2-5. The Outlook for Cotton Production and its Ecological Aptitudes in the Lao P.D.R.

Mitsuru SONOE

Summary

This report aims at elucidating the present situation of cotton production in Lao P.D.R. (herein after referred to as ) and proposing an outlook for the development of cotton production by ecologically adaptive ways. In Laos, indigenous cotton varieties have traditionally been grown not for supplying industrial material, but for self-consumption by households. Traditional cotton varieties grown in Laos are fāi nō֊i and fāi tūn, belonging to the tree cotton family (Gossypium arboretum); fāi nyai, belonging to the upland cotton family (G. hirsutum); and fāi chan, a variety of sea-island cotton (G. barbadense). Fāi tūn has light brown fibres. While fāi nō֊i is the main variety of cotton produced in Laos with comparatively high potential, production of other varieties must increase to make fine yarn as industrial material. Therefore, it should be necessary to increase production of other cotton varieties for this purpose. At the present time, there are two centres of cotton production in Laos: around Luang Phabang, the mountainous area of the northern region, and Savannakhet–Champasak in the Corridor of the central region. Furthermore, agro-ecology in these two regions is clearly differentiated. In the north, fāi nō֊i has been cultivated chiefly in slash-and-burn fields on slopes, while in the central region, fāi nō֊i is cultivated at the back of paddy fields in the rainy season and fāi nyai at river terraces in the dry season. Both agro-ecosystems have high land productivities, maintained by with no manure applying and low land pressure, especially in the northern region. However, labour shortages in the farming season, especially when harvesting cotton bolls, leads to the introduction of foreign matter and damage to the cotton fibre’s quality. Until 2002, the company Lao Cotton LPQ had promoted contract cotton cultivation in the northern region. Contract nonfulfillment, the intervention of Thai merchants, and the limitation of the domestic market may have contributed to its unsuccessful end. While the demand for cotton production in far exceeds the supply, the length of Lao cotton fibres—38 millimeters and below—means Lao cotton as industrial material is not a direct market competitor. Nevertheless, the lack of domestic traffic facilities in Laos means cotton is temporarily exported to Thailand and re-imported into Laos as cotton yarns, thus still depriving the Laos processing industry. From an agro-ecosystem viewpoint, cotton production in both the northern and central regions of Laos has huge potential. The fāi nō֊i cotton production in the north can be replaced by fāi nyai or fāi chan production with a high added value. As for the central region, existing systems can be appropriated to expand cotton production in the dry season.

－196－ In any case, Lao cotton production can be further developed as a means of increasing income in rural economies and of producing industrial products by creating domestic demand and improving production-to-distribution channels. It can also be used to create a new “chemical-free” brand or offer different products such as the sea-island cotton of the West Indies and Swatow, .

－197－ Contents 1. Overview of Cotton Production in Lao P.D.R. 2. Cotton Production Environment and Cultivation Technology in Lao P. D. R. (Comparison of the Montane Area of Northern Region and Mekong Corridor of Central Region) 3. Contract Cultivation Promoted by the Lao Cotton Luang Phabang Branch (FY2000/01 Report) 4. The Outlook for Cotton Production by Agro-Ecosystem and Variety 5. Appendix: Comparison with Cotton Production and Market in Thailand (FY2000/01 Report) and Issues Concerning Raw Cotton Quality and Export/Import

1. Overview of Cotton Production in Lao P.D.R. For the most part, traditional cotton production in Lao P.D.R. (hereinafter referred to as Laos) was originally the work of such ethnic groups as Lue, Tai Dam (Black Tai), Lanten (Lao Huai), and Phutai to self-consumption. The major production areas are in the northern part of the country, in the provinces of Huaphan, Oudomxay, Luang Phabang, , Phongsaly, and Xanyabouly. However, there are also production areas in the provinces Savannakhet and Champasak along Mekong River in Central and Southern Laos. The indigenous variety of cotton in Laos include fāi nō֊i, belonging to Gossypium arboretum tree cotton species which is native to and grows to a height of more than 3 meters, and the fāi tūn, a variety whose fibre is a light-brown colour. In Northern Laos, cotton is grown in small lots or intercropped with other crops in slash-and-burn fields near settlements. In Mekong Corridor of Central and Southern Laos, cotton is cultivated in river terraces. There are documents dating back to the period of French Indochina that describe the promising prospect of “fay doc gniay” and “fay doc noc” cultivation especially in Northern Laos.1 In most cases, seed cotton is ginned using a traditional cotton gin to separate the seed from the cotton fibre to obtain raw cotton. The raw cotton is beaten with a cotton bow, wrapped around a narrow bamboo, and made into a cotton sliver ten-some centimetres long. The sliver is then spun using a spinning wheel with a steel spindle and woven into a white cloth. The cloth is dyed indigo or black with khām: Chinese indigo (Polygonum tinctorium), hō֊m : indigo (Baphicacanthus cusia), and other such dyes and made into everyday clothes. There are some demands for the white cloth and indigo-dyed cotton as handicrafts today, but traditional cotton production is basically continued only as a small-scale cottage industry. There is large demand for cotton as industrial material, but long and uniform cotton fibre is indispensable for machine spinning and weaving thin cotton cloths. In this respect, tree cotton apparently has great potential, since it is highly resistant to diseases and it produces strong cotton fibre. However, strong though it may be, the cotton fibre of tree cotton is short, and for textile purposes, it can only be made into thick yarns below Count 30. The global trend today is leaning toward the cultivation of upland cotton (G. hirsutum), and many improvements are being made in its varieties. Upland cotton is regarded

1 Thése. 1927. De problème cotonnier et l’Indochine.: Paris.

－198－ as a hybrid of Asian cotton and American wild cotton. For the above reason, cotton varieties cultivated for market purposes in Laos today are mainly the fāi nyai, one of the native varieties of upland cotton that can produce cotton fibre as long as 26 to 32 mm, and other upland cotton varieties such as Kham Khāo1 (length of cotton fibre: 32-34 mm), an F1 variety which originated in India, became native to Uzbekistan and was introduced to Laos in the 1990s, Kham Khāo3, an improved variety of Kham Khāo1, and the improved variety NH4 of .

The sections below discuss the present situation of cotton production in Laos through case studies of cotton cultivation in the montane area of northern region and Mekong Corridor of central region of Laos and the contract cultivation and cotton buying schemes of Lao Cotton Co., Ltd. which continued until 2002 in Northern Laos. Another section analyzes the suitability of cotton production from the perspective of agro-ecosystem. Finally, a supplementary discussion is provided on cotton production and market trends in Northeast Thailand.

2. Cotton Production Environment and Cultivation Technology in Laos (Comparison of the Montane Area of Northern Region and Mekong Corridor of Central Region) 1) The Montane Area of Northern Region (the cases of Luang Phabang and Oudomxay) Agriculturally suitable land in Northern Laos is generally limited by topographic constraints. Farming is conducted in a compound agro-ecosystem consisting of small-lot paddy fields along the river system and upland or industrial crops on slopes (see Fig. 1). In slash-and-burn fields in the north, crops are planted during the period when the savannah and bush fallow. Upland rice is the principle crop, and is alternately cultivated with sesame, Job’s tears (Coix lachryma-jobi), and cotton. After their harvest, the land is left fallow for one to two years. For cotton cultivation, the is cleared by three to four people using machetes or knives in early April and is burned a month or so later. It is then surrounded by a barbed-wire fence to prevent the intrusion of that graze in the woods. Around mid-May when it starts raining, seeds are sown using a digging stick. Their spacing differs according to variety, but it is approximately 70 × 100 cm for Kham Khāo varieties, 50 × 100 cm for fāi nyai, and 30 × 70 cm for fāi nō֊i and fāi tūn since these two varieties have no lateral branches. Among the modern varieties, Kham Khāo varieties are relatively suited to slope farming, so they can be cultivated with hardly any drop in their expected yield. Before the seeds are sown, they are kneaded with ash or dirt to remove the wax and linter from the seed surface. In slash-and-burn fields, the shortened fallow period causes a serious struggle for survival between crops and weeds. Therefore, until harvesting, weeding work accounts for an increasingly large share of all work related to cotton cultivation. Using a small hoe called wæk, the field is first weeded prior to sowing the seeds, and about three to six times after that at intervals of three to four weeks until harvesting. In the case of modern varieties, lateral branches are sometimes trimmed and the number of cotton bolls is controlled so that each boll can mature adequately.

－199－ It takes 120 days for the cotton boll of modern varieties to mature, and approximately 130 to 140 days for indigenous varieties. In either case, the plants are thinned and harvested about four times at intervals of four to five days beginning with those that have dehisced first. Harvesting involves picking only the seeds surrounded by the cotton fibre in bolls that have dehisced. Harvesting season is from the end of October to January. The average yield per hectare of seed cotton from Kham Khāo varieties, fāi nyai, fāi nō֊i, and fāi tūn, are 1.2 to 1.7 tons, 800 to 1,000 kg, and 400 to 800 kg, respectively. Shifting cultivation in Northern Laos is sensitive to temporary rises in cost of such commercial crops as Job’s tears and sesame, and there are frequent illegal expansions of slash-and-burn fields. Cotton cultivation is not an exception, but compared to other industrial crops, there is still room for market expansion for cotton in Laos. Additionally, since cotton is a lignifying perennial herbaceous plant which can be intercropped with other crops, it has relatively little burden on the land.

2) Mekong Corridor of Central Region (the case of Savannakhet) Cotton is planted only once in the north during the rainy season, but in Mekong Corridor of central region, it is planted twice in two different styles. During the rainy season, fāi nō֊i belonging to the native tree cotton is intercropped with other crops in slash-and-burn fields in the uplands, and during the dry season, upland cotton variety called fāi nyai is planted in the river . Dry season cotton cultivation in the river terrace takes advantage of the fertile deposited by the rainy season flood. Since irrigation conditions are also favourable, cotton can be cultivated with little input. Additionally, since cotton can be intercropped with khām: Chinese indigo and vegetables such as maize, high land productivity can be achieved (see Fig. 2). However, river terraces are constantly exposed to the risk of out-of-season floods, and there is an ever-present dilemma between obtaining high yield with low input and the need to rejuvenate the soil. Once the seeds are planted in the river terrace at the end of October, the cotton plant is practically left abandoned until harvesting begins at the end of March. Since the new soil deposited by the flood is extremely fertile, no weeding is necessary. Harvesting lasts approximately a month. On the other hand, tree cotton which is mainly cultivated at the back of paddy fields during the rainy season requires no fertilizing, but compared to cotton cultivated in the river terrace, the yield is small even when variety difference is taken into consideration. At the back of paddy field and slash-and-burn fields, seeds are sown in mid-May, and cotton is harvested from the end of October to mid-November. The fields are sometimes weeded as necessary, but no is applied. The low input is therefore the same as cultivating cotton in a river terrace. No trimming work is required either, as is done in Northern Laos. Tree cotton grows tall and must be thinned intermittently. Regardless of the high labour input required, however, only a relatively small yield can be obtained. Also in terms of quality, it does not measure up to that of upland cotton.

－200－ 3. Contract Cultivation Promoted by Lao Cotton Co., Ltd. Luang Phabang Branch Lao Cotton Co., Ltd. Luang Phabang Branch (LPQ) was founded when agricultural brokers in Luang Phabang signed an agency agreement with the Lao Cotton Head Office in Vientiane in the beginning of the 1990s and subcontracted northern for the cultivation of cotton. The agency agreement has been dissolved, but the brokers still play a central part in delivering raw cotton from the north to Vientiane today. The following information is of 2002, and shows the scope of Lao Cotton LPQ’s contract cultivation at the time. Lao Cotton LPQ originally promoted contract cultivation mainly in Luang Phabang and Xanyabouly, but in fiscal year 2000/2001, it expanded its contract cultivation to Oudomxay, Phongsaly, and Kasi in Vientiane Province on a trial basis. Table 1 shows the scope of contract cultivation in 2001. Table 2 provides a reference of cultivation acreage, although data on actual yield from cotton production in Laos is lacking.

Table 1 Seed Distribution by Lao Cotton LPQ Branch 2001 No. of Area Name of Province (ha) Amount of Seeds (kg) Remark Luang Phabang 23 99.3 1,986 Oudomxay 5 67.5 1,350 Phongsaly 5 20 400 Trial Vientiane (Kasi) 2 12.5 250 Trial Xanyaboulｙ 5 10 200 Trial Source: Interview by the author at Lao Cotton LPQ

Table 2 Cotton Production in Northern Lao P.D.R., 1998/99 Province Planted Area (ha) No. of Households Luang Namtha 34 453 Oudomxay 29 300 Luang Phabang 50 287 Huaphan 146 1,447 Xanyabouly 1,954 4,206 Source: Agric. Census 1998/99

Xanyabouly Province was originally a centre of cotton cultivation with main production bases in Pak Lay, Ken Thao, and Boten in the southern part. However, the production in that area is mainly the traditional tree cotton production in slash-and-burn fields. In addition, its domestic access to Vientiane is poor and geographical condition allows easy intervention by Thai merchants. Therefore, Lao Cotton LPQ just bought seed cotton from Xanyabouly, but it transferred the larger part of its contract cultivation to Luang Phabang and Oudomxay. For this reason, contrary to the information presented in Table 2, cotton is hardly cultivated anymore in Xanyabouly. Raw cotton produced in Laos is classified into four grades according to the standards of the Lao Cotton Co., Ltd. Vientiane Head Office. Generally speaking, length of fiber of the cotton below 24 mm cannot be

－201－ spun by machine spinning and is limited to handicraft by spinning using the traditional spinning wheels, and basically, this cotton is not produced by contract cultivation. However, because there is demand for short-fibre cotton in villages in Luang Phabang, the short fibre variety of Xanyabouly is bought separately from others that are delivered to the Vientiane Head Office. In both Xanyabouly and Luang Phabang, fāi nyai is the principle variety, and is grown in slash-and-burn fields without applying fertilizer. However, whereas fāi nyai cultivated in Xanyabouly produces cotton fibres 24 to 26 mm long, that cultivated in Luang Phabang produce cotton fibres as long as 28 to 32 mm. In Thailand, BT and Si Samlong 60 are mainly cultivated. They are F1 varieties known for their high fertilizer responsiveness. The standard for cotton trade is cotton having fibres longer than 1.5 inches (38.1 mm), which are further classified into five grades: grades A to D are determined according to a visual inspection of foreign matter content, and cotton with fibres shorter than 1.2 inches (34.8 mm) are considered sub-standard. Most of the cotton produced in Laos, including the upland varieties, belongs to the sub-standard grade because of their short fibres. In other words, Laos is not yet at the level to compete directly with Thailand.

Table 3 Price of Cotton by Grade (2001) (unit: kg) Length of Fibre Lao P.D.R.1 Thailand4 Grade Buying Price2 Selling Price3 Grade Buying Price5 Selling Price6 38 mm (1.5'')- A(1) 22 THB 45 THB B(2) C(3) D(4) 15 THB 40 THB -38 mm Sub-standard 14 THB 30-34 mm Ⅰ 2,000 KIP 1.4 USD 28-30 mm Ⅱ 2,000 KIP 1.3 USD 24-28 mm Ⅲ 2,000 KIP/10 THB7 1.2 USD 22-24 mm Ⅳ 2,000 KIP 12,000 KIP 1: Seed Cotton/Raw Cotton = 4/1 2: Seed Cotton, Contract Price with Credit 3: Raw Cotton, Local Price in LPQ for Lao Cotton in VTE 4: Seed Cotton/Raw Cotton = 3/1 5: Seed Cotton, Local Price in Loei 6: Raw Cotton, CIF Loei/Pisanulok 7: Buying Contract only in Xanyabouly Source: by the author

－202－ The contract cultivation of cotton in Northern Laos is performed in the following steps. First is to make contract. Every year, in January, participants are invited, and contract units of several to ten and several households each are determined through the intermediation of each . In Oudomxay, each village is taken as a contract unit. The barbed wire for fencing to prevent the intrusion animals is distributed to the groups before the field is cleared in April, and seeds are supplied between April and June. The seeds are not distributed to groups in Xaynabouly, however, because Lao Cotton LPQ only buys seed cotton from them. The field is burnt approximately two weeks after it is cleared, and is burnt a second time after another two weeks. After that, the seeds are sown in mid-July. 11 kg of seeds are sown per hectare at a standard spacing of 1 m × 60 cm–1 m. As the plants mature, their branches are trimmed so that each plant has only one or two lateral branches and the cotton bolls can grow sufficiently. Between August and October, after taking into account the cultivation condition, 40% of the guaranteed buying price of 2,000 Kip/kg multiplied by a projected seed cotton yield of 400 kg per 10 kg of seeds sown is paid in advance as temporary payment. The final buying price of seed cotton is adjusted separately after harvesting. Until harvesting, weeds are removed with a hoe six to seven times. Cotton harvesting basically involves manually picking the dehisced bolls. In addition to being a highly labour intensive task, heavy physical labour is also required to pick cotton from cotton trees that are more than three meters high and stand in fields along a mountain slope. That is why cotton farmers often resort to beating the tree with a stick or other tool to drop the cotton bolls and collect the seed cotton that have fallen to the ground instead of picking them manually. However, this method causes twigs, dirt, and other foreign matter to adhere to the seed cotton and in effect decreases the commercial value of the cotton, as well as adversely affects the spinning work and other processing works. This problem is especially noticeable in Xanyabouly, where tree cotton is predominantly cultivated. Cotton is harvested accordingly during the period from mid-October to January of the following year. Seed cotton is transported to Lao Cotton LPQ in Luang Phabang in 50-kg sacks. There are cases where the delivery cost is paid upon receipt of the cotton at Luang Phabang, but in most cases the sacks are collected by Lao Cotton LPQ. Quantification of the seed cotton at the time of purchase is based on rough weight. In 2001, the actual buying price was 2,000-2,500 Kip/kg. Normally, the weight yield of raw cotton after the seeds and fibres are removed from the seed cotton is 3:1, but in the case of Lao cotton, it is generally 4:1. The seeds are sold separately to a fertilizer factory in Vientiane at 500 Kip/kg. The purchased seed cotton is dried in the sun for ten days and in the shade for two more days before it is ginned. In Laos, motorized cotton gins are only available in Luang Phabang, Champasak, and Savannakhet, and cotton spinning can only be performed in Lao Cotton Co., Ltd. Head Office in Vientiane. Therefore, cotton produced north of Luang Phabang is ginned in Luang Phabang and transported to Vientiane, but in the case of Xaynabouly, seed cotton is directly delivered to Vientiane. The

－203－ selling price of raw cotton to Lao Cotton Co., Ltd. Head Office is as shown in Table 3, but it is only the price for the transaction at Luang Phabang. In actuality, the freight charge and tariff shown in Table 4 are added to the selling price.

Table 4 Freight and Tariff of Cotton in Lao P.D.R. Item Description Unit Price Amount1 Remark Tariff 6% of Value Freight LPQ-VTE 500 Kip/kg 2,500,000 Kip Raw Cotton Seed Cotton cf. 2.8＊4 = 11.2 ZBY-VTE 2.8 THB/kg 14,000 THB THB/kg 1: per lot = 5 tons of trucking LPQ: Luang Phabang, ZBY: Xanyabouly, VTE: Vientiane Source: Interview by the author at Lao Cotton LPQ

Considering the above, in the case of Xanyabouly, the delivery price of raw cotton at Vientiane becomes close to 70 THB, which is even higher than the selling price of Grade A cotton in Thailand.

4. Outlook of Cotton Production by Agro-Ecosystem and Variety Gathering from the discussion presented so far, cotton production in Laos seems to have potential as a whole in terms of cotton cultivation. However, the difference in geographical conditions between Northern Laos and Central and Southern Laos is an important factor in examining appropriate combinations of cultivation varieties and technologies. As previously mentioned, Northern Laos displays a fundamental agro-ecosystem consisting of paddy fields in the lowland and upland rice and industrial crops along the slope. Small valley plains, and montane basins are used as paddy fields during the rainy season, and cotton is rotated or intercropped with upland rice and other industrial crops along slopes. From a physiological perspective, indigenous cotton varieties can be said to have sufficient potential to be cultivated in slash-and-burn fields, but modern varieties are not suited to cultivation along the slopes where land fertility is relatively low. Furthermore, because the harvesting season of cotton coincides with that of rice, the largest obstacle to cotton cultivation is the lack of labour for the thinning task due to the concentration of labour during this period. On the other hand, in Mekong Corridor of central region of Laos, cotton is intercropped with other crops in the river terrace during the dry season. The principle variety is the fāi nyai, which requires little input in terms of both capital and labour, but produces competitive, good-quality cotton. With the development of irrigation facilities, double cropping is increasing in the paddy fields, and there is little scope for expanding cotton acreage at present. However, considering the fact that the expansion of rice production in Savannakhet is a result of the increased yield during the rainy season and not the dry season, it would be possible to cultivate an appropriate variety of cotton as a subsidiary crop when rice production of the paddy field is not stable during the dry season. The facts presented above indicate that, in the north, a concentration of labour should be placed on

－204－ cultivating high added-value varieties having characteristic properties such as the fāi tūn rather than increasing yields by introducing modern varieties and in Mekong Corridor of central region, cultivation should be centred on the fāi nyai. Doing so would prove effective in quantitatively expanding production while also giving consideration to introducing modern varieties and improving indigenous varieties. In terms of variety, the uniqueness of Lao cotton could be maintained while simultaneously improving productivity and quality by further encouraging the cultivation of indigenous upland cotton promoted by Lao Cotton Co., Ltd. today to take the place of tree cotton, which requires much labour during harvesting season because the trees are high and the cotton bolls are small. Some brokers are specifically promoting the contract cultivation of Savannahkhet’s fāi nyai and the fāi tūn of northern Laos, or are preferentially buy those varieties and even exporting products made from these raw materials to foreign markets. Additionally, although it has received little attention in Laos, the diffusion of fāi chan, the same species as sea island cotton (Gossypium barbadense) is also worthy of consideration. Fāi chan is grown in the area from Northern Thailand to Northern Laos, and has taken root as one of Laos’ indigenous varieties (Egyptian cotton comes from the same species). Sea island cotton is well-known in relation to the West Indies and Swatow, China. It may not measure up to the yield of the modern varieties of upland cotton, but it produces cotton fibres 38 to 50 mm long, which is the longest of any cotton variety, and can therefore be spun into thin yarns of yarn numbers from 100 to 140. Owing to the fine touch of cloths woven from sea island cotton, it is today garnering worldwide attention as an exceptional commodity, and is clearly distinguished from the upland cotton market. Moreover, because it is similar to the indigenous varieties, sufficient yield can be obtained even if carelessly cultivated in a slash-and-burn field. Compared to the modern varieties of upland cotton, sea island cotton is more suited to the agricultural conditions in Laos. However, it is important to be fully aware of the fact that if foreign matter gets mixed with cotton or if cotton fibre is damaged when harvesting, they could greatly decrease productivity. Also, there are reports that spinning machines used today are not suited to this variety of cotton. Therefore, although there are potential possibilities for sea island cotton, there are also many issues that need to be addressed first. In the medical field, there was a time when Lao Cotton LPQ explored the possibility of supplying bandages and other sanitary cotton for medical uses. However, this calls for a high level of quality control, and the stable production of cotton is imperative, because medical cotton products are generally made from the linter that is separated from the seed after ginning. Seeking to respond to medical demand will lead to the enhancement of the added-value of cotton itself and also to exploring the potential of using seeds as an industrial material, whereas they are presently sold as fertilizer immediately after ginning. In hotels and other such establishments, the linen supply is almost all from Thailand. However, since linen can be made using relatively thick yarn, domestic cotton can sufficiently take the place of imported linen products. Even as clothing material, it can be used to make Oxford cloths, so there is no reason why domestic cotton should be considered disadvantageous. Generally speaking, the fact that domestically produced raw cotton is exported is an indication that cotton production in Laos can compete on a relatively equal basis with cotton production in Thailand. The only problem is that under the AFTA-CEPT,

－205－ it is difficult to control the outflow of raw materials and inflow of primary processed goods due to the tariff scheme. In any case, however, cotton production can be further developed as a means of increasing income in rural economies and of producing industrial products by creating domestic demand and improving the channel from production to distribution, as well as by creating a new “chemical-free” brand or offering differential products such as sea island cotton. At some luxury hotels in Luang Phabang, amenity goods made of natural, unbleached cotton cloths are being used and sold on a trial basis. Although it is still a small-scale effort at the moment, it is opening a whole new possibility of collaboration with the in developing a unique Laos brand in the future.

Appendix: Comparison of Cotton Production and Market in Thailand (FY2000/02 Report) and Issues Concerning Raw Cotton Quality and Export/Import Cotton production is a labour-intensive industry, and from a general perspective, it is considered an industry that has a large impact on economy. Therefore, in Thailand, where demand largely exceeds domestic production volume, the cotton industry must compete with the global market in terms of raw cotton prices. Cotton produced in Thailand can only meet about 20% of domestic demand, and the rest is imported from the US, China, and . As shown in Table 5, the production cost of cotton in Thailand is 22.25 THB per kilogram of cotton seed. Even if the Grade A buying price shown in Table 3 is applied, it is only 22 THB, so cotton production cannot be said to be a competitive and lucrative industry in Thailand. In fact, in Loei Province, which used to be the centre of cotton production in Thailand up to now, cotton acreage is decreasing dramatically (Table 6), and tamarind is steadily taking its place. This downturn in cotton production is primarily due to the ramifications of cultivating modern varieties of cotton. The modern varieties are not only labour-intensive, but they require a large input of agrochemicals due to their high adaptability to and low disease resistance, and are also capital-intensive in terms of the fact that irrigation facilities need to be developed. Therefore, farmers in Loei Province are apparently trying to refuse themselves from such troubles. At present, cotton production is supposedly being transferred mainly to Kalasin, Phetchabun, and Chaiyaphum Provinces, but no information on their production performance were available for this survey.

－206－ Table 5 Cotton Production Cost in Loei Province, Thailand, 2000/01 (THB/rai) Description Unit PriceQuantity Amount Seed Si Samlong 60 15 2 kg 30 Land Preparation Hired Tractor 150 2 times 300 Pesticide - (4 times) 520 Fertilizer 15-15-15 30 kg 300 Hired Labour General 200 Pesticide Adaptation 400 Harvesting (THB/kg) 200180 kg 2,700 Total 4,450 Cost THB/kg, Seed Cotton: 22.25 Average Yield: 1.13t/ha Source: Na Duang District Agric. Office

Table 6 Cotton Production in Loei Province, Thailand Planted Area Harvested Area Year (ha) (ha) Production (ton)1 Productivity (kg/ha) 1998 1,667 1,589 2,019 1,271 1999 1,069 1,069 1,227 1,148 2000 901 901 1,115 1,238 2001 850 197 395 2,005 1: Seed Cotton Source: Loei Provincial Agric. Office

On account of the problematic situation in Thailand, Isan Cotton Co., Ltd., a brokerage firm in Loei, imported approximately 100 tons of seed cotton from Laos in 2001 at Loei’s buying price of 14 to 15 THB. This is a higher buying price than that of domestic contract cultivation in Laos, even setting aside the delivery fee. According to an interview with Isan Cotton, the company had been importing 200 to 300 tons of cotton seed from Laos each year since 1995, but with the Baht crisis of 1999, domestic demand dropped and cotton import practically stopped. In Ken Thao in Xanyabouly, the price of cotton that had risen in anticipation of increased export to Thailand plummeted, leaving cotton farmers noticeably bereft of all will to continue production and causing production to greatly degrade both in quantity and quality. Lao Cotton LPQ, who had competed for prices with brokers handling the export to Thailand, had failed to recover the advance payment for its contract cultivation, and had purchased cotton seed at a high price, suffered a great loss that left it with no choice but to withdraw from contract cultivation in this region. According to another brokerage firm called Mouang Loei Cotton Co., Ltd., the price of cotton soared in 1997, and the company imported 400 tons of cotton seed from Laos. The buying price at this time was 25 THB per kilogram, corresponding to as much as 80 THB in Bangkok CIF terms. The company mainly delivers cotton to the Thai army-run textile plant in Phitsanulok, which operates a large-scale production of cotton cloths for public and private demand. In the wake of the drastic price increase, the contract cultivation farmers in Xanyabouly tried to resell their cotton illegally to Thai brokers. This put even more strain on domestic supply, and pushed up the

－207－ price of cotton in Laos To prevent such reselling of cotton, Lao Cotton LPQ’s contract unit was based on groups, but this did not avail. As mentioned at the beginning of the previous section, the intervention of Thai merchants in effect inhibited domestic investment in cotton production in Xanyabouly. On the other hand, many complaints were voiced in Thailand that Lao cotton contains a considerable amount of foreign matter, especially those that are perhaps mixed in when harvesting, as described above. This was considered a greater problem than the problem of short-fibre cotton, because, as also previously mentioned, it takes a lot of labour to remove foreign matter from cotton fibres, not to mention damages the fibre and directly decreases quality. There are even some misgivings about the possibility of Laos farmers intentionally mixing in foreign matter with seed cotton when stuffing the cotton into sacks. This clearly indicates a problem of the lack of business morals. Finally, there is also the case where transportation infrastructure from production regions remains undeveloped, as in Xanyabouly, and it costs less to temporarily export cotton to Thailand instead of seeking domestic distribution routes. However, cotton is generally re-imported into Laos as cotton thread and other primary processed commodities after spinning. Therefore, it is important to be aware of the fact that this could deprive Laos’ processing industry and other domestic industries of precious opportunities.

－208－

Forest

Maize

Cotton

Maize and Sugarcane

Village Canal Paddy Fields

River

Fig. 1 Agro-ecosystem of Cotton Production in Northern Laos.

－209－

Village

HWL Fruit Trees and Bamboo 5m LWL Vegetables and Indigo Maize Cotton and Indigo

Se Banhian River

Fig.2 Agro-ecosystem of Cotton Production in Se Banhian Basin.

－210－ T able 1 Production Cost and Profitability of Raw Cotton (kips/ha) Variety of Raw cotton Item Fai Niai Kham Khao of Production Cost Land Tax 20,000 20,000

Seed 65,000 52,000

Labor 1,080,000 2,400,000

Fertilizer 0 415,000

Insecticide 0 1,656,000

Land Preparation 0 668,800

Total Cost (kips/ha) 1,165,000 5,211,800

Yield(kg/ha) 800 1,500

Farmgate Price 2,200 2,500 (kips/kg) Gross Revenue 1,760,000 3,750,000 (kips/ha) Net Profit 595,000 -1,361,800 (kips/ha) Source)Bountheung, Douangsanh, , "Global Competitiveness of Lao Cotton Industry", Master Thesis, GSICS, Kobe University, September, 2004.

Table 2 International Comparison of Cotton Production Cost Country Item Laos China Thailand Fai Niai Kham Khao Total Cost per ha 110.24 493.19 848.54 723.6 (US$/ha) Yield (kg/ha) 800 1,500 3,675 1,875

Production Cost per 0.14 0.33 0.23 0.39 kg (US$/kg) Farmgate Price of 0.21 0.24 n.a. 0.5 Seed Cotton(US$/kg) Source) The same as Table 1.

Table 3 DRC for Cotton and Cotton Products DRC, DRC/Real Equilibrium Exchange Rate Kips/US$ Em=-o.1 Em=-0.5 Em=-1.0 Em=-2.0 Ex=1 Ex=1 Ex=1 Ex=1 Raw Cotton Fai Niai 6,255.3 0.47 0.52 0.56 0.59 Kham Khao 8,173.6 0.62 0.68 0.73 0.77 Cotton Yarn 4,648.8 0.35 0.39 0.41 0.44

CottonFabrics 6,085.3 0.46 0.51 0.54 0.57 Source) The same as Table1.

－211－ Appendix: Global Competitiveness of Lao Cotton Seiichi FUKUI

Here we will present data to support Sonoe’s views. Table 1 shows the production cost and profitability of raw cotton. Fai nyai is a local variety while khamkhao is a modern variety; both are commonly planted in Laos. According to this table, fai nyai has very low productivity, but its production cost is also very low because no fertilizer or insecticide is applied and no land preparation is necessary. As a result, its profitability is much better than that of khamkhao, whose production cost is much higher due to the cost of fertilizer and insecticide application and land preparation. Then we will make an international comparison. The production costs per unit weight of raw cotton in Laos, China, and Thailand, along with related data, are shown in Table 2. As seen here, fai nyai has the lowest production cost per unit weight, which indicates that this kind of raw cotton is more competitive than the others. Even khamkhao is more competitive than Thai cotton. Finally, we will estimate global competitiveness by using the Domestic Resource Cost (DRC).1 As we have explained when discussing aromatic rice, we will need to estimate the DRC by correctly taking into account distortions caused by government policies. For that purpose, we will use the elasticity approach to estimate the equilibrium exchange rates.2 Table 3 shows the estimation results for real equilibrium exchange rates. These results indicate that cotton yarn and cotton fabric also have global competitiveness, as does raw cotton such as fai nyai and khamkhao.

Notes: 1. For the DRC, see the section on aromatic rice. 2. For the elasticity approach and the real equilibrium exchange rate, see the section on aromatic rice.

－212－ 2-6. The Global Competitiveness of the Handweaving Industry

Phommavong SAITHONG Seiichi FUKUI

1. Global Competitiveness In March 2004 we interviewed silk and cotton weavers at Vientiane to collect information about the global competitiveness of handweaving industries. On the basis of that information, we estimated the DRC of 32 major products in these industries. The estimated DRC results show that there are 29 silk or cotton products with global competitiveness in terms of DRC/SER (Table 1). 17 of these products have high competitiveness.1 However, the DRC/SER has some distortion as has been discussed in the preceding subsection. In order to measure actual competitiveness under such distortion, the DRC must be compared with the REER. The results of the DRC/REER show that there are also 29 products of which 28 products have high competitiveness. Among these products, 20 are silk products and 8 are made of other materials. Silk and cotton products have high competitiveness for several reasons. First, their prices are relatively high because foreign customers evaluate these products highly due to attractive characteristics such as unique patterns, their handmade quality, and natural dye colors. Six silk products have the highest prices, ranging from US$600 to $2,000. These products include a silk sinh (1.8 by 80 cm), a silk shawl (21.45 grams), a silk sinh mailap, a silk shawl (35 by 220 cm), a silk wall hanging, and a silk rug (Table 1). Second, some silk and cotton products have high competitiveness because they are produced with inexpensive domestic yarn, keeping their prices low (US$5 to $20 for silk and US$2 to $15 for cotton). Domestic yarn is less expensive than imported yarn, so the products’ cost is reduced as well. If they are exported, they can make a good profit. These hypothetical views are supported by the following facts. Mulberry silk fabric (85 cm by 100 cm) has a higher competitiveness than mulberry silk yarn. This is because when producers sell silk yarn, they can get low prices (US$10/kg), while when the weavers weave silk fabric made from silk yarn, they can sell it at higher prices; 10 meters of fabric can be woven from 1 kg of yarn and sold at US$5/meter). Labor costs are very low, allowing weavers to make a good profit. The estimated results can also prove the hypothesis that small-scale cotton companies that use traditional techniques and natural dyes (indigo) and sell their products to foreign customers have a higher competitiveness than large-scale state enterprise companies that use mechanical techniques and chemical dyes, then sell their products on the domestic market. This can be seen in the results shown in Table 1. The DRC/REER of plain hand-woven cotton fabric (6 m by 0.62 cm) is smaller than that of plain machine-woven cotton. The silk and cotton products without competitiveness share a common problem: They are sold at lower prices in the domestic market, while their production costs are almost the same as the products sold in the foreign market.

－213－ 2. Constraints and Development Strategies The analysis in the previous section suggests that the Lao PDR has the potential to develop handweaving industries as export industries if they make enough use of traditional techniques and domestic natural resources. However, there are also some constraints on their development. There is an insufficient supply of Laotian raw materials, such as raw silk and raw cotton, and the marketing channels have not yet been much expanded. Therefore, the number of foreign customers who can evaluate product quality is still limited. The following development policies will be effective in developing handweaving industries. First, for the purpose of increasing the raw material supply, there should be close cooperation among related ministries such as the Ministry of and Forestry, the Ministry of Industry and Handicraft, the Ministry of Commerce, and the Ministry of Finance. The Ministry of Agriculture and Forestry should play an important role in planning an increase in raw material production, while the Ministry of Industry and Handicraft should have a clear development plan for improving traditional technologies. The Ministry of Commerce should provide its support for an expanded export market as the Ministry of Finance reconsiders those policies affecting competitiveness, such as export taxes and income tax on the handweaving companies. Second, the government should continue to make investments in road infrastructure improvements and, in order to share the knowledge of improved technologies with local people and to upgrade domestic raw materials, the government should give its financial support to the private-sector establishment of sericulture and cotton reeling centers, particularly in raw silk and cotton-producing areas. Third, the Ministry of Industry and Handicraft should cooperate closely with the Lao Handicraft Association (LHA) to seek more criteria such as the ‘Chai Lao’ to upgrade the quality of Lao silk and cotton products. Such cooperation between LHA and MIH could result in subsidies for silk and cotton producers to expand their markets.

Notes 1) In this study, a highly competitive product is defined as one whose DRC is less than or equal to 0.7.

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Table 1. DRC Coefficient of Comparative Advantage of Cotton and Silk Products, 2003 No Product Description DRC, Kip/US$ DRC/SER DRC/REER 1 Mulberry Silk Fabric (85 x 100cm) 2,631.25 0.24 0.19 2 Silk Sinth (Lao Skirt)(1.8m x 80cm) 3,937.72 0.35 0.28 3 Silk Scarf, Snake Skin (43 x 160cm) 4,065.15 0.37 0.28 4 Silk Shawls, (70 x 180cm) 4,512.78 0.41 0.33 5 Silk Scarves, Narrow Long (35 x 160cm) 4,531.71 0.41 0.33 6 Silk Plain Cotton Fabric by Hand (6m x .62cm) 4,896.76 0.44 0.35 7 Silk Wall Hanging (180 x 30cm) 5,124.36 0.46 0.37 8 Silk Sinh MaiLap (Lao Skirt) 5,282.70 0.48 0.38 9 Silk Rugs (150cm x 210cm) 5,548.00 0.50 0.40

10 Silk Scarf (.45 x 150cm) 6,084.80 0.55 0.44 11 Matmi Cotton Fabrics (Ikat) (35m x 0.65m) 6,401.46 0.57 0.46 12 Curtain Cotton (100 x 200cm) 6,479.06 0.58 0.46 13 Plain Cotton Weaved by Hand (95cm wide) 6,717.29 0.60 0.48 14 Silk Shawl (35 x 220cm) 6,802.07 0.61 0.49 15 Plain Cotton Weaved by Machine 7,081.16 0.63 0.50

－ 16 Silk Shawl (21.45 grams) 6,984.78 0.63 0.50

215 17 Cotton Short Shirt Size L 7,722.43 0.69 0.50

－ 18 Mulberry Silk Yarn (Treated) 7,888.44 0.71 0.57 19 Silk Wall Hanging Medium Size 8,115.87 0.73 0.58 20 Silk Shawl Large Size (60 x 200cm) 8,062.33 0.73 0.58 21 Napkin + Plate Mat 8,349.75 0.75 0.60 22 Silk Shawl Medium Size (30 x 180cm) 8,422.87 0.76 0.61 23 Shawl Large Size 8,630.45 0.78 0.62 24 Silk Shawl Large Size (70 x 200cm) 9,333.67 0.84 0.67 25 Silk Scarf (25 x 120cm) 9,333.67 0.84 0.67 26 Silk Fabric (90 x 30cm) 9,333.67 0.84 0.67 27 Silk Scarf per piece 9,809.75 0.88 0.70 28 Handbag (10cm x 36cm) 9,752.33 0.88 0.70 29 Silk Fabric (90cm wide) 9,893.65 0.89 0.70 30 Mulberry Silk Yarn (Nontreated) 16,547.54 1.49 1.18 31 Sekong Cotton (Phie Fai Fabric) (180 x 100cm) 16,605.58 1.49 1.19 32 Silk Scarf (35 x 185cm) 18,624.09 1.68 1.34 Source: Culculated by the Authors.

2-7. The Animal Feed Industry

Phommavong SAITHONG Seiichi FUKUI

1. The Current State of the Animal Feed Industry The animal feed industry has started to develop just recently in the Lao PDR. It can use substantial amounts of domestic raw materials such as maize, soybeans, rice bran, cassava, limestone, and salt. However, it is costly to transport these materials to the factory located near Vientiane because they are produced in remote areas and road conditions have not yet been improved. If this industry can obtain sufficient domestic raw materials, it will be viable to develop it as suggested in existing literature.1 The industry’s development contributes not only to rural development but also to the development of the livestock industry. The demand for animal feed is expected to increase because of government plans to increase the export of live animals and fish in the year 2005.2 However, as there is only one factory remaining in Laos, the supply is inadequate. The Thangone Animal Feed Mill was set up in 1982 as a state-owned enterprise (SOE). This SOE company was in operation until 1992 and was privatized as the Niraxay Integrated Development Company (Gold Coin Company) in 1993. Even though the company can utilize some raw material from domestic sources (i.e., maize, rice bran, cassava) it still imports some raw materials (fishmeal, full fat soybeans, animal nutrition) mainly from Thailand, , India, and . The imported raw materials account for 30 percent in terms of quantity, while their share of total material cost is 70 percent because of expensive transportation costs due to the land-locked geography and poor road conditions. Furthermore, the quality of some materials domestic producers can supply is poor. For instance, the full fat soybean, which is produced by the Lao Edible Oil Company, has a higher oil content than the standard level required by animal feed companies. In 2003, the factory produced 18 products sold in the domestic market.

2. Global Competitiveness We estimated the DRC of three animal feed products in the same way as the agricultural products. The results shown in Table 1 indicate that all three animal feed products have comparable advantages. The ratio of the DRC and the SER values in financial terms (kip/USD) show that all three animal feed products have global competitiveness: their DRCs are smaller than their SERs. Thus it shows economic efficiency to produce domestically for animal feed products because it can save a unit of foreign exchange through import substitution. The DRC coefficients in terms of the SER (DRC/SER) also show high competitiveness for animal feed. The results are 0.37 for broiler starter, 0.50 for poultry layer, and 0.56 for pig starter. This implies that the production of 1 unit of shadow income for each product requires 0.63, 0.50, and 0.54 units of input respectively.

－216－ The DRC coefficient calculation with REER gives a lower value than SER. The comparative advantage of the animal feed industry is reinforced if the equilibrium of exchange rate is restored. The competitiveness in terms of REER for three animal feed products, namely broiler starter, poultry starter, and pig starter, is higher than its SER values; DRC coefficients decrease from 0.37 to 0.29, 0.50 to 0.40 and 0.56 to 0.45 respectively.

3. Constraints and Development Strategies In the previous section, we have shown that animal feed products in the Lao PDR can potentially have global competitiveness. However, despite the Gold Coin Company’s 70 percent domestic market share (2003), it must face competition with highly competitive imported animal feed with better quality, although its price is relatively high. There are many constraints on the development of an animal feed industry in the Lao PDR. First, the supply of domestic raw materials is insufficient due to a poor transportation infrastructure and the strong demand for the materials by neighboring countries. Second, the domestic market remains small because the livestock industry is still in its infancy and competition with strong foreign competitors is very severe in the overseas market. Therefore, the animal feed industry cannot find sufficient and stable demand. Third, the quality is lower than that of imported animal feed because the company cannot obtain a sufficient amount of the intermediate materials necessary for better quality. The company sometimes cannot obtain better-quality intermediate materials due to the lack of foreign currency, or because of the poor quality of domestic producers’ intermediate materials. In order to develop the animal feed industry, the industry will have to make an effort to obtain more domestic raw materials and to improve product quality. In addition, the government should persuade related ministries such as the Ministry of Agriculture and Forestry, the Ministry of Commerce, and the Ministry of Finance to cooperate with each other for the purpose of increasing raw material supplies. The Ministry of Agriculture and Forestry should play an important role in planning an increase in the production of raw materials such as maize and soybeans, while the Ministry of Commerce should lend its support to the facilitation of an internal trade market and the local custom offices, and the Ministry of Finance should strengthen its control of border trade to reduce smuggling. Besides these, the government should continue to make investments in road infrastructure improvements to reduce transportation costs and for storage facilities to be able to supply good quality raw materials such as maize, soybeans, and cassava.

－217－ Notes 1) Ministry of Industry and Handicraft/UNIDO, Medium-Term Strategy and Plan for Industrial Development, Vientiane, March 13, 2003. 2) Ministry of Agriculture and Forestry, Strategic Plan to Develop Agriculture and Forestry for 2000-2010 and Fifth 5-Year Plan (2001-2005), Vientiane, January 24, 2002.

Table 1. Estimated Results of DRC Coefficients of Animal Feed Item (Animal Feed) DRC (kip/USD) DRC/SER DRC/REER Broiler Starter 4,128.79 0.37 0.29 Poultry Layer 5,545.73 0.50 0.40 Pig Starter 6,274.52 0.56 0.45 Source: Authors’ calculations.

－218－ 3. Finance for Rural Development in Lao PDR: Discussion Based on Results of Field Surveys in Northern, Central, and Southern Regions

Koichi FUJITA Shinsuke TOMITA

Summary

This report consists of four chapters: Chapter 1, Potentials for Saving Mobilization from Rural Areas: Case Study of a Saving Group in Rural Vientiane Municipality; Chapter 2, Expansion of Maize Cultivation and Its Impact on Rural Finance in Northern Laos; Chapter 3, Rural Finance under a Highly Commercialized Economy in the Bolaven Plateau: Case Study of Three Villages; and Chapter 4, Finance for Rural Development in Laos: Discussions.

In Chapter 1, we study a fairly flat 147-household village in Vientiane Municipality that is centered on paddy-rice farming and alcohol breweries, analyzing the village-level saving group that has been growing and developing rapidly there since it was established in September 2000, and investigating the potential for saving mobilization. It is noted that in the less than four years since the group’s founding, they have successfully mobilized over 200 million kip (20 thousand dollars) in savings; that due to extremely high demand for loans in the village against this amount with a 4 percent monthly interest rate, all of the saved money had until fairly recently been loaned out, and only lately has there begun to be surplus funds available; that some sort of integration will be required as some village’s saving groups recently started to have surplus funds; and that there emerged a good opportunity for rural saving mobilization for the Lao government. We also discuss the drastic reduction in standing rice sales being a result of the introduction of saving groups. In Chapter 2, we look at a 91-household village in Houn district in , which has engaged in slash-and-burn upland rice cultivation and livestock husbandry ever since it moved down from the mountains and was re-established in a valley in the latter half of the 1970s. Since 2000 the village began cultivating maize for export to China, and we discuss how much the increased income from maize cultivation has affected the villagers’ financial activities, including consumption, investment, savings, and borrowing. Villagers, obtained a large amount of cash income from maize cultivation, invested it in production assets, such as power tillers, as well as using it to purchase consumer durables such as radio-cassettes, small rice mills, and motorbikes. Although bank savings have not increased in the study village, it is particularly notable that the APB Houn service sub-unit has seen a significant jump in cash deposits, especially time deposits. The economic prosperity brought about by the introduction of maize relies upon the stability of upland rice cultivation and maize cultivation in permanent upland fields both without fertilizer. The key lies in the successful stabilization of slash-and-burn fields.

－219－ In Chapter 3, we analyzed the financial problems under an unstable market environment (i.e., one with large price fluctuations) in three villages in the Bolaven Plateau that rely on the production of commodities for export such as coffee, beef, and cabbage. We found that as villagers expanded their coffee fields following the “coffee boom” of the late 1990s, the APB also engaged in proactive lending; portions of APB loans were extended in-kind (rice for consumption) in order to prevent standing coffee sales. Following a collapse in prices, however, the APB’s loans defaulted, causing severe problems in the form of nonperforming loans that turned out to be the APB’s Achilles’ heel. Merchants also dealt in loans during the coffee boom, and they too are faced with the difficulties in collecting on their debts. Ever since the APB stopped offering loans, the village’s upper strata (i.e., coffee merchants) have been lending money to the lower strata at high fixed interest rates. Furthermore, there has been some trade friction between Laos and Thailand on the issue of cabbage exports. The Lao government’s response is not being effectively transmitted to the village level, leading to confusion and, eventually, huge losses suffered by farm households. Finally, in Chapter 4, we offer some comments, derived from the results of our case studies, about the current ADB-led initiative to reform the APB. First of all, the APB’s performance is acknowledged to be better than expected, in terms of both the saving mobilization (resulting in improving the deposit/loan ratio) and the accumulation of nonperforming loans. Second, although we recognize a necessity to separate the fiscal issues from the financial ones, by getting rid of the APB’s so-called policy lending, we raised questions about the move toward purely commercial banking departing from the special bank for agricultural development. Having perceived the actual conditions in Lao villages, we also came to believe that withdrawing from non-banking services, such as the distribution of seeds and chemical fertilizers, was not always the right direction to take. Also, the ADB is considering developing credit unions that act as a micro-financing agency in the APB’s stead and could serve a fairly wide area; we point out, however, that ADB does not intend to establish credit unions by integrating village-level saving groups, as described in detail in Chapter 1. We argue that the existence and significance of these flourishing saving groups at the grass root level must receive further attention for the establishment of micro-financing institutions.

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3-1. The Potentials for Saving Mobilization from Rural Areas: Case Study of a Saving Group in Rural Vientiane Municipality

I. INTRODUCTION

The development of micro-finance schemes in Laos is still in its infancy in almost every aspect. In recent years, however, the village-level saving group, sometimes called a rural revolving fund1, has emerged and developed very rapidly in parts of rural Laos, especially in rural Vientiane Municipality. Such a development of village-level saving group was due to the initiatives of Thailand-based NGOs; i.e., FIAM (Foundation for Integrated Agricultural and Environmental Management) and CODI (Community Organizations Development Institute). It is also evident that the Lao Women’s Union (LWU) played a critical role in organizing saving groups at the village level. FIAM-CODI-LWU began work together in 1997. According to a report from LWU and CODI2, by December 2003 the activities of FIAM-CODI-LWU encompassed 9 districts (muang), including 5 districts of Vientiane Municipality (Table 1-1). Furthermore, the number of saving groups reached 217 in total, out of which 178 (82 percent) were located in Vientiane Municipality. In particular, they were concentrated in the Xaythany district (92 villages out of 103 villages) and the Pakngum district (53 villages out of 53 villages). Also notable is the amount of savings; as of December 2003, 217 groups had accumulated a total of 5.89 billion kip (27.7 million kip/group on average), and 145 groups in the Xaythany and Pakngum districts had accumulated 4.99 billion kip (34.4 million kip/group). The average savings mobilized per member reached 277 thousand kip, which is almost equivalent to 27 U.S. dollars. The basic function of such saving groups is to mobilize regular savings (monthly) from village members and lend it to village members at an interest rate of 3-4 percent per month. The profit, after deducting costs necessary to manage the system, is then distributed to village members as a dividend. In this sense, the saving group is totally different from the typical Grameen Bank-type micro-financing scheme. It does not depend on money provided from the outside, but on the members’ own savings. In other words, if it is truly successful, we can expect a large amount of saving mobilization from rural areas in Laos. How is such a saving group managed at the village level? Under what conditions can it be established and maintained? What kind of impact has it had on the village credit market and economy? What kind of problems are they facing? Is the system sustainable? In order to explore these questions, a village was selected from Vientiane Municipality’s Pakngum district for an in-depth study.

1See, for example, Oudet Souvannavong, Rural Revolving Fund Study Report, International Cooperation Agency, March 2003. 2Central Lao Women’s Union and Community Organizations Development Institute, Saving Group and the Poverty Alleviation: Report on the promoting and expanding of the saving group in Lao PDR, mimeo.

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II. VILLAGE ECONOMY

The study village, Ban Don Neua, is located along the Mekong River, about 70 km east of the central part of Vientiane city (Figure 1-1). The village has a long history of about 400 years. Formerly it was a single village named Ban Don, but was separated into two villages during the 1960s; i.e., Ban Don Neua (North) and Ban Don Tay (South), although the two share a contiguous residential area. At the time of the preliminary survey in March 2003, there were 147 households and 752 people in Ban Don Neua, while Ban Don Tay had 71 households and 345 people. Lao lum is the predominant ethnic group in the two villages, although there are some migrants from Thailand residing in Ban Don Tay. The economy of Ban Don Neua is based on crop cultivation, livestock rearing, and the brewing of a rice-based alcohol called jees. The can be classified into paddy fields and gardens, of which there were 223 hectares and 63.4 hectares respectively. Gardens are laid out along the bank of the Mekong River, where banana, mango, tamarind, teak, and sugarcane are grown as cash crops. A portion (about 20-30 percent) of paddy fields in the village are irrigated with water lifted directly from the Mekong River by pumps3, where dry-season rice can be grown in addition to -season rice. The average yield of rice is 3.0 tons per hectare for monsoon-season rice (transplanted) and 4.0-4.5 tons per hectare (transplanted/broadcasted) for dry-season rice. The broadcasting technology for dry-season rice was introduced in 2000 after some farmers in the village came back from a study tour to Thailand. Tenancy is developed to some extent in the paddy fields, especially for dry-season rice cultivation4. Jees brewing started in the village about 20 years ago, and approximately 36 households (25 percent) were engaged in this cottage industry in 2003. Village statistics show that there were 184 , 9 buffalo, 80 pigs, and approximately 2,000 chickens. Fisheries in the Mekong River are not widespread, and exist only for self-consumption. Furthermore, there are many emigrants working in the U.S. who regularly send money to the villagers. It is reported that about one-third of the households receive such regular remittances. It is quite interesting to note that emigrants send U.S. dollars in cash directly in envelopes (with letters), instead of sending it through a banking network. In order to understand the village economy and finance and assess the roles and potentials of the village-level saving group in such a context, we randomly selected 75 households (51 percent of total 147 households in the village) and conducted an intensive questionnaire survey in July 2003. Table 1-2 shows the population characteristics of the sample households, categorized by the size of paddy fields held. Out of 75 households, there were 7 households (9.3 percent) which neither owned nor

3A large-scale pump was installed in the territory of Ban Don Tay in 1984 with ODA from Holland. The water lifted by the pump has been used by the villagers of both Ban Don Tay and Ban Don Neua, covering about 227 ha of paddy field. In the year 2000, a water-users association (WUA) was established for the management of the irrigation system; the association now collects irrigation fees of 150,000 kip/ha. WUA is responsible for the everyday management of the pump, including minor repairs. There are in total 10 groups of farmers under the WUA, which is also responsible for the cleaning of water channels. On the other hand, however, it was found that the WUA was reluctant to pay electricity charges to the government, and its unpaid dues had reached about 80 million kip by March 2003. 4Land rent is paid with shares (1/3) in the rainy season, whereas in the dry season a fixed amount of paddy production (3 bags or 105 kg of paddy per rai, which is equivalent to 0.63 tons per hectare) is paid to landowners.

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rented any farmland and thus were classified as non-farm households. Note that the average age of the household head of such non-farm households was only 32.4 years, far lower than that of farm households (49.2 years on average). The non-farm households were either new immigrants (5 households) or new households recently separated from their parents (2 households). They were engaged in wage labor (4 households), goldsmithing (1 household), jees brewing (2 households), and shopkeeping (1 household). Another clear tendency observed from Table 1-2 was that the larger the farm size, the older the household head and the larger the household’s labor force. It can be said that the Chayanov family lifecycle was observed in the village. Table 1-3 illustrates the distribution of farmland among the sample households. The majority of farm households (47 out of 67) had less than 2 ha of paddy field, but at the same time there were 12 farm households that owned more than 3 ha of paddy field. More than 10 percent of paddy fields were rented out, mainly to land-poor households. The average size of gardens held, on the other hand, was only 0.5 ha. Moreover, a more equal distribution of land was observed for gardens as compared to paddy fields. The number of households engaging in jees brewing (including yeast-making) was 22 out of all sample households, occupying 29.3 percent of the total. Only one-third of households regularly received remittances from abroad. No clear relationship was observed between landholding size and either jees brewing or remittance receiving. Table 1-4 shows livestock holdings of the sample households. The average number of livestock per household was 3.1 cattle, 3.1 pigs, 10.5 ducks, and 16.8 chickens. There was also no clear relation between land holding size and livestock holding size. Rather, it can be said that the land-poor households tended to keep more livestock, especially cattle and buffaloes. It may indicate no serious constraints on securing land in and/or around the village. On the other hand, the distribution of production assets was more skewed in favor of land- rich households (Table 1-5). Power tillers and irrigation pumps were widely diffused among large farm households. It is also notable that land-rich households engaged more in fishing activities. However, if we look at the distribution of consumer durables (Table 1-6), again no clear relationship was observed between this distribution and landholding size, except for the smallest holding strata (0-0.99 ha). One household had, on average, 3 electric fans, 1 TV set, 1 bicycle, 1 refrigerator, 0.6 CD players, and 0.5 motorbikes. It is notable that sewing machines were seen more among the land- poor households. In sum, it can be said that the village had quite an egalitarian nature in terms of economic disparity among households. Although disparity in the size of paddy fields held was large, it did not necessarily correspond to the economic status of each household.

III. DEVELOPMENT OF THE SAVING GROUP

The saving group was introduced in the village on September 27, 2000. The Community Organizations Development Institute (CODI), a Thailand-based NGO, took the initiative and began by providing 2.5 million kip to the saving group through municipality/district administrative channels. An additional 1.5

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million kip was also provided by an organization called FOKOSO. With this 4 million kip in seed money and under the guidance of CODI and LWU, some 87 villagers organized a saving group and started to manage it. Five village women were selected and provided with four days of training. They proceeded to organize a committee, which played a key role in the daily management of the saving group. In September 2000 when the movement began, a total of 15 saving groups were established for the entire Pakngum district (muang), encompassing 53 villages (ban) in total. However, by the time of our survey in July 2003, the number of saving groups had increased to 53, which means that every village had already organized a saving group. Saving groups are supervised through the muang-khet-ban local administrative line (Lao Women’s Union). Note that the Pakngum district is comprised of 6 khet; Ban Don Neua is one of 8 villages belonging to khet No. 5. The basic structure and function of the saving group in Ban Don Neua is as follows. Anyone can be a member of the saving group if he/she lives in the village, which means that more than one person from a single household can be a member. Every member has an obligation to contribute a regular (monthly) deposit to the saving group, a minimum of 10,000 kip per month5. On the other hand, only female members can receive loans from the saving group, with a ceiling of 5 times her saving amount and with an interest rate of 4 percent per month6. The loan period is basically 4 months and can be extended to up to 6 months, but interest must be paid every month. Some rules, such as the interest rate and the loan period, can be freely determined by each saving group. All transactions are completed on the first day of each month. In the morning, the committee receives three kinds of money; i.e., regular deposits (from every member), interest payment (from borrowers), and principal repayment (from borrowers whose loan period is over). In the afternoon, the committee disburses new loans according to the already-endorsed applications. The profit, after deducting the necessary costs7, is distributed once in a year (at the end of July in the case of the Ban Don Neua saving group) to the members in proportion to their deposit amounts. The profit is distributed according to the following rule: 12 percent to committee members as an allowance, 7 percent to the “reserved fund” for the activities of the committee, 7 percent to the “welfare fund”, 2 percent to 6 “consultants” (men in the village) as an allowance, 2 percent to the khet-level saving group chair (a woman residing in another village) as an allowance, and the remaining 70 percent to the members as dividends. Note that the committee members and “consultants” are elected by a vote to one-year terms, although re-election is allowed.

5During the initial 10 months from October 2000 to July 2001, the minimum saving amount was 5,000 kip per month. 6During the initial 10 months, same as the above-mentioned minimum saving amount, the interest rate was set at 3 percent per month. 7The major cost items are furniture, stationeries, food provision in the meetings, transportation cost, donation to temples/festivals, etc. In addition, interest is being paid to CODI and the other supporting organizations. According to the committee members, the initial seed money of 2.5 million kip from CODI/Lao government must be repaid in 25 year installment with no interest, but in the case of 1.5 million kip from FOKOSO only interest (1.5 percent per month) is charged, with no necessity to repay the principal.

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It was reported that the profit distributed at the end of July 2002 was as follows.

Gross profit: 6,367,500 kip Cost: 245,000 kip Net profit: 6,122,500 kip Allowance to committee members: 734,700 kip Reserved fund: 428,575 kip Welfare fund: 428,575 kip Allowance to consultants: 122,450 kip Allowance to khet-level chair: 122,450 kip Dividend to members: 4,285,750 kip

If we assume a fixed ratio of cost to gross profit (245,000 ÷ 6,367,500 = 3.85 percent), the ratio of dividend to gross profit becomes about 67.3 percent. It means that the ratio of returns to deposits is 2.69 percent per month (4 percent per month × 0.673), or 32 percent per annum8. In reality, the average cost is considered to be decreasing (in other words, there is a scale economy); the rate of return will also increase more than 2.69 percent per month. In any case, the return of deposit to the saving group is very attractive. Table 1-7 summarizes the development locus of the saving group. There are several notable points to be discussed. First, let us discuss the number of members. It started with 87 in September 2000, when there were a total of 147 households in the village. After that, the number gradually increased, reaching 163 (from 92 households) at the time of the first survey in July 2003. In the next month, August 2003, the number jumped to 1929 and continued a further gradual increase, reaching 215 (from 146 households) at the time of the second survey in March 2004. It can be said that by that time almost all the households of the village were participating in the saving group, and that each household had an average of 1.5 saving group members. Second, the saving amount increased steadily and in an accelerated manner, reaching a total of 214.6 million kip, or about 21,000 U.S. dollars, in March 2004. Accordingly, the per-capita average accumulated saving also reached 0.99 million kip, or nearly 100 U.S. dollars. Such an accelerated accumulation of savings was due to the fact that per-capita average monthly saving started increasing tremendously since April 2002, beyond the minimum obligation of 10,000 kip. It seems that the 2.69 percent of return was very appealing to the villagers, especially for those with surplus money. On the other hand, there were very few cases (and small amounts) of withdrawal from their savings10. Third, as the table indicates, there was very strong member demand for loans, at least until April 2003,

8Another assumption is that all the money is lent to members at a 4 percent per month interest rate. 9It seems that our survey encouraged villager participation in the saving group, although we did not promote it. 10Committee members told us they strongly encouraged members not to withdraw money even when badly needed, advising them to borrow from the saving group instead.

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leaving a small amount of surplus in the hands of the committee when they finished distributing loans on the first day of each month. It is in a sense surprising because the interest rate for loan is a not-insignificant 4 percent per month. With such a chronic excess of loan demands, the committee was obliged to implement a kind of “credit rationing”, where urgently needy members and members applying for smaller loans were given priority. Fourth, however, since around May 2003, the surplus money grew to a fairly large amount, exceeding 1,000,000 kip (100 U.S. dollars) and sometimes even exceeding 10,000,000 kip (1,000 dollars). According to the committee members, they do not go to the APB (Agricultural Promotion Bank) to deposit the surplus cash to the group’s account (opened in January 2001), but instead they divided these funds among the 5 committee members and keep it in their respective houses. Therefore, there remains only a very small amount of money in the bank account. Fifth, the per-capita average loan size, which was about 200-400 thousand kip until February 2002, jumped to 500-1000 thousand kip for about one year after that, further increasing to 1-1.5 million kip by March 2004. The next table (Table 1-8) also shows such an increased trend of loan size. The first time we began to see loans larger than a certain amount was as follows: more than 1 million kip, August 2001; more than 2 million kip, March 2002; more than 3 million kip, May 2002; more than 5 million kip, May 2003; and more than 10 million kip, March 2004. Sixth, Table 1-8 also illustrates an important fact: that the percent of borrowing for production purposes has been large and also increasing. The strong demand for loans was more or less for production purposes such as rice cultivation, livestock rearing, jees brewing, and trade.

IV. CREDIT MARKET AND IMPACTS OF THE SAVING GROUP

The credit market in the village was rather simple before the saving group was established. The only institutional bank villagers could utilize was APB, a service sub-unit of which was located in Ban Naxon along National Highway No. 13, about 22 km from the village. The other sources of credit for the villagers were all so-called informal sources, which included relatives and friends, traders, shopkeepers, professional moneylenders, and so on. Before illustrating the way villagers used the APB, let us briefly outline the activities of the APB Naxon service sub-unit, based on an interview during our visit in March 2004. The APB Naxon service sub-unit was established in 1996 with 6 officials, including 1 sub-unit head, 2 accountants, 1 cashier, and 2 officials in charge of credit. Table 1-9 summarizes the savings and loans at the sub-unit as of March 2004. As the table shows, the amount of savings reached a total of 727.97 million kip, comprised of 3.61 million kip of current accounts (0.5 percent), 333.89 million kip of saving accounts (45.9 percent), 312.30 million kip of time deposits (42.9 percent)11, and 78.17 million kip of APB bonds (10.7 percent). On the

11The major periods of time deposit were 3 months and 6 months.

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other hand, the amount of loans reached a total of 1.744 billion kip, comprised of 999.88 million kip of crop loans (57.3 percent), 116.31 million kip of business loans (6.7 percent)12, 273.96 million kip for livestock rearing (15.9 percent), 22.50 million kip for handicrafts (1.3 percent), 322.45 million kip for farmland development (18.5 percent), and 8.50 million kip for purchasing farm machinery (0.5 percent). In sum, it was found that the amount of extended loans far exceeded the amount of mobilized savings in the Naxon service sub-unit. Moreover, long-term loans such as those for farmland development and farm machinery did not coincide with the terms of mobilized savings, most of which were less than one year. APB provides crop loans through the so-called group lending scheme. Under this scheme, farmers are requested to form a group of about 4-10 persons. This new system facilitated the quick disbursement of loans without providing any collateral. However, the size of loans a can get is rather limited. On the other hand, non-crop loans are provided to individuals after rather strict and prolonged investigations, and collateral is required13. At the time of the survey in March 2004, the APB Naxon service sub-unit had so-called NPLs (non-performing loans) totaling 58.52 million kip, out of which crop loans occupied the largest share at 47.12 million kip (80.5 percent). According to the sub-unit head, it was because of natural disasters such as flooding, pests, and so on, especially in the monsoon season. This means that the group lending scheme functioned insufficiently for recovering loans. In Ban Don Neua, there were a total of five groups receiving crop loans from APB in March 2004. A group was formed for the first time in January 2001 by 11 farmers after a bank official came to the village and encouraged them to form a group. According to a farmer who joined one such group (the third in the village, formed in April 2003), the group had six members, all of whom had 1-2 ha of paddy fields. They borrow twice a year for both monsoon-season rice and dry-season rice cultivation. For monsoon-season rice, they borrow at the end of June and repay at the end of December (6 months later), while for the dry-season rice they borrow at the end of December and repay at the end of May (5 months later). The amount of loan per farmer was 1.5 million kip for the monsoon season and 2 million kip for the dry season. The interest rate was 12 percent per annum. Table 1-10 summarizes the borrowing situation of the sample households in July 2003, categorized by the sources of credit. It is shown that 15 households (20 percent) borrowed from APB (12 households borrowed through the group lending and the remaining 3 borrowed as individuals) while about 23 percent borrowed from informal sources. It is also notable that the non-farm households were excluded from APB loans while more than half of them borrowed from informal sources. On the other hand, as of July 2003, 65 percent of the sample households participated in the saving

12Business loans are mainly for working capital for trading activities. 13According to a village woman interviewed in March 2004 who had borrowed 5 million kip from APB for pig-rearing, anyone seeking a loan is requested to submit three kinds of certificates (family certificate, address certificate, and collateral certificate), a curriculum vitae, and six photos, plus 120,000 kip in fees. After submitting all the necessities, it took about 2 months until the loan was disbursed.

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group, with a further 69 percent of them borrowing from the group. There were 34 saving group borrowers, far exceeding the number of borrowers from APB and informal sources. It indicates that the saving group rapidly gained meaning for the villagers, even in July 2003. In terms of loan size, the largest were individual loans from APB (7.67 million kip on average), followed by loans from the saving group (1.48 million kip on average) and informal loans (1.35 million kip on average), and finally group loans from APB (slightly less than 1 million kip on average). According to Table 1-11, the interest rate structure of the informal credit was bi-modal; i.e., we commonly saw either interest-free loans (0 percent) or loans at a rather high interest rate of 10 percent per month. Note that the interest rate of APB loan was 1 percent (in the case of group lending) or slightly higher than 1 percent (for individual lending) per month, while the interest rate from the saving group was 4 percent per month. It can be concluded that the interest rate of the saving group was much higher than APB’s, but lower than that of informal credit. Lastly, Table 2-12 shows the purpose-wise distribution of loans from the saving group for the sample households in July 2003. The result is almost the same as that of Table 2-8, but we also discovered that the larger the amount, the more people used it for production purposes, especially for pig-rearing. According to several village informants, one of the major impacts the introduction of saving groups had on the village was the disappearance of standing crop (paddy) sales, which had previously been so widespread. The custom was such that if farmers sold while transplanting their paddy (about 4 months before harvesting), they were offered only half of the expected price, and if they sold 2 months after transplanting, they received only 60-70 percent of the expected price. Thus the effective rate of interest involved in these transactions was estimated as high as 20-25 percent per month, which is much higher than the maximum rate of 10 percent per month as found in ordinary informal credit transactions. Note that the main buyers in such standing crop sales were either villagers who regularly received a large amount of remittance from abroad (mainly the U.S.) or village-level traders. It can be concluded that although the interest rate was rather high compared to APB loans, the saving group could provide villagers with a much easier source of credit with reasonable terms and conditions. Mutual help is another important function of the saving group; the “welfare” fund is mainly used for such purposes as gifts of money for funerals and for the traveling expenses of some selected students in the village.

V. CONCLUSIONS

The village-level saving group very recently introduced in Laos by the initiative of Thailand-based NGOs has rapidly expanded in a rather successful manner, especially in the rural areas of Vientiane Municipality. The study village was one such typical case. The saving group was very successful in mobilizing savings from rural areas and establishing easy-access credit for the villagers with reasonable terms and conditions. It was also able to minimize so-called transaction costs in establishing such a system, because it made efficient use of the village’s

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existing human resources with minimal training costs. There are minor information asymmetries between lenders and borrowers in the same village community, resulting in an excellent (nearly 100 percent) recovery rate. There are some important lessons to be learned from the experience of saving groups. First, there was a strong demand for easy-access credit in rural areas, even with a high interest rate of 4 percent per month. Because of this, standing crop sales (involving an exorbitant interest rate of 20-25 percent per month), previously widespread, were sharply reduced after the introduction of the saving group. In other words, the demand for credit was mainly for various production purposes. Second, the necessary resources for meeting such a high demand for credit could be obtained by saving mobilization from within the rural areas, even though the return on the savings was guaranteed as high as 2.7 percent per month. Recall that the amount of savings mobilized by a single saving group in one village (Ban Don Neua) reached more than 200 million kip, compared to a total savings amount of less than 730 million kip by a service sub-unit of APB (the Paxon service sub-unit in Vientiane Municipality) that served more than 50 villages. Third, it was found that the village community had sufficient “social capital” for managing such a saving group with minimal training costs. Special attention should be paid to the role of the Lao Women’s Union (LWU) in this regard. However, at the same time, the saving group has an apparent limitation in that it cannot extend its activity beyond village boundaries. Such a limitation became more apparent when the savings began to exceed the credit demand within the village, as exemplified in the study village. The size of the saving group apparently started to exceed the ordinary village women’s capacity to manage it. Finding a way to integrate village-level saving groups into the national banking system is one of the biggest challenges before us. However, it can also be regarded as the biggest chance for the formal banking sector to mobilize savings from rural areas in Laos.

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Roads

Ponds and Rivers

Small Rivers r e Altitude(m) v i R

g n o k e － Vientiane M

230 Ban Don Neua

－ B. Don Neua

Figure 1-1 Location of the study village

Table 1-1 Saving Groups Organized by FIAM-CODI-LWU (as of December 2003) No. of Average Villages Average Savings Average with Average Amount of Savings per Amount of Funds per No. of Saving No. of Members Savings per Group Member Funds Group Supporting District Villages Groups % Members per Group (Kip) (Kip) (Kip) (Kip) (Kip) NGO Xaythany 103 92 89.3% 11,289 123 3,797,347 41,276 336 69,300 753 FIAM

Pakngum 53 53 100.0% 3,871 73 1,194,700 22,542 309 76,000 1,434 FCD-CODI Naxaythong 56 15 26.8% 1,430 95 194,592 12,973 136 26,400 1,760 CODI Sangthong 37 14 37.8% 903 65 167,214 11,944 185 26,000 1,857 FIAM

Xaysetha 52 4 7.7% 499 125 135,333 33,833 271 3,600 900 FIAM Thakhek 141 24 17.0% 1,870 78 217,214 9,051 116 0 0 FIAM Hinboon 166 2 1.2% 81 41 31,837 15,919 393 0 0 FIAM Viengkham 18 7 38.9% 597 85 32,291 4,613 54 0 0 FIAM Thoulakhom 74 6 8.1% 755 126 122,598 20,433 162 0 0 FIAM Total 700 217 31.0% 21,295 98 5,893,126 27,157 277 201,300 928

Source: LWU and CODI, Saving Group and Poverty Alleviation; Report on the Promoting and Expanding of the Saving Group in Lao PDR , mimeo.

Table 1-2 Population of Sample Households Population Labor force Average No. of age of Labor force HHs HH Head participation rate(%) Male Female Total Per HH Male Female Total Per HH Non-farm 7 32.4 12 12 24 3.43 7 7 14 2.00 58.3 Farm1) 0-0.99 23 46.5 56 52 108 4.70 25 32 57 2.48 52.8 1-1.99 24 46.6 65 53 118 4.92 35 41 76 3.17 64.4 2-2.99853.41719364.501313263.25 72.2 3-3.99654.81416305.001012223.67 73.3 4-656.71217294.831111223.67 75.9 Unknown159.04377.003366.00 85.7 Total 75 47.6 180 172 352 4.69 104 119 223 2.97 63.4 Note 1) Area of paddy fields held in hectares.

Table 1-3 Landholding and Sources of Income

Rented-in Land under HH engaging in HH receiving Owned land land management jees brewing remittance from USA No. of Paddy Paddy Paddy No. of No. of HHs field Per HH Garden Per HH field field Per HH HHs % HH % Non-farm 7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2 28.6 1 14.3 1) Farm 0-0.99 23 13.2 0.6 4.5 0.2 8.2 21.4 0.9 7 30.4 6 26.1 1-1.99 24 32.7 1.4 20.6 0.9 6.1 38.8 1.6 7 29.2 8 33.3 2-2.99 8 18.7 2.3 2.9 0.4 0.6 19.3 2.4 3 37.5 7 87.5 3-3.99 6 19.4 3.2 3.7 0.6 0.0 19.4 3.2 1 16.7 2 33.3 4- 6 40.5 6.8 9.0 1.5 0.0 40.5 6.8 2 33.3 1 16.7 Unknown 1 NA NA NA NA NA NA NA 0 0.0 0 0.0 Total 75 124.5 1.7 40.7 0.5 14.9 139.3 1.9 22 29.3 25 33.3 Note 1) Area of paddy fields held in hectares.

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Table 1-4 Livestock Holdings Cattle Pigs Ducks Chickens Cattle Cattle No. of (for (for Baby Cattle Pig Total pig Duck Chicken HHs meat) others) cattle per HH Buffalo (adult) Piglet per HH Duck per HH Chicken per HH Goat Others Non-farm 7 2 0 1 0.4 0 43 24 9.6 82 11.7 173 24.7 0 0 Farm1) 0-0.99 23 28 19 31 3.4 0 10 18 1.2 291 12.7 327 14.2 0 0 1-1.99 24 69 17 24 4.6 14 41 24 2.7 160 6.7 358 14.9 7 0 2-2.99 8 2 6 5 1.6 0 7 14 2.6 95 11.9 250 31.3 0 0 3-3.99 6 0 8 6 2.3 0 12 24 6.0 97 16.2 98 16.3 0 2 4- 6 6 4 8 3.0 0 2 11 2.2 66 11.0 44 7.3 0 0 Unknown 1 0 0 0 0.0 0 0 0 0.0 0 0.0 10 10.0 0 0 Total 75 107 54 75 3.1 14 115 115 3.1 791 10.5 1260 16.8 7 2 Note 1) Area of paddy fields held in hectares.

Table 1-5 Holdings of Major Production Assets Numbers per HH

Vehicle/Truck/ Irrigation No. of HHs Pickup Power tiller pump Motorboat Fishing net Non-farm 7 0.29 0 0.29 0.14 0.29 Farm1) 0-0.99 23 0.04 0.22 0.61 0.13 0.78 1-1.99 24 0.13 0.58 0.71 0.29 1.54 2-2.99 8 0.13 0.88 1.00 0.38 1.50 3-3.99 6 0 0.50 0.67 0.17 2.17 4- 6 0.17 0.83 1.17 0.33 1.33 Unknown100000 Total 75 0.11 0.45 0.69 0.23 1.20 Note 1) Area of paddy fields held in hectares.

Table 1-6 Holdings of Major Consumer Durables Numbers per HH Electric Radio- Sewing Washing No. of HHs fan TV Bicycle Refrigerator CD player Motorbike cassette machine machine Non-farm 7 1.86 1.14 0.71 0.86 0.57 0.29 0.29 0 0 Farm1) 0-0.99 23 2.83 0.87 1.04 0.78 0.39 0.39 0.17 0.04 0 1-1.99 24 2.54 1.04 0.96 0.92 0.67 0.50 0 0.21 0 2-2.99 8 4.50 1.25 1.13 0.88 0.75 0.88 0.50 0.25 0.13 3-3.99 6 2.67 1.17 0.67 0.83 0.67 0.33 0.50 0.17 0 4- 6 4.50 1.17 0.50 1.17 0.83 0.67 0.67 0 0.33 Unknown 1 0 1.00 2.00 0 1.00 0 0 0 0 Total 75 2.91 1.04 0.93 0.87 0.60 0.48 0.23 0.12 0.04 Note 1) Area of paddy fields held in hectares.

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Table 1-7 Development of the Saving Group in Ban Don Neua (Kip) Borrowing Regular Savings1 Repayment Lending No. of /Interest Withdrawa Accumulate Recoverin Interest /Interest Regular Carrying Distribute Member Received Per l d Savings g Revenue Paid to Per Costs Over d Profit s Amount from Persons Amount Capita Project Capita Project 2000 Oct 87 1,077 12 0 1,077 0 0 0 0 2 1,000 500 35 42 0 Nov 102 985 10 0 2,062 0 0 30 0 4 1,000 250 47 10 0 Dec 112 1,040 9 0 3,102 0 0 60 0 6 1,050 175 0 60 0 2001 Jan 118 1,147 10 0 4,249 1,000 0 92 0 7 2,000 286 194 105 0 Feb 121 1,405 12 460 5,194 1,000 0 122 0 8 2,000 250 23 27 0 Mar 129 1,206 9 0 6,400 950 0 152 0 7 2,300 329 7 27 0 Apr 133 1,143 9 0 7,543 2,100 0 189 0 12 3,450 288 2 7 0 May 137 1,435 10 0 8,978 2,150 0 233 0 12 3,800 317 25 0 0 Jun 137 1,250 9 140 10,088 2,300 0 282 0 10 3,600 360 0 92 0 Jul 131 1,455 11 170 11,373 3,500 0 321 0 15 5,100 340 0 98 0 Aug 137 1,360 10 0 12,733 4,400 0 360 0 14 6,100 436 16 102 0 Sep 125 1,885 15 275 14,343 6,007 416 459 0 26 6,300 242 41 200 2,053 Oct 128 1,305 10 0 15,648 100 0 252 0 9 1,700 189 0 157 0 Nov 128 1,310 10 0 16,958 500 2,500 316 0 11 4,600 418 0 183 0 Dec 135 1,428 11 0 18,385 7,000 0 480 0 20 8,800 440 293 0 0 2002 Jan 135 1,405 10 0 19,790 2,600 0 544 0 14 4,000 286 200 349 0 Feb 135 1,320 10 0 21,110 3,600 0 608 0 16 5,400 338 55 422 0 Mar 140 1,533 11 0 22,643 9,100 0 680 0 22 11,200 509 42 483 0 Apr 142 2,730 19 0 25,373 4,600 1,000 780 113 26 8,900 342 241 343 0 May 143 6,783 47 0 32,155 6,700 0 936 0 21 14,500 690 7 255 0 Jun 143 1,775 12 1,000 32,930 11,500 0 1,248 148 22 13,100 595 0 531 0 Jul 143 2,000 14 0 34,930 6,000 0 1,312 0 18 9,400 522 72 377 0 Aug 137 5,548 40 3,640 36,838 18,100 708 1,448 753 25 14,300 572 66 469 7,096 Sep 144 3,077 21 0 39,915 11,100 0 1,296 0 25 15,200 608 157 585 0 Oct 147 2,503 17 0 42,418 10,000 0 1,460 158 26 13,700 527 210 481 0 Nov 147 2,640 18 0 45,058 2,900 0 1,608 0 9 7,050 783 216 363 0 Dec 150 3,002 20 0 48,060 12,800 0 2,774 2,658 18 14,800 822 55 436 0 2003 Jan 151 3,296 22 0 51,356 14,200 3,000 1,854 0 27 22,100 819 0 676 0 Feb 153 3,552 23 0 54,908 12,000 0 2,170 0 32 18,300 572 50 58 0 Mar 155 4,880 31 0 59,788 9,250 0 2,422 0 17 16,300 959 0 310 0 Apr 154 3,426 22 0 63,214 17,800 0 2,704 360 24 23,500 979 200 180 0 May 161 4,612 29 0 67,826 24,100 0 2,932 0 28 31,000 1,107 0 814 0 Jun 162 10,625 66 0 78,451 16,700 0 3,208 330 28 29,825 1,065 0 1,202 0 Jul 168 5,175 31 9,215 74,411 46,100 0 7,280 0 16 16,700 1,044 196 6,340 27,306 Aug 192 25,559 133 0 99,970 0 2,680 0 0 25 31,300 1,252 0 2,699 0 Sep 200 9,618 48 0 109,588 29,700 0 3,809 240 38 45,250 1,191 125 211 0 Oct 206 6,308 31 0 115,896 23,825 0 4,591 240 30 33,890 1,130 90 535 0 Nov 206 6,083 30 1,000 120,979 16,900 0 4,921 240 18 24,400 1,356 60 2,739 0 Dec 207 7,447 36 0 128,426 7,380 80 5,140 4,280 9 6,060 673 180 12,267 0 2004 Jan 210 13,461 64 1,745 140,142 4,550 2,080 5,088 291 17 33,650 1,979 40 1,720 0 Feb 212 13,832 65 0 153,974 33,050 80 6,252 160 35 38,000 1,086 54 14,620 0 Mar 216 60,653 281 0 214,627 7,250 80 6,534 160 53 82,760 1,562 370 5,657 0 Note 1) Fees for members are included.

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4 2

Consumption Repayment

House building

Medical expenses Education Trade Ice factory Jees making Farm machinery Production Livestock Rice cultivation 10000- 5000- 10000 5000 3000- 3000 2000- 2000 1000- 500- 1000 Distribution of loan amount (Kip) Reasons for Borrowing 163223 7 1 1 6 1 1 500 250- 2771252 232 2 4 1 1 2 3335211 6 3 5 3 366733466734 13 4 9 5 3 4 9 4 1 3 3 200 1623312616532 71210104 412621145942 5538137 2 2 6 617 13 11 6 4 5 9 74 1 6 8 1 6 16 5 1 12 6 2 1 8 5 6 1 4 4 1 6 1 4 2 28 1 1 3 17 1 2 -250 7 243673 9 4402866623387531 5 4 11 678321321 282232733 1 4 2 1 1 4 5 4 1 5 2 1 5 1 5 4 7 3 2 3 1 5 2 340 34182441 11 1 6819161073 3 3 2 5 5 101 2 1 1 2 3 3 3 33036131763336025343653512441312189 8 4 1 3 234211771 2 3 1 131 7 1 2 3572661271 1 1 3 2 4 2 9 3 3 2 2 2 3 1 6 6 2 5 2 1 5 2 6 1 9 5 1 7 6906455 150974821 4 26906455 2 6.5 52242845726487 2 1.51 60866823 2 10 5 1 7 7 5 1 2 1 6 1 2 3 6 1 7 2 7 5 1 6 4 595583425366586 5 1 1 6 8 1 329331 1 1 1 1 2 1 175 6 1 1 250 2 2 2 2 286331 4 1 250 6 2 4 2 1 1 (Kip) amount Average 060 , 8,800 4,000 5,400 7,050 6 5,100 4,600 3,300 3,800 3,600 6,100 6,100 1,700 8,900 9,400 2,300 1,050 1,000 2,000 2,000 32,700 1,924 38,000 1,086 14,800 22,100 24,400 1,356 18,300 29,825 1,065 33,890 1,130 11,200 14,500 14,300 15,200 16,30023,20031,000 959 1,009 1,107 16,70031,300 1,044 45,250 1,252 1,191 82,760 1,562 13,100 13,400 Total (Kip) amount 9 9 9 7 6 1000 1 121,000500 4 2 7 8 17 35 18 14 16 27 20 18 32 15 11 28 30 10 12 14 25 22 26 21 25 25 17 23 28 25 38 53 10 16 25 22 18 No. of borrowers r r r r y y y g g g p p p pr pr pr Jul Jul Jul Jun Jun Jun Oct Oct Oct Feb Feb Feb Se Se Se Feb A A A Dec Dec Dec Dec Ma Ma Ma Ma Au Au Au Nov Nov Nov Nov Ma Ma Ma 2004 Jan 2002 Jan 2003 Jan 2000 Oct 2001 Jan Table 1-8 Lending Record for the Saving Group in Ban Don Neua Don Ban in Group for the Saving Record Lending Table 1-8

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amount Average borrowed

HHs % of

participating

HHs Borrowing

Group Saving members Number of

1 100.0 1 1 100.0 300,000 5 83.3 9 4 80.0 1,125,000 3 50.0 10 1 33.3 400,000 4 57.1 7 2 50.0 5,050,000

HHs % Participating - -

7,000,000 6 75.0 9 3 50.0 1,100,000 amount Average borrowed (Individual) -- - --

8,500 amount (Group) Average borrowed

322,450

y

Loans

Total Livestock Crop loan Handicraft 0000.0 2 0 2 33.3 1,350,000 Business loan Business machiner Farm Farmland development Farmland - -

amount Average borrowed Group Individual Total % 3,609 999,876 78,172 22,500 333,885312,295 116,309 273,960 727,961 1,743,595

borrowingInformal APB HHs % Borrowing

Savings HHs No. of Total 4- 6 0 0.0

APB bond 0-0.991-1.992-2.99 233-3.99 24 8 6 6 4 26.1 1 16.7 1,958,000 2 12.5 519,000 33.3 6 250,000 3,000,000 3 1 0 1 1 7 1 0 4 30.4 1 1 1,023,000 16.7 12.5 6,000,000 16.7 633,000 10,000,000 1,200,000 15 65.2 15 62.5 23 27 12 11 80.0 595,800 73.3 1,659,000 Time deposit Time Saving account Saving Current account Unknown 1 0 0.0 1) Table 1-10 Credit Transactions of Sample Households in Ban Don Neua Neua Don in Ban Households Sample of Transactions Credit 1-10 Table Total in held hectares. fields paddy of 1) Area Note 75 17 22.7 1,350,000 12 3 15 20.0 995,000 7,670,000 49 65.3 86 34 69.4 1,479,000 Farm Non-farm 7 4 57.1 719,000 0 0 0 0.0 Table 1-9 APB Service Sub-Unit Naxon Savings and Loans Source: March 2004 interview with the sub-unit head. with the sub-unit Source: March 2004 interview

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Table 1-11 Interest Rates of Informal Loans

No. of Interest rate (monthly) Loan size transactions 0% 4% 5% 10% <500,000 6 4 1 2 <1,000,000 6 1 1 3

<5,000,000 3 3 5,000,000 and above 2 1 1 Total179215

Table 1-12 Sample Households' Reasons for Borrowing from the Saving Group Reason No. of Water supply Loan size transactions Farming Livestock Trade Jees making Consumption Education system Birth/Funeral Unknown <500,0008200 1 3 1 0 01 <1,000,000 8 4 0 0 3 0 0 0 1 0 <5,000,000 15 1 5 2 2 1 1 0 1 2 5,000,000 and above 3 0 0 1 0 0 1 1 0 0 Total34753643123 % 100.0 20.6 14.7 8.8 17.6 11.8 8.8 2.9 5.9 8.8

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3-2. Expansion of Maize Cultivation and Its Impact on Rural Finance in Northern Laos

I. INTRODUCTION

The agriculture in the hilly northern areas of Laos is now undergoing a transition from that of a shifting cultivation-based subsistence to a more commercialized one based on cash crop production. Such a transformation is now facilitated both by increased population pressure and the policy of ‘stabilizing’ shifting cultivation. The increased demand by neighboring countries, such as China, Vietnam, and Thailand, for northern Laos products is also speeding up the process, especially since the late 1990s when Laos started to open its economy more substantially to such border countries. Furthermore, this agricultural transformation often took place alongside the migration of people and villages, mainly from higher mountainous areas to lower valley areas. In this sense, it should be regarded as a large social change, rather than a merely economic change. A village named Ban Oudom was selected from the Houn district (muang) in Oudomxay Province, where a large-scale expansion of maize cultivation took place recently for export to Province, China. Three surveys were conducted; i.e., a preliminary survey in August 2003, followed by the main survey in February 2004, and finally a supplementary survey completed in September 2004. In September 2004, the survey area was extended to include Yunnan Province, China in order to collect information on the market situation of maize imported from Laos. The main survey in February 2004 was conducted in two steps: first a ‘Basic Survey’ was conducted for all the households (88 households) in the village, followed by an intensive ‘Sample Survey’ of selected sample households (35 in total). The major purposes of this paper were decided as follows: The first objective is to understand how the transformation of the shifting cultivation system occurred, and to evaluate the sustainability of the new cropping system, including maize cultivation, both from economic and ecological points of view. The second objective is to assess the impact of such changes on rural finance, in terms of the farmers’ income, consumption, investment, and savings. Results of the survey in Yunnan Province, China will also be presented in detail in the Appendix.

II. THE HOUN DISTRICT AND THE DEVELOPMENT OF MAIZE

According to Köppen’s classification of climate, Oudomxay Province belongs to the semi-tropical monsoon climate, with rainy and dry seasons affected by and tropical low pressure (Figure 2-1). The average annual rainfall is 1,384 mm. It rains heavily in July and August but rarely from October to March. The temperature is high in May and June, reaching 26.5° Celsius, and lower in December and January, about 19° Celsius.

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The Houn district is the largest in Oudomxay Province, with an area of 2,278 km2. Calcaric cambisol (CMc) along with ferric- (ACf) and haplic acrisol (ACh) are the dominant soil types in this district. Calcaric cambisol, which contains calcium carbonates, makes up 24 percent of the area and is distributed mainly in relatively gently sloped terrain. Ferric and haplic acrisols make up 22 percent and 19 percent respectively, and neither are suitable for agricultural production except for shifting cultivation. They are mainly distributed in the mountainous areas with higher altitude and steeper slopes. The composition of population classified into the so-called Lao lum, Lao tun, and Lao sung is 14.9 percent, 65.8 percent and 19.4 percent respectively. Figure 2-2 illustrates the population growth in the district in recent years. The population grew from 51,989 in 1999 to 58,616 in 2004, an increase of about 6,600 people over five years. The population growth rate was only about 1 percent per annum, much lower than the national average (2.44 percent in 2004). The population density was 25.7 persons per square kilometer, which was almost equivalent to the national average (26 persons/km2). The Houn district in Oudomxay Province is well known for its rapid expansion of maize production in recent years. The total planted area in the rainy season increased from 12,672 ha in 1999 to 15,750 ha in 2004, to which the expansion of areas planted with maize made up the majority (Figure 2-3). The planted area of maize was only 165 ha in 1999, but increased dramatically thereafter and reached 6,031 ha—an increase of over 3600 percent—in 2004. By contrast, the planted area of upland rice drastically decreased. It decreased to only 4,614 ha, which is only 44 percent of that recorded in 1999. Furthermore, maize cultivation experienced a substantial increase in the dry season (Figure 2-4), while other crops stagnated. It is said that hybrid maize cultivation was first introduced to the Houn district in 1996 by living in Ban Dontat. In the following years, 1997/98, maize cultivation spread into Ban Navan and Ban Phonxay, located between the towns of the Houn district and the study village Ban Oudom. In 1999, the APB Houn service sub-unit first disbursed 34.2 million kip in loans to 32 households in a village (four groups) for maize cultivation under a group lending scheme. In 2000, the loan amount expanded substantially to 660 million kip, extending to about ten villages. However, because of the very poor harvest due to heavy frost that year, approximately 200 million kip were turned into a so-called NPL (non-performing loan), which had still not been repaid at the time of the survey in February 2004. As will be discussed later, however, the APB started disbursing loans again in 2002, with the loan amount jumping in 2004 in accordance with the jump in planted areas of maize shown in Figure 2-3. It can be said that in spite of the temporary setback in the year 2000 due to a natural calamity, maize cultivation in the Houn district, having begun only in 1996, had developed quite rapidly and rather smoothly until today.

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III. AGRICULTURAL CHANGE IN THE STUDY VILLAGE

3-1. Migration and transformation of livelihood

Ban Oudom, the village we studied, is located at N19.99 and E101.28, 495 meters above sea level (Figure 2-5). It is surrounded by gently sloped land, although its western side is a ridge area. The major soil types are calcaric cambisol, ferric acrisol, and haplic luvisol (Figure 2-6). Haplic luvisol is a clay-rich soil type. Cambisol and luvisol are distributed in the gently sloped terrain, while the ridge area is covered by acrisol. The native ethnic group is Khmu, a kind of Lao tun. The number of households and families were 91 and 134 respectively, with a population of 638. The agricultural land measured 364 ha in total. In 1973, villagers migrated to the present area from the old village in the mountainous area, about 5 km away. Forty households lived in Ban Mokpan, the old village, and were mainly dependent on shifting cultivation. At that time, shifting cultivation was conducted with ten-year fallow periods, and the major crops were upland rice, beans, root vegetables, gourds, and sesame, planted together in the field. The yield of upland rice was about 2-3 tons per hectare1. They used to do their work divided into six production groups (nuai). Apart from shifting cultivation, their livelihood was also supported by cotton cultivation, livestock rearing, and lumbering. Cotton was also planted in shifting cultivation plots, but not in fields of upland rice. The sale of livestock was the major source of cash income, with a total of 30-40 buffaloes, 120-130 head of cattle, and 70-80 pigs. At that time, they had to purchase rice and salt from the outside in exchange for their livestock. This trade was conducted through middlemen living in the neighboring villages, or when villagers visited the market in the central town of the Houn district. The migration from the old village started in around 1970, when four or five families first migrated to Ban Long Kong, just north of where Ban Oudom is at present. Then in 1973, all the families remaining in the old village migrated to the present location of Ban Oudom, while the villagers of Ban Long Kong moved slightly south to join them. The major reason for the migration was the new location’s convenient access to the highway connecting Oudomxay and Pakbeng. The road was constructed by the Chinese government in the first half of the 1970s. During 1974-76, just after the migration, villagers continued shifting cultivation in the same area they had used when they lived in the old village. However, in 1977 they stopped this practice and started shifting cultivation in the gently sloping land around the new village. Because they reclaimed the deep forest with fertile soil, the upland rice yield increased temporarily (about 3 tons/ha), and since they achieved self-sufficiency with the rice, they were able to reduce the area used for shifting cultivation. One family could sell 4-5 tons of rice in a year on average, or even up to a maximum of 7-8 tons. They stopped cotton cultivation in 1977 when fashion shifted away from the wearing of traditional clothes and toward Western clothes.

1When rice was in short supply, they sold livestock in order to purchase rice, or they collected yams in the forest as an important supplementary food.

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At the same time, villagers started reclaiming lowland paddy fields. In 1975, four farmers first reclaimed a total of 1 ha. Although the process of reclamation after that is unknown, about 10 ha of paddy field were obtained through reclamation by the year 2003. During 1978-80, cooperative farming (sahakon) was introduced in the village, according to general government policy. Agricultural products were distributed to each individual based on the labor point system. About ten families with members of the older generation returned to the old village to escape this policy. They could expect a plentiful rice harvest since the fields had been fallow for more than seven years, allowing the biomass to recover. However, the villagers returned to Ban Oudom immediately after the cooperative farming system was abandoned in 1980. Since then, villagers continued shifting cultivation in the area around the village. The fallow period gradually grew shorter, however, mainly due to increased population pressure. By 1993, the fallow period had shortened to 4-5 years and the upland rice yield had decreased to about 2 tons per hectare. Another notable change occurred in 1998 when middlemen came to the village to purchase NTFPs (non-timber forest products) such as paper mulberry bark (Broussonetia papyrifera) and chandai (Dracaena cambodiana). Since then, villagers began collecting these NTFPs. However, the natural supply of paper mulberry soon began to decrease rapidly, and villagers have started planting it as of 2000. By this time, villagers recall, the fallow period had shortened even further, to two years, and the upland rice yield had declined to only 1 ton per hectare.

3-2. Introduction of maize and changes in the farming system

In the year 2000, 16 families started maize cultivation in Ban Oudom, three to four years after it had been first introduced in the Houn district. It seems they followed the pioneers in surrounding villages after realizing the high profit to be made from maize cultivation. Furthermore, the lower labor requirement for weeding compared to that for upland rice also facilitated a shift in emphasis from upland rice to maize; i.e., weeding must only be performed twice for maize versus 3-4 times for upland rice. The planted area of maize, which started with only 6.8 ha in 2000, grew very rapidly to 19.8 ha in 2001, 44.6 ha in 2002, and 80.4 ha in 2003 (Table 2-1). The table also indicates a rapid increase in the number of maize producers, reaching 82 percent in 2003. The average area of maize reached nearly 1 ha in 2003. However, at the same time, it should be noted here that the planted area of upland rice did not show a decrease during this process, instead even increasing slightly. Note that 12 families recently began to undertake shifting cultivation again in the old village areas (1-2 ha per family)2 when they faced a shortage of rice for consumption. In other words, the villagers introduced a new maize crop while maintaining the upland rice area for home consumption. It was not the shift of land use from upland rice to maize, but rather an additional planting of maize. As a result, the total planted area in the village, which was only 80 ha in 2000, has more than doubled to 175 ha in only three years (Figure 2-7). Moreover, the

2At present, the area around the old village is generally used as pastures for cattle and buffalo.

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percent of farmers who produce both maize and upland rice has increased rapidly, constituting the majority by the year 2003 (Figure 2-8). Thus the area devoted to upland rice cultivation was maintained in the village even after the large-scale introduction of maize. However, there was a big change in the upland rice production system during this process as shifting cultivation plots were rapidly transformed into permanent upland plots. The fallow period of the shifting cultivation plots, which has been decreasing steadily during the last one or two decades, has finally reached zero, the land being turned into a permanent upland field, locally called suwan. This was because the maize cultivation area expanded into the fallow land, making a shifting cultivation system increasingly difficult to maintain. It can be said that the expansion of maize field contributed to accelerating the decrease in the fallow period as part of the shifting cultivation system. At the time of the survey in 2003, the village still contained some shifting cultivation plots with two-year fallow periods, but they were rapidly disappearing. Namely, only 30 percent of households had suwan in 2000, but this figure increased to 58 percent in 2003 (Figure 2-9). Table 2-1, mentioned earlier, indicates that in 2003 slightly more than 80 percent of households in the village were engaged in both upland rice cultivation and maize cultivation with about 1 ha each, while nearly 30 percent of households had lowland paddy fields averaging 0.4 ha in area. Our survey revealed that more than 80 percent of lowland paddy fields and upland fields were either reclaimed or inherited from the villagers’ parents (Table 2-2)3. Finally, it should be mentioned that upland rice is almost exclusively for self-consumption, whereas maize is a pure cash crop, sold to merchants and eventually exported to China (Table 2-3). A portion (27 percent on average) of lowland rice produced is also sold to the market. However, a rice deficit was commonly observed in the village. Out of 35 households surveyed, 25 reported rice shortages. The extent of the rice deficit was examined in more detail in Table 2-4. Children under 15 years old and people over 55 years old were counted as 0.5 person, and the annual per-capita rice consumption was assumed to be 350 kg in terms of paddy produce (equivalent to 175 kg of milled rice using the 0.5 conversion rate). As a result, the length of the rice deficit was shown to be 4.5 months on average4, ranging from 1.5 months for the “middle” class to 5.0 months for the “poor” and to 8.3 months for the “very poor”, respectively. Note that we classified all the village households (88 households at the time of the main survey in February 2004) into three economic strata, based on subjective classification by the village head; i.e., the “middle” (32 households), the “poor” (32 households), and the “very poor” (24 households). We then selected 35 households (40 percent of total) as samples for an intensive survey, picking up 11 households from the “middle”, 15 households from the “poor”, and 9 households from the “very poor”.

3There are a few households who purchased upland fields, the price of which was about 1.5 million kip per hectare. 4According to an interview with the village head in August 2003, it was reported that the deficit of rice in the village usually lasts for about 3 months, from July to September. The 4.5-month deficit reported here seems to be an exceptional case in 2003 because of very poor rice production due to a severe drought. However, there is another possibility that the rice deficit situation was becoming worse in the village because of an accelerating labor shortage following the introduction and expansion of maize.

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3-3. Crop production practices

Figure 2-10 shows the village crop calendar, where upland rice, lowland rice, and maize are the major crops produced. We found that all crops are grown in the rainy season, while the land is left fallow during the dry season; this is because there are no irrigation facilities in the village, except for a small weir-based irrigation system (patom patan). In the case of upland rice cultivation, there was almost no difference observed in the growing schedule between permanent upland plots (suwan) and shifting cultivation plots. Bushes and grasses were slashed starting in mid-February, and they were dried in the field for about a month. In March the dried plants are burned. After sowing is completed in May via the hill seeding method, farmers must weed repeatedly—three times on average from June to August. Finally, harvesting takes place in September. , the staple food of the local people, is preferred, and local traditional varieties are used. Chemical fertilizers and herbicides are rarely applied except for Polidol, used to kill ants; the villagers started using Polidol around 2000. The average yield of upland rice is approximately 1.4 tons per hectare. On the other hand, lowland rice cultivation begins after sufficient rainfall. Farmers start to prepare their nursery in May, followed by plowing, harrowing, and transplanting from June to July. In August they repair the field ridge. Weeding is rare5. In the month of October, the field is drained and harvesting begins. Local varieties of rice are used, such as Khao takiat and Khao meto, both types of glutinous rice. The average yield is 2.3 tons per hectare, higher than that of upland rice by nearly a ton. Chemical fertilizers and herbicides are never applied. Maize cultivation starts at the same time as that of upland rice. The process of land preparation is also the same, except for the fact that maize cultivation usually involves plowing by power tillers or by manual labor. The field is plowed once in April, followed by sowing via the hill seeding method 2-3 days later. Note that despite the rapid diffusion of power tillers that has been observed in recent years, as mentioned later, only 2 out of 33 surveyed farmers used power tillers to plow their maize plots, indicating that plowing with power tillers was not yet popular among farmers in 2003. Weeding is conducted three times, and no chemical fertilizers, herbicides, or pesticides are applied6. The most popular hybrid variety was LVN10, imported from Vietnam, but other hybrid varieties such as 984 (by Pacific Seeds Ltd., Vietnam), 9698, 9999, 9430, and 9988 (by Bioseed Genetic Ltd., Vietnam), and CP888 (by C.P. Group, Thailand) were also being introduced experimentally in 2004. The average yield is 5.2 tons per hectare. It should be emphasized here that farmers in the village had not started to use chemical fertilizers in either lowland paddy fields or upland fields, irrespective of the crops produced. However, due mainly to the soil’s natural fertility, the was relatively high with no sign of a downward trend when we conducted our surveys in 2003 and 2004. Lastly, let us mention the labor input situation. As noted already, in the years before 2000 when farmers produced only rice, the average cultivated area per farmer was only 1 ha (except for lowland rice) but

5Out of 11 households we surveyed, only two conducted weeding with female labor. 6The application of fertilizer, herbicide, and pesticide was started by two or three farmers in the village on an experimental basis.

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increased rapidly after the introduction of maize, reaching about 2 ha on average. Moreover, as already indicated in Figure 2-10, the labor required for maize cultivation almost overlaps with that for upland rice. However, judging from the fact that hired labor was still very rare in the village, relying mainly on family labor and exchange labor, it can basically be said that the problem of labor constraints has not acted as a serious barrier to the expansion of maize thus far. A reservation should be made here, however; our data shows that the correlation coefficient between labor availability and the total planted area at the household level was 0.31 with statistical significance. If estimated per crop, the planted area of maize showed a particularly high value (r=0.33) with statistical significance7. Furthermore, as will be reported later, recently there has been a rapid spread of small rice mills in the village, the major purpose of which is to reduce the women’s workload. This is because weeding operations in upland fields, irrespective of the type of crop (although upland rice and maize constitute the hardest work), are exclusively conducted by women in the village, along with the transplantation of lowland rice. Due to the relatively large farm size, there is also quite a large labor requirement, especially during the peak season from mid-June to early July, when farmwork such as plowing, upland field weeding, and lowland field transplanting overlap. On the other hand, there is almost no farmwork during the dry season, when villagers engage in other work such as collecting NTFPs, repairing houses and furniture, and so on.

3-4. Cost and return of maize production

An important feature of maize production introduced in the Houn district, including the study village, is the use of hybrid seed, requiring farmers to purchase seed every year. The role of the government, including PAFO (Provincial Agriculture and Forestry Office), DAFO (District Agriculture and Forestry Office) and APB, continues to be critical in this field. The distribution system for imported hybrid seed (from Vietnam) is as follows8. First, a survey for estimating seed demand is conducted by DAFO staff and is put together in PAFO, Oudomxay, by March, about one month before sowing. Then a meeting is held at PAFO where the final decision is made on how many tons of seed will be imported, based on discussions among the staff of PAFO, DAFO, the Ministry of Trade, the APB, and private traders. The majority of seed, the chief hybrid maize being LVN10, is purchased by PAFO from the Vietnamese government in Namdinh Province and then transferred to the APB for further distribution to farmers. A portion of seed is purchased from the private sector in Vietnam by either PAFO or private traders in Laos9 , depending on the actual

7There was no statistically significant relationship for upland rice area, but we observed a weak correlation in the case of lowland rice area (r =0.22). 8Based on a September 2004 interview with the head of the Houn service sub-unit of APB. 9Traders purchased seed in the Khua district, Province for 17,000 kip/kg and sold it in the Houn district at 18,000 kip/kg.

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supply–and–demand situation. APB provides seed to farmers on credit in late April or early May. After harvest, farmers repay the credit in November or December, with interest (the interest rate was 12 percent per annum, but was raised to 20 percent per annum as of March 2004). Note that when purchasing seed from private traders, farmers purchase either in cash or on credit10. The standard seed rate sown per hectare of land was 16-20 kg. As already explained, the APB Houn service sub-unit first disbursed such a loan for maize cultivation in 1999. Then, after experiencing the aforementioned problematic accident in the year 2000, in 2002 the APB once more began disbursing loans amounting to 273.3 million kip to 848 farmers in 26 villages. In the following year, 318.9 million kip in loans was disbursed to 429 farmers in 18 villages (in 52 groups); in 2004, the loan amount jumped to 828.2 million kip for 597 farmers in 23 villages (in 63 groups). According to the village head of Ban Oudom, the number of farmers in the village who purchased seed through the PAFO-DAFO-APB line was 26 (total seed purchased was 1 ton) in 2001, 40 (0.5 ton) out of 55 producers in 2002, and 67 (2 tons) out of 72 producers in 2003. Table 2-5 summarized the result of our September 2004 village maize production cost survey. A total of 10 farmers were interviewed for that purpose. We divided farmers into two categories, farmers who used power tillers for land preparation (6 farmers) and those who did not (4 farmers). Note that a power tiller is a valuable asset, with about 8.3 million kip for Chinese-built machines and 14.5 million kip for Thai models, both of which are equipped with 8-9 horsepower engines. Seed cost is evaluated by its APB repayment value, which means that it includes interest for APB credit. Labor input includes family, exchange, and hired labor, all of which were evaluated by the wage rate (10,000 kip per day without meals) observed in labor hiring. The cost of power tillers was evaluated by the machine’s prevailing rental fee. According to an interview with the village head, it was 400,000 kip per hectare, but considering the possible downward bias among relatives, we also used 650,000 kip per hectare, a figure obtained in nearby Ban Donkeo. Finally, the thresher fee is charged by its owners (traders who collect maize) at the rate of about 30,000 kip per ton of maize. All figures used were accurate in 2003. The production cost of maize was estimated to be about 370 kip per kg, whether or not power tillers were used. It was far below the realized market price (about 800 kip per kg), which means maize cultivation has a fairly high profitability for farmers. The same conclusion was reached in a survey conducted in Ban Donkeo (Table 2-6), where maize was double-cropped in some parts of the field, mainly those near the river where water for irrigation is easily obtained11. We noticed that although the production cost per kg was substantially higher in the dry season due to lower yield (because of water stress), it was compensated by the higher price (1,000 kip per kg) achieved in the market. The harvested maize is collected by local private traders and eventually transported to Kunming, the

10According to an interview with a trader, if they purchase hybrid seed at the price of 17,000 kip/kg at the border with Vietnam, they sell it in the Houn district at a price of 18,000 kip/kg for a cash transaction, whereas they will sell it at 20,000 kip/kg if they collect the seed cost from farmers only after the harvest. 11Out of the 326.9 ha of maize fields, 52 ha (15.9 percent) was double-cropped.

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capital city of Yunnan Province, China, to be processed into animal feed. The details of the maize marketing channel and the economic analysis of said marketing system will be presented in the Appendix of this chapter.

3-5. Impact of maize cultivation on income generation

Before the introduction of maize, the villagers’ major source of cash income was the sale of livestock and NTFPs, usually not exceeding 1 million kip per year. However, maize cultivation quickly brought in a huge amount of cash, amounting to several million kip. Table 2-7 shows the estimates of net income from maize cultivation, based on the previously mentioned survey on cost and return. Net income was estimated by multiplying gross revenue by the percent of net income, equivalent to the sum of the profit share (0.546 without power tillers and 0.531 with) plus the labor share (0.327 without power tillers and 0.194 with). It was assumed that the exchange labor cost becomes net income in the end. The table indicates that the gross revenue from maize was 3.0 million kip on average (4.5 million kip for the “middle”, 2.4 million kip for the “poor”, and 1.7 million kip for the “very poor”), while the net income was 2.1-2.6 million kip on average (3.2-3.9 million kip for the “middle”, 1.7-2.1 million kip for the “poor”, and 1.2-1.5 million kip for the “very poor”). In any case, it is evident that the villagers accrued a substantial amount of cash income, although there was apparent inequity among them.

IV. ECONOMIC DISPARITY AMONG VILLAGERS

Now let us examine the economic disparity among villagers, mainly categorized into three groups: the “middle”, the “poor”, and the “very poor” in terms of various indicators.

1) Agricultural production Table 2-8 summarizes the performance of agricultural production, shown for each of the three economic strata respectively, based on the “Sample Survey”. It is evident that the planted area (and production) of maize was greatest for the “middle”, followed by the “poor”, and the smallest for the “very poor”. We tried to investigate the possible factors that brought about the difference in the maize yield. However, it was found that factors such as operational farm size, labor input, starting year of cultivation, and year the land was acquired were not significantly related to the yield gap among the strata. The number of weeding activities—two to three—was also not significantly different. With agricultural production being conducted on the gently sloped land around the village, micro topography significantly influences crop yield. In general, the upper portion of the land is less fertile than the lower, due to soil depletion (although soil depletion was not serious). It is therefore considered that

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the differences in land endowment among the three strata can be attributed to the yield gap. Significant differences could also be observed in the area and production of lowland rice and paper mulberry, especially between the “middle” versus the “poor” and the “very poor”12. By contrast, only relatively small differences could be observed in the production of upland rice.

2) Livestock holding The sale of livestock was for a long time the most important source of cash income for the villagers by far, at least before the introduction of maize. Table 2-9 shows the holdings and sales of livestock such as buffalo, cattle, pigs, chickens, ducks, goats, and horses, broken down by household economic stratum. Buffalo, pigs, and chicken were the most important livestock in the village in terms of the number of households raising them and as sources of cash income. Buffalo is the villagers’ most valuable asset, and the “middle” shows the highest figures both in the percent of households raising buffalo and the number of animals per household. Pigs, the second most important livestock, are kept by all households belonging to the “middle” and the “poor”, although there is a significant difference between the two strata in how many each household owns. The “very poor” had almost the same number of pigs per household as the “middle”, but only a third of the households had any pigs at all13. As a result, in terms of cash income from livestock, most of the “middle” obtained a large income, while almost all of the “poor” obtained income, although only a small amount. By contrast, only a small number of households belonging to the “very poor” obtained any income from livestock. Even if livestock rearing brings about high profit, one of the major problems is the high risk involved due to the death or theft of animals. We conducted a survey to explore this point for the sample households, but obtained only enough samples to show only the results for buffalo, pigs, chickens, and ducks (Table 2-10). The survey was conducted over the last three years for buffalo and pigs, while it was constrained to only a year for chickens and ducks. The table shows that only 17 percent of households experienced the death of buffalo, whereas the same figure was much higher for pigs and chickens at about 50 percent. Although villagers never vaccinate their buffalo, it can be said that the risk of death is low. By contrast, the risk is quite high for pigs and chickens, which may seriously reduce the profit expected from investing in such animals. On the other hand, only 10-20 percent of households experienced theft of any animal. However, when buffalo are stolen, owners are seriously damaged because they lose many buffalo at a time—4.5 on average.

3) NTFPs Villagers collected and sold NTFPs such as chandai, dok khem, mak hen, and sa (Table 2-11). However, a very small number of households were engaged in this activity in the village, with the

12Note that there were no statistically significant differences between the “poor” and the “very poor”, in terms of production, planted area, and yield of each crop, including maize. Furthermore, the “middle” attained a higher (statistically significant) yield of upland rice and lowland rice, as well as their larger (also statistically significant) planted areas of maize when compared to the “poor” and the “very poor”. 13On the other hand, there was no systematic difference observed among the strata about chicken rearing.

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exception of po sa (paper mulberry), despite the fact that NTFPs are usually very important income sources in northern Laos, especially in the mountainous areas.

4) Non-farm activities Non-farm activities were also not so important in the study village, much like NTFPs. Namely, as shown in Table 2-12, only a few households were engaged in such non-farm activities as shop-keeping, trading, handicrafts, blacksmithing, salaried work (as teachers), wage labor, and construction contracting. Such a situation is commonly observed in the mountainous areas of Laos.

5) Income and expenditure The income and expenditure of village households were estimated through the “Sample Survey” (Figure 2-11 and Figure 2-12). Both income and expenditure as estimated here consist only of cash revenue and expense. Furthermore, cash cost has not been excluded from the income estimate. First, we discovered that the position of the “poor” and the “very poor” were reversed in terms of both income and expenditure, although the reasons for this are unknown. However, the “middle” enjoyed a significantly higher income and expenditure than the other two. The gap in income earning reached approximately 300 percent, although the difference in expenditure was far less than this. Second, revenue from recently introduced maize cultivation occupied more than 75 percent, followed by livestock and NTFPs. The share of maize was especially high for the “middle”. Third, regardless of the economic stratum, food and beverages, medicine, and clothes occupied a very large share in household expenditure. A notable fact is that the villagers were obliged to spend a great deal of money for medicine, especially among the poorer households. This reflects the extremely unfavorable health environment in which they live.

6) Borrowing and lending among villagers There were no formal credit institutions other than the APB, which extended loans to the villagers in the form of hybrid maize seed. Borrowing and lending practices among villagers, however, were prevalent, in the form of both cash and rice (Table 2-13). Although the data are not entirely reliable because of widespread under-reporting, especially for lending, it was found that an active informal credit market, including both cash and rice transactions, existed in the village. The annual interest rates charged among relatives and friends (45 cases were reported) were usually nil (interest free) except for 7 cases, out of which two cases were 24 percent, three cases were 50 percent, and one case each were 40 percent and 100 percent14. The active informal credit relations generally indicate mutual help among the villagers.

14Villagers said that if they were to organize a savings group, it would be appropriate to charge a 4 percent per month (48 percent per year) interest rate for lending.

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7) Family composition So far there had been found a significant economic disparity among households in the village, and it also seems this disparity was on an upward trend, especially after the introduction of maize cultivation. By contrast, when villagers were engaged in shifting cultivation supplemented by livestock rearing, the inequality among them was said to be much smaller. This begs the question: what factors facilitated the process of increasing disparity? In this regard, it may be interesting to note the fact that there was a significant difference among the economic strata in their family composition, especially in the number of the economically active population (ages 15-55) and the age of the head of household, observed in Table 2-4. Namely, the more economically active the population, the richer the stratum to which the household belonged. It was also evident that the average age of the head of household in the “middle” was significantly higher than in the “poor” and the “very poor”. It can be said that a Chayanov-type family lifecycle was observed in the village, just as in the case of Ban Don Neua in Vientiane Municipality (Chapter 1). In other words, it can be hypothesized that households who had a plentiful labor force at a time when maize cultivation was expanding rapidly could take advantage of the opportunity. The important thing, however, is that the inequality that later emerged cannot be regarded as a temporary phenomenon, as Chayanov’s theory would suggest. Rather, the inequality should be expected to resolve itself or even increase in the future due to an increasing land scarcity under rapidly disappearing shifting cultivation practices.

V. IMPACTS ON RURAL CREDIT

Finally, let us examine the impact of maize cultivation expansion on rural credit markets, taking into consideration all aspects of consumption, investment, and savings. In other words, how have rural people utilized the huge cash income suddenly obtained from maize production? First, it is noteworthy that a rapid influx of both consumer durables and production assets took place in the village, especially power tillers, small rice mills, motorbikes, radio-cassettes, video CD/CDs, and television sets (Figure 2-13). It is also evident that such assets were first found among the “middle”, namely the richer households (Table 2-14). According to the villagers, the diffusion of small rice mills in recent years was encouraged by the desire to reduce the excessive work load shouldered by women. Table 2-14 also shows the prices of these assets. It is evident that some villagers began spending large amounts of money to purchase such assets, especially in the case of power tillers, rice mills, and motorbikes. Second, despite the fact that only two Ban Oudom villagers had bank accounts, the deposit amount for the APB Houn service sub-unit as a whole15 has increased tremendously in recent years, especially after

15The service sub-unit covered 7 districts (muang) in all.

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the expansion of maize cultivation. For example, the amount of savings, totaling 2.865 billion kip in February 2004, increased over a mere 7-month period to 3.836 billion kip in September 2004. Especially notable was the rapid increase in time deposits during the same period, from 1.676 billion kip to 2.712 billion kip. The breakdown of September 2004 time deposits is as follows: 3 months - 0.470 billion kip; 6 months - 0.956 billion kip; 1 year - 0.921 billion kip; and 2 years - 0.364 billion kip16. The head of the APB sub-unit told us that, in the past, his staff had had to go around to villages to encourage people to make bank deposits, but that recently people have started coming to the bank to save, even if the staff is only sitting at the office. Although the amount of savings in the bank is rather small compared to the total increased income in the region, it can be said that at least a portion of it is being increasingly directed to the banking sector as deposits, especially as time deposits longer than 6 months.

VI. SUMMARY AND DISCUSSIONS

The late-1990s expansion of maize cultivation that began in northern Laos, especially in the Houn district, Oudomxay Province, can be regarded as a success story. It brought a great deal of cash income into the hands of farmers and traders, thus contributing to the development of the regional economy as a whole. It also helped obtain precious foreign exchange. The change in the farming system took place along with the national policy of the “stabilization” of shifting cultivation. With the increased cash income, farmers began purchasing various production assets and consumer durables, such as power tillers, small rice mills, motorbikes, television sets, video CD/CDs, and radio-cassettes. At the same time, a certain portion of the increased income was saved in APB and other banks. Maize is an indispensable raw material for processing animal feed and therefore a promising crop, compared to such crops as Job’s tears. It means the demand for maize is strong and growing. Moreover, maize produced in Laos has sufficient competitive power in Kunming, Yunnan Province, where there is high demand. It can be concluded that maize production in northern Laos is sustainable in terms of an outlet market. However, the critical question is the sustainability of maize cultivation from the viewpoint of the farming system and environment. So far, farmers in the Houn district have continued to cultivate maize in the same plot every year, without using chemical fertilizers. Yet they enjoy a very high yield (about 5 tons/ha) with no apparent downward trend, mainly because of the soil’s natural fertility. However, in the near future, the time will most probably come when they will have to apply fertilizers to maintain the yield level.

16The average amount of deposit per account was as follows: 269,410 kip for saving deposits (2,405 accounts), 3,090,211 kip for 3 month deposits (152 accounts), 3,342,895 kip for 6 month deposits (286 accounts), 4,848,832 kip for 1 year deposits (190 accounts), and 19,108,421 kip for 2 year deposits (9 accounts).

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Furthermore, although the area of upland rice in the study village has not yet shown a decline, the Houn district as a whole has already experienced a sharp area decrease. The study village also featured a decrease in the total land devoted to upland rice due to the expansion of maize in the fallow area, resulting in more upland rice being cultivated continuously in permanent fields. Farmers still manage to grow upland rice without applying chemical fertilizers, but most likely the crop will begin to experience the same problem as maize in the near future. In this sense, farming system changes have just only begun, and the system is still far from stable. There is also a growing concern of inequity among villagers, especially under the newly emerging land title system. Whether the economic prosperity made possible by the introduction of maize can be sustained or not largely depends on how people and the government can solve these problems.

Appendix: MARKETING OF MAIZE TO CHINA

In September 2004, a special survey was conducted on the maize marketing system, from producers in Laos to feed factories in Kunming, Yunnan Province, China through various marketing intermediaries. The survey report is comprised of two parts. The first part is devoted to the marketing system itself, where we also estimate the distribution of marketing margins. In the second part, we examine the competitive nature of the maize market at the crop’s destination (Kunming), where maize produced in Laos is in competition with maize produced in other areas. In other words, we try to assess how stable the demand for Laos maize is in the Chinese market.

A-1. Marketing system of maize

The marketing of maize begins with local traders purchasing it from farmers along the main road. Local traders, after threshing maize in their own threshers at a rate of 30,000 kip per ton, usually purchase it in cash, paying the farmers after deducting the cost of threshing cost and sometimes the cost of seed if they had given seed advances. There were two major routes for exporting maize to Yunnan Province, China. In 2004, the transportation cost was 220-240 kip/kg from the Houn district to the border ports. In addition, traders had to pay 150,000 kip in fees per truck to the district and provincial governments. For an 11-ton truck, the fees comes to approximately 27,000 kip/ton in total. The total per-kilogram cost was therefore 250-270 kip. If these costs were added to the farm gate price (about 700 kip per kg in September 2004), the cost of maize for traders at the border became approximately 950-970 kip/kg. On the other hand, the purchasing price for Chinese traders at the border ranged from 0.8 to 0.9 yuan/kg, or 1,050 to 1,180 kip/kg (1 yuan=1,310 kip). This means that local traders accrued a net margin of 90 to 220 kip/kg of maize. Note here that when the border price reached a peak as high as 1.2 yuan (1,570 kip) per kilogram in around

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November or December 2003, the local traders in the Houn district offered a farm gate price of 1,000 kip/kg, leaving a price differential of 570 kip/kg and resulting in a net margin of approximately 300 kip/kg after deducting cost17. It was reported that the price at the border has fluctuated by 0.7 to 1.1 yuan/kg in recent years. The survey revealed that the majority of maize imported from Laos is transported further to Kunming, where it is processed as animal feed, mainly for pigs. There are actually 298 feed processing factories in Yunnan Province, including 39 large facilities producing more than 10,000 tons of feed per year. The total feed production in 2003 was 1.58 million tons, of which 1.13 million tons was compound feed and 430,000 tons was concentrated feed. Approximately 80 percent of the feed processing factories are located in Kunming, while the remaining 20 percent are also located in areas outside Xishungbanna Prefecture. This means most maize imported from Laos is transported to Kunming for processing. There are a total of four major feed companies in Kunming, including the Thailand-based multinational corporation CP. Thus, taking into account the transportation cost of about 0.25 yuan (330 kip) per kilogram from the border to Kunming (a distance of slightly more than 700 km), we finally reach the cost of 1.05-1.15 yuan (1,380-1,500 kip)/ kg at Kunming in September 2004. In sum, maize farmers in the Houn district obtained a price (700 kip/kg) that was slightly less than 50 percent of the wholesale value realized in Kunming. There are basically three categories of trade between China (Yunnan Province) and Laos: normal international trade, border trade, and trade among inhabitants of border areas18. The third category of trade is permitted duty-free, provided that the traded value does not exceed 3,000 yuan (about 3.9 million kip) per person per day. In fact, it was found that maize is actually imported through this category, thus with no tariffs being paid. In recent years it is estimated that 8,000-10,000 tons of maize is being imported from Laos, although it is not reflected in China’s official importation statistics since most of the importing is performed through the third category of trade. The importing of maize was prohibited in China until 2001 (except for the third category of trade), but has been permitted as of 2002 with an import quota (tariff rate quota) from the central government. Until 2003, Yunnan Province had obtained no import quota, but they finally received a 500,000-ton quota in 2004. Therefore, in the near future, it may be possible for them to import maize from Laos through the more formal channels of trade (either through normal trade or border trade)19.

17It is difficult to judge how efficient or competitive the maize marketing system in Laos was. It remains for future research. 18According to the statistics, the total value of trade between Laos and Yunnan from January through August 2004 was 6.34 billion yuan, out of which 5.89 billion yuan was the border trade. Of this 5.89 billion in border trade, exports from China totaled 5.25 billion yuan, while imports into China were only 0.63 billion yuan. The major items exported from China are diesel engines, motorbikes, clothes, fabric, and toys, whereas the major imported items were longan, (raw) rubber, and spare parts. 19Even if maize is imported through more formal channels such as these, no tariff will be imposed, under a special arrangement covering the importation of major grains from Laos, , and .

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A-2. On the competitiveness of maize produced in Laos

The major crops produced in Yunnan Province are rice, maize, sugarcane, tobacco, tea, rubber, vegetables, fruits, and rape seed. Agricultural exports (including those to other parts of China) such as tobacco, coffee, tea, vegetables, and mushrooms reached US$368 million in 2003. , especially swine (pig) rearing, is also active. Rice production is slightly less than the demand in the province, requiring rice to be imported from neighboring areas, including Thailand (via Laos). Approximately 4 million tons of maize is produced in the province, with a planted area of 600,000 ha and an average yield of 6.7 tons/ha (Table 2-15). In Yunnan it is estimated that a large share of maize is directly consumed by people as a vegetable, and only 2.5-2.8 million tons are utilized for animal feed. Maize for animal (mainly pig20) feed, alcohol-making, and industrial uses is slightly insufficient and must be imported21. Moreover, and very importantly, the high economic growth rate in recent years (8.5 percent in 2003) has caused the demand for feed to grow rapidly at the rate of 7-8 percent per year. In the future, the excess demand for feed will increasingly have to be met by importing raw materials (maize, soybean meal, fish meal, etc.) from outside the province, including Laos. As already mentioned, however, the volume of maize imported from Laos is only 8,000- 10,000 tons per year, which is less than 0.3 percent of the total volume of both the supply and demand for maize in Yunnan Province. Whether Laos can continue to export maize to China in the future largely depends on its competitiveness with other maize-producing areas, including Yunnan Province itself, the northeastern part of China, and probably the United States. Let us finally look at Table 2-16, which shows the production cost of maize in various areas of China in the year 2003. It is evident that the production cost per kg of maize in the Houn district of Laos (370-420 kip/kg) is much lower than even the most efficient maize-producing areas (the northeastern provinces) in China (800 kip/kg). Note that the production cost in Yunnan Province is 1,260 kip/kg, which is about three times higher than in Laos22. Moreover, Laos can also enjoy an advantage in transportation costs because of its proximity to Yunnan Province. Note that the per-kilogram transportation cost of maize to Kunming from the northeastern part of China is approximately 0.33 yuan23, even if transported by train, the cheapest method. In conclusion, maize produced in northern Laos has, at present, sufficient competitive power in Yunnan Province.

20The production of meat in Yunnan Province in 2003 was as follows: 2.09 million tons of pork, 0.18 million tons of beef, 0.17 million tons of chicken, and 0.08 million tons of mutton. 21According to an interview with the staff of the Yunnan Province Department of Food and Food Marketing, when there is a shortage of maize and its price is surging, they usually take the following three measures: releasing maize stock at various levels; giving policy guidance to related market agents; and requesting the central government to provide it from other areas in China. 22Note, however, that there is a quality issue with the maize produced in Laos as pointed out by the Chinese: its high moisture content. Maize purchased from Laos usually has a moisture content of 15-16 percent, much higher than the13.5-14 percent standard required in Kunming. There is a need to improve post-harvest technologies in Laos. At present, farmers in Laos dry harvested maize for about three weeks before threshing and selling it. Still, a local Houn trader told us that even if they wanted to be strict about the moisture content, it is actually not effective if the other traders still purchase maize with a high moisture content. 23The transportation cost per kilogram of maize from the major producing areas within Yunnan Province is 0.1-0.2 yuan/kg.

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350 30

300 25

250 20

200 Rainfall (mm) 15 Temperature 150

10 100

5 50

0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Figure 2-1 Average rainfall and temperature in Oudomxay Province Source: Ministry of Agriculture and Forestry, Agricultural Statistics 1995-2003.

60,000

Population 58,000

56,000

54,000

52,000

50,000

48,000 1999 2000 2001 2002 2003 2004

Figure 2-2 Population growth in Houn district Source: DAFO, Houn district.

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9000 Upland rice

8000 Lowland rice Hybrid maize Soybean 7000 Job's tears 6000 Sesame Black ginger 5000 Cotton Coffee 4000 Tobacco Ginger 3000 Watermelon Chill 2000 Paper mulberry Fruits 1000 Sugarcane Groundnut 0 1999 2000 2001 2002 2003 2004

Figure 2-3 Total planted area in Houn district during rainy season Source: DAFO, Houn district.

9000

8000

7000 Lowland rice Hybrid maize 6000 Soybean Watermelon 5000 Garlic Onion 4000 Vegetables

3000

2000

1000

0 1999 2000 2001 2002 2003 2004

Figure 2-4 Total planted area in Houn district during dry season Source: DAFO, Houn district.

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Oudom Village

－

255 ACf LVf －

CMc

LVh

m 1.5km

Figure 2-5 Village location Figure 2-6 Soil types in the village

paddy Lowland Maize rice Upland

Year Figure 2-7 Change of planted areas in Ban Oudom areas in planted of Change 2-7 Figure 2000 2001 2002 2003 Source: Basic survey of all households. survey Basic Source: 0

80 60 40 20

200 180 160 140 120 100 Area (ha) Area

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Maize (M) rice (U) Upland (L) paddy Lowland M+U M+L U+L U+M+L

Year

2000 2001 2002 2003 Figure 2-8 Distribution of households with various crop combinations crop with various of households Distribution 2-8 Figure Source: Basic survey of all households. of Source: Basic survey 0%

80% 60% 40% 20%

100% Household ratio Household

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Shifting cultivation cultivation Continuous

Year

ivation vs. permanent upland cultivation upland vs. permanent ivation <1999 2000 2001 2002 2003 Source: Basic survey of all households. of all survey Basic Source: Figure 2-9 Share of shifting cult shifting of Share 2-9 Figure 0%

90% 80% 70% 60% 50% 40% 30% 20% 10%

100% Household ratio Household

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Middle: 5,920,200 kip/HH Maize Livestock

NTFP Seif-employed activities Fishery Wage

Rice Salary

Poor: 1,680,000 kip/HH

Maize NTFP Livestock Rice Wage Fishery

Very poor: 2,151,800 kip/HH

Maize Livestock NTFP Seif-employed activities

Wage

Figure 2-11 Household income Source: Sample survey of 35 households. Note: Cash income (gross revenue) only.

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Middle: 3,156,000 kip/HH

Food and beverages Energy Medicines Clothes Miscellaneous goods Education

Other expenditures Social ceremonies Gold Livestock

Poor: 1,365,900 kip/HH

Food and beverages Medicines

Clothes Energy Education Miscellaneous goods Other expenditures Social ceremonies

Very poor: 2,394,200 kip/HH Food and beverages Medicines Clothes Social ceremonies Repayment Other expenditures

Education Energy Miscellaneous goods

Figure 2-12 Household expenditures Source: Sample survey of 35 households.

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Power tiller Power Rice mill Moterbike Vehicle Bicycle Radio CD/CD Video Sewing machine TV

Year Figure 2-13 Year of diffusion for major assets major for of diffusion Year 2-13 Figure 1990s 2000 2001 2002 2003 2004 Source: Basic survey of all households. all of survey Basic Source:

9 8 7 6 5 4 3 2 1 0 Number

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Table 2-1 Households engaging in major crop production and its area 2000 2001 2002 2003 Planted area (ha) Upland rice 66.4 74.1 87.9 83.3

Maize 6.8 19.8 44.6 80.4 Lowland paddy 7.6 7.1 9.1 11.2 Total 80.8 101.0 141.6 174.8 Number of households (%)

Upland rice 64 73 75 83 Maize 9 26 55 82 Lowland paddy 18 17 22 28 Average area per household (ha) Upland rice 1.04 1.01 1.17 1.00 Maize 0.76 0.76 0.81 0.98 Lowland paddy 0.42 0.42 0.41 0.40 Source: Basic survey of all households.

Table 2-2 Mode of land acquisition (%)

Upland field

Upland rice Maize Lowland paddy field Inheritance 62 60 50 Reclamation 26 33 50 Purchase 12 3 - Others - 3 -

Total 100 100 100 Source: Sample survey of 35 households.

Table 2-3 Disposal of agricultural production Disposal (kg) Production Payment to Gift to (kg)Sales Consumption laborers relatives Stock Maize 3,417 3,392 - 3 - 22 Share (%) 100 99.3 0.1 0.6 % of households 100% - 3% - 65% Lowland rice 730 198 467 3 15 47 Share (%) 100 27.1 64.0 0.4 2.1 6.4 % of households 10% 90% 0% 20% 100% Upland rice 1,108 - 996 19 10 83 Share (%) 100 89.9 1.7 0.9 7.5 % of households - 100% 18% 18% 88% Source: Sample survey of 35 households.

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Table 2-4 Family composition and the extent of rice deficit Medium Poor Very poor Average Family composition Age of HH head 48.8 38.5 38.0 40.5

Number of HH members 8.5 7.3 6.2 7.7

Number of persons aged 15 to 55 5.0 3.3 2.0 4.0

Rice deficit (per capita) Rice production (kg) (upland rice + 305.8 205.3 108.3 217.7 lowland rice) Rice deficit (kg)* -44.2 -144.7 -241.7 -132.3 Rice deficit (months) 1.5 5.0 8.3 4.5 *Per-capita consumption of rice was assumed to be 350kg (in paddies). Source: Sample survey of 35 households.

Table 2-5 Cost of maize production in Ban Oudom, 2003 With power Factor Without power Factor

tiller share (%) tiller share (%) Number of sample farmers 6 4 Variety LVN10 LVN10 Average area (ha) 1.70 1.28 Total production (kg) 8,976 6,938 Yield (kg/ha) 5,280 5,441 Sales price (kip/kg) 792 813

Gross revenue (kip/ha) 4,179,922 100.0 4,420,956 100.0 Current input cost (kip/ha) 334,667 8.0 418,193 9.5 Seed 315,833 389,318

Pesticide 2,167 3,875 Sacks 16,667 25,000 Value-added (kip/ha) 3,845,256 92.0 4,002,763 90.5 Labor cost (kip/ha) 810,833 19.4 1,443,750 32.7 Labor input (mandays/ha) 81 144 Land preparation 12 35 Sowing 14 22 Weeding 25 42 Harvesting 30 45 Wage rate (kip/day) 10,000 10,000 Machinery cost (kip/ha) (Case 1) 565,146 13.5 143,710 3.3 (Case 2) 815,146 19.5 - Power tiller (Case 1) 400,000 - (Case 2) 650,000 - Thresher 165,146 143,710 Profit (kip/ha) - (Case 1) 2,469,277 59.1 2,415,302 54.6 (Case 2) 2,219,277 53.1 -

Cost of maize production (kip/ha) (Case 1) 1,710,646 2,005,653 (Case 2) 1,960,646 - Cost of maize production (kip/kg) (Case 1) 324 369 (Case 2) 371 - Source: Survey, September 2004.

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Table 2-6 Cost of maize production in Ban Donkeo, 2003 Monsoon Dry season season Number of sample farmers 44 Area (ha) 1.40 0.78 Variety LVN10 LVN10 Total production (kg) 8,225 3,950

Yield (kg/ha) 5,875 5,097 Sales price (kip/kg) 793 1,000 Gross revenue (kip/ha) 4,655,938 100.0 5,096,774 100.0 Current input cost (kip/ha) 364,063 7.8 393,119 7.7

Seed 298,438 320,833 Pesticide 9,375 16,036 Sacks 56,250 56,250 Value-added (kip/ha) 4,291,875 92.2 4,703,655 92.3 Labor cost (kip/ha) 1,268,125 27.2 1,494,554 29.3 Labor input (man-days/ha) 127 149 Land preparation 32 30 Sowing 28 37 Weeding 34 36 Harvesting 32 47 Wage rate (kip/day) 10,000 10,000 Machinery cost (kip/ha) 827,938 17.8 798,348 15.7 Power tiller 650,000 650,000 Thresher 177,938 148,348 Profit (kip/ha) 2,195,813 47.2 2,410,753 47.3 Cost of maize production (kip/ha) 2,460,125 2,686,021 Cost of maize production (kip/kg) 419 527

Source: Survey, September 2004.

Table 2-7 Estimates of income from maize

Middle Poor Very poor Total

Number of households 32 32 24 88

Gross revenue from maize (1,000 kip) 4,470 2,405 1,688 2,960

Net income (without power tiller) 3,902 2,100 1,474 2,584

Net income (with power tiller) 3,241 1,744 1,224 2,146 Source: Basic survey of all households.

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Table 2-8 Agricultural production Medium Poor Very poor Average Number of households 11 15 9 35 Production (t) 1.54 1.07 1.30 1.11

Yield (t/ha) 1.97 1.43 1.05 1.44 Upland rice Planted area (ha) 0.82 0.78 1.00 0.83 Amount sold (1,000 kip)---- % of households involved 100 100 77 94 Production (t) 0.93 0.51 0.38 0.66

Yield (t/ha) 2.15 3.35 1.25 2.26 Lowland paddy Planted area (ha) 0.37 0.28 0.25 0.34 Amount sold (1,000 kip) 1,782 - - 560 % of households involved 38 31 11 28 Production (t) 3.88 2.47 2.15 3.76

Yield (t/ha) 3.40 6.27 5.43 5.24 Maize Planted area (ha) 1.36 0.66 0.48 0.87 Amount sold (1,000 kip) 2,628 1,670 2,067 2,480 % of households involved 92 100 100 97 Production (t) 0.33 0.15 0.12 0.17

Yield (t/ha) 0.45 0.13 0.25 0.23 Paper mulberry Planted area (ha) 1.00 20.33 0.80 1.16 Amount sold (1,000 kip) 550 533 230 405 % of households involved 18 31 8 23 Source: Sample survey of 35 households.

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Table 2-9 Livestock holdings Middle Poor Very poor Average Number of households 11 15 9 35 % of households raising 69 38 11 -

Number raised 2.5 1.8 3.0 2.3 Buffalo % of households selling 44 60 100 - Amount sold (1,000 kip) 3,925 800 5,000 5,311 % of households raising 15 8 0 - Number raised 2.0 1.0 0.0 1.5 Cattle % of households selling 0 0 - - Amount sold (1,000 kip) 0 0 0 0 % of households raising 100 78 33 - Number raised 5.8 2.6 6.3 4.4 Pig % of households selling 31 30 33 -

Amount sold (1,000 kip) 360 366 1,000 536 % of households raising 84 76 22 - Number raised 10.5 3.8 5.6 7.2 Chicken % of households selling 9 0 50 - Amount sold (1,000 kip) 75 - 150 92

% of households raising 54 23 11 - Number raised 11.3 4.0 4.0 9.5 Duck % of households selling 14.0 0.0 0.0 - Amount sold (1,000 kip) 56 - - 56 % of households raising 22 0 0 -

Number raised 1.0 0.0 0.0 1.0 Goat % of households selling 0 - - - Amount sold (1,000 kip) 0 - - - % of households raising 0 8 0 - Number raised 0.0 1.0 0.0 1.0 Horse % of households selling - 0 - - Amount sold (1,000 kip) - 0 - - Source: Sample survey of 35 households.

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Donated Total Inherited/

Increase Decrease Born Purchased Inherited Total Eaten Sold Died Stolen H611 4456171111 333322220 58850170 %HH611111 %HH%HH75174 59%HH671111 3 3 45 38 48 21 28 2.2 Number4.3 Number 2.57.3 11.1 Number 1.08.6 14.4 Number 2.0 1.5 13.0 4.3 1.0 1.8 1.0 2.0 6.6 1.0 5.0 10.0 2.9 2.7 9.3 6.6 3.5 1.3 7.0 8.0 5.3 4.5 18.3 3.7 3.3 2.0 11.5 4.3 2.0 2.8 3.5 0.0 6.4 14.0 0.0 6.9 number Existing 9 18 29 24 HH No. of Pig Duck Buffalo Chicken Table 2-10 Livestock balance sheet Livestock Table 2-10 Source: Sample survey of 35 households. of survey Source: Sample probability. multiplying calculated by were figures Total Note:

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Table 2-11 NTFP collections Middle Poor Very poor Average Number of households 11 15 9 35 % of households involved 9.1 13.3 33.3 17.1

Production (kg) 40 90 14 38 Chandai Price (kip/kg) 3,500 2,500 3,000 2,955 Amount sold (1,000 kip) 140 185 39 97 % of households involved 9.1 0 0 2.9

Production (kg) 60 - - 60 Summer cypress Price (kip/kg) 2,000 - - 2,000 Amount sold (1,000 kip) 120 - - 120 % of households involved 9.1 0 0 2.9 Production (kg) 2 - - 4 Mak heng Price (kip/kg) 2,500 - - 2,500 Amount sold (1,000 kip) 4,000 - - 9,500 % of households involved 36.4 33.3 22.2 31.4 Production (kg) 116 170 140 144 Paper mulberry Price (kip/kg) 2,000 2,000 2,000 2,000 Amount sold (1,000 kip) 232 290 280 264 Source: Sample survey of 35 households.

Table 2-12 Non-farm activities Middle Poor Very poor Number of households 32 32 24 Shopkeeper 2

Handicraft 4 Wage labor 1 1 Teacher 1 Blacksmith 2

Trader 3 2 Total 5 8 3 % of households 15.6 25.0 12.5 Source: Basic survey of all households.

Table 2-13 Debt and credit (informal sources) Middle Poor Very poor Average Number of households 11 15 9 35 Debt %HH39466766

(1,000 kip) 1,590 807 180 1,022 Credit %HH 54 8 31 54 (1,000 kip) 703 700 2,150 801 Rice borrowed %HH23543157 (kg) 253 60 113 82 Rice lent %HH 15 8 8 14 (kg) 21 120 25 88 Source: Sample survey of 35 households.

－269－

Table 2-14 Assets Medium Poor Very poor Average Number of households 32 32 24 88 % of households holding Price (kip) Power tiller 71.9 21.9 12.5 37.5 8-14.5 million Rice mill 56.3 34.4 8.3 35.2 300,000-5 million Vehicle 3.1 0.0 0.0 1.1 30 million Motorbike 21.9 0.0 4.2 9.1 3.5-6.7 million Bicycle 62.5 56.3 25.0 50.0 50,000-400,000 Video CD/CD 28.1 12.5 4.2 15.9 500,000-4.5 million

TV 6.3 3.1 0.0 3.4 1-2.5 million Radio-cassette 65.6 40.6 12.5 42.0 30,000-200,000 Sewing machine 20.5 3.1 0.0 8.0 30,000-1.2 million

Source: Basic survey of all households.

Table 2-15 Production of maize in China (10 thousand ton) China Yunnan Xishungbanna 1990 9,682 277.8 1991 9,877 293.5 1992 9,538 271.0 1993 10,270 287.4 1994 9,927 327.9 1995 11,199 339.3 1996 12,747 369.2

1997 10,431 363.2 4.2 1998 13,295 418.1 4.3 1999 12,809 495.5 4.5 2000 10,600 473.3 2001 11,409 477.3 2002 12,131 461.5 2003 11,583 399.9 Source: Statistical Yearbook of China, various issues.

Table 2-16 Production cost of maize in various areas of China, 2003 National Yunnan Koicho Honan Chirin Heirouchian Average Yield (kg/ha) 5103 4251 4281 6731 4952 5528 Price (yuan/kg) 1.14 1.19 1.17 0.94 0.86 1.05 Gross revenue 6,169 5,361 5,283 6,494 4,498 6,130 Main product 5,817 5,059 5,009 6,327 4,259 5,804 By product 352 302 274 167 239 326 Cost Current inputs 2,329 2,481 1,558 2,272 1,664 2,127 Labor 2,474 2,505 1,539 1,494 705 1,915 Labor input (mandays) 170 167 114 83 47 113 Wage rate (yuan/day) 14.55 15.00 13.50 18.00 15.00 16.95 Others incl. tax 104 317 452 498 571 441 Total 4,907 5,303 3,549 4,264 2,940 4,483 Surplus 1,262 58 1,733 2,230 1,558 1,648 % of gross revenue 20.5 1.1 32.8 34.3 34.6 26.9 Cost of production (yuan/kg) 0.96 1.25 0.83 0.63 0.59 0.81 (kip/kg) 1,260 1,634 1,086 830 778 1,062

－270－ 3-3. Rural Finance under a Highly Commercialized Economy in the Bolaven Plateau: Case Study of Three Villages

I. INTRODUCTION

The Bolaven Plateau is well known for growing cash crops, especially coffee. Coffee cultivation was introduced by the French in the 1930s, but it came to overwhelmingly dominate the local economy only after the 1980s. Until the 1980s, the livelihood of the local people was supported mostly by upland rice grown under a shifting cultivation system. However, at present, the Bolaven Plateau is characterized as having a purely commercialized economy, where the majority of its population purchases rice from other areas for home consumption—an exceptional situation in Laos. In addition to coffee, which is mainly exported to European countries, the plateau’s cool climate has contributed to a recent rapid expansion in the cultivation of various high-valued vegetables such as cabbage, which is mainly exported to Thailand. One of the prominent features of such a highly commercialized economy is its instability, due to the fluctuations in price of the cash crops it depends on. The purpose of this chapter is to analyze the structure and change of the rural credit market in such a highly commercialized economy. It is expected that the study will provide us with some valuable insights for understanding rural finance in Laos. For these purposes, we selected three villages from the central part of the Bolaven Plateau, especially from Paksong district. The first village, Ban Phuoi, and the second village, Ban Nonkhali, both chiefly depend on coffee cultivation, supplemented by recently introduced cabbage production. Ban Nonkhali is also characterized by a large-scale cattle husbandry industry. On the other hand, the third village, Ban Huaset, relies heavily on cabbage production. A preliminary survey was conducted in January 2004, followed by the main survey in March and April 2004. A final survey was conducted in August 2004 to collect supplementary data and information.

II. RECENT MOVEMENT OF COFFEE AND CABBAGE

2-1. Coffee

There are mainly three varieties of coffee planted in the Bolaven Plateau: Arabica (Coffea arabica), Catimor, and Robusta (Coffea canephora)1. In the region, Arabica (Tipica) and Catimor are called Kafe Noi, while Robusta is called Kafe Kan.

1Liberica (Coffea liberica) is also cultivated, but in very small amounts.

㧙271㧙 Arabica was first introduced by the French in 1938. It is suitable for high elevations, more than 1,000 meters above sea level. Arabica is susceptible to some diseases2, especially when it is planted at elevations below 1000 meters. It has a high market value (approximately double that of Robusta), but its yield is low. Robusta, on the other hand, can be adapted to various climates, grows at between 600-1200 meters above sea level, and is resistant to disease3. It has the lowest market price and a modest yield. The Catimor variety is newly introduced in the area4. Its cultivation is encouraged by the Coffee Research and Experimentation Center under NAFRI (National Agriculture and Forestry Research Institute)5, established in 1990 in an area between Pakse and Paksong at about 900 meters above sea level. They have selected 7 varieties suitable for the locality: Catimor 133, Catimor LC1162, Catimor P86, Catimor P88, Catimor T5175, Catimor T8667, and Catimor BO2. Catimor is the general term for the varieties developed by crossing traditional Brazilian varieties (Katsura) with varieties from the Indonesian island of Timor. Out of the seven varieties of Catimor, Catimor 133 and Catimor LC1162 are the two most preferred by local farmers. Catimor can be adapted to high land at more than 800 meters above sea level. The prominent feature of Catimor is its high yield. It can produce 3-4 tons per hectare under ideal conditions, and more than 2 tons can be expected even from the typical farm. Note that the average yield of Arabica and Robusta is far less than 1 ton per hectare. The market price of Catimor is higher than Robusta, but much lower than Arabica. At present, although there are no firm statistics, roughly 70 percent of the planted area in Paksong district is Kafe Kan (Robusta), while Kafe Noi occupies only the remaining 30 percent. In the Kafe Noi fields, about 70 percent is Arabica (Tipica) and 30 percent is Catimor. In sum, the share is 70 percent Robusta, 20 percent Arabica (Tipica), and 10 percent Catimor. Robusta can be harvested beginning in its fifth year, and its life span is about 50 years. However, farmers prefer to cut the tree in its tenth year because of the tree’s sharply decreasing yield. Arabica, on the other hand, can be harvested from its fourth year, and has a life span of 9-10 years under normal conditions. Lastly, Catimor can be harvested beginning in its third year, and its life span is almost the same as that of the Arabica varieties. There was a boom in coffee prices in the latter half of the 1990s. For example, the market price (farm gate price) of Robusta, which was about 2,500 kip/kg in 1995, started to increase to 3,000 kip/kg in 1996 and 3,500 kip/kg in 1997, then jumped sharply to 7,000 kip/kg in 1998 and 8,000 kip/kg in 1999. The highest record was as high as about 10,000 kip/kg, although temporally. The rise in coffee prices was partly due to improved conditions on the road from the Bolaven Plateau to Pakse. It is reported that sometime during 1994-96 the road was widened and paved, thereby drastically reducing the cost of transporting agricultural products, including coffee. A coffee trader living along the

2Coffee rust (Hemilia vastatrix) is the major disease, but is rarely observed in Catimor and Robusta. 3However, the coffee berry borer (Hypothenemus hampei) invaded the locality very recently, with Robusta being its main victim. 4Catimor was first introduced in 1993; Ban Phuoi received the variety in 1994. 5The Center has an area of 200 ha with 14 staff members, and is mainly engaged in collecting various coffee varieties from all over the world and selecting suitable varieties for the region.

㧙272㧙 main road 35 km from Pakse told us that before the road was improved, it took about 4 hours in the rainy season (1.5 hours in the dry season) by car or truck to reach Pakse. However, coffee prices collapsed suddenly in the year 2000 to about 5,000 kip/kg, and further to 3,000 kip/kg in 2001. It was said that in the year 2000 and 2001, prices reached their lowest level at about 2,000 kip/kg, however temporarily. After that, the price recovered a little to 6,000-7,500 kip/kg in 2002 and 2003, but it declined again to 4,500 kip/kg in 2004. Such volatile coffee price fluctuations in recent years deeply affected the regional economy, involving coffee farmers, traders, and even the banking sector, as will be reported later.

2-2. Cabbage

For a long time, cabbage production was only for the domestic market. However, export to Thailand began in 2000 and has expanded very rapidly ever since. The cabbage cultivation area in Paksong district reached 1,500 ha (compared to about 36,000 ha of coffee) in 2003, with a total production of about 30,000 tons per year. According to a staff member at the DAFO (District Agriculture and Forestry Office), approximately 80 percent of cabbage production is exported to Thailand. Cabbage prices also experienced drastic fluctuations, mainly caused by changes in Thailand’s import policy. So far, Lao farmers have experienced two big market collapses, in 2001 and 2004. The first crisis was triggered by the temporary closedown of border trade, when the Thai government was surprised to see a large influx of cabbage from Laos that endangered Thai cabbage farmers. The second crisis happened for the same reason, but under an official agreement between the two countries on the restriction of cabbage export, as presented later in this report.

III. OUTLINE OF PAKSONG DISTRICT AND THE STUDY VILLAGES

3-1. The Paksong district

The Paksong district (muang) is located in the central part of the Bolaven Plateau (Figure 3-1). In 2004, its total area was about 438,000 ha, with a population of 60,084 spread throughout 109 villages. Figure 3-2 shows the district’s annual rainfall distribution. The land use was as follows: Farmland: 33,088 ha (7.6 percent) Forest: 182,261 ha (41.6 percent) Pasture: 3,416 ha (0.8 percent) Reservoir: 19,200 ha (4.4 percent) Homestead: 1,140 ha (0.3 percent) Cultivable waste: 156,268 ha (35.7 percent) Others: 2,200 ha (0.5 percent)6

6The total share does not total 100 percent; the reason for this is unknown.

㧙273㧙 It is evident from the data that only a very small portion of land (7.6 percent) is actually under cultivation in the district, while there is still a large area of forest and cultivable waste. The land endowment is much more favorable than in other areas in Laos, especially compared to the northern hilly areas. The Bolaven Plateau had been covered in deep forest until the French came and introduced coffee plantations in the 1930s. The extremely low population density, along with the favorable topographic conditions, enabled people to conduct shifting cultivation (for growing upland rice) with quite a long fallow period, so agriculture in the region was believed to be environmentally friendly for a long period. The low population density can be attributed to the low yield of upland rice, due to low temperatures and a shortage of sunshine in the plateau. Since the crop’s introduction in the late 1930s, coffee plantations have expanded through the process of reclamation, but only slowly in the Bolaven Plateau7. Therefore, there still remains a large amount of unutilized land such as grassland and secondary forest, so that until very recently local people could reclaim land without any restrictions. The government also gave land use rights to some entrepreneurial people as a concession. The major crops of the district are coffee (35,995 ha), tea (164 ha), cardamom (404 ha), cabbage (1,500 ha), maize (750 ha), potato (270 ha), ginger (150 ha), cucumber (150 ha), banana (35 ha), and chayote (35 ha). There are also about 80 ha of paddy fields. The number of livestock was 20,776 cattle, 1,691 buffalo, 1,393 horses, 5,285 pigs, 217 goats, 3 elephants, and 38,200 chickens and other poultry.

3-2. Ban Phuoi

Ban Phuoi is located southeast of the town of Paksong, only 4-5 km away (Figure 3-3). The village lies 1,304 meters above sea level. At the time of the survey in 2004, there were 87 households (97 families) and 512 people; Lao (60 percent) was the dominant ethnic group, followed by Laven (40 percent). The village’s total area was 1,800 ha, out of which agricultural land measured about 1,100 ha. (Coffee plantations covered only 328.5 ha, which means the majority of agricultural land defined here was not used for crop production.) The number of livestock totaled 271 cattle, 27 buffalo, 25 pigs, 3 goats, and 512 chickens and other poultry. Before 1970 there were only 24 families living in the area, who held some coffee plantations and engaged in shifting cultivation with 3-5-year fallow periods, side by side. The upland rice yield was only 0.7 ton per hectare. Crops, especially coffee, were seriously damaged by a severe frost that hit every 7 years. At that time it was normal to have a rice deficit of 4-9 months; villagers purchased rice with the cash income earned from selling coffee, cabbage, Chinese cabbage, and maize. When the heavy bombing stopped, villagers (about 30 families) who had taken refuge during the Vietnam War came back from

7The land endowment situation is more favorable in the areas surrounding the Bolaven Plateau, such as the Thateng and Laongam districts in Salavan Province, where coffee cultivation has been widespread only since the mid-1970s. The introduction of agricultural machinery such as power tillers and rice mills also lagged behind the Bolaven Plateau.

㧙274㧙 Pakse and other districts to once more engage in shifting cultivation and other agricultural activities as mentioned above. Thus the village was established. At some time between 1977 and 1980, ten households purchased 52 head of cattle by borrowing money from the bank. They repaid the loan in 1980 when all the cattle had been sold. During the years 1980-88, sahakhon (cooperative farming) was introduced in the village as a national policy. Under this cooperative system, villagers expanded their coffee plantations (most of which were Kafe Kan) and, in 1982, stopped shifting cultivation, both because of a policy prohibiting it and because of a labor shortage. They also gathered each family’s cattle and shared it communally, and distributed produce according to the labor points each member had earned. Coffee was sold to a public company (KPN)8 in exchange for rice, which was distributed under a ration system; adults were entitled to 20 kg per month, while a child could receive 15 kg at the prevailing market price (16 kip/kg). When sahakhon was over, the villagers distributed their coffee plantations in proportion to the size of the labor force each family owned at the time: 0.25 ha per labor force unit. The total area of distributed coffee plantation was about 30 ha, allocated to 60 households. Again they began selling coffee and purchasing rice on the private market. Until very recently, villagers continued to expand their coffee plantations, stimulated by rising coffee price trends. High-yielding Catimor coffee varieties were introduced in 1993-94; land classification was conducted during 1995-97. Table 3-1 summarizes the change in area of major crops in the village in recent years. We see that coffee plantations occupied about 95 percent of the total planted area in the village and have continued to increase at an average rate of 4.6 percent per year during the last three years. This indicates a continuous influx of people migrating to the village from other areas, obtaining coffee plantations after getting married. In the year 2003, 92 percent of households in the village were engaged in coffee cultivation, with an average area of 3.5 ha per household. Cabbage was the second largest crop with a total area of 16 ha in 2003. In total, 25 households (28.7 percent) were involved in cabbage production, with an average area of 0.6 ha. If we classify households in the village according to the combination of crops they grow (Figure 3-4), we find that nearly 90 percent of households were engaged in at least both coffee cultivation and cabbage cultivation. As Table 3-2 indicates, almost all the crops the villagers grow are for sale at market, leaving a very small amount for home consumption and/or for gifts to relatives. The results of the questionnaire survey show that about 60 percent of agricultural land was reclaimed by the respondents themselves, while another 30 percent was inherited from their parents and the remaining 10 percent was purchased. Until the 1970s, only 7 households had reclaimed 41 ha of land (Table 3-3). The area of reclamation increased drastically during the 1980s and the 1990s, jumping to about 200 ha reclaimed by 54 households. After 2000, the speed of reclamation slowed to only 33 ha reclaimed by 29 households.

8Coffee was exported to the USSR and Eastern Europe under a barter system.

㧙275㧙 The 1980s were the age of cooperative farming (sahakhon), as was already mentioned. The government encouraged the expansion of coffee plantations. Almost all of the households were forced to reclaim land for new coffee plantations and to engage in coffee cultivation. When sahakhon was over, the village head redistributed the coffee plantations. On the other hand, it seems the rapid expansion of coffee plantations in the 1990s was facilitated by high coffee prices. The expansion of farmland after 2000 shifted more to land for cabbage production rather than for coffee, although the expansion of coffee plantations continued. This shift was due to Thailand’s starting to import cabbage, as explained before. At any rate, it is notable that a relatively large agricultural land area was reclaimed after the 1980s. It indicates that, until very recently, there was plentiful land for reclamation around the village.

3-3. Ban Nonkhali

Ban Nonkhali is located 6-7 km north of the town of Paksong (Figure 3-3) and lies at 1,251 meters above sea level. In 2004, there were 34 households (42 families) with a total population of 201, all of whom belonged to the Lao ethnic group. The total agricultural land was 407 ha, while the area of coffee plantations and cabbage fields was only 178 ha. The village’s livestock consisted of 417 cattle, 10 pigs, and 500 chickens and other poultry. The village was established more than a hundred years ago. Before heavy bombing started, they mostly tended coffee plantations. Some deep forest land was reclaimed. In 1973 they began returning from the places to which they had been evacuated, mainly Pakse, and the number of cattle gradually increased. In recent years, they have been engaged chiefly in coffee cultivation, cattle husbandry, and cabbage farming. The land of the village is characterized as having low fertility and a thin soil surface, more suitable as pasture (for cattle husbandry) rather than for coffee or cabbage cultivation. There are vast pasture lands near the village. They have only been involved in cabbage production since 2002, for export to Thailand; land classification was completed in 1997. Agricultural land in this village has not experienced a significant increase since 2000 (Table 3-4), the total area having increased only marginally from 2000-03. The major crops were coffee and cabbage, occupying 90 percent of the total planted area; the average area per household was 2.7 ha of coffee and 0.8 ha of cabbage. There were small areas of minor crops such as maize, cucumber, and chayote, although chayote cultivation was halted in 2002. The increase in the number of households indicates immigration from other areas and post-marriage settlement in the village. As Table 3-5 indicates, both coffee and cabbage are pure cash crops for the villagers, leaving a very small amount for home consumption, payment to laborers, and gifts to relatives. Table 3-6 shows the modes of land acquisition. Out of the total agricultural land, 52 percent, 40 percent, and 7 percent was reclaimed, inherited, and purchased, respectively. We see that began in the 1970s and continued until the 1990s, peaking in the 1980s. On the other hand, inheritance occurred most frequently in the 1990s, with 83.5 ha inherited by 19 households.

㧙276㧙 3-4. Ban Huaset

Ban Huaset is located along the main road from Paksong to Attapu (Figure 3-3) and lies at 1,266 meters above sea level. In 2004, there were 254 households (265 families) with a total population of 1,418. Lao (55 percent) was the dominant ethnic group, followed by Laven (45 percent). The village’s total area was 2,013 ha, out of which 530 ha was agricultural land (492 ha of which was coffee plantation). The village’s livestock consisted of 963 cattle, 3-4 pigs, and 432 chickens and other poultry. The village was established more than a hundred years ago, as was Ban Nonkhali. After 1975, the residents began returning from the places to which they had been evacuated. They engaged chiefly in coffee cultivation and the farming of local cabbage varieties for the domestic market. They expanded their coffee plantations after the crop’s 1999 price hike, but they were left heavily in debt to the APB when the price of coffee declined sharply the following year. Cabbage production for export to Thailand started in 2000. They grow cabbage three times a year, twice in rainfed conditions and once with irrigation. Many cabbage growers in the village rented land in Ban Koungtun, a nearby village more suitable for cabbage production due to the temperature and the fertility of its soil. Land classification was conducted in 1995, and land allocation was completed in 1997.

IV. AGRICULTURAL PRACTICES AND COST OF PRODUCTION

4-1. Coffee

The cropping schedule of coffee was almost the same in the three study villages, although some differences were observed between Robusta and Arabica/Catimor (Figure 3-5). The Arabica/Catimor harvesting season starts earlier, from December to January, while Robusta is harvested in February. There is also quite a large difference between the two in their labor requirements; before harvesting, Arabica/Catimor needs four weeding sessions plus pruning during the rainy season, whereas Robusta requires only two weeding sessions plus pruning in March and September/October. There is a difference in post-harvest processing as well, as Arabica/Catimor requires a washing process before shipment and Robusta needs only a drying process. As a result, the labor input necessary for Arabica/Catimor per unit of land is more or less twice that of Robusta. Now let us look closely at the case of the village head of Ban Phuoi, with whom we held a detailed interview in August 2004. He had 9 ha of coffee plantations, with 6 ha of Robusta, 2.5 ha of Arabica, and 0.5 ha of Catimor. When he reclaimed 0.5 ha of land in November 2002 for planting Catimor, he hired 2 laborers for 5 days, and paid 400,000 kip. Then he planted 2,500 seedlings which had been provided free of charge9 by

9If they purchase seedlings, it costs about 400-500 kip each (for Catimor). This means the total cost of seedlings per hectare is about 2-2.5 million kip. However, in most cases farmers could obtain seedlings from their neighbors at no cost.

㧙277㧙 a neighbor farmer in the village. These seedlings were planted by 3 family members over 2 days. After planting was complete, he conducted weeding once a month, each session requiring 10 mandays. He used family labor, but if he had hired any laborers, he would have had to have paid 15,000 kip per person per day (without meals). When coffee trees are young and small, frequent weeding is indispensable; starting from the following year, 2003, he had been conducting 4 weeding sessions in April/May, July, September, and October/November. Ten mandays of labor were required for April/May and July, and 7-8 mandays for September and October/November. Thus, the total labor necessary for weeding (with pruning) was 34-36 mandays per year, which would require 510,000-540,000 kip of expense if he hired laborers. No harvest was obtained until August 2004. On the other hand, he owned a total of 2.5 ha of Arabica coffee plantation, as explained earlier, and it had been reclaimed gradually since 1997. More specifically, he reclaimed 1 ha in 1997, another 1 ha in 1998, and a final 0.5 ha was reclaimed in 1999. He hired 2 laborers for 5 days to clear the land in preparation for establishing the last 0.5 ha in November 1999. Then he planted 1,250 seedlings (provided by a neighbor farmer for free) through family labor. In the first year, he conducted weeding once a month, but only 4 times a year beginning in the second year, as was the case with Catimor. In the year 2000, he harvested 500 kg (milled) of Arabica coffee from 1 ha of coffee plantation. In 2001, the harvest was 600 kg from 2 ha, followed by 800 kg from 2.5 ha in 2002. In 2003, the harvested amount increased to 1.5 tons, for which he hired 4 migrant laborers from Attapu for 2 months, from December to January. They each received 250,000 kip per month and 3 meals a day, as well as the necessary clothes and shoes. The cost to mill the coffee was 150 kip/kg, although he owned a milling machine himself. He received a special price10 of 12,500 kip/kg for Arabica in 2003. The gross revenue was 18.75 million kip (assuming 10,000 kip/kg as a normal market rate, it reduces to 15 million kip). Lastly, his Robusta plants were planted many years ago. For the last three years, from 2001-03, he harvested approximately 3 tons of milled coffee from 6 ha of Robusta plantation. He conducted only 2 weeding sessions in March and September/October. He continued to hire 4 migrant laborers for harvesting Robusta in February; they were also engaged in the March weeding before returning to Attapu. For the September/October weeding, he hired 10 laborers for 6 days, paying 15,000 kip per person per day—a total of 900,000 kip. The price he received for Robusta coffee in 2003 was 6,200 kip/kg, making the gross revenue 18.6 million kip. In sum, the total gross revenue the village head received in 2003 from coffee was 37.35 million kip (under a normal market rate of Arabica coffee, 33.6 million kip) from 8.5 ha of coffee plantation (excluding the 0.5 ha of Catimor plantation). A summary of the necessary labor costs is as follows:

10There was a project sponsored by a U.S. foundation to purchase a special type of Arabica coffee at a higher price.

㧙278㧙 For 4 migrant laborers 250,000 kip×4×4㧩4 million kip 3,000 kip/meal×3×4×120㧩4.32 million kip For weeding of Arabica as an opportunity cost 0.51-0.54 million kip For weeding of Robusta 0.9 million kip

The village head also took on the transportation cost of coffee to Pakse (200 kip/kg). Thus the total cost reached about 12 million kip if we include other in-kind payments to migrant laborers and 225,000 kip in Arabica coffee milling costs (as an opportunity cost). Note that agricultural materials such as chemical fertilizers and pesticides were not applied to coffee cultivation. Although we did not count the initial investment cost in the above calculations, we can say approximately that, first, the total working capital necessary for coffee cultivation in 2003 was about 1.4 million kip/ha. Second, the gross revenue from the sale of coffee was 4 million kip/ha (given 6 ha of Robusta and 2.5 ha of Arabica). Third, the net profit, therefore, was about 2.6 million kip/ha, and the ratio of net profit to gross revenue was about 65 percent. Finally, note that these numbers were calculated with a price of 10,000 kip/kg for Arabica and 6,200 kip/kg for Robusta. Under the assumption of 30 percent lower coffee prices, as actually happened in 2004, the gross revenue becomes 2.8 million kip/ha, the net profit becomes 1.4 million kip/ha, and the net profit ratio becomes 50 percent..

4-2. Cabbage

In the Bolaven Plateau, having an irrigation system makes cabbage cultivation possible three times a year: in April-July, August-November, and January/February-April (Figure 3-5). However, in reality cabbage cultivation took place 1-2 times in Ban Phuoi, twice in Ban Nonkhali, and 2-3 times in Ban Huaset. Cabbage production is characterized as both input-intensive (with regard to chemical fertilizers and pesticides) and labor-intensive, especially in planting, weeding (usually 1-3 times per season), and harvesting. Plowing is usually done with rented power tillers. Irrigation is indispensable during January/February-April. If farmers grow coffee and cabbage together, as is usual in this area, they face a peak labor requirement during the rainy season, especially in September and October, when coffee and cabbage weeding overlaps. The results of a survey of 2003 cabbage production costs in Ban Huaset are presented in Table 3-7, both for the rainy season and the dry season. We found that in spite of higher irrigation costs, the yield was much lower in the dry season (25-30 tons/ha) than in the rainy season (40-45 tons/ha). The table also indicates a high cost of transporting cabbage from the village to the Thai border, constituting 52.5 percent

㧙279㧙 (including tolls) of the total production cost in the rainy season, while the same figure was 31.5 percent in the dry season. With the 5 baht (=1,250 kip)/kg market price of cabbage (at the Thai border) actually realized in July 2003, as the table shows, farmers could enjoy quite a large amount of profit from cabbage production. They told us they could obtain a profit as long as the price is at least 2 baht/kg in the rainy season, while in the dry season it should be at least 3.5-4 baht/kg. However, cabbage prices collapsed in 2001 and 2004. Farmers experienced 2 baht/kg rates in 2001 and a further sharp decline to only 0.6 baht/kg by the time we conducted our survey in August 2004. As already mentioned, these market crashes were due to a change in Thailand’s import policy, which will be examined later in more detail.

4-3. Cattle

In Ban Nonkhali, we interviewed 4 farmers who kept more than 30 head of cattle. It was found that cattle husbandry is conducted under semi-natural conditions, where two farmers (Farmer A and B) simply built basic, low-cost fences (150,000-250,000 kip for 3-4 years of use) and provided only salt. No feed was provided. They gave injections only to prevent disease and paid for veterinary service only when cattle fell ill. There was no care given even when the cattle gave birth. The total annual expenditure did not exceed 500,000 kip for raising 30-50 head of cattle, and they sold 7 head each in 2003. Note that the market price of cattle was 2-3 million kip/head. The other two farmers, however, built a cow shed with relatively stable fences by spending a large amount of money: 400,000 kip (Farmer C) and 5 million kip (Farmer D) respectively, both in 1993. They also provided their cattle with only salt, and their expenses for medical services were almost the same as with Farmer A and B. Similarly, there was no veterinary care during the birthing process. In the end, Farmer C, with 70 head of cattle, sold 17 head in 2003 at a minimal annual expenditure, less than 500,000 kip. On the other hand, Farmer D was an exceptional case. She rented pasture land (concession land) from the government at 6 million kip per year and kept a large number of cattle. Although in 2003 she owned only 83 head of cattle, this is because 38 head died last year due to disease. She hired 2 laborers to tend the cattle for 6 months at 250,000 kip/month and sold 38 head in 2003. It is interesting to note that farmers usually sell cattle during July-September, just before the cabbage and coffee harvesting season. Actually, this is the most severe season for coffee farmers who are obliged to sell coffee as standing crops and/or borrow money at a high interest rate. These issues will be discussed in more detail in section VI.

㧙280㧙 V. VILLAGE ECONOMY

Let us now illustrate the socio-economic conditions of the first two villages, Ban Phuoi and Ban Nonkhali, based on a detailed household-level survey conducted in March and April 2004. The analysis will be conducted specifically from the viewpoint of socio-economic disparities among villagers. Due to time constraints, we could not perform such an in-depth study in Ban Huaset. We asked the village heads of both Ban Phuoi and Ban Nonkhali to classify all the households in each village into three groups according to the economic status of each household, i.e., the “rich”, the “middle”, and the “poor”. Although such a classification is not based on any scientific method, it is the most cost-effective way to classify the households and can be very useful, depending on the study’s objectives.

5-1. Ban Phuoi

1) Family composition In total, 87 households in the village were classified into three groups based on the methodology mentioned above: 24 households in the “rich” (27.6 percent), 42 households in the “middle” (48.3 percent), and 21 households in the “poor” (24.1 percent). Table 3-8 summarizes the characteristics of the family composition in each category. There was a significant difference between the “rich” and the other two strata in terms of number of household members, size of labor force, and age of household head. Namely, the older the household head (and thus the more family members and the larger the labor force), the richer the household’s class.

2) Agriculture and livestock Table 3-9 summarizes the performance of agriculture and livestock activity by the three economic strata. First, it can be pointed out that the “rich” had larger areas and greater sales revenues in both of the two major crops (coffee and cabbage) than the “middle” and the “poor”. Income from coffee sales, in particular, was more than double in the “rich” as compared to the “middle”. Also note that the differences were brought about by the planted area only, and not by the yield achieved. Second, although limited to a small number of households, income from scallion cultivation was also important in the village. Third, the “middle” had a tendency to grow more diversified crops compared to the other classes, and they achieved higher cabbage and scallion yields, which may indicate that they used more agricultural materials and labor on these crops. Fourth, the “rich” tended to raise more livestock and get more revenues from it, especially in the case of cattle. Cattle husbandry was an important investment opportunity for the richer households. However, according to the balance of livestock during the last 3 years (Table 3-10), villagers received only 5.9 cattle by birth, while 2.4 cattle died with 38 percent probability and 3.6 cattle were stolen with 54 percent probability. It can be said that investing in cattle is very risky in this village. In the case of chickens, on the other hand, about half of the chicks died with 59 percent probability, which also indicates

㧙281㧙 the high risk involved.

3) NTFPs Beginning in 2003, villagers started to collect puak bong (a kind of mushroom) as well as a variety of orchid. However, this activity was not very important, neither in terms of the number of households engaged in it nor the amount of revenue it produced (Table 3-11).

4) Non-farm jobs Non-farm jobs were also observed in the village, such as carpentry, furniture making, coffee plantation wage labor, grocery shop management, and coffee and/or cabbage trading (Table 3-11). Just half of the “rich” were engaged in some non-farm jobs, especially in the trading of coffee and cabbage.

5) Household income and expenditure Figure 3-6 shows the summarized data on household income and sources of income. Note that income as used here is confined to cash income, and cash cost is not deducted (gross revenue). The difference in income level between the “middle” and the “poor” was 3 million kip, while it reached 15 million kip between the “rich” and the “middle”. Note, however, that there is a large standard error, with 3.7 million kip, 0.75 million kip and 0.84 million kip in the “rich”, “middle” and “poor” respectively, indicating wide variation among economic strata. The major source of income was obtained from coffee production, which made up almost 80 percent, especially in the “rich” and the “middle”. On the other hand, self-employed activities such as trade, carpentry, and wage labor accounted for higher contributions for the “poor”, although coffee revenue still accounted for more than 70 percent. Data on household expenditures (Figure 3-7), again including only cash expenditures, also shows that there was a large difference between the “rich” and the other two classes. Food and beverages occupied the largest share among various expenditure items regardless of the economic strata. Especially for the “poor”, food and beverages occupied about 60 percent of the total amount, followed by education and clothing as the next largest items. It should be noted that various methods of saving, such as “purchase of livestock”, “purchase of gold”, “deposit to banks, saving group, etc.”, were relatively important for the “rich”.

6) Asset holdings The distribution of major production assets as well as consumer durables is summarized in Table 3-12. Irrigation pumps were the most extensively diffused production assets, especially among the “rich” and the “middle”. Villagers began purchasing them in 1999 to aid in cabbage cultivation, and diffusion drastically increased after that (Figure 3-8). Consumer durables such as television sets, bicycles, and motorbikes were well diffused in this village (Table 3-12). We observed a clear tendency for the “rich” to possess more consumer durables than the

㧙282㧙 other two classes. Television sets, bicycles, and motorbikes started to become widespread in the early 1980s, but their sales grew rapidly beginning in the latter half of the 1990s (Figure 3-9). Production assets such as power tillers, rice mills, trucks/pickups were just recently starting to be diffused throughout the village, especially among the “rich”.

5-2. Ban Nonkhali

1) Family composition In total, 32 households in the village were classified into three based on the same method already explained: 12 households in the “rich” (37.5 percent), 8 households in the “middle” (25.0 percent), and 12 households in the “poor” (37.5 percent). As in Ban Phuoi, there was a significant difference between the “rich” and the other two strata, in terms of number of household members, size of labor force, and age of household head (Table 3-13). Namely, the “rich” had more household members, a larger labor force, and an older head of household.

2) Agriculture and livestock Although the size of the coffee plantations of the “rich” and the “middle” was about twice as large as those of the “poor” on average (Table 3-14), the difference was not statistically significant because of a large standard error. The difference in coffee yield was also not statistically significant. On the other hand, the cabbage yield achieved by the “middle” was significantly higher than the others, even though their planted areas were almost the same size. This may indicate that the “middle” invested more resources in cabbage production, as in Ban Phuoi. We observed a statistically significant difference in coffee sales revenue among the three economic strata. The “rich”, the “middle”, and the “poor” respectively earned 7.6 million kip, 4.5 million kip, and 2.3 million kip per household on average. However, there was no significant difference in the cabbage sales revenue, which ranged from 4-5 million kip per household. The cabbage sales revenue was smaller than that of coffee, but cabbage was much more important in Ban Nonkhali than in Ban Phuoi. One of the most prominent features of Ban Nonkhali is the existence of a large-scale cattle husbandry industry. It was reported that the “rich”, the “middle”, and the “poor” owned 30, 20, and 10 head of cattle on average respectively, although there was an apparent under-reporting of these numbers (Table 3-14). The “rich” and the “middle” earned approximately 4 million kip of cash revenue a year, while the “poor” earned nearly 2 million kip on average. Cattle husbandry is an important source of cash income, and at the same time cattle is a major form of savings for the villagers, especially among the richer households. Although the number of cattle had increased over the previous three years, 3.3 cattle died with 67 percent probability and 5 cattle were stolen with 20 percent probability (Table 3-15). The rate of stolen cattle was lower than in Ban Phuoi, but the rate of death was significantly higher. They usually raise cattle on coffee plantations and invest a very small amount of labor, as explained earlier.

㧙283㧙 3) NTFPs As in Ban Phuoi, income from NTFPs was not so important in Ban Nonkhali, although villagers did collect and sell puak bong and bamboo shoots (Table 3-16), especially the “middle”. However, all such NTFPs were consumed at home.

4) Non-farm jobs Non-farm job opportunities were very limited in the village, although we did find coffee and cabbage traders, coffee plantation wage labor, and grocery shop managers (Table 3-16). Just half of the “rich” in this village, too, were engaged in non-farm activities, especially in coffee and/or cabbage trading, commonly observed in Ban Phuoi.

5) Household income and expenditure Estimates of household income (cash income, without deducting cash cost) are shown in Figure 3-10. The average income was much higher for the “rich” (more than 31.7 million kip) than for the “middle” (6.3 million kip) and the “poor” (10.5 million kip). Regardless of economic class, the major cash income sources were coffee and cabbage cultivation, accounting for 90 percent of the total amount. However, the relative importance of coffee vis-à-vis cabbage varied; i.e., cabbage was most important for the “middle”, followed by the “rich”. The “rich” enjoyed the largest amount of household expenditures as well (Figure 3-11). The percent of food and beverage expenditures (the so-called Engel’s coefficient) was highest for the “poor”, followed by the “middle” and the “rich”, which is consistent with Engel’s theory. As in Ban Phuoi, the “rich” converted a portion of their income into various forms of savings, such as purchasing livestock and/or gold and making bank deposits.

6) Asset holdings It was found that the richer households owned more production assets and consumer durables, although the gap between the other two strata was relatively smaller than in Ban Phuoi (Table 3-17). The major production assets had started to diffuse through the village in the late 1980s, but their use accelerated only in the late 1990s (Figure 3-12). Sprayers are widely used for applying pesticides in cabbage fields. Ban Nonkhali lagged behind Ban Phuoi in the widespread purchase and use of various consumer durables (Figure 3-13).

㧙284㧙 VI. RURAL CREDIT ISSUES

6-1. Evidence from banks and traders

The market price of coffee continued to rise in the latter half of the 1990s, peaking in 1999. Farmers who had reclaimed new coffee plantations in the 1980s under the national policy of promoting cooperative farming (sahakhon) actively expanded their coffee plantations even further during the boom years in the 1990s. Large-scale cabbage production for export to Thailand also started in the year 2000. The Agricultural Promotion Bank (APB) provided loans to support such farmers. The total amount of loans extended to coffee (and cabbage) farmers by APB in 1999 and 2000 was 12 billion kip; it was widely distributed to about 5,300 households in 108 villages (in 437 groups, under the group lending scheme) in Paksong district. APB extended loans to coffee farmers for three purposes: to expand coffee plantations (10 percent); to manage existing coffee plantations (30 percent); and to prevent standing crop sales (60 percent). APB provided chemical fertilizers for the second objective and rice (for consumption) for the third. In both cases, loans were provided in kind, instead of in cash. The amount of rice necessary was calculated according to a guideline of 20 kg/month per unit of labor force (including hired labor) in each farm household. These in-kind loans were widely observed in the study village of Ban Nonkhali, as will be explained later. However, coffee prices collapsed in 2000, followed by the cabbage prices in 2001. In these circumstances, most of the farmers who had received APB loans could not repay them, resulting in a huge amount of non-performing loans (NPLs). Because of the large amount of non-repayment, the Paksong APB service sub-unit was obliged to completely halt new lending (group lending) in 2001. The sub-unit head told us that out of 12 billion kip in loans extended in 1999 and 2000, 9.6 billion kip still remained as NPLs as of March 2004. In contrast, the savings amount was only 1.8 billion kip and decreasing. However, the extreme imbalance between deposits and advances observed with the APB cannot be attributed to a slump in Paksong’s local coffee economy alone. The savings deposited with the Paksong service unit of the Lao Development Bank (LDB) has been rapidly increasing during the same period, resulting in a large imbalance in the opposite direction. That is, the amount of savings increased rapidly year by year: 1.3 billion kip in 1999, 1.9 billion kip in 2000, 3.3 billion kip in 2001, 6.0 billion kip in 2002, 8.4 billion kip in 2003, and 9.9 billion kip in 2004, yet they only extended 2.0 billion kip in loans, only about 20 percent of the deposited total. The total balances of the APB and LDB in Paksong district as a whole, therefore, are as follows:

Deposit: 1.8 billion (APB) + 9.9 billion (LDB) = 11.7 billion Credit: 9.6 billion (APB) + 2.0 billion (LDB) = 11.6 billion

㧙285㧙 It seems that the non-repayment of farmers who borrowed from APB was largely an intentional default, since at the same time they moved their savings from APB to LDB. It may be that they did face difficulty in repaying their loans after coffee prices collapsed; however, they continued to avoid repayment even after coffee prices recovered. April 2004 interviews with several coffee traders working in the Paksong district revealed that during the coffee boom in the late 1990s, many traders also provided coffee farmers with some advance money. Some traders had received it from coffee export companies and further extended it to farmers. However, they also suffered from the same non-repayment problem. One trader in Ban Lak 35 still had 60 million kip of “bad” loans to 5 coffee farmers. With private traders having such a hard time recovering from defaulting farmers, it is easy to imagine how difficult it must be for the APB.

6-2. Evidence from the study villages

Table 3-18 summarizes the borrowing and saving (lending) status in Ban Phuoi, broken down into formal institution (bank), semi-formal institution (saving group), and informal market. Some explanations should be made here about the saving group, which began in 2002 when a Paksong staff member came to the village and encouraged its residents to form a saving group. The rule is that every member must save some money with the group (not a fixed amount, but about 30,000-100,000 kip) once a year (in March for Ban Phuoi), to be deposited further in an APB bank account. As of March 2004, the group had 70 members (from 70 households) and had already accumulated approximately 7 million kip, with a per-capita average amount of 100,000 kip. According to the village head’s explanation, they have not yet begun to use its savings to lend money to its members, but they will do so in the future. The table shows that many households, irrespective of their economic strata, had received loans from APB. That is, about half of the “rich” and the “middle” and 38 percent of the “poor” borrowed on average 6.7 million kip, 3.4 million kip, and 5.1 million kip from APB respectively. It seems the APB had already classified the loans as NPLs. At the same time, it is notable that 38 percent of the “rich” had a saving account with the Lao Development Bank (LPB). By contrast, the “middle” and the “poor” were more inclined to save in the saving group, although the saving amount of the “poor” was very small. Finally, it is also notable that many poorer households, especially the “poor”, borrowed money from some richer households in the village, with quite a high interest rate of 8-10 percent per month. Interviews with several lenders revealed that they usually lend 100,000-500,000 kip to a borrower in August or September and recover it after 6 months in February or March, when coffee is harvested. Most of this credit is being used either for purchasing rice or for paying wages to hired laborers on the coffee plantations. It should be added here that many local coffee traders also give such seasonal credit to coffee farmers with a fixed interest rate, instead of through a standing crop sales arrangement. Let us next quickly look at the credit situations in Ban Nonkhali. Table 3-19 shows the borrowings from APB. It was found that, compared to Ban Phuoi, the proportion of households that borrowed from the APB was larger, but that the average amount borrowed was much smaller. Besides, many farmers in

㧙286㧙 Ban Nonkhali borrowed from APB not in cash, but in rice and/or fertilizer. Table 3-20 shows informal credit transactions in Ban Nonkhali. We observed the same tendency as in Ban Phuoi for many poorer households to borrow money from richer households in the village. However, most such credit transactions among relatives and neighbors were without interest. It is apparent from the study of two villages that there is still a strong demand for seasonal credit among coffee- and cabbage-producing farmers in the Paksong district, especially among the poorer farmers, and that the demand can no longer be met by APB loans due to the accumulated NPLs.

VII. CONCLUDING REMARKS

We see that the farmers in the Bolaven Plateau enjoyed a fairly large amount of cash income from coffee, cabbage, cattle, and so on, although they must purchase all the rice they consume. Considering the fact that the price of milled rice ranged from 2,000-2,500 kip/kg, and under an assumed 175 kg per capita rice consumption for 6 persons per household on average, it is necessary to spend 2.1-2.6 million kip to purchase rice. Still, even the poorest (the “poor” in Ban Phuoi) had an extra cash income of about 3 million kip, larger than the total cash revenue earned by the “poor” and the “very poor” in Ban Oudom, Oudomxay Province, as reported in Chapter 2. It is apparent that the Bolaven Plateau is much more affluent than the northern hilly areas. However, it is also evident in Bolaven Plateau that there is a relatively large economic disparity among households in the same village. For instance, in terms of cash revenue, the “rich” earned nearly 5 times as much as the “poor” in Ban Phuoi and the difference was almost the same between the “rich” and the “middle” (lower than the “poor”) in Ban Nonkhali, while it was only 3.5 times between the “middle” and the “poor” (lower than the “very poor”) in Ban Oudom. It seems this is one of the major reasons for Bolaven Plateau villagers have an active informal credit market with exploitative interest rates. APB tried to eliminate this kind of situation by extending consumption loans (in the form of rice) to coffee farmers in the latter half of the 1990s. However, triggered by the collapse of coffee prices in 2000, loan non-repayment prevailed; the bank continues to suffer seriously from this problem. The APB was obliged to halt new lending in 2001, which induced a revival of the informal credit market between traders and villagers and/or between the village’s rich and poor. On the other hand, at the same time, there was a rapid increase in deposits in the Lao Development Bank, mainly by traders and rich farmers, despite the large amount of “bad” loans they also hold with the APB. Coping with the volatile export market continues to be a major challenge in the Bolaven Plateau. At the same time, it can be said that how to strengthen the rural residents’ financial discipline is another significant hurdle. Finally, we should point out the Lao government’s administrative weakness regarding the cabbage price collapse in 2004. When we visited the Paksong DAFO (District Agriculture and Forestry Office) in August 2004, the

㧙287㧙 head of DAFO informed us that in March 2004 an official agreement was made between the Thai and Lao government on the trade of cabbage. Namely, according to the agreement, the export of cabbage is restricted from July-December (the maximum was set at 5,000 tons), while there is no such limitation from January to June because of a lack of competition with Thai producers during the dry season. This, then, was the major reason for the sharp decline in cabbage prices in August 2004, down to only 0.6 baht/kg from 5 baht/kg in July 2003. However, we found that the cabbage growers in the three study villages, including Ban Huaset, were not informed of this agreement at all. They produced cabbage as usual and were severely hit by the price drop when they harvested cabbage in July 2004. Strengthening the administrative capacity of the government at the local level is by far the most important area to be attended to immediately.

㧙288㧙 Paksong district Pakse

Figure 3-1 Location of study area

700

600 Total rainfall: 2,760 mm 500 _ 400

300 Rainfall (mm) 200

100

0 1234567891011 Month Figure 3-2 Monthly rainfall in Paksong district in 2004 Source: TRMM 3B42RT

㧙289㧙 B.Huayset B.Phuoi B.Nongkali Altitude (m) Figure 3-3 Bolaven Plateau and the study villages GIS Source: Mekong

㧙290㧙 100%

90%

80% coffee+cabbage+scallion 70% coffee+cabbage+carrot coffee+cabbage+chayote 60% coffee+maize 50% coffee+mung bean coffee+scallion+ 40% Household ratio Household coffee+scallion 30% coffee+cabbage coffee 20%

10%

0% 2000 2001 2002 2003 Year

Figure 3-4 Classification of households by combination of crops growing in Ban Phuoi Source: Questionnaire survey of all households (87).

㧙291㧙 Figure 3-5 Cropping schedule the village head in Ban PhuoiSource: and Ban Huaset

㧙292㧙 Rich: 23,744,256 kip/HH

buffalo cabbage cattle coffee labor non-farm NTFP other agriculture remittance salaried job self-employed activities

Middle: 8,852,564 kip/HH

cabbage cattle chicken coffee labor non-farm NTFP other agriculture remittance s alaried job s elf-employed activities

Poor: 5,535,420 kip/HH

cabbage cattle chicken coffee labor non-farm NTFP other agriculture remittance self-employed activities

Figure 3-6 Household income in Ban Phuoi Source: Questionnaire survey of all households (87). Note: Cash income (gross revenue) only.

㧙293㧙 Rich: 15,347,050 kip/HH

food and beverages education clothes deposit to banks, revolving fund, etc other expenditures medicines social ceremonies miscellaneous goods purchase of gold energy purchase of livestock

Middle: 6,671,154 kip/HH

food and beverages clothes medicines other expenditures miscellaneous goods social ceremonies education energy deposit to banks, revolving fund, etc purchase of gold purchase of livestock motorbike

Poor: 4,414,625 kip/HH

food and beverages clothes medicines other expenditures education social ceremonies miscellaneous goods energy deposit to banks, revolving fund, etc purchase of livestock

Figure 3-7 Household expenditures in Ban Phuoi Source: Questionnaire survey of all households (87).

㧙294㧙 45

40

35 Irrigation pump 30 P ower tiller Truck/Pickup 25 Sprayer 20 Rice mills Number Coffee mills 15 Dynamo 10 Weeding machine

5

0 1963 1993 1995 1998 2000 2002 2004 Year

Figure 3-8 Production assets in Ban Phuoi Source: Questionnaire survey of all households (87).

60

50 Bicycle TV 40 Moterbike CD player Radio-cassette 30 Refrigerator Number Electric fan 20 Sewing machine Vehicle Washing machine 10

0 1972 1984 1988 1991 1994 1997 2000 2003 Year

Figure 3-9 Consumer durables in Ban Phuoi Source: Questionnaire survey of all households (87).

㧙295㧙 Rich: 31,655,750 kip/HH

coffee cabbage s elf-employed activities cattle wage income transport s alaried job

Middle: 6,307,638 kip/HH

cabbage coffee cattle lives tock wage income borrow s elf-employed activities mill wood

Poor: 10,456,250 kip/HH

cabbage coffee wage income cattle NTFP cucumber maize s elf-employed activities

Figure 3-10 Household income in Ban Nonkhali Source: Questionnaire survey of all households (87). Note: Cash income (gross revenue) only.

㧙296㧙 Rich: 12,037,178 kip/HH

food and beverages clothes medicines other expenditures education energy social ceremonies miscellaneous goods purchase of livestock deposite

Middle: 7,866,600 kip/HH

food and beverages clothes medicines social ceremonies other expenditures miscellaneous goods education energy

Poor: 4,576,300 kip/HH

food and beverages clothes energy social ceremonies medicines other expenditures miscellaneous goods education

Figure 3-11 Household expenditures in Ban Nonkhali Source: Questionnaire survey of all households (32).

㧙297㧙 9

8

7

6 Sprayer Irrigation pump r 5 Power tiller 4 Truck/Pickup Numbe Dynamo 3 Rice mills 2

1

0 1988 1994 1997 1999 2001 2003 Year

Figure 3-12 Production assets in Ban Nonkhali Source: Questionnaire survey of all households (32).

35

30

25 Bicycle Sewing machine 20 Radio TV

Number 15 Moterbike Vehicle 10 CD player

5

0 1972 1990 1994 1996 1999 2001 2003 Year

Figure 3-13 Consumer durables in Ban Nonkhali Source: Questionnaire survey of all households (32).

㧙298㧙 Table 3-1 Area of major crops in Ban Phuoi 2000 2001 2002 2003 Planted land (ha) Coffee 244.6 254.1 264.7 280.2 Cabbage 9.9 9.6 9.9 16.0 Scallion 0.8 0.8 1.0 2.9 Carrot - - - 0.3 Maize 1.0 1.0 1.0 1.5 Taro---0.5 Total 256.3 265.5 276.5 301.4 Number of households engaged in growing Coffee73767880 Cabbage 23 23 22 25 Scallion 4 4 6 7 Carrot - - - 1 Maize1111 Taro---1 Average area (ha/household) Coffee 3.4 3.3 3.4 3.5 Cabbage 0.4 0.4 0.5 0.6 Scallion 0.2 0.2 0.2 0.4 Carrot - - - 0.3 Maize 1.0 1.0 1.0 1.5 Taro---0.5 Source: Questionnaire survey of all households (87).

Table 3-2 Disposal of agricultural products in Ban Phuoi Disposal (kg) Production Payment to Gift to (kg) Sales Consumed Stock Others laborers relatives Coffee 1,753 1,682 0 68 0 3 - share% 100 96 0 4 0 0 - % of household 100 1 15 1 4 - Cabbage 3,624 3,592 22 - 10 - - share% 100 99 1 - 0 - - % of household 100 26 - 22 - - Scallion 463 404 15 - 3 40 0 share% 100 87 3 - 1 9 0 % of household 91 45 - 27 45 9 Carrot 500 500 - - - - - share% 100 100 - - - - - % of household 100 - - - - - Chinese cabbage 1,000 1,000 - - - - - share% 100 100 - - - - - % of household 100 - - - - - Maize 775340-172 - share% 100 69 52 - 22 3 - % of household 100 100 - 33 67 - Mung bean 80 75 - - 5 - - share% 100 94 - - 6 - - % of household 100 - - 100 - - Source: Questionnaire survey of all households (87).

㧙299㧙 Table 3-3 Mode of agricultural land acquisition in Ban Phuoi 1960s 1970s 1980s 1990s 2000s HH236105 Inheritance Area (ha) 9.0 7.0 25.9 21.5 10.0 HH 1 1 Coffee Purchase Area (ha) 2.0 2.0 HH 2 3 18 21 8 Reclamation Area (ha) 11.0 10.0 99.3 89.8 17.0 HH 1 2 4 Inheritance Area (ha) 0.5 3.5 1.7 HH 1 Cabbage Purchase Area (ha) 0.5 HH 1 4 2 10 Reclamation Area (ha) 10.0 1.0 3.0 8.3 HH 1 Inheritance Area (ha) 0.3 Scallion HH 2 1 3 Reclamation Area (ha) 1.0 0.2 1.6 HH 1 Chayote Purchase Area (ha) 1.0 HH 1 Chinese cabbage Reclamation Area (ha) 0.0 HH 1 1 1 3 Maize Reclamation Area (ha) 10.0 0.5 1.5 1.3 HH 1 Mung bean Reclamation Area (ha) 0.1 Source: Questionnaire survey of all households (87).

㧙300㧙 Table 3-4 Area of major crops in Ban Nonkhali 2000 2001 2002 2003 Planted area (ha) Coffee 75.9 77.6 79.1 80.5 Cabbage 21.9 22.6 23.0 22.9 Maize 0.2 0.3 0.4 Cucumber 0.2 0.2 0.2 Chayote 0.9 0.9 0.9 Total 98.7 101.5 103.4 103.9 Number of households engaged in planting Coffee28292930 Cabbage 27 30 30 30 Maize0111 Cucumber 0111 Chayote1110 Average area (ha/household) Coffee 2.71 2.68 2.73 2.68 Cabbage 0.81 0.75 0.77 0.76 Maize 0.20 0.30 0.40 Cucumber 0.20 0.16 0.16 Chayote 0.90 0.90 0.90 Source: Questionnaire survey of all households (32).

Table 3-5 Disposal of agricultural products in Ban Nonkhali Disposal (kg) Payment to Gift to Production Sold Consumed Stock Others laborers relatives Coffee Amount (kg) 2,373 2,234 0 0 0 138 0 share(%) 100 94.1 0.0 0.0 0.0 5.8 0.0 %Household 100 100.0 21.4 14.3 14.3 0.0 3.6 Cabbage Amount (kg) 8,400 8,371 12 9 7 0 - share(%) 100 99.7 0.1 0.1 0.1 0.0 - %Household 100 100.0 6.9 10.3 3.4 6.9 - Source: Questionnaire survey of all households (32).

Table 3-6 Mode of land acquisition in Ban Nonkhali 1950s 1960s 1970s 1980s 1990s 2000s Number of households 2 2572 Reclamation Area (ha) 4.0 8.0 16.0 9.5 0.9 Number of households 2144 Coffee Inheritance Area (ha) 7.0 27.5 4.3 Number of households 2 Purchase Area (ha) 8.5 Number of households 1 1 2102 Reclamation Area (ha) 0.5 1.0 3.5 9.1 1.6 Number of households 52 Inheritance 56.0 1.5 Cabbage Area (ha) Number of households 3 Purchase Area (ha) 6.0 1 Others Number of households Area (ha) 0.5 Source: Questionnaire survey of all households (32).

㧙301㧙 Table 3-7 Cost of cabbage production in Ban Huaset, 2003 1. Rainy season Unit price Input Value Cost Seed 500 baht/bottle 6 3,000 baht Fertilizer 6kg 59.5 baht For nursery 496 baht/bag (50kg) 20 bag 9,920 baht Land preparation 120 kip/m2 10,000m2 1.2 million kip Power tiller rental Transplanting 20,000 kip with 3 meals 10 mandays 0.26 million kip 3 meal= 6,000 kip Weeding 0.6 million kip/time 2 times 1.2 million kip Harvesting 20,000 kip with 3 meals 5 mandays 0.13 million kip Transportation 500 baht/ton 45 tons 22,500 baht To Thai border Tax 75,000 kip/3 tons 45 tons 1.125 million kip Road fee Land rent 0.07 million kip Total 51,420 baht Gross revenue 5 baht/kg 45 tons 225,000 baht 56.25 million kip Net profit 173,580 baht 43.40 million kip % of gross revenue 77.1

2. Dry season Unit price Input Value Cost Seed 500 baht/bottle 6 3,000 baht Fertilizer 6kg 59.5 baht For nursery 496 baht/bag (50kg) 20 bag 9,920 baht Pesticides 20,000 kip/bottle 3 bottles 0.06 million kip Land preparation 120 kip/m2 10,000m2 1.2 million kip Power tiller rental Irrigation Diesel oil 6,000 kip/litter 180 litters 1.08 million kip Other oils 0.2 million kip Repair of pump 0.04 million kip Depreciation 0.67 million kip Transplanting 20,000 kip with 3 meals 10 mandays 0.26 million kip 3 meal= 6,000 kip Weeding 0.6 million kip/time 2 times 1.2 million kip Harvesting 20,000 kip with 3 meals 5 mandays 0.13 million kip Transportation 500 baht/ton 25 tons 12,500 baht To Thai border Tax 75,000 kip/3 tons 25 tons 0.625 million kip Road fee Land rent 0.07 million kip Total 47,620 baht Gross revenue 5 baht/kg 25 tons 125,000 baht 31.25 million kip Net profit 77,380 baht 19.35 million kip % of gross revenue 61.9 Source: Cost of production survey of cabbage in Ban Huaset, August 2004.

Table 3-8 Family composition of Ban Phuoi Rich Middle Poor Total Number of households 24 42 21 87 Number of members 5.9 5.7 5.5 5.7 Size of labor force 4.0 3.2 3.2 3.4 Age of household head 51.1 42.0 41.2 44.4 Source: Questionnaire survey of all households (87).

㧙302㧙 Table 3-9 Crop production and livestock activities in Ban Phuoi Rich Middle Poor Number of households 24 42 21 Agricultural products Coffee Area (ha) 5.5 3.1 2.4 Yield (t/ha) 0.6 0.5 0.4 % of households engaged in growing 100 100 100 Sales amount (1,000 kip) 14,766 5,231 3,450 % of households sold 100 100 100 Cabbage Area (ha) 0.5 0.7 0.5 Yield (t/ha) 8.8 11.9 4.3 % of households engaged in growing 33.3 33.3 22.2 Sales amount (1,000 kip) 2,767 1,463 1,059 % of households sold 33.3 33.3 22.2 Scallion Area (ha) 0.1 0.2 0.6 Yield (t/ha) 0.8 3.7 0.8 % of households engaged in growing 8.3 7.7 22.2 Sales amount (1,000 kip) 5,000 1,105 646 % of households sold 8.3 7.7 22.2 Maize Area (ha) - 0.8 - Yield (t/ha) - 0.2 - % of households engaged in growing - 5.0 - Sales amount (1,000 kip) - 113 - % of households sold - 5.0 - Carrot Area (ha) - 0.3 - Yield (t/ha) - 3.3 - % of households engaged in growing - 2.0 - Sales amount (1,000 kip) - 450 - % of households sold - 2.0 - Livestock Buffalo Number 6.2 - - % of households engaged in raising 27.8 - - Sales amount (1,000 kip) 4,200 - - % of households sold 21 - - Cattle Number 13.5 4.3 4 % of households engaged in raising 61.1 41.7 5.1 Sales amount (1,000 kip) 7,614 1,308 2,200 % of households sold 29.0 14.0 5.1 Chickens Number 26.1 12.3 15 % of households engaged in raising 55.6 58.3 30.8 Sales amount (1,000 kip) 300 2,512 525 % of households sold 4.0 10.0 19.0 Ducks Number 4 - - % of households engaged in raising 16.7 4.2 - Sales amount (1,000 kip) - - - % of households sold - - - Goats Number 4.5 - - % of households engaged in raising 5.6 - - Sales amount (1,000 kip) - - - % of households sold - - - Pigs Number 1 - - % of households engaged in raising 5.6 - - Sales amount (1,000 kip) - - - % of households sold - - - Source: Questionnaire survey of all households (87).

㧙303㧙 Table 3-10 Balance of livestock in Ban Phuoi Number of Existing Increase Decrease households Number Born Purchased Inherited Total Eaten Sold Died Stolen Inherited Total Buffalo 5 Number 5.2 4.0 - - 1.6 - 5.0 1.5 1.0 2.0 6.2 % HH 100 40 - - - 100 40 20 20 Cattle 25 Number 9.2 5.9 1.3 1.0 5.5 2.0 8.6 2.4 3.6 3.8 9.5 % HH 100 88 24 8 31 62 38 54 19 Chickens 34 Number 18.4 30.8 4.5 0.3 24.7 11.0 10.8 16.4 5.4 1.6 22.5 % HH100763016 6238592719 Ducks 4 Number 4.0 14.3 3.3 - 13.4 5.0 - 23.0 - - 11.2 % HH 100 80 60 - 40 - 40 - - Goats 2 Number 4.5 5.0 - - 2.5 - - - - - 0 % HH 100 50 ------Pigs 2 Number 1.0 1.0 1.0 - 1.5 1.0 2.0 - - - 1.5 % HH 100 100 50 - 50 50 - - - Source: Questionnaire survey of all households

Table 3-11 Non-farm jobs and NFTP collection in Ban Phuoi Rich Middle Poor Number of households 24 42 21 NTFPs Amount (tons) 12 1.3 1.6 % of households engaged in collecting 11.1 41.7 5.1 Sales amount (1,000 kip) 450 371 600 % of households sold 10 24 8 Non-farm jobs Carpenter Income (1,000 kip) 15,000 4,000 10,000 Number of HH 1 1 1 Furniture-making Income (1,000 kip) - 10,000 - Number of HH - 2 - Wage labor Income (1,000 kip) - 2,000 3,000 Number of HH - 2 1 Milling of coffee Income (1,000 kip) 675 - - Number of HH 2 - - Machinery repair Income (1,000 kip) - 1,200 - Number of HH - 1 - Shopkeeper Income (1,000 kip) 5,400 23,350 5,000 Number of HH 1 2 1 Vendor Income (1,000 kip) - 4,150 - Number of HH - 2 - Trader Income (1,000 kip) 15,900 - 19,170 Number of HH 8 - 3 Source: Questionnaire survey of all households (87).

㧙304㧙 Table 3-12 Asset holdings in Ban Phuoi Rich Middle Poor Total Number of households 24 42 21 87

Production assets Irrigation pump %HH 71 57 - 47 Sprayer %HH 8 17 5 12 Power tiller %HH 25 7 - 10 Truck/Pickup %HH 33 - - 9 Rice mills %HH 25 2 - 8 Coffee mills %HH 13 - - 3 Weeding machine %HH 4 - - 1 Generator %HH 4 - - 1

Consumer durables Bicycle %HH 50 71 62 63 Number 1.7 1.4 1.4 Motorbike %HH 96 52 19 56 Number 1.7 1.1 1.0 TV %HH 88 55 19 55 Number 1.2 1.0 1.0 CD player %HH 75 50 5 46 Number 1.0 1.0 1.0 Radio-cassette %HH 29 29 33 30 Number 1.6 1.0 1.0 Refrigerator %HH 54 17 5 24 Number 0.9 0.9 1.0 Sewing machine %HH 46 10 - 17 Number 1.0 1.0 - Electric fan %HH 25 12 5 14 Number 1.0 1.0 1.0 Vehicle %HH 25 - 5 8 Number 0.8 - 1.0 Washing machine %HH 8 2 - 3 Number 0.5 1.0 - Telephone %HH 4 2 - 3 Number 1.0 1.0 - Mobile phone %HH 4 - - 2 Number 1.0 - - Source: Questionnaire survey of all households (87).

㧙305㧙 Table 3-13 Family composition of Ban Nonkhali Rich Middle Poor Total Number of households 1281232 Number of members 6.6 5.6 5.1 5.8 Size of labor force 3.7 3.1 3.0 3.3 Age of household head 48.0 39.8 40.0 43.0 Source: Questionnaire survey of all households (32).

Table 3-14 Crop production and livestock activities in Ban Nonkhali Rich Middle Poor Number of households 12 8 12 Agriculture Coffee Area (ha) 2.1 1.9 1.1 Yield (t/ha) 0.7 0.5 0.5 % of households engaged in growing 100 100 100 Sales amount (1,000 kip) 7,577 4,510 2,366 % of households sold 100 100 100 Cabbage Area (ha) 0.7 0.8 0.7 Yield (t/ha) 9.7 15.1 10.1 % of households engaged in growing 92 88 100 Sales amount (1,000 kip) 4,608 5,050 4,053 % of households sold 100 100 100 Cucumber Area (ha) - - 0.2 Yield (t/ha) - - - % of households engaged in growing - - 8 Sales amount (1,000 kip) - - - % of households sold - - - Maize Area (ha) 0.2 - 0.4 Yield (t/ha) - - - % of households engaged in growing 8 - 8 Sales amount (1,000 kip) - - - % of households sold - - - Livestock Cattle Number 29.4 20.8 8.5 % of households engaged in raising 83 50 17 Sales amount (1,000 kip) 4,314 4,350 1,750 % of households sold 58 25 17 Chickens Number 18.4 14.8 11.1 % of households engaged in raising 75 75 58 Sales amount (1,000 kip) 70 150 - % of households sold 17 13 - Ducks Number 9.3 6 - % of households engaged in raising 25 13 - Sales amount (1,000 kip) - - - % of households sold - - - Pigs Number 1-- % of households engaged in raising 8 - - Sales amount (1,000 kip) 4,000 - - % of households sold 8 - - Source: Questionnaire survey of all households (32).

㧙306㧙 Table 3-15 Balance of livestock in Ban Nonkhali Number of Existing Increase Decrease households number Born Purchased Inherited Total Eaten Sold Died Stolen Donated Total 1 Amount6.0------Buffalo %HH1------15 Amount 19.5 14.1 3.5 14.6 3.0 7.0 3.3 5.0 10.1 Cattle %HH 100 100 13 13 93 67 20 21 Amount 14.7 21.7 0.0 0.5 15.6 11.4 5.0 11.6 3.0 2.0 15.4 Chickens %HH100715 10 6714521919 4 Amount 8.5 8.5 4.3 3.7 6.0 4.0 5.3 Ducks %HH 100 50 75 25 25 1 Amount 0 1.0 1.0 2.0 8.0 10.0 Pigs %HH 100 100 100 100 Source: Questionnaire survey of all households (32).

Table 3-16 Non-farm jobs and NTFP collection in Ban Nonkhali Rich Middle Poor Number of households 12 8 12 NTFPs NTFPs Amount (kg) 54 4,017 393 % of households engaged in collecting 42 63 42 Sales amount (1,000 kip) - - - % of households sold - - - Non-farm jobs Trader Income (1,000 kip) 12,790 4,000 - Number of HH 5 1 - Shopkeeper Income (1,000 kip) 15,000 - - Number of HH 1 - - Wage labor Income (1,000 kip) - - 200 Number of HH - - 1 Source: Questionnaire survey of all households (32).

㧙307㧙 Table 3-17 Asset holdings in Ban Nonkhali Rich Middle Poor Total Number of households 12 8 12 32

Production assets Sprayer %HH 33 25 17 25 Number 1.0 1.0 1.0 Irrigation pump %HH 17 25 8 16 Number 1.0 1.0 1.0 Power tiller %HH 17 38 16 Number 1.0 1.0 Truck/Pickup %HH 33 13 16 Number 1.0 1.0 Rice mills %HH 17 6 Number 1.0

Consumer durables Bicycle %HH 100 75 42 72 Number 1.5 1.0 1.0 Radio-cassette %HH 50 50 33 44 Number 1.0 1.0 1.0 Motorbike %HH 50 25 8 28 Number 1.0 1.0 1.0 TV%HH42251728 Number 1.0 1.0 1.0 Vehicle %HH 33 19 Number 1.0 Sewing machine %HH 25 8 13 Number 1.0 1.0 CD player %HH 8 3 Number 1.0 Source: Questionnaire survey of all households (32).

㧙308㧙 Table 3-18 Rural credit situations in Ban Phuoi Rich Middle Poor Total Number of households 24 42 21 87

Bank Borrowing % of households 54 52 38 49 Average amount (1,000 kip) 6,654 3,434 5,105 4,696 Saving 㩷 % of households 38 5 0 13 Average amount (1,000 kip) 10,889 4,000 - 9,792

Saving group Borrowing % of households 8 0 0 2 Average amount (1,000 kip) 2,000 - - 2,000 Saving % of households 50 24 38 34 Average amount (1,000 kip) 76 50 31 55

Informal Borrowing (cash) % of households 8 19 43 24 Average amount (1,000 kip) 11,400 763 756 1,773 Borrowing (rice) % of households 0 19 19 14 Average amount (kg) - 369 389 376 Lending % of households 25 14 0 14 Average amount (1,000 kip) 3,333 668 - 2,001

Source: Questionnaire survey of all households (87). Note: Rice price was about 2500 kip/kg.

㧙309㧙 Table 3-19 Borrowing from APB in Ban Nonkhali Rich Middle Poor Total Number of households 12 8 12 32 APB borrowers total 6 4 9 19 % of total households 50 50 75 59 Cash borrowers from APB 1 1 3 5 less than 0.5 million kip 1 1 2 0.5-1 million kip 1 1 1 4 million kip 1 1 Rice borrowers from APB 1 3 2 6 3 sacks (0.375 million kip) 1 1 2 4 sacks (0.5 million kip) 1 1 4.5 sacks (0.563 million kip) 1 1 5 sacks (0.625 million kip) 1 1 2 Fertilizer borrowers from APB 2 1 3 5 sacks (0.65 milliuon kip) 1 1 8 sacks (1.04 million kip) 1 1 14 sacks (1.82 million kip) 1 1 Rice & fertilizer borrowers from APB 2 3 5 1-1.5 million kip 1 1 1.5-2 million kip 2 2 more than 2 million kip 1 1 Unknown 1 1 Source: Questionnaire survey of all households (32).

Table 3-20 Informal credit in Ban Nonkhali Rich Middle Poor Number of households 12 8 12 Borrowing (cash) Number of households 1 7 5 Average amount (1,000 kip) 2,000 1,343 360 Borrowing (rice) Number of households 1 Average amount (kg) 100 Lending (cash) Number of households 4 1 1 Average amount (1,000 kip) 5,550 1,000 200 Lending (rice) Number of households 1 Average amount (kg) 150 households (32). Note: Rice price was about 2500 kip/kg.

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3-4. Finance for Rural Development in Laos: Discussions

I. INTRODUCTION

So far in Chapters 1, 2, and 3, we discussed various aspects of rural economy and finance in Laos, based on detailed field surveys conducted during the last two years, 2003-04. In Chapter 1, we selected a study village (Ban Don Neua) in Vientiane Municipality where a saving group was organized by the initiative of FIAM-CODI-LWU in September 2000 and has been rapidly developing until the present day. Ban Don Neua was a typical lowland village with paddy fields partly irrigated by the Mekong River via a large pump. It was also famous for brewing a local rice-based alcohol called jees. Animal husbandry, such as cattle, pigs, and chickens, was also popular. Approximately one-third of the households in the village received regular remittances from foreign countries such as the U.S. The development of the saving group was quite remarkable; in the three and a half years before March 2004 it had accumulated more than 200 million kip, with the per-capita amount reaching nearly 1 million kip (100 U.S. dollars). However, the demand for credit among villagers has been very strong for various production purposes even at a 4 percent monthly interest rate. Based on the saving group experience, we discussed the possibility of mobilizing savings from rural Laos. Next, in Chapter 2, we selected a study village (Ban Oudom) from the Houn district, Oudomxay Province, where maize production for export (to China) started in the late 1990s. Maize cultivation expanded in fallow land under a shifting cultivation system where farmers grew mainly upland rice. Because of this, the shifting cultivation plots, whose fallow period had been rapidly growing shorter during the last one or two decades, experienced a rapid transformation into permanent upland fields, where farmers began growing upland rice with no fallow period. The introduction of maize has so far been very successful, and it has brought about a large amount of cash income (3 million kip on average) to the villagers. They started purchasing some production assets, such as power tillers and rice mills, and various consumer durables were also started to become more widespread. Deposits to APB have also increased rapidly in the Houn district in recent years. However, it was pointed out that whether such economic prosperity is sustainable largely depends on the ecological sustainability of the area’s newly emerged farming system. In Chapter 3, we studied three villages from the Bolaven Plateau (Paksong district, Champasak Province), home to a highly commercialized economy based primarily on coffee, cabbage, and cattle production. Although the region has a long history of coffee plantations, many farmers began large-scale expansion of their coffee gardens only after the 1980s. The coffee boom in the latter half of the 1990s facilitated such a process. Cabbage production for export (to Thailand) only began in 2000. It was found that farmers in the Bolaven Plateau earned quite a large amount of cash income, even though they have to purchase all the rice they consume. However, it was also found that many poor farmers are obliged to borrow money from rich households and/or traders at quite a high interest rate. We

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also reviewed the APB’s experience with extending loans to coffee farmers in order to eliminate such a situation, but it apparently resulted in failure in the end; APB was obliged to stop new lending starting in 2001 because of an accumulation of NPLs. However, richer households and/or traders began making deposits to the Lao Development Bank (LDB), despite the “bad” loans they still had with APB. In this sense, the rapid saving mobilization by LDB should be regarded as an ironic success story. The purpose of this chapter is to discuss some critical policy issues regarding rural and/or microfinance in Laos. The role of APB in agricultural and rural development in Laos is discussed first, and then a few comments will be presented on how to establish new rural and/or microfinance institutions in Laos.

II. ROLE OF APB IN AGRICULTURAL AND RURAL DEVELOPMENT

2-1. Performance of APB

The Agricultural Promotion Bank (APB) is the only formal sector financial institution in Laos with a significant outreach and service history in rural areas. Since its establishment in June 1993, APB rapidly expanded its network throughout the whole country. As of 2003, APB had 18 branches and 55 service units, covering 134 districts and 4,842 villages1. The total number of employees reached 676, including 202 females. Table 4-1 shows the time-series data of APB savings and credits. First, the ratio of credit/saving was as high as 10.4 in 1995, when APB was heavily dependent on Bank of Lao PDR credits, as pointed out by a well-known document on rural finance in Laos F published by the UNDP and UNCD in June 19972. However, the ratio soon started to decline rapidly, having reached as low as 1.6 in recent years. Although the figure of 1.6 is still high, it should be pointed out that the bank did try to mobilize savings and was successful, albeit to a certain degree. Second, it is notable that the composition of savings has shifted gradually from current deposits to saving deposits and onward to time deposits. In other words, mobilized savings not only increased, but also shifted into a more stable form. Third, the change in the composition of credits for different purposes is also notable; i.e., more emphasis has increasingly been refocused from food production to cash crop production, rural development, and trading of agricultural products. Especially notable is the jump of credit amounts for cash crop production in the year 2000, which reflects the special loan program provided to Bolaven Plateau coffee farmers as mentioned in Chapter 3. Next, Table 4-2 shows the change in the bank’s client composition, in terms of group versus individual lending. We see that firstly, the number of total clients increased very rapidly until 1998, but sharply

1The whole country had 142 districts and 10,868 villages (in 2002). Thus the APB covered 94.4 percent of districts and 44.6 percent of villages. 2UNDP and UNCDF, Microfinance in Rural Lao PDR: A National Profile, June 1997.

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declined in the next year before stagnating until recently. Secondly, the percentage of individual clients gradually increased during the entire period, reaching 8.7 percent in 2003. Needless to say, the greater emphasis on individual clients is related to the fact that credit has been increasingly given more for purposes other than food production, as pointed out already in Table 4-1. Lastly, let us look at Table 4-3, which indicates the regional distribution of bank loans. It is evident that the two wealthiest areas in the country, Vientiane Municipality and Champasak Province, absorbed 53.8 percent of the total credit the bank extended, a fact that is criticized by ADB (Asian Development Bank) as evidence that the non-poor are the main beneficiaries of the APB’s subsidized credit3. The table also shows that overdue loans are highly concentrated in Champasak Province, occupying nearly 60 percent of the total. It shows the non-repayment problem of Bolaven Plateau coffee farmers as mentioned in Chapter 3. In addition, the other provinces with high percentages of overdue loans were Salavan, Sayabouri, Savanakhet, and Bolikhamxay. The average ratio of overdue loans to total credit was as high as 16.4 percent, and it should be noted that APB has recently announced a target of 5 percent4. The existence of such a high ratio of overdue loans is a symbolic matter, implying a need for the APB Restructuring Plan now being undertaken by ADB as part of the larger Rural Finance Sector Development Program (RFSDP)5.

2-2. A few comments on the APB Restructuring Plan

With the ADB’s initiative, the APB Restructuring Plan is now underway, running from August 2004 through July 20076. The objective of the plan is “transforming the APB into a financially self-sustainable, market-oriented rural financial institution”, with the recognition that the core problem is that the APB has been carrying out substantial policy lending on behalf of the government. Under the Plan, policy lending will be phased out7, and APB will operate “on a solely commercial basis”. It is quite reasonable to recognize so-called policy lending as being the most critical problem for APB. It seems that mixing fiscal and financial issues is the most prominent feature of a socialist economy, one which should be reformed during the transition to a market economy. We will make a few comments here, based on findings and experiences from the detailed field surveys conducted in 2003-04. First, if APB is transformed into a purely commercial financial institution, who will provide agricultural credit to farmers, especially small farmers, in Laos? The role of the APB in having provided credit to farmers cannot be overlooked. We can still observe the widespread existence of standing crop sales in rural areas, with an exorbitantly high rate of interest. Under strong pressure to become a purely

3Memorandum of Understanding between the Bank of the Lao PDR and ADB Loan Fact Finding Mission on a Proposed Sector Development Program Loan and Technical Assistance Grant to the ’s Democratic Republic for the Rural Finance Sector Development Program, 7 May 2004. 4APB, Summary Report on 9 months Operation in 2003 (in Lao). 5See Memorandum… as noted in Footnote 3. 6Phase 1 of the Restructuring Plan already started in March 2003 under Subproject 5 of the ADB TA Cluster 3413. 7It is intended that some of the policy lending will be remained, but under the direct fiscal policy.

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commercial bank, APB will undoubtedly be obliged to limit its clients to large farmers and traders, which diminishes the demarcation between the Lao Development Bank (LDB) and APB. It seems that there is no clear consideration about which financial institution will provide credit to small farmers in the future. In the late 1990s, APB had already started to shift its emphasis more to large farmers and traders, as reflected in the increasing percentage of individual clients and in the increasing percentage of loans for cash crop production and the trade of agricultural products, shown in Table 4-1 and Table 4-2. This is due to the pressure to be a more financially sustainable and market-oriented bank. It seems that the Restructuring Plan is promoting this direction excessively and too rapidly, without a clear blueprint for the future of agricultural credit in Laos. One plausible result is the more unequal distribution of APB loans, concentrated on the wealthier regions and segments of rural society, a practice criticized by ADB itself. Second, the assertion that financial institutions should be purely financial institutions, excluding non-financial activities such as distributing fertilizers and farm equipment, is not always right. For example, we should remember the critical role of APB in distributing hybrid maize seed (in collaboration with PAFO and DAFO) in the Houn district, Oudomxay Province (Chapter 2). The author believes that the same critical role will be (should be) played by APB in the near future when maize farmers will need to apply chemical fertilizers, given that almost no farmers in the entire region know about chemical fertilizers at present. A healthy market will not emerge automatically and suddenly. Third, APB’s performance, considered to be better than expected, should be evaluated in a more positive manner. They succeeded, to a certain degree, in saving mobilization from rural areas under an unfavorable macro-economic environment. The loan recovery rate is also not so bad, except for some particular regions such as the Bolaven Plateau. Consider that if we exclude Champasak Province, the ratio of overdue loans to total credits in Table 4-3 will be drastically reduced from 16.4% to 8.4%.

III. ON THE CREATION OF RURAL AND MICROFINANCE INSTITUTIONS

The establishment and development of village-level saving groups was very successful in some selected villages, especially in Vientiane Municipality, as presented in Chapter 1. It was pointed out, however, that they are now starting to face a great challenge in dealing with a large amount of surplus money that is increasingly becoming difficult for village women to handle. The consolidation of such saving groups into a larger financial institution, for example, seems to be inevitable in the near future. On the other hand, another core program in the Rural Finance Sector Development Program (RFSDP) promoted by ADB is to support eligible Microfinance Institutions (MFIs). According to them, participating MFIs would be privately owned by members or shareholders and provide market-driven financial services, mainly comprised of village-level savings and credit unions (SCUs) and village savings and credit groups (VSCGs), but also any institution that meets the specified criteria. They further point out that the VSCGs as they exist at present are not sustainable, and should be consolidated into

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larger local MFIs (such as SCUs). Therefore, the direction of development for the existing Vientiane Municipality saving groups seems to coincide with ADB’s way of thinking. However, it seems that ADB is going to establish such SCUs from the top down, not from the bottom up8. In other words, it seems to the author that new MFIs should be established by solving the problems of the existing saving groups and consolidating them into one larger group, rather than by suddenly creating a few model SCUs that serve a wide area. Also we should not forget the vast rural areas where village-level saving groups are not as successfully organized as in Vientiane Municipality. Special attention should be paid to the northern hilly areas, one of the poorest and most problematic (in terms of drastic changes in land use and people’s livelihood) regions in the country. The APB’s role seems to be very limited, except for some specific areas where the cash crop production has been expanded successfully (Chapter 2). Although rice banks and livestock banks, supported by international NGOs and/or rural development projects, have apparent limitations, they are playing important roles in supporting the livelihood of poor villagers. It seems to the author that we must first think about how to transform the existing farming system into one that is more sustainable.

8See Memorandum… as noted in Footnote 3.

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Table 4-1 APB savings and credits (million kip) Savings Credits Trading of Credit/saving Current Saving Time Total Food Cash crop Rural agricultural Total ratio deposit deposit deposit (A) production production development products (B) (B)/(A)

1993 208.6 126.8 367.9 703.3 NA NA NA 4,349.5 NA - 1994 822.7 171.5 150.8 1,145.0 NA NA NA 8,490.7 NA - 1995 1,226.0 273.6 166.1 1,665.7 6,524.1 2,813.3 4,449.7 3,515.0 17,302.1 10.4 1996 1,873.6 343.2 661.9 2,878.7 9,207.6 3,195.2 5,540.9 2,746.8 20,690.5 7.2 1997 4,018.2 2,150.0 897.2 7,065.4 10,675.8 5,525.4 8,351.7 5,004.1 29,557.0 4.2 1998 11,886.2 4,837.8 2,062.0 18,786.0 17,964.0 7,699.9 10,747.3 10,725.4 47,136.6 2.5 1999 28,087.5 8,321.1 3,543.1 39,951.7 42,080.9 9,254.5 20,185.9 20,432.1 91,953.4 2.3 2000 48,707.1 22,125.5 9,874.5 80,707.1 35,638.9 36,230.5 15,404.9 44,362.1 131,636.4 1.6 2001 54,103.2 31,557.7 19,739.3 105,400.2 41,850.2 55,717.3 17,501.0 48,608.9 163,677.4 1.6 2002 46,351.5 43,907.3 34,739.3 124,998.1 42,923.9 25,926.0 85,940.3 45,019.0 199,809.2 1.6 2003 68,980.3 52,160.8 4,816.8 125,957.9 41,175.6 89,229.6 43,418.2 57,514.1 231,337.5 1.8 Source: Souklaty Sysaneth, The Report on Operation of Agricultural Promotion Bank (APB), Japan International Cooperation Agency, August 2004.

Table 4-2 Number of APB clients Average amount of Average Number of Total Total amount credit per Number of members Number of individual number of of credit client groups per group members clients clients (million kip) (million kip) 1994 2,382 9.7 22,990 656 23,646 NA NA 1995 8,568 8.5 72,409 2,077 74,486 17,302.1 0.23 1996 9,637 8.0 76,918 2,449 79,367 20,690.5 0.26

1997 10,290 8.8 90,613 2,798 93,411 29,557.0 0.32 1998 15,629 8.3 129,508 13,298 142,806 47,136.6 0.33 1999 9,437 5.6 52,853 3,273 56,126 91,953.4 1.64 2000 8,333 6.1 51,228 3,350 54,578 131,636.4 2.41 2001 8,618 6.5 55,909 3,617 59,526 163,677.4 2.75 2002 8,238 6.9 56,955 4,004 60,959 199,809.2 3.28

2003 8,683 5.4 47,239 4,509 51,748 231,337.5 4.47

Source: Souklaty Sysaneth, The Report on Operation of Agricultural Promotion Bank (APB) , Japan International Cooperation Agency, August 2004.

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Table 4-3 Regional distribution of loans and overdue loans (million kip) Initial Final balance of New Recovered balance of Ratio to Total overdue overdue overdue overdue total credits Province credits loans loans loans loans (%) Vientiane Municipality 74,819 3,198 2,392 2,659 2,931 3.9 Phonsali 2,090 121 258 251 128 6.1 Oudomxay 4,731 397 320 294 423 8.9 Luang Namtha 6,607 334 764 804 294 4.4

Bokeo 3,150 211 417 577 51 1.6

Sayabouri 4,998 1,273 200 246 1,227 24.5 5,449 178 509 462 225 4.1 Houaphanh 4,747 296 826 656 466 9.8 Xieng Khouang 8,936 544 811 567 788 8.8 Xaysomboun 2,824 25 229 244 10 0.4

Vientiane 11,624 574 290 322 542 4.7

Bokikhamxay 10,261 1,436 675 427 1,684 16.4 Khammoune 5,304 593 510 738 365 6.9 Savanakhet 15,280 2,100 1,797 695 3,202 21.0 Champasak 41,278 20,850 1,513 1,558 20,805 50.4 Salavan 5,474 2,232 347 741 1,838 33.6

Sekong 4,293 609 303 552 360 8.4 Attapeu 4,109 257 288 364 181 4.4 Total 215,974 35,228 12,449 12,157 35,520 16.4 Source: Souklaty Sysaneth, The Report on Operation of Agricultural Promotion Bank (APB) , Japan International Cooperation Agency, August 2004.

－317－ 4. Land-Allocation Program and Stabilization of Swidden Agriculture in the Northern Mountain Region of Laos

Koji TANAKA Satoshi YOKOYAMA Khame PHALAKHONE

Summary

Since the launch of the land-allocation program, it has had a strong impact on the agricultural and agrarian conditions of the local communities in Lao People’s Democratic Republic. The northern mountain region, in particular, has experienced remarkable changes due to the implementation of the program, as the local people have been greatly dependant on upland-rice cultivation practiced under shifting cultivation. However, since it is not yet clear to what extent the program has been implemented over the region and to what extent the program has given positive effects on the stabilization of shifting cultivation, research was conducted in Luang Phabang and Oudomzay provinces in 2003 and 2004 as part of the joint studies by the Agricultural and Rural Development Working Group in order to understand what types of land-use patterns have developed and how the allocated lands have been actually utilized following the program’s implementation. Through the case studies that were conducted in five sample villages, both negative and positive impacts could be observed. What was commonly observed is the introduction of market-oriented crops, among which Job’s tear and commercial crops such as vegetables played a remarkable role in providing economic advantages to the local people. However, despite their advantages, it was also observed, particularly in the case of Job’s tear, that the program did not succeed in decreasing swidden agriculture because the slash-and-burn method was still applied to its cultivation. Furthermore, it is also a general observation that the mountainous areas in northern Laos have faced more difficult conditions derived from the lack of accessibility to markets. Although the local people put forth efforts to introduce alternative crops, it is still very difficult for them to completely stop utilizing shifting cultivation and live on commercial crop cultivation alone, because the diversification observed in crop introduction is not equipped with a basis of marketability. Although the problems and limitations generated by the land-allocation program were observed, the distinctive geographical and cultural conditions of northern Laos still have considerable potential and competitiveness in the agricultural sector. In order to make use of this advantage, the government should be pro-active in providing alternative technologies and promoting agricultural products with additional values, such as “Thammasaat product of Northern Laos” or “organic product from Northern Laos.” More comprehensive and intensive surveys on the effects of the land-allocation program should be conducted in order to understand the actual conditions of the local communities. Provision of market information and

－318－ utilization of experienced farmers and merchants are “both sides of the coin” that help develop market-oriented agricultural production. Local government institutions are expected to promote collaboration with such local pioneers, who have accumulated the knowledge and technologies necessary for developing and diversifying agricultural production.

－319－ 4. Land-Allocation Program and Stabilization of Swidden Agriculture in the Northern Mountain Region of Laos

I. Introduction

One of the priorities of the national policy has been to stabilize swidden agriculture or shifting cultivation across the northern mountain region in Lao People’s Democratic Republic (Lao PDR) by implementing the land-allocation program. However, while this program has partly succeeded in stabilizing the conventional swidden agriculture on the one hand; it has also contributed to the circumstance in which agricultural activities of the local communities have been greatly limited on the other. The land-allocation program has imposed severe limitations to diverse subsistence economic activities and livelihoods that have been dependent on the uplands and mountains for over generations in the region, since it insufficiently provides for alternative ways for agricultural development to occur following the implementation of this program. The agricultural sector in the northern mountain region has been rapidly changing due to influences derived from the expansion of market-oriented economy. Under such rapid change, the land-allocation program, despite its partial success, has brought about various constraints, or environmental limitations, to the local communities in terms of sustainable agricultural practices, land-use development and natural resource management. The local communities are expected to improve their agricultural production systems by introducing more intensive cropping techniques and more profitable cash crops such as export-oriented commodities, vegetables and fruits, or by establishing more intensive cropping patterns or systems. However, this is not such an easy task to perform under the present socio-economic conditions of the northern mountain region because of the poor infrastructure, the lack of market access and the insufficient human resources needed for agricultural extension. Taking these conditions into account, the interim report for Phase I of this project, in which the results of an extensive survey conducted at several villages in were presented, emphasized the importance of obtaining information on the actual conditions of program implementation and of paying attention to the location-specific aspects of agricultural and rural conditions in relation to the land-allocation program. This report is the follow-up to the aforementioned interim report and presents the research results obtained from the field surveys conducted in Oudomxay and Luang Phabang provinces in 2003 and 2004.

II. Objectives

Since the launch of the land-allocation program, it has had a strong impact on the agricultural and agrarian conditions of the local communities in the northern mountain region, because the local people have been greatly dependant on upland-rice cultivation practiced under the shifting cultivation systems.

－320－ However, it is not yet clear to what extent the program has been implemented over the region, and to what extent the program has given positive effects on the stabilization of shifting cultivation. Although the government has placed emphasis on the development of community management of natural resources, diversification of agricultural systems and introduction of agro-forestry systems, it is quite unclear as to what types of agricultural systems have been introduced to and adopted by local communities as alternatives to conventional swidden agriculture, and how the social and agrarian conditions have changed after the implementation of the land-allocation program. To answer these questions, research was conducted as part of the joint studies by the Agriculture and Rural Development Working Group of the Japan International Cooperation Agency/Committee for Planning and Cooperation (JICA/CPC) joint project on Macroeconomic Policy Support for Socio-Economic Development in Lao PDR, Phase II. The research objectives were set as follows: 1) To find out what types of land-use systems are actually developing at the village level following the implementation of the land-demarcation policy for deciding the boundaries between agricultural lands and forests, and of the land-allocation program. 2) To clarify how the allocated lands are actually utilized by villagers. 3) To evaluate the implementation of the program in relation to the “stabilization of shifting cultivation.”

III. Study Sites

The research was conducted in Luang Phabang and Oudomxay provinces, where swidden agriculture has been widely practiced, from 2003 to 2004 in collaboration with the National Economic Research Institute and the Ministry of Agriculture and Forestry. The reconnaissance survey revealed that, as shown in Table 1, the number of villages in which all the processes in land-allocation program had been completely implemented accounted for 19 villages in the two provinces as of the end of 2003. Most of them were situated along the main road. Of these villages, intensive land-use surveys were conducted in Kone Kean village in the Xay district of Oudomxay province; three villages, Na Xao, Na Pho and Nong Heo, in the Luang Phabang district; and Phon Sa Aad village in the Xieng Nguen district of Luang Phabang province. In this report, the results obtained from these five villages are presented. Fig. 1 indicates the location of the surveyed villages. Kone Kean village is located 15 km southwest of and situated along the national highway No. 2. Na Xao and Na Pho villages are located about 12 km southwest of Luang Phabang and are also situated along a paved road. Nong Heo village, located in a mountainous area 30 km southeast of Luang Phabang, is accessible only by foot during the rainy season and by motorcycle during the dry season. Phone Sa Aad village is located 15km northeast of Xieng Ngun and situated along the national highway No. 13. Although markets are not established in all the surveyed villages, villagers from the four villages except for Nong Heo have good access to provincial or district capitals by using public transportation. As

－321－ Table 1 Villages where the land allocation program has been implemented in Oudomxay and Luang Phabang provinces, as of the end of 2003

Province District Village Location Ethnicity Year

Oudomxay Xay Houay Cha Roadside Khmu 2003 Kone Kean (1) Roadside Khmu 2003 Beng Pia Houa Nam Roadside Khmu/Hmong 2002 Na Met Roadside Lue 2001 Napa Nuea Roadside Lue/Khmu 2001 Luang Phabang Luang Phabang Kin Som Roadside Lao 1997 Kin Keo Roadside Lao 1997 Non Sa Aad Roadside Khmu/Hmong 1997 Na Pho (2) Roadside Lao 1998 Nong Heo (3) Mountain Khmu 1998 Long Lao 1 Roadside Khmu 1999 Long Lao 2 Roadside Hmong 1999 Tam Pean Roadside Lao/Khmu 1999 Dean Savang Roadside Khmu 1999 Sing Roadside Hmong 1998 Na Xao (1) Roadside Lao 1999 Non Phok Roadside Khmu/Hmong 2001 Tin Pha Mountain Khmu 2001 Xieng Nguen Phone Sa Aad (3) Roadside Khmu/Hmong 1999

Note: (1) Land-use survey was carried out in November 2003 and September 2004. (2) Interview with the village committee was carried out in November 2003. (3) Land-use survey was carried out in December 2003. Kone Kean, Na Xao and Na Pho village settlements are situated on a natural in a river basin, wet-rice cultivation has been practiced to some extent in paddy fields distributed across narrow flat lands in the basins; while wet-rice cultivation in Phone Sa Aad village is almost negligible because of the lack of flat land for reclaiming paddy fields. Basic information on these villages and on the year of implementation of the land-allocation program to individual villages is given in Table 2. Na Xao and Na Pho are the Lao villages; while Kone Kean and Nong Heo are the Khmu villages. Phone Sa Aad village consists of two ethnic groups, Khmu and Hmong. Among the five villages, the land-allocation program was first implemented in Na Pho village in 1997. The average size of each

－322－ Table 2 Basic Information of Surveyed Villages, November 2003

Province Oudomxay Luang Phabang Village Kone Kean Na Xao Na Pho Nong Heo Phone Sa Aad Ethnic Group Khmu Lao Lao Khmu Khmu/Hmong No. of Household 56 74 92 - - No. of Family 60 60 99 66 82 Population 372 365 440 338 554 Year of Allocation 2003 1999 1997 1998 1997 Allocated Area* 201.43 ha 192.23 ha 317.95 ha 175.74 ha 330.24 ha Paddy field 24.4 ha 34.6 ha 35.3 ha 19.75 ha 0.4 ha

* Including area of paddy fields

family’s allocated land differs from village to village, but it is commonly found that more or less three hectares of land are allocated to every household or family on average.

IV. Land-use Patterns after the Land Allocation

In order to understand the effects of the land-allocation program, the changes in land-use patterns were mainly investigated in the five villages. In every village, upland-rice cultivation was once widely practiced on slopes of mountain sides for subsistence purposes under shifting cultivation systems with long fallow periods. Fallows and forest areas were also important spaces for villagers, where they could collect useful plants and animals there for both subsistence purposes and as cash-income sources. For villagers depending on this environment, the implementation of the land-allocation program has significantly placed limitations on their traditional livelihood systems. It has forced them to adapt themselves to the new environment by localizing this impact through diversification and intensification of agricultural practices on the one hand; and undermining the regulations related to the program on the other.

1. Na Xao Village Na Xao is a Lao village. Its total land area is 884 ha, of which 545 ha that consists of protection forest, conservation forest, production forest and a settlement area is land that is unusable for agricultural purposes. The rest, about 300 ha, is defined as agricultural lands, of which 192.23 ha was allocated to villagers following the program. The land-use division of the village after the program implementation is shown in Fig. 2. However, as the location of farm lands allocated to each family could not be identified due to the absence of a cadastral map, their distribution is not indicated in Fig.2. Paddy fields, 34.6 ha in total, are distributed in the lowlands along the Houay Sing River, and they have been held as private properties by individual families before the implementation of the program in 1999; therefore, the program was conducted by concentrating on the mountain slopes, where the villagers had carried out swidden agriculture, as its main object of allocation. The asterisk shown in Fig.2 indicates the location of

－323－ irrigated paddy fields. A few of their owners can afford possibly practicing double-cropping of rice. According to the village committee, 6.2 ha of the paddy fields in total that are held by eight households are feasible for double-cropping. The present land use of allocated lands in Na Xao village is summarized in Table 3. ‘No Data’ in the table indicates the lands on which no information was available; they have remained unused because the holders are not utilizing the allocated field plots, or had left the village. Since the paddy fields were privately owned and excluded from the objective of land-allocation, the land use of paddy fields did not change. However, upland farming in the newly allocated plots underwent an immense change in its main crop from upland rice to Job’s tear (Coix lacryma-jobi). Upland fields are commonly used for growing Job’s tear or laid fallow, and it is noticeable that the ratio between the lands for Job’s tear and the fallows is one to two. Moreover, out of the total area of 119.88 ha, Job’s tear occupies 34.9% and the fallows 65.1%. This ratio evidently indicates that Job’s tear is grown under the three-year rotation system by shifting agriculture in three plots allocated to individual families (Fig.3). Job’s tear is continuously cultivated for three years using one plot, and it then lays fallow for the next six years. In other words, this suggests that the villagers have established a nine-year rotation system of shifting cultivation by using a combination of three allocated plots. However, the average number of the plots actually allocated to 56 families in Na Xao village was 2.3 plots; 17 families hold two plots and 7 families have just one plot. Since all of them were paddy-fields holders, it is obvious that paddy-field holding was taken into account when the number of allocated plots was decided. Therefore, the paddy-field holders have a notable advantage that they can continuously grow rice in paddy fields.

Table 3 Land use after implementation of land allocation program in Na Xao village, November 2003

No. of No. of Average Area Average Area Landuse Area (ha) Family Plot per Family (ha) per Plot (ha)

Paddy 34.60 38 N/A N/A N/A Job’s Tear 41.84 43 52 0.97 0.81 Fallow 78.04 49 82 1.59 0.95 No Data 3.15 2 4 1.58 0.79 Total 157.63 132*

* This does not correspond with total number of families.

－324－ However, if they continue to follow the nine-year rotation system, it may become impossible to grow Job’s tear for a certain period: three years for the two-plot holders and six years for the one-plot holders. After the implementation of the land-allocation program, land-use patterns in the village completely changed to Job’s tear cultivation. For the sake of stabilizing the cultivation, however, more appropriate allocation in terms of the number of plots should be taken into consideration. Job’s tear was first introduced to the village in 1999 when the land-allocation program was implemented. Among the total 58 families to whom the land was allocated, 24 families began to grow it on a trial basis. In the first trial, farmers could obtain a higher yield than with upland rice at 3 t/ha; surprisingly, about four times as much as the yield of upland rice. In addition, since the selling price in 1999 was considerable at 4,000 kip/kg, eight times as much as the price of unhulled rice, the pioneer families could obtain enough profit to save money even after purchasing rice for their own consumption. As a result, in order to seek the same benefits, all the families in Na Xao village began cultivating Job’s tear in the following year. The entire production of Job’s tear is sold to middlemen who deal with agricultural and forest products in Luang Phabang, and every farmer in Na Xao village individually Table 4 Variation in the price has an exclusive sales contract with their own particular middleman. of Job’s tear In 2002, despite the fact that the farmers had signed a sales contract with a minimum price of 700 kip/kg, the actual price of delivery Year Price (kip/kg) went up to 1,500 kip/kg. As Table 4 indicates, the price of Job’s tear 1999 4,000 is noticeably fluctuating. The lowest price over the last five years 2000 500 2001 3,000 was 500 kips/kg in 2000, which was only 12.5% of the price from the 2002 1,500 previous year. However, as this price was just slightly lower than the Average 2,250 price of upland rice, the farmers did not perceive this as a major problem because the yield of Job’s tear is always higher than that of upland rice.

－325－ 2. Na Pho Village Na Pho village is also a Lao village, where the villagers used to be engaged in subsistence rice farming in both paddy fields and upland fields before the land-allocation program was implemented in 1997. In this village, the extent of paddy-field holding was also taken into consideration when the number of plots and their size of allocation were decided: to those who hold a large portion of the paddy fields, more than one hectare for example, almost no upland fields were allocated; to those who have less than one hectare of paddy fields, one to two hectares of upland fields were allocated in accordance with the size of their paddy-field holdings and family members; and to those who had no paddy fields, three hectares of upland fields consisting of three plots were allocated on average. The village statistical data indicates that the total area of paddy field was 35.3 ha, and 36 families—1/3 of total families—held paddy fields and were engaged in wet-rice cultivation in 2003. The families who did not hold paddy fields continued to grow upland rice using the slash-and-burn method even after the implementation of land-allocation. However, since the villagers observed the successful introduction of Job’s tear in Na Xao village, their neighboring village, they also began to grow Job’s tear in 2000. However, in the case of Na Pho village, as they suffered from the sharp drop of the selling price from the beginning, the villagers came to introduce mixed cropping systems consisting of commercial crop growing, such as cucumber, melon, beans and sesame, instead of merely growing the mono-culture of Job’s tear. As shown in Table 5, commercial crops are grown in combination with upland rice.

Table 5 Crop Calendar in Na Pho Village, Luang Phabang Prov., 2003

Slash and Burn Paddy Upland Lowland Rice Cucumber Job's tears Beans Sesame Rice Jan Feb Slashing and Drying Mar Burning and Cleaning Apr Sowing May Sowing Sowing(1) Sowing Jun Transplanting Sowing Jul

Aug Harvest Harvest(1) Sep Sowing(2) Oct Harvest Harvest Nov Harvest Harvest Dec Harvest(2)

Each allocated land is basically used for mixed cropping for one year using the slash-and-burn method, and it is laid fallow in the following two years. Some villagers still keep the tradition of swidden

－326－ agriculture and grow upland rice in the same manner by using the slash-and-burn method. As this case reveals, shifting cultivation still remains unchanged even after the implementation of land-allocation program. Since the village is situated in the suburban area of the city of Luang Phabang, the villagers can sell their products of commercial crops, such as cucumber, melon and beans, at the markets in Luang Phabang. Among the villagers, it is said that some of them earn 3 million kip (about US$300) from the sale of both cucumbers and melons. Although the villagers suffered from the price fluctuation of Job’s tear, it is apparent that the existence of big markets and easy access has made it possible for them to introduce commercial crops and be successful.

3. Nong Heo village and Phone Sa Aad village Nong Heo is the Khmu village; while the villagers in Phone Sa Aad consist of two ethnic groups, Hmong and Khmu. In comparison to Lao villages like Na Xao and Na Pho, both villages have a lesser extent of paddy fields; in particular, there is only 0.4 ha in Phone Sa Aad village. The total land area of Nong Heo village is 384 ha, of which the total land allocated to the villagers for agricultural purposes accounts for 176 ha including paddy fields of about 20 ha. The villagers once practiced swidden agriculture and grew upland rice before the implementation of the program in 1998. Many villagers of Nong Heo village, however, are currently cultivating Job’s tear under the influence of a brokerage company dealing with agricultural and forest products. The company has promoted the cultivation of Job’s tear by providing the seeds in advance; yet the purchasing price is fixed by the subtraction of the seed cost. Since the company purchases all the products from the Job’s tear crops based on the contract, this type of has rapidly developed in the village. To a certain extent beans and upland rice are cultivated as well, but Job’s tear has become the main product in the village. The land-use system for Job’s tear farming is the same as the Na Xao village case, i.e., the nine-year rotation system that consists of a three-year cultivation and six-year fallow using three field plots. As Phone Sa Aad village has a mixed ethnic composition, 51 families of the Hmong and 31 families of the Khmu, it shows a different pattern of land allocation from other villages in Luang Phabang province. The land-allocation program started in 1997, and at present a sharp contrast can be observed between the two ethnic groups in terms of the number and the size of allocated lands: the Hmong families hold a larger number of field plots albeit with a smaller size; and the Khmu hold a smaller number of plots that are larger in size. The Hmong hold four to eight plots, while the Khmu two to three. Regarding this difference, the villagers explained that Hmong families usually grew more varieties of crops, such as upland rice, maize, cassava, vegetables and fruits, not only for their own consumption but also for livestock feed as well as for commercial purposes. Another feature of the differences in land-use pattern is the absence of Job’s tear, even though it is widely expanding in other villages as an expectable commercial crop despite its unstable market price. Since the Phone Sa Aad village has little suitable land for reclaiming paddy fields, the villagers expect that raising livestock will be more important than crop farming. Approximately 300 cattle were raised in

－327－ the village in 2003, and the village committee set up a communal cattle grazing pasture. Considering that the villagers worked collaboratively to make the fence, this indicates that a sort of community participation is in existence. Extension service is also provided by the District Office of Agriculture and Forestry (DAFO) of Xieng Ngun district which distributes seeds of grasses as well as vaccinations for cattle. On the other hand, despite the positive developments that have emerged after the implementation of the land-allocation program, rather negative aspects are also pointed out by the villagers such as the discrepancy of the total area of allocated lands between the official document prepared by the government and the actual acquisition, encroachment to the forest areas by either the villagers or the outsiders; and the scarcity of land to be allocated to new generations and immigrants. Above all, the lack of follow-up operations for settling land titles and of providing alternative agricultural practices was designated to be the most serious problem that needs to be solved.

4. Kone Kean Village Kone Kean is a Khmu village in Oudomxay province, to which the land-allocation program was implemented in 2003. The total land allocated to the villagers was 201.43 ha, of which 123.57 ha (61.4 %) was completely laid fallow in the first year after the allocation when the survey was conducted (Table 6). Including the fallows with which fruit or other crops were partly combined, the total fallow lands accounted for 65.2 % (131.07 ha), and this indicates that a considerable amount of the allocated lands were not used for cultivation in the first year. Since the paddy fields, 24.43 ha in total, have been individually “owned” by the villagers, they were allocated to the individual “owners” when the program was implemented. In addition to these fields, which are actually used for wet-rice growing, there were some paddy fields being used for growing crops other than wet rice, or some were laid fallow and expected to be reclaimed for new paddy fields. In total, these paddy-related lands amounted to 30.98 ha, and they were distributed in lowlands situated along the Nam Mao River and its tributaries (Fig. 4). Although most of the paddy fields were irrigated from the tributaries of the Nam Mao River using the gravity irrigation systems, double cropping of rice was not practiced due to insufficient availability of irrigation water. Even after the implementation of the program, the Kone Kean villagers still continued swidden agriculture. The land used for growing upland crops, mainly upland rice, by the slash-and-burn method accounted for 12% (24.25 ha) of the total allocated lands. Taking into consideration the fact that about 50 ha was used as swidden fields before the implementation, it might be a noticeable achievement that the total area of slash-and-burn agriculture was halved within the first year. However, it might also be an important fact that the 12% of allocated lands were still used for growing upland-rice with the same method as shifting cultivation.

－328－ Table 6 Land use change between 2003 and 2004 in Kone Kean Village, Oudomxay Prov.

2003 2004 Land Use Area (ha) [%] Plot Area (ha) [%] Plot Paddy 24.43 [12.1] 42 21.92 [10.9] 41 Paddy/Fallows 2.42 [1.2] 3 6.13 [3.0] 5 Paddy/Mix Cropping 1.04 [0.5] 2 2.04 [1.0] 3 Paddy/Swidden 1.70 [0.8] 2 2.16 [1.1] 1 Paddy under Developing 1.39 [0.7] 2 1.39 [0.7] 2 Swidden 24.25 [12.0] 15 23.54 [11.7] 15 Swidden/Fallows 1.81 [0.9] 1 1.81 [0.9] 1 Swidden/Fruits Trees 1.03 [0.5] 1 1.35 [0.7] 1 Swidden/Maize 1.19 [0.6] 1 5.19 [2.6] 5 Maize 3.92 [2.0] 3 2.00 [1.0] 3 Maize/Fallows 0 [0.0] 0 1.93 [1.0] 1 Maize/Fruits Trees 0 [0.0] 0 3.22 [1.6] 2 Maize/Mix Cropping 1.29 [0.6] 2 2.90 [1.4] 2 Fish Pond 1.22 [0.6] 1 1.22 [0.6] 1 Fish Pond/Fallows 0.13 [0.1] 1 0 [0.0] 0 Fish Pond/Swidden 0 [0.0] 0 0.13 [0.1] 1 Fallows 123.57 [61.4] 80 101.14 [50.2] 67 Fruits Trees 6.63 [3.3] 14 7.83 [3.9] 14 Fruits Trees/Fallows 1.35 [0.7] 1 1.03 [0.5] 1 Mix Cropping 0.88 [0.4] 1 2.34 [1.1] 2 Others 0.26 [0.1] 1 0.91 [0.4] 2 Others/Fallows 1.79 [0.9] 1 10.12 [5.0] 4 Relocation Site for Mok Meo Hamlet 1.13 [0.6] 1 1.13 [0.6] 1 Total 201.43 [100.0] 175 201.43 [100.0] 175

As mentioned earlier, a major issue for this village is to provide them with appropriate alternative ways for utilizing the allocated lands. In this regard, it might be useful to focus on that half of the former swidden fields which switched instead to a sedentary-form of crop growing consisting of fruit trees, maize, leaf vegetables or a mixture of these, and a fishpond. Including the multi-purpose land use, such as a combination of upland agriculture and fishpond, the total area of such newly introduced land-use patterns amounted to 21.5 ha, and this figure essentially corresponds to the decrease in slash-and-burn fields after the implementation of land-allocation program. Besides the lands allocated to the villagers as shown in Table 6 and Fig.4, there were a small number of plots which were allocated to other villagers in Kone Kean village. In fact, the Kone Kean village consists of two hamlets as an administration unit: Kone Kean hamlet, which has been called the Kone Kean village thus far in this report; and Mok Meo hamlet, which consists of 12 households and is located in the mountainside with a distance of 30 to 40 minutes of walk from the Kone Kean village. At the time of our research in 2003, although a resettlement site amounting to 1.13 ha in total had been prepared (Table 6), all the households in Mok Meo hamlet did not utilize the allocated lands but practiced swidden

－329－ agriculture in the protection forests surrounding the hamlet. According to the locals here, the lands allocated to them in the lowland of Kone Kean hamlet were too far for them to commute. Despite these circumstances, all the households in Mok Meo hamlet were enforced to move to the lowland by the year 2004. At the time of the research in 2004, one year after the program implementation, only two households had moved to Kone Kean hamlet, and the rest of the 10 households still remained in the mountainside and continued swidden agriculture in the protection forest.

－330－ Our consecutive surveys on land-use pattern in Kone Kean village revealed that the land-use pattern was quickly changing even within a year, from 2003 to 2004 (Table 6). The biggest change was a decrease in the area of fallows: from 123.57 ha in 2003 to 101.14 ha in 2004. Of the 80 plots which were laid fallow in 2003 (Table 6 and Fig. 4), 30 plots were converted to sedentary crop-growing lands in 2004 as shown in Fig. 5. In particular, maize seemed to have played an important role in this change, and the lands to which maize was introduced amounted to eight plots. Swidden agriculture was also practiced in 15 plots following the same method as before, yet it occupied half of the total number of field plots which were converted from the fallows. As this figure indicates, even though the program was implemented the villagers seemed to still grope for appropriate and possible ways for utilizing their allocated lands, and continued their conventional slash-and-burn method. Fig. 6 reveals the distribution of fallow lands in 2003 in Kone Kean village, in which the lands are classified by their fallowing period. As this indicates, the number of field plots with a rather long fallowing period (for example, longer than three years) was very limited and most of them were three- to one-year-old fallows. And it is apparent from the comparison of Fig. 6 with Fig. 5 that the villagers chose three-year-old fallow lands for practicing swidden agriculture in 2004. Although relatively long-term fallowing is necessary for swidden agriculture to maintain a certain level of productivity and stability, the Kone Kean villagers seem to have yielded to minimizing the fallowing period. This suggests that as long as the villagers continue swidden agriculture, they will have to practice it by rotating the allocated lands, within a maximum of three plots. This also means that they will have to shorten the fallowing period to two years. The actual decline in the number of swidden fields suggest that one of the aims of the land-allocation program, i.e., stabilization of swidden agriculture, seems to have been partially achieved in Kone Kean village. However, a considerable number of allocated lands are still used for swidden agriculture, and it is questionable whether this system can be sustainable within the three allocated plots.

－331－ Another remarkable change observed between 2003 and 2004 was the increase in land use categorized as ‘others’ (Table 6 and Fig.7). Although only teak and cardamom plantations comprised the case for ‘others’ in 2003, this category of land use increased from two plots (2.05 ha) to six plots (11.03 ha) in 2004. They were planted with various fruit crops such as banana and pineapple, commercial upland crops such as sugarcane and sesame, and puack muack (Boehmeria sp.) which used to be one of the non-timber forest products (NTFPs). Moreover, the crops which used to be grown in slush-and-burn agriculture, such as cucumber, melon and chili, were newly introduced into the sedentary farming systems. Based on these changes, it can be said that village agriculture has an obvious tendency towards crop diversification in terms of its composition and variation. However, it also illustrates the “backside of the coin” that the current diversification is merely the reflection of villagers’ trials and errors. Marketing or marketability of agricultural products still remains problematic for the villagers. In the case of Kone Kean village, there is easy access to the Muang Xay market, however there have been no households who regularly sell their agricultural products, excepting rice, to the market. None of the middlemen have come to the village to buy their products. As this situation illustrates, the lack of both marketing experience and information renders it difficult for them to choose appropriate crops to be grown in their allocated plots. Therefore, it is still a major question for the villagers as to what crops should be grown within their limited number of field plots. Reclamation of the paddy field is proposed as one of the possible alternatives to shifting cultivation. In Kone Kean village, however, the increase in paddy fields has yet to materialize. A German nongovernmental organization (NGO), German Argo Action (GAA), has financially supported the program implementation in Kone Kean village by providing fruit-tree seedlings and a ration of rice, in particular, to the households who are expected to be engaged in reclaiming paddy fields. Since the reclamation of paddy fields needs considerable labor input, the rice has been rationed in line with the compensation for rice shortage, which was assumed to be caused by expected labor allocation for the task of reclaiming paddy fields. However, despite the provision of rice, which is scheduled to terminate in 2005, many planned sites for paddy fields are still under development. Rather, it is questionable whether the reclamation of paddy fields will be completed only by the efforts of individual villagers.

－332－ Under such circumstances, the villagers tried to introduce new crops and establish more diversified land-use patterns; yet, despite their efforts they could not earn as much cash income as expected. On the other hand, they still kept a considerable number of allocated lands as fallows for future swidden agriculture. This suggests that it might be difficult for the villagers, who have a tendency to place priority on the stability of production systems, to totally replace their conventional swidden agriculture with new, uncertain sedentary systems within a few years. In contrast to the case of Na Xao and Na Pho villages, the Koen Kean villagers still remain uncertain due to various constraints. In addition to such difficulties associated with land-use replacement, another problem can be observed in Koen Kean village, which has been derived from the resettlement program in combination with the implementation of land-allocation program, and that is the continuation of shifting cultivation in the protected forests. Contrary to what was expected, it was a complicated task to make the people in Mok Meo hamlet move to the resettlement site and cease swidden agriculture, and it is expected that this situation will continue for a considerable period. Taking all these difficulties into account, despite the implementation of the program, it is concluded that it would be difficult to stop the villagers from using slush-and-burn method even in Kone Kean village, for example, by 2010, even though that is one of the important targets of the agriculture sector as stated in the 1999 Government Strategic Visions.

V. Conclusion and Suggestion

1. Results of Research Through the case studies conducted in Oudomxay and Luang Phabang provinces in 2003 and 2004, we could observe both negative and positive aspects of the program implementation. It is concluded that the land-allocation program has both advantages and disadvantages. As the case of Na Xao village indicates, the major crop grown in the village has changed from upland rice to Job’s tear after the implementation of the land-allocation program. This change seems to provide economic advantages to the villagers. In fact, the villagers have succeeded in increasing cash income owing to this change. On the other hand, the program did not succeed in decreasing swidden agriculture because the slash-and-burn method is still applied to the cultivation of Job’s tear. In terms of the area, of course, the swidden agriculture can be said to have been stabilized. However, this is just a matter of probability with the expectation that swidden agriculture will be sustained by the rotation system consisting of three-year growing and six-year fallowing within three plots. The maintenance of soil fertility within such a short period of fallowing is another problem in relation to the sustainability of this rotation system. The market factor is also an important issue in relation to sustainability. As our survey demonstrates, the local price of Job’s tear was very unstable and the only advantage was its higher price and higher yield compared to those of upland rice. Since almost all of the products of Job’s tear are exported to Thailand, it is also difficult to extract how much the government intervenes in order to stabilize the market price of Job’s tear. If it proves to be difficult to control the market price, alternative crops to Job’s tear should be inevitably introduced insofar as the current fallow system continues.

－333－ In contrast to both Na Xao and Nong Heo villages, in which the villagers were highly dependent on Job’s tear, Na Pho and Phone Sa Aad villages displayed a different reaction against the program implementation; the Na Pho villagers introduced various commercial crops and the Phone Sa Aad villagers established a common pasture for cattle grazing. These trials can be evaluated as positive changes ensuing after the program implementation. In particular, intensive cropping patterns as observed in Na Pho village will be a new land-use pattern adaptive to the areas which have better accessibility to medium-scale local markets in the provincial level. Although the local markets in northern Laos are not large, they are likely more stable than external ones. It is also expected that demand for these local products will increase in accordance with an increase of tourists as well as an increase in the demand for organic products. Furthermore, the local government is challenged with the query of how to support such villagers’ innovative activities. Notwithstanding the positive changes described above, it is a general observation that the mountainous areas in northern Laos, which lack the accessibility to markets, have faced more difficult conditions after the program implementation. As the case of Kone Kean village indicates, the area of swidden agriculture could be reduced by half. However, many fallows still exist in the allocated lands, and upland rice is still continuously grown following the former swidden agriculture. Although the villagers tried to introduce various crops as an alternative to upland rice, it is still very difficult for them to live on commercial crop cultivation alone by completely stopping upland-rice growing under the shifting cultivation. Furthermore, despite the efforts of local people, the diversification observed in crop introduction is not equipped with a basis of marketability. This is the main point of difference from the case of Na Pho village, for example. Due to the lack of market information, the villagers simply tried to introduce a variety of crops on a trial and error basis. In addition, the excessive and quick implementation of the program seems to have made it even more problematic. As the case of Kone Kean village shows, the program implementation has forced the Mok Meo villagers living in the mountainous area to relocate to the lowland notwithstanding their inexperience of sedentary agriculture. The local officials concerned have not prepared any recommended crops and technical supports for them. Here, it is also expected that the government should be pro-active in providing alternative technologies, such as a comprehensive package of measures to manage sedentary agriculture, and market information to the villages located in remote areas away from local markets. Otherwise, it will not be expected to stabilize or phase-out the shifting cultivation by 2010.

2. Conclusion and Recommendation As these research results suggest, we have to realize the same conclusion with the one presented in the interim report published in 2002 for the Phase I of this project. The results obtained in Phase I and Phase II did not reveal significant differences between them, and this indicates that the situation concerning the land-allocation program has not improved as successfully as was expected. We studied five villages in which the land-allocation program was implemented in Oudomxay and Luang Phabang provinces for two years, and found that the government institutions did not adequately provide follow-up services and support for developing agricultural production and improving agrarian conditions. In order to achieve the

－334－ targets or goals manifested in the government strategies and plans, a more integrated and location-specific approach is necessary for real action to occur in relation to the land-allocation program. As the case studies indicate, geographic location such as the accessibility to markets and the availability of intermediate merchants might be more influential than the land-allocation program itself. The villagers in the mountainous area, such as those in Kone Kean village, have not yet been successful in identifying the appropriate commercial crops to be grown in the allocated farm lands. If they reach the conclusion that land-allocation program brings about poverty, then they may easily return to swidden agriculture. It is necessary to understand that many villages still exist in the mountainous areas, which remain in the premature condition to accept the land-allocation program implemented by the standardized and uniform manuals. In particular, in order to stabilize swidden agriculture in mountainous areas with poor accessibility to markets, more flexible implementation should be taken into consideration instead of mechanical and uniform implementation. In conclusion, in order to develop the agricultural sector under the new agrarian conditions created by the implementation of the land-allocation program, the following directions and actions are expected to be taken into consideration:

a) Despite the problems and limitations generated by the land-allocation program, the distinctive geographical and cultural conditions of northern Laos still have considerable potential and competitiveness in the agricultural sector. The proximity to China, Thailand or Vietnam is one of these potentials. The promotion of developing agricultural products with additional values, such as “Thammasaat products of Northern Laos” or “organic products from Northern Laos,” is expected to provide an alternative way, since the demand for such products is increasing in the neighboring countries.

b) More location-specific surveys on the actual use of allocated lands should be conducted in order to achieve the goal, stabilization of shifting cultivation. Agriculture in the northern mountain region, in particular shifting cultivation formerly practiced in close combination with the use of fallows. Furthermore, it is important to keep in mind that local people do not totally depend on agriculture alone; they also depend on natural products such as NTFPs to a great extent. Therefore, the policy implementation to stabilize shifting cultivation should be integrated with forest management policies. For the agricultural government institutions, it is important to provide alternative agricultural technologies appropriate to sedentary agriculture, and it is also important to pay attention to the management of forests and fallows. The issue of introducing or establishing social forestry programs in northern Laos is not just a matter for the forestry department.

c) Provision of market information and utilization of experienced farmers and merchants are “both sides of the coin” that help develop market-oriented agricultural production. Local government institutions are expected to promote collaboration with local pioneers who have accumulated the knowledge and technologies for developing and diversifying agricultural productions.

－335－ 5. Agro- & Eco-Tourism in

Khamulay SIPASEUTH Boutsady KHANTHAVONG

Summary

Luang Prabang province is located in the northern part of Laos. It is a transit province to other northern provinces. The mountainous areas cover about 95% of the total area of the province. 11 districts in the province are: Luang Prabang , Chom phet, Xieng ngurng, Nan, Phou khoun, Park Ou, Park xeng, Phorn xay, Nam bark Vieng kham, Ngoi. With a total land area of about 16.875 km2 with the population of about 418,860 people (out of which 211,397 females). It is one of the rich provinces in terms of natural resources, mountains, forest, national protected area NamEt-Phou Leui with a wide variety of wild animals. There are many rivers, namely Mekong, Nam ou, Nam Xeung, Nam khan, Nam Nga and Nam Pa. Luang Prabang town is a World Heritage with its lively culture and tradition. There are also exciting activities related to Buddhism religion such as art, music, dance, songs and various festivals like the Lao New Year, Boat Racing, Khao Pa Dup Din, Boun Pot Pee of Khmu and Boun Kin Chieng of Hmong, etc. The number of tourist arrival to Luang Prabang has increased rapidly from 1997-2003 there are only 30,769 tourist in 1997 the number has increased to 99,150 in 2003. tourism is considered to be the main driving force for economic development in Luang Prabang, there are 21 tour companies and their branches, 12 hotels, more than 100 guest houses and 100 restaurants, which can accommodate about 3.000 guests/day. There are 104 tourist sites, out of which 46 cultural tourist sites, 45 natural and 13 historical tourism sites. In the province, there are 7 air ticket agents, 10 internet service shops, 3 markets, 100 souvenir shops, 3 night clubs, 2 hospitals, 5 colleges, 1 university, 1 provincial stadium and 10 performance groups. After the discussion with the business sector and 31 restaurants within the urban areas of Luang Prabang and Former Muang Ngoi village, it was found that the majority of the food businesses are family-based, particularly, there is no accounting system and the owners pay a lump sum tax for the Government. This food business sector consists of 1,859 seats and employs 331 staff. On average, one staff serves 5 seats; customers cover 38% of total seats per day; more than 60% of total customers are from the Western countries and 40% are Asian, among which are Japanese, Korean and Thai; 90% serve Lao food and other 10% serve Western food. Fish broth, jaew bong (bong paste) [garlic-shallot hot sauce], dried water weed, sausage, water vegetable salad and Hor mok (minced fish and steam in banana leaf) are identified as the Lao food that the tourists like the most. Or-Lam (meat or dried fish) and Lap (chopped beef) are ranked second by the tourists. However, the tourists will eat Lao food for 3-4 days consecutively only. According to the survey of tourist destination of each district: Luang Prabang, Xieng-Ngeun, Nambak and Ngoi, there are several different unexplored potentials for the tourism development as below:

－336－ ¾ Luang Prabang is the World Cultural Heritage city, which is still lively and versatile with several destinations such as 5 nature-based, 18 culture-based and 6 historical sites. ¾ XiengNgeun has a lot of tourist destinations such as 5 nature-based and 1 culture-based. Gajum waterfall, Koth waterfall, Ming river and Khane river are suitable for canoeing. There is a trekking trail from Xieng Ngeun to TadKuangsi (Kuangsi Waterfall) passing through Kauy marsh, which is very beautiful and holy. Therefore, it will be the best to promote ecotourism route from Kuangsi Waterfall to Xieng Ngeun because if the tourists want to go to Vientiane or Xayabouli, they can trek from Kuangsi Waterfall to Xieng Ngeun, then take the bus to Vientiane province or Xayabouli. ¾ Nambak has a number of tourist destinations such as 4 nature-based, 5 culture-based and 1 history- based. Nam Kong is the waterfall, which is a nationally recognized tourism site and located approximately 18 km from the national road to Ngoi district. Ban Nayang is a village of culture, which is suitable for the home stay. Nambak River is also suitable for canoeing or boating. It is very potential because each year, there are 8,000-9,000 tourists passed this district to Muong Ngoy. ¾ Ngoi district also has several tourist sites namely 3 nature-based, 2 culture-based and 3 history-based. There is a tourist circuit along Ou River, which is also a nationally recognized tourism site. There is a historical cave that was associated to the movement of the brave revolutionary people. Ngoi District has several potentials such as ecotourism trekking trail among villages, natural prawn spring... Besides these, the district also links with tourism destinations between Vietnam, Phongsali and other provinces in the Northern part of Laos.

The tour programs that local tour companies sell at moment are as follows:

Eco-tourism programs ¾ Trekking in the villages around Kuangsi Waterfall, Ban Sienglom, Ban Suanlouang areas and some other areas in Phongsali, elephant riding at , Xayabouli province ¾ Sight seeing at Kuangsi Waterfall, Tham Ting cave and travel along the Mekong rive from Luang Prabang to Pakbaeng-. ¾ Boating/canoeing along Ou, Seuang, Bak, Khane, Ming, Pa and Nga rivers. ¾ During June and August, Japanese tourists usually book the tour programs to Xiengkuang to eat Paek mushroom (pine wood mushroom).

Cultural tourism programs ¾ Mainly, sight seeing at the world heritage city, temples, national museum, Phousi, Panom village, Sienglek village, SangHai village, Pak Ou village, etc. ¾ Seeing the alcohol distilling process done by villagers at Sang Hai village,

Agro-tourism programs ¾ For the tour program to Ban LongLao, the tour companies normally take tourists to stop by Som village to see water vegetable cultivation, the job stear plantation and other crops along the road.

－337－ ¾ Seeing the production that happens in the daily lives of the ethnic people, visiting Chinese mustard cultivation along Mekong and Khane rivers during the dry season and organic vegetable garden. ¾ Seeing the fresh market in the morning is also one interesting activity for the tourists, especially, they prefer to see condiment/spices that people use for cooking such as galangal, ginger, lemon grass, Sakane, lime and other vegetables that are used as food and medicine.

The result of Agro-tourism market survey can be seen as follow:

The Agro-tourism market are: 1, ; 2, England; 3, ; 4, Japan; 5, Holland; 6, USA; 7, . Purpose to visit Laos: 88 % for relaxation, 3% for studying business opportunities, 3% for official purpose, 1% for visiting families and 5% for other purposes. Average length of stay in Laos is about 11 days. 73 % of total tourists travel independently and stay in Luang Prabang town about 2 nights and 3 days. average expenditure 42 USD/person/day. 70 % are interested in nature, 71% - in temple, 78% - in culture and custom, 37% - in ethnic minorities, 37% - in Lao food, 31% - in handicraft and souvenir, 45% - in new tourist destination like Laos, 15% - in other aspects. 35% interested in visiting agricultural activities in Laos, 40% interested in learning agricultural process, 40% want to stay with farmers, 33% prefer fishing, 31% want to grow and harvest rice, 30% prefer to work in the coffee plantation, 26% want to feed animal, 25% like to collect tea leaves, 20% want to collect fruits and 20% want to plant trees. 75 % tourists answered that they need organic food and fruits. From the perspectives of tour companies, agro-tourism is new. And they did not understand how tourists become interested in agro-tourism. they suppose that the tourists may not be interested in agro- tourism in Laos, since agriculture movement of Laos is in subsistence manner and not yet developed. However, the survey of 277 tourists indicated that majority of them have interests in agro-tourism in different ways. Most of the tourists to Laos coming on their own, they are medium income people, who seek for leisure, knowledge and experiences concerning nature, culture and ways of living of the Lao ethnic people. As we all knew that approximately 80% of Lao population lives in rural area and bases mainly on agriculture cultivation for their livelihoods. Half of the interviewed tourists during the agro- tourism market survey expressed their interests in learning agriculture techniques that the local people are practicing at the moment, and sharing a short stay with Lao farmers for 3 to 4 days to explore Lao farmers’ ways of living. Taking my own experience in this regard a couple of years ago when I leaded three groups of tourists, 9 to 10 persons for each, who are high schools students from the United States to have home stay with the farmer families in Xieng Ngeun, Chom Phet, and Nam Bak districts of Luang Prabang province, I found the hosts and the tourists have really built a very good friendship. They shared time, stayed and treated each other like in the same family. Everyday the head of the household, a farther, brought along the American students who became now adopted sons/daughters of the farmer to the rice fields, to the market and to collect non-timer forest products, etc… At the end of the home stay program, both Lao family and American students burst into tears without knowing when they can come back and meet each other again.

－338－ 5. Agro- & Eco-Tourism in Luang Prabang Province

1. Background of agro-tourism development in some countries Today, the tourists from the western countries tend to be more interested in nature and to be closer to nature and wild animals because of their increasing knowledge on the importance of the environment and the ecology. This trend is the result of the growing industrialization and expansion of the big cities. For example, is one of the countries that have a high population density, but it lacks green area in its center. There are very few possibilities for its people to construct private houses in the center despite the high demand.

1.1 Agro-tourism contribute to achieve of several goals and objective

¾ Creation of supplementary sources of income for the inhabitants of agricultural regions ¾ Development of a rural tourism “ culture ” as a response to the demands of the “back to nature” trend. ¾ Advancing professional tourism and increasing the options offered by the national tourist industry ¾ To help solve the problems of insufficient tourist activities and, on the other hand, create a demand for local agricultural products. On both levels, this type of tourism can contribute to the areas’ development.

1.2 The Tourism-Agriculture Relationship New studies show that there is a symbiotic relationship between tourism and agriculture in clearly agricultural areas where profitability from agriculture is in decline and rural tourism is developing. Infrastructure required for tourism-roads, various services, commerce etc..

In western Europe and the United States, almost all the agricultural tourists are non-professionals and the sites are usually large in the heart of a rural area, where part of farm is transformed into a tourist attraction and visitors live within 30-40 km. of the farm. This market segment mostly consists of families with young children, groups of students and retirees who come during the week.

This group provides stable demand, since they will return to the farm several more times. However, they do not tend to spend much money on produce or souvenirs. Most of the activities takes place in the spring and summer seasons and each family spends an average of 3.5 hours at the site.

－339－ 1.3 Definition of Agricultural Tourism A business managed by a farmer for the purpose of providing recreational services, selling agricultural products or imparting agricultural knowledge to visitors – in order to increase the farmer’s income. Factors Affecting the Success or Failure of Agricultural Tourism Enterprises Travel consultant in England (the ADAS Agency) determined that: 1. The most important factor is Location, especially proximity to big cities, to other tourist attractions, etc. 2. Similar business close by are also an advantage since they will attract many tourists to the area and provide them with a large variety of activities. 3. Image (reputation) of the site and its products, since this will push tourists to decide whether to visit the place. The size of the investment plays only a secondary role. It is possible to create a successful tourist site with a relatively modest investment.

1.4 Requirement of the Farm 1. The site operator must be skilled in leading and managing the visits 2. The farm must be well maintained and have a pleasant appearance 3. The farm must be accessible, preferably by being close to a city, major tourist attraction or main road 4. The visitors must be cover by an insurance policy 5. Personnel must be committed to agricultural tourism 6. Thee environment (neighbor farm) must cooperate 7. Social rules must be abided by 8. A high level of cleanness and sanitation is require 9. The animals’ well-being must be preserved 10. The entrepreneur must have a personal interest in tourism

Advantages of Agro-Tourism ¾ The existence of infrastructure and production factors (sometimes idle) for displaying and teaching visitors ¾ The potential to sell agricultural produce and auxiliary products ¾ The possibility of displaying and advertising existing and future products ¾ Exposing sectors of the population to unknown subjects which will interest them

Disadvantages/Difficulties ¾ Disturbance in management the farm ¾ Strong dependency on agricultural seasons ¾ Bothering the animals

－340－ ¾ Noise, odor, dirt, hazardous materials, etc at the tourist site ¾ Dependency on cooperation with all the farm’s components and neighbors

1.5 Components of Agro-tourism ¾ Visit production and animal feeding process through videos or other means ¾ Show agro-products for sales ¾ Set up restaurants and handicraft shops ¾ Set up public toilets specifically for the tourists

1.6 Location arrangement ¾ Infrastructure availability: roads, car parks, specific public toilets, direction sign and security measures ¾ Show rooms for selling agro-products and others ¾ Availability of restaurants, drink shops and other types of food

2. Potential for eco and agro tourism development in Luang Prabang province

2.1 Location and special characteristics of Luang Prabang province Luang Prabang province is located in the northern part of Laos. It is a transit province to other northern provinces. The mountainous areas cover about 95% of the total area of the province. 11 districts in the province are: 1. Luang Prabang 2. Chom phet 3. Xieng ngurng 4. Nan 5. Phou khoun 6. Park ou 7. Park xeng 8. Phorn xay 9. Nam bark 10. Vieng kham 11. Ngoi The paddy land in Luang Prabang province is very limited, but it is good for rice cultivation. The weather is also appropriate for cultivation of fruit trees, industrial trees, medical herb and raising buffalos, cows, horses, goats, pig, etc...The province has about 16,875 km2 with the population of about 418,860 people (out of which 211,397 females) and consists of 3 ethnic groups such as Lao Loum (39%), Lao Thueng (46%) and Lao Sung (15%) (Source: Planning and Cooperation Division, 2003). Luang Prabang province is one of the rich provinces in terms of natural resources, mountains, forest, national protected

－341－ area NamEt-Phou Leui with a wide variety of wild animals. There are many rivers in the province, namely Mekong, Nam ou, Nam Xeung, Nam khan, Nam Nga and Nam Pa. Luang Prabang district is a World Heritage with its lively culture and tradition. There are many temples in Luang Prabang in the local style matching with the new houses and buildings. There are also exciting activities related to Buddhism religion such as art, music, dance, songs and various festivals like the Lao New Year, Boat Racing, Khao Pa Dup Din, Boun Pot Pee of Khmu and Boun Kin Chieng of Hmong, etc.

2.2 Socio-economic development and tourism in Luang Prabang province Luang Prabang province has many great potentials for socio-economic development such as the potentials in tourism with its natural resources, the location and other special characteristics. In the report of His Excellency Mr. Bounheung DOUNGPHACHAN’s, the Party Secretary, Governor of LuangPrabang province to His Excellency Mr. Bounyang VORACHITH, the Prime Minister of Lao PDR, during his visit to Luang Prabang province between 13-14/5/2004, it was stated that because of the city’s natural beauty, its popular historical sites, the image of a World Heritage and its location as the center of the northern region, the provincial authority decides to build up LuangPrabang province to be a hub of tourism, services and transit for the northern provinces. The Luang Prabang development strategy to be a tourism hub is based on 7 followings strategies: 1. Make Luang Prabang an attractive hub for natural, cultural and historical tourism 2. Make Luang Prabang a transit place and staying place of guests. 3. Build Luang Prabang to be a service hub 4. Encourange sustainable agro-forestry occupations related to processing for tourists consumption 5. Buid Luang Prabang to be a safe, clean and convenient place. 6. Allocate essential public and private institutions in Luang Prabang to meet the demand of the human resource development, i.e. those having knowledge, good behavior and good health. 7. Make Luang Prabang an attractive place for investment from all economic sectors, including domestic and foreign businesses.

2.3 Implementation of tourism strategy The provincial authority tries to build up Laung Prabang to be a tourism hub in the northern part of Laos by creating tourism network with some provinces of the neighboring countries such as: ¾ Build up tourism road network between Luang Prabang-Dienbienphou, Sonla in Vietnam. The Luang Prabang-Dienbienphou local border check point was opened on April 22, 2004. In order to extend this road, the Vietnam side will asphalt the road surface up to the border and has proposed the Lao side to asphalt the road surface from the foot of Phoutipheng Mountain up to the border. The road length is about 104 kilometer. ¾ Luang Prabang- Ching Hong tourism route: The cooperation contract for exchanging tourists has been signed and carnivals have been visited each other. Ching Hong province has conducted

－342－ one training course for 15 Luanphrabang provincial tourist officers. However, there some difficulties in cooperation with China, for instance, Chinese tourists, who want to visit Luang Prabang, can not use their border pass to travel to Luang Prabang. They have to change the border pass in Oudomxay province with relatively expensive fees and go through many steps. This causes difficulties for the tourists. ¾ Luang Prabang-Hongxa tourism road network (Xayabouri) -Nan province of Thailand is under repair and construction. ¾ Together with opening tourism network with the neighboring countries, Luang Prabang province also diversify tourism attractions, tourism services by holding training courses for entrepreneurs on tourism such as tour guides, hotels, guesthouse and restaurant’s employees. To promote Xangkhong village (Luang Prabang district) as a handicraft village for the vistors. ¾ Expand tourism activities to local areas such as traveling by boats along Ming river (from Namming bridge), Khan river, Ou river, Nga river, Pa river, Xieng river. To develop an eco- tourism trekking trail for visiting nature and lifestyle of the ethnic people from Longlaw village to Quangsy waterfall, Nongheo, from Sounluang village-Houiphai-Nampa-Laung Prabang; from Houinho area to Phou Laungtai-Som village. ¾ Arrange night bazaar in Luang Prabang District for agro and handicraft products made by the ethnic people. This even is popular among domestic and foreign guests.

2.4 Tourism Infrastructure i.e. accommodation and services: There are 21 tour companies and their branches in Luang Prabang province, 12 hotels, more than 100 guest houses and 100 restaurants, which can accommodate about 3,000 guests / day. There are 104 tourist sites, out of which 46 cultural tourist sites, 45 natural and 13 historical tourism sites. In the province, there are 7 air ticket agents, 10 internet service shops, 3 markets, 100 souvenir shops, 3 night clubs, 2 hospitals, 5 colleges, 1 university, 1 provincial stadium and 10 performance groups.

Communication, transport and telecommunication. The province has modern telecommunication system, electricity, water supply and international airport, in which Boing 737 can land. Visa upon arrival is issued at the border check point. Daily domestic and international flights are being operated by 3 Airlines, namely LuangPrabang- Chiang Mai (3 flights/week), Luang Prababang-Bangkok (2 flights/week), LuangPrababang- Ching Hong by the Lao Airlines, Bangkok-LuangPrababang (1 flight/day) by Bangkok Airways, Bangkok-Luang Prababang (2 flights/week such as Friday and Sunday) by PB Air. There are 700 vehicles (such as buses, vans, taxi, Tuktuk, etc…) for transportation service between Luang Prababang-Vientiane 5 trips/week, Luang Prababang-Xiengkhuang 3 trips/week and Luang Prababang-Oudomexay 3 trips/week.

Goods production for domestic consumption and for export. The provincial authority encourages the local people throughout the province to increase the

－343－ production of commercial goods, which are mainly meat, vegetables, eggs, drinking water, mineral water, construction material, handicraft products, carving, embroidery, silver and gold items, processed food, etc... Nowadays, in the province, there are 41 units of silver and gold smith, 4,075 weaving hand-looms, 960 handicraft and food processing units. An outstanding campaign for handicraft promotion is the establishment of night bazaar that is open everyday and comprising of 423 shops and the promotion of the livestock farms. Currently, there are 12 chicken farms consisting of 2,000 chickens for meat, 34,585 chickens for egg, which can produce 23,000 eggs per day. There are also 3 pig farms comprising of 242 pigs for breeding. There is an increasing number of livestock, specifically, there are 54,452 buffaloes. LuangPrabang province can produce a sufficient volume of eggs, meat, vegetables/cash crops for the local consumption with the surplus for export. The traditional food processing of the ethic groups has been expanded. The handicraft and weaving products, which was produced only at Panom Village before, has currently been expanded widely.

During the year 2003- and 2004, LuangPrabang has emphasized on some projects as below: 1. Food production project, especially, of organic vegetables/crops in order to serve for tourism 2. Project on job steer and sesame cultivation for export. Particularly, 5,000 tons of job steer and 1,000 tons of sesame were exported to . 3. Maize farming project, which focuses mainly in LouangPrabang town and , can contribute to the export volume of 3,000 tons and serve the animal feed factory at Thangone with the volume of 2,000 tons. 4. Soya bean plantation promotion project at Phoukhoun and Sienguen. 5. Project of chicken, pig and cattle farm 6. Continue the project of tree nursery and teakwood plantation. Up to now, there are 9.000 hectares of land for teakwood cultivation. 7. The project of growing eagle wood at Phoukhoun, Viengkham, and Paksaeng districts, which covers the area of 22.9 hectares and currently the cultivated areas is under the expansion. 8. Cotton cultivation project. 9. Rubber tree plantation at Nambak.

3. Agro-tourism Development to Enhance Local Economy After the discussion with the business sector and 31 restaurants within the urban areas of Luang Prabang and Former Muang Ngoi village, it was found that the majority of the food businesses are family-based, particularly, there is no accounting system and the owners pay a lump sum tax for the Government. This food business sector consists of 1,859 seats and employs 331 staff. On average, one staff serves 5 seats; customers cover 38% of total seats per day; more than 60% of total customers are from the Western countries and 40% are Asian, among which are Japanese, Korean and Thai; 90% serve Lao food and other 10% serve Western food. Fish broth, jaew bong (bong paste) [garlic-shallot hot sauce], dried water weed, sausage, water vegetable salad and Hor mok (minced fish and steam in banana leaf) are

－344－ identified as the Lao food that the tourists like the most. Or-Lam (meat or dried fish) and Lap (chopped beef) are ranked second by the tourists. However, the tourists will eat Lao food for 3-4 days consecutively only. After that, they resume to have western food. In terms of fruits, 95% of total tourists, who use the service of restaurants, ask for seasonal Lao fruit, which are banana, orange (planted in Nambak), papaya, pineapple, melon, water melon and mango. The tourists do not like imported fruits. The reasons for this are because they prefer having fresh and organic fruits. On average, 70% of raw materials serving restaurants are from domestic market and the rest are from abroad.

Some points of view of the restaurant businesses: ¾ They request that before the Electricity Du Laos (EDL) cut off the electricity, EDL should be informed the restaurants in advance so that the restaurants can preserve their food. In the past, their food perished due to the irregular electricity supply. ¾ They request that the concerned agencies provide regular training courses on services. ¾ The merchants that sell food at the night bazaar create the negative effects to the income and the image of the restaurants due to the fact that the food is not hygienic enough but also too cheap. Subsequently, the tourists do not to go to eat in the restaurants. ¾ Time for collecting rubbish is not appropriate. It is better to collect rubbish in the late night time so that the bad smell is not spread out during the meal time and it should be collected regularly. ¾ Merchants who sell handicraft at the night bazaar should dress the ethnic clothes to impress the tourists.

3.1 Unexplored potentials of Agro-tourism and Eco-tourism in LuangPrabang province According to the survey of tourist destination of each district: Luang Prabang, Xieng-Ngeun, Nambak and Ngoi, there are several different unexplored potentials for the tourism development as below: ¾ Luang Prabang is the World Cultural Heritage city, which is still lively and versatile with several destinations such as 5 nature-based, 18 culture-based and 6 historical sites. LuangPrabang is also a center for the tourists, from which they go to other districts of the province as well as other provinces in the North of Lao PDR. ¾ XiengNgeun has a lot of tourist destinations such as 5 nature-based and 1 culture-based. Gajum waterfall, Koth waterfall, Ming river and Khane river are suitable for canoeing. There is a trekking trail from Xieng Ngeun to TadKuangsi (Kuangsi Waterfall) passing through Kauy marsh, which is very beautiful and holy according to the belief of the people living surrounding. Along such natural tourist route, there are some villages of Khmu and Hmong , which still follow the traditional lifestyle. ¾ Besides these, Xieng Ngeun is also a transit point between LuangPrabang-Vientiane and LuangPrabang-Xayabouli. Therefore, it will be the best to promote ecotourism route from Kuangsi Waterfall to Xieng Ngeun because if the tourists want to go to Vientiane or Xayabouli, they can trek from Kuangsi Waterfall to Xieng Ngeun, then take the bus to Vientiane province

－345－ or Xayabouli. By late October 2004, the new international checkpoint will be opened at Xayabouli, which will make the number of tourists traveling from Nan-Xayabouli-Xien Ngeun and Luang Prabang importantly increasing. ¾ Nambak has a number of tourist destinations such as 4 nature-based, 5 culture-based and 1 history-based. Nam Kong is the waterfall, which is a nationally recognized tourism site and located approximately 18 km from the national road to Ngoi district. Ban Nayang is a village of culture, which is suitable for the home stay. Nambak River is also suitable for canoeing or boating. The discussion with Mr. Bounlad, Nambak District Governor showed that there will be initiatives to organize the Sweet Orange Festival in the future. If such festival is in place, the agro-tourism will be inevitably boosted. Another potential is NamBak’s location as the transit point of Ngoi district route. Each year, there are 8,000-9,000 tourists traveling by this route. ¾ Ngoi district also has several tourist sites namely 3 nature-based, 2 culture-based and 3 history- based. There is a tourist circuit along Ou River, which is also a nationally recognized tourism site. There is a historical cave that was associated to the movement of the brave revolutionary people. Ngoi District has several potentials such as ecotourism routes among villages, natural prawn spring... Besides these, the district also links with tourism destinations between Vietnam, Phongsali and other provinces in the Northern part of Laos.

3.2 Diversify Tourism Activities to extent the Tourists’ length of stay The Lao Government has a policy to develop and promote Lao tourism by using the beauty of nature, rich culture and history in order to attract an increasing number of foreign tourists to visit Laos so that the income in foreign currency is rocketed and subsequently, the well being of the community is gradually enhanced. According to the discussion with the local authority and tourist businesses, restaurants, hotels, guesthouse, souvenirs shop and other people/farmers together with the field visit to the several tourist sites of Luang Prabang, XienNgeun, NamBak and Ngoi districts, the tourism activities such as natural tourism, cultural tourism and historical tourism can be classified into several categories as below:

Cultural Tourism. Cultural tourism is a type of tourism, in which the tourists like to learn about the uniqueness of Lao people and the ethnic groups in terms of lifestyle, dressing, traditions/customs, belief, dancing, singing, festival/cerebrations (Hmong cerebration, boat racing festival, thanksgiving festival to rice harvest and etc.) including the way people live, cultivation and livestock. Agro-tourism and eco-tourism are the forms of tourism that create chance for tourists to gain knowledge from each site, each area, and each community. It is always connected to the cultural tourism and cannot stand in isolation. In this, the meaning of agro-tourism of Laos in the present is different to the meaning defined by other countries. Specifically, other countries define the agro-tourism as paying a visit to animal/livestock farm or large and modern fruit tree garden. Contradictorily, Laos defines agro-tourism as a form of tourism that is

－346－ connected to lifestyle of Lao people, for example, exposure to the shelter of Lao people and each ethnic group and views the factors below:

The traditional shelter/house of Lao normally located on the flat/plateau area. Fruit trees such as banana, tamarind, mango, coconut and etc. are grown up around the house for the long run consumption.

The traditional shelter/house of [Khmu] normally located on the mountainous/high hill areas so that is convenient to drain rain water during the rainy season. Lao Thueng people normally do not grow fruit tree for consumption in the long term around the house but they plant the diversification crops such as banana, papaya, pumpkin, and vegetables instead.

The traditional shelter/house of [Hmong] usually located on high hill area so that it is convenient for the drainage of rain water during the rainy season. Normally, there are horse and pig stables around the house as well. They also grow some typical fruit trees such as peach, sugar cane and Luffa around the house.

Ecotourism Eco-tourism is an activity, in which the tourists come to gain knowledge and experience with nature in order to learn the transaction and the development of the natural elements such as the existence of the waterfalls, streams, channels, mountains, forests, rivers and caves, including the existence of all beings in nature, which is called the biodiversity system. At the same time, ecotourism also has a relation with agro-tourism at some extent, for example, a variety of insect species that have the function to pollinate various fruit trees in the garden or to pollinate rice, corn and other vegetables in the field. They all can be used as the explanation to the tourists so that they realize the relationship between the eco-tourism and agro-tourism as those insects are from nature but the flowers of fruit trees are the output of agricultural activity of the ethnic groups. The tourists are interested in learning this issue and this is also one attractive activity that tourists enjoy and at the same time avoiding boring tour.

3.3 Initiatives of the Private Sector in regard to the Development of Agro-tourism in Luang Prabang and Vientiane Provinces Through the discussion with the branches of the tourist companies in LuangPrabang, it is found that there are some companies that have operated the business for a long time with 1 to 15-year experience. On average, each company serves approximately 1,300 tourists per year, ranging from 400-2,500 tourists per year, in which 90% are European and the rest are Japanese and Asian. The tour programs that the companies provide are as follows:

Ecotourism programs ¾ Trekking in the villages around Kuangsi Waterfall, Ban Sienglom, Ban Suanlouang areas and some other areas in Phongsali, elephant riding at Hongsa district, Xayabouli province

－347－ ¾ Sight seeing at Kuangsi Waterfall, Ting cave and go along the river in the Northern part from Luang Prabang to Pakbaeng-Bokeo. ¾ Boating/canoeing along Ou, Seuang, Bak, Khane, Ming, Pa and Nga rivers. ¾ Sight seeing nature and caves in the Former Muang Ngoi village. ¾ During June and August, Japanese tourists usually book the tour programs to Xiengkuang to eat Paek mushroom (pine wood mushroom).

Cultural tourism programs ¾ Mainly, sight seeing at the world heritage city, temples, national museum, Phousi, Panom village, Sienglek village, SangHai village, Pak Ou village, etc. ¾ Trekking withvillagers’ families at Chompeth and Nambak districts, Luang Prabang and some villages in Phongsali. ¾ During the rainy season of each year, domestic tourists usually go to eat Nam Ou prawn in the restaurants in LuangPrabang.

Agro-tourism programs ¾ For the tour program to Ban LongLao, the tour companies normally take tourists to stop by Som village to see water vegetable cultivation, the job stear plantation and other crops along the road. ¾ Seeing the production that happens in the daily lives of the ethnic people, visiting Chinese mustard cultivation along Mekong and Khane rivers during the dry season and organic vegetable cultivation. ¾ Seeing the fresh market in the morning is also one interesting activity for the tourists, especially, they prefer to see condiment/spices that people use for cooking such as galangal, ginger, lemon grass, Sakane, lime and other vegetables that are used as food and medicine. ¾ Seeing the alcohol distilling process done by villagers at Sang Hai village, Pak Ou district ¾ At Vangvieng, Vientiane province, Mr. Thanongsy Solangkoon, a retired staff from the Ministry of Agriculture and Forestry has initiated and developed the agro-tourism site by using 2 hectares of land to cultivate mulberry, pineapple and raise local chicken. ƒ The mulberry is for the silkworms. ƒ Dried young mulberry leaves are used to make tea and desert by frying the mulberry leaves and being served with honey. The mulberry fruits are for wine production. ƒ Besides, the owner of the business also builds a house that can be used to serve 8 tourists. The rental fee is 20,000-30,000 Kip/person/night. Each day, the tourists spend their time with his family, help to feed ducks and chicken, produce green fertilizer, look after the pineapple garden, etc… The attraction of this garden is in the organic production. Most fertilizer used in the garden is from the animal manure (duck and chicken), waste from kitchen and then mixed with the paddy rice skin or dried tree leaves. ƒ When the tourists were asked for their feeling regarding the agro-tourism, they said that such tour activity fits to their need as they want to learn and experience the real lifestyle of Lao

－348－ farmers. During their stay, they feel like they are a member of the family and wish that such tour activity would be expanded to other parts of Laos. ƒ The owner of SUANMONE PHOUDINDAENG ORGANIC FARM VANGVIENG thinks that using bio-extract fertilizer is cost effective and environmentally friendly. Therefore, the foreign tourists are interested in seeing and visiting the family. Sometimes they come to help to work in the garden or teach English to the villagers’s children. If the tourists are diligent, the family does not ask for the fee. Conversely, if the tourists do not help the family much, they will be asked to pay. The tourists really like this kind of tour activity. ƒ In a nutshell, even though this activity is merely a small activity, it is inevitable to say that such activity is one product of tourism that can attract tourists to extend their stay and to generate more income for Lao families.

4. Agro-tourism market An interview with 277 tourists in Luang Prabang province has been conducted and can be summarized as below:

4.1 Sex. Male: 47%, female:53%

4.2 Nationality (by ranking). 1, Australia; 2, England; 3, France; 4, Japan; 5, Holland; 6, USA; 7, Spain.

4.3 Age range. up to 19 2.2% 20 to 29 40.4% 30 to 39 26.0% 40 to 49 12.3% 50 to 59 12.6% 60 and over 6.1%

4.4 Purpose to visit Laos: 88 % for relaxation, 3% for studying business opportunities, 3% for official purpose, 1% for visiting families and 5% for other purposes.

4.5 Length of staying in Laos. Average length of stay in Laos is about 11 days. The result of interview shows that 73 % of total tourists arrive by their own (travel independently), therefore the length of stay is quite long, stay about 2 nights and 3 days in Luang Prabang town.

－349－ 4.6 Average expenditure/person/day. A tourist spends average about 42 USD/person/day.

4.7 Tourism type. 73% arrange the traveling by themselves and 27% go through tourist agencies.

4.8 Interest. 70 % are interested in nature, 71% - in temple, 78% - in culture and custom, 37% - in ethnic minorities, 37% - in Lao food, 31% - in handicraft and souvenir, 45% - in new tourist destination like Laos, 15% - in other aspects.

4.9 Provinces that have been and will be visited. Vientiane capital 86%, Champasack 20%, Savannakhet 16%, Bokeo 8%, Luangnamtha 10%, Oudomexay 9%, Xiengkhouang 8%, Phongsaly 6% and other provinces 6%.

4.10 Participation in agro-tourism activities in the other countries 52% of tourists answer that they have been visited agricultural activities in the other countries in the world, 29% have been involved in the agricultural process for their own learning, 29% experienced in staying with farmers, 18% experienced in collecting fruits, 16% experienced in planting rice, 15% experienced in feeding animal, 15% experienced in fishing, 10 % experienced in planting trees.

4.11 Participation on agro-tourism activities in Laos. 25 % have seen agricultural activities in Laos, 15% have been involved in the agricultural process for their own learning, 10% experienced in staying with farmers, 7 experienced in growing rice, 6% experienced in feeding animal, 9% experienced in fishing, 7 % experienced in planting trees.

4.12 Interest in participating in agro-tourism activities in Laos, if possible. 35% interested in visiting agricultural activities in Laos, 40% interested in learning agricultural process, 40% want to stay with farmers, 33% prefer fishing, 31% want to grow and harvest rice, 30% prefer to work in the coffee plantation, 26% want to feed animal, 25% like to collect tea leaves, 20% want to collect fruits and 20% want to plant trees.

4.13 Tea and coffee drinking preference. 76% of the tourists prefer coffee, out of which 58% like Lao coffee. 78% prefer tea, out of which 43% like Lao tea.

4.14 Interest in organic food and fruits 75 % tourists answered that they need organic food and fruits, while 25 % don’t mind.

－350－ 5. Effect of tourism on the local economy 5.1 Statistics of tourists arriving to Luang Prabang province for the period of 2001-2003

Content 2001 2002 2003 Foreign tourists 51,207 65,872 99,150 Revenue from tourism 6,298,461 8,102,256 12,195,450 Source: National Tourism Authority

－351－ 5.2 Number of tourists visiting tourist sites in 20028

Tourist sites 1 2 3 4 5 6 7 8 9 10 11 12 Total Kuangsy Lao 9002,100 1,700 8,200 1,100 1,600 1,300 1,000 1,400 900 1,400 1,600 23,200 Foreign 2,000 4,400 4,600 3,400 3,200 2,800 3,600 3,100 1,700 3,100 3,600 4,300 39,800 Phousy Lao 400 650 600 1,000 3,300 400 400 2,000 1,350 3,000 750 500 14,350 Foreign 2,250 2,000 2,350 2,500 3,300 950 1,250 1,975 2,100 1,250 200 1,200 21,325 Museum Foreign 1,050 1,000 850 3,250 700 350 750 1,000 520 700 1,447 1,250 12,867 Foreign 2,250 2,300 2,000 1,557 900 850 1,200 1,250 660 935 2,538 2,200 18,640 Ting Cave Lao 480 690 787 6,350 275 186 195 120 150 122 156 350 9,861

－ Foreign 1,950 1,875 1,746 1,180 1,260 1,085 1,750 1,200 1,850 1,802 1,850 2,750 20,298

352 Xiengthong temple Lao 510 620 680 1,200 105 250 300 350 250 250 950 450 5,915 － Foreign 1,100 1,208 1,150 1,820 2,350 1,152 1,000 1,100 1,125 1,250 1,200 1,200 15,655 Visoun temple Lao 200 150 180 250 100 50 85 400 532 300 350 120 2,717 Foreign 2,200 2,773 1,200 2,733 4,283 733 459 1,105 1,845 1,845 659 1,215 21,050 Total Lao 3,540 5,210 4,797 20,250 5,580 2,836 3,030 4,870 4,202 5,272 5,053 4,270 68,910 Foreign 11,750 14,556 13,046 13,190 15,293 7,570 9,259 9,730 9,280 10,182 10,047 1,2865 136,768 Source: LuangPrabang Tourism Office in

5.3 Revenue from each tourist sites in 2002

Number of tourists Revenue from border pass Tourist sites (person) (kips) Kuangsy Lao 23,200 46,400,000 Foreign 39,800 318,400,000 Phousy Lao 14,350 28,700,000 Foreign 21,325 170,600,000 Museum Foreign 12,867 25,734,000 Foreign 18,640 149,120,000 Ting Cave Lao 9,861 19,722,000

－ Foreign 20,298 162,384,000 353 Xiengthong temple Lao 5,915 11,830,000 － Foreign 15,655 125,240,000 Visoun temple Lao 2,717 5,434,000 Foreign 21,050 168,400,000 Total Lao 68,910 137,820,000 Foreign 136,768 1,094,144,000 Gross total Lao and foreign tourists 1,231,964,000 Remarks: Calculation is based on specified entrance fees for tourist sites, Laotian: 2.000 kips, foreigner: 8.000 kips/person

Looking at the total income from tourism, it is noticed that the income has been satisfactorily distributed among the local people in the remote areas such as among the sellers of handicraft, food, agro- products, etc…However, there are still several areas for improvement. For instance, the villagers that live nearby the tourism sites such as Kuangsi Water Fall or Ting cave have higher earnings that those living in the forest trekking route. Tourists, who enjoy trekking or rafting organized by the tour companies from Luangphabang normally stay in the villagers’ houses such as in Ban Nongtok, Ban Longlao, Ban Phai (Muang Luangphrabang District), Ban Khonvai, Ban Donmo (Xiengnguen District), Ban Nayang (Nambac District) and some villages in . The tour guides normally take the tourists to stay with those villagers that they know well or stay with the Head of the village with the charge of Kip 10.000 per person per night. The tour companies usually bring more than half of the food needed from Luangprabang along with them due to the facts that firstly, the villagers do not know and do not understand the eating habit of the tourists, secondly, the tour guides do not collaborate well with the villagers and finally, the local authorities (especially at district level) lack of knowledge on sustainable tourism management.

Case Study on the Ban Muang Ngoi Kao Village: The visit and interview with the Ban Muang Ngoi Kao village committee showed the achievement in tourism development since the late 1999 until now as the followings: ¾ There are approximately 9,000 foreign tourists visiting and staying in the village every year. They spend 23,000 Kip per person per day and stay for 2 days in the village in average. ¾ Estimated annual income is 9,000 persons x 2 days x 23,000 Kip = 414,000,000 Kip ¾ Estimated income from transportation by boat from Ngoi district to the Former Muang Ngoi Village and back is 9,000 persons x 2 trips x 22,000 Kip = 396,000,000 Kip ¾ Total income from tourism in Ngoi District = 810,000,000 Kip

It is noticed that tourism generates the highest income compared to the rice production, Non-Timber Forest Products and other products. However, due to the lack of planning and consultation among the villagers, the income is not yet appropriately distributed. Among total 125 families in the village, only 18 families are involved in tour activities, in which 15 families run guest house business of total 100 bed rooms and 3 families provide food. These families pay monthly lump sum tax to the Ngoi district authorities at the rate of 18,000 Kip per bed room and 50,000 Kip per restaurant. In average, these businesses pay almost 20 Mil Kip to the district every year. Those, who are not involved in tourism business, do not get any benefit from it. Therefore, these people tend not to cooperate in the tourism development and promotion activities such as not participating in the cleaning campaign in the village. As the result, the village authority suggested the businesses pay small additional amount of money to the Village Development Fund. So far, the Village Development Fund gets Kip 1,200,000 from Kang Cave concession and approx. Kip 3,000,000 per year from tour guides or a total of Kip 4,000,000, which is still a relatively small amount.

－354－ 6. Some comments on the agro- and eco-tourism development in the future According to the data collected from the tourists as well as considering the potentials of Luangprbang province, it is noticed that the promotion of the tourism sector should be continued through various types of tourism such as mass tourism, cultural tourism, agro- and eco-tourism, soft adventure tourism… There should be a planning system for development of each type of tourism with the active involvement of the people and the local authorities in each stage. The planning includes the following stages:

6.1 Developing tourism agenda: 1. Conduct survey of tour routes under the close collaboration with the main concerned agencies (Tourism Office and Forest Conservation Office) 2. Organize workshop on Tourism Awareness for villagers 3. Take tourists to go for trial trekking 4. Collect feedback from tourists and villagers 5. Conduct training for tour guides on tourism services 6. Construct facilities (natural guest house) 7. Set price for tour by assessing tourists 8. Provide information and promote tour agenda 9. Monitoring impact from tourism

6.2 Selection criteria for tour trekking (Tour agenda) Assess the feasibility of all routines through survey and consider the following criteria: ¾ The routine must be comfortable and secured ¾ Villagers in the area cooperate well in natural resource conservation ¾ The area must be the priority in development agenda of the provincial and district authorities ¾ The natural resources are still rich enough ¾ Villagers still practice and maintain good tradition and culture

6.3 Organizing workshop on tourism awareness After survey, workshop on tourism awareness should be organized for the villagers with the following focuses: ¾ Who are tourists? Why are they interested in coming to Laos? ¾ Importance of culture and environment conservation ¾ Possibilities in generating income from tourism ¾ Impact from tourism development ¾ Find the way to mitigate negative impact on economic, social, cultural and environmental that may occur from tourism

－355－ 6.4 Trial tour Take tourists to the sites as planned in order to collect feedback and ideas from tourists as well as to train tour guides. ¾ Initially, it is necessary to promote and select a group of tourists for the trial tour ¾ After the tour, distribute comprehensive questionnaire for them to fill in ¾ Before the tour, don’s and do’s must be clearly explained to them and allow them to frankly discuss about the issues ¾ Assist villagers to organize the service system

6.5 Collecting feedback from tourists The questionnaire shall include the followings: ¾ About environment______¾ About knowledge and skills of tour guides______¾ Suggestions for improvement______¾ Any concern about safety ______¾ How can the villagers benefit from tourism______¾ What is the reasonable price for the tour______

6.6 Collecting feed back from villagers After the trial tour, meeting with villagers must be organized in order to discuss the followings: ¾ Are they interested in tourism? ¾ Any issues that they think are not appropriate with their tradition and culture? ¾ Assess their need for knowledge upgrading ¾ Define carrying capacity in receiving tourists per trip, per week and per year ¾ Define price of food and guest house in the village

6.7 Training for tour guides ¾ English ¾ Guiding techniques ¾ How to provide information to tourists ¾ Hygiene in cooking ¾ History of the ethnic groups as well as the history of the province and the district ¾ Policy on forest or conserved forest exploitation ¾ Policy on tourism development and promotion ¾ Policy on national security ¾ First aid

－356－ 6.8 Important considerations in tourism implementation and setting price

Local Authority

Tourism Products Tourists

PRICE

Supporters in tourism Tour Guides promotion

Villagers, community

6.9 Promoting tour packages Several promotion and advertisement measures must be used: ¾ Brochures ¾ Poster on local tradition for tourists so that they could avoid having inappropriate behavior

6.10 Impact Monitoring and Management The key factors for success of the tourism services is participation of major stakeholders, who must have involvement starting from the survey of the tourist attraction sites to the design of the tourist program and attend tourist guide training course. The tourist guide staff will have good opportunity in monitoring various aspects of the impacts as follows: ¾ Impact of the tourism on environment ¾ Satisfaction of villagers and their participation ¾ Carrying Capacities in handling with the tourist program of the villagers ¾ Satisfaction of the tourists ¾ Security means and techniques

7. Conclusions From the perspectives of tour companies, agro-tourism is new. And they did not understand how tourists become interested in agro-tourism. They suppose that the tourists may not be interested in agro-

－357－ tourism in Laos, since agriculture movement of Laos is in subsistence manner and not yet developed. However, the survey of 277 tourists indicated that majority of them have interests in agro-tourism in different ways. Most of the tourists to Laos coming on their own, they are medium income people, who seek for leisure, knowledge and experiences concerning nature, culture and ways of living of the Lao ethnic people. As we all knew that approximately 80% of Lao population lives in rural area and bases mainly on agriculture cultivation for their livelihoods. Half of the interviewed tourists during the agro- tourism market survey expressed their interests in learning agriculture techniques that the local people are practicing at the moment, and sharing a short stay with Lao farmers for 3 to 4 days to explore Lao farmers’ ways of living. Taking my own experience in this regard a couple of years ago when I leaded three groups of tourists, 9 to 10 persons for each, who are high schools students from the United States to have home stay with the farmer families in Xieng Ngeun, Chom Phet, and Nam Bak districts of Luang Prabang province, I found the hosts and the tourists have really built a very good friendship. They shared time, stayed and treated each other like in the same family. Everyday the head of the household, a farther, brought along the American students who became now adopted sons/daughters of the farmer to the rice fields, to the market and to collect non-timer forest products, etc… At the end of the home stay program, both Lao family and American students burst into tears without knowing when they can come back and meet each other again. To conclude, if the home-stay service is properly arranged and planned, it will bring benefits in terms of income to the farmers. It is also one of the best ways to create love and friendship for both the hosts and the guests. Home stay service is considered “in house learning institute” for the foreign tourists. To promote a successful agro-tourism sub-sector in the future, we request to the concerned higher government agencies for assistance as follows: ¾ To provide assistance/ to facilitate the businesses that wish to establish this kind of tourism service ¾ To disseminate the information gained from this study to local authorities including the business community and the local people of all ethnics ¾ To coordinate with concerned agencies for smooth co-operation

8. Appreciation First of all, the survey team would like to express our great gratitude to the Lao-Japan Intellectual Property Cooperation Project, especially to the JICA Laos Office for giving us fund and opportunity to make this study happened. We would like to sincerely thank the Lao National Tourism Authority for guidance. Also, we would like to thank to the following people and agencies for their kind cooperation and facilitation to make this study successful: • Stakeholders of tourism sectors: tour companies, restaurants, souvenirs shops, • Local authorities: Tourism Office of Luang Prabang, Governor of Nambak district, Head of Administration Office of Xieng Nguen; Head of Tourism Office of Ngoi District

－358－ • Local people and foreigner experts of the concerned district of Luang Prabang and NTA

9. References • Report on “Strategy to Develop Luang Prabang as a Tourism Hub”, to the Prime-Minister of Lao PDR, Mr. BounYang Vorachit, by The Governor of Luang Prabang province • Tourism Statistics 2003, NTA • Agro-tourism Development—an experience of Israel • Nam Ha Ecotourism Project document, Luang Namtha province

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