeting is held annually and the members of the committee and support units are elected.

AGPC

Association staffs support its member cooperatives for expanding catimor production and initiation of wet milling. It provides emphasis on management skills needed for the cooperative and organise various training to its member cooperatives. AGPC staff visits cooperatives on a monthly basis which was critical in initial phase. This has now been reduced to about 2 visits per year and a shift from a supporting Village Co-operative Committee function to more of a management one just prior to and Group leader after harvest. The formal registration has enabled AGPC to Accountant obtain fair trade and Organic certification of its members.

AGPC receives an advance of only 60% of the contract value with other payments received in Production Unit Livestock Unit instalments and with the final  (3 person)Organic price not known until sale in the (3 person) end markets (80% Europe, 20% Asia). AGPC does offer its member Figure 2. Structure of village cooperative cooperatives; a) guaranteed, annual minimum red cherry prices, b) fair-trade and organic premiums and c) 50% share in profits from sales. To enhance competiveness, AGPC has also recently obtained internationally sourced loan finance to ease cash flow.

54

Benefits Production of catimor variety has increased from 70 to 160 Ha. While production is increasing widespread across the Boloven, it appears that the initial support of seedling and technical support provided to members have enabled a more rapid expansion. Introduction of wet processing provided increase income to farmers, however the main benefit was to allow AGPC to present a higher quality coffee for export29. The cooperative provides a guaranteed minimum price for coffee cherries to its members. In 2010/11 this was 4,900 kip/kg, significantly higher than the ‘market’ (ranging from 2,500- 3,900 kip/kg). Members receive a price premium for Fair Trade ($0.44/kg), Organic ($0.22/kg) certification and 50% share from the total profit of the AGPC. However, there is a very strong competition to purchase coffee with strong commercial operators who offer cash payment. More successful cooperatives are located in remote sites where there is less competition with commercial traders. Farmers have access to low interest (1%) loans through a village development fund which is about 132 M Kip. This was initiated through the repayment for the seedlings and continues to grow through the Fair Trade premiums. These funds have also been used to finance the cooperatives business. A livestock revolving fund was also established at and is still operating

Village development fund plays an important role in funding HHs needs. Selling coffee through AGPC means that payments to farmers are made several times over the year as payments from international buyers are received. HH can borrow from this fund to cover immediate cash need. Some members also appreciated payments being made over a year rather than in one lump sum in a season.

Lessons learned Gradual development with clear objectives This case of coffee in Boleven include ‘producer cooperatives’ at the village level and ‘farmers association’ (AGPC). With this arrangement, clear functions are split across these two organisations. It is important to recognise the evolution of this arrangement and understand that it was not put into place directly. Village producer cooperatives initially emerged as ‘farmer producer groups’ with a production focus. Their main function then was a learning, to develop improved production of coffee - both volume and quality (introduction of catimor, processing etc.). This prepared the groups to have a product that could be traded independently (volume) and access higher value markets (quality). These groups shifted to operate as cooperatives with their prime function to provide a service for members, i.e. collection of product and processing in bulk to ensure consistent quality. Fees collected allow the cooperative to invest in equipment and to support development initiatives. Thus the cooperatives have secondary functions of management of its assets (equipment) and support operation of the village development fund. The association’s function is processing export of the product and marketing. This secondary level organisation (a) assemble product in sufficient volume allowing it to export independently and (b) identify and negotiate with new markets. The association sought certification on fair trade and organic accessing niche markets with price premium to keep ahead of its competitions.

29 Typical prices in 2010/11 were: cherry coffee - 3500 K/kg, and parchment coffee – 19,000 K/kg. The benefit of the higher parchment price is reduced as 5 kg cherries produce 1 kg of parchment.

55

Getting started and sustaining functions Functions of producer cooperative and association have evolved and received a substantial support over 2 decades. A key challenge faced was payment schedule by the AGPC to its members. This was allayed by strong presence of project support staff to explain this mechanism until farmers understood the process and benefits. Establishment of a revolving fund assisted in providing funds to HHs that bridged the period until they would receive payments. Such support and other mechanism thus are necessary in the early start-up period. Professional staffs for association operation The functions of association are complex which is managed by management committee comprising of professionals but operating under a board. Considerable training has been provided to this team who need to justify its performance and costs to the board once support ends. Management team make specific plans to engage with the cooperative members and build group unity. This is done primarily through their role in annual meetings, transparent record keeping, technical support through dedicated technicians and social events that bring all the parties together.

56 Case No. 6. Bamboo handicraft, Viengxai, Houaphanh

Bamboo handicraft producer group have changed the production of bamboo products from an occasional activity to a village enterprise. The groups prepare semi processed raw materials so that they can quickly respond to orders from traders. Large volume orders from traders thus are fulfilled as they also have access to the network of producer groups.

