Report No. 13675-LA LAO PDR Agricultural Sector Memorandum An Agricultural Sector Strategy March 23, 1995 Agriculture and Environment Operations Division Country Department I East Asia and Pacific Region Document of the World Bank Doumn of th Worl Bank' - . CURRENCY EOUIVALENTS (as of December 1994) US$1 = 720 Kip 1 Kip = US$0.0014 FISCAL YEAR October 1 - September 30 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank APB Agriculture Promotion Bank BOL Central Bank of Lao P.D.R. CEM World Bank's Country Economic Memorandum COMECON Council for Mutual Economic Assistance CPI Consumer Price Index DLVS Department of Livestock and Veterinary Services DSPF Division of Statistics Planning and Finance ESAF Extended Structural Adjustment Facility FIMC Foreign Investment Management Committee FSDU Forage Systems Development Unit FMD Foot and Mouth Disease GDP Gross Domestic Product IDA International Development Association IMF International Monetary Fund HS hemorrhagic septicaemia PAFS provincial agricultural and forestry services MAF Ministry of Agriculture and Forestry MCT Provincial Commercial Service MOF Ministry of Finance NARC National Agriculture Research Center NEM New Economic Mechanism NGO Non-governmental Organizations NICs newly industrialized countries NMP Net Material Product NRRP national rice research program O&M Operations & Maintenance PIP Public Investment Program SB The State Bank of Laos SIRAP Sustainable Irrigated Agriculture Project SIDA Swedish International Development Agency SO Estate-owned enterprises SPF Division of Statistics, Planning and Finance TOT Terms of Trade UNDP United Nations Development Program WID Women in Development LAO PDR AGRICULTURAL SECTOR STRATEGY Table of Contents Page No. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . i I. A REVIEW OF AGRICULTURAL PERFORMANCE . . . . . . . . . . . . . . .1 A. Sector Background .1... . .. . . . . . . . . . . . . . . . B. The Role and Objectives of Agricultural Development . . . . . 2 Contributions to GDP, Employment, Food, and Trade . . . . . 2 Linkages to Development Issues . . . . . . . . . . . . . . . 3 Expected Role of Agriculture .... . . . . . . . . . . . . 4 C. Policy Environment and Sectoral Performance . . . . . . . . . 4 Past Development Strategies and Reforms . . . . . . . . . . 4 Agricultural Performance ..... . .. . . . .. . . .. . 7 D. Future Growth Opportunities and Challenges . . . . . . . . . 12 Constraints . . . . . . . . . . . . . . . . . . . . . . . . 12 Opportunities ........ .. ... ... ... ... . 15 An Outline of Key Issues for Growth . . . . . . . . . . . . 23 II. COMPLETING THE TRANSITION TO A MARKET ECONOMY . . . . . . . . . . . 25 A. Abandoning Central Planning and Production Targets . . . . . 25 B. Improving Efficiency of Commodity Markets . . . . . . . . . . 27 C. Developing Factor Markets .... . . . . . . . . . . . . . . 37 D. Improving Agricultural Incentives . . . . . . . . . . . . . . 43 E. Promoting Foreign Investment .... . . . . . . . . . . . . . 48 F. Improving the Effectiveness of the Privatization Program . . . 51 III. IMPROVING SUPPORT SERVICES AND THE ALLOCATION OF PUBLIC EXPENDITURE 54 A. Institutional Strategy - Doing Less With Better Results . . . 54 Institutional Constraints ..... . .... .. . . . . . 54 The Strategic Vision for Institutional Development . . . . . 59 An Outline of Strategic Elements . . . . . . . . . . . . . . 61 B. Developing Technology and Support Services . . . . . . . . . . 63 Agricultural Research and Extension . . . . . . . . . . . . 63 Animal Health Services .................. . 66 Irrigation Management . . . . . . . . . . . . . . . . . . . 69 Supply of Agricultural Inputs . . . . . . . . . . . . . . . 73 Food Security ........ .. ... ... ... .. . . 75 Promoting Women's Participation in Development . . . . . . . 78 C. Improving the Allocation of Public Expenditures . . . . . . . 79 - ii - PaQe No. IV. POLICY AND INVESTMENT PRIORITIES TO THE YEAR 2000 . . . . . . . . 84 A. Policy Reforms . . . . . . . . . . . . . . . . . . . . . . . . 84 Improving Efficiency in Commodity Markets . . . . . . . . . 84 Developing Factor Markets . . . . . . . . . . . . . . . . . 85 Improving Agricultural Incentives . . . . . . . . . . . . . 86 Promoting Foreign Investment .... . . . . . . . . . . . . 86 Improving the Effectiveness of the Privatization Program . .87 B. Institutional Development Priorities . . . . . . . . . . . . . 88 C. Priorities for Technology and Support Services . . . . . . . . 88 Technology Development and Dissemination . . . . . . . . . . 88 Animal Health Services . . . . . . . . . . . . . . . . . . . 89 Irrigation Management . ................. . 90 Food Security . ..................... . 90 D. Public Expenditure Reforms . . . . . . . . . . . . . . . . . . 91 E. Investment Priorities . .................. . 93 F. Reforming the Planning System ... . . . . . . . . . . . . . 94 Policy Matrix ..... . .. . .. . ...... . . .. . .. . . . . 97 References . 95 Annexes 1. Data Problems and Adjustments . .............. . 99 2. Gross Margins, Returns and Import Parity Prices . . . . . . 106 3. Current and Proposed Donor Aid Projects . . . . . . . . . . 113 4. Agricultural Supply Response Under Lao Conditions . . . . . 123 5. Agricultural Terms of Trade Data ... . . . . . . . . . . . 125 Statistical ADvendix . . . . . . . . . . . . . . . . . . . . . . . . . 128 Map IBRD No. 25510 LAO PDR AGRICULTURAL SECTOR STRATEGY EXECUTIVE SUMMARY Why an Agricultural Sector Review at this Time? 1. This agricultural sector review was initiated due to concern that the World Bank's knowledge of Lao agriculture was becoming outdated; the last review by the World Bank--the Agricultural Sector Memorandum--was done in 1980/81. Equally important has been the concern within the Government of Lao PDR and by donors regarding the poor performance of agricultural projects and lack of a strategic framework to guide public investments and related donor assistance. This report addresses both concerns by providing a sector update and highlighting policy, institutional and investment priorities to the Year 2000. What is the Performance Record of Agriculture? 2. Agricultural performance has been mixed: some sub-sectors have performed very well while others have lagged. Overall sector growth since the mid-eighties has been slow to modest. For the sector as a whole, growth in agricultural value added decelerated from 4.3 percent p.a. in 1980-86 to 3.5 percent p.a. in 1986-92. The forestry and rice sub-sectors in particular have performed poorly since 1986 (under the New Economic Mechanism - NEM), with their value added growing by -9.3 percent and 1.7 percent p.a. in 1986-92 respectively. In contrast, the non-rice crops (particularly maize, legumes, root crops, and vegetables) and livestock have performed strongly under the NEM, with their respective value added growing by 9.7 percent and 5.7 percent p.a. in 1986-92. It seems that the more commercialized part of agriculture has posted higher growth rates as a response to improved producer incentives ushered in by the NEM. 3. While overall agricultural growth has exceeded population growth (at 2.9 percent) since the mid-eighties, such a performance would not meet the Government's future expectations. In its Socio-Economic Development Plan to the Year 2000, the Government has targeted agriculture to grow by 5 percent p.a. and play a key role in reducing poverty, achieving a broad distribution of economic growth and containing rural-urban migration. What Has Gone Wrong With Agriculture? 4. While many factors, including adverse weather conditions, have combined to hamper rapid growth in agriculture, the critical ones relate to the slow transition of the agricultural sector from a centrally planned to market economy. They include the following: sector planning based on production targets; a national rice self-sufficiency policy that has led to over-investment in low return, under-utilized, capital-intensive irrigation schemes; government involvement in inappropriate areas of the economy, for example in direct trading of agricultural inputs; segmented and inefficient commodity markets; underdeveloped and controlled markets for labor, land, and capital; and macro-economic and agricultural policy frameworks that have made the agricultural sector unattractive to investors who prefer the other sectors - ii - that potentially generate greater profits (less than 10 percent of foreign investment has gone into agriculture). 5. There is also an underlying problem of the Government's limited capability to design and implement development policies and programs due to a severe shortage of trained and experienced manpower. Finally, public expenditures in agriculture are inadequate and allocated inefficiently: Lao PDR spends significantly less on agriculture compared to other developing countries, and excessive allocations are directed into construction of high cost, low return irrigation structures while little is directed to high return areas like animal vaccination programs, operation and maintenance, research, extension, and animal health services. What Should Be Done? 6. The main thrust of the report is that agricultural development can best be promoted by accelerating the transition from central planning to an efficient market system and by sharpening the definition of the role of Government to intervene less but more efficiently, focusing on things that nobody else can do in developing an enabling environment for private sector development. Within this context, the role of Government would be to improve the efficiency of markets, create macroeconomic stability, and remove market failures through improvement in farmer support services, rural infrastructure, and environmental conservation. This report has not dealt with macroeconomic stabilization, environmental conservation and rural transport infrastructure because they have been dealt with in other reports. The focus has been on the development and improvement of commodity and factor markets, other issues related to the transition to a market economy, efficient allocation of public expenditures and development and efficient delivery of farmer support services. If these recommendations were implemented, the agricultural sector could grow by 4 percent per annum in 1995-2000. Policy Actions 7. Given the institutional weaknesses, not all the required reforms can be undertaken at the same time. Hence, the policy reforms have been grouped into two categories: Ci) those to be implemented in the short term; and (ii) those for the medium term. The reforms for the short term require little preparation while those for the medium term are more demanding in terms of resources and time required to prepare them. 8. Policy Actions for the Short Term. There are three policy actions that should be taken or at least initiated in the short term: (i) improving efficiency of factor and commodity markets; (ii) improving the planning system to achieve food security: and (iii) improving agricultural incentives to off- set the decline in agriculture's terms of trade. 9. While efficiency in commodity and factor markets is expected to improve over time with rehabilitation and expansion of transport infrastructure, more immediate efficiency gains could be attained by undertaking the following measures: lifting indirect controls on the movement of goods across provinces; withdrawing Government from trading in agricultural inputs; streamlining business licensing procedures, particularly for import\export trade; streamlining technical quality controls on the importation of agricultural inputs; and taking provincial governments out of - iii - the business of approving business licenses. More needs to be done to improve efficiency iih rural financial markets, as well. In particular, there is an urgent need to increase interest rates for lending to agriculture to levels comparable with those in other sectors in order to encourage banks to lend to agriculture and to avoid the diversion of bank funds away from agriculture to other uses. 10. To take advantage of the power of markets in allocating resources efficiently within a market-based economy, the recent move away from central planning to indicative planning should be accelerated. The change in planning would not only promote diversification away from rice to other agricultural activities that generate higher economic returns; it would also free up government field staff to concentrate on research and extension services, and provide an opportunity to improve agricultural statistics, which are poor in quality and coverage, by refocusing the current system of data collection from monitoring production targets to collecting basic agricultural data on output, acreage, input use and prices. 11. To encourage the private sector to take advantage of the proposed improvements in market efficiency and the efficiency of public expenditures and investments, it is important that the agricultural sector be compensated for the marked decline in its terms of trade that has occurred since 1989. The following actions should be taken: (i) continue to negotiate down Thai tariffs and quotas on agricultural imports from Lao PDR; (ii) consider (in the context of a broader tax reform) the elimination of all taxes, including the turnover tax, on agricultural goods except the taxes on resource rents on land and forests; (iii) rationalize the tariff structure toward equalization of industrial and agricultural tariff rates; and (iv) promote agricultural productivity by increasing public expenditures on rural transport infrastructure particularly farm-to-market roads, and animal health, research and extension services. It should be noted that a decision by the Government in October 1994 to gradually eliminate agricultural export taxes by 1996-97 ought to improve agriculture's terms of trade. 12. Policy Actions for the Medium Term. In the medium term, two priority areas for action are: (i) restructuring of public expenditures and investments; and (ii) institutional strengthening through efficiency measures. 13. A reform of public expenditures is called for in order to address inefficiencies in allocation within agriculture, with high allocations being made for low return activities and low allocations for high return activities. For example, the irrigation budget has been concentrated on capital expenditures to support construction of high cost, low return irrigation schemes at the expense of higher return activities including research, extension, animal health and irrigation management. Reforms in public expenditure would aim to: boost the recurrent budget in order to reduce the imbalance with the capital budget; reduce the overall budget for irrigation while increasing the budget for livestock, research and extension, and stabilizing the forestry budget; and redirect public expenditures in irrigation to completion, rehabilitation, and O&M of existing capital intensive irrigation schemes as well as construction of low cost farmer- managed irrigation schemes. Implementation of these reforms would require restructuring of existing donor projects as well as re-programming of future donor aid commitments and the Government's 1994-2000 Public Investment Program (PIP). A major adjustment will be to switch donor aid and the 1994-2000 PIP - iv - allocations from irrigation to livestock and farmer support services. The reallocations can begin immediately but it may take a few years to achieve the most efficient pattern of allocations. 14. The capacity of the Government to provide research, extension, animal health and irrigation management services to farmers has been greatly undermined by a shortage of skilled manpower. Since an adequate supply of skilled personnel can only be generated in the long term, more immediate gains could be achieved through efficient use of available manpower by freeing it from non-critical functions (through abandoning of central planning and the related production targeting, and privatization of state enterprises) and allocating it more efficiently between and within provinces. Investment Priorities 15. Future growth in agriculture is not only dependent on policy and institutional reforms but also on the right kind of investments being made by the public sector. This would need a change in investment priorities, with implications for restructuring of current donor projects and re-programming of the future pipeline of projects. There are four priority areas for government and donor intervention: (i) development of support services for farmers; (ii) development of rural infrastructure; (iii) institutional strengthening; and (iv) sustainable management and use of natural resources. 16. Development of Farmer Support Services. There are two priorities in support services. First, national programs are required for research and extension, focusing on technologies for intensive production of rice, development of sustainable farming systems in the uplands, and development of animal feed technology to enable improved protein supplies for ruminants during the dry season. Second, development of effective animal health services, particularly great improvements in the national coverage of the animal vaccination program. 17. Development of Rural Infrastructure. The priorities in rural infrastructure are also two. First, irrigation support should be focussed on completion of tertiary canals, and rehabilitation and improved management of existing large irrigation schemes; construction should be limited to low cost, farmer-managed irrigation schemes. Second, increased support is required for transport infrastructure, particularly farm-to-market roads. 18. Institutional Strengthening. There are three priorities in the area of institutional strengthening. First, urgent support is required to strengthen MAF headquarters in agricultural statistics, policy analysis, and policy and program monitoring and evaluation. Second, support is required to strengthen the institutional capacity to implement projects at provincial and district levels. Third, training and technical assistance are required to support development of rural savings and credit groups, joint liability (for loan repayment) systems to reduce costs of assessing credit worthiness, and skills in development banking. 19. Natural Resource Management. The priorities in the area of sustainable management of natural resources are also three. First, support is required for improved land use management through support for implementation of recent land and forestry decrees, including land titling. Second, v intervention is required, through regulations and institutional strengthening, in improved forestry management and conservation including sustainable commercial exploitation of forests. Third, support is required to improve and sustain supply of clean water and sanitation in rural areas, protect water quality from industrial expansion and development of mining, protect watersheds and manage the environmental effects of hydropower development. 20. Private Sector Contributions. Throughout the above interventions, participation of the private sector should be maximized by promoting mechanisms to recover costs from the beneficiaries. Cost recovery mechanisms could be introduced or expanded in areas such as rural infrastructure (e.g., water fees and road tolls), support services (e.g., animal vaccination charges) and natural resource management (tourist fees, and fees for issuing and transfer of land titles). As the private sector develops, private investments are likely to take place in areas such as production, supply and distribution of vaccines, and hybrid varieties of plants and animals, and operation and maintenance of rural infrastructure. LAO PDR AGRICULTURE SECTOR STRATEGY I. A REVIEW OF AGRICULTURAL PERFORMANCE A. Sector BackQround 1.1 The Lao People's Democratic Republic (Lao PDR) is a landlocked country with a total land area of 236,800 square kilometers, much of which is forested and mountainous. Lao PDR shares borders with China (416 km) and Myanmar (230 km) to the northwest, Viet Nam to the northeast (1,957 km), Cambodia to the south (492 km), and has a 1,730 km border with Thailand to the west that largely follows the Mekong river. The country is divided administratively into sixteen provinces plus the Vientiane Municipality and a Government Special Region.i/ These are further divided into districts, sub- districts, and about 11,500 villages. 1.2 Provinces may be grouped geographically into three broadly different regions: a northern region comprised of Bokeo, Huaphanh, Luangnamtha, Luangprabang, Oudomxay, Phongsaly, Xayabury, and Xiengkhuang; a central region that includes the Vientiane province and municipality, Khammouane and Borikhamxay; and a southern region consisting of Attapeu, Champasack, Saravane, Savannakhet, and Sekong. In each of these regions, sparsely populated mountainous areas are intersected by numerous river valleys, highland plateaus, and flood plains on which most of the population is concentrated. 1.3 The dominant climate is tropical monsoon with high temperatures and humidity year-round and high rainfall between mid-April and mid-October. Annual rainfall, which increases from north to south (Figure 1.1), is nearly Figure 1.1: Average Monthly Rainfall (rrmn) 500 Sot (Pa.) 400 300 Co" Mrnl_ 8 200 100 North (lngpmbang) 0 Jan feb mar apr may wiL Jul aug sp oct nov dec 1/ The Special Region was formed from Xienghone and Hongsa districts in Oudomxay province. l2- always sufficient for dryland agriculture. However, approximately 200 mm per month are needed to maintain flooded paddy production, and precipitation often falls far short of this level during the key months between May and September.2/ Both localized drought and flooding are frequent causes of crop failure and food shortages. Average temperatures range from around 20 degrees C in the mountainous areas and highland plateaus to 25-27 degrees C in the plains. B. The Role and Obiectives of Agricultural Development Contributions to GDP. Employment. Food. and Trade 1.4 Agriculture is overwhelmingly important to the Laotian economy as a source of income, employing over 85 percent of the labor force, and as an essential element of international trade. Agriculture currently contributes 58 percent to GDP while the processing and marketing of agricultural produce provide an additional 10-12 percent.3/ Following the normal pattern of structural change among countries that have developed economically, agriculture's contribution to GDP has clearly begun to decline in Lao PDR, especially after 1988 as buoyant growth in manufacturing expanded industry's share (Figure 1.2). This trend is expected to continue or accelerate as market reforms and increased foreign investment lead to the development of other sectors (mainly hydro-power, mining, light industry, and services). Figure l.2: Percentage Shares of GDP 70 01984-86 1987-90 60 i F *1991-93 30 20 10 0 Agrculture Industry Services 2/ While average monthly rainfall is greater than 200 mm during May- September, it is not always regular. In some months and some years, rainfall is excessive causing flood damage and inadequate in others. 3/ Average for 1990-92. The latter is a rough estimate since much of the value added in agricultural marketing is unrecorded. Unless otherwise noted, figures cited in the text are based on the data provided in the statistical annex. - 3 - 1.5 Agriculture's contribution to export earnings is officially recorded at 40 percent (mainly timber and wood products, and coffee) but may be as high as 55 percent when unofficial exports of livestock and logs are included.4/ Agriculture supplies virtually all the national food requirements, with annual rice imports having been reduced from over 100,000 tons in the late seventies to a range of 27,000 to 64,000 tons since 1982.5/ Production is largely for subsistence in a country that ranks among the poorest fifteen in the world, with a per capita GDP of US$220 in 1992. Farming provides the livelihood of some 445,000 households in over 11,500 villages, averaging about 300 inhabitants each. Rice, as the staple subsistence crop, and livestock, as the main source of cash income, constitute the core of agriculture, each contributing about 40 percent of agricultural GDP (Figure 1.3). Rice production occupies over 80 percent of cultivated land; about one third is produced in the uplands through slash-and-burn cultivation. Practically all of the rice grown in the country is glutinous (i.e., "sticky" or "sweet" rice). Figure 1.3: Shares of Agricultural GDP, 1991-92 Fish Foresty 1% Paddy 401% livestockv 391% Other Crops 15% Linkaqes to Develolment Issues 1.6 While its share in the economy has already started to decline, agriculture will for the foreseeable future remain a key to providing employment to the majority of the population, and to alleviating poverty. As a main employer, it is not only central to the strategy of poverty reduction but also to the broad distribution of economic growth. Poor performance by 4/ During its annual conference in November 1993, the Ministry of Agriculture estimated the value of unofficially exported livestock and its products at about US$15 million per year. Unofficial exports of logs have been estimated at 150,000 m3 or about US$43 million per year. See World Bank (1993a), p. 14. 5/ Droughts and floods in 1987-88 led to an exceptional 115,000 tons of recorded rice imports in 1988. See Table 3.6 in the statistical annex. -4- agriculture, relative to the rest of the economy, could lead to unsustainable rural-urban migratibn which would inevitably precipitate high levels of urban unemployment and create heavy pressure on urban services. 1.7 An important component of agriculture is the forestry sub-sector, which occupies about 47 percent of the total land area. The forestry sector is not only an important source of foreign exchange, with timber and forestry products contributing about one third of total exports in 1992, but also contributes to food security for many villagers who significantly depend on the hunting of wild animals and the gathering of fruits and vegetables from the forests. In periods of drought or floods, which tend to occur about once every five years, hunting and gathering food from forests become important mechanisms to cope with food shortages. However, this is being threatened by faster growth in population relative to agriculture, especially in the more densely populated areas of the north (World Bank, 1993a). A rise in per capita agricultural growth is key to averting the pressure on forestry depletion by poor farmers engaged in slash and burn agriculture. Expected Role of Agriculture 1.8 In the Socio-Economic Development Plan to the Year 2000, the Government has set an agricultural growth target of 5 percent per annum which is seen as critical to the attainment of a GDP growth target of 8 percent, given the large share of agriculture in the economy. While 5 percent growth in agriculture is ambitious (4 percent is considered more realistic), high growth performance is particularly desirable to spread growth benefits to the many poor people who currently depend on subsistence agriculture. Agriculture is assigned also an important role in promoting industrial growth and exports and conserving the environment, especially forests and wildlife.6/ C. Policy Environment and Sectoral Performance Past DeveloDment Strategies and Reforms 1.9 The Socialist Construction. Since 1976, central planning and control have had a marked influence on the environment for agricultural growth, with the Government preoccupied with building the socialist framework up to the mid-1980s, and energies redirected toward dismantling it thereafter. "Socialist construction" in agriculture involved the establishment of state farms and companies as well as government-supervised cooperatives to produce, market, and distribute agricultural commodities and essential consumer goods. It was effected through three policy instruments which were introduced in 1976: (i) state take-over of the marketing and distribution system; (ii) a new agricultural taxation system; and (iii) collectivization and state ownership of farms. The socialist institutions thus created were seen as critical to the success of the first central plan (1978-80), which gave a high priority to agriculture, with the goals of achieving self-sufficiency in food and providing urban consumers with cheap and secure supplies of basic food staples. 6/ Extracted from the address of the Deputy Prime Minister and President of the State Planning Commission to the Annual, Ordinary Session of the National Assembly, February 22, 1993. -5- 1.10 A national public trading network was established and it monopolized inter-provincial trade. It was supplied by the state marketing boards, the agricultural taxation system which collected taxes in kind, and later, cooperatives. Prices were fixed by the Government, and remained below parallel market prices (in a dual marketing structure) until 1987 when the abolition of the state marketing board and the official distribution system led to the unification of the price system. Official prices became increasingly lower than parallel market prices between 1976 and 1979 when the Government took steps to narrow the gap. These entailed raising official producer prices by four to five times, devaluing the currency by 60 percent, permitting farmers to sell more goods on the open market, and relaxing, albeit in a small way, the ban on inter-provincial trade. The price system was further reformed by reducing the number of government-fixed prices from several hundred to 22 in 1984, and further to 8 in 1987 (Bourdet, 1993a: P. 9). 1.11 The agricultural taxation system introduced in 1976 was strongly progressive, with a marginal tax of 30 percent on surpluses above the quantity exempted for subsistence consumption, and was paid in agricultural produce in order to raise government revenue and supply produce to the public distribution system. It was made less progressive in 1980 in order to complement the producer price changes in encouraging productivity. 1.12 The collectivization program was initiated with an introduction of tax incentives to induce farmers to join cooperatives allegedly to increase productivity (through perceived economies of scale) and to complete the socialist transformation. When the response from peasants was poor, the Government introduced in 1978 legal and forceful measures to co-opt peasants and expropriate their land. As a result, 1356 cooperatives were established. Despite the incentives, the peasants responded negatively to the forceful co- option by intensifying shifting cultivation, migrating to Thailand and inaccessible areas to escape collectivization, and, to a lesser extent, destroying agricultural produce. The resultant adverse impact on agricultural production led the Government in 1979 to halt forced collectivization and return the confiscated land to those peasants who opted to leave the cooperatives. Instead of force, an incentive package, which consisted of a 15 percent tax reduction and preferential terms for and access to credit, was introduced to induce peasants to join or stay in cooperatives. These incentives notwithstanding, the number of cooperatives declined in 1980 and 1981, although it started to rise again and peaked at 3976 in 1986. By 1984, cooperatives occupied 23 percent of the cultivated land. Over time, it became clear to the Government that the collectivization program was hurting agriculture by taking land use rights away from peasants, thereby discouraging any long term investments on the land, and by removing individual rewards for risk-taking. Hence, the Government decided in 1988 to remove the financial incentives; this resulted in a drastic decline of cooperatives from 3481 to almost zero today. Decollectivization was followed by privatization of the state farms which were never a big factor in production. They occupied no more than 0.2 percent of cultivated land, although absorbing a disproportionately higher share of foreign aid and other public resources. 1.13 The macroeconomic environment in which socialist transformation took place was not supportive of agricultural development. Planning and budgeting took the form of a three year development plan (1978-80), five year development plans (1981-85, 1986-1990, 1991-95) and annual budgets. From 1980 to 1986 the macroeconomic environment discouraged farmers from producing a - 6 - marketable surplus. Firstly, the government ran bank-financed budget deficits which pushed inflation over 50 percent per annum. With a fixed nominal exchange rate, the real exchange rate appreciated very significantly, thereby preempting any significant growth in agricultural exports.7/ Secondly, the Government imposed a highly restrictive trade policy, with high tariffs and quantitative restrictions on most imported goods, in order to protect domestic industries and raise revenue for the Government. Thirdly, government procurement prices, including those for rice and coffee, were kept at fractions of their parallel market prices. The combination of protective tariffs on industrial goods and an overvalued exchange rate resulted in a deterioration of the terms of trade (TOT) between agricultural and non- agricultural goods, on top of the disguised taxation of low procurement prices.8/ 1.14 The New Economic Mechanism. In 1986, the Government embarked on economic reforms, the so called New Economic Mechanism (NEM), that aimed at giving a greater role to market forces and the private sector in the allocation and use of resources. In agriculture, the NEM was preceded by a set of actions in 1984 to relax some controls on domestic trade in farm products and narrow the gap between official procurement prices and parallel market prices. In 1987, the state marketing board and the official distribution network were removed, hence leading to the unification of the price system (with prices exclusively determined by the market) and to the abolition of the implicit consumption subsidies that had been built into the below-market producer and consumer prices. In addition, the land tax was further reformed and reduced by transforming it from a flat tax to one based on land yields whose rate was low for high-yielding land but high for low- yielding land. It was further reduced in 1989, and the rate was modified to reduce its negative progression with land yields. In 1993, it was further reduced and the rates fixed in monetary rather than commodity terms. 1.15 The more systemic reforms started with the tackling of issues related to security of land tenure. They were adopted in 1988 when a joint conference of the Party and the Council of Ministers resolved to completely change course from a socialist path to a market-oriented agriculture. The resolution gave individual farmers long-term guarantees to the use, transfer, and inheritance of land, and permitted them to hold land titles although ownership remained with the state. The resolution was given more teeth by the 1991 constitution and made into law in December 1992 (Decree No. 99/92). The second set of systemic reforms dealt with levelling the playing field. Discrimination against individual farmers, in preference to cooperatives and state farms, was ended; modern inputs including credit and agricultural support services were made accessible to individual farmers. Participation in cooperatives was officially made voluntary and incentives related to participation were removed. Both the cooperatives and state farms were made autonomous and exposed to competition from individual farmers and other 7/ The commercial exchange rate was kip3O/US$ in the second half of 1981. It was held at kip35/US$ from January 1982 to December 1986. The average parallel market exchange rate rose from kiplO5/US$ in 1982 to kip400/US$ in 1986. No significant exports were registered outside of coffee and forestry products. 8/ For a detailed discussion of the terms of trade, see Section D of Chapter 2. private entities. In addition, the Government embarked on privatization and civil service reform programs. The civil service reforms were aimed at reducing the size of the civil service and improving its remuneration package. Between 1989 and 1991, the civil service was reduced by 19 percent (Bourdet, 1993b) and its salaries were raised significantly, although they are still significantly lower than those in the private sector.9/ As of now, all 39 agricultural state enterprises have been privatized; privatization of another 12 was initiated or completed in 1993. 1.16 In the areas of macroeconomic and trade policies, the Government undertook even more far-reaching reforms including: (i) a large devaluation of the local currency in September 1987 and the abolishment of multiple exchange rates in July 1988; (ii) since 1989, periodic adjustments of the official rate by the central bank to keep it closely aligned with the parallel market rate; and (iii) tightening of fiscal and monetary policy, especially since 1989, by putting a break on the monetization of fiscal deficits, curtailing state-inspired provision of bank loans to the state enterprises, and adopting a more liberal trade policy including the removal of all quantitative restrictions on imports and the reduction of export taxes. These reforms, together with the agricultural pricing and marketing reforms, dramatically improved agriculture's terms of trade by 40 percent between 1985 and 1989.10/ Moreover, these reforms induced increased donor support which: enabled continuation of high public investment expenditures in agriculture; improved foreign exchange availability to support imports of agricultural inputs and essential consumer goods; and improved the investment climate, thereby leading to increased foreign investment although only 5.5 percent of it has gone into agriculture.ll/ Agricultural Performance 12/ 1.17 Growth Trends. In analyzing sectoral growth trends since 1975, it is useful to compare different time periods defined according to the prevailing policy regime. Three distinct periods can be identified: 1976- 9/ Salaries of veterinary doctors are equal to those of a laborer in the private sector. 10/ However, agriculture's terms of trade started to decline in 1990 (for a detailed discussion of the TOT, see Section D of Chapter 2). 11/ For a detailed discussion of foreign investment flows, see Section E of Chapter 2. 12/ The analysis of agricultural performance is based primarily on changes in physical output and in value added; agricultural acreages and yield data could not be used because it is officially under-estimated (in the case of acreage) and over-estimated (in the case of yields) by about 20 percent, respectively. Similarly, agricultural GDP estimates used in the analysis were based oft a GDP series which was constructed using disjointed agricultural production and GDP series (for details on data problems and the adjustments made, see Annex 1). -8- 1980; 1980-86; and 1986-92.13/ In the first period, value added in the agricultural sector and rice subsector increased by 9.2 percent and 11.5 percent p.a. respectively despite the disruption caused by government monopolization of rice trading and the abortive attempt to collectivize agriculture (see Table 1.1 below).14/ This growth started from the severely depressed levels of 1976, and production returned to the 1975 level only in 1980 after coercive collectivisation was abandoned; therefore, there was zero growth in agriculture during the 1975-80 period. Thereafter in 1980- 86, value-added in agriculture rose by 4.3 percent p.a. but decelerated to 3.5 percent during 1986-92 and recovered to 5.0 percent in 1992-94. As Tables 1.1 and 1.2 show, however, the sectoral growth numbers mask important differences in performance across subsectors. In fact, except for rice, forestry, and coffee, growth of output under the NEM has been robust. Table 1.1. Growth Rates of Value Added in Agriculture 1/ (Annual Exponential Growth Rates Estimated by OLS) 76-80 80-86 86-92 92-94 Rice 11.5 5.5 1.7 2/ Non-Rice Crops 10.6 0.6 9.7 2/ Livestock 7.1 3.1 5.7 4.1 Forestry 6.0 8.5 -9.3 52.7 Total Ag. Value Added 9.2 4.3 3.5 5.0 1/ Value added in constant 1990 prices. 2/ The rate for all crops (rice and other crops) is -0.2. Separate data were not available for 1994. 1.18 The striking feature of performance under the NEM is that the non- rice (and non-official exports) component of agriculture has led growth. Livestock output rose by 3.1 percent p.a. during 1980-86, but accelerated to 5.7 percent p.a. during 1986-92. Maize, with a share of 1.35 percent of agricultural GDP (1990-92 average), recorded annual production growth of 11.3 percent while the production of legumes increased by 8.9 percent on average. Collectively, non-rice crops went from almost zero growth during 1980-86 to nearly 10 percent annual growth after 1986. The exceptions were the "traditional" exports, forestry and coffee, the former because of a ban on logging in 1989 and the latter because of the deterioration in world prices. 13/ Following the discussion in the preceding section, these three periods can be characterized respectively as: (i) strict collectivisation; (ii) moderation of collectivisation and reforms within a socialist economic structure; and (iii) market-oriented economic policies. 14/ During this period, production was adversely affected also by drought in 1977 and floods in 1978. -9- Table 1.2. Crop Production Growth Rates by Period. (Annual Exponential Growth Rates Estimated by OLS) 1976-80 1980-86 1986-92 Rice 11.5 5.5 1.9 Maize -0.9 4.2 11.3 Root Crops 14.0 -3.2 5.8 Legumes 21.2 -9.2 8.9 Vegetables 11.3 -9.5 15.5 Coffee 11.7 6.4 2.6 Tobacco 32.6 -3.9 21.0 1.19 Aside from the remarkable achievement in rice import substitution, agriculture's performance in terms of international trade has been disappointing both before and during the NEM Beyond exports of timber and wood products (US$43 million in 1992 or about one third of total official exports), there are few agricultural exports other than coffee (US$2 million in 1992). Minor exports include cardamom, oilseeds (soybeans, sesame and castor beans), rattan, jute, and tea. Exports of both major and minor agricultural goods have been erratic through the eighties and early nineties. Exports of timber and wood products fell by 35 percent during 1987-89 because of the logging ban, then increased by more than 60 percent in 1991 while coffee exports collapsed from an annual average of US$8.7 million during 1987- 90 to US$2.8 million in 1991-92. Time series data are not available on the other official agricultural exports. 1.20 In addition to official exports, there are others which are exported unofficially. The most important of these are livestock (about US$15 million) and logs (150,000 mi3) (World Bank, 1993a: p. 15). These exports have reportedly enjoyed a boom in recent years. On the import side, the flow of agricultural imports is limited to about 1,000 tractors and 5,000 tons of fertilizer per year; minor imports include other agricultural machinery (notably rice mills, water pumps, and plowing equipment), some improved seeds and animal breeds, pesticides, and insecticides. 1.21 Regional Differences in Resource Endowment and Growth. Before looking into the determinants of growth, it is important to point out the sharp differences in resource endowments and in growth between Lao PDR's three regions. First, the central and southern regions are endowed with plains along the Mekong and other rivers which are irrigable and have fertile soils; they also have the Bolovens plateau which has deep and fertile soils. In contrast, the northern region is very mountainous and rugged with no irrigable land other than limited mountain valleys, and has poor soils which are heavily leached and acidic. Second, the southern and central regions have a relatively stable tropical monsoon climate while the northern region has moist to dry sub-tropical climate with wide intra-annual variations in temperatures. Third, the north has few commercial forests remaining while the southern and central regions are still relatively rich in commercial forestry. But most importantly, the mountainous nature of the northern region has led to its economic isolation from the rest of the country due to extremely poor transport linkages with the other two Lao regions; intra-region transportation is also poor in the north. For the northern region, transport linkages with - 10 - Southern China and North/North Eastern Thailand are relatively better than with the rest of Lao PDR; consequently, it is more integrated, in trade terms, with the neighboring countries than with the southern and central regions of Lao PDR. 1.22 Because of the poor resource endowment, the northern region has chronic rice deficits and an environmentally unsustainable system of slash and burn cultivation which is the primary means of producing rice. While the southern and central regions produce a surplus of rice and have the potential to produce even more to cover the rice deficits in the northern regionl5/, the poor transport infrastructure and high costs of transport militate against it. Consequently, the northern region is supplied with rice by the neighboring countries of Thailand and China, rather than by the rest of Lao PDR. 1.23 Determinants of Growth. The high growth period of 1980-85 was fueled by a recovery in rice production which can be attributed to the following factors. On the supply side, two factors stand out: (i) deployment of labor, land, and irrigation resources that had been made redundant by the war (about one quarter of the rural population who had been forced into towns by the war were resettled during this period, mostly in the lowland paddy areas); and (ii) reconstruction of irrigation structures. On the demand side, demand came from three principal factors: (i) substitution for emergency (non- commercial) imports of rice which ran in excess of 100,000 tons p.a.; (ii) per capita subsistence consumption recovering from war-related low levels; and (iii) normal population growth of about 2.9 percent. Other than investments in irrigation structures and population growth, none of the above factors could be expected to have any marked influence on future agricultural growth. Moreover, investments in irrigation which were maintained at high levels until about 1991, have been under-utilized primarily due to the Government's rice self-sufficiency policies which have emphasized production of rice that has lacked demand.16/ Hence, despite the 40 percent improvement in agriculture's terms of trade between 1985 and 1989, agricultural growth decelerated during the second half of the eighties and early nineties, mainly driven by the poor performance of the rice sub-sector which constitutes a large share of agricultural GDP.17/ 1.24 However, the non-rice crops and livestock which were less constrained by demand and government interventions responded to the trends in the terms of trade and the liberalization of markets under the NEM reforms, showing strong growth in 1986-90, but cooling off thereafter. Growth in non- rice agriculture could have been even stronger were it not for the following additional factors: 15/ See Table 4.11 in the Statistical Annex. 16/ In fact, faster expansion in irrigation capacity than in transport infrastructure and rice markets have resulted in two thirds of the dry season irrigation capacity going unused (see Section B of Chapter 3 for details about irrigation investments). 17/ The droughts of 1987, 1988 and 1991 added to the slowing down of agricultural growth. - 11 - (i) Government's rice self-sufficiency policyl8/ together with a ban on the production of non-rice crops in Government-sponsored irrigation schemes denied the non-rice agricultural economy public support in terms of public expenditure and agricultural services; (ii) limitations in transport infrastructure reduced farmer access to markets; (iii) inadequate entrepreneurial capacity from the private sector became a constraint particularly in the operation of large production units, the processing and marketing of non-rice crops, and the management of medium and large scale irrigation schemes following government disengagement under the NEM; and (iv) a deterioration in agriculture's TOT since 1990 (see Section D in Chapter 2). 1.25 The Government's own assessment in 1990 led to a conclusion that the deceleration of agricultural growth in the second half of the eighties was due to the following factors:19/ (i) insecure property rights; (ii) inefficient use and depletion of state-owned assets; (iii) poor or non-existent transportation and communications infrastructure, and skilled manpower base; (iv) low or negative economic returns from donor-funded projects which had absorbed over US$150 million by 1990; and (v) poor agricultural support services. - 1.26 From the above analysis, it is clear that the causes of low growth in the recent years have more to do with government policies with respect to pricing, development and operation of markets and the allocation and use of public (and donor) resources; factors outside the control of Government, like droughts, floods and external market developments, have played some role but only a secondary and temporary one. For growth to be turned around, change in the content, scope and quality of government intervention must be an important part of the action. The next section addresses, in a general way, constraints to and opportunities for higher growth and provides a springboard for the 18/ The main elements of the national rice self-sufficiency policy have been: (i) estimating annually the amount of rice that needs to be produced to achieve a national production target of 250 kg of paddy per capita; (ii) working out annual rice production targets for each province and district in order to achieve the national annual production target; (iii) setting annual targets of cultivated rice area, with and without irrigation, and requiring rice to be produced in government-sponsored irrigation schemes; and (iv) requiring government agricultural staff to work toward achieving the rice production targets set for their areas. 19/ Background documentation to the 3rd 5-Year Plan. - 12 - identification of key issues for future growth whose discussion will be the subject of Chapters 2 and 3. D. Future Growth opportunities and Challenges Constraints 1.27 While much is expected from agriculture in the next six years, there are serious constraints to overcome before it can play its designated role. These constraints include: (i) poor and limited transport infrastructure; (ii) undeveloped market systems; (iii) declining fertility of soils in the uplands; (iv) lack of skilled manpower; (v) lack of a national system of research and extension; (vi) undeveloped rural savings and credit systems; and (vii) problems of transition to an efficient market system. 1.28 Transnort Infrastructure. Lao PDR has among the world's most difficult and costly internal and external communications due to rugged terrain and long distances between settlements, with an extremely low population density of 18 persons per km2.20/ The transport system is rudimentary, and road transport is the major mode of internal communication, carrying about 90 percent of total freight ton-km and 85 percent of total passenger-km. River transport, primarily on the Mekong river, carries about 10 percent of both freight-km and passenger-km. Domestic airfreight is negligible as air transport carries 5 percent of passenger-km. 1.29 The country's road network totals about 13,400 km, of which 3,385 km are designated as national roads, about 6,000 km as provincial roads, and 4,000 km as district roads. While half of the national road network is paved and the other half is gravel, most provincial and district roads are only tracks without foundation or drainage facilities. In terms of coverage, the national and provincial roads are adequate insofar as they provide connections to all important centers and border crossings. However, the condition of most of these roads is very poor and in urgent need of improvement; a survey of a sample of national roads carried out by road maintenance consultants in early 1993 indicated that only 10 percent were iii good condition. Many roads were constructed more than 50 years ago and were not designed for the heavy commercial vehicles now in use. The condition of the network reflects the effects of the war, the lack of financial resources, and the lack of road maintenance. 1.30 Almost all external trade goes by road from Vientiane to Bangkok via northern Thailand, or to the port of Da Nang in Viet Nam via National Routes 9 and 13. For internal trade, a key road is Route 13 which is the main north-south artery in Lao PDR that links the mountainous, less developed, and rice-deficit northern region to the rice surplus and agriculturally rich central and southern regions (via Vientiane to Pakse). At present, this key road is in very poor condition and is impassable during the five-month rainy season, when traffic must be diverted to the Mekong river. Moreover, the other roads that are essential for transforming agriculture from subsistence to a market economy, the provincial and district roads, are inadequate in coverage and must be improved. 20/ This section on transport infrastructure draws generously from World Bank (1994c). - 13 - 1.31 In recognition of the poor condition of roads and the economic importance of improving them, the Government has since 1989 spent an average of 42 percent of its total capital expenditures on transport and communications (primarily roads). In its Five Year Public Investment Program (1991-95), the government's transport development objectives include restoration of vital sections of the transport network and provision of improved transport services. Road development has focused on: (i) facilitating trade flows through completion of an alternative east/west link (national route 9) from Savannakhet to Viet Nam and the port of Da Nang (finished in 1988); (ii) rehabilitating the north-south axis (national route 13) running from Luangprabang to Pakse and other roads supporting agricultural production; (iii) rehabilitating and constructing rural access roads in agricultural areas; and (iv) improving the road maintenance capability of central and provincial maintenance organizations. The World Bank is among the donors providing support, under various projects, for the implementation of this program.21/ 1.32 Due to its critical importance to agricultural development, the Government's strategy for transport development should be closely linked to its strategy for agricultural development and natural resource management. Road construction or improvement should reflect agricultural potential and the need to protect forests and other conservation areas from encroachment by unregulated commercial exploiters or an influx of shifting cultivators into areas susceptible to forestry and soil degradation. The agriculture/transport infrastructure linkage will need to be carefully balanced against demands for transport infrastructure from other sectors including administrative and security services. 1.33 Marketing Channels. Partly as a result of the poor transport infrastructure, marketing channels are also poor.22/ While significant growth (associated with private investment) has taken place since the mid-eighties, there are still insufficient traders, warehousing facilities, agricultural transporters, and processing facilities to allow efficient marketing. Coffee processing facilities are antiquated and produce low quality and ungraded products. The Tha Ngone feed mill, the only one in the country, has only a few production lines in operation. Even for rice, which is a staple food, the channels for importation are more developed than the domestic trade network. The poor transport and market infrastructure is a constraint to the intensification of agriculture and to the expansion of a marketable surplus. 1.34 Declining Soil Fertility in the UDlands. In the uplands where slash and burn is practiced, population pressure, particularly in the northern region has resulted in a shortage of land in the more accessible areas. This in turn has led to a reduction in the fallow period in those areas to under five years 21/ IDA support has included: Southern Transport (Cr. 1846-LA); Highway Improvement (Cr. 2218-LA); Luang Nam Tha Rural Development Project (Cr. 2579-LA); and Second Highway Improvement Project (Cr. 2606-LA). 22/ Another reason marketing channels are undeveloped is the attempt to replace private marketing agents by public monopolies and monopsonies during the socialist construction era (1976-B5). - 14 - (World Bank, 1993a).23./ Two economic consequences of this have been declining soil fertility resulting in reduced crop yields, and an increase in the number of weedings--from once or twice per season to four times-- which sharply raise labor costs. The decline in soil fertility and increasing labor requirements for weeding not only reduce the prospects for agricultural growth in the uplands but also lead to the clearing of more forests for crop production, adding to environmental damage. 1.35 Shortace of Skilled ManDower. A major constraint to agricultural development in the country is the present shortage of skilled manpower. This is a problem shared by most government agencies, where the problem is not so much one of too few trained people as one of irrelevant qualifications. Many government personnel were trained in the former socialist countries in temperate agriculture. These personnel need to be re-trained in tropical agriculture and in the operation of a market economy. In addition, personnel are not rationally distributed. For example, while there are more than 1,000 university graduates in the agricultural institutions, the Division of Statistics, Planning, and Budgeting has only four such personnel; and there is just one trained agricultural statistician in the country. Ten of the 17 provinces and 76 of the 177 districts do not have a single staff member with a bachelors degree. Accelerating agricultural growth requires skilled people to allow the state to provide an enabling environment, including policy and agricultural services, for the development of private farming and trade; skilled personnel are also needed to run an efficient private sector. 1.36 Lack of a National System for Research and Extension. There is also lack of a national system of research and extension, with no extension system at all. The only programs existing in extension are a few, for example the UADP, found within larger donor supported projects. The situation is analogous for research. With the exception of an IRRI-supported National Research Program for rice which has been under implementation for three years, there is no significant research effort in the country. The private sector is not yet geared up to support any significant research effort either. Yet intensification of agriculture is dependent on generation and diffusion of technology. 1.37 Inefficient Factor Markets. Another constraint to agricultural growth is the absence of efficient factor markets to allocate resources (land, labor, and capital) within and outside agriculture. Credit markets are a particular concern. While there is an informal credit market in existence, it caters to a limited number of clients and provides mainly short term credit to meet emergencies. Only 3-4 percent of farmers receive institutional credit. Although an agricultural bank began operating in August 1993, adding to seven state-owned commercial banks already functioning, coverage is likely to remain low in the foreseeable future due to the controlled interest rate which does not allow for adequate savings mobilization and coverage of the high transaction costs and credit risk. Yet agricultural credit is of fundamental importance to the intensification of agriculture and to the adoption of productivity-improving technology since many of the subsistence farmers lack cash with which to buy agricultural inputs and purchase labor-saving technical services. 23/ Little data exists on fallow periods for Laos as a whole. An estimate made in the 1950s was 38 years. Current fallow periods are thought to average about 9 years, based on the 1989 National Reconnaissance Survey, with wide variation between different production systems. - 1.5 - 1.38 Problems of Transition to a Market Economy. Finally, there is the constraint presented by problems of transition to a market economy, the subject of Chapter 2 of this report. While much has been accomplished since 1986, there are still some outstanding reforms to be undertaken. Factor markets, as mentioned above, are not yet developed and product markets are only partially developed, in large part due to the earlier period of central planning and control; market institutions, in terms of codified rules and facilitating organizations, are not yet fully in place, and the role of government is not yet in tune with the demands of a market economy. Opportunities 1.39 While the above constraints constitute significant barriers to growth, they are not insurmountable particularly seen in the context of the available opportunities for growth. In this section, a partial analysis of profitability of various crops and livestock indicates that many of them could provide an attractive return to labor and land if farmers were to have access to know-how and markets for high yielding agricultural inputs, credit and farmers' produce. In addition, based on a review of supply response studies of countries similar to Lao PDR, there is evidence to conclude that Lao farmers would increase agricultural production in response to opportunities to make money. Moreover, there are market opportunities for Lao PDR, particularly the export markets offered by the booming economies of East Asia. 1.40 Profitability of Agriculture. A review of agricultural profitability using gross margin analysis (a static and partial approach) shows that a wide range of crops and livestock are profitable under various technology applications;24/ the only exception seems to be rice grown under traditional unimproved conditions. The conclusion is based on a review of twenty enterprise budgets, covering selected and representative farming systems and the important crops and livestock. Table 1.3 provides a summary of the results in terms of returns to labor and land. 24/ They are profitable in that they generate an imputed financial return to labor that is higher than the average wage rate in the area. - 16 - Table 1.3. Summary of Economic Returns for Crop and Livestock Enterprises Enterprise Methods Returns to Labor Returns to Land (kip per day) (kip per ha) Lowland Crops Glutinous Rice Traditional 998 99,800 Glutinous Rice High Input (HI) 1,136 140,920 Non-glutinous Rice HI, Dry Season Irrigated 1,852 248,120 Soy Bean HI, Dry Season Irrigated 1,538 130,760 Mung Bean HI, Dry Season Irrigated 1,710 150,460 Watermelon HI, Dry Season Irrigated 2,357 377,060 Uvland Crops Glutinous Rice Traditional 134 25,000 Maize Traditional 704 88,000 Mung Bean Low Input, Improved Variety 2,496 92,355 Cotton Med. Input, Improved Variety 2,251 191,300 Durian HI, Improved Var., 1-4 yrs old (139) (48,800) Durian HI, Improved Var., 15 yrs old 121,032 5,688,500 Animals Buffalo Improved Mgmt., Vaccinated 2,413 Buffalo Traditional Mgmt. 1,564 Buffalo Traditional Mgmt, Vaccinated 1,793 Cattle Improved Mgmt., Vaccinated 2,901 Cattle Traditional Mgmt. 1,924 Cattle Traditional Mgmt., Vaccinated 2,424 Sow Breeding Improved Mgmt., Vaccinated 3,589 Sow Breeding Traditional Mgmt. 4,574 Village Pig Fattening Traditional Mgmt., 5 pigs 11,290 Memo Items: 1. Average farm size: irrigated area is 0.97 ha; rainfed area is 1.39 ha 2. Per capita GDP in 1992: US$250 3. Agricultural wage rate (Kip/day): in the north is about 500; in the south and central is about 800 to 1200. 4. Official minimum wage in urban areas: Kip 933/day as of 1990. 5. Buffalo and cattle figures are per animal in herd. Sow breeding assumes one sow. Source: Extracted from Annex 2. 1.41 First, production of glutinous rice in the lowlands during the wet season, as currently practiced without (or with) high input use, is only marginally profitable as it fetches a return to labor of K 998 per day (K 1136/day) compared to the daily wage rate which ranges from K 500 to K 1200 per day, depending on area-specific demand for labor. In the upland areas, glutinous rice offers much lower returns to labor, K 134/day. The fact that traditional rice production is not very profitable may seem of little consequence since virtually all of it is produced for meeting family food needs. However, as producers increase their participation in markets, the option of moving to alternative use of resources should appear attractive, especially in the uplands. I - 1 7 - 1.42 Second, white (non-glutinous) rice, produced as an irrigated cash crop in the dry season with high inputs and a minimal charge for water (water is now largely free), is financially attractive; the return to labor is K 1852/day and both yields and output price are higher than in the traditional system. But it is important to note that other irrigated crops (watermelon, mungbean, and soybean) are similarly attractive as alternatives to dry season rice.25/ In the uplands, production of improved varieties of mungbean, cotton, and durian (a perennial crop) as alternatives to rice in the wet season is very attractive, fetching for each crop a return to labor of at least K 2,250/day. This compares well with maize production, which under the traditional system has a return to labor of only K 704/day. Livestock production (cattle, buffalo, and pigs) is also very attractive; returns to labor range from K 1,564/day for each buffalo, using traditional herd management, to K 11,290/day for village pig fattening. 1.43 The Response of Agricultural Production to Prices . A relevant question to ask is whether and how much Lao farmers would increase agricultural production to take advantage of increased profitability of agriculture. In the absence of producer price data for Lao PDR, the answer is based on a review of econometric results of East Asian economies (table 1.4) as well as Sub-Saharan African economies (Annex 4). For rice, short-run elasticities range from 0.01 to 0.7 for the philippines. For Northeast Thailand in particular, where agro-climatic conditions and cultural practices are most comparable to those in Lao PDR, the short-run price elasticity is 0.23.26/ Long-run elasticities for rice range from 0.02 in the Philippines to 1.35 in Malaysia. Long-run elasticities for cassava and maize from specific areas in Thailand have been found to be quite high, 1.09 and 2.29 respectively. The review of short- and long-run price elasticities clearly confirm that farmers in East Asia would respond to profit opportunities by producing more. Since the farmers are in a similar agricultural setting and socio-economic environment as those in Lao PDR (particularly those in Northeast Thailand), one can fairly conclude that lao farmers would increase agricultural production in response to increased profitability. A key question, though, is: How would Lao farmers expand production to take advantage of profit opportunities within the next six years? Would expansion in production be realized through extensification, intensification, substitution with higher value crops, or a combination of some or all of these factors? These questions are addressed in the following sections. 25/ It should also be noted that the profitability of rice production, relative to these other crops, would fall significantly if water were to be fully costed since flooded rice production consumes so much water. 26/ At the time of the study cited in the table, most of the rice produced in the Northeast was glutinous rice, and much of the rice area was under shifting cultivation, as in Lao PDR today. - 18 - Table 1.4. Supply Elasticities of Food Crops in Southeast Asia Crop Country Period Price Elasticities Short-run Long-run Rice: Thailand a/ Northeast 1940-63 0.23 0.30 Central 1940-63 0.18 0.32 National Avg. 1940-63 0.18 0.31 Philippines b/ 1910-41 0.01-0.08 0.02-1.16 Philippines b/ 1972-74 0.4-0.7 0.7-1.0 Indonesia b/ 1951-62 0.33 Malaysia b/ 1951-62 0.23 1.35 Maize: Thailand a/ 8 Central prov.s 1950-63 1.03 2.29 Philippines b/ 1910-41 0.09 Philippines b/ 1948-64 0.12 Cassava: Thailand a/ Rayong Prov. 1955-63 1.09 1.09 a/ From Behrman (1968). b/ From Tsakok (1990). 1.44 Agricultural Extensification. The extent to which Lao farmers can increase agricultural production through increased use of labor-saving technology in expanding cultivated area depends not so much on the availability of uncultivated land as: (i) on the availability of labor-saving technology; and (ii) on whether the savings in labor costs outweigh the cost of technology.27/ In Lao PDR, labor-saving technology (other than rice milling) has been introduced mainly in land preparation, but the introduction has varied according to farming system, the cost of labor and access to markets, and technology services. In some areas where slash and burn is practiced, mainly in the mountainous northern region, hand knives and axes are used to cut down the bush and tree cover, fire is used to burn it, and digging sticks are used to make holes for seeding. Under long rotations, this traditional technology uses little labor between the time the field is burned and the crop is harvested. With fallow periods now reduced to an average of 5 years or less in several provinces however, weeding has become quite labor- demanding. About four weedings per crop are necessary in these areas (World Bank, 1993a: pp. 14 and 26). Most labor-saving technologies such as herbicides are not economically feasible because upland farmers lack access to markets for agricultural produce. Hence, there is virtually no scoDe to increase planted area. Indeed, the government's goal for the next six years 27/ Good surplus land is generally available in most of the southern and central regions of the country. In the north, land is becoming increasingly scarce as reflected in a reduction in the fallow periods (see World Bank, 1993a). Even with surplus land being available, the decision to use labor-saving technology must be based on whether the technology can pay for itself and leave a surplus for the farmer. i - 19 - is to reduce shifting cultivation (used largely to produce rice) by 5-10 percent while encouraging rice cultivation in mountain valleys. 1.45 In the rest of Lao PDR (southern and central regions), draft animals (buffalo) are used for land preparation except in the peri-urban areas, the areas along the Mekong rivers and the Bolovens plateau where rising labor costs, better market access, and profitable agricultural activities have enabled the introduction of small power tillers and tractors. The scope for area expansion on the basis of labor-saving technology is good in these southern and central regions because, on the whole, there are enough buffaloes and more could be bred if there was adequate demand for them. This conclusion is based on the mission's assessment of the current availability of buffaloes relative to cultivated land, and on the annual imports of tractors. For the country as a whole, current cultivated area per buffalo is 0.78 ha although there is wide variation at provincial level, ranging from 0.41 ha to 1.31 ha (Table 1.5. See also Table 6.4 in the statistical annex). Labor force availability is also favorable with a national average of 1.53 persons per cultivated ha; it too has a wide variation, ranging from 1.31 persons in Vientiane Province to 1.95 in Xiengkhuang. If one applies the rule of thumb that one buffalo and one person are needed to prepare one hectare of land a year, one reaches the conclusion that there are enough buffaloes in most provinces to support an expansion in cultivated area even in the short term.28/ Moreover, an annual average of about one thousand tractors have been imported officially in recent years to supplement these buffaloes. If current trends continue, the prospects for labor-saving technology look good, particularly since market access is going to improve with expansion of transport infrastructure. Table 1.5. Availability of Farm Labor and Buffaloes Population Farming Agricultural Area Cultivated Labor Force/ Population Labor Force Cultivated A.ea per Cultivated Ha ('OOOs) ('OOOs) ('OOOs) ('000 ha) Buffalo (ha) North 1,644 1,143 519 329 0.96 1.58 Central 1,302 780 354 - 234 0.81 1.51 South 1,523 1,049 476 317 0.65 1.50 TOTAL 4,470 2,971 1,349 880 0.78 1.53 Source: State Statistical Center, Vientiane, Lao PDR Note: Detailed data and notes are provided in Table 6.4 in the Statistical Annex. 1.46 AQricultural Intensification. In Lao PDR, opportunities for agricultural intensification as a source of agricultural growth in the next six years can be found mainly in the rice and livestock sub-sectors where some 28/ The rule of thumb is based on the fact that one buffalo can manage to do only one hectare during the tight cultivation season; it also requires one person to operate the buffalo. - 20 - experience is already accumulated: These include: Ci) use of improved rice varieties; (ii) use of chemical fertilizers (phosphate and nitrogen) and animal manure; (iii) double cropping in irrigated areas; (iv) supplementary feeding of livestock; and (v) improved animal health. All the second crop of rice in the dry season (about 15,500 ha or 55,000 tons in 1992) is produced as a cash crop primarily in Vientiane Municipality and Province and in the other areas with urban market access for inputs and outputs. The rice produced is the higher-yielding non-glutinous type, produced using a package of irrigation water and chemical fertilizers. Primarily because of limitations in market access, only one third of the dry season irrigable land is put into production. With improvement in transport infrastructure and market facilities in the next six years, more irrigable land is likely to be put into production. In addition, 125,000 ha of wet season lowland rice, which is produced using supplementary irrigation, could be intensified to produce a surplus for the market. At present, most wet season rice is produced for home consumption. According to the 1992 Annual Technical Report of the National Rice Research Program and Lao-IRRI Rice Research Project, use of improved rice varieties alone could increase yields by 20-30 percent while use of chemical fertilizer (mainly nitrogen and phosphates) could increase yields by 30-40 percent.29/ For this to happen, appropriate technical packages must be identified for various agro-ecological zones, and technical information and credit facilities must be disseminated to farmers. These are among the key issues to future growth addressed in Chapters 2 and 3. 1.47 In livestock, opportunities for intensification in the medium term are to be found mainly in pig fattening and supplementary feeding of proteins to buffalo and cattle during the dry season. Currently, input-intensive technology is more common in village pig fattening which, though supplies of feeds are inadequate in protein, is still a profitable activity (see gross margin analysis Table 1.3). Feed grains and root tubers are used to feed pigs, particularly in the northern region.30/ Supplementary protein feeding is needed for village pig fattening as well as for buffalo and cattle during the dry season in order to significantly improve their productivity. Intensification through improved feeding of livestock needs to be accompanied by vaccination against epidemic diseases and control of internal parasites in order to obtain maximum benefits. 1.48 Substitution with HiQher Value Crops and Livestock. Increased demand for livestock and industrial raw materials in Thailand have created opportunities to shift (at the margin) away from rice to these higher value agricultural activities.31/ This shift is reflected in higher growth rates being registered in the latter than in the former (see para 1.18). Increased demand for livestock has also led to a rise in demand for feed grains and tubers which are producible as a substitute for and are more profitable than rice, particularly in the uplands where rice production in a short-rotation slash and burn farming system is unsustainable. Further substitution for rice in the uplands could be made through agro-forestry (teak, tree crops such as coffee and tea, cardamom, medicinal plants, and fruit trees), cotton, and 29/ These incremental production figures are not additive. 30/ Duiring periods of famine, the farmers eat these grains and tubers. 31/ An analysis of profitability indicates that these non-rice crops and livestock produce higher returns to land and labor (see Table 1.3). i - 21 - silk. It is certainly profitable, at the margin, for farmers to move out of subsistence rice to produce these higher value crops and livestock for the domestic urban market and for export to Thailand. To attain robust growth in the agricultural economy, it is important to encourage these substitution trends by abandoning the rice self-sufficiency policy, widening access to markets through increased investments in transport infrastructure, and improving government support services for credit and agricultural research and extension. These are among the key issues to future growth discussed in Chapters 2 and 3. 1.49 Availability of Markets. Availability and access to markets are probably the most critical determinants of future sources of growth for Lao agriculture. Given the small domestic market, international trade must play an important role. But so far, official exports appear to have played a limited role in economic growth, amounting to 11 percent of GDP in 1992. The opportunities for increasing its market share are high since Lao PDR is a small exporter with no influence on prices and quantities traded on the world market. 1.50 One highly demanded product is timber. While there is strong export demand for logs, exports will be constrained by the need to limit logging to a rate that can be sustained over generations. Accordingly, the Government has established log production quotas which, in the early 1990's, have stabilized at 275,000 m3 p.a. For the next six years, it is expected that the production quota will remain at that level, consistent with the recommendations of the Forestry Action Plan.32/ Other traditional exports including wood products, coffee, and assorted forest products will continue to find markets so long as they are price-competitive. Projections by the World Bank's International Economics Department indicate that long term prices for high quality logs, cut wood, beef, and coffee would be higher than were recorded in 1993. 1.51 Export opportunities have opened up for Lao horticultural products in Thailand. A recent survey of agro-processing industries in the northern and northeastern provinces of Thailand indicated that many are operating significantly below capacity (Bourne, 1993). Some of the Thai companies have already taken initiatives to provide agricultural inputs to Lao farmers in return for supplies of agricultural produce for processing in Thailand. Specific commodities of interest include: tomatoes, oranges, maize, green beans, asparagus, groundnuts, soybeans, sesame, cotton, bamboo, and agro- forestry products. 1.52 In addition to official exports, there are significant exports of livestock which are transacted unofficially.33/ Demand for Lao cattle and buffalo is expected to remain strong, with Thailand being the primary market. With continued economic recovery in Viet Nam, it is likely that it will become a net importer of livestock toward the Year 2000; this would provide Lao PDR with an additional market. Exports of live animals have largely been 32/ This report does not go into details of trading in logs and forestry products as these have already been covered elsewhere (See World Bank, 1993a: pp. 11-12.). 33/ The estimate for 1992 is US$15 million. Unofficial exports of logs may total US$3 million. - 22 - unofficial in part dlie to the inability of Lao exports to meet health standards, but also because of high import duties in Thailand which have induced importers to by-pass them. 1.53 Unlike the export market, the domestic market for agricultural produce in Lao PDR is relatively small because the bulk of the population consumes most of what it produces (subsistence consumption). While the market is expected to expand with population growth and the commercialization of agriculture, low per capita incomes would nevertheless constrain market potential for the medium term. Within this limited market, there is demand for five sets of agricultural products: rice; fruits and vegetables; animal feed; fish; and industrial crops. For rice there are two markets, the urban market and the rural market to be found in the rice-deficit northern region. The urban rice market is largely supplied by peri-urban areas. However, there are also imports of about 10,000 - 20,000 tons p.a which could be replaced with domestic supplies. The rural market is estimated at 10,000 - 40,000 tons of rice-equivalent p.a. depending on the weather conditions. This market is currently met through commercial imports, primarily from China and Thailand, but also from Viet Nam and emergency food aid (in cases of major droughts or floods). This is supplemented by domestic supplies of maize, the less preferred root crops, and forest products. High transport costs have so far prohibited the supply of rice to the northern region by the rice-surplus southern and central regions of the country. 1.54 The domestic market for fruits and vegetables is again to be found in urban areas. It is estimated that about 60 percent of urban demand for fruits and vegetables is met by imports from Thailand and China. There is adequate supply of irrigation water in the dry season and suitable soils to produce the required horticultural products. However, there are constraints related to lack of market infrastructure and production technology, including access to seeds and planting materials. 1.55 What could prove to be an important source of future agricultural growth in the country is exploitation of the market for non-forage animal feed (quality feed) . This market is expected to grow with demand for livestock.34/ Quality feed is supplied by grain crops including rice, maize, peanut, soybean, and mungbean together with tuberous root crops (primarily cassava and some sweet potatoes) . Sugar is also a potential feed source for pigs, cattle, and buffalo although it is not currently exploited for that purpose. 1.56 Rice milling is estimated to yield bran and polishings equivalent to about 12 percent of paddy production, with a further 7 percent allowance for damaged grains and brewers waste likely to be used for livestock feed. Maize grain is used partially in the processed feed industry but also by the upland ethnic communities for pig feed. It is estimated that about 30 percent of maize production is consumed by livestock. The three principal leguminous crops -- peanut, soybean, and mungbean -- are currently consumed directly by Laotians (with some exported to Thailand) since the only oil extraction press at the Tha Ngone is not currently in use. It is estimated that only about 5 percent of output is fed to livestock, mainly from damaged stocks. Root crops are grown primarily in mountainous areas where they are likely to play an 34/ Growth in demand for livestock products is reflected in the stability of real meat prices since 1987 despite an 18 percent increase in meat production per capita. Surprisingly, visits to two abattoirs in 1993 revealed that 60 percent of the animals used were brought from Viet Nam. 23 important role in pig nutrition. An estimated 40 percent of production is consumed by livestock.35/ The expected strong demand for livestock in domestic and regional markets is expected to increase demand for quality feed. There is considerable scope to expand production to meet this demand provided some constraints, covered in the next chapter, are addressed. 1.57 About one third of national protein consumption (7-8 kg/head) is derived from fish. However, declining yields from fish catches from the Mekong and other rivers which have been the primary source of fish have led to rapid increases in fish prices (in real terms), and have created a scenario for growth in this sub-sector. An aquaculture industry has sprung up recently, primarily operated by rural smallholders or peri-urban dwellers, to meet the shortfall in river fish. But production is not yet extensively commercialized. Production systems utilize small dam ponds, bomb craters, and more recently, flooded rice fields. With the expected strong growth in demand for livestock, demand for fish will also continue to rise. This demand should provide an impetus for growth in aquaculture provided there is an adequate supply of good quality breeding stock and extension support for small farmers. 1.58 There is also an existing market in Lao PDR for industrial crops including tea, tobacco, cotton, sugarcane, and mulberry (for silk) which are absorbed largely by cottage industries. While there are no major expansion plans under way, increased production could create its own demand by improving the feasibility of setting up new processing factories. An Outline of Key Issues for Growth 1.59 From the above analysis, it is clear that there are profitable opportunities and ample demand to drive agricultural growth through intensification, some extensification, and substitution with higher value crops and livestock. However, there are also formidable constraints to agricultural growth. These constraints are not insurmountable provided the government takes decisive actions to tackle them. The mission has selected four issues to form the cornerstone of its recommendations for government action in the next six years: (a) unfinished reforms in the transition to a market economy, mainly to do with the development and regulation of factor and commodity markets (see para. 1.38); (b) institutional limits on the role of Government (see para. 1.35); (c) undeveloped technology and support services (see para. 1.36); and 35/ Viewed as an inferior food by most Laotians, root crops are normally eaten only during periods of famine. - 24 - (d) inefficient allocation of public expenditures (see para. 1.25). The first of the above issues is the subject of Chapter 2 while the other three issues are covered in Chapter 3.36/ 36/ Some issues, while important to agricultural development, have not been made the central focus of the report for various reasons. These include: (i) transport infrastructure; (ii) natural resource management; and (iii) targeted interventions for poverty reduction and social development. Transport infrastructure is a high priority of the government and there is already a sound government strategy for its development (see para. 1.31). This report would not add any value to the work already done except to emphasize the critical importance of linking investments in transport infrastructure to areas of agricultural potential. Likewise, natural resource management has already been addressed in the framework of the proposed Forest Management and Conservation Project and the government's Environmental Action Plan. As for targeted interventions for poverty reduction and social development, these are being addressed under the World Bank's Poverty Assessment work currently underway (see World Bank, 1994a and 1993a). - 25 - II. COMPLETING THE TRANSITION TO A MARKET ECONOMY 2.1 This chapter reviews progress in moving the agricultural economy from central planning to a market system, with a special focus on the issues that remain to be addressed. It is important to note up front that the government has done much to disengage itself from the economy in order to yield to the private sector. The latter has taken advantage of the new opportunities and grown in dynamism as reflected in increased inter-provincial and international private trade, increased foreign investment, an active privatization program, and availability of an increased volume and variety of consumer goods. However, the reform agenda for establishing an efficient market system is yet to be completed. The Government is still active in areas where it should not be, primarily through central planning and ownership of productive assets; product markets are segmented and inefficient; factor markets are underdeveloped; and macro-economic and agricultural policy frameworks have made the agricultural sector unattractive to investors who would rather invest in other sectors. To edge closer to an efficient agricultural economic system, the following measures should be undertaken: (a) complete the change from the central planning system, based on setting of production targets, to indicative planning, based on sector and sub-sector strategies; (b) improve the efficiency of commodity markets; (c) develop rural factor markets; (d) improve agricultural incentives; (e) promote private investment; and (f) improve the effectiveness of the privatization program. A. Abandoning Central Planning and Production Targets 2.2 At present, the Ministry of Agriculture and Forestry (MAF) sets annual production targets for the nation as a whole and for every level of government, from the central and provincial levels all the way down to the village level. The government staff are required to work toward the achievement of production targets. While the setting of production targets is a normal policy instrument within a command economy, it is counterproductive in a market-oriented economy where markets are the principal allocators of resources. In Lao PDR, the state no longer controls most of the prices and production inputs (except public ones), nor does it control the production decision-making process of the thousands of farmers in the country. Farmers allocate their land, labor, and limited capital resources on the basis of what they need in order to meet family food and market requirements and what they perceive as the most profitable product mix, given the risks they face. It is these individual decisions and the resulting output which, in aggregate, constitute the agricultural "wealth of nations". 2.3 One could correctly argue that the production targets set by the Government are disregarded by farmers and therefore have no effect on resource - 26 - allocation decisions of farmers (other than the requirement that only rice be produced in some government-sponsored irrigation schemes). But this cannot be interpreted to mean that the production target-setting system has a neutral effect on agricultural growth. There is enough evidence to indicate that the system of setting production targets is harmful to growth. By setting production targets and directing what farmers should produce, the state reduces the economic growth potential that could be delivered by the market- based system. Here are two examples to demonstrate how the setting of production targets has led to inefficient use of resources and thereby reduced opportunities for agricultural and economic growth. First, we start with rice, which is produced under the national rice self-sufficiency policy. Because the Government regards producing enough rice for the country as a critical goal, a large portion of the capital expenditure budget is allocated to irrigation (43 percent of the agricultural capital budget for agriculture in 1993) in order to achieve a national rice production target that would meet the rice requirements of the country.37/ If there were a nationally integrated market that could absorb rice supplies from surplus areas and if rice production were a profitable proposition for farmers, then a national self-sufficiency policy for rice would probably have a minimal negative impact on the agricultural economy. But this is not the case. There is no nationally integrated market since the major rice deficit areas in the north are economically isolated from the rice surplus areas in the south and are better connected to neighboring countries that supply rice much more cheaply. The central and southern regions that have the potential to produce large surpluses do not have a market for them (para. 1.53). Therefore many of the farmers neither have a market nor an incentive to produce more rice. Yet, some of the government-sponsored irrigation schemes have, until recently, required that only rice be produced. Despite this requirement and irrigation water being virtually free, only 30-40 percent of the dry season irrigation capacity is utilized by farmers.38/ It is certainly a poor use of scarce resources to require farmers to produce rice that has no market when they could as easily produce marketable alternative crops. It is also an inefficient use of public resources to invest in more irrigation schemes when the existing ones are under-utilized. 2.4 The second example relates to the use of agricultural staff to coordinate and monitor the implementation of production targets. The primary duty of agricultural field staff would normally be to disseminate information to farmers on improved and appropriate technology, and to provide a feed-back to researchers on the farmers, technology needs. The performance indicator would normally be the number of farmers that have successfully adapted the technology. But this is not the case in Lao PDR. Mission interviews with agricultural staff in the field and records at the MAF headquarters indicate that performance of agricultural extension staff has been measured in terms of the extent to which their administrative area of work was able to achieve a production target set for it, and not how many farmers have adopted a certain 37/ In 1993, the national rice production target for the main season was 1.6 million tons of paddy, determined on the basis of the estimated population and a per capita rice requirement of 350 kg of paddy (or 210 kg of milled rice). 38/ In the lowlands, farmers, usually grow enough rice to meet family food needs during the main wet season. They only produce rice during the dry season as a cash crop. i - 27 - technological package in question.39/ These findings were verified with technical assistance personnel that have been working with agricultural extension staff in some donor-supported projects. Donor-assisted projects have found it difficult to introduce standard extension monitoring systems because the agricultural staff have been accustomed to measuring performance against production targets set for their areas. Moreover, the drive by agricultural staff to work toward the attainment of production targets has led to over-reporting agricultural production in order to indicate successful achievement of targets. This has compromised the accuracy and reliability of agricultural statistics (see Annex 1). Rather than focusing on setting production targets, measuring performance against plan targets, and preparing quarterly progress reports, such personnel would be more productively deployed to collect more accurate agricultural statistics that could be used to evaluate the performance of government policies and programs. 2.5 Clearly, the whole exercise of planning on the basis of production targets is an inefficient mechanism for resource allocation and should be completely abandoned. In its place, the Government should increase emphasis on improving the efficiency of markets and developing an enabling environment in which the private sector, including farmers, can excel. While Government policy has, since 1991, started shifting from production targeting to indicative planning, the change has been slow. The Government should move faster to formulate sector and sub-sector strategies and programs, with measurable objectives linked to indicative targets. B. Improving Efficiency of Commodity Markets 2.6 An important indicator on how far the economy has gone from central command to market orientation is how efficiently the markets are operating. In a market-based system, prices indicate resource scarcities and in turn direct the flow of resources to produce the greatest returns. This would be the case if markets are working efficiently, free of distortions. In this section we try to assess the efficiency and the extent of distortions in product markets, with particular focus on rice. We use two indicators to gauge market efficiency, namely: (a) differences in inter-provincial prices relative to transportation costs; and (b) differences in inter-seasonal prices relative to storage costs. 2.7 Inter-provincial Price Differentials. In a well-integrated market, surplus production would move to deficit areas as long as the difference in price between the surplus and deficit areas exceeds the transport costs. Few price series exist that can confirm or reject the hypothesis that the rice market is integrated. The one available that covers a relatively long period and a significant proportion of the country is that for glutinous rice which has monthly data for the whole of 1992 and the first 10 months of 1993. It covers Vientiane Municipality plus six other provincial centers. Price differences between Vientiane and three provincial centers have been computed 39/ It is questionable that aglicultural staff can help achieve the production targets when they have no control over the decisions of individual farmers. - 28 - for 1992 and the 10 months of 1993, and compared with the estimated cost of transport between Vientiane and the respective provincial centers (see Table 2.1 below). Table 2.1. Average Price Differentials and Transport Costs Between Vientiane Municipality and Other Provincial Centers (K/Kg) Average Price Difference 1/ Transport Provinces 1992 1993 Cost 2/ Luangprabang 73 53 20 Savannakhet 59 34 25 Champasack 76 31 36 Xiengkhuang 113 N/A 22 1/ Price of glutinous rice in Vientiane M. minus regional price. 2/ Based on a commonly charged freight rate of 0.05 Kip/Kg/Km on a good road. Source: Derived from Tables 2.2 and 2.3 in the statistical annex. 2.8 For the southern provinces of Savannakhet and Champasack, price differences with Vientiane Municipality are quite close to the transport costs, implying a reasonably good integration in the respective markets during 1993. However, for the same provinces in 1992 and for Luangprabang (in the north) in both 1992 and 1993, the price differences far exceed the transport costs. For Vientiane and the southern provinces, this is an anomaly.40/. In the case of the northern province (Luangprabang), price differences with Vientiane Municipality are much higher than the standard transport costs for both years, implying that there is little trade going on that would otherwise have arbitrated the prices. This would indicate that the market in the north is not integrated with the one in the south.41/ These findings are consistent with the initial investigations by the Pilot Project for the Development of the National Food Security Program (FAO/Italy) which have found that: (i) rice prices in Vientiane Municipality and in the southern provinces are closely related and the price difference is largely made up of the transport cost; and (ii) there is little sign of rice being transported from the south and central provinces to the north beyond Vientiane. 2.9 Inter-Seasonal Price Differentials and Storage Costs. Efficient storage plays a key role in stabilizing prices between seasons. Seasonal price differentials can shed light on the level of development and efficiency of storage in Lao PDR. If the storage function (including storage costs, storage losses, and interest charges on invested capital) was well developed and efficient, the difference between the highest and lowest price in the crop 40/ This could be a reflection of rice shortages in Vientiane Municipality and Province in 1992 following a poor drought-affected harvest in 1991. 41/ Were trade to have taken place, rice would have flowed from the north (Luang Prabang) to Vientiane since prices are lower in the former. - 29 - cycle would be close to the costs of storage including interest charges, and this price difference would not differ greatly between years. We cannot test the first hypothesis because we do not have data on storage costs for different provinces and localities. However, we have some monthly price data for 1992 and the first 10 months of 1993 for Vientiane Municipality and six provincial centers which we can use to test the second hypothesis. We present in Table 2.2 the monthly maximum and minimum prices of glutinous and white rice for nearly two years. Table 2.2. Rice Price in Selected Provinces, K/kg., 1992 and 1993 1992 1993 (Uan-Oct) Max Min (1/2) Max Min (3/4) (1) (2) (3) (4) Vientiane M.: glutinous rice 300 215 1.40 200 190 1.05 white rice .. .. .. 400 275 1.45 Luangprabang: glutinous rice 220 150 1.47 180 137 1.31 white rice .. .. .. 400 150 2.67 Savannakhet: glutinous rice 243 160 1.52 183 152 1.20 white rice .. .. .. 250 153 1.63 Champasack: glutinous rice 200 240 1.43 183 150 1.22 white rice .. .. .. 370 180 2.06 Xiengkhuang: glutinous rice 160 130 1.23 Vientiane: glutinous rice 235 166 1.42 Khammouane: glutinous rice .. .. .. 235 150 1.57 white rice .. .. .. 325 235 1.38 Note: .. not available. Source: State Statistical Office. 2.10 From the Table, we observe that the maximum/minimum price ratios were substantially higher in 1992 than in 1993 for glutinous rice.42/ While we cannot draw a firm conclusion based on observations covering only two years, it is nevertheless clear from the data that the storage function did 42/ We cannot make a similar observation for white non-glutinous rice because we have no data for 1992. While we have no data on storage costs against which to compare the differences between maximum and minimum prices, it is clear that the latter is greater than can be explained by the normal costs of storage and interest charges. - 30 - not work to normalize price swings across years for a crop which is non- perishable and could be stored over several years.43/ 2.11 Little is known on the storage of rice in terms of the size of stocks and the stock building/release activities, let alone their costs. It is often claimed that much storage takes place at farm level, particularly in the southern and central provinces which are surplus producers of rice. The millers also store some rice but largely as working stock. In the rice deficit northern region, so-called storage rice banks are now quite common. Whatever storage capacity there is, it has failed to keep down intra and inter-seasonal price differentials. 2.12 General Conclusions on the Efficiency of Product Markets. The above analysis of rice markets indicates that: (a) the marketing of rice in at least the key rice surplus southern provincial centers is weakly integrated with the main urban rice market offered by Vientiane Municipality; (b) the rice market in the northern region is not integrated with the markets in the southern and central regions; and (c) the storage function is not yet developed, resulting in high intra-seasonal and year-to-year price swings. 2.13 The marketing of other crops is even more undeveloped and inefficient. For example, in the case of coffee, the number of traders is limited; and the only two processing factories in the country have antiquated machinery which produce poor, ungraded coffee. While the low quality coffee could be absorbed by the COMECON market under past barter deals, demand for it in the convertible currency countries has been limited and coffee is absorbed only at a significant price discount. The low prices have been a disincentive to the improvement of coffee, especially pruning and stumping of coffee, although recent improvements in world coffee prices in 1994, combined with higher trading activities in Lao PDR, have led to a more than 50 percent increase in farmgate prices. 2.14 Other agricultural sub-sectors with marketing difficulties include feed grains (soybeans and maize) which used to be purchased by the Tha Ngone Feed Mill, the only feed mill in the country. The mill's processing line for the high quality feeds (for chicken and pigs) has been out of operation for several years, resulting in a great disappointment to the farmers for whom the feed mill was the only market44/. A new market has been found in Thailand, but Lao exports face a combination of import duties and quotas. 43/ From the table, one can observe that price differences within one year are much higher for white rice than for glutinous rice. Probably the greater swings in prices of white rice are due to the fact it competes with imports and is produced as a second and cash crop for a small market limited to the expatriate community. 44/ The processing line producing high quality feed has been out of operation because of inferior and uncompetitive products compared to imports. 2.15 Livestock Markets as an Exception to Inefficiency. Unlike the marketing of crops, livestock is marketed reasonably efficiently in the domestic market. This is primarily because live animals can be walked on foot for long distances to the nearest road or water transport point, thus overcoming the major problem of market access; in addition, live animals are a high value and unperishable commodity.45/ However, the story is different in the export market where livestock faces trade and quarantine barriers. In the case of cattle, trade barriers in Lao PDR (5 percent export tax) and Thailand (20 percent import duty) and quarantine charges in Thailand have driven a strong wedge between beef prices in Lao PDR and Thailand. For example, a comparison of retail prices in Chang Mai (Northern Thailand) and Vientiane (Lao capital) indicate that beef prices are nearly twice as high in the former as in the latter (see Table 2.3).46/ This results in Lao farmers getting much less for their cattle compared to Thai farmers. Table 2.3. Retail Meat Prices in Lao PDR and Thailand Beef Pork Chicken (US$/kg) (US$/kg) (US$ each) Lao PDR a/ 2.5 2.8 2.8 Thailand b/ 4.5 - 5.0 2.8 2.2 a/ Vientiane Market; boneless beef. b/ Chang Mai, retail. 2.16 Causes of Market Inefficiencies. The mission has identified at least four factors behind inefficiencies in commodity marketing which should become the focus of government action: (a) controls on the movement of goods across provinces; (b) restrictive licensing and registration of businesses in trade; (c) a limited number of participants in some markets; and (d) government intervention in markets in the way of direct trading, distortional methods of enforcing technical quality standards, implicit price setting, and preference of big to small traders. 2.17 Controls of Goods and People. Until recently, the movement of people from one province to another was controlled. This discouraged inter- provincial trading, especially petty trading. While controls on people were lifted in early 1994, controls on the movement of goods are still in place. These controls are indirect in that they are an outcome of taxes collected at provincial level. The most limiting one is the 5 percent turnover tax which 45/ It should be noted that walking animals on foot for long distances reduces their value;often, the animals have to be fattened at their place of destination before they are slaughtered. 46/ Retail prices for pork and chicken in both cities are not significantly different. - 32 - has to be paid before, goods are permitted to move across a provincial border. If already paid, a stamp duty has to be paid to offset the cost of verifying the turnover tax. Both the turnover tax and stamp duty add to the costs of doing business although it is not clear how much impact they have on business costs. Besides the taxes themselves, there are also costs related to delays in the processing of these taxes. 2.18 In addition to the above taxes, there are some taxes charged by individual provinces and municipalities. For example, Savannakhet charges a poll tax on livestock. This tax too has to be paid before livestock is moved from the province. The tax not only slows down the speed of doing business but also deters farmers from bringing out their animals to vaccination centers. 2.19 This report is not arguing against taxes in principle; rather, the argument is that taxes should not introduce inefficiencies in commodity marketing. For the turnover tax in particular, consideration should be made to making the tax economically neutral by, for example, incorporating it into the land tax. 2.20 Licensing and Registration of Businesses. Procedures for registration and licensing of trade, particularly export/import trade, are ambiguous and at times long and complex. For major trade businesses, registration is done at the headquarters of the Ministry of Commerce and Tourism (MCT) or through the Commercial Services in the provinces. For minor domestic trade, like rice milling and marketing, it is done by applying to local municipalities or districts which in turn report to the Provincial Commercial Services. After receiving a business license, a business must be registered again at the Ministry of Finance (MOF) for tax purposes, and is then issued a yearly license of operation called a patent. There is a third requirement for registration for trading in what the Government regards as strategic commodities, like coffee, for which a local license is necessary to trade in a specified area. 2.21 Furthermore, the provincial authorities interviewed by the mission stressed that their Commercial Services have a role to play in using the licensing procedures to ensure fair prices by screening traders and providing pricing guidelines to them. Apparently, the central government does not agree with the provincial licensing of strategic commodities, yet it has not been able to stop the practice or to issue directives to the provinces to stop it. Concerns about unfair prices should be addressed by means which do not distort markets. 2.22 In addition to the registration requirement, export/import declarations (licenses) must be issued by the Commercial Services of the provinces, or the MCT, for each contract. Sometimes this presumes that a technical control procedure has been undertaken by the Ministry of Agriculture and Forestry (MAF). In the case of rice importation, each province makes an assessment of the perceived rice needs and issues permission to import only up to that level. Each imported shipment of goods requires an approval by the way of an import declaration. 2.23 In addition to trade registration and trade declarations, imports of agricultural inputs like fertilizers, pesticides, insecticides, veterinary drugs and seeds are subject to technical controls requiring approval (and sometimes testing) by the MAF. Thus, fertilizers have to be approved by type, - 33 - a sample bag tested to confirm it meets the technical specifications, and the shipment again analyzed by the MAF staff at the point of arrival. Seed imports require a quality certificate before approval to import is granted. Chemical imports must be screened before an approval is issued that enables an importer to continue the process with the MCT. 2.24 Clearly, the above trading procedures involving business registration at MCT, MOF, and at the provinces, the declaration of imports, and the enforcement of technical controls by the MAF are time-consuming. These procedures are costly in that they increase the costs of doing business. These costs are ultimately borne not by traders but by Lao farmers. Some of the procedures, like licensing at provincial level, should be eliminated without question. The rest of the licensing procedures and bureaucratic enforcement of technical standards need to be reviewed with a view to significantly revising them. 2.25 The Number of Market Participants. Another indicator of market efficiency/competitiveness is the number of participants in the market. The mission attempted to estimate the number of dealers in business in the most recent period. This proved to be a cumbersome exercise with some shortcomings because: (i) small traders are in many cases not registered; (ii) registration of a business is not tantamount to trading since some registered dealers are inactive; and (iii) there are delays in and incomplete reporting to central authorities of the registrations made in the provinces. Therefore, what is presented in the following paragraphs should be seen as illustrative of the situation as reported by the MCT and the MOF. 2.26 Records of MCT indicate that 380 enterprises were registered as export/import businesses in 1993, of which 280 were registered in Vientiane Municipality. of these, only 212 had patents (registration with MOF) and even fewer actually imported or exported - only 121. Six companies, registered in Vientiane Municipality, dealt with imports of agricultural machinery and inputs while 16 and 5 companies were registered to deal with exports of coffee and tea, and of agricultural products, respectively. Realizing that the list of enterprises poorly reflects the actual situation, MCT is attempting to update the figures to better reflect the number of companies actually doing business. Nevertheless, on the basis of this limited information there is no reason to believe that the number of companies dealing with export/import business is inadequate, particularly if these companies are reasonably large. In the absence of data on the volume of business handled by each company, we cannot make any firm conclusion on the adequacy of the participants in international trading. 2.27 Records of MOF's patents, issued centrally, and predominantly referring to businesses registered in Vientiane Municipality and Province reveal that there is a smaller number of licensed small and medium businesses than large ones, and registered private export/import businesses declined over the 1992/93 period (Table 2.4). The Table demonstrates a decline over the periods in state enterprises overall and by sectors except for services. The semi-state enterprises have also declined overall and by sector except again for services where an increase is recorded. Surprisingly, private enterprises have also declined with a heavy drop in enterprises in export/import but with partially offsetting increases again in services and in production. As should be expected, more enterprises renew their licenses in the second period than in the first. New applications in the second period fall short of the level recorded in the first period, leading to a lower total number of licensed - 34 - enterprises in the second period. Looking at the overall figures by sector for the two periods, production enterprises stay unchanged, extremely few domestic trade companies are on record, while export\import companies decline substantially, contrary to services where an increase is recorded. Assuming these trends cannot be attributed to poor data and reporting problems, it is important to know why fewer licenses were issued the second period and why the export\import sector lost its attractiveness in the second period. Table 2.4. Issue and Renewal of Business Licenses Type of Enterprises Renewed 1 Renewed 2 New 1 New 2 Total 1 Total 2 State 93 84 16 5 109 89 Production 32 27 6 38 27 Domestic trade 3 1 3 1 Export/import 17 15 6 23 15 Services 41 41 4 5 45 46 Semi-state 28 34 15 5 43 39 Production 8 9 4 3 12 12 Domestic trade Export/import 10 11 8 18 11 Services 10 14 3 2 13 16 Private 172 233 298 122 380 355 Production 49 77 67 48 116 125 Domestic trade 2 1 1 2 Export/import 58 65 91 25 149 90 Services 65 89 49 49 114 138 Total 293 351 239 132 532 483 Production 89 113 77 51 166 164 Domestic trade 3 3 1 0 4 3 Export/import 85 91 105 25 190 116 Services 116 144 56 56 172 200 1/ New and renewed licenses: 1 = Period 1/1/92 - 11/30/92 2 = Period 1/10/92 - 09/30/93. Source: Ministry of Finance, Tax Department. 2.28 The Government should review the impact on market efficiency of: (i) a smaller number of licensed small and medium scale traders compared to large scale traders; and (ii) the decline in the number of licensed private traders in the export/import sector. Clearly, increasing the number of traders is good for market efficiency. It reduces market power, leads to greater competition, and consequently, lower prices and better services to customers. - 35 - 2.29 Intervention in Markets. Government intervention in markets is an important source of market inefficiency in Lao PDR. The most harmful interventions have been: (i) technical quality controls; (ii) government trading in agricultural inputs; (iii) manipulation of prices by provincial governments; and (iv) preference of big businesses over smaller ones. First, we consider direct government intervention by trading. In the area of agricultural inputs, the government had a monopoly in the importation of fertilizer but has now reduced its involvement to handling donor-financed imports. Government-owned banks have also at times imported and distributed fertilizer. Within government, MAF has been responsible for importation and distribution of fertilizer although arrangements are now underway to transfer that responsibility to the MCT. During 1992/93, MCT records show that the Government imported 4,300 tons of fertilizer (under Japanese aid called KR2) in March 1993 while private companies in Vientiane Municipality imported 3,300 tons of fertilizer from September 1992 to September 1993. Private importers interviewed by the mission in Vientiane Municipality and Pakse made it clear that the Government is still perceived as the market leader in the importation and distribution of fertilizer. However, the Government maintains that its involvement in the trading of agricultural inputs is limited to areas where there are no private traders and during emergencies. 2.30 Competition between the Government and the private sector in fertilizer importation and distribution is not on equal terms. Government is torn between a desire to provide producers with inputs at prices regarded as fair by farmers and to encourage private trade in inputs. In Luangprabang, the province's Commercial Services office was, in 1993 and 1994, distributing fertilizer and even repacks it into smaller quantities. In Pakse, the province's Commercial Service has operated alongside private importers and distributors; the Commercial Service was selling urea at K 8,500 per bag in October/November 1993 when the private distributors were charging K 11,500 per bag. The provincial government was able to sell fertilizer more cheaply because its fertilizer was imported duty-free, and the various handling and storage costs were not passed on to the farmers. Despite the provincial government's fertilizer being cheaper and sold to farmers with interest-free credit (but a 25 percent down payment), private distributors have been able to stay in business because they provide more timely and better delivery services, and their. transaction costs have been kept down. Clearly, the continuation of Government in trading will continue to hamper the development of the private sector. This will in turn continue to depress market efficiency. Since private traders are available to undertake the business more efficiently, the Government should completely disengage itself from fertilizer trading. 2.31 Second, the Government has hampered market efficiency through questionable technical quality controls which cause delays in the importation and distribution of agricultural inputs (see para. 2.23). While there is no doubt that the importation of agricultural chemicals and seeds should be regulated for health and public safety reasons, such regulations should be simple enough to avoid stifling competition and efficiency in importation and distribution. The existing technical controls could be replaced by a positive list of recommended agricultural inputs, accompanied by simple instructions and a requirement of quality certificates, to be administered by customs officials rather than MAF. 2.32 Third, the Government has hampered market efficiency through measures aimed at obtaining prices different from those that the market - 36 - fundamentals of demand and supply would otherwise generate. While these practices are to be found mainly at the provincial level, declines in rice and coffee prices in 1992 and 1993 have led to increasing pressure even from important sections of the central government to call for protection of farmers against low prices.47/ Areas in which the provincial governments have intervened in markets to obtain prices that are regarded "fair" include fertilizer distribution and coffee purchasing. In fertilizer distribution, the principal justification for provincial Commercial Service offices to take over the business of distributing donor-financed fertilizer is to ensure that farmers purchase it at fair prices. In the case of coffee, market intervention by provincial authorities is at the business registration stage where the provincial authorities insist that traders must receive approval from them, registration with the MCT notwithstanding. One of the criteria for business approval is that the traders must pay "fair prices" to coffee farmers. Another restrictive practice in the coffee industry is a requirement that all exporters belong to the Association of Coffee Exporters which charges a prohibitively high membership (registration) fee. This high fee is threatening to drive some exporters out of the coffee export business. While there may be good reasons to justify establishment of an association of coffee exporters, the charging of a high membership fee works as a barrier to entry into the export business and hence limits the number of exporters and, consequently, competition and the efficiency that is normally associated with it. 2.33 While Government intervention to improve farmer incentives is a laudable goal, doing so through means that undercut the market activities of private traders (like government trading in fertilizer) or restrict entry into trading (as with provincial registration of coffee traders and the requirement that they belong to an association that charges high membership fees) is a set-back to a smooth transition to a market-based economy. Moreover, these interventions have not stopped the decline in the terms of trade of agriculture (see Section D below). Appropriate instruments to make incentives available to farmers are use of macroeconomic policies which limit inflation, and support for productivity-enhancing measures that reduce per unit costs of production in farming. 2.34 Fourth, the Government, particularly at provincial level, has hampered market efficiency by showing preferences to big business in its registration procedures. There clearly seems to be a perception of "big is beautiful" that probably is a left-over from the central planning mentality which preferred collectives and large state enterprises in order to tap economies of scale. Access to licenses to trade in coffee are restricted by provincial governments in order to register only a few sound traders (see para. 2.21). Furthermore, it was reported to the mission that the type of foreign investors most desired for agriculture are those with large amounts of capital, especially in the livestock sub-sector, in order to exclude speculators. 47/ In the Vice Prime Minister's address to a joint session of the Party and Council of Ministers in February 1993, he called for support of farmers to enable an improvement in producer prices and, consequently, in production so as to achieve the targets of the Socio-Economic Development Plan to the Year 2000. - 37 - produce or forced to accept lower prices than envisaged because of lack of competition.48/ Contrary to the current practice of excluding small traders and investors, the small entrepreneurs/traders should be registered without discrimination and receive additional encouragement since they are able to: establish competition in remote areas where they can trade on foot or horse backs to buy small volumes of produce that are too uneconomical for the bigger traders to handle; increase often depressed producer prices at harvest time; cross the boundary between the monetized economy and the subsistence sector so as to reach out to the purely subsistence farmers; initiate small-scale processing activities; and knit together fragmented domestic markets. For all these reasons, the Government needs to convince provincial authorities that the growth of competitive private trading is vital to provincial and national economic development. It should also be noted that economies of scale do not often lead to efficiency that is particularly when there is inadequate competition. C. Developing Factor Markets 2.36 Factor markets were reviewed at length in the World Bank's Country Economic Memorandum (CEM) of 1994 (World Bank, 1994b) In this report, they will be reviewed in less detail, focusing mainly on key issues in the rural context that require government action. 2.37 Land Markets. Formal land markets have been out of existence since 1975 when the new regime dismantled the legal framework for land ownership and usufruct rights and nationalized many private properties. It also collectivized some land. While many of the cooperatives were inactive, they nevertheless remained on the books until 1988 when they began to disintegrate, following the Government's withdrawal of the previous incentives and the recognition of individual rights to land. At present, producer cooperatives are non-existent and most of the state farms have been privatized (see para. 2.85). All land now belongs to the state, but with provisions for individual usufruct rights. 2.38 Faced by the need to provide access to land to urban-based Lao investors and foreign investors who have no access to land under the customary land tenure system, the Government has undertaken legal steps to protect and broaden access to land use rights. In 1991, a constitution was adopted which enshrined the principle that land belongs to the state but individuals are guaranteed rights to use it. This was followed in 1992 and 1993 with a series of decrees: the land decree (12/19/92 No.99/PM); the land tax decree (3/93 No. 50/MOF); the property licensing and transfer decree (3/93 No.52/MOF); and the Forest Management Decree (3/11/93 No. 169/PM). Taken together, these decrees, which will be enacted into law when initial implementation experiences have sorted out some uncertainties, aim to define legal boundaries for government management of lands and procedures of land use rights. Land use rights can be inherited, transferred, sold, or leased, all of which are legitimately recognized by the state provided the land is duly registered and land taxes 48/ This has happened in the past where a few large traders would encourage farmers to produce a crop for them--mainly soybeans and maize--and would end up not showing up or showing up late as a strategy to buy the produce at low prices. 'A - 38 - are paid in full. The decrees also provide general guidelines for land use by resident aliens and foreign investors. 2.39 These decrees need to be implemented and land titles issued in order to: (i) encourage development of a land market to enable the use of land in the economic activity with the highest economic return; (ii) enable use of land as collateral by farmers when applying for institutional credit; (iii) encourage agricultural investment by urban-based Lao investors and foreign investors; (iv) encourage long term investment in land by all farmers; and (v) promote sustainable management of land commonly used by villagers and communities by eliminating open access and providing land use rights to these communities. The Government, in recognition of the urgency of implementing these decrees, has requested IDA support for their implementation in the framework of a Land Titling Project. 2.40 Some issues remain to be tackled to clear the way for successful implementation. First there is a shortage of skilled manpower, especially land surveyors, to be overcome through training and technical assistance. Second, cadastral maps made by the French colonial administration are fragmented and outdated; new aerial maps need to be made. Third, forestry land including commercial, conservation, and protected forests has to be demarcated. Support for this is included under a Forest Management and Conservation Project (Cr. 2586-LA). Fourth, the decrees provide for significant discretion in the approval, by the MOF Land Department, of land sales and transfers which could lead to counter-productive restrictions in the allocation and transfer of usufruct rights; this could in turn lead to inefficiencies in land markets. Fifth, cadastral surveying and mapping and the issuance of title deeds is an expensive undertaking. To mitigate the expenses and prioritize land mapping, the government has decided to proceed first with a cadastral survey program focusing on four main municipal areas: Vientiane, Luangprabang, Savannakhet, and Pakse. The surveying and registration costs will be recovered through charging for land transfers, sale, inheritance, or lease. Sixth, there are no clear guidelines and procedures for the resolution of disputes currently being handled by village committees, district administrative authorities, land management committees, line ministries, and people's courts. Resolution of these six issues is important and should be given priority by the Land Titling Project, due to commence in 1996, and the Forest Management and Conservation Project. 2.41 Rural Labor Markets. Agriculture employed 87 percent of the labor force in 1992. While employment in the non-agricultural sectors expanded under the NEM from 11 percent of the total in 1985 to 13 percent in 1992, agriculture must play an important role in the rest of this decade by providing sufficient productive employment to pre-empt unsustainable rural-urban migration. Already, rural-urban migration has pushed annual growth in the urban labor force to 6 percent while new entrants into the labor force are estimated at 53,000 p.a. (see World Bank, 1994b: pp. 37-69). Employment growth in the manufacturing and service sectors cannot absorb that number since new jobs in these sectors have averaged just over 10,000 p.a. Agriculture, the initial repository of that labor, has to play an important role in employment generation so as to keep that labor productively employed. 2.42 Within the agricultural sector, there is a dichotomy in the labor market. On one hand, there are the central and southern regions, including Vientiane Municipality, which are already facing labor shortages and high wages (in the range of Kip 900-1,200 per day) particularly in areas where - 39 - large projects have been implemented. In these areas, labor-saving technology in the way of engine-powered and hand tractors are on the increase. On the other hand, there is the northern region (with about 40 percent of the population) where labor is fully employed but at a low level of productivity, with average daily wages in the range of Kip 500-700 per day. Most of the farming activities in the north take place in the uplands, through slash and burn. 2.43 These two contrasting labor situations--southern/central regions with labor shortages and high wages and northern region with low productivity, low wage labor--pose a policy challenge. Clearly, the way to go is encouraging labor movement from the north to the south in order to reduce population pressure-in the northern region while alleviating labor shortages in the south and central regions. A starting point was the lifting, in early 1994, of the restrictions on the movement of people between provinces. Lifting those restrictions and encouraging the free movement of people is also important for enhancing the efficiency of land markets. Like-wise, efficiency in the land markets would facilitate the movement of people since they would be able to easily sell their land use rights in their places of origin and buy land use rights in their new area of settlement. Another rather obvious facilitator of labor mobility is improvement of the transport infrastructure. With expectations for significant improvements in the transport infrastructure in the rest of this decade, movement of goods and people should become easier and less costly. 2.44 Rural Financial Markets. Prior to 1988, the formal financial sector was operated by a mono-banking system. The State Bank of Laos (SB) was responsible for carrying out both central bank and commercial banking functions. The SB was the only provider of formal cash credit. At the provincial level, SB had about 16 branches which gathered credit requests for head office approval and made cash transactions on behalf of the government. Credit approval was more or less automatic once the enterprises plan, which included financial needs both for working capital and investments, was approved by the state planning authorities. Public enterprises were the main recipient of domestic credit. However, under the new system of economic management, the share of private sector credit rose rapidly to about 66 percent by June 1993. 2.45 Financial reforms beginning in 1988 focused initially on the development of a two-tier banking system by establishing the Bank of Lao P.D.R. (BOL), the country's central bank, and by creating seven state-owned commercial banks independent of but under the supervision of the BOL. However, these banks are weak by any standard. The main problems are: (i) they are in a weak financial position; (ii) they have limited knowledge and experience in commercial banking operations; and (iii) they have low levels of savings and time deposits. 2.46 With respect to their financial position, both equity to total resources ratio and their equity to risk assets (mainly loans) ratio are below the acceptable rate of 10 percent. Furthermore, they are carrying on their books a large amount of non-performing loans, estimated at Kip 14 billion, or about 20 percent of June 1993 total loan outstanding portfolio of the entire banking system (including private banks). Most of these past due loans, which are unlikely to be collected, are loans made to state-owned enterprises (SOEs) about 15 years ago and were basically transferred from the then SB to these commercial banks at their inception. If adequate provision for loan losses - 40 - were to be made, these banks would become technically insolvent with negative equity. 2.47 In the area of knowledge and experience in banking, most of the staff of these commercial banks were transferred from the SB and were unable to gain significant experience or adequate knowledge in commercial banking activities. The shortcomings of staff are reflected in: poor management and accounting systems, lack of adequate background and training in management of financial resources and assets, credit risk evaluation, appraisal of borrowers, operations, and cash flow analysis. 2.48 And finally low levels of resource mobilization have driven many of the banks to become significantly dependent on BOL to provide them with the necessary credit resources. While a low level of private savings might be one of the reasons why deposits are low, there is, however, a need to enhance public confidence in the operational stability of these banks and their ability to manage and safeguard private sector deposits. 2.49 Turning to agricultural credit in particular, at present there is little institutional credit available to the rural population in general and to farmers in particular. Total lending for agricultural production was Kip 6 billion in 1992--about US$8.6 million (Kip 5 billion in 1991 and Kip 3 billion in 1990). Some 30 percent of this amount went to SOEs, leaving about Kip 4.2 billion for individual farmers and farmer groups. While agriculture contributes about 57 percent of the country's GDP, its share in the country's total credit (to all sectors) is only about 5 percent--about 1.5 percent of the agricultural GDP in 1992. Only about 19,000 household farmers nation-wide (3 or 4 percent of total farm families) benefited from institutional credit in 1992. The average loan size was also small, about Kip 220,000 (about US$314). Most of the formal credit (70 percent) was short term (up to one year) and the balance medium term (one to five years). Insignificant amounts were provided for long term investment. Credit was used to finance mainly fertilizers, pesticides, some seeds and planting materials, buffalo, and labor. 2.50 The main reasons for this limited performance of the formal agricultural credit system are related to the general weakness of the country's financial sector, particularly, the weak financial positions of the commercial banks, the banking employees',limited knowledge of and exposure to commercial banking in general and rural finance in particular, and interest rate structures which prevent commercial banks from covering the costs associated with rural lending. All this accounts for the absence of a well functioning rural finance system. As a result, farmers who are interested in adopting new technologies but lack adequate financial resources often find it impossible to obtain the necessary financing. 2.51 Until August 1993, agricultural credit was delivered by three state-owned banks: the Setthathirath Bank in Vientiane; Phak Tai Bank in Pakse; and Lane Xang Bank in Luangprabang. In June 1993, the government issued a decree establishing the Agriculture Promotion Bank (APB), a specialized development bank to carry out all agricultural lending both for working capital and long term investments. The bank became operational in August 1993. All agricultural loan portfolios of these three banks will be transferred to APB once branches in their localities are opened. The agricultural operation of the Setthathirath Bank, including related staff and the outstanding loan portfolio, is already transferred while the agricultural operations of Phak Tai Bank have only been partially transferred. Presently, - 41 - APB operates in Vientiane Municipality and the province of Champasack, but more branches will be established in the near future, starting with one in Luang Prabang. 2.52 Efficient agricultural and rural financial services are crucial to sustained development of the rural economy. Credit facilities are needed for both short-term working capital as well as for medium and long term investments. More specifically, credit is required for purchasing the inputs associated with agricultural production and its intensification, labor-saving technical services for extensification, and investments in areas such as small scale irrigation, livestock, and tree crops. Credit will also be needed for small and medium scale business enterprises that increasingly will play an important role in processing, marketing, and support services for the development of the rural economy. 2.53 Rural Financial Sector Development Strategy. In charting out a strategy for rural financial sector development, the following subjects need to be addressed: Ci) is the available agricultural formal credit adequate in terms of volume, farmer accessibility, and conditions? if not (ii) how much is needed, how would the required funds be mobilized and distributed? (iii) to what extent are Lao farmers credit worthy? (iv) how well does the Lao credit delivery system (formal and informal) function? (v) what should be the role of the APB? and (vi) to what extent and in what ways should credit to the agricultural sector be supported by government? 2.54 Availability of credit will become increasingly important as farmers move toward income diversification, adopting new technologies and larger productive investments which yield longer term benefits (tree crops, livestock, and small scale business activities). Rural credit needs would be determined by market forces. However, if agricultural production is to continue to grow at even the currently low rate, fertilizers would have to be applied and improved seeds used by more farmers. Thus more and more farmers would need to gain access to credit. A reasonable indicative target for the Year 2000 might be to extend credit to about 20 percent of total household farmers. Credit volume therefore would have to grow by about seven fold or 38 percent per annum, to a level of Kip 40-45 billion per annum in 1993 prices. 2.55 Savings and resource mobilization must be part of any self-sustainable financial operation including rural finance. However, the rural population and farmers are presently too poor to accumulate significant savings in the banking system. In addition, their confidence in the banks is limiited. Therefore, government support, either from its own resources and/or donor contributions would be, in the short-run, the main source of formal agricultural credit both for short term working capital and medium and long term investments. However, initiatives to promote and develop community or regional rural savings and loan associations as well as Grameen-style operations should be encouraged. NGOs are probably the most well-suited organizations to establish and provide training for such institutions. 2.56 The institutional financial sector lacks the necessary information and therefore the ability to assess farmers' credit worthiness. This has often led to many banks concentrating their lending activities on the more advanced and rich farmers. However, if credit is to be granted to a wider range of farmers, a more appropriate and efficient approach to assessing credit worthiness is necessary. Experience in other countries (mainly Thailand) and in Lao PDR provides enough evidence that the joint liability - 42 - farmer group system .i probably the most efficient way to determine credit worthiness and borrowing needs and to ensure prompt loan repayment. Consequently, this approach should be further developed so that more farmers are able to receive credit facilities in a reasonable risk framework.49/ 2.57 On the credit delivery system, the goal would be to support the development of more efficient rural financial markets, whether in the informal and/or the formal part of the system. Development of the formal financial sector should concentrate on: (i) removing the monopoly on agricultural lending from the APB by gradually allowing private banks to open branches in the rural areas; (ii) strengthening the financial structure of the commercial banks and the APB; (iii) carrying out an aggressive training program including technical assistance to concentrate mainly on management capacity, accounting, fund mobilization, and credit operations; (iv) providing, through NGOs, technical assistance to farmer groups and communities to develop local credit unions; (v) expanding the banks' branch and sub-branch networks in the rural areas; and (vi) introducing a market determined interest rate system. 2.58 However, the formal credit system is and would be unable, at least in the foreseeable future, to satisfy all the credit needs of the rural population. These can be provided in many cases by the informal credit system. There is considerable evidence of a very active informal market for credit. The informal market has significant advantages in both assessing the farmers, credit worthiness and in providing flexible credit facilities. There is a wide variety in the ways informal credit is provided in Lao PDR. These include the provision of livestock for raising or inputs for production in return for a future claim on a share of the offspring of livestock or a share of the output produced. To reduce the high cost associated with the informal credit, competition among traders and suppliers should be encouraged by allowing them to operate freely in the villages. 2.59 The APB, as mandated, is responsible for providing financial services to the rural population. APB should initially concentrate on providing credit for the development of the agricultural sector, but as farmers' income sources are diversified, more resources should be allocated to rural non-farm development. Savings and time deposit mobilization are an integral part of APB's activities, and more efforts are necessary to raise these to a significant volume. In the immediate period, the APB needs to concentrate on building up its infrastructure, particularly staff training, expanding its branch network, strengthening its financial structure to maintain adequate equity and liquidity, and introducing an appropriate accounting and reporting system. 2.60 Mobilization of savings and time deposits is a major task to reduce reliance on government budget and/or BOL resources. However, building up resources is a long process and requires rationalization of its interest rate structure. The recent arrangements for channelling credit into the agricultural sector, contained in the lending guidelines of June 1994, have added further distortions to interest rates. Commercial banks are required to lend at least 10 percent of their deposits for agriculture at a maximum interest rate of 15 percent (compared to 24 percent for the other sectors and 49/ The development of farmer groups and joint liability system are being supported in an agricultural credit pilot contained in the IDA-supported Upland Agricultural Development Project (Cr. 2079-LA). - 43 - a 12 percent minimum deposit rate) or else provide the deposits to APB at a rate determined by APB. APB lends for agriculture at 7-10 percent compared to the minimum deposit rate of 12 percent, relying entirely on government- supplied resources for lending. Since it is important for all the banks, including APB, to raise resources for lending, lending rates for agriculture must be raised higher than savings rates and equalized with the rates for other sectors. This uniform structure of interest rates should apply to all funds including those supplied by the government and donors, and those that commercial banks are required to lend to the agricultural sector. D. Improving Agricultural Incentives 2.61 Price incentives, financial profitability, and the response to them by producers and other market participants are what drive a market economy. In this section, we review the evolution of agricultural incentives and likely future trends. It is established that the agricultural terms of trade (TOT) have declined since 1989. Proposals are made to compensate the agricultural sector for this decline. 2.62 The Evolution of the Agricultural Terms of Trade. During the 1975-85 socialist construction era, a combination of market controls, high inflation, and appreciation of the real effective exchange rate worked to depress producer price incentives in agriculture. The new era of market reforms, particularly the de-control of commodity markets and exchange rate reforms, shifted the terms of trade of agriculture (food products as identified in the CPI) in its favor against industry. It has been estimated that between 1985 and 1988, the agricultural TOT improved by 40 percent vis-a-vis industry. However, the improvement was short-lived. During 1989-93, agricultural TOT deteriorated by about 77 percent against services, 40 percent against construction, 50 percent against shoes and clothing, and remained stable against the so-called daily necessities, thus wiping out all the incentive gains that the market reforms had generated (see Figures 2.1 a, b, and c). Figure 2. la. Agricultural Terms of Trade: 1981-86. (Index: 1981 = 100) 1 0 0.. . . . . . . . . . . . . . . . . . . . 8 0 -- . . . . . . . . - . -. . .......... . . . . . . . . ... . . . . 60 -- -- - - - 40 20 1981 1982 1983 1984 1985 1986 j5 44 - Figure 2. lb. Agricultural Terms of Trade: 1986-93. (Index: 1989 = 100) 120 . . . . . . . . . . . . . . - 1 0 -- -.---... ...... .... ...... .. . . ..... 100 . ..... 4 0 . . . . . . . .. . .. . .. . . . . .. . . . .. . . ... . . . . . .. . . - 40 - 20 1986 1987 1988 1989 1990 1991 1992 1993 Figure 2. lc. Agricultural Terms of Trade by Sector: 1988-93. (Indices: 12/87 = 100) 140 daily necesses 120 100 s0 60 oonsliuction 40 20 0 2.63 The deterioration in agricultural TOT has coincided with a poor performance of agriculture against other sectors as reflected in low foreign investment flows (see Section E), a decline in official agricultural exports (except logs), and sluggish growth in per capita agricultural GDP.50/ Since there is a close association between the poor agricultural performance 50/ Coffee exports declined in value from US$8.6 million in 1990 to US$2.4 million in 1992 while exports of other agricultural/forestry products declined from US$9.0 million in 1989 to US$7.3 million in 1992 partly due to a decline in export volumes. - 45 - and the deterioration in agricultural TOT, it is important to review the factors behind the latter and develop options to address its effects. 2.64 While the decline in agriculture's TOT has been demonstrated, it is unclear what the cause is. One can only speculate. There are at least five factors one can suspect: (a) an appreciation of the real effective exchange rate of 30 percent between 1989 and 1993; (b) a dampening effect of food aid on local market prices; (c) the effect of agricultural, land, export, and turnover taxes on agricultural prices; (d) higher industrial protection relative to the protection offered to agriculture; and (e) relatively high tariffs and some quotas in Thailand on agricultural imports from Lao PDR. 2.65 The 30 percent appreciation in the real effective exchange rate is a real dilemma because it has been driven by market forces of supply and demand for foreign exchange. Behind the mini-boom in foreign exchange supply is a four-fold increase in non-export capital inflows (official grants, transfers, and government foreign borrowings) between 1988 and 1992 which have maintained the nominal value of the local currency. While inflation has been reduced from 60 percent in 1989 to less than 10 percent in 1993, it has remained above the average inflation rate of the trading partners. The relatively high inflation has combined with the stability of the nominal value of the local currency (against the US$) to appreciate the real effective exchange rate. 2.66 Because agriculture is a predominantly tradable sector, the impact of the currency appreciation on agricultural TOT has been most severe vis-a- vis non-tradable sectors, with a deterioration by 77 percent against services and 40 percent against construction. This is clearly a "Dutch disease"51/ impact on agriculture arising from high capital inflows related to donor assistance and government borrowings. There is some likelihood that capital inflows will grow even stronger in the future, driven by private capital flows into investments in and exports from the exploration and exploitation of natural resources including the proposed US$2.5 billion investments in hydro-power, and investments in petroleum, natural gas, lignite, forestry, gems, gold, and other precious metals. While the appreciation of the real effective exchange rate can be related to the decline in the agricultural TOT against non-tradables, the currency appreciation cannot explain the deterioration in the agricultural TOT vis-a-vis tradable sectors like industry. One has to look elsewhere for the explanation. S/ "Dutch disease" refers to the real income and output effects of a change in relative prices, often associated with a boom in one sector not shared by other sectors of an economy. For a survey of literature on Dutch disease, see Corden (1984). - 46 - 2.67 Emergency 'food aid could also have contributed, albeit in a small and localized way, to the depression in agricultural prices. Due to the adverse impact on production by droughts in 1987, 1988, and 1991 plus floods and pest invasions in other years, some food aid has been brought into the country to areas hard-hit by these disasters. Although data is unavailable on the amount of food aid, some officials from the central government maintain that emergency food aid has been limited in volume relative to total national food production. Nevertheless, food aid has a disproportionately large impact on local market prices because of the small size of the local markets and the national food marketable surplus. Observations made by some mission members on the distribution of food aid in Phongsaly province in August 1993 indicate that food aid is delivered to areas mainly accessible by road or river transport and ends up in local markets. Those in need are not easily reachable because of the difficult mountainous terrain. The food aid, given out to beneficiaries free of charge, depresses market prices. Future aid should be priced with net income directed to infrastructure investment or provided on a food-for-work program. Free food should be targeted to only those who do not have the capacity to pay for it or are unable to work for it. 2.68 Direct taxation of agriculture is another factor with potential influence on agricultural TOT. Until October 1994 when a decision was taken to gradually eliminate agricultural export taxes by 1996-97, agriculture attracted four main taxes: (i) the former agricultural tax--now replaced by the land tax which was decreed in March 1993; (ii) export taxes; (iii) the 5 percent turnover tax; and (iv) the resource rent tax/royalty tax on forestry logging. The old and the new schedules for the agricultural tax/land tax are presented in Statistical Annex Table 2.4. Revenue collected from the agricultural or land tax increased by nearly 20 times between 1982, when Kip 117 million or 4.4 percent of total revenue was collected, and 1991 when Kip 2041 million (about 2.7 percent of government revenue) was collected (see Table 2.5 below). However, seen in relation to agricultural GDP, revenue collected from the agricultural/land tax is indeed small --less than 1 percent. Moreover, the agricultural or land tax did not change between 1989 and 1993. Therefore, it cannot be established that it has been the cause of the deterioration in the agricultural TOT. Table 2.5. Revenues From-the Agricultural Tax 1982-84 1985-86 1987 1990 1991 1992 est. 1992/93 est. Oct-Jun Agricultural tax (Kip Million) 117 N.A. 400 1520 2041 1604 1153 (as W of Gov Rev.) 4.4 2.4 2.0 2.5 2.7 1.8 1.4 2.69 Export taxes have had a potential to influence agriculture's terms of trade. They have been quite wide spread (see Statistical Annex Table 3.2). Taxes on industrial crops (coffee, cardamom, tea, and tobacco) range from US$0.07/kg on tea and tobacco to US$0.10/kg on coffee and cardamom. For live animal exports, the rates have been US$5/head for sheep and goats, US$0.05 for fish, US$35/head on cattle, and US$40/head on buffalo, with exemptions for poultry and pigs. The taxes on livestock have not been binding because - 47 - virtually all the exports are transacted unofficially (estimated at US$15 million in 1992), partly because of the high taxes on trade at the borders of Lao and Thailand, but largely because of the failure to meet Thai health standards for live animals. The tax has been most binding on coffee which is exported legally: at an f.o.b price of US$1/kg, the tax rate has been about 10 percent, quite high for a commodity whose world prices had, until 1994, been severely depressed on the world market. Rice, maize and starch crops were exempted from export taxation, exacerbating the incentive problems in agriculture by introducing distortions within the structure of agricultural incentives. From this analysis, there is nothing to indicate that the incidence of export taxes on agriculture has increased since 1989. Therefore, export taxes cannot be linked to the decline in the agricultural TOT since 1989. However, the removal of these taxes by 1996-97 ought to improve agriculture's TOT. 2.70 The turnover tax, at 5 percent, poses an additional burden on agriculture both directly through the price effect and indirectly through the restrictions it imposes on the movement of goods across provincial boundaries (see para. 2.17) . But this could not have caused the decline in the agricultural TOT since the tax is applied to all sectors and its rate has not changed since 1989. 2.71 Higher tariff rates on imports of industrial goods relative to agricultural goods could result in a higher industrial price structure relative to agricultural prices. A review of taxes on imports indicates that the industrial sector is protected relative to the agricultural sector. Tariff rates for agricultural goods (non-luxuries) range from 5 to 25 percent while those for industrial goods (non-luxuries) range from 5 to 80 percent (see Statistical Annex Tables 3.2 to 3.4), thus offering a relative price advantage to the domestic industrial sector, particularly given that few of the agricultural inputs which attract low tariff rates are used by farmers (less than 10,000 tons of fertilizer per year). But this could not have caused a deterioration in the agricultural TOT since tariff rates have not been changed in any significant way since 1989. - 2.72 Another potential influence on agricultural terms of trade are the high tariff rates and quotas imposed on Lao exports by Thailand, by far Lao PDR's most important trading partner. Thai import duties on agricultural products used to be around 60 percent until 1993 when they were negotiated down to about 20 percent for soybeans, jute, coffee, sesame, maize, castor beans, garlic, cattle and buffalo, cotton and cotton seed, kapok, cashew nut, bones, horns, hides, and hair of livestock, and herbs. However, import quotas were imposed on soybean (5,000 tons valid only in November and December) and on jute (4,000 tons). Negotiations on further tariff reduction to 5 percent in a 15 year time-frame are underway as part of the general free trade association for the region. 2.73 While the reduction in Thai tariff rates in 1993 offers a breathing space, the tariff rate of 20 percent is still a burden to agriculture. For exports of live cattle and buffalo, there is another trade barrier to official trade: the Lao animals do not meet Thailand's animal health standards for imports and so have to be passed through a quarantine and charged fees for that service. A combination of quarantine charges and import duties has diverted live animal exports to Thailand into the unofficial sector where informal rents and lack of transparency reduce returns to the smallholder. For example, retail prices of beef in Chang Mai in Northern Thailand are about - 48 - twice as high as across the border in Vientiane in Lao PDR (see para. 2.15). Free trade between Thailand and Lao PDR could turn the latter into an important supplier of food to Thailand. This would benefit both countries including Thailand which would benefit from the low wages and abundant land resources offered by Lao PDR. 2.74 Proposals to Compensate for the Decline in the AQricultural TOT. While the cause of the decline in the agricultural terms of trade is unclear, it is nevertheless important to compensate the agricultural sector for the decline. Already, agricultural investment has suffered partly because of the unfavorable TOT for agriculture (see Section E of this Chapter). It is unlikely that agricultural investment would increase without some improvement in the TOT for agriculture. While the Government's decision in October 1994 to gradually eliminate (by 1996/97) the taxes on agricultural exports was a good start at improving the TOT for the sector, more actions should be considered to compensate agriculture for the decline in its TOT: (a) continuing to negotiate down Thai tariffs and quotas on agricultural imports from Lao PDR; (b) considering (in the broader context of a tax reform) elimination of the remaining taxes, including turnover tax, on agriculture except the taxes on resource rents on land and forests; (c) rationalizing the tariff structure, as currently proposed, toward equalization of industrial and agricultural tariff rates (see Statistical Annex Table 3.4); and (d) increase public expenditures on rural transport infrastructure, particularly farm-to-market roads, animal health services and research and extension services (see Section C of Chapter 3). In addition, the MAF should initiate a collection of price data to use for monitoring changes in producer incentives and agricultural terms of trade so as to enable timely policy actions. E. PromotinQ ForeiQn Investment 2.75 Flows of foreign investment into the agricultural sector of Lao PDR have been low in absolute and relative terms. This is disappointing given that foreign investment has played an important role in the development of the newly industrialized countries (NICs) of East Asia (World Bank, 1993b) Its role in the agricultural development of Lao PDR would be even more critical given, both the rich natural resource base and the severe shortages of capital, technology, and management skills. In addition, it could serve as a vehicle to gain access to international export markets. In view of its importance, the next section reviews recent trends in foreign investment with a view to identifying constraints and the means to address them. The absence of data has not enabled us to review the performance of investments financed by local investors. 2.76 The Law on Foreign Investment was passed on July 25, 1988, and was later supplemented by Decree No. 20 of the Council of Ministers on the Application of the Law on Foreign Investments on March 12, 1989. A Foreign Investment Management Committee (FIMC) was established by Decree No. 27 under - 49 - the auspices of the Ministry of Commerce and Foreign Economic Relations to manage the operation of foreign investments in Lao PDR. Foreign investments may take the form of a business cooperation contract, joint venture, or fully owned foreign enterprise. Potential foreign investors apply for registration at the FIMC. Usually, the process from application to final approval takes 4- 6 months and incurs a 3 percent (of the capital of the proposed business) application deposit (recoverable following investment) and a 1 percent (of the capital of the proposed business) administration fee. For livestock, grazing land is available on a 15-year lease at prices ranging from US$2 to 9 per hectare per year which also includes land tax, and this is negotiated with provincial governments. 2.77 Foreign investment records are available since 1988. A total of 380 investments proposals were licensed from 1988 up to and including the first 9 months of 1993. Of these, only 36 or 9.5 percent were in agribusiness accounting for 5.5 percent of the total investment capital. The average size of each investment was US$0.9 million. No agricultural investments were licensed in 1988 or 1989. For the economy as a whole, investors have been attracted from 27 countries, with the leading sources in terms of numbers being Thailand, France, China, Australia, and the USA. Annex Tables 7.1 to 7.3 provide further information on foreign investments by year, sector, type, and source. 2.78 Within agriculture, the subsectors most attractive to foreign investors have been livestock, forestry, and horticulture, attracting 15, 11, and 5 business ventures respectively (see Table 2.6). The least attractive sub-sectors seem to be the traditional crops--rice and coffee--which attracted one and zero ventures, respectively. The allocation of foreign investment is consistent with the financial profitability analysis which concluded that livestock and horticulture were the most financially attractive sub-sectors (see Annex 2). While no profitability analysis was done for the forestry sub- sector, it is no surprise that the sector has attracted relatively high levels of foreign investment because of the prevalence of economic rents, particularly in logging. i - 50 - Table 2.6. A List of Registered Foreign Investments in Agriculture by Year and Subsector, 1990-93 1990-1992 1993 1.0 Livestock 1.0 Livestock 1.1 Cattle 1.1 Poultry farm 1.2 Pig farm 1.2 Fish/poultry/pig farm 1.3 Animal farm 1.3 Pig farm 1.4 Animal husbandry & export/import 1.4 Duck farm 1.5 Animal farm 1.5 Cattle farm 1.6 Crocodile farm 1.6 Animal farm 1.7 Deer/rabbit/wild life 1.7 Animal farm 1.8 Deer raising 2.0 Forestry 2.0 Forestrv 2.1 Forestry development 2.1 Tree plantation, forest management 2.2 Forestry development 2.2 Forestry development 2.3 Bamboo plantation/export 2.3 Wood trading 2.4 Plantation for medical products 2.4 Sericulture (mulberry) 2.5 Plantation for medical products 2.6 Sericulture (mulberry) 2.7 Forestry development 3.0 Rice Sub-sector 3.0 Rice Sub-sector 3.1 Rice plantation (none) 4.0 Horticulture 4.0 Horticulture 4.1 Pineapple plantation 4.1 Flower garden 4.2 Vegetables, fruit, flowers 4.3 Vegetables & rice production 4.4 Plantation, soya, corn, kapok 5.0 General 5.0 General 5.1 Agricultural Research 5.1 Seed production 5.2 Agricultural Research 5.2 Rural development consulting 5.3 General agric. export/import 2.79 From the above analysis, it is clear that flows of foreign investment to agriculture have been disappointingly low when compared to the investments going into industrial and service sectors. Moreover, one would expect that, given the large and relatively rich land resource base and cheap labor, agriculture would be a magnet to foreign investors, as was the case in Thailand. That this has not happened should be of concern to the policy makers in Lao PDR. Below is a discussion of policy issues that could have hindered foreign investment flows into agriculture. 2.80 The first issue is the licensing procedures themselves, some of which are biased against agriculture. As was pointed out in para. 2.20, provincial governments have to approve foreign investments in agriculture in their respective provinces over and above the licensing that is undertaken by the FIMC of the MCT. This is unnecessary red-tape which places an extra - 51 - burden on investors, particularly given that the provinces have their own approval criteria that is often inconsistent with that of the central government (see para. 2.21). The second issue is the structure of tax holidays and exemptions which are biased against investments with a long gestation period. Tax exemption is granted for the first 2-4 years of operation and losses incurred during that period are deducted from taxable income in the later years. In addition, a further 50 percent reduction on profit tax is made on the next two years. For long gestation investments such as those in tree crops and livestock breeding, the period covered by the tax exemptions is not long enough to cover the full period when up-front capital expenditures are made. This works against long terms investments in agriculture and in favor of short gestation investments often found in the industrial and service sectors. Consideration should be given to increasing the period of tax exemption to 8 years for long term agricultural investments in areas including tree crops, commercial forestry, livestock breeding, and research. 2.81 The third issue is excessive intervention by Government in the operation of markets, like government trading in agricultural inputs, and restrictions on the movement of goods, all of which discourage private investment (see para. 2.29). The government's national rice self-sufficiency policy, which advocates for rice production in some government-sponsored irrigation schemes, almost at the exclusion of higher value crops, also works against foreign investment since rice is quite unattractive to private investors. The government's intervention in the financial markets, by granting APB a monopoly in the delivery of agricultural credit and by setting bank lending rates to agriculture at levels below savings rates, clearly works against private investors, local and foreign alike, by limiting credit availability. 2.82 The fourth issue is lack of protected rights to land use by the urban-based Lao investors and foreign investors who have no access to land through the customary land tenure system. While the recent land-related decrees provide a legal framework that could ensure secure land rights to commercial and foreign investors, their implementation in the way of providing title deeds will take some time (see para. 2.37 to 2.40). The last but probably most important issue is the decline in agriculture's terms of trade experienced over the last four years which has contributed to diverting resources away from agriculture to the relatively booming industrial and service sectors (see Section D of this Chapter). F. Improving the Effectiveness of the Privatization Program 2.83 Privatization of state enterprises is important to agricultural growth in several ways. First, there is capital invested in state enterprises which are generating very low rates of economic return. Greater economic returns could be generated through better management and up-grading of technology which private firms, particularly foreign investors, are better placed to undertake. Second, state enterprises have been overstaffed with skilled manpower which privatization could free to ease the shortage of trained staff in the civil service. State enterprises in agriculture alone employed 2433 staff in 1992, compared to 145 staff in the headquarters of the MAY. Third, privatization is important in demonstrating government commitment - 52 - to private sector development and in expanding the private sector which holds the key to agricultural growth. 2.84 The state enterprise sector in the late 1980s comprised approximately 640 enterprises and employed about 10 percent (16,000 workers) of the non-agricultural labor force. About two thirds of the enterprises were centrally managed under the line ministries, while the rest were managed by the provincial and district level authorities. Concerned by the poor performance of SOEs under centralized planning, the government issued decree No. 19 in March 1988 establishing the principle of state enterprise autonomy. The Lao authorities adopted a reform strategy that limited access to bank credit, provided autonomy in setting prices and in management, and initiated privatization of enterprises through foreign and private leasing, outright sale, joint venture agreements, and employee management schemes. Unsatisfied with the pace of privatization as only about 100 small enterprises had been privatized in 1989-90 through lease contracts on an ad hoc basis, the government issued Decree No. 17 in March 1991 setting out a plan to accelerate disengagement from all centrally and provincially managed SOEs apart from a few strategic enterprises. 2.85 Following the new decree, privatization was somewhat accelerated. During 1991-92, 37 enterprises under central supervision were privatized: 13 were small (less than 30 employees); 14 were medium size (30-100 employees); and 10 were large (more than 100 employees). The target for 1993, with implementation being evaluated under the IMF's ESAF program, was to privatize 25 SOEs under central management (19 of which are medium and large sized) through joint ventures (11 SOEs), outright sale (5 SOEs), and liquidation (4 SOEs). 2.B6 Privatization in the agricultural sector has been relatively rapid compared to other sectors. During 1991-92, 22 SOEs under MAF were privatized while 12 were slated for privatization in 1993; and 5 are to be retained by the government for research, extension, or technical support purposes.52/ 2.87 Of the SOEs that have not been privatized, there are three very large rice mills which represent a considerable investment and are inappropriate for the country in the foreseeable future. It is very unlikely that markets will ever collect quantities of rice necessary to make these rice mills viable; small privately owned rice mills will almost certainly meet all future milling requirements. For these three large rice mills, scrapping could be one of the better options, with the best value being obtained if they can be sold for reassembly in Thailand, Viet Nam, or China. 2.88 There is an area in which "privatization" or put differently, government disengagement, went over-board: this is the irrigation sector which represents the largest single area of public investment in agriculture. The government has "privatized" the irrigation systems by declaring them to be the farmers, responsibility and walking away from them. At present, most of the systems are either non-operational or operating at only a fraction of their designed capacity. The policy choice facing the government is to leave them in their current state or attempt to rehabilitate and operate them. The 52/ There are some unlisted SOEs whose status is unknown, including some state farms that have been abandoned and their land presumably taken over by individual farmers. - 53 - latter will require yet further public funding and will almost certainly require the involvement of some state entity, be it the Department of Irrigation of MAF, the community with state support, or some other irrigation authority which would need to be constituted. Given the present low level of development of the private sector, there would continue to be an important role for Government in the operation and maintenance of large publicly funded irrigation projects until the private sector is developed enough for private management companies to take over. Although farmer groups could be established and trained to take over, evidence from elsewhere indicates that the maximum irrigation command area they can manage effectively is about 150 hectares. Certainly, they would not manage irrigation systems of 500-3,000 hectares each, which are the type that one finds in Lao PDR. Hence, there is a strong case to make for government involvement in the operation and maintenance of the capital-intensive irrigation schemes until the private sector is developed enough to take over. I - 54 - III. IMPROVING SUPPORT SERVICES AND THE ALLOCATION OF PUBLIC EXPENDITURES 3.1 This chapter covers the remaining three of the four critical issues for future growth--the need for Government to be selective in its interventions given the limited institutional capacity; the need to develop technology and support services; and the need to improve efficiency in the allocation of public expenditures. The main theme is that the Government should do less with better results, focusing on those things that nobody else can do, in developing an enabling environment for private sector development. 3.2 Beginning with the NEM reforms in the mid-eighties, the Government has been supporting the expansion of the private sector while disengaging itself from some areas of the economy. However, the challenge for the Government now is less of disengagement; it is more in making the right choices on what to do and to allocate the resources required to do them effectively and efficiently. This chapter outlines a process for deciding where scarce government resources should be allocated, while at the same time enhancing the capacity of government at all levels to design and implement programs required to support future growth. Government support is critical especially for some core agricultural services of research and extension, the expansion and maintenance of rural infrastructure, and the management of natural resources. While the private sector has some role to play in some of these areas, the lead has to be taken by the Government. A. Institutional Stratecv - Doing Less With Better Results 3.3 Lao PDR has scarce human resources (see para. 1.35). In order to get maximum benefits from them, it is necessary to allocate these resources in areas where the payoffs are greatest. This section discusses institutional constraints, including the shortage of skilled manpower, and maps out a strategic vision to overcome them. Institutional Constraints 3.4 Institutional constraints to the expansion of agricultural production, trade, and investment can take several forms, all of which are present in Lao PDR. In analyzing these constraints, it is useful to think of institutions in two ways. The first is as norms of behavior, or the underlying rules that govern how society and the economy function. Similarly, institutions can be thought of as organizations, in which the roles that they play support or hinder agricultural growth and development. In both cases, what government institutions do as well as what they do not do can act as constraints. 3.5 The policies embodied in the NEM, for example, go a long way toward removing institutional "rules" that inhibit private sector activity. However, some are still in place. For example, while restrictions on the movement of people have been removed, restrictions on the movement of goods remain. Some institutional rules have been established to support agricultural development including the recent decrees on land use, land transfer and licensing, and forest management which provide a legal framework for the protection of individual land rights and provid'e a framework for sustainable management of forests. However, a mortgage law is not yet in place to permit the use of land rights to secure long term loans. In this case, lack of a mortgage law is what the institutions have failed to provide. - 55 - 3.6 In thinking about institutions as organizations, the constraints to expanding production, trade, and investments have already been touched upon in Chapters 2 and 3, and have been dealt with at length in various project documents.53/ These reports all describe the generally weak institutional capacity in the agricultural sector from the central government level down to the local government level. The ability of the MAF headquarters to evaluate policies, establish priorities, implement programs, and coordinate donor-funded projects is very limited. Moreover, the legal mandate for the central government to play this role is relatively new and the practical implementation of its role vis-a-vis the provincial governments is tenuous. Capacity at the village, district, and provincial levels to implement priority interventions is likewise very limited, and the communication between local, provincial, and central level is poor. The institutional weaknesses can be illustrated by the following: (i) there is no national agricultural extension program; (ii) the National Agricultural Research Center has limited capacity and authority to conduct or coordinate research funded with government budget or donor resources; (iii) the country's nine agricultural schools have poor facilities, provide little in the way of practical training, and are currently undergoing re-formulation to improve the quality of a reduced number of graduates; and (iv) institutional credit is only available to three or four percent of farm families. 3.7 The weak institutional capacity to deliver required services in support of agricultural development is exacerbated by the following: (a) unproductive activities occupy valuable resources; (b) weak linkages between central and provincial governments hamper setting priorities and implementing national policies; (c) lack of a coherent national planning and budgetary resource allocation system; (d) lack of MAF capacity for policy analysis and program coordination, monitoring, and evaluation; (e) a lack of skilled staff; (f) inappropriate distribution of MAF staff; (g) lack of resources for operations of existing staff; and (h) proliferation of donor projects outside of coherent national programs. (i) lack of adequate financial services in the rural areas 53/ Documentation includes: The June 1990 study of National Agricultural Manpower and National Extension Service (ADB, TA-1190-LAO); the July 1991 National Agriculture and Forestry Research Master Plan; the May 1993 Institutional Development and Strengthening of the Ministry of Agriculture and Forestry Inception Report (ADB, TA-1745-LAO); and the June 1993 National Integrated Extension and Research Project (ADB TA- 1765-LAO). - 56 - 3.8 Unproductive Activities Occupy Valuable Resources. MAF remains engaged in a series of activities that at best preclude spending its scarce resources on more productive activities. A case in point has been the practice of setting annual rice production and area targets (see para. 3.2). This does little to aid the allocation of resources given the currenp budgetary process and tends to filter over into biased agricultural statistics. There are other examples of government practices that (a) actually hinder expansion of private sector activities, and (b) although not counterproductive, take up valuable human and financial resources that could be more profitably applied in other activities. The sale of agricultural inputs that could be handled by the private sector is one example of a practice that detracts from time that could be better spent on services only the government can provide and at the same time undermines efforts to expand private sector input provision. Eliminating these counter-productive or unproductive activities--getting the Government out of what it should not be doing--will take some effort, but the more difficult challenge of course will be to actively engage government services in what they should do to foster the expansion of agricultural production, trade, and investment through the private sector. 3.9 Weak Central and Provincial Government Linkages. Redirecting human and financial resources to priority areas where government intervention is required is made difficult by the lack of clear linkages and communications between levels of government. In October 1992, the Council of Ministers issued a series of decrees to structurally reorganize MAF and broadly define its operational functions. The main thrust of this reorganization was to recentralize the Ministry, making it a vertically structured organization with overall sectoral management and oversight responsibilities from the central government through the provincial and district levels. The Ministry was also re-organized in the sense of consolidating 11 previously existing departments into 6. MAF was the first Ministry to undergo this reorganization. Prior to 1992, provincial governments enjoyed a great deal of autonomy and were virtually independent of the sectoral ministries. 3.10 Implementation of the new structure is far from complete. The provincial agricultural and forestry services (PAPS) retain considerable autonomy and nothing approaching a unified national system of policy formulation, priority setting, and resource allocation is yet in place. On the other hand, where the central government does have most control over the allocation of resources through donor projects, the communication and consultation with the districts, and provinces in which implementation will take place has been poor. The organizational, structural, and procedural environment is in a state of flux with considerable ambiguity regarding the roles and responsibilities of the central and provincial governments. This applies to technical programming, personnel, and budgeting and resource allocation. The central government should define and develop appropriate frameworks in the way of national programs for research, extension, animal health, irrigation development and management and conservation and management of forestry. The provincial governments would then work out implementation arrangements that are specific to each province. The central government would provide implementation guidance and evaluate implementation so as to draw lessons for incorporation in future programs. 3.11 Lack of a Coherent National PlanninQ and Budretinc System. The difficulties arising from the lack.of an established order between the central and provincial governments is reflected in the budgeting and resource - 57 - allocation system as mentioned above. In addition to the ambiguity over the autonomy of the provinces and central government control, in general the system and procedures for conducting planning, programming, budgeting, and expenditure management are inadequate for the efficient allocation of resources. There is no performance-based budgeting in which specific amounts are allocated to priority activities. Similarly, the system lacks a framework or conceptual linkage to tie resources and activities to national goals and sectoral objectives and strategies. The present system is a partially integrated system of centralized and decentralized actions in which general categories are proposed by and, after negotiation and approval in Vientiane, allocated to the provinces directly by the MOF. A UNDP Technical Assistance project was initiated early in 1994 to address the central government system with eventual implications for MAF, but at the present time, without the national system in place, it is impractical for MAF to attempt more than preparatory work toward a more systematic approach. 3.12 Lack of Policy and Programming Capacity in MAF. Even if a national and sectoral performance-based budgeting system were in place, the institutional capacity of MAF to carry out this task is woefully inadequate. There are currently only two MAF officials responsible for planning and only two for statistics and data analysis, located in the Division of Statistics, Planning and Finance (DSPF) under the Department of Cabinet. MAF simply does not have the capacity for sectoral planning, strategy development, budgeting, program monitoring, and evaluation. Some MAF departments are better equipped than others to carry out these functions within their sub-sectors, notably the forestry department. Nevertheless, a coherent integrated approach that translates national objectives and policy goals into actionable programs is not possible at present. The lack of reliable statistics is a major problem that relates to all levels of planning and evaluation. 3.13 A Lack of Skilled Staff. Although the lack of institutional capacity is perhaps most obvious at the central level for policy analysis and planning, implementing, and evaluating national programs, there is a generalized lack of highly qualified staff throughout the country. Following the 1992 reorganization in which provincial and district agricultural workers ostensibly became MAF employees, the total contingent of MAF staff reached about 8,300 persons. Of these, 145 are located at MAF headquarters, 4,260 are provincial or district workers, 2,433 belong to SOEs, and 1,462 are classified as technical staff assigned to training facilities, experiment stations, projects, and state farms that are directly managed by MAF (see Table 3.1). - 58 - Table 3.1. Educational Distribution of MAF Staff Level MAF HQ Training Schools PAFs/DAFs SOEs Total Res. Centers and Projects PhD 3 12 1 .. 16 MSc 27 254 121 .. 402 BSc 62 167 385 375 989 Baccalaureate 32 610 2,262 1,666 4,570 Technical certificate/None 21 419 1,491 392 2,323 Total 145 1,462 4,260 2,433 8,300 Source: MAF Note: PAFs and DAFs refer to Provincial and District Agricultural and Forestry Staff. 3.14 The educational distribution of all employees of MAF can also be seen in the above table. Seventeen percent of MAF employees (and a total of about 1,000 individuals excluding the SOEs) have a university level education. Although this number demonstrates that MAF has a reasonable cadre of university graduates, most lack practical training in tropical agriculture and the analytical skills required to support the development of a market-oriented agricultural economy (see para. 1.35). 3.15 Inanpropriate Distribution of MAF Staff. The distribution of MAF staff among provinces and departments also appears to represent a constraint to taking maximum advantage of existing skilled manpower. The distribution of staff among different technical areas bears little relation to the relative importance of the different sub-sectors in each province. A recent MAF study, undertaken through the ADB institutional strengthening project, compared the distribution of provincial personnel by functional area and related the distribution to the relative size of the agricultural, forest, or irrigated area. The study revealed that 38 percent of the total staff were in the forestry sub-sector, 18 percent in agriculture, 18 percent in administration, 17 percent in livestock, 12 percent in irrigation, and 3 percent in meteorology. Five provinces had more than 25 percent of the staff in administration, the highest being Phongsaly with 44 percent. The distribution of technical staff should be related to the resource endowment of each province. For example, the provinces whose development potential lies in irrigation development should have more of irrigation experts while those with richer forestry resources should have more forestry experts. But the above mentioned study revealed that this is not the case. 3.16 Lack of Operational Budgetary Resources. Lack of data on the non-salary recurrent expenditures financed by donor projects and recorded as capital expenditures in government accounts makes it difficult to estimate the resources available to support MAF operations throughout the country. However, a budget analysis by the mission indicates that only 2.2 percent of the 1992 MAF budget was allocated to support non-salary recurrent expenditures, not accounting for those financed by donor projects (see - 59 - Statistical Annex Table 1.7). These low figures partly explain implementation difficulties donor-funded projects have faced due to inadequate or lack of counter-part funds, and also demonstrate the inherent difficulties--indeed the near impossibility--of sustaining the recurrent costs of all present or proposed project activities. 3.17 Proliferation of Donor Proiects. The proliferation of donor projects, although individually worthwhile, has made it difficult to develop coherent national strategies and institutionally sustainable programs. The temporary influx of project funds has often dwarfed local initiatives and disrupted on-going district or provincial programs. Although several projects have been successful in contributing to and working through national programs (the most prominent example being the Lao-IRRI project supporting the National Rice Research Program), other projects continue to operate as enclaves outside of any established government program or institution. 3.18 The lack of a coherent national strategy or programming mechanism to assess and guide donor projects has made it difficult for the government to take full advantage of project experiences. Many, if not most, of the projects have contributed training, technologies, and management experiences of value to communities and provinces in which they operate. Likewise, the experimentation of different technologies and program methodologies can provide valuable insight for government even if the projects follow different approaches. There is at present no systematic mechanism for learning from this experience, tying the different approaches together, or using this information to orient the selection and design of future projects. 3.19 It is important to recognize that all of the above institutional constraints will: continue through the medium term; remain a constraint to the development of the agricultural sector; and define the limits of government policy and program interventions to the Year 2000. On the other hand, it is important to point out how much change has and is taking place. The roles of the central and provincial governments, and the roles of the private and public sectors are far from being fully sorted out, but they are in the process of dynamic change. Added to this fluid situation is the rapid expansion of the private sector, especially in the industrial and service sectors and in the urban areas, and increasing interchange of products and information among the regions and with neighboring countries. The national road network is progressively being expanded and improved. Every one of the country's seventeen provinces has an international border and most border Thailand, Vietnam or China, all of which are undergoing different stages of economic expansion and have useful technologies or experiences that may be profitably adapted by Lao PDR. Any institutional strategy must accommodate both the severe resource constraints and the rapidly changing economic conditions, although the pace of change will vary greatly among regions and provinces. The Strategic Vision for Institutional Development 3.20 The strategic vision of effective institutional support in essence represents the practical implementation of policy directions already in motion in five areas: (a) removing of legal and bureaucratic restrictions on private sector economic activity; - 60 - (b) developing .of an institutional framework that guarantees enforceable contracts, secures land tenure, and establishes clear roles and responsibilities over sustainable management of forest areas; (c) enhancing the policy and program coordination role of MAF headquarters and strengthening the implementation capacity at the district and provincial levels; (d) phasing out counterproductive or unproductive government activities; (e) phasing out interest rate control systems and allowing private banks to operate in the rural areas; and, more importantly, (f) strengthening the core functions that the public sector must provide as a catalyst for agricultural and income growth. The first two activities relate to strengthening the institutional "rules of the game" that will create or detract from the enabling environment for expanding agricultural production, trade, and investment; these were largely covered in Chapter 2. The last three activities deal with institutional issues related to organizations and with the services and targeted interventions government should provide; they are the subject of the remaining part of this Chapter. 3.21 Policy Management. Policy formulation, program implementation, and evaluation all present critical shortfalls. The shift in public sector involvement in the agricultural sector to build up an enabling environment for greater private sector participation requires a high degree of analytical skill to determine policies, and good managerial skills to carry them out. It is critical that government institutions make policy and operational decisions in a coherent manner. This capacity does not currently exist. 3.22 Eventually the MAF policy function must: (i) provide a medium or long term vision of where the sector is going; (ii) identify constraints to agricultural growth; and (iii) develop strategies and negotiate resources required to achieve those goals. This-entails articulating the sector's priorities within the macro policy formulation process, translating larger policy decisions into sector-specific actions, and monitoring the impact of policy reforms on agriculture in order to demonstrate results and propose necessary corrections. Currently, MAF does not have this capacity. 3.23 Information. The information function of agricultural institutions incorporates several aspects targeting different users. Information on prices, supplies, and demand is critical for the operation of an open marketing system. Reliable agricultural statistics are of fundamental importance in developing sound policies and in monitoring the impact of policy reforms. Similarly, information systems within the institutions must provide timely and relevant feedback about how well or poorly they are performing. Eventually, information will become the most critical input and output of the Ministry, and its collection, analysis, and management will evolve to become the core function of the institution. 3.24 The information function of MAF is very weak and in need of major strengthening. There is a basic lack of agricultural data available and much - 61 - of what exists is janreliable, biased by the effects of production targets and administration of land taxes (see Annex 1). Much is contained in isolated sources and is not collected in a harmonious fashion. Reliable, basic agricultural statistics are needed for monitoring the impact of policy reforms and identifying continuing impediments to growth. In addition, information for management decisions is woefully inadequate and much of the information gathered does not respond in either the content or timing required by managers to monitor and improve program performance. 3.25 Technical Services. In keeping with policy guidelines of the Government of Lao PDR and practical limitations on the ability of Government to finance and deliver research and extension, maximum effort must be placed on taking advantage of existing technologies in neighboring countries and in limiting public agricultural extension services to those areas where market failure or policy objectives warrant involvement. The most dynamic, demand-driven technology dissemination is expected to take place through informal channels as transportation and communication infrastructure opens new markets, and information on prices and products expands. Specific recommendations on technical services that the government should provide or promote in areas of research, extension, agricultural inputs, livestock services, and management of irrigation and natural resources, are presented in Section B of this Chapter. An Outline of Strategic Elements 3.26 The process of institutional reform to reach the strategic vision is necessarily a long-term effort. The overall situation is in flux, the roles of the central and provincial governments have yet to be fully worked out, and the human and financial resources of MAF are already stretched very thinly. A realistic perspective is needed on the pace and amount of change that is feasible. The process of reform should contain at least eight elements. 3.27 First, training is needed at all levels. Although a core of trained MAF staff exists, significant amounts of short and long term training are necessary. MAF has been preparing medium- and long-term training plans that should be ready before the end of 1994. Much of the long-term training can take place in Thailand where agro-ecological conditions are similar, language is not a problem, and the costs are low. It is estimated that long-term scholarships would average below US$5,000 per year. A top priority for short-term training should be project and program management. 3.28 Second, MAF headquarters staff should be strengthened to improve policy analysis, programming, monitoring, and evaluation. A first sub-element of this is staff transfer. The current levels of staff responsible for policy and programming functions are simply inadequate to carry out the tasks required. Staff should be transferred from other departments and provinces and training provided, following the work already in progress under the I ADB-supported Institutional Strengthening Project (TA-1745-LAO). The focus of this activity should be to expand and strengthen the Division of Statistics, Planning, and Finance. A second sub-element is expanding and rationalizing the agricultural statistics operations. Although this will require a major multi-year effort, a good way to begin may be to refocus the current system of data collection from monitoring of production targets to collecting basic agricultural data on production and acreage, and providing closer supervision to village data collectors from the MAF district offices. In addition, a A - 62 - coordinating mechanism should be established to link data providers and users including government, donors, and project staff throughout the country. A third sub-element is to create a program management information system. Eventually, this system will relate data on project and program performance to established targets and objectives and provide support for decision makers and the development of new policy initiatives. Given the difficulties currently associated with attempting a national system to cover MAF activities in all provinces, the system could begin with donor projects and use this experience as a vehicle for training and experimentation. Projects generally have established performance targets, specified inputs and outputs, and existing reporting requirements. Simple, uniform planning and reporting forms should be developed to feed into the system. The initial results, even in a very preliminary form, can demonstrate the utility of an information management system at the national level and enlist support for future expansion of all MAF activities. 3.29 Third, strengthen the implementation capacity of district and provincial staff and improve the coordination of activities through the development of umbrella national programs. In order for MAF efforts to succeed (even if they contain mainly project activities that each have less than national coverage), all levels must work from clear and shared objectives, obtain consensus on strategies for attaining them, have clearly delineated and agreed upon roles and responsibilities, and should include explicit mechanisms to learn from experience and adapt accordingly. The most appropriate opportunity for working out this type of understanding appears to be through the development of national programs in each MAF department area. In designing and implementing these programs, it will be critical to strive for an appropriate balance between improving the coordination capacity of MAF headquarters and the implementation capacity of the provincial and district levels. Both local initiative and central coordination are necessary and sorting out the roles of the different levels--centralizing some activities and decentralizing others--will be a difficult challenge. 3.30 Fourth, redeploy human resources according to the national program priorities. The process of redeployment should include the SOEs and should start with the allocation of resources within each province and later expand to the redeployment of staff between provinces. A faster pace of privatization of SOEs would free up some staff that would expand the pool of skilled staff available to implement the government mission. 3.31 Fifth, strengthen the utilization of regional technology networks and other sources of existing information. The objective of research training for MAF staff should be to understand and borrow intelligently from outside sources, and adapt it to Lao conditions. Considerable work has been done in farming systems of upland agriculture, for example, in other countries of the region that may offer good potential. 3.32 Sixth, identify priority areas for phasing out of counterproductive activities and those that the private sector can undertake. This sector report may provide a basis for discussion within government on the rationalization of the functions of government and drawing up an action program for privatization of those most suited for the private sector. In addition, the development of national programs for support services should address this issue. The current ,MAF-ADB institutional development project may be an appropriate vehicle to initiate and support this type of exercise. - 63 - 3.33 Seventh, initiate a staff development program and develop a personnel system. It is important to note that the current incentive structure is inconsistent with the new demands placed on the agricultural institutions. Improvements in remuneration and working conditions are imperative, together with staff training and career development. Essentially, an entire personnel management system must be created in which standardized procedures are adopted nationwide, general civil service reforms are taken into consideration, and options are analyzed for enhancing remuneration in a meaningful manner. B. Developing Technology and Support Services 3.34 This section discusses the status and priorities of technology and support services in various areas of the agricultural sector, taking into account: (i) the need to maximize opportunities for private sector delivery of technology and support services; and (ii) practical limitations on government, arising from the scarce human and budgetary resources, to finance and deliver agricultural services. The services covered include: research, extension, specialized livestock services, agricultural inputs, food security, irrigation and women-in-development. Agricultural Research and Extension 3.35 In Lao PDR, research and extension services have not received the priority they deserve. Public spending in particular has been low (see Section C of this Chapter). This relative neglect of research and extension services is costly in terms of foregone growth because it has been demonstrated that investments in research and extension services generate high economic returns in both developed and developing countries. For example, Huffman and Evenson (1992) found that investments in public agricultural research in the USA during 1950-82 generated a positive marginal rate of return of over 45 percent. In another study, Rosegrant and Evenson (1992) found marginal rates of return to investment in agricultural research in India, Bangladesh, and Pakistan to be in excess of 50 percent. As for agricultural extension, recent studies on public investments in extension in India, Kenya, and Burkina Faso have also found positive and high marginal rates of return ranging from 15 to 350 percent.54/ 3.36 However, given the financial and human resource limitations in the country, cost-effective ways have to be found to carry out research and extension. The optimal approach to research has to be the adaptation of technologies, largely from the region, through trials conducted on regional stations and farmers' fields. For the same reason and given the critical importance of ensuring that research is demand-driven, research and extension must be integrated primarily through the use of farm trials and village demonstration plots where farmers, researchers, and extension workers can 54/ For India, incremental investment in T&V extension is shown to be likely to generate at least a 15-20 percent rate of return, according to Feder and Slade (1986) . For Kenya, the rate of return on investments in expanding the T&V extension system during 1982-90 is estimated to fall between 160 and 350 percent (Bindlish and Evenson, 1993). For Burkina Faso, the rate of return on investments in expanding the T&V extension system was between 86 and 187 percent (Bindlish, et al., 1993). - 64 - share technology experiences. This research/extension approach is already in operation in Lao PDR, albeit in a limited way, under the Lao-IRRI Project in support of the National Rice Research Program, and under the IDA-supported Upland Agricultural Development Project (Cr. 2079-LA). 3.37 In addition, research and extension priorities should continue to focus on the development and dissemination of technology packages for rice production, and appropriate technologies for upland agriculture aimed at stabilizing shifting cultivation and replacing it with sustainable farming systems, including livestock and tree crops. This type of research is not amenable to privatization for the benefits of it cannot be fully captured by the individual provider in the case of rice varieties which are non-hybrid, or in stabilization of the environment where there are inherent externalities. A proposed new area of research for government support is the development of livestock feed technology which has a high payoff but cannot be financed by small farmers. 3.38 National Research Systems and ProQrams. Because rice is the predominant crop, occupying more than 80 percent of the cultivated area in 1992, it dominates the current research network. In 1992, the national rice research network consisted of the Naphok National Research and Seed Multiplication Center in Vientiane Municipality (as the key research station), supported by three research stations located in the provinces of Luangprabang (upland research), Champasack (in Pakse), and Xayabury. Including the sites at the research stations, the network of rice research sites in 1992 extended to ten provinces and Vientiane Municipality. Outside the rice sub-sector, the only research stations of any significance are Ban Itou coffee research station in Champasack province, and Hin Heup Research Station in Vientiane Province which is dedicated to research on tree and fruit crops. The national research network operates in cooperation with the MAP's Department of Agriculture and Extension and the Provincial Agricultural Services. 3.39 The National Rice Research ProQram. The process of building a national rice research program (NRRP) has been underway since 1990 when the Lao-IRRI Research and Training Project, supported by the Swiss Development Cooperation, began its operations. It is this project that has provided the bulk of the support to the NRRP which is implemented within the existing national rice research network. The NRRP has focused on technology for increasing rice yields, mainly through soil fertility management and the selection and adaptation of local and regional rice varieties. Initial research emphasis has been in the rainfed lowland and rainfed upland environments. Already, the project has made significant findings, including a discovery that many areas in Lao PDR are significantly deficient in phosphate which makes them unresponsive to nitrogen applications--the most commonly recommended fertilizer. The trials indicate that there is a marked response when phosphate is applied in combination with nitrogen chemical fertilizers. These trials are now being expanded nation-wide. Within two years, the NRRP is expected to come up with area-specific recommendations on fertilizer application which should improve rice yields by 30-50 percent. Since project funding from donors is assured for up to the end of 1996, the issue is to ensure that the accomplishments obtained by the project become a foundation of a rice research program. There is a need to increase local resources to complement donor resources in order to ensure success of the current project. Increased funding should be included in the 1994-2000 Public Investment Program to enable continued funding of the research program when the current project comes to an end (see Section C of this Chapter). J - 65 - 3.40 Appropriate Technologv for Upland Agriculture. Besides developing technology for rice; another priority has been developing appropriate technology for upland agriculture necessary to provide an alternative to shifting cultivation. Donor support for this has included the following projects: Lao-IRRI Research and Training project; Upland Agricultural Development Project cofinanced by IDA and the Australian and French governments; SIDA-supported Shifting Cultivation Stabilization Program; and the EEC-supported Micro Projects. Other than for the Lao-IRRI project, coverage of these projects has been limited to only a few provinces. The projects have aimed to introduce permanent cropping systems, including tree and fruit crops as well as livestock, in the uplands while relocating rice production into mountain valleys through the development of small scale irrigation. Coffee is the most important among the tree crops although it is confined mainly to the Bolovens plateau. 3.41 The above projects have attempted to integrate research and extension, primarily through the use of on-farm trials and village demonstration plots whose results are made available to farmers, researchers, and extension agents. The farmer coverage of these projects has been very limited partly because of an inadequate number of trained extension workers. These projects have faced at least three problems: (a) a lack of local funds to match donor funds, especially in the financing of recurrent expenditures; (b) a reluctance by the Government to use borrowed funds to meet the expenditures of research and extension, preferring instead to rely on grant financing. The latter has been unreliable, often resulting in disruptions in the research/extension activities; and (c) lack of a national program to coordinate them has led to a disjointed effort, with lost opportunities to learn from project experiences. While the Government is attempting to tackle the latter problem by establishing an integrated research and extension program with support from the Asian Development Bank, the first two problems are continuing unabated with no immediate prospects for resolution. Budgetary resources to match donor funding should be made available by switching resources from low priority areas of agriculture (see Section C of this Chapter). In addition, the government should reduce its reluctance to finance research and extension programs with borrowed funds, given that these services typically generate high economic returns to investment (see para. 3.35). 3.42 Livestock Feed Technolo v. At present, there is no feed technology development work being undertaken in the country. Government intervention in this area would have a high pay-off. Gross margin analysis in Annex 2 indicates that use of improved livestock feeds would be highly profitable to farmers. Dry season protein supply is a primary constraint to improved ruminant productivity in Lao PDR and one which also limits productivity within the traditional smallholder pig production systems. Oilseed by-products are unlikely to fill this gap in the near future due both to technical constraints to domestic oilseed production and limited domestic processing capacity. Leguminous forage production, integrated with traditional cropping practices, offers the most cost-effective means of providing protein to ruminants and leguminous silage to supplement pig diets. Improved grasses, preferably grown - 66 - in combination with legumes, also have a role in relieving both protein and digestible energy constraints to livestock production. 3.43 The technologies most appropriate for Lao PDR could be indicated by those adopted by smallholder farmers in other Southeast Asian countries, particularly Indonesia, Thailand, and Malaysia. They include the following: (a) shrub and tree legume establishment in blocks and as live fencing in house compounds, as hedgerows on crop boundaries, as close planting in rows in alley-cropping systems, as close planting on contour lines for erosion control, and in rehabilitation of degraded forest; (b) cereal crop legume undersowing, particularly with maize; (c) legume reinforcement of grazing lands which could be done even without modifying traditional grazing management; and (d) conservation based forage strategies which could include forage reinforcement of soil conservation structures. Potential alternative feed resources which Lao PDR could produce in large quantities include sugarcane and oilseeds, (especially soybean) and high protein forages. The latter include amaranthus, cassava, sweet potato leaves, and aquatic plants. 3.44 Future forage development work should focus almost exclusively on on-farm, systems-based adaptive research with broad-scale field demonstration and evaluation of species and forage technology already proven under comparable agro-ecological conditions in neighboring countries. The forage research and demonstration program could be modelled on the Lao-IRRI Rice Research Project. A Department of Livestock and Veterinary Services (DLVS) supervised Forage Systems Development Unit (FSDU) could be established to coordinate the field research program. Existing MAF livestock research and extension staff could coordinate an on-farm technology testing program which would rely on both objective measurement and cooperating farmer subjective assessment to identify suitable species. Seed supply, always a constraint to the expansion of successful forage technology, could best be met through a buy-back program from participating demonstration farmers, especially with respect to leguminous forage seed. Animal Health Services 3.45 While there is no information on animal diseases and their impact on livestock production, there are frequent reports of epidemic outbreaks. There is no formal export trade in livestock because of the inability of the country to meet international health standards. Diseases likely to have the greatest financial impact at farm level include hemorrhagic septicaemia (HS) in cattle and buffalo; a complex of acute killing diseases of pigs, including swine fever; Newcastle disease in poultry; and a variety of endoparasitic diseases in all species of farm animals, the chronic effects of which are reported to have the greatest negative financial on-farm impact in North East Thailand. 3.46 Veterinary husbandry is restricted by the lack of trained staff and medicines and inadequate farmer knowledge of animal diseases and their l~~~~~~~~~~~~~~~~~~~~~~~ 7 - 67 - control. However, where farmer awareness has been raised and inputs and services are more readily available (e.g., Vientiane Municipality), there is evidence of relatively high levels of adoption of health care packages. Gross margin analysis done by the mission indicates that vaccination programs generate high financial returns (see Annex 2). 3.47 Vaccination Production. Lao PDR has an animal vaccine laboratory, established in 1981 with UNDP/FAO support, which produces annually 5-7 million doses of satisfactory quality vaccine and has the capacity to double current production. Cost recovery from sale of the 11 vaccines produced covers about 65 percent of the laboratory's production costs. Additional losses accrue from the failure of some provinces to pay for distributed vaccines in a timely manner, if at all, and from the under-pricing of some products in an attempt to improve end-user adoption rates. Studies by vaccine laboratory management indicate the break even production level to be about 15 million doses per year, well within potential demand for Lao PDR but about three times higher than current production levels. With UNDP/FAO support for the laboratory terminating at end of 1993, strategies must be adopted to place the facility on a sound commercial footing in the medium term (five years). The strategy could include: (i) vaccine pricing at commercial levels; (ii) central government financing of vaccines for distribution to the provincial governments free of charge; and (iii) the establishment of the laboratory as a parastatal entity with financial and management autonomy. 3.48 National Vaccination Program. The national vaccination program is managed by DLVS with vaccine procured by provincial governments and distributed to district centers. Vaccination is applied by both DLVS staff and a network of village level vaccinators, both of whom charge for vaccination. Vaccination charges and cost recovery mechanisms vary between provinces. The village vaccinator retains a portion of the fee charged in all cases. However, DLVS staff are often not rewarded for their effort and provincially accrued vaccination revenue is frequently returned to the national treasury. 3.49 Vaccination coverage (about 0-30 percent) is well below levels required for disease containment, even in the seven provinces where the vaccination program is supported by a UNDP/FAO project. Vaccination cover has fallen since the introduction of cost recovery charges. However, cost recovery charges are only one of a set of conditions constraining the effectiveness of the vaccination program. Other factors include: (i) poor rural infrastructure; (ii) incomplete cold chain networks; (iii) insufficient funds for vaccine procurement; (iv) poor coordination of vaccine distribution particularly at provincial level; (v) inadequately trained and equipped vaccinators; and (vi) poor farmer education. 3.50 Animal Health Development Strateay. Control of the major epidemic diseases and of the internal parasites is critical to the improvement of livestock productivity and development of export markets. Government underfunding of disease control programs must be reversed and budget allocated so as to stimulate private sector participation in disease control. Experience from neighboring North East Thailand demonstrates both the substantial economic benefits resulting from animal health interventions in smallholder livestock production systems and the potential to transfer disease control management to the private sector. Approaches developed there provide a role model for Lao PDR. - 68 - 3.51 The foundation for a basic animal health care program is already established in the widely distributed, though under-trained, village vaccinator system. Though it is only partly functional due to poor organization, inadequate training, and incomplete or non-existent vaccine cold chains, this network could constitute the basis of a restructured and revitalized veterinary service. 3.52 While the limited number of qualified veterinarians (approximately 20) should not rule out the possibility of a private veterinary service, it is likely in the medium term that this scarce resource must be used to provide critical diagnostic and investigative services and to manage the operations of the vaccination program. 3.53 The Government should focus its policy formulation and limited manpower and financial resources on the development of a basic animal health service to smallholder farmers. Core elements of such a service could include: (a) national policies and legislation which enable and encourage the private sector to deliver reliable, approved veterinary products to farmers, directly or through village para-veterinarians; (b) a well trained village-level para-veterinary force with skills and resources to earn a livelihood from primary veterinary care; (c) a basic understanding of the epidemiology of, and the diagnostic capability for, the most important diseases, together with the development of cost effective control measures; and (d) a national vaccine cold chain, extending in most instances to the 126 district centers. 3.54 National policy must be formulated to create financial incentives for the effective delivery of disease prevention measures while minimizing fiscal disincentives to the development of an export trade. Essentially, the remaining taxes on the importation of approved veterinary products should be removed and taxes on trade in live animals transferred as close as possible to points of production. Revenue thus earned could be applied to the provincial and district-level services, including maintaining a vaccine cold chain and managing a vaccine delivery system. Since control of epidemic diseases through vaccination is a public good, the vaccination program (at least the cost of vaccines) should be fully financed by the central government in order to raise national vaccination coverage from below 30 percent to at least 70 percent. In addition, the government should negotiate with the governments of the neighboring countries of Thailand and Viet Nam to reduce import duties on livestock significantly below the prevailing 20 percent in Thailand and also agree on an investment program to control animal diseases. Both measures are necessary to divert into formal channels the current underground regional trade in livestock. 3.55 Essential elements of an effective national vaccination policy should include: (a) the passing of legislatiqn defining notifiable animal diseases and empowering the veterinary authorities to act decisively and without financial constraints to effect their control; - 69 - (b) government guarantee of purchase, at market prices (Thai market prices woUld be a satisfactory base), of all vaccine requirements excluding Foot and Mouth Disease (FMD) from the Lao Vaccine Institute for a period of up to five years during which time the Institute would be required to establish a commercially viable vaccine production enterprise; (c) studying and identifying priority areas for phasing out the animal health services and the privatization of vaccine institute; (d) the establishment of a revolving fund to finance vaccine purchase and distribution costs including a handling margin to be paid to DLVS provincial staff. The revolving fund could be replenished through government funding of vaccine purchase and the sale of vaccine to village vaccinators at rates sufficient to cover the distribution margins paid to DLVS staff; (e) the establishment of standard vaccine application fees reflecting both distribution and application costs and a margin for the registered village vaccinators; and (f) provision of adequate budget for the livestock industry at provincial and district levels. Irrigation Management 3.56 Publicly managed irrigation schemes have experienced very serious management problems, unlike the farmer sponsored and managed schemes. But this raises a question as to which schemes are truly publicly managed and which ones are managed by farmers. This classification of irrigation schemes is not consistent with the favored method of classifying irrigation schemes in Lao PDR, which is in terms of size (small, medium and large). A more rational way of classifying them for purposes of analysis might be to group them into low capital and capital intensive schemes. This classification coincides with a break down into farmer-managed and publicly managed schemes. It further coincides with the type of financier: the NGOs are largely involved in the low capital schemes while the bilateral and multilateral donors have supported capital intensive irrigation schemes. Publicly managed schemes tend to be those that are capital intensive and financed by multilateral and bilateral donors while farmer managed schemes are those that are low capital and often financed by NGOs, with labor contribution from farmers. 3.57 The low capital schemes cost around US$200-400 per ha to construct while the capital intensive schemes cost from US$3,500 per ha and up. About half of the existing irrigation (about 125,000 ha of land according to design capacity) is low capital while another half are capital intensive. The low capital schemes include the unimproved systems with temporary weirs (made of brushwood or earth) which are replaced every year and are easily washed away by heavy rains. While these low capital schemes are mainly one season schemes (used during the wet season), they are advantageous in that they require low capital, are farmer managed, and require no on-going support from government. However, they are inefficient in conserving water and cannot support more than one crop per year since the brushwood and earth that are used to make the weirs get washed away each year. - 70 - 3.58 On the other extreme, there are the capital intensive, government- sponsored schemes which supply more water than is demanded by farmers, and have very serious operation and maintenance problems. They are under-utilized from at least two points of view. First, for many of them there is no management system or organization in place to operate and maintain them. This follows the decision by the Government around 1990/91, in the spirit of privatization, to declare the irrigation schemes to be the farmers, responsibility and to walk away from them. The lack of any management or organiza.ion of irrigation systems means that even if the farmer wants irrigation water, it frequently cannot be delivered. In pumped irrigation, it might be worthwhile for farmers close to the pumps to pay the pumping cost when they have a demand for water, provided they can capture most of the water being pumped. It will make no sense for the farmer lower down the system who will have to pay to fill the system before any water can be delivered to his field. 3.59 Even if an irrigation management system were in place, the current production systems would not generate enough income to cover the costs of operating and maintaining the irrigation systems. The farming system in the irrigation schemes is a money loser. For the vast majority of the schemes only one crop is produced, the wet season crop. Moreover, that crop is rice-- a low value crop--which is produced in a low-input low-output system. Gross margin analysis indicates very low financial returns from such a system, even when the cost of water is included as a nominal fee (see Annex 2). During the dry season, only about 10,000 ha out of a design capacity of 30,000 ha of land is put into irrigated production, again largely to produce rice, with some minor exceptions of irrigated fruit and vegetable production close to urban centers. 3.60 The result of the above is the gross under-utilization of irrigation systems in Lao PDR. For example, the Nam Houm irrigation system, a gravity system in Vientiane Municipality, has a command area of 3,000 ha but only 17 farm offtakes. This system, in common with most of the other public irrigation systems, has been built ahead of both the institutional capacity to manage the systems and any demand by the farmers for irrigation water. 3.61 Strategies to Improve Irrigation Utilization and Management. The strategy to improve irrigation utilization and management has two elements: (i) improved planning of future irrigation projects; and (ii) addressing the problem of under-utilization of current irrigation schemes. 3.62 Both the Government of Lao PDR and the donors now realize that the farmers are an important part of any irrigation system and that organizing farmers into water user groups is an essential first step in irrigation management and an important test of effective demand for the irrigation water. Under the on-going IDA-financed Upland Agricultural Development Project, one of the first irrigation schemes constructed on demand and managed by water user groups has been completed--the Nam Mon irrigation scheme in Vientiane Province. In addition, water user groups have been organized and an agreement i entered into between the water user groups and the relevant government agencies for two more schemes whose construction was initiated in the 1993/94 dry season. 3.63 The Government has indicated that it will no longer be as interested in large irrigation schemes but would like to see the emphasis shift to small and medium schemes. The advantage of concentrating on small A - 71 - schemes is that there is a possibility that, with sufficient training and organization, the schemes can become self-sustaining, farmer-managed systems. It should however be noted that where the NGOs have intervened to build a small farmer managed irrigation system where none existed previously, there have been system management problems. As a result, the NGOs now confine their activities to improvement of existing systems where the farmers have already resolved the issues and problems involved in managing irrigation.55/ 3.64 While the prospect that small scale schemes can be managed by farmers is an attractive one, the same cannot be said of medium irrigation systems (serving a command area of 200-500 ha). As far as manageability by farmers is concerned, the advantage of building medium irrigation schemes over large irrigation schemes is not clear. The medium scale ones would appear to pose all of the system management problems presented by larger schemes. 3.65 Another potential problem is that there might be, in the new approach by donors and government opting for small and medium schemes, far too much optimism regarding the ability of farmers, however organized, to manage irrigation systems, and insufficient appreciation of the need to have technically competent management for schemes beyond a certain size. It is not clear just how large an irrigation system farmers can manage based upon a water user group-type of organization, but evidence from elsewhere in East Asia indicates that at around 100 ha one might be approaching the limit. This would imply that none of the government-sponsored irrigation schemes in Lao PDR can be managed by farmer groups (the vast majority have a command area in excess of 500 ha). Efforts to develop alternative management arrangements should be strengthened (see the paras. below). 3.66 In addition to improved planning of new irrigation schemes, attempts are also being made to address the under-utilization of existing public irrigation. Currently, there are at least three projects in Lao PDR targeting that area. They are the UNDP-supported project, Rehabilitation of the Nam Tan Irrigation Scheme, and the Mekong Secretariat project, Sustainable Irrigated Agriculture Project (SIRAP). These two projects are receiving donor financing from the Government of the Netherlands. The two projects both address the rehabilitation of existing irrigation schemes with a heavy emphasis on the management and farmer organization side as well as reconstruction. The third project is the ADB-supported project, Strengthening and Restructuring Irrigation Development Project, which is approaching the problems through a strengthening effort focused on the Department of Irrigation of MAF. 3.67 Improving the Economic Viability of Capital Intensive Schemes. If capital intensive irrigation systems are to show any economic return, it is necessary to move from low input-low output agriculture to fully utilizing the existing irrigation systems. This requires the resolution of at least three problems: 55/ It should also be noted that donor involvement in small scale irrigation is not the low capital approach that the NGOs are able to utilize. The UNDP/UNCDF Small Scale Irrigation Project in Oudomxay and Luangnamtha has a projected budget of US$4.4 million to bring 855 ha of land under irrigation in four systems--a cost that is in excess of US$5,000 per ha. - 72 - (a) Farmer Incentives. Farmers need to have a reason to grow more and higher value crops which will require effective demand for the crops reflected by developed marketing channels; (b) Operations and Maintenance (O&M) Cost. These need to be paid for and, in the case of pumped irrigation schemes, are immediate; (c) Management. This requires two things. The availability of technically qualified people who know how to manage an irrigation system and a process to put them in place with the authority and the budget to manage the system. All three things need to be addressed if existing irrigation systems are to be made to work. 3.68 Farmer incentives are related to the development of improved market infrastructure in the country. The evidence is that marketing is slowly starting to develop but there will need to be considerable further development before farmers, including those within the irrigation schemes, are going to invest heavily in cash cropping (see Chapter 2). As for O&M cost and management, these are closely related. There needs to be a system of cost recovery and a proper system of management. Given that, in the so-called medium and large systems, it is beyond the organizational and management ability of farmers to run the systems themselves, it would appear that the role must fall to government to ensure that the large investment made in these systems is not wasted. 3.69 Implications to Future Development of Irrigation. It is critical that a system be developed to take care of O&M, including raising revenue through water user fees, a strategy to provide and phase out O&M subsidies, and operational management. Present donor efforts in addressing the rehabilitation and management of existing irrigation systems should give priority in developing such a system of operational management and cost recovery that will enable publicly funded irrigation systems to operate effectively. Until this is done, further investment in capital intensive irrigation systems should be limited to completion and rehabilitation of irrigation works. 3.70 Assuming that these existing projects demonstrate that effective operation and management of publicly funded irrigation is possible, there will be a powerful argument for making whatever investment necessary to ensure that all existing irrigation schemes are effective and productive. Given the large sunk cost already made, such an effort should show good economic returns. Such a shift of existing irrigation schemes from single crop subsistence rice culture to more intensive cropping should not only generate greater financial returns to the farmers (see gross margin analysis in Annex 2) but would also help to generate measurable growth in the agricultural sector. 3.71 Only after existing schemes are being utilized to their capacity should consideration be given to the expansion of the area under irrigation. If such an expansion is to be undertaken, then it will need to be along different lines than those that have so demonstrably failed to date. Instead of being seen as the delivery of a construction project, the donors and government must see irrigation projects as involving delivery of a functioning system. This will involve all the elements of the systems so that the project will be seen to be complete when the irrigation system is running with an O&M - 73 - system in place and ,the capacity of the system is being utilized by the farmers. This will require attention to operational management, farmer organization, farm systems, marketing, cost recovery, and the ability of farmers to pay for the system pumping and operations. All these elements have generally been ignored in the past. 3.72 An optimistic scenario would be that it would take Lao PDR until the end of the decade to get all existing irrigation systems up and running. Even to achieve this will require a major reorientation of skills, expertise, and training toward farmer organization, systems management, and marketing within the Irrigation Department of MAF. Even if after the Year 2000, the country is ready to move ahead with the expansion of the area under irrigation, the acquired skills will be needed alongside the traditional skills in civil engineering to support project design and implementation. 3.73 The above considerations refer to capital intensive irrigation schemes, mostly constructed by the bilateral and multilateral donors. The low capital, cost effective approach of the NGOs should be continued and at probably the same level of intensity. As the NGOs feel that their present scale of activity is stretching Provincial resources, in terms of irrigation expertise, fairly thin, there would appear to be no immediate prospect of a marked expansion in the scale of their activity. SupplY of Agricultural Inputs 3.74 While private sector involvement in the supply and marketing of agricultural inputs has grown rapidly since the mid-eighties, continued involvement by the state-in the importation and distribution of some inputs is a drawback to the development of an efficient marketing system for agricultural inputs. The agricultural inputs in question include: fertilizers; insecticides, pesticides and herbicides; improved seeds and planting materials; veterinary drugs and vaccines; animal feeds; and farm implements including tractors, animal traction plows, rice threshing machines, rice mills, and water pumps. Before the NEM reforms were initiated in the second half of the eighties, the supply of agricultural inputs was a monopoly of the state. However, after more than eight years of economic reforms, the private sector now dominates the importation, production, and distribution of agricultural inputs with a few exceptions-which are dealt with in the following paragraphs. 3.75 First, the involvement of the central government and some provincial governments in the importation and distribution of fertilizers purchased under donor-supported projects is hampering development of an efficient marketing system for fertilizers. With the exception of fertilizers purchased under donor-supported projects, all fertilizers are imported and distributed by the private sector. Even where fertilizer is imported under such projects, its distribution is by and large undertaken by private traders except for a few provinces where the Agricultural Services or the Commercial Services undertake the distribution with the aim of delivering them to farmers at prices lower than those charged by private traders. Government agencies could supply fertilizers to farmers at lower cost than the private sector only if they are more efficient. Experience in the past has shown that this is not the case (see para. 2.30). Continued involvement of central and provincial governments in the importation or distribution of fertilizers is counterproductive because it undercuts the efforts by the private sector to deliver inputs efficiently while also diverting scarce i - 74 - government manpower from undertaking development activities which only the government can perform. The Government intends to fully withdraw from trading in agricultural inputs except in emergency situations or where there are no private dealers. 3.76 Second, like in the case of fertilizers, government involvement in the importation and distribution of pesticides and insecticides purchased under donor projects is a source of inefficiency to the marketing system. Unlike fertilizer though, the distribution of these chemicals is done wholly by the private sector. The Government should withdraw completely from the importation of the plant chemicals and only focus on regulations to ensure safe use of these chemicals. 3.77 Third, while alternative agents to government in the development, multiplication and distribution of improved seeds and planting materials are still limited, recent moves to permit provincial governments and the private sector in development and marketing of seeds and planting materials should be expanded. Currently, the state plays a dominant role in the development and marketing of improved seeds and planting materials. In the case of rice, which dominates the seeds subsector, the National Rice Research Network (with support of the Lao-IRRI Rice Project) used to import from Thailand a foundation seed and multiply it in three main stations located in Vientiane Municipality, Pakse and Savannakhet. In addition, some farmers around the three research stations would be contracted to produce the foundation seed. The seed produced by contracted farmers and by the research stations would then be processed and cleaned at the three research stations each of which has a seed processing plant. The research stations would then sell the seeds to farmers through Provincial Agricultural and Commercial Services. Similar procedures applied for maize, soybeans, mungbeans and groundnuts. 3.78 In 1993, several developments took place that have accelerated the involvement of the private sector. A Thai Company has leased 70 ha of the Naphok state farm which the National Agriculture Research Center (NARC) has been using as a seed multiplication center. The company has started using the land to multiply imported seeds and foundation seed obtained from the NARC and to process and clean the seed using the facilities it has leased from NARC. Marketing is still a problem because the company is still relying on the provincial Agricultural and Commercial Services to sell the seed to the farmers. The government should identify and encourage traders who are already engaged in trading agricultural inputs to also deal with improved seeds, even if it may require the state to provide them with some training. 3.79 Again in 1993, it is reported that the central government permitted the provincial governments to import directly some hybrid seeds and planting materials from the neighboring countries, including hybrid rice from China and fruit planting materials from Thailand. The recent trends in opening up the importation and multiplication of seed and planting materials to the private sector and to provincial governments should be further encouraged. 3.80 Fourth, the production and distribution of animal vaccines and drugs should gradually be privatized. There is a vaccine production facility in Lao PDR which is owned and operated by the Government. The government also distributes the vaccines. As a first step towards ultimate privatization, the Lao Vaccine Institute should be commercialized, perhaps by turning it into a parastatal entity, and granted commercial and management autonomy. Similarly, i - 75 - the distribution network should be privatized. In addition, the supply and distribution of animal drugs and services should be turned over to the private sector. Food Security 3.81 There are two questions to address in the area of food security: (i) what is the status of food security in the country? and (ii) what strategy can the government adopt to address the remaining food insecurity, if any? 3.82 On the status of food security, information is unavailable to allow measurement of the incidence of food insecurity, where food security is broadly defined as the access to and ability to afford food at all times. The number of people that are food insecure and their whereabouts are unknown. However, for policy purposes, the Government routinely estimates national food requirements against which actual national production is assessed in order to determine national food deficits that have to be filled. Given that rice is the staple food, the Government has established that 350 kg of paddy (equivalent to 210 kg of rice) per capita is the amount of rice required to meet food consumption requirements of the country. Each year, per capita rice production is compared with per capita rice consumption requirements and a national deficit or surplus is then derived in order to determine rice imports or storage requirements, respectively. 3.83 While the approach the Government is taking to determine food requirements and deficits/surpluses has some shortcomings as a yard stick of food security, including disregard for distribution, quality, and purchasing power considerations, it makes a lot of sense for a country where about 90 percent of the population is rural-based, 50 percent of the consumption requirements of the rural people is met through in-family production (subsistence), and rice is the dominant crop occupying about 85 percent of cultivated land (see State Statistical Center, 1993). 3.84 The mission has therefore used this per capita rice consumption figure as a reference point for assessing the degree of food security in the country. The starting point has been to compute per capita rice surpluses/deficits for each province and for the country as a whole, given production and population figures for each province for the period 1976 to 1992 (see Annex Table 4.10). Cereal imports (primarily rice) for the same period have also been compiled in order to indicate the proportion of food deficits that are met by food imports (see Statistical Annex Table 3.7). It has been assumed that unofficial exports of rice especially in the form of paddy to Thailand, are equal to and offset by unofficial rice imports. 3.85 The national food flow situation since 1976 was as follows (see Table 3.2). The country moved from a rice deficit of about 350,000 tons in 1976 to a rice surplus of nearly 130,000 tons in 1985. Corresponding food imports were in the range of 100,000 tons in 1976, falling to less than 40,000 tons in 1985. But due to unfavorable weather and population growth, the period after 1986 has recorded significant rice deficits (except in 1990) and high levels of rice imports. i - 76 - Table 3.2. Estimated National Rice Surpluses/Deficits and Rice Imports, 1976-92 (tons) Deficit/Surplus Imports 1976 -349,200 60,000-100,000 1985 128,900 38,000 1986 147,600 34,000 1987 -124,300 37,000 1988 -375,600 115,000 1989 -14,400 64,000 1990 59,400 54,000 1991 -264,100 44,000 1992 -23,600 44,000 Source: Tables 3.7 and 4.10 in the Statistical Annex. 3.86 With a few exceptional years of bad weather, the southern and central provinces of Vientiane, Savannakhet, Champasack, Saravane, Khammouane, and Borikhamxay have always generated surpluses while the northern provinces have always generated deficits. The differences in production are mainly due to the different resources and traditional farming systems, with the south and central provinces producing rice primarily in productive lowland paddy fields while the northern provinces produce rice overwhelmingly in the uplands through slash and burn. But it is also important to note that there are some areas in the south and central provinces, particularly in the highlands, which are rice deficit while some provinces in the north, like Oudomxay and Huaphanh, are often in surplus. It is also noteworthy that, even in the surplus southern and central provinces, there are large annual variations in the surpluses generated, as reflected in the computed high standard deviation, due primarily to weather variations which affect flood irrigation. 3.87 Some, but by no means all, of the annual food deficits are met through rice imports which have tended to rise, but less than correspondingly, with increases in rice deficits. The imports are largely commercial. However, during exceptional years of bad weather, the northern provinces have received emergency food aid. In addition, they have supplemented their limited rice supplies with root crops (cassava, sweet potatoes, and taro), maize, legumes, meat, and forest products. More impressively, the communities have over time developed special mechanisms to cope with shortfalls in rice through storage mechanisms, mutual assistance, growing poppies (opium), selling livestock, and hunting and gathering food in the forests. Subsequently, there is no evidence of chronic undernutrition. However, serious and widespread child malnutrition has been reported. 3.88 Why would there be persistent rice shortages in the north while there are rice surpluses in the south and central provinces, all co-existing in the same country? The answer lies in the physical isolation of the northern provinces due to extremely poor and costly transport linkages with the rest of the country (see para. 1.21) . It is prohibitively expensive to transport food from the south and central provinces to the northern provinces. - 77 - In fact, rice transfer from the south and central to the north is virtually non-existent. Rather, rice is imported to the north from neighboring China, Thailand, and Viet Nam in return for exports of livestock, forestry products, and opium. 3.89 What Strateqy Should be Pursued to Improve Food Security? A starting point toward improvement of food security would be for the Government to withdraw from some activities or policies that are counterproductive to food security. The first of these is the pursuit of a national rice self- sufficiency policy, based on the setting and pursuit of rice production targets. The major weakness with this approach is that it is not linked to the availability of and demand from markets. It assumes that there is an integrated national market that is capable of moving rice from surplus to deficit areas which, as discussed above, is not the case. In fact, when there is a good crop, rice prices plummet because of lack of markets, and rice that cannot be consumed or stored over the season by the household is fed to livestock. Because of low prices, farmers respond in subsequent years by producing less. Secondly, the Government's emphasis on rice production works to divert resources from producing agricultural products that are most competitive, given the resource base and the market possibilities. 3.90 Rather than maximizing national rice production, the Government's approach should be to encourage maximization of farmer incomes. The incomes earned can then be used to purchase food. Moreover, the objective of rapid income growth does not conflict with increased rice production. On the contrary, it enhances opportunities to increase rice productivity since the incomes earned from cash crops and livestock would be available for the purchase of the agricultural inputs essential to the intensification of rice production. In the lowlands, rice would remain the primary crop during the wet season since there is no mechanism to control water to enable production of other crops; higher value crops would dominate production during the dry season. An income maximizing growth strategy would likely encourage integrated farming systems, with livestock, livestock feed crops (including soybeans and animal fodder), and market-demanded cash crops being brought into production along with rice. Gross margin analysis in Annex 2 indicates that there are many crops and livestock that generate higher financial returns to the farmer than does rice. Hence, diversification from rice offers a good opportunity to increase farmer income and food security. 3.91 In addition to a rapid income growth policy, the government should undertake the following steps to enhance food security: (a) remove the remaining restrictions to the movement of goods to enable more efficient trade and a better match between population and land resources; (b) improve the system for generating and disseminating food production, consumption, and trade information so as to enable better decision making by farmers, traders, consumers, and policy makers; (c) encourage regional and international trade to enable food deficit regions to have access to the cheapest sources of food while also gaining access to markets for their exports; - 78 - (d) maintain the high priority accorded to the improvement of transport and communications systems to enable development of an integrated market which is essential to enable food to reach many of the people in the food deficit areas; and (e) target emergency food aid to the needy and distribute the balance on a food-for-work basis and/or for cash on a market basis. Promoting Women's Participation in Development 56/ 3.92 Women play an important role in the economy of Lao PDR, particularly in the agricultural sector. In the rice sub-sector, women are responsible for transplanting and weeding rice as well as transporting paddy to threshing areas. In the livestock'sub-sector, women are responsible for feeding small animals such as pigs and poultry. In horticulture they are responsible for vegetable growing, while in forestry they are responsible for minor forestry products, mainly for home consumption, including bamboo shoots, mushrooms, leaves, fruits, and small animals. 3.93 Despite the important role women play in agriculture, there is no strategy or program to enhance their contribution to and benefits from agricultural development. This is not to say that the country has done nothing to promote the increased participation of and benefits to women in the economy. on the contrary, the government has been active, especially in providing a legal framework to enhance the role of and benefits to women in development. The country's new constitution, enacted in August 1991, ensures equal rights for both sexes in political, social, economic, and cultural affairs. In addition, a number of laws/decrees have been enacted since January 1992, including Property, Insurance, Inheritance, Labor, Family, and Election laws which provide a framework for action to enhance women's participation. These legal initiatives, however, are too recent to have been implemented. 3.94 Lack of a strategy and a national program to promote women in the development of agriculture has not stopped some development initiatives from going forward. There are a number of donor-supported projects and project components in implementation that have been specifically designed to support women in development (WID).57/ Implementation at the grassroots level is mainly assisted by foreign NGOs. The governmental counterpart for these projects is the Lao Women's Union which is a women's mass organization whose membership is said to include nearly 25 percent of the total female population. A national strategy for promoting equal participation in the economy for women and men would have improved the design of WID projects, thereby enhancing chances of success, and would have also improved chances of success of other projects by making them more relevant to the gender roles. 56/ This section draws heavily from a paper prepared for SIDA by Takeko Linuma, February 1992, entitled, Country Gender Analysis for the Lao PDR. 57/ Nearly 10 of the projects or project components are in the agricultural sector, financed by CIDSE, Japan International Volunteer Center, Save the Children Fund, Australia, SIDA, Terres des Hommes, UNICEF, and Quaker Service. - 79 - 3.95 There are two constraints to the formulation of gender-responsive national strategies and programs: (a) a lack of reliable gender-disaggregated data; and (b) lack of a government agency with the responsibility for dealing with the promotion of equal gender participation. The data problem is a generic one for the economy as a whole, both in terms of quantity as well as quality. However, a new beginning is needed to start collecting gender-disaggregated data as a basis for future strategy and policy formulation. Similarly, a government organization should be established to play a lead role in-promoting WID; this would be in addition to the Lao Women's Union which is more an NGO than a government agency. C. ImprovinQ the Allocation of Public ExDenditures 3.96 Is the level of government spending on agriculture consistent with the role the government has assigned to the sector? The answer is no. During 1988-92, government spending on agriculture averaged 10.5 percent of the total budget, or 4.4 percent of agricultural GDP (see Table 3.3). Comparable figures for a group of 40 developing countries during 1984-88 were 7.2 percent and 11.6 percent respectively (van Blarcom, et al., 1993: p. 5, Table 1). Table 3.3. Government Spending on Agriculture (1988-92) Year 1988 1989 1990 1991 1992 1988-92 Agricultural budget as % of total budget 12.0 6.3 8.9 11.9 13.2 10.5 Agricultural budget as % of agricultural GDP 6.4 2.7 3.4 4.8 4.7 4.4 Source: Derived from Tables 1.1 and 1.4 in the Statistical Annex While the Lao government spent a higher proportion of its budget on agriculture compared to the 40 developing countries, the share of its agricultural expenditures turns out to be less than half that of their expenditures when adjustments are made to reflect the importance of agriculture in the economy. This would suggest that public spending on agriculture by the Lao Government ought to increase if the sector is to meet the development expectations of the Government. However, inefficient allocation of the agricultural budget would work against any argument for increasing the agricultural budget (see paras. 3.98 to 3.103). - 80 - 3.97 The next question to address is: Does the Government's Public Investment Program (PIP) for 1994-2000 provide allocations for agriculture that are enough to enable Lao PDR to catch up with the other developing countries? The answer is yes if the PIP is translated into actual budget allocations. The agricultural PIP is planned to rise from 4 percent of agricultural GDP in 1994/95 to 8.3 percent in 1999/2000 which, if augmented by an adequate recurrent budget, would be close to the 11.6 percent that other developing countries have been spending on agriculture (see Table 3.4). It is critical that recurrent expenditures for agriculture be increased not only to achieve the desired agricultural budget levels but also to match the increases in PIP so as to avoid the under-utilization of public investments. It is equally important to strengthen implementation capacity so as to absorb the planned increases ini the agricultural PIP. Table 3.4. Agricultural PIP Compared to Agricultural Budget and GDP 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 (1994 Kip, millions) Agricultural GDP 428,950 446,456 464,676 483,640 503,378 523,921 (assumes 4t growth) Hypothetical Ag. 18,874 19,644 20,446 21,280 22,149 23,053 Budget I/ Public Investment 16,969 23,270 29,284 36,301 39,022 43,676 Program (PIP) (Ag. Budget) - (PIP) 1,905 -3,626 -8,839 -15,021.--16,873 -20,623 (PIP)/(Ag. GDP)*100 4.0 5.2 6.3 7.5 7.8 8.3 1/ Estimated Agricultural budget assuming that the 1988-92 average proportion to GDP is maintained. 3.98 The next question is whether increased budgetary resources for agriculture would be spent on activities or projects with the highest economic return. It is difficult to address this question with any high degree of precision because it requires the analysis of disaggregated data, which is unavailable, and the economic appraisal of activities supported by the budget. These misgivings notwithstanding, one can gain very useful insights by looking into the broader budget categories and making informed guesses about the economic viability of the activities being supported by the budget. 3.99 First, operational and maintenance expenditures tend to have high economic returns because they take advantage of sunk costs related to previous investments. In addition, they are often dominated by expenditures on research and extension programs which, according to various studies, usually generate high economic returns (see para. 3.35). Despite the proven high economic returns from public spending on non-salary recurrent expenditures in A - 81 - agriculture, the Lao'government spent only 2.7 percent of its non-salary current expenditures on agriculture during 1988-92 (see Statistical Annex Table 1.7).58/ Underfunding of recurrent expenditures is partly reflected in chronic shortages of local counterpart funds and personnel, including provision of staff as counterparts to technical assistance and availability of extension staff to work on donor-supported projects (see para. 3.41). 3.100 Second, public spending on animal health services has potential for high pay-off. An ADB review of the livestock sub-sector in 1989/90 found that financing a vaccination program could generate an internal rate of return in excess of 200 percent. The ADB findings are supported by gross margin analysis which points to attractive financial returns from investing in cattle and buffalo vaccination (see Annex 2). Despite the overwhelming evidence in favor of public investments in livestock services, the latter have been underfunded both in the capital and current budgets. For example, funding for livestock from local resources of the central government was only about 6 percent of the agricultural budget in 1992, with the share in capital expenditure standing only at 4.5 percent (see Tables 1.8 and 1.9 in the Statistical Annex). 3.101 In contrast to the above areas of potential high returns from public investment (research, extension, and animal health services), the irrigation sector has generated low to negative returns on public investment and yet has continued to receive a high share of public expenditure in agriculture. A review of the irrigation sub-sector by the ADB in 1989/90 concluded that many of the medium and large irrigation schemes were expected to generate an internal rate of return of less than 5 percent in rice production, even if their capacity were to be fully utilized. Actual returns are likely to be significantly lower than this given that capacity utilization of the schemes during the dry season has been about one third (see para. 4.59). Supplementary analysis by our mission, building upon the ADB irrigation sub-sector review, indicates that a typical capital intensive project (or so-called medium and large irrigation schemes) with an average construction cost of US$4,000 per ha, would generate an internal rate of return of 10 percent or more only if rice yields can rise to 8 tons per ha, which is theoretically possible but practically impossible in the Lao situation.59/ 3.102 Poor performance notwithstanding, capital expenditures for irrigation averaged 67 percent of agriculture's capital expenditure in 1989-90 --about the same level as in previous years. While it declined to 26 percent during 1991-2, it rose to 43 percent in 1993 and is likely to remain high, given current donor aid commitments in support of the sub-sector (Table 3.5). 58/ Even the government wage bill on agriculture was low - only at an average of 4.2 percent of the total national and provincial government wage bill;. this may partly explain the existing shortage of agricultural extension workers. 59/ Such high yields of rice have been generated in highly intensive production regimes in Japan which are difficult to replicate in countries like Lao PDR. - 82 - Table 3.5. Allocation of Capital Expenditures on Agriculture by Sector, 1988-1993 (percentages) 1988 1989 1990 1991 1992 1993 Forestry 28 21 25 10 9 5 Irrigation 57 72 62 23 29 43 Other Agriculture 1/ 16 7 13 67 62 52 1/ Mainly agricultural research, extension, livestock and, since 1991, rural development Source: Derived from Annex Tables 1.7A and 1.7C. In addition to the on-going projects in the sub-sector, amounting to US$45 million, new irrigation projects by donors for 1994-2000 are valued at US$52 million (Table 3.6). The Government's 1994-2000 Public Investment Program (PIP) contains a total of US$74.3 million for in irrigation (see Table 3.7). Table 3.6. On-going and Pipeline Projects Under MAF on-going Pipeline Projects Projects (1993) 1994-2000 Number of Value in 7 of Number of Value in Total Projects US$ million Projects US$ million Forestry 19 6.6 6.6 11 62.5 Meteorology 4 1.9 1.9 5 1.9 Rural Development 5 19.0 19.0 Irrigation 9 44.8 44.8 15 52.0 Livestock 11 2.8 2.8 16 7.5 Ag. Research & Extension 8 24.9 24.9 3 12.9 Total 56 100.1 100.0 50 136.9 Note: .. Not available Source: Ministry of Agriculture and Forestry Since future needs in the irrigatibn sub-sector are for less capital intensive projects including irrigation management, rehabilitation of existing schemes, - 83 - and construction of low cost, farmer-driven irrigation schemes (see para. 4.68), planned public sector resources for irrigation are clearly excessive. 3.103 In contrast to the excessive aid commitments for irrigation, planned donor support for livestock, research, and extension is inadequate, estimated at only US$7.5 million over 1994-2000 for livestock, and only US$ 12.9 million for research and extension. Similarly, allocations to livestock, research and extension in the 1994-2000 PIP are also inadequate (Table 3.7). There is a strong case to make in support of shifting public resources from irrigation to livestock, research, and extension services. Table 3.7. Public Investment Program Expenditures for Agriculture (local and foreign costs, millions 1994 $US) Program 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 TOTAL Research & Extension 5.0 5.0 5.0 6.0 3.5 5.0 29.5 Irrigation 5.7 10.0 13.4 15.2 15.0 15.0 74.3 Forestry 6.0 11.5 14.0 14.0 16.0 16.0 77.5 Livestock 0.0 0.0 1.0 2.0 2.0 2.0 7.0 Other Agric. 7.0 6.0 7.5 13.5 18.0 23.0 75.0 TOTAL AG. AND FORESTRY 23.7 32.5 40.9 50.7 54.5 61.0 263.3 Source: Government of Lao PDR (1994): Tables 4 and 5, p. 9. 3.104 As for the forestry sub-sector, what is needed is not only an increase but also stability in public expenditure. The share of forestry in the agricultural capital budget has been on a continuous decline from 28 percent in 1988 to 5 percent in 1993 (see Table 3.5 above). While part of the decline can be explained by the privatization of some of the government-owned logging companies and hence would not amount to a reduction in support of government management effort, it is also true that allocations for forestry management in the last three years (1991-93) have been too low to enable the Government to play its role in promoting sustainable use of forestry resources by way of clarifying and strengthening property rights, defining and enforcing regulations on forest conservation, and designing and enforcing taxation policies. But in futtire, the forestry sector is planned to receive vastly increased resources associated with planned donor projects totalling US$62.5 million during 1994-2000. In its 1994-2000 PIP, the Government's investment targets for the forestry sub-sector are US$40 million in new programs in addition to US$37.5 million of on-going and committed programs. These indeed are a lot of resources in absolute terms, relative to what other economically attractive subsectors (research, extension and livestock) are planned to receive, and relative to the implementation capacity of Government. While increased allocations for the forestry sub-sector are called for, the target has been overshot. The PIP allocations and donor commitments for forestry should be reduced; the savings should then be allocated to support research, extension and livestock programs which are underfunded. - 84 - IV. POLICY AND INVESTMENT PRIORITIES TO THE YEAR 2000 4.1 The aim of this chapter is to outline priorities for policy, institutional, and public expenditure reforms and to indicate broad areas of investment in which the government and donors could channel their support.60/ This should provide a useful input into the government's formulation of a strategy to pursue its sector objectives. A. Policy Reforms 4.2 The Government made great progress under the NEM to disengage itself from commercial activities. However, the reform agenda for establishing an efficient market system remains uncompleted. Proposed changes in policies fall under five categories: (a) improving efficiency in commodity markets; (b) developing factor markets; (c) improving agricultural incentives; (d) promoting foreign investment; and (e) improving the effectiveness of the privatization program. Improving Efficiency in Commodity Markets 4.3 Inefficiencies in commodity markets are related to two types of government interventions, direct trading and market regulations. Direct trading has been mainly with donor-financed fertilizer, animal drugs and vaccines, pesticides, insecticides, and herbicides. The Government has used its personnel and facilities, free of charge, for distributing agricultural inputs and has taken advantage of tax exemptions; this has placed private traders in a disadvantaged position. Since the private sector is available to undertake it more efficiently, the central and provincial governments should withdraw from trading in agricultural inputs before the end of 1995. 4.4 Market regulations have included: controls on the movement of goods and people across provinces; bureaucratic technical quality controls on agricultural inputs; restrictive business licensing procedures; and controls on interest rates for agricultural lending. To facilitate movement of people, the Government eliminated in early 1994 the practice of requiring laissez passer for people to move between provinces. The costs of that system in terms of market inefficiencies were high while the benefits were unclear. As for controls on the movement of goods, the turnover tax which is the main culprit should be merged with the land tax or eliminated. This measure could be implemented in the short term (within two years). 4.5 Technical quality controls are exercised mainly on the imports of agricultural chemicals and seeds by the MAF, in addition to requirements of a business license and an approval for each shipment, all administered by MCT. 60/ A detailed discussion can be found in Chapters 3 and 4. - 85 - The current costly system of quality controls should be replaced with a simpler system based on a positive list of recommended agricultural inputs (or a negative list of prohibited inputs) and a quality certificate from suppliers, all to be administered by customs officials. The new system of controls could be introduced in the short term. 4.6 A market inefficiency related to business licensing has to do mainly with provincial governments that use the licensing system to influence prices through persuasion and barring the participation of small traders in business. In addition to the business license offered by MCT, the provincial governments also require that traders be approved before dealing in coffee and fertilizer in their provinces. This is unnecessary, given the role that the national government plays in issuing business licenses, and yet costly. It should be scrapped immediately. 4.7 Another market inefficiency related to business licensing has to do with the long and cumbersome procedures. For example, an importer of fertilizer has to be licensed or registered by MCT, MOF, and Provincial Commercial Service. In addition, each contract has to be licensed (declared) by MCT or the Provincial Commercial Service. Finally, MAF has to approve imports of each type of fertilizer, based on quality tests of samples, and of each shipment. Clearly, the licensing and quality control procedures ought to be simplified and shortened to reduce business costs. This could be initiated in the short term and completed in the medium term (3-5 years). Developing Factor Markets 4.8 Land Markets. Formal land markets have been out of existence since 1975. But starting in 1991, a series of constitutional and legislative actions have been taken in relation to the use and management of land and forests. These constitute a strong foundation upon which to build a market for land use rights. In the next five years, a high priority should be given to their implementation, with the support of the recently approved Forest Management and Conservation Project and the proposed Land Titling Project. 4.9 Rural Labor Markets. The rural labor market has strong imbalances, particularly with labor surpluses and low wages in the north co-existing with labor shortages and high wages in the south. Labor mobility should be encouraged to reduce these imbalances. In the medium and long term, a critical facilitator of labor mobility would be the improvement of transportation, especially land transport, which the government has been diving high priority. 4.10 Rural Financial Markets. The formal rural financial market is in its infancy and the government-determined interest rate structure discourages sustainable lending to agriculture since lending rates are lower than deposit rates or rates for other sectors of the economy. Government action is needed in the short term to remove distortions in the interest rate structure, and in the medium term to support the development of a market-based rural financial system. Action should include the following: (a) strengthening the financial structure of the commercial banks and the APB including their capitalization; l - 86 - (b) carrying out an aggressive training program for banks including TA to concentrate mainly on management capacity, accounting, fund mobilization, and credit operations; (c) providing, mainly through NGOs, TA to farmer groups and communities to develop local savings and credit institutions; (d) expanding the banks' branch and sub-branch networks in the rural areas; (e) raising all lending interest rates for agriculture above deposit rates and equal to rates for other sectors in order to encourage savings and lending to agriculture; and (f) removing the monopoly on agricultural lending from APB by allowing private banks to freely operate in the rural areas. Improving Agricultural Incentives 4.11 Since 1989, agricultural TOT have deteriorated by almost 40 percent. There are continuing pressures, especially from the appreciating real effective exchange rate, pointing to continued deterioration at least against non-tradable sectors (construction and services). While its cause is unclear, the deterioration is contributing to reduced competitiveness of agriculture as reflected in low levels of foreign investment relative to other sectors. The following actions should be considered to compensate agriculture for the decline in its TOT: (a) continue to negotiate down Thai tariffs and quotas on agricultural imports from Lao PDR; (b) consider (in a broader context of tax reform) elimination of all taxes, including the turnover tax, on agricultural goods, except the taxes on resource rents on land and forests; (c) rationalize the tariff structure toward equalization of industrial and agricultural tariff rates; and (d) increase public expenditures on rural transport infrastructure particularly farm-to-market roads, and on animal health, agricultural research and extension services. These measures could be initiated in the short term and completed in the medium term. Promoting Foreign Investment 4.12 Agriculture has been the least attractive sector to foreign investment, attracting less than 10 percent of total foreign investment during 1990-93. The following measures should be taken to make LAO PDR's most important sector more attractive to foreign (and local) investors: (a) remove approval requirements for foreign investment by provincial governments; - 87 - (b) increase.to 8 years the period of tax exemption for long term investments in agriculture, including tree crops, commercial forestry, livestock, and research; (c) terminate excessive government interventions in markets, including setting of production targets, trading in agricultural inputs, technical quality controls on the importation of agricultural inputs, controls on the movement of goods, and the granting of monopoly rights for agricultural lending to APB; (d) strengthen land use rights in order to promote a formal market for land so as to provide Lao investors and foreign investors access to land; and (e) implement the recommended measures directed at improving agricultural incentives. These measures could be undertaken initiated in the short term and completed in the medium term. ImDrovinq the Effectiveness of the Privatization Program 4.13 Privatization has been most rapid in the agricultural sector. The challenge now is to make it more effective and relevant. In the next two years, the following measures are required to increase the effectiveness and relevance of privatization: (a) given the likelihood that the three large rice mills will never get enough rice to break even, consideration should be given to dis- assembling them and selling them for re-assembly in neighboring countries (Viet Nam, China, or Thailand); (b) the government should re-engage itself in the operation and maintenance of capital intensive irrigation schemes as an interim measure while working out mechanisms to encourage non-government entities to take over; (c) the Lao Vaccine Institute shoufd be commercialized (into a parastatal organization) and granted commercial and management autonomy as a springboard for ultimate privatization while the vaccine distribution network should be privatized within the next two years; (d) the supply and distribution of vaccines and animal drugs should be turned over by provincial and district governments to the private sector; and (e) the central and provincial governments should disengage themselves from the importation and distribution of donor-financed agricultural chemicals, seeds, and planting materials. With the exception of the privatization of rice mills and the Lao Vaccine institute, which could be done in the medium term, the rest of the proposed measures should be undertaken in the short term. - 88 - B. Institutional Development Priorities 4.14 A shortage of human and financial resources has hampered government initiatives to design and implement programs required to create an enabling environment for private sector development. A more rapid development of the agricultural sector demands better quality support from government which in turn requires strong institutions. The following are priority actions for implementation in the medium term in order to strengthen government institutions: (a) provide training at all levels of government; (b) strengthen the capacity of MAF to carry out policy analysis, programming, monitoring, and evaluation; (c) strengthen the implementation capacity of districts and provincial staff and improve the co-ordination of development activities through establishment of umbrella national programs; (d) redeploy human resources according to national program priorities, from state-owned enterprises (through privatization) and within and between provinces; (e) strengthen the utilization of regional technology networks and other sources of technology, especially for rice, livestock, and upland farming systems; (f) identify priority areas for phasing out of counter-productive activities (e.g., setting and implementing production targets) and those that the private sector can undertake (eg. fertilizer trading); (g) initiate a staff development program and develop a personnel management system; and (h) improve the staff remuneration and working conditions to accompany staff training and career development within the framework of the broader civil service reform program that has been underway since 1989. C. Priorities for Technoloqv and Support Services TechnoloQv Development and Dissemination 4.15 Government support for technology development and dissemination should focus on three priority areas: (a) technology packages for rice production; (b) appropriate technologies for upland areas to stabilize shifting cultivation and replace it with sustainable farming systems; and (c) technology packages for livestock feed. i - 89 - 4.16 The technology approach should be the adaptation of technologies, largely from the region, through trials conducted on Lao regional research stations and farmers, fields. Research and extension must be integrated primarily through the use of farm trials and village demonstration plots. The main constraint to the implementation of current programs for technology research development and dissemination is the lack of local counterpart funds and personnel to match donor resources. These should be made available through re-allocations of budgets and personnel from low priority areas such as state-owned enterprises and construction of capital-intensive irrigation schemes. Animal Health Services 4.17 Development of animal health services calls for action in two broad areas: (a) development of a basic animal health service to smallholder farmers; and (b) development of an effective national vaccination policy. 4.18 The following actions should be put in place in the medium term in order to develop an effective animal health service for smallholder farmers: (a) study and identify priority areas for phasing out the animal health service and privatization of the Vaccine Institutel; (b) establish a well-trained village-level para-veterinary force with skills and resources to earn a livelihood from primary veterinary care; (c) develop a basic understanding of the epidemiology of, and the diagnostic capability to handle, the most important diseases, together with development of the most cost-effective control measures; and (d) establish a national cold chain, extending in most cases to the 126 district centers. 4.19 An effective national vaccination policy would require the following measures to be put in place (in the medium term): (a) legislation defining notifiable animal diseases, and empowering the veterinary authorities to act decisively and without financial constraints to effect their control; (b) government guarantee of purchase, at market prices, of all vaccine requirements from the Lao Vaccine Institute for a period of up to five years during which time the Institute would be required to establish a commercially viable vaccine production enterprise; (c) removal of legal barriers to the commercialization of the Vaccine Institute; (d) the establishment of a revolving fund to finance vaccine purchase and distribution costs including a handling margin to be paid to - 90 - DLVS provincial staff. The revolving fund would be replenished through government funding of vaccine purchase and the sale of vaccine to village vaccinators at rates sufficient to cover the distribution margins paid to DLVS staff; (e) the establishment of standard area-specific vaccine application fees reflecting distribution and application costs, and a margin for the registered village vaccinators; and (f) provide adequate budget for the livestock industry at the provincial and district levels. Irriaation Management 4.20 The underlying problem in the area of irrigation management is that publicly managed, capital-intensive irrigation schemes are grossly under- utilized, poorly managed, and uneconomical. There is a two-pronged approach to address this problem: (a) improve the utilization of existing irrigation schemes by: introducing O&M cost recovery systems, strengthening the management of the schemes, letting farmers grow crops other than rice, and raising farmer price incentives through the development of marketing infrastructure (roads); and (b) improve the planning of future irrigation schemes so that they are farmer-driven and managed. These two approaches are being developed under the umbrella of various donor- supported projects. Given that it would, at best, take the Government up to the end of the decade to make the existing irrigation schemes operate to their full capacity, construction of high cost irrigation schemes should be avoided within the next five years. The construction of the low cost, farmer-driven and managed schemes should be continued but with no marked expansion since the provincial government expertise is already stretched fairly thin. Food Securitv 4.21 While the number and location of people that are food insecure are unknown, some serious and widespread child malnutrition has been reported. In addition, food security is a major pre-occupation of the Government, although it approaches it differently within the framework of national food self- sufficiency. Consequently, the following recommendations are proposed to guide the Government in developing a sound food security strategy: (a) make a fundamental shift from pursuing a national rice self- sufficiency policy to encouraging maximization of farmer incomes; (b) lift the restrictions on the movement of goods to enable more efficient trade; (c) improve the system for generating and disseminating food production, consumption, and trade information in order to enable better decision making by farmers, traders, consumers, and policy makers; - 91 - (d) encourage regional and international trade to enable food deficit regions to have access to the cheapest sources of food while also gaining access to markets for exports; (e) maintain the high priority accorded to improvement of transport and communications to enable the development of an integrated national market which is essential for food to reach many of the people located in food deficit areas; and (f) handle emergency food aid more carefully to ensure that it does not depress producer prices in local markets. The above recommendations should be implemented in the medium term. Options for targeted programs for people without food would be reviewed by the World Bank's Poverty Assessment Work which is expected to be completed in 1995. D. Public ExDenditure Reforms 4.22 The proposed reforms in public expenditure arise from the analysis in Chapter 3. The analysis indicates that: (a) the level of government spending on agriculture has fallen short of what is needed to enable the sector to play the role assigned to it by the Government--public expenditure on agriculture as a share of agricultural GDP is less than half of what a sample of 40 developing countries spent in recent years (although it is higher as a proportion of the total budget); (b) public expenditure allocation within agriculture has been inefficient, with high concentration on high cost irrigation schemes (with low economic returns) and underfunding of the high return budget categories of research, extension, and animal health services as well as of the non-salary recurrent budget; and (c) the irrigation budget has been used to build high cost irrigation schemes, which have been grossly under-utilized, while neglecting operation and maintenance of irrigation systems. 4.23 Given the inefficient use of resources within the agricultural sector, it is difficult to argue for an increase in the agricultural budget until it is proven that the resources can be efficiently utilized. The following reforms are recommended for initiation in the short term and completion in the medium term: (a) reduce overall budget for the irrigation sub-sector by drastically curtailing public funding of construction of high cost irrigation schemes; - 92 - (b) confine public spending in the irrigation sub-sector to the construction of low cost, farmer-driven and managed irrigation schemes and the completion, rehabilitation, and O&M of the existing capital intensive irrigation schemes; and (c) increase overall spending (capital and current budgets) on research, extension, animal health (particularly vaccination programs), and forestry. 4.24 To implement the above reforms, it is necessary to restructure the current portfolio of agricultural projects, as resource misallocations are embedded in it (see Annex 3 for a listing of the portfolio). For example, the Upland Agricultural Development Project financed by IDA, France, and Australia is being restructured jointly by the Government and the three donors to increase support for research and extension while sharpening the support for farmer-driven and managed irrigation, rural roads, and agricultural credit. Similarly, the other projects (about 60 in number) should be systematically reviewed jointly by the Government and the respective donors with a view to restructuring them so as to reflect the above public expenditure priorities. Priority in restructuring should start with the nine projects (totalling $45 million) which are managed by the Irrigation Department. 4.25 Implementation of the public expenditure reforms would also require a review and adjustment of the pipeline of projects as well as the Government's PIP (for the 1994-2000 period) to ensure that the sub-sectoral allocations are consistent with the above public expenditure priorities. For example, the project pipeline for the forestry sub-sector represents a big boost over previous years ($65 million in 1994-2000 compared to the current project portfolio of about $7 million) and may in fact be excessive; the 1994- 2000 PIP for forestry is equally excessive. The forestry PIP and pipeline need a review to determine the allocation within the sub-sector to ensure appropriate balance between forestry management and conservation on one hand, and introduction of sustainable farming systems in the uplands; in addition, surplus resources need to be determined and shifted into other areas of agriculture. 4.26 As for the irrigation sector, the proposed pipeline of 15 projects totalling $52 million is too large relative to the needs of the sector, which are primarily rehabilitation, maintenance, and management support that do not require heavy financing; s0 is the 1994-2000 PIP for irrigation amounting to US$62.5 million in new programs. Moreover, the project pipeline appears to be dominated by three sizeable capital intensive projects: Development of Agriculture in Savannakhet Province ($15 million), Irrigation Schemes at Muong Houn and Muong Beng in Oudomxay Province ($15 million), and Improvement of Nam Soung Irrigation ($5 million). It is also unclear whether the proposed Micro- Irrigation Project ($8 million) will be low cost or capital intensive. It is important that the Government reviews with the major donors the irrigation pipeline to ensure that it supports the high priority public expenditure areas--primarily shifting expenditures away from construction of new capital intensive irrigation schemes and reducing the overall allocation for the irrigation sub-sector. 4.27 In the government review of the overall project pipeline for agriculture and of the agricultural PIP, consideration should be given to directing more funds toward livestock and veterinary services (the pipeline i - 93 - for livestock and fisheries is only about $7.5 million) and research and extension (the pipeline is only about $13 million). E. Investment Priorities 4.28 While the above public expenditure reform discussions touched upon a review of the agricultural portfolio, pipeline and PIP, and suggested some shifts, there was no systematic indication of investment priorities. In this section, an attempt is made to indicate areas of priority for investment so as to provide a framework that the government and donors could use in programming and re-programming their current portfolio and future pipeline of projects for the remaining period to the Year 2000 (Annex 3). 4.29 There are four priority areas for public intervention, primarily by way of investment and improved public sector management: (i) development of support services for farmers; (ii) development of rural infrastructure; (iii) institutional strengthening; and (iv) management of natural resources. 4.30 Development of Support Services. Focus should be on two areas. First, research and extension programs should be developed to support the generation and dissemination of: technology packages for intensive production of rice; appropriate technology for upland areas to support sustainable farming systems; and feed technology for generating dry season protein supply for ruminants. Second, support is required to build up animal health services, particularly a national vaccination program which is required not only to improve livestock productivity but also to meet the international health requirements for live animal exports. 4.31 Development of Rural Infrastructure. Priorities are in two areas. First, investments are required to rehabilitate and/or complete existing high cost irrigation schemes and to improve their management; new construction should be limited to low cost, farmer-driven irrigation-schemes. Second, investments are required to expand rural transport infrastructure, especially farm-to-market roads, to enable increased market access and development of efficient systems for marketing of agricultural inputs and produce, and the delivery of rural services to farmers. 4.32 Institutional StrengtheninQ. Priorities are in three areas. First, there is urgency in providing support to MAF headquarters in agricultural statistics, policy analysis, and monitoring and evaluation of policies and programs. Second, capacity building is required at provincial and district levels in project implementation. Third, support is required in the development of rural credit institutions including training and technical assistance for savings and credit groups, joint liability (for loans) systems and development banking. 4.33 Natural Resource ManaQement. 61/ There are three priority areas. First, support is required to improve the use and management of land through support for implementation of recent land and forestry decrees, including a land titling program. Second, intervention is required, through regulations and appropriate policy frameworks, in forestry management and conservation including sustainable commercial exploitation of forests and protection of 61/ For details, see World Bank (1993a). - 94 - biodiversity. Third, intervention is required in water resource use and management so as to: improve supply of clean water and sanitation in rural areas; protect water quality against pollution from industrial expansion and mining development; preserve watersheds and their effects on hydropower development; and manage effectively environmental effects of hydropower development. 4.34 Private Sector Contributions. Throughout the above interventions, participation of the private sector should be maximized by promoting mechanisms to recover costs from the beneficiaries. Cost recovery mechanisms could be introduced or expanded in areas such as rural infrastructure (e.g., water fees and road tolls), support services (e.g., animal vaccination charges) and natural resource management (tourist fees, and fees for issuing and transfer of land titles). As the private sector develops, private investments are likely to take place in areas such as production, supply and distribution of vaccines, and hybrid varieties of plants and animals, and operation and maintenance of rural infrastructure. F. Reforming the Planning System 4.35 The current planning mechanism for the agricultural sector, closely related to production targeting and self-sufficiency in rice, does not allocate resources efficiently. A more appropriate mechanism would be the formulation of sector strategies to guide government interventions in terms of policies and formulation of the sectoral investment program; the Government is heading in this direction, but slowly. Sector strategies would be important in the formulation of sector priorities and defining the scope of government involvement that is consistent with its financial and human resources which are in short supply. The sectoral planning approach would feed into and be mutually reinforcing with the new national planning framework being developed with support from the UNDP-financed project and ADB-financed TA for the Committee for Planning and Cooperation. The national planning framework has articulated a broad development program for the period 1994-2000 which will be operationalized through a five year PIP; a first draft of the PIP (the 1994-2000 PIP) was prepared and discussed at the 5th Round Table Donors' Meeting for Lao PDR in June 1994. When completed, it should be updated annually at the time the annual budgets are prepared. - 95 - REFERENCES Behrman, J. R., Supply Response in Underdeveloped Agriculture: A Case Study of Four Major Crops in Thailand, 1937-63 (Amsterdam: North Holland, 1968). Bindlish, V., and R. Evenson, "Evaluation of the Performance of T&V Extension in Kenya," World Bank Technical Paper No. 108, Africa Technical Department Series, 1993. Bindlish, V., R. Evenson and M. Ghitiboro, "Evaluation of T&V-based Extension in Burkina Faso," World Bank Technical Paper No. 226, Africa Technical Department Series, 1993. Bourne, William, "Production and marketing potential and constraints for agricultural commodities produced in the Lao Upland Agricultural Development Project," mimeo, Lao Upland Agricultural Development Project; July 1993. Corden, W.M., "Booming Sector and Dutch Disease Economics: A Survey," Oxford Economic Papers, 36, No. 3 (November 1984), 359-80. Feder, G., and R. Slade, The Impact of Agricultural Extension: The Training and Visit System in India, The World Bank Research Observer, No. 2 (1986). Government of Lao PDR, "Public Investment Program, 1994-2000," Government of Lao PDR, mimeo, June 1994. Huffman, W. E., and R. E. Evenson, "Contributions of Public and Private Science and Technology to U.S. Agricultural Productivity," American Journal of Agricultural Economics, 74, No. 3 (August 1992), 751-56. Rosegrant, M. W., and R. E. Evenson, "Agricultural Productivity and Sources of Growth in South Asia," American Journal of Agricultural Economics, 74, No. 3 (August 1992) 757-61. State Statistical Center, "Lao Expenditure and Consumption Survey, 1992/93," State Statistical Center, Lao PDR, 1993. Takeko Linuma, "Country Gender Analysis for the Lao PDR," paper prepared for Swedish International Development Assistance, February 1992. Tsakok, Isabelle, Agricultural Price Policy: A Practitioner's Guide to Partial Equilibrium Analysis (Ithaca: Cornell U. Press, 1990). Van Blarcom, B., 0. Knudsen and J. Nash, "The Reform of Public Expenditure for Agriculture," World Bank Discussion Paper No. 216, 1993. World Bank, "Lao PDR - Environmental Overview," Report No. 11978-LA, December 30, 1993a. - 96 - World Bank, The East Asia Miracle: Economic Growth and Public Policy, a World Bank policy research report (New York: Oxford University Press, 1993b). World Bank, "Forest Management and Conservation Project," Report No. 10276-LA, February 23, 1994a. World Bank, "Lao PDR - Country Economic Memorandum," Report No. 12554-LA, March 1994b. World Bank, "Second Highway Improvement Project, Staff Appraisal," Report No. 12526 LA, 1994c. Yves Bourdet, "Rural Reforms and Agricultural Growth in Laos", Dept. of Economics, U. of Lund, Sweden, Macroeconomic Studies No. 36/93, 1993a. Yves Bourdet, "Budget Policy Under Transition in Laos", Dept. of Economics, U. of Lund, Sweden, Macroeconomic Studies No. 46/93, 1993b. LAO PDR AN AGRICULTLRAL SECTOR STRATEGY Summery of Policy and Investment Issues and Proposals for Action AREA ISSUES RECOWENDATIONS 1. Policy Actions for the Short Term A. Agriculture Price Incentives Agriculture terms of trade have deteriorated Compensate agric. by: significantly since 1989. a) negotiating down Thai tariffs and quotas on agricultural imports from Laos; b) eliminating all taxes on agriculture (including the turnover tax) except the taxes on resource rents on land and forests; c) rationalizing the tariff structure toward equalization of agric. and tariff rates; and d) increasing public spending on agricultural infrastructure and support services. B. Commodity Markets There are inefficiencies related to two types of To enhance efficiency in the marketing of agricultural inputs, the central goverrnent interventions: (a) direct trading in and provincial governments should withdraw from trading in agricultural donor-financed fertilizers, animal drugs, inputs vaccines, pesticides and herbicides; and (b) market regulations including controls on the To reduce costs of market regulations, the goverrnent should: replace movement of goods across provinces, technical current system of technical quality controls on imports of agricultural quality controls on agricultural inputs, and inputs with a simpler system based on a positive list of recommended restrictive business licensing procedures. inputs (or a negative list of prohibited inputs) and a quality certificate from suppliers, all to be ackninistered by customs (as opposed to MAF) officials; simplify and shorten the licensing responsibilities from MAF and provincial goverrnments and reducing licensing requirements to only an annual license issued by MCT (eliminate licensing of individual contracts C. Factor Markets 1. Land Market The markets for land are informal, limited in Implement a land titling program that would assure land tenure security scope and inefficient due to lack of land tenure through the issuing and administration of land use certificates. security. Facilitate movement of people by improving transport infrastructure. 2. Rural labor markets Labor markets are imbalanced with labor surpluses Goverrnent action is required to remove interest rate distortions and and low wages in the north co-existing with labor support the development of a market-based financial system: shortages and high wages in the south. (a) strengthen financial structure of the government-owned commercial banks and APB including capitalization; The banking system is undeveloped; there is a (b) provide TA and training to the banks; monopoly in agricultural banking exercised by the (c) provide TA to farmer groups and communities to develop local 3. Rural financial markets APB; and lending rates for agriculture are lower savings and credit institutions; than for other sectors and than deposit/savings (d) permit banks to establish branches and sub-branches in the rural rates. areas and remove the banking monopoly of APB; and (e) change the structure of interest rates to encourage savings and lending to agriculture. D. Private Investment Agriculture has been unattractive to investment, Increase attractiveness of agriculture to investors by: particularly foreign because of unfavorable (a) compensate agriculture for the unfavorable TOT (see A. 1 above); agric. terms of trade, lack of land tenure (b) protect land use rights through issuing of land use certificates security, unattractive investment incentives and (see C. 1 above); too many agencies involved in investment (c) remove government from trading, and reduce market regulations (see licensing. A. 1 above); (d) remove investment approval responsibilities from provincial goverrmnents; and (e) increase tax exemption period for long term investments in tree crops, commercial forestry, livestock and research. AREA ISSUES RECOMMENDATIONS E. Privatization Program The privatization program in agriculture, white Improve the effectiveness and relevance of the privatization program by: rapid, has Lost focus and effectiveness: (a) dismantling the rice mills and selling them for re-assembly in (a) loss of private buyers for three large rice neighboring countries; milts; (b) re-engaging the government in the operation and maintenance of (b) lack of private operators to operate and large scale irrigation system; maintain large irrigation schemes after (c) commercializing the Lao Vaccine Institute (vaccine production) as government disengagement; and an interim measure toward privatization; and (c) no initiative has been made to privatize (d) privatizing the vaccine supply and distribution network. vaccine production, supply and distribution. F. Planning Current planning mechanism, influenced by Move the planning mechanism fully into indicative planning, with production targeting and self-sufficiency in formulation of sector strategies. rice, has led to inefficient allocation of resources. II. Policy Actions for the Medium Term G. Pubtlic Expenditure Three issues: The following public expenditure reforms are required: Allocation (a) inefficient allocation within the sector, (a) increase the relative share of recurrent expenditure so as to with high concentration in irrigation and remove the current imbalance between capital and recurrent budgets; underfunding of recurrent costs, livestock, (b) reduce overall budget for irrigation while increasing the budget research and extension; and for livestock, research and extension, and stabilizing the forestry (b) within irrigation, excessive concentration on budget; low return, capital-intensive irrigation schemes (c) confine public spending in irrigation to the construction of low while neglecting operation and maintenance. cost farmer-managed schemes and the completion, rehabilitation and O&M of the existing capital intensive schemes. H. Institutional Development Institutional capacity to design and implement A program of institutional development is needed including: sector programs is weak due to a shortage of (a) training at all levels of government; co skilled manpower and an inadequate work (b) strengthen capacity of MAF to do policy analysis, programming and environment. monitoring and evaluation; (c) strengthen implementation capacity of district and provincial staff and improve coordination capacity of the central goverrnment through establishing umbrella national programs; (d) redeptoy human resources according to national program priorities, from SOEs (through privatization) and within and between provinces; (e) identify priority areas for phasing out of counterproductive activities (e.g., production target-planning) and areas better undertaken by the private sector (e.g., trading; see B1. 1 above); (f) initiate a staff development program and develop a personnel management system; and (g) improve staff remuneration and working conditions within the framework of the civil service reform progrsm. III. Investment Priorities Rationalize the Pubtlic Investment Program, slong the lines described in paragraphs 15 to 20 of the Executive Summary by refocussing expenditures away from construction of high cost irrigation schemes to farmer support services, transport infrastructure, irrigation rehabilitation and management, institutional strengthening and natural resource management. _ 99 - Annex I page I LAO PDR AN AGRICULTURAL SECTOR STRATEGY Data Problems and Adjustments This annex describes some of the more critical weaknesses in basic data currently available in Lao PDR. The quality of official statistics remains very poor despite efforts to improve them in recent years. Although these efforts have brought some notable improvements in estimating the national accounts, agricultural data continues to suffer from unreliable collection methods, inconsistent reporting, and major gaps in coverage. In terms of the latter, the most serious shortcoming is the lack of adequate information on prices; farm-gate and wholesale prices, for example, are not collected. Coverage of retail prices has improved, but CPI and GDP series for the country are still based on open-market prices in Vientiane only.1/ In general, Government has not allocated the resources needed to develop an adequate data collection system. Production and Area Data. Agricultural production data is not significantly lacking in terms of its coverage. Area and output estimates are made for all major crops along with livestock and poultry numbers. However, the system used to collect the data relies on reports from villagers and local officials who lack incentives to report data accurately. One consequence of this is that changes in area and production figures for rice prior to 1987 may be more a reflection of changes in reporting incentives due to policy shifts than to any real changes in the field. Following Goverunent's 1979 decision to replace rice output taxes with land taxes, farmers appear to have responded by reducing the size of their reported cultivated areas over the next several years. Officials, meanwhile, were presumably reluctant to report that they had failed to achieve the production targets specified for their regions in multi-year central plans, unless substantial drought or flooding provided an explanation for failure.2/ Both of these incentive problems would tend to inflate estimated yield levels. However, there is some basis for placing greater suspicion on the reported area numbers. First, the timing of the change in agricultural taxes is consistent with changes in area; lowland paddy area decreased for the first time in 1980. In 1981, perhaps the first year in which the new tax policy could have been fully implemented, paddy areas were estimated using intensive surveying and measurement, establishing a baseline of 433,200 hectares of lowland paddy.3/ 1982 area was essentially unchanged, but a decline of about 20 percent followed over the next two years, accompanied by a 26 percent increase in lowland rice production. Second, the reported decline in area harvested is contradicted by two aerial photography-based surveys of land use completed in 1982 and 1989, respectively (Table 1). These show an increase in the areas under both permanent crops and shifting cultivation in each of the three regions (North, Central and South). Third, a simple statistical examnination of the data (described below) supports the contention that yield figures simply "shifted" upwards by 20 percent, with no significant change in yield trends, and most of this 1/ Prior to 1987, weighted averages of parallel market prices and official prices in state shops were used. See Annex 4 for a detailed description of the price data used to construct terms-of-trade indices for agriculture. 2/ This applies mainly to rice production, for which the Government's goals were to expand flooded paddy output and limit the area under shifting cultivation. 3/ Reported in World Bank, "Lao PDR Agricultural Sector Note", mimeo, supplementary working paper to the Lao PDR Country Economic Memorandum, November 1986. - 100 - Annex I page 2 shift is explained by a one-time decrease in area. Finally, while many factors may explain changes in crop production, a plausible alternative explanation for the dramatic decrease in reported areas is lacking. Table 1: Agricultural Land, 1982 and 1989. North Center South TOTAL 1982 1989 1982 1989 1982 1989 1982 1989 (in '000 hectares) Permanent Ag. land 51 57 234 296 423 496 709 849 Rice paddy 47 53 222 281 389 456 658 789 Current Ray 352 365 144 155 101 106 598 626 (Swidden Fields) Total Cultivated 403 422 378 451 524 602 1307 1,475 land Harvested Paddy 279 208 164 161 281 227 724 596 Area (official) 1/ (percent change) Permnanent Ag. land 11.8 26.5 17.3 19.7 Rice paddy 11.9 26.3 17.3 19.9 Current Ray 3.7 7.6 5.0 4.7 (Swidden Fields) Total Cultivated 4.7 19.3 14.9 12.9 land Harvested Paddy -25.6 -1.6 -19.3 -17.7 Area (official) 1/ 1/ 1982 area harvested numbers are for 1980. Regional data were notavailable for 1981-83. Sources: Lao-Swedish Forestry Co-operation Programme, "Forest Cover and Land Use in Lao PDR: Final Report on the Nationwide Reconnaissance Survey", Forest Inventory Report No. 5, Dec. 1992. Harvested paddy area is from State Statistical Center, Lao PDR. - 101 - Annex I page 3 The above considerations, together with limited observations on yield levels obtained by direct measurements, imply that an upward adjustment in the area harvested data for the 1983-92 period may be justified. A tentative adjustment of this kind is described in the following section. As for production estimates, these can be considered at least adequate for indicating orders of magnitude and changes over time. Note that the discussion of agricultural performance in this report focuses on physical output or value added, as opposed to yield, in order to avoid the additional uncertainties associated with reported areas. Adjustment of Rice Area Harvested Data. Data on rice area and yield in Laos covenng 1976- 1992 were examined for evidence that changes in land tax laws led to a downward shift in reported area after 1982. The simple regressions (dummy variables + time trends) used to examine the issue assume that other factors such as producers' incentives varied randomly or were constant over the years included. Thus, the results must be considered as only a first approximation. This examination of the data is motivated by two major inconsistencies. First, although growing conditions in 1983 and 1984 were both normal, rice yields in 1984 were reported to be 33 percent higher than the year before, and that increase has since been maintained except for 1988 when growing conditions are known to have been very poor. The higher yield levels reported for the later period are not consistent with what most observers regard to have been a slow pace of technological change in Lao agriculture. For example, use of fertilizers has only reached 1.6 kg per hectare compared to 47 kg per hectare in Thailand. Moreover, most of the rice grown in Lao PDR consists of traditional varieties, while in Thailand mostly improved varieties are grown. Yet the yields reported in Lao PDR are as much as 25 percent higher than in Thailand. Second, there is the inconsistency shown in Table I between the decline in the government's area harvested data and the increase in paddy area determined through aerial photography and satellite imagery. Although the decline in rice area seems most suspect, it is also possible that political pressures and rewards had a tendency to inflate the rice production numbers. In particular, political pressure may have been felt by district and provincial officials to report successes (in years with favorable weather) in achieving production targets set by the central government. The exception here is upland rice (i.e., shifting cultivation), which is officially discouraged. However, upland rice as a share of harvested area in fact increased from 33.5 percent in 1979 to 36 percent in 1984, and a large downward shift does not occur until 1987. On the other hand, the remote sensing data shows that lowland rice hectarage expanded much more than that of upland rice. These facts demonstrate that the suspected effects of changes in agricultural taxes are sufficient to explain the fall in area in 1981-84, while political pressure to reduce reported upland rice area is not necessary or sufficient. With regard to the possible inflation of lowland rice production numbers, from a practical standpoint, one cannot test for the effect of the suspected political influences because their timing is ambiguous. Although these factors indeed may have been significant, it is not clear when their influence began. Therefore, the production data is not examined directly. - 102 - Annex I page 4 In the first test, the logarithm of total paddy yield was regressed on an intercept, a dummy to shift the intercept after 1982 (D834)41 a time trend and a dummy for years that are known to have had poor growing conditions due to drought, flood or both (Poor).51 The objective was to test whether the increase m yield after 1982 represents a statistically significant deviation from the trend. The result is given below (t-ratios in parentheses): ln(Yield) = 67.13 + .316*D834 + .0196*Time - 0.074*Poor (3.802) (2.406) (-1.81) adj. R2 = .92 D834 shifts the intercept up significantly (about 37 percent) and the time trend of nearly 2 percent p.a. is also significant. Next, since it is under-reporting of planted area that is suspected of having led to the observed jump in yield, the logarithm of total paddy area was regressed on the sarne independent variables (again, over 1976-92). After correction for autocorrelation, this results in: ln(Area) = 13.4 - .183*D834 + .0131*Time - 0.114*Poor (2.050) (1.397) (-3.984) adj. R2 = .74; rho = .697 T he evidence, then, supports the argument that a (statistically significant) downward shift in the reported paddy area occurred over 1983-84, causing post 1982 yield figures to be higher. To be exact, using the last equation gives an estimated upward shift in yield of 20 percent, based on a 17 percent reduction in area (exp(-.183)=.83). Thus, more than half of the increase in yield during 1983-84 can be attributed to the decrease in area at that time. Figure I below shows the official rice area series together with a revised series which eliminates the downward shift suggested by the regression results. Figure 2 shows a similar comparison between official and revised yield data. 4/ To allow a phase-in of the shift, the value of the dummy shift variable is set equal to zero in 1976-82, .5 in 1983 and 1.0 thereafter 51 Poor weather years are 1976-78, 1987-88 and 1991 (from Yves Bourdet, "Rural Reforms and Agricultural Growth in Laos", Dept. of Economics, U. of Lund, Sweden, Macroeconomic Studies No. 36/93, 1993). - 103 - Annex I page 5 Figure 1: Official and Revised Total Rice Area Harvested 1000 soo Re-vised 800 700 600 2 500 2400 300 200 100 0 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 Figure 2: Official and Revised Total Rice Yield 2.50 2.00 -1.50 i~~~~~~~~~~~~~~~~~~RN 0 E 0.50 0.00 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 - 104 - Annex I page 6 GDP Data. A comparison of the growth rates of aggregate GDP and its components under different policy regimes in Lao PDR is made difficult by the absence of a consistently estimated GDP series. The current method, introduced in 1989 to replace the Net Material Product (NMP) system, provides value added estimates by industrial origin in constant prices. Data on output of goods and services in the current year are multiplied by the base year prices and a percentage representing intermediate consumption is then deducted.6/ Estimates of GDP by this method, with the same breakdown into sub-sectors, are available from 1984 on, although there are problems with changing definitions and reclassification of items that complicate comparisons of data compiled at different times. Another problem is that reported values at times differ between publications, and the sectoral GDP series, particularly agricultural GDP, are often clearly at odds with publicly available production data. For this report, an attempt was made to construct a GDP series covering 1984-93 by combining two previously published series.7/ The result is used only to gauge the direction of structural change in the economy, however, and it may be less reliable for other purposes. In addition, data on production of crops, livestock, fish, and forestry were used to construct a disaggregated series of agricultural value added from 1976 to 1992 in 1990 prices. This makes agricultural GDP consistent with published quantity figures and provides a means of aggregating output in subsectors within agriculture. Agricultural GDP estimates are shown in Table 2 below. 6/ Before 1993, estimates of intermediate consumption were based on a 1980 industrial survey. A second industrial survey was completed in 1992. 7/ Percentage changes in components of GDP for 1984-87, based on 1988 prices, were used to derive values for the earlier years that are very roughly consistent with data for 1987-93 in 1990 prices. Errors arising from combining series with different base year prices are probably small compared to the inaccuracies of the original numbers. i Table 2. Agricultural GDP: Value Added in 1990 Prices 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 (million kip) Rice 66660 69902 74092 86836 106215 116455 110171 111002 133241 140713 146269 123134 102347 143208 152132 124787 148920 Corn 1956 2024 1734 2116 1828 2110 2233 2051 2183 2145 2684 2827 4023 3477 5271 5433 4561 Sweet Potatoes 2795 2877 2989 4055 4746 5745 5779 5911 5709 5045 3870 5284 8237 7031 9612 5812 5923 Soybeans 436 465 738 834 837 990 1071 897 920 522 660 1003 1193 1329 1142 1492 1165 Mungbeans 278 286 342 420 444 467 507 501 495 405 259 488 542 841 708 570 743. Peanuts 672 688 1389 1474 1541 1681 1791 1695 1729 1003 816 1357 1091 1430 1554 1357 1405 Tobacco 936 887 2178 2490 2846 3260 3371 2646 2822 2685 2394 4372 5275 5930 9988 8018 9148 Cotton 551 588 904 1173 1188 1223 1232 1204 1237 704 641 984 1082 1058 1212 1156 1205 Sugarcane 378 398 436 582 537 537 572 675 1215 1627 1611 2919 2771 3263 2493 2083 2525 Coffee 2771 2781 2970 3496 4429 5015 5183 5303 5701 6124 4984 5392 7947 5495 5283 8138 8312 Tea 0 221 232 261 249 395 412 476 519 429 172 427 1169 629 1374 1445 1289 Vegetables 2270 2465 2859 3390 3405 3484 3591 3469 3602 3152 1496 2750 6207 5962 4856 4646 4871 Fruit 1/ 8071 8335 8600 8864 9129 9393 9658 9922 10186 10971 12845 7999 9312 11221 12571 14434 16572 f Buffaloes 20810 21971 23439 24547 27686 28539 29123 29111 30394 30480 31802 33343 33768 33295 34775 39117 44001 0 Cattle 10897 11725 12999 13333 14937 15205 15798 16242 18279 20938 21602 23482 25536 25045 28136 34042 38123 ° Pigs 28443 30492 25925 30887 41352 43768 45517 48383 50607 44280 47627 50005 44662 47852 51066 58692 62415 Poultry 5219 5453 5770 5932 5916 7091 7375 8584 9222 8285 8143 8015 8679 10231 10095 10727 11399 Goats/Sheep 158 176 166 180 248 276 287 307 321 417 380 700 621 745 712 733 755 Fish 2/ 2665 2840 2778 3046 3666 3859 3990 4174 4426 4246 4456 4034 5075 5075 5075 5249 5292 Forestry 3/ 15212 15380 19161 18573 18657 15716 19077 22187 20254 29415 26725 32381 28271 15894 19498 24029 15520 Self Consump. 4/ 8032 8444 8902 9971 11724 12445 12517 12892 14221 14715 14989 13810 13364 15539 16778 16253 18275 TOTAL - 179210 188397 198604 222460 261579 277652 279254 287632 317284 328303 334425 324708 311173 344550 374331 368213 402419 Source: Lao PDR government Publications. 1/ 1976-84 estimates are based on the 85-90 trend. 2/ 1976-86 estimates are based on the 1987 ratio of fisheries value added to livestock value added. 3/ Forestry estimates are based on estimated log production 4/ For 1976-86. the 1987 ratio of self consumption to total Ag GDP is used to estimate self consumption. 00 m e o I - 106 - LAO PDR AN AGRICULTURAL SECTOR STRATEGY ANNEX 2 GROSS MARGINS. RETURNS AND IMPORT PARITY PRICES - 107 - Annex 2 page I GROSS MARGINS, COSTS, AND RETURNS TO LABOUR AND LAND (based on 1993 conditions) Lowland Paddy Irrigated Other Dry Season Crops Paddy Item Typical High Input (2nd rice crop) Soy bean Mung bean Watermelon Gross output (kg/ha) 1,800 3 ,00 3,500 1,000 1,300 9,000 Farm gate price, kip/kg 60 60 80 150 130 60 Incremental output, first crop 0 0 400 560 560 560 Farm gate price, kip/kg 60 60 80 80 80 80 Total gross value, kiptha 108,000 192,000 312,000 194,800 213,800 584,800 Tax 5 % 5,400 9,600 15,600 9,740 10,690 29.240 Gross Value After Tax 102,600 182,400 296,400 185,060 203,110 555,560 Type/name Improved Improved Thai impr. Amount, kg/ha 40 40 55 60 50 1 Price, kip/kg 70 120 120 150 475 37,500 Cost, kip/ha 2,800 4,800 6,600 9,000 23,750 0 Water fee 0 0 5,000 5,000 5,000 5,000 Fencing, annual cost, kip/ha 0 0 0 0 0 50,000 Manure Amount, sacks/ha 0 0 0 0 0 60 Price, kip/sack -- -- - 200 Cost, kip/ha 0 0 0 0 0 12,000 Fertilizer Type/name Urea Urea Urea Urea 16-20-00 Urea Aniount, kg/ha 0 66 66 60 30 100 Price. kip/kg 0 230 230 230 250 230 Cost. kip/ha 0 15,180 15,180 13,800 - 7,500 23,000 Type/name 16-20-00 16-20-00 16-20-00 16-20-00 0 16-20-00 Amount, kg/ha 0 30 30 50 0 300 Price. kip/kg 0 250 250 250 0 250 Cost, kip/ha 0 7,500 7,500 12,500 0 75,000 Chem cl Type/name Sevin Sevin Sevin Sevin Malathion Fungicide Amount, kg/ha 0 2 2 2 0.4 10 Price, kip/kg 7,000 7,000 7,000 7,000 8,500 750 Cost. kip/ha 0 14,000 14,000 14,000 3,400 7,500 Typeiname -- -- - -- Carbaryl Folidol Amount, kg/ha - - -- - 2 8 Price, kip/kg - - -- - 6,500 750 Cost, kip/ha -- - - - 13,000 6,000 Gross Margin: 99,800 140,920 248,120 130,760 150,460 377,060 Labour inputs (days) 100 124 134 85 88 160 Return to labour. kip/daY 998 1,136 1,852 1,538 1,710 2,357 Incremental benefits (kip/ha) 79,800 Incremental costs (kip/ha) 38,680 Incremental b/c lkatio 2.06 Source: World Bank (mission estimates) - 108 - Annex 2 page 2 GROSS MARGINS, COSTS AND RETURNS TO LABOUR AND LAND (based on 1993 conditions) Item Upland Maize Mungbean Cotton Durian Durian Rice Year 1-4 Year 15 Gross output (kg/ha) 500 2,000 750 1,000 0 7,500 Farm gate price, kip/kg 60 50 150 300 800 800 Incremental output, first crop 0 0 0 0 0 0 FarTn gate price, kip/kg -- - -- -- -- Total gross value, kip/ha 30,000 100,000 112,500 300,000 0 6,000,000 Tax 5 % 1,500 5,000 5,625 15,000 0 300,000 Gross Value After Tax 28,500 95,000 106,875 285,000 0 5,700,000 Seed: Local Local Improved Improved Thai Thai impr. impr. Type/name 50 100 19 16 140 0 Amount, kg/ha 70 70 330 200 250 0 Price, kip/kg; 3,500 7,000 6,270 3,200 35,000 0 Cost, kip/ha 0 0 0 0 0 0 Waterfee 0 0 0 0 0 0 Fencing, annual cost, kip/ha 0 0 0 0 0 0 fertilizer: -- -. -- Type/name -- -- -- -- Urea Urea Amount, kg/ha -- -- -- -- 60 50 Price, kip/k- *- 230 230 Cost. kip/ha -- -- -- -- 13,800 11,500 Chenicals Type/name - - Vegetable oil Dimethoate -- -- Amount, kg/ha -- - 8 4 -- Price, kip/kS -- -- 1,100 9,500 -- Cost. kip/ha -- 8,250. 38,000 -- -- Typc/name -- - 0 Decis -- -- Amount, kg/ha -- -- 0 5 -- -- Price, kip/lk -- -- 0 10,500 -- -- Cost, kip/ha - -- 0 52,500 -- -- Gross Margvin 25,000 88,000 92,355 191,300 -48,800 5,688,500 Labour inputs (days) 186 125 37 85 352 47 Return to labour. kip/day 134 704 2,496 2,251 -139 121,032 Incremental benefits (kip/ha) 66,500 Incremental costs (kip/ha) 3,500 Incremental b/c Ratio 19 Source: World Bank (mission estimates) - 109 - Annex 2 page 3 CALCULATION OF IMPORT PARITY PRICES FOR PADDY AND SOYBEANS (S/ton unless otherwise indicated) Economic Price of Paddy: Non-Glutinous Rice Glutinous Rice (1989 forecast, in constant 1989 prices) 1990-94 1995-99 2000-009 1990-94 1995-99 2000-009 Projected Prices, FOB Bangkok) 1/ 232 239 237 232 239 237 Quality adjust. for glutinous rice (-15 %) -- - 197 203 201 Freight and insurance 60 60 60 60 60 60 CIF Thanaleng 292 299 297 257 263 261 Conversion of dry paddy to milled rice (57 %) 2/ 166 170 179 146 150 149 Transport and handling 3/ 20 20 20 20 20 20 Economic farmgate price (import parity) 4/ 146 150 149 126 130 129 Economic farmgate price (kip/kg; 1S=571 kip) 83 86 85 72 74 74 Economic Price of Paddy: Non-Glutinous Rice Glutinous Rice (1992 forecast, in constant 1992 prices) 1993 2000 2005 1993 2000 2005 Projected Prices, FOB Bangkok) I/ 254 272 268 254 272 268 Quality adjust. for glutinous rice (-15 %) -- -- -- 216 231 228 Freight and insurance 60 60 60 60 60 60 C IF Thanaleng 314 332 328 276 291 288 Conversion of dry paddy to milled rice (57 %) 2/ 179 189 187 157 166 164 Transport and handling 3/ 20 20 20 20 20 20 Economic farmgatc price (import parity) 4/ 159 169 167 137 146 144 Economic farmgate price (kip/kg; 1 S=716 kip) 114 121 119 98 105 103 Economiiic Price of Soy Beans: Constant 1989 Prices Constant 1992 Prices 1990-94 1995-99 2000-009 1993 2000 2005 Projected Prices, CIF Rotterdam 5/ 260 242 214 252 234 258 Freight and insurance 75 75 75 75 75 75 C1F Thanaleng 335 317 289 327 309 333 Transport and handling 70 70 70 70 70 70 Economic farTngate price (import parity) 265 247 219 257 239 263 Economic farmgate price (kip/kg) (IS=571 kip in '89, 716 kip in '92) 190 177 157 184 171 188 Source: World Bank appraisal of thc Upland Agric. Dcvelopmcnt Project, Novcmbcr 1989; World Bank mission cstimates. I/ World Bank Commodity Pricc Forecasts (Junc '89 and Nov. '93) for Thai 5 % broken adjusted to 1989 and 1992 constant prices using MUV indcx. 2/ Processing costs arc assumed to equal value or byproducts. 3/ Net rigure for all intcrnal transport, handling and storagc costs. 4/ Taxes and duties cxcluded; assumed SCF - 1. 5/ World Bank Commodity Price Forecasts (Junc '89 and Nov. '93) adjusted to 1989 and 1992 constant prices using MUV index. - 110 - Annex 2 LAO PDR page 4 LIVESTOCK AND PIG PRODUCTION MODELS A. BUFFALO 1/ Livestock Offtake Rates & Prices Improved Buffalo Unimproved Buffalo Vaccinated Buffalo Price Offtake Price Oftakc Price if takec (K/animal) Rate (K/animal) Rate (K/arumal) Rate 3-4 yr. old bulls 160000 0.20 130000 0.15 135000 0.15 Ycarling bulls . 65000 0.03 50000 0.02 50000 0.02 Surplus 3-4 yr. hcircrs 130000 0.11 110000 0.02 115000 0.04 Cullcd Brceding hcifrrs 110000 0.01 85000 0.01 90000 0.01 Culled-for-age cows 100000 0.08 75000 0.10 75000 0.09 Cullcd-for-agc bulls 140000 0.01 120000 0.01 130000 0.01 Herd No. per CCU 2.48 2.82 2.75 Proportion Cows 0.33 0.35 0.34 Percow Covcrsion factor 1.24 1.01 1.07 Gross Sales Revenue (Kip pcr cow) Cattic Saics 3-4 yr. old bulls 38591 19362 21594 Ycarling bulls 2010 1064 1120 Surplus 3-4 yr. hcifcrs 18009 1716 4415 Cullcd Brccding hcircrs 816 689 672 Cullcd-for-agc cows 10019 7599 7518 Cullcd-for-agc bulls 866 851 832 Total 70311 31281 36150 Production Costs (Kip per cow) Animal hcalth Vaccination 307 0 293 Drcnching 3067 0 0 Othcr :. 2000 0 0 Fccd and Foragc Production Animal fccd 0 0 0 Land prcparation 0 0 0 Foragc sccd 2400 0 0 Fcrtiliscr 2200 0 0 Total 9974 0 293 Labour Rcquircmcnts (days for two cow hcrd) Foragc production and fecding 10 0 0 Hcrding 40 40 40 Total Labour Rcquircmcnt 50 40 40 J Nct Rcturns (Kip) Nct Rcturn per Cow in Hcrd 60337 31281 35857 Proportion Cows in Hcrd 0.33 0.35 0.34 Nct Rcturn per Animal in Hcrd 19670 10948 12227 Nct Rcturn/day (Two cow hcrd) 2413 1564 1793 Rcturn on Unimproved Herd (%) 154 0 115 1f A,sumes a no-manimal herd. - 111 - Annex 2 LAO PDR page 5 LIVESTOCK AND PIG PRODUCTION MODELS B. CATTLEI/ Livestock Offlake Rates & Prices Improved Cattle Unimproved Cattle Vaccinated Cattle Price Offiake Price Offtake Price Offtake (K/animal) Rate (K/animal) Rate (K/animal) Rate 3-4 yr. old bulls 140000 0.24 120000 0.21 125000 0.23 Ycarling bulls 70000 0.03 45000 0.03 55000 0.03 Surplus 3-4 yr. heifcrs 125000 0.15 110000 0.05 115000 0.09 Cullcd Brecding heifers 100000 0.01 75000 0.01 90000 0.01 Cullcd-for-agc cows 85000 0.10 75000 0.11 80000 0.10 Cullcd-for-agc bulls 130000 0.01 110000 0.01 120000 0.01 Hcrd No. per CCU 2.66 3.22 3.20 Proportion Cows 0.29 0.34 0.32 Pcrcow Covcrsion factor 1.31 0.92 0.97 Gross Saics Rcvcnue (Kip per cow) Cattlc Salcs 3-4 y r. old bulls 44902 23403 27659 Yearling bulls 2760 1248 1601 Surplus 3-4 yr. hcifcrs 23989 5084 9933 Cullcd Brceding heifers 789 624 699 Cullcd-for-agc cows 10614 7417 8075 Cullcd-for-agc bulls 854 712 815 Total 83910 3W487 48782 Production Costs (Kip pcr Cow) Aninlli hcaltl Vaccination 293 . 0 311 Drcnchiing 3497 0 0 Othlcr 30 0 0 Fced and Foragc Production Animal fccd 0 0 0 Land prcparation 0 0 0 Foragc scd 2400 0 0 Fcrtiliscr 2200 0 0 Total 11390 0 311 Labour Requircmcnts (days for two Cow herd) Foragc produCLion and (ceding 10 0 0 Herding 40 40 40 ToLal Labour Rcquircmcnt 50 40 40 Nct Rctums (Kip) Net Return per Cow in Hcrd 72520 38487 48471 Proportion Cows in Herd 0.29 0.34 0.32 Nct Return per Animal in Hcrd 20741 12932 15608 Net Return/day (Two Cow hcrd) 2901 1924 2424 Rcturn on Unimproved Herd (/o) 150.74 0.00 125.94 I/ Assumes a two-animal herd. - 112 - Annex 2 LAO PDR page 6 LIVESTOCK AND PIG PRODUCTION MODELS C. PIG PRODUCTION Prices and Quantities Breeding Sows Villagc Unimproved Manag. Improved Management Pig Fattening Price Item (unit) (K/unit) Number Number Number Breeding sow (ea) 100000 1 1 0 Wcancd pigs(l2kg) 14000 9 0 0 Wcancd piglets (20kg) 28000 18 0 Fattcning pigs (70kg) 90000 0 0 5 Sowv Rcplaccment (years) 5 4 0 Vaccination (per animal) 60 Ricc bran (kg) 75 Brcwers waste (kg) 20 Housing (annual) 7000 Startcr ration (kg) 260 Growcr ration (kg) 190 Vctcrinary drugs (per animal) 1000 Cullcd sowv (cach) 70000 Transport (pcr unit) 100 Gross Salcs Rcvcnuc (Kip) Sale weaned piglets 126000 252000 0 Salc fattcncd pigs (70 kg.) 0 0 450000 SaIlc cullcd sowN 14000 17500 0 Total Rccnuc 140000 269500 450000 Production Costs Housing I/ 7000 7000 7000 Sowv rcplaccmcnt 14000 17500 0 PiIct purchasc 0 0 70000 Starter ration 0 46800 0 Grower ration 0 0 0 Riccbran 3750 33750 22500 Brcwcrs wastc 0 0 6000 Vaccination 0 1080 300 Veterinary drugs 0 18000 5000 Transport 900 1800 500 Total production Cost 25650 125930 111300 Nct Revenuc 114350 143570 338700 Labour Rcquircmcnt (days) 25 40 30 Nct Rcturn to Labour 4574 3589.25 11290 1/ I lousing (local timber) for onc sow or five fattcncrs rcplaced cvcr 5 ycars. I - 113 - LAO PDR AN AGRICULTURAL SECTOR STRATEGY ANNEX 3 CURRENT AND PROPOSED DONOR AID PROJECTS - 114 - Annex 3 LAO PDR page 1 MINISTRY OF AGRICULTURE AND FORESTRY DONOR ASSISTED PROJECTS (AGRICULTURE & EXTENSION) No. Project TitLe Donor Estimated Project Location ImpLementation Amount Period (USD) On going Projects 1. Drug Control Project UNOP 1,050,000 Bokeo Province Feb/1993-June/1994 NCA Luangnamtha Province 2. Lao-Irri Project (phase 1) SWITZERLAND 2,900,000 Vientiane Prefecture Jan 1990 - Dec 1993 Luangprabang, plus 14 provinces 3. Upland Agriculture IDA, FRANCE 20,200,000 Vientiane Prefecture 1990 - 1995 Development Project AUSTRALIA Vientiane Province, Champassak, Saravane Sekong 4. National Integrated ADS 405,000 Dept. AgricuLture and June 1993 Extension and Research Extension Programme (T.A) 5. Farm Demonstration Plot IDRC 149,031 BoLikhamsay 1993 (Canada) 6. Flood & Drought Control FRANCE 166,667 Khammouane, 1993 Savannakhet, Chaiioassak 7. Research on Seeds ACIAR 17,400 Vientiane Prefecture 1993 - 1995 Resistant to Drought (Australia) and Champassak B. Promotion of Export CUSO 18,000 Vientiane Prefecture 1993 - 1994 Products and Reducing Houaphan and the Shifting Cultivation Luangprabang Pipeline Projects 1994-2000 1. Lao-Irri Project (phase II) SWITZERLAND 3,000,000 Vientiane Prefecture 1994 - 1996 Luangprabang 2. National Extension and ADO 9,000,000 Vientiane 1994 - 1997 Research (Loan) Co-financing 3. National Integrated ADS 900,000 Vientiane 1994 Extension and Research (AD) Co-financing - 115 - Annex 3 LAO PDR page 2 MINISTRY OF AGRICULT'URE AND FORESTRY DONOR ASSISTED PROJECTS (IRRIGATION & MICRO HYDROPOWER) No. Project Title Donor Estimated Project Location lgplementation Amount Period tUSO) On going Projects 1. Rehabilitation of Nam Tan UNOP 1,733,550 Phiang District 1992 - 1997 Irrigation Scheme UNCDF 3,333,400 (Sayaboury) 2. Sustainable irrigated Agriculture HOLLAND 4,080,000 Vientiane Prefecture, 1992 - 1996 Project through Kh mmouane, Savamakhet Mekong Committee 3. Irrigation Schemes along Nam Ngum EEC 6,600,000 Pak Kha ngoung, 1991 - 1994 River Viengkham, Mouay Chimm, Ban Phao 4. Smalt Scale Irrigation OX FARM 69,034 Tchepone 1993 5. SmaLl Scale Irrigation in QvUAKER 166,000 Houaphan, Xieng Khouang, Started in 1979 Cooperation with NGO's Oudoasay, Luangprabang, FH 1 32,000 Xieng Kho CIDSE 30,000 Sayaboury 1993 CAA 11,000 Vientiane, Saravane, 1991 - 1993 Sekong 6. Small Scate Irrigation in UNDP 698,860 Oudomsay 1990 - 1994 Oudomsai - Luangnamtha UNCDF 3,308,443 Luangnamtha 7. Irrigation Km 6 (Vientiane) JAPAN 18,000,000 Vientiane 1991 - 1994 8. Strengthening and Development of ADS/ 2,245,000 Vientiane 1993 - 1996 Irrigarion Sector HOLLAND 9. Lao-American Irrigation Project USA 4,538,000 Nouaphan 1990 - 1995 Pipeiine Proiects 19194 - 2000 1. Development of Agriculture in JAPAN 15,000.000 Savannakhet 1W4 - 1996 Rural Areas of Savannakhet 2. Agriculture Development ProjeV JAPAN 2,500.000 Vientiarn Prefecture 1994 - 1996 at Houay Say Moun 3. Dike Protection along Mekong EEC 2,730,000 Vientiane Prefecture 1994 - 1996 River (Vientiane) 4. Intensive Farming and Agriculture UNOP 700.000 Vientiane Province 1994 training S. Feasibility Study and Agriculture JAPAN To be Chaipassak 1994 Training determined 6. Improvement of Nam Souang JAPAN 5,000,000 Vientiane Prefecture to be determined Irrigation 7. Nam Lik Project JAPAN 400,000 Vientiane Province 10 8. Rehabilitation of Irrigation Pump JAPAN 400,000 Vientiane Prefecture 1994 in 3 Southern Provinces 9. Support to Agriculture in Area JAPAN 500,000 Kharmouana, Chempassak 1995 Affected by Drought Saravane 10. Support to Agriculture in Area ACTF 166,000 Champessak, Savannakhet, 1994 - 1995 Affected by Drought Khemmouane - 116 - Annex 3 page 3 1994 -1997 11. Irrigation Schemes at Nuong JAPAN 15,000,000 Oudomsay Houn and Muong Beng 12. Strengthening of Irrigation JAPAN 1,000,000 Vientiane -------- School at That Thong 13. K.R,2 JAPAN 434,027 In seven provinces 1994 14. Mirco-irrigation (TA) ADB 250,000 To be determined 19.95 15. Micro-Irrigation (Loan) ADS 8,000,000 To be determined 1996 - 117 - Annex 3 LAO PDR page 4 MINISTRY OF AGRICULTURE AND FORESTRY DONOR ASSISTED PROJECTS (LIVESTOCK & VETERINARY) No. Project Title Donor Estimated Project Location Implementation Amount Period (USO) On going Proiects 1. Management and Use of Vaccine UNDP 974,700 Vientiane, Luangprabang, 1990 - 1993 FAO Bolikhamsay, Khammouane, Savannakhet, Champassak and Saravane 2. Vaccination Campaign QUAKER 117,000 11 districts 1990 - 1993 Sing, Koua, Houn, Xay, Ngoy, Namo, Namtha, Xieng Kho, Sam Neua, La Nam, Sanamxay 3. Diseases Control after the Flood FAO 23,500 Savannakhet, Champassak 1992 4. Vaccination and Protection CIDSE 38,500 Phiang, Sayaboury, 1993 - 1994 Against Diseases Kene Thao 5. Survey on Breeding of Local IDRC 30,000 Houa Muong, Namtha, Pek, 1991 - 1993 CattLe Paksane, Atsaphanthong and Paksong 6. Promotion of Cattle Bank OX FARM 4,500 Hin boun 1992 7. Development of Local Fish IORC 125,000 Khi Nak, Luangprabang, 1991 - 1994 Culture Savannakhet 8. Promotion of Fish CuLture UNDP 975,000 10 provinces: 1992 - 1996 FAO Vientiane prefecture, Xieng Khouang, Luangnamtha, Oudomsay, Sayaboury, Houaphanh, Bolikhamsay, Savannakhet, Saravane and Champassak 9. Development of Fishermen in MEKONG 472,000 Nam Ngum reservoir June/91 - June/93 Nam Ngum Reservoir COMWITTEE 10. Training on Veterinary at USA 25,252 Houa Muong 1993 Viltage Level Houapanh 1I. Improvement of Local Pig CUSO 27,430 Nong Teng Station 1992 FAO 6,000 Pioeline Proiects 1994-2000 1. Fish Culture in Primary Schools CARE 136,850 Vientiane Prefecture 1994 - 1996 (Austratia) 2. Promotion of Fish CuLture by A.I.T 657,800 Savannakhet, Khammouane 1994 - 1997 Farmers 3. Survey and Conservation of Local FAO 50,000 in the whole country 1994 1997 Varieties in Asia - Pacific 4. Research on Fodder Tree FAO 120,000 in the whole country 1994 - 1997 5. Improvement of Information System ACIAR 200,000 targeted districts to be 1994 - 1996 on Livestock and Veterinary (Australia) defined 6. Development and Intensification UNOP 800,000 7 provinces: 1994 - 1997 of Animal Health and Livestock FAO Luangprmbang, Vientiane, Production 5o1ikhamsay, Khammouane, Savannakhet, Saravane, Champassak - 118 - Annex 3 page 5 7. Development of MateriaL and GTZ 1,000,000 Vientiane, Luangprabang, 1994 - 1996 Techniques in Animal Health and (Germany) Sayaboury, Xieng None - Breeding in Upland Villages Mongsa 8. Development of Local Pig CUSO 28,000 Vientiane 1994 - 1995 Breeding in Rural Area by Using New Technology and Food 9. Vaccination of Large Animal in Mennonite 15,000 Phongsaly 1994 - 1995 Phongsaly 10. Promotion of Fish Culture in DANIDA 268,000 Southern part 3 years Lower Mekong (under discussion) 11. Development of Local Fish IDRC 2,000,000 1994 - 1996 CuLture (phase 2) 12. Development of Potential of Nam DPI 17,000 Nam Souang 1994 Souang Center 13. Study on Integrated Cattle ACIAR 200,000 Nam Souang Raising 14. System of Control and Hygiene New Zealand 100,000 1994 of Meat 15. Commercial Livestock ADS + 900,000 in the whole country 1994 Development (AD) Co financing 16. Review of Public Support ADS + 1,000,000 1995 Services for Livestock Co financing Development and Trade (AD) A - 119 - LAO PDR Annex 3 page 6 MINISTRY OF AGRICULTURE AND FORESTRY DONOR ASSISTED PROJECTS (RURAL DEVELOPMENT) No. Project TitLe Donor Estimated Project Location ImpLementation Amount Period (USO) On qoing Proiects 1. Muong Nong Rural DeveLopment Norwegian - Muong Nong 1991 - 1994 Project Church Aid 2. Rural Development in Champassak JAPAN Champassak 1992 3. Rural Development in Naxaythong ThaiLand 1,828,000 Naxaythong 1993 (Vientiane) 4. Xieng Khouang Rural DeveLopment UNCDP 5,300,000 Xieng Khouang 1991 - 1996 Project IFAD 6,000,000 5. Vientiane Province RuraL UNCDP 5,863,209 Muong Hom 1989 - 1994 Development Project - 120 - Annex 3 LAO PDR page 7 MINISTRY OF AGRICULTURE AND FORESTRY DONOR ASSISTED PROJECTS (METEOROLOGY) No. Project Titte Donor Estimated Project Location Implementation Amount Period CUSO) On going Proiects 1. Meteorolqy Information Network USSR 898,500 in four provinces starting in 1993 and Measurement Equipment.. 2. Technical Support, Equipnent z World 368o600 Meteorology Services starting in l98 VehicLes Meteorology Oganization 3. Rehabilitation of 7 Meteorology FRANCE 545,000 7 provinces 1991 - 1994 Stations at Various Airports 4. Agro-meteorology Projects Mekong 52,000 Central and Southern 1986 1993 Committee part Pipeline Projects 1994-2000 S. Strengthening of Meteorology JAPAN 500,000 In the whole country To be defined Network 6. Survey and CoLLection of Mekong 31,000 In the whole country To be defined Hydrology Data Committee 7. Agro-meteorotogy Data Network FAO 600,000 In the whole country To be defined 8. Meteorotogy Information Network World 460,000 Main cities having To be defined (with emiphasis on aviation) Meteorology airport Organization 9. Development of Hydrology Data, JAPAN 350,000 Sebanghiang To be defined particularly at Sebanghiang River - 121 - Annex 3 LAO PDR page 8 MINISTRY OF AGRICULTURE AND FORESTRY DONOR ASSISTED PROJECTS (FORESTRY) No. Project Title Donor Estimated Project Location Implementation Amount (SUs) Period On ooina Proiects 1. LAO-SWEDISH FORESTRY PROGRAMME SIