Rubber Investments and Market Linkages in Lao PDR: Approaches for Sustainability
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DISCUSSION PAPER Rubber investments and market linkages in Lao PDR: approaches for sustainability Charlotte Hicks, International Union for Conservation of Nature (IUCN) Lao PDR Dr Saykham Voladeth, National Economic Research Institute (NERI) of Lao PDR Weiyi Shi, Independent Consultant Zhong Guifeng, GMS Study Center, Yunnan University Sun Lei, GMS Study Center, Yunnan University Pham Quang Tu, Consultancy on Development (CODE) Marc Kalina, IUCN Asia Regional Office March 2009 The Sustainable Mekong Research Network CONTENTS Acknowledgements 3 Acronyms and Abbreviations 4 Summary 6 1. Introduction 10 2. Methodologies 14 3. Lao PDR’s Rubber Sector 17 4. China’s Role in the Lao Rubber Sector 44 5. Vietnam’s Role in the Lao Rubber Sector 75 6. Discussion: Challenges for Sustainable and Equitable Rubber Development 94 7. Approaches for Sustainable Rubber Production and Investments 96 8. Conclusions and Recommendations 114 References 120 Appendices 129 List of Tables and Figures Figure 1. Global demand for rubber until 2020 17 Figure 2. Rubber consumption by countries, 2006 18 Figure 3. Estimated Demand for Natural Rubber until 2020 (in million tons) 19 Table 1. Global natural rubber supply until 2020 (in million tons) 20 Figure 4. Demand-Supply Gap for Natural Rubber in Global Market until 2020 21 Figure 5. Natural rubber price from 1995 to 2007 22 Table 2. Current and projected areas of rubber, 2006 and 2010 24 Figure 6. Demand, production and import of natural rubber in China until 2020 40 (in million tons) Figure 7. China's Natural Rubber Consumption: Domestic Production vs. Import 46 (million tons) Table 3. Formal Chinese Rubber Companies in northern Lao PDR 51 Figure 8. Rubber Planting in Luang Namtha and Bokeo, Villagers vs Company- 53 Led Table 4. Target and Potential for Planting Rubber in Lao PDR 53 Figure 9. Stakeholder Relationships 57 Box 1. Contract Farming in Luang Namtha vs. Bokeo 63 Table 5. Intercropping in Rubber Plantations in Bokeo 64 Table 6. Tire Production vs. Natural Rubber Consumption in China: 2001- 2006 70 Figure 10. MRB FOB Noon Prices for SMR20 (US Cents/Kg) 71 Figure 11. Area of planted rubber in the north of Vietnam (1960-1975) 76 Figure 12. Natural rubber harvested in the north of Vietnam (1960 -1975) 77 Table 7. Area of rubber in Vietnam (1976 - 1985) 77 Figure 13. Area of planted rubber in Vietnam (1985-2007) 78 Figure 14. Harvested rubber and exported value (1986-2007) 78 Figure 15. Area of planted rubber according to ownership 79 Table 8. Ten largest importers of Vietnamese rubber sector and their imported 81 volume (Unit: 1,000 ton) 2 ACKNOWLEGEMENTS This collaborative research report has been prepared by a research team including: Dr Saykham Voladet of the National Economic Research Institute (NERI), Lao PDR, with support from Ms Phutthasone Simavong and Ms Oulaphone Pheungsavane; Ms Weiyi Shi; an independent consultant; Mr. Guifeng Zhong and Mr. Lei Sun of the Greater Mekong Subregion Study Center of Yunnan University; Mr. Pham Quang Tu and Mr. Le Quang Trung of Consultancy on Development, Vietnam; Mr. Nguyen Cao Cuong, Foreign Investment Enterprises Magazine, Vietnam; Mr. Marc Kalina, Asia Region Business and Biodiversity Programme, IUCN; and Ms Charlotte Hicks, IUCN Lao PDR. The project was assisted by the overall supervision and coordination of Mme Latsamay Sylavong (Country Representative, IUCN Lao PDR), Dr Leeber Leebouapao (Deputy Director, NERI), Dr Khampay Manivong (Deputy Director General, NAFRI) and Dr. Xing Lu, Director of the GMS Study Center, Yunnan University. The report is based on desk-based research and literature reviews, as well as wide- ranging interviews with key stakeholders in Lao PDR, China and Vietnam. The research team would like to acknowledge the cooperation and assistance of all those who participated in surveys in Vientiane Municipality, Luang Namtha Province, Champassak Province and Bokeo Province in Lao PDR, Yunnan Province in China, and Dak Lak, Gia Lai and Binh Duong Provinces, and Ho Chi Minh City in Vietnam. In addition, the team would like to thank the provincial line agencies who made these surveys possible, as well as VECO in Bokeo Province. We also extend out thanks to Dr. Qu Jianwen, Vice-Dean of the Yunnan University School of International Studies, and Ms. Gao Lihong, Director for the Xishuangbanna Science and Technology Bureau, for their invaluable assistance in organizing and supporting research in China and our researchers’ visit to Xishuangbanna, Yunnan Province. In addition, we would like to express our thanks to key Lao government agencies and institutes who provided guidance and assistance in preparing this report, including the Department of Investment (MPI), NAFRI, ERI and NERI. Valuable advice and comments were also provided by: Mr. Mahinda Goonasekara (IUCN Sri Lanka) on forest certification in Sri Lanka; and Dr. Horst Weyerhaeuser (NAFRI), Dr. Laxman Joshi (ICRAF), Mr. Stephen Midgely (Salwood Asia Pacific) and Mr. Thibault Ledecq (WWF Greater Mekong) on agroforestry and certification options in the region. We would also like to thank Mr. Phaivanh Phiapapaleth and Mr. Xiong Tsechalicha of IUCN Lao PDR for their assistance and support. Finally, this report could not have been produced without the generous support of the Stockholm Environment Institute, through the Sustainable Mekong Research Network (Sumernet). While acknowledging the contribution of the partner organizations in this project, any errors or omissions in this report are the responsibility of the authors. 3 Acronyms and abbreviations ADB Asian Development Bank APB Agricultural Promotion Bank ANRPC Association Of Natural Rubber Producing Countries ASEAN The Association of Southeast Asian Nations CDM Clean Development Mechanism CPMI Committee for Promotion and Management of Investment (Lao PDR) CRIA China Rubber Industry Association CSR Corporate Social Responsibility DAFEO District Agriculture and Forestry Extension Office (Lao PDR) DAKRUCO Dak Lak Rubber Corporation DDFI Department of Domestic and Foreign Investment (Lao PDR) DPRA Development project responsible agency EIA Environmental Impact Assessment EMP Environmental Management Plan EU European Union FOB Free On Board FSC Forest Stewardship Council FTA Free Trade Agreement GDP Gross Domestic Product GEI Global Environment Institute GMS Greater Mekong Subregion GoL Government of Lao PDR GoY Government of Yunnan GSF Guangdong State Farms GSO General Statistics Office (Vietnam) Ha Hectare HAGL Hoang Anh Gia Lai Group HSF Hainan State Farms ICRAF World Agroforestry Centre IEE Initial Environmental Examination IRB India Rubber Board IRSG International Rubber Study Group IUCN International Union for Conservation of Nature IUCN ARO IUCN Asia Regional Office Lao PDR Lao People’s Democratic Republic LNCCI Lao National Chamber of Commerce and Industry MAF Ministry of Agriculture and Forestry (Lao PDR) MIC Ministry of Industry and Commerce (Lao PDR) MOF Ministry of Finance (Lao PDR) MPI Ministry of Planning and Investment (Lao PDR) MRB Malaysian Rubber Board NAFES National Agriculture and Forestry Extension Service (Lao PDR) NAFRI National Agriculture and Forestry Research Institute (Lao PDR) NDRC National Development and Reform Commission (China) NERI National Economic Research Institute (Lao PDR) NGO Non-governmental organization Northern Laos Industrial Economic Development and Cooperation Planning NLIEDCPPG Preparation Group NLMA National Land Management Authority (Lao PDR) NTFP Non-Timber Forest Product ORRAF Office of the Rubber Replanting Aid Fund (Thailand) PAFO Provincial Agriculture and Forestry Office (Lao PDR) PCR Passenger Car Radial Tire PDoC Provincial Department of Commerce (Lao PDR) PDPI Provincial Department of Planning and Investment (Lao PDR) PLMA Provincial Land Management Authority (Lao PDR) 4 PRSF Poppy Replacement Special Fund RGS Rubber Growers’ Society SAN Sustainable Agriculture Network SFA State Forestry Administration (China) SMR20 Standard Malaysian Rubber Grade 20 SVR Standard Vietnamese Rubber Sumernet Sustainable Mekong Research Network UNFCCC United Nations Framework Convention on Climate Change VAT Value Added Tax VRG Vietnam Rubber Group WBCSD World Business Council for Sustainable Development WREA Water Resources and Environment Administration (Lao PDR) WTO World Trade Organization YADA Yunnan Alternative Development Association YSF Yunnan State Farms 5 SUMMARY Lao PDR is currently experiencing a sudden, rapid and largely uncontrolled expansion of rubber cultivation. It is clear that growth in China’s demand for rubber is influencing the Chinese investment in rubber planting in northern Lao PDR and is very likely influencing the Vietnamese proposals for rubber plantation expansion in southern Lao. Some industry experts predict that the estimated 28 000 hectares of rubber plantations in Lao at present will grow to some 300 000 hectares by 2020. This study is the result of collaborative research undertaken by the International Union for Conservation of Nature (IUCN) Lao PDR Office with partners in Lao PDR, China and Vietnam, with support from the Sustainable Mekong Research Network (Sumernet). The overall goal of Sumernet is to enhance the governance of natural resources and to catalyze the transition to sustainability in the Mekong region. In 2008, Sumernet supported a series of interlinked research projects, including this study, into rubber development in the Greater Mekong Sub-region (GMS), with a focus on the recent, rapid increase in rubber cultivation in Lao PDR. This study aims to