Background Traditionally villagers produce various bamboo products household use eg rice basket ‘tip’ khao’ to carry sticky rice. Bamboo has more recently been targeted by investors for industrial manufacture of commercial items such as chop sticks. As a result the Province has developed a Bamboo Sector Strategy to promote both artisanal use of bamboo and its commercial exploitation in a sustainable manner.

Promotion of artisanal use of bamboo is led by Department of Industry and Commerce in supported by SNV. This focuses on product development, developing skills and marketing of finished products. Design experts built on traditional items to develop standardized and new product. In effect the project established a value chain for bamboo handicrafts from farmer’s production groups to mobilizing traders to deal these as a new profitable product,

Improved skills enable bamboo to provide significant income Handicraft producers now use their traditional skills to produce standardized designs according to orders. AS skills increase so the range of products increases. It is often the poorer HHs benefit as they are less able to take up other heavier wage labor.

Villagers in Phousan village had traditional skill of making bamboo products for household items for their own use. Each HH have its own particular style. Products for sale were only produced when they had some free time and sold to passing traders when they could. The prices they receive were uncertain and they often barter for other items they needed. Bamboo products as such did not represent a significant source of income for them.

57

Group formation Efforts to develop bamboo as source of income began in 2009 through a project lead by DoIC and supported by SNV and GRET. After an exposure visit to bamboo handicraft making villages within Laos, they formed 11 member bamboo weaving group. Initial products produced were the ones they were familiar with e.g. thip khao and expanded to other items. After 2 months of group formation and production training, they were ready to take orders. By early 2011, Phousane bamboo producers group has expanded to 21 HHs, (including 5 HHs from a neighboring village).

Group organization The main functions of the group are to coordinate production within the members and to link to the traders. To manage this, group has structure of a committee with a head and 2 deputies supporting marketing and accounting units. Monthly group meetings are attended by all members to discuss how they meet orders, preparation of bamboo and quality of production.

The group members take on different roles with more able members cutting bamboo and transporting to village. Bamboo is cut to prepare so that when order is received they can begin weaving without delay. This includes soaking bamboo for several weeks to kill borers and pre-carving wooden parts such as the legs or handles. When an order is accepted members then work together in small units of 3-4 HHs. This relieves boredom and provides opportunity for discussion on issues affecting the group.

Quality is an important characteristic and the group members are aware of product quality specification e.g. style, dimensions and quality of weaving. Within each production unit, members keep an eye for any lapses on quality. When sub-standard product is found they encourage the weaver to do better and also refer this to the committee to check. The group members provide an ‘internal control system’ for its products. The group ‘guarantees’ its products and will accept return of defective items within 3 months. The main problems so far have been borers when bamboo is not well prepared and loosening parts wooden parts such as legs or handles.

The group has established a small fund of about 5-600,000 kip used mainly for covering operational expenses e.g. cost of travel to meeting, training. This is also used as a revolving fund. Group collects an annual fee of 12,000 kip per member. Traders pay a 3% service fee on each order to the group. Head of the group Mr. Sountee is also a trainer and charges 150,000 kip/day for training. He contributes 10% of income as trainer to the group fund.

The group is not registered, but this has not hampered its main functions of managing production within the village. There are 9 bamboo producer groups in Huaphanh and they are considering seeking certification for Fair Trade.

Benefits The group starting with traditional product is able to produce a wider range of products within a short period. New products include waste baskets, alms bowl, suitcases etc. Price received by the group is higher than what they made from spot sales to passing traders. In the past, they would get 10,000 kip for a small tip khao, but the price now is 13,000 kip, an increase of 30%30. The improved price along with an increased volume has contributed in increased income from bamboo weaving. Typically income of a member range from 100,000 to 500,000 Kip per month. Mr. Suntee, head of the group, annual income from bamboo products has increased from 3 to 15 M Kip.

30 This varies according to product. Tip Khao are small and easily made in volume. Other items are newer products (e.g. suitcases) and more complex and so returns for them are lower.

58

The hourly return for labor from weaving are not that high and for those who are physical strong can gain cash more quickly by hiring out their labor31. However, the weaving can be done in villagers own time while still at their house and in many cases it is in fact the poorer HHs who do this.

Support for the bamboo producer group The group has received considerable support from the SNV bamboo project. This has included training, new product development, linking with provincial trader as well as formation of group itself. This in effect is developing a new value chain linking with Provincial traders. Phousane villagers have organized to produce items of consistent quality in volume. To obtain large orders, they rely on provincial traders to identify buyers. Without traders playing this role they would not be able to dispose of their product and would revert to weaving in small quantities.

Provincial traders are also supported by SNV to participate in large trade fairs in Vientiane for setting up stalls for Huaphanh bamboo handicraft products. Traders are also supported through production and distribution of attractive brochures that illustrate product ranges. Together these have gained recognition for the Huaphanh products of their design and quality of weaving. They have now established market links in key tourist areas; Xieng Khouang (4 shops); Louang Prabang (1 shop); and Vientiane (3 shops). It is from these shops that the traders obtain bulk orders and then distribute to the producer groups. One of the traders in Sam Neau estimates that the value of bamboo handicraft he purchased in 2010 was about 183 M kip.

It is worth noting that as the producer groups need the traders to perform commercially, the traders also need bamboo producer groups. The groups form a network of producers that the traders can rely on to weave products according to specification and on time. Without this network they could not accept and fulfill bulk orders. As the producer groups are being recognized as reliable supplies, other traders have begun to approach them with substantial orders. Prior to the initiative only one trader in Huaphanh dealt with bamboo handicraft. With the establishment of the producers groups, this has now increased to seven.

The provincial bamboo task force has also played a role in facilitating this trade. To promote trade they have waived all taxes and fees on woven bamboo products that help the traders sell in competitive prices. The Department of Industry and Commerce has facilitated the traders to use Form D which allows them to request a tax waiver for trade linked to poverty reduction programs.

Lessons

Functions and Benefits Bamboo producer groups have multiple functions: (a) learn production of new items and quality specification, (b) prepare semi-processed material that allows them to respond to orders quickly, (c) organization of labor for different stages of processing (cutting bamboo from the forest, etc.) and allocation of items to individual members to weave, (d) maintain quality within the group in effect providing an ICS mechanism; (d) collective trading to negotiate orders and prices, and (e) management of their resources (rotating harvest area of preferred species of bamboo). Altogether these functions result in them being regarded as reliable suppliers of a quality product and thus able to capture orders that give them volume and higher prices. This is indeed a complex clustering of functions.

Getting started and maintaining functions

31 Hourly rates are 30,000 kip for generally work and harvesting and 40,000 kip for heavy labor such as digging.

59 Support for development of bamboo weavers is development of a new value chain (new products, new markets and new functions for the old actors). These must be developed together and kept in balance without distorting the market through subsidies. This is a challenging activity and requires a dedicated support to deal with. Various stakeholders at provincial level (Dept of Commerce and Industry, PAFO and Governors’ Office) have cooperated in working with both the bamboo producer groups and traders. This has ensured participation of the stakeholders and facilitated trade opportunities.

While the group has tried to put all the elements in place, the existing demand are still not large or consistent enough to ensure the traders persist with this product. Sustained support is likely to be needed for some time yet and probably will require accessing international markets where the margins may be higher and thus more compelling to the traders.

60 Case No. 7. Water user groups, agreements and rice millers, Nongbok

WUGs play an important role to ensure efficient irrigation, but have remained task focused. Significant gains in productivity can be achieved where millers have established cooperative trading engagements with farmers. Farmers yield are raised by about 30% and millers have getting better quality rice allowing them to enter higher end market.

Background While Laos is now undergoing rapid changes, rice farmer are still a major group that have important contributors to its economy. Many efforts have been done over years to improve livelihoods and production of rice farmers. Introduction of improved varieties began in the mid 90’s and along with these, chemical fertilizers. A large number of irrigation schemes have been constructed. All these interventions have yet to deliver their full potential. In most cases farmers use improved varieties, but use seed retained over many harvests. Fertilizer is bought, but applied in inefficient amounts and not at the optimum times in the crop cycle. When farmers come to sell their rice, this is to mainly small local millers whose mills operate inefficiently making them uncompetitive in the market.

This is double case which illustrates limited evolution of WUGs can take up new opportunities. Instead, it is linkages with the market through contract farming initiatives that appear to deliver more benefit to farmers as well as stimulating overall rice productivity.

Revitalizing WUG Water User Groups (WUGs) were traditionally formed to manage distribution of water and carryout management of irrigation system. Construction of irrigation systems were accompanied by establishment of WUGs. With the group structures in place it is expected that WUG provide a ready framework for farmers to work together and diversify their activity.

Naa Wangthong Water User Group committee. The Naa Wangthong WUG became effective when it collected fees and was able to pay canal head and other members for basic tasks. They have used these fees effectively to repairs irrigation infrastructure.

Naa Wangthong is an exemplary village in organization and operation of its WUG. The group was formed in 1997 with installation of a pump irrigation system. It was served by an earthworks canal of 5 km and this has been progressively improved. However, the original WUG did not perform very well. Water distribution was inefficient and there was no serious effort to collect funds for repairs. In 2000, SHDP supported the revitalization of the WUG, reviewing its operation, structure and regulations. Water use fees began to be collected at 150 Kg of paddy / ha and members were assigned specific tasks and paid for their work32. As funds accumulated the WUG was able to upgrade the system themselves. In 2008, it spent 50 M Kip from its own funds to line 1000 m of the canal. This, like the other

32 Canal-heads for the 5 canals receive 1 M kip/season and the pump operator receives 5 M kip/season.

61 improvements helped to reduce water losses and extended the reach of the system to additional paddy area, thus having significant impact on productivity of the system.

Sub-group of WUG – rice seed producers A sub group of Naa Wangthong WUG began rice seed production from the dry season (na saeng) of 2008. Initially 20 HHs participated, which then reduced the following year to 14 HHs. Seed production entails additional work, with 3 to 4 inspections to cull off-types and yields reduced by 400 to 500 kg/ha. However, due to its higher value, farmers receive substantially higher price (4500 Kip/kg) compared to that for normal rice (2500 kip/kg).

The sub group received rice seed and training with buy back of rice seed produced by the project. The group meets 2 to 3 times in during the production season to plan their production. Transplanting for rice seed must be done at least one month before the main season, so that it can be harvested, break dormancy and distributed in time for the main crop. This required irrigation system to be operated ahead especially for this crop. As two of the seed producers were on WUG committee, they are able to arrange the early operation of the system.

To reduce time and improve quality by seed processing, a project operating in the area33 granted post harvest equipment e.g. thresher, separator, and dryer, with a total value of 70 M kip to the group. This may be justified in contributing piloting of a new model for seed production by the farmer groups. There is in fact a growing demand for improved seed. Despite this, the seed producer group does not appear to trying to expand its membership. This may be partly due to poor information group receives of a firm demand before the season, but may also be due to the group trying to maintain control over the assets they have already received.

Contract and benefit to farmers Don Palart village is a typical rice based village in Nongbok district. Over the last two seasons34 a group of 15 HHs entered into a contract farming arrangements for sale of their rice with a local mill owner, Mr. Chuntee. The contract had three main provisions: (a) improved seed (TDK8) and fertilizer to be supplied to farmers on credit; (b) payback the inputs as paddy at a guaranteed price of 22,000 kip/muen35, but any additional paddy to be purchased at market prices; and (c) the trader ensure farmers receive technical support for effective use of the inputs supplied. This was provided by mobilizing technical staff from the Nongbok DAFO.

The farmers have gained significant increases in yield from this arrangement. Typical field in a good years obtained 3 to 3.5 T/ha for na phi, they had now harvested 4 to 5 T/ha. Fertilizer application had increased from 3 to 5 bags36, but the main reason for yield increases came from the ‘fresh’ improved seed. Farmers also rated improved methods of fertilizer application as second factor for higher yields37. These yield increases of 1-1.5 T/ha (about 30%) made up for the additional cost of inputs. When farmers came to sell their crop, the trader purchased at 30,000 kip/meun close to the maximum market price obtained in the area. Even though farmers were obliged to pay back only the value of the inputs received, but they found this price acceptable and sold the remainder of their crop to the mill.

The contract farming arrangements between Don Palart group and Mr, Chuntee over the two seasons have remained with the 15 HHs, but additional HHs will take it up this year. The

33 Smallholder Development Project (SHDP), ADB / NAFES 34 2010 wet season and 2010/11 dry season 35 ‘Muen’ - a basket with a weight of 12 kg 36 16-20-00/ 3 x 25 kg bags, and 46-00-00/2 x 25 kg bags 37 Fertilizer application were split and right mixture applied at the correct time in the crop cycle

62 improved practices for providing higher yields can spread between farmers and don’t need to have a contract. The main attraction for farmers to continue contracts with Mr. Chuntee is access to inputs at rates less than they could obtain from general traders. As far as paddy prices are concerned, while they can sell at spot prices higher than those offered by the mill, this is a bit of a gamble, and many HHs are satisfied to have a more secure arrangement. This constructive association with the miller also have other benefits. Mr. Chuntee also provided the village with an interest free loan for improvements to their pump irrigation system.

The estimate increase of yield obtained by farmers was confirmed by the Deputy head of DAFO, Mr. Khamsing Saengviengxai. This is not an isolated case. The DAFO estimates an increase of about 70% for rice traded in those villages where millers use similar contract arrangement with farmers.

Linking farmer groups with millers Contract arrangements are used by 17 millers in Khammouane. This model began under an initiative supported by the Enhance Milled Rice Production (EMRIP) project of SNV/Helvetas which aims to improve rice value chain by improvement of millers as the entry point. This includes improving mill operation and management, but at the heart of the strategy is that millers would support farmer’s production, thus gaining an improved supply of rice to the mills, both in terms of volume and quality.

To facilitate the application of these contract agreements mills established producer groups in villages. Don Palart has a WUG for managing irrigation system, but Mr. Chuntee amongst the members of the bigger WUG, formed a sup-group for paddy production. The function was to facilitate delivery of inputs and assemble of paddy for sale. The active committee (3 members) receive a small fee for the assembly function (70,000 kip/MT). Thus in general the producers group role is to act as part of the millers supply chain rather than as an independent body for farmers agenda.

These arrangements are now well accepted by the millers. Mr. Chuntee used this arrangement for 4 villages in 2009/10 dry season crop, expanded it 17 villages in 2010. He is able to obtain a larger volume of rice, of a consistent quality, from fewer villages. For the 2010/11 dry season crop just harvested, he was able to purchase from 3-5 villages, the same volume that he previously had to scour the district for. The rice from farmers is now of one variety, not mixed as before and of a consistent quality. As a result he can set his mill to run more efficiently and has increased his recovery from 58-60% to 65-67% an increase of at least 5%. Furthermore as the product is not mixed, he can raise the price he sells, from 4000 - 4500 kip/kg, an increase of 25%.

While it is easy to focus on the input supply as the factor that enabled millers to engage with farmers, in fact it was establishing the trust and confidence of the farmers that was been paramount. Before contracts could be established, Mr Chuntee visited Don Palart at least 5 occasions, for meetings to propose, explain and finalise the contracts. These visits included working with the village committee as well. This is quite a departure from the previous opportunistic methods of doing business.

17 rice millers in the Province has formed Khammouane Development Millers Group (KDMG). This assisted members by enabling them to join together to respond to large orders which as individual mills they previously missed. Providing support to farmers rice production to gain improved feed is accepted as ‘standard practice’ within the group to ensure consistent quality is maintained. The members of the millers group have assisted new mills to work with the farmers in this modality providing a mechanism for this approach to be scaled out to new areas.

63 The use of the millers as an entry point to lift rice yields is now recognised by Khammouane province. A multi stakeholder rice task force has formed which includes the DoIC, PAFO, development projects and millers group. This tracks the production and ensures that resources are available. Because of the extension function the mills provide, DoIC has supported the KDMG in their application for low interest loans (7% interest). On the basis of the results achieved in the last few years, DoIC will try to engage millers in 5 more district of the province to operate in a similar manner.

Lessons learnt

Functions and benefits sharing WUG performed important function of distributing water and improving irrigation system. The service provided by group includes collection of water tariff, payment to members assigned for specific tasks and investment in improvement of irrigation infrastructure. These actions however are normal function of an effective WUG. WUG should have a regular source of funds for operating successfully. Supporting WUGs to collect and manage their funds in more flexible mechanism plays an important step in group taking on larger diverse roles.

Seed producer was formed a sub-group within a larger WUG. At first, this gave an impression that WUG had expanded its function. More careful examination suggested that rather than expanding opportunities to all the members, seed producer group (14 HHs) was established within the larger group with select members. This occurred through (a) preferential use of irrigation system and (b) limiting seed production to small group despite there being a strong demand for seed. While it is possible to diversify and start new initiatives with already existing group in the villages, care should be taken such that only selected well off household don’t take advantages.

Rice productivity was stimulated through contract farming agreements with millers which provided inputs, technical services and more importantly outputs for the products. These changes were driven by the private sector (local millers) working closing with producer groups. Interventions in value chain programme are more effective and sustainable when actors facilitate the producer groups e.g., rice millers working directly with the producer groups.

64 Case No. 8. Farmers group enterprise, Bokeo

Farmer Group Enterprises (FGE) mobilize funds within the community to provide services to fellow farmers. As such they provide an alternative to farmer cooperatives - they capture lower benefits for the farmers but expose them to less risk and are quickly mobilized to respond to markets. This enabled smallholders to participate in the maize boom. As prices have fallen, FGE are diversifying from maize and it is to be seen whether they will be successful in this.

Background In 2006 when maize boom began in Bokeo, farmers hoped that they could grab the opportunities offered. Local authorities with support from VECO38 conducted studies to assess how farmers can better participate and benefit from maize value chain. Constraints farmers faced in producing and selling maize were; (a) poor access to inputs and services limiting the area to cultivate; (b) absence of shelling equipment, causing maize to be sold ‘on the cob’ at lower prices. (c) farmer must sell their crop quickly after harvest or risk losing it to mold. This made farmers susceptible to pressure from traders to depress prices for fear of losing their crop.

Rather than just supporting farmers to increase production, Market Access Project (MAP) supported farmers to form Farmer Group Enterprise (FGE) that would provide services to farmers in their area. This required interested farmers to invest their own fund in equipment and as operating fund.

Project provided co-financing to help stimulate development of farmer group enterprise. The prospective group developed a business plan and registered as an enterprise. Accompanying registration, the District designated areas where the FGE would have sole right to trade. A total of 17 FEG was established working with 5 different products. Of these, 10 of the FGEs focused on maize and in 2010 provided services to 1136 HHs over 49 villages or about 30% of HHs in their target areas.

Farmer group enterprise formation and operation Phak Ngao is relatively well off lowland village along the Mekong39. The village has upland and rolling hills suitable for maize production. In 2007, a farmer began to act as an agent for Thai traders to buy maize, but without services volumes were low.

Staff of DAFO and DoIC with support from project guided group formation and business plan preparation. In this initial period study trips for farmers was organized to develop a vision.

The formation of a FGE followed a clear process; - selecting a product based on village capacity and market demand (a provisional FGE committee is also established at this point); - participatory study of a value chain for selected product which allows a business opportunity to be defined - assessment of demand in member villages and consultation with other stakeholder (GoL agencies) - Development of a business plan and request for registration as an enterprise.

A group of 24 HHs agreed to form an FGE with a joint investment of THB 600,000 (contributing THB 25,000 each). They prepared a business plan for Phak Nago Promotion of

38 Vredeseilanden a Belgian NGO, funding a number of rural development projects in Bokeo 39 Only 10% of HHs considered as poor

65 Agriculture Production Enterprise and the project co-financed additional THB 200,000. The group also serviced three neighboring villages resided by Hmong, Khamu and Lao ethnic groups.

The committee includes 6 members with specific duties which include responsibilities for operation of the equipment. These positions are elected but as the term is for 3 years no new members have changed to date. The large number of members is also used to assist in the service provision and trading (loading trucks etc.) on a voluntary basis as they will be paid for their labor when profits are shared. The group meets on a monthly basis to discuss group activities (ploughing, sales, etc.) and plans for following month.

Profits are calculated after operating costs. Sixty percent (60%) of the profits are distributed to the members with the other 40% kept in the group to cover administration, operation and also establishment of a revolving fund for small loans to its members.

The commitment of funds by member has been substantial and the group has used this mechanism as an effective business mechanism to allow it to improve its operation. The initial share in 2008 was THB 25,000 per member. When they faced difficulty with transportation and decided to purchase a truck, they raised additional funds by increasing the share to THB 50,000 and gained co-financing of an additional THB 80,000 from the project. Total capital of the enterprise is THB 1.48 millions. Members can sell their share to other farmers, but only to the people living in the same village cluster and committed to enterprise and its activities. But to date, none of the members have sold their share.

The enterprise was dependent on local carriers to ship their purchase risking delays that could potentially damage the crop. Following year they purchased a 10T truck which allowed them to operate with a higher degree of independence, able to choose where they would sell the maize to. Farmers who had adequate funds financed themselves, but by 2010 their clientele had almost doubled to 150 HHs, representing 35% of the population in their target area.

However not everything went as per the plan. Despite having a license to export directly to Thailand, the group has forgone this opportunity. In one season Thai authorities banned maize imports and another year imposed high tariffs for export. Any delays in negotiating trade issues, the FGE has to face the risk of damage in shipments. As a result they started trading to one of the larger group with export quota and silos domestically. The group also has to compete with Chinese companies that promoted vegetable production vis-à-vis maize.

Costs for maize production increased by 30% but prices have fallen since 200840. Farmers are turning away from producing maize reducing group’s income from maize by more than fifty percent. Maize traded this year was 300 T which went well down from the peak of 800T in 2008. The outlook for maize remains bleak. With this decline, the group, is finding some of the equipment they invested in the past (maize sheller) being unproductive and locking up their capital.

The group has been actively searching to diversify its activities. They purchase NTFPs and a range of other crops. NTFPs have less risk of deterioration and they do use their license to export these. Other equipment such as the truck and tractor are also used for other crops. Rice prices have risen and farmers are finding that they gain higher yields when they plough. Whether these new opportunities will allow the group to survive remains to be seen.

40 In 2008 prices were 5.20 THB/kg and in 2010 were 3.40 THB/kg

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Benefits The group invested on second hand tractor and maize shelling machine, provided inputs (hybrid seed and fertilizer) and ploughing service to 87 HH across the 4 villages. Farmers used these services to expand production area with improved yields and sold corn kernels after shelling. The cluster increased their income from maize by 8 folds.

Committee and equipment of the Phak Ngao FGE This is one o the largest FGE and operates as a cooperative. They were pleased in the first year and re-invested back to purchase a truck, tractor and corn sheller.

Lessons

Functions and benefits

The FGEs can be an effective mechanism to provide services to a substantial number of farmers which then can result in their increased income. FGE’s can be seen as an alternative to ‘cooperatives’. They will not capture maximum potential benefits for general farmers, but they require no investment from farmers and thus do not expose them to risk.

Getting started and maintaining functions Accepting FGEs as a service provider embedded within the rural community, local staff played an important role in facilitating formation of the FGEs through: - assisting farmers articulate their needs and constraints. This in effect identify a business opportunity for those better off farmers who had funds they could invest i.e., the ‘investors’ could assess which services farmers wanted and who would pay for it, the potential clientele - support to the prospective FGEs to prepare business plans and gain registration - providing co-financing to stimulate and support the investment

This process of establishment and registration could be replicated by experienced staff. These would best come from agriculture sector with assistance from DoIC staffs. Linkage

67 with financial institution for provision of low interest loan will help encourage establishment of FGE.

Several aspects FGE give it inherent flexibility and thus capacity to respond quickly to changing business context. First, small number of members allows consultation within the group and rapid decisions making. Second, share structure provides clarity for distribution of profit and a mechanism for members to increase investment in FGE to take advantage of new opportunities.

The groups should be cautious for over investment on equipment specific to one product. This would thus become redundant in the event the market for that collapses. Such ‘risk’ scenarios should be part of the support that staff provide to prospective FGE.

Equitability The provision of exclusive purchase rights (monopsonies) to encourage establishment of FGE has the potential for farmers to be charged too high for services or paid too low for their products. As FGE are based within the communities they service this should prevent gross exploitation. Granting of monopsonies can provide a legitimate stimulus to initiate services in less accessible areas. Such special conditions should be moderated through (a) allowing farmers to nominate the service provider each year or (b) limiting monopsonies to the time needed to established a client base and value chain before trading is opened to other traders. This would also encourage FGE to ensure their services are competitive.

Uncertainties Registration of a group does not provide a passport to profits. Opportunities to export maize directly with registration of the group could not be fully utilized. The major problems faced are complex procedures, uncertain fees on Lao side and uncertain conditions imposed by Thai authorities. Establishment of an association of FGE to discuss trade barrier issues for consideration and discussion with the local authorities might help in finding solutions to many of these uncertainties on trade.

68 7.3 Concept note

Capitalization on Farmer Organizations

Objectives To gain a better understanding of existing typology of farmers organisations and options for the development role of farmer organizations in Laos, particularly the supporting roles that can be played by Government staff in order to ensure balanced achievement of policy goals. The proposed trajectory has following immediate objective:  Analysis: Analysis of existing typology of farmers organisation and learning of best practices in establishment and operation of farmers organisations  Capacity building: Capacity building of agriculture staffs supporting farmer organisations and learning through networking of practitioners  Policy dialogue: drawing lessons learned and capitalizing in rendering policy advise to concerned authorities.

Rationale  There is a growing awareness of the social and environmental costs associated with plantation-type agribusiness, and recognition that smallholder-type agribusiness should be given more attention if the government is to achieve balanced development of rural areas. Pro-poor development potential of the agricultural sector requires an institutional context allows agricultural producers to undertake targeted collective action in production, processing and marketing of product.  MAF (NAFES and NAFRI) has been promoting group-based extension for some years. While the primary purpose for setting up groups has been to receive assistance such as training and credit, there are examples of groups that are also involved in more proactive forms of collective action such as production, marketing and service delivery.  The importance of farmer organizations was identified in earlier capitalization studies supported by LEAP on Contract Farming and the Kumban. Their importance was also recognised during the diagnostic study for the Sub Working Group on the Uplands and the recent MAF strategy on Farmers Organisation.  By comparison to neighbouring countries such as Thailand and Vietnam, Laos lags behind in the development of farmer organisations. In both of those countries, farmer clubs, associations, cooperatives and networks are helping to fill the gap between the public and private sectors. Recent studies on the importance of civil society in contributing to poverty alleviation in Vietnam highlight the importance of farmer’s organisations in poverty alleviation efforts particularly in more remote areas.  At the field level (village, kumban and district), agriculture staff in Laos are not clear about their role with respect to farmer organisations. Their lack of experience and skills in facilitating group processes has been noted in a number of reports leading to under development of the sector.

Key Questions Efficiency: What are the real benefits that could trigger an internal and authentic drive for joining a group from the farmer’s perception? Does it increase profits, improve access (to services), reduce risks and increase bargaining power? What are the motivation and aspiration that keeps these groups moving forward? Pluralism: What are the options for group development? What are the different typologies of farmers groups that exist? What are the different models of farmer organisation that suit the country with heterogeneous and diverse conditions? Inclusiveness: Are groups an effective means for bringing diverse people into the development process (women, minorities, poor), or are they a way for better off farmers to ‘capture’ resources and access to services / markets? Ownership: There is a need to clarify if farmer groups are a means for control, self-reliance or partnership? What do different stakeholders expect and what is actually happening? If local

69 ownership is important, how can that be fostered? What are the trajectories of transformation of successful farmers groups? Support: What is the most appropriate role for government officials like extension workers to play: should they monitor, facilitate, regulate or manage? How are different stakeholders supporting them? Do they have the necessary skills and tools needed to perform these roles?

Approach Appreciative inquiry like approach will be used meaning that the starting point of the proposed trajectory is capitalization on experiences and lessons learned from successfully established and operating farmer organizations in Laos, rather than focussing on failures, constraints and limitations. Process Analysis  Finalise the concept note by sharing with SWGAB members  Formation of the core working group to carry out the documentation  Capitalize on the experiences of the field practitioners through meetings / workshops with field staffs  Field visits for case studies of selected farmer groups  Preparation of draft report  Organise a workshop to validate the findings of the study  Preparation of final report

Capacity Building  Disseminate findings of the analysis  Organise learning networks of practitioners at the local level  Develop need based tools to support FO practitioners

Policy  Disseminate finding of the analysis  Sharing lessons learnt including policy feedbacks from practitioners

Timing  Analysis and documentation - 3 months (February - April 2011)  Capacity building and Policy dialogue – 9 months (March – October 2011)

The analysis and its inter connected activities are learning trajectory in itself (including peer-to peer exchange and learning) it is proposed to spread activities over a period of time allowing for sufficient reflection, learning and feed-back from all stakeholders involved.

Potential sites for case studies 1. Rubber, maize groups in Luang Namtha 2. Maize producer groups - Bokeo 3. Bamboo producer groups, Houaphanh and Sangthone (SNV) 4. LEA learning groups, Farmers Association in Khoun, EMRIP supported rice producer groups, Organic rice and vegetable groups (Helvetas) 5. Coffee producer groups, cooperatives and association (AGPC) 6. Production and marketing groups in Luangprabang and Xieng Khouang (SADU / NAFRI) 7. Rice seed producer groups in the South – RPIP, NRRP, NAFRI 8. Livestock group in the North (Livelihoods improvement through livestock project) 9. Commercial agriculture production groups supported by SHDP in the South

70 7.4 Schedule of study

Date Location/activity 02 – 03 May 2011 Meeting with LEAP (Michael Jones & Rakesh Munankami), NAFES (Mr. Somxay Sisanonh), Team meeting and select cases 04 May 2011 Meeting with Dr. Linkham, PRC, NAFRI Meeting with Dr. Jean-Christohpe Castella, IRD/CIFOR/NAFRI Meeting with EMRIP project (Ranjan Shrestha and Andrew Wilson), HELVETAS / SNV 05 May 2011 Meeting with Dr. Liliane Ortega, Deputy Country Director, SDC Meeting with Lao Font for National Construction 06 May 2011 Meeting with Department of Planning (Mr Inthadone), MAF 07 May 2011 Team meeting and Preparation for field CASE - Field Study - Team 1 (Connell / Photakhoun) 08 May 2011 Travel to Xieng Khouang / Nong Het 09 May 2011 Nong Het / B. Phalouang (cattle trading) / travel to Phonsavanh 10 May 2011 Khoun / B. Hoy (green vegetables) Khoun / B. Tan Tai (organic coffee) 11 May 2011 Paek / Organic vegetable marketing (market and DAFO) Phonesavanh / Dept. Industry and Commerce – Mr. Thongsavanh 12 May 2011 Travel to Sam Neua, Huaphanh 13 May 2011 PAFO and DoIC, Meeting with Martin Greijmans (SNV) Vienxay / B. Phouosane (bamboo handicrafts) 14 May 2011 Travel to Phonesavanh 15 May 2011 Travel to Vientiane 16 May 2011 Travel to Khammouane 17 May 2011 Nongbok / B. Moun (pig production group) Nongbok / B. Naa Wangthong (WUG, seed production) 18 May 2011 Nongbok / B. Naa Tai (commercial rice production) Paksan / Khammouane Rice Millers Group (Mrs. Vannsana) 19 May 2011 Nongbok / B. Donpalart (commercial rice production) Nong Bok / rice miller (Mr. Chante) 20 May 2011 Travel to Vientiane Full Team - wrap-up and planning CASE - Field Study - Team 2 (Folkard / Viravong) 16 May 2011 Travel to Pakse AGPC board 17 May 2011 Paksong/ B. Katoud (coffee producer coop) Paksong / B. Nongsoon / (cabbage producer group) 18 May 2011 Sanasomboun, (prospective commercial rice producer cooperative) Sanasomboun / B. Nongkhen (Handicraft) 19 May 2011 Paksong/ B. Maisomboun (coffee producer group/AGPC member) 20 May 2011 Travel to Vientiane /Full Team meeting (as above) CASE - Field Study - Team 1b (Connell / Viravong) 13 June 2011 Travel to Oudomxay 14 June 2011 Namo / B. Paknamtong, (Women pig production group + bank loan) Namo / Nampheng (NTFP trading group) 15 June 2011 Travel to Houeixai 16 June 2011 Houeixai / B. Dinchee (rubber production group) 17 June 2011 Houeixai / B. Phak Ngao (Farmer Group Enterprise for maize) 18 June 2011 Travel to Vientiane Reporting and workshop / Vientiane 20-24 June 2011 Data interpretation, analysis and preparation for workshop 27-29 June 2011 Workshop on FO – Cases presented by FO or facilitators FO 30 June 2011 Preparation for presentation to SWGAB members 01 July 2011 Presentation of preliminary findings to SWGAB members

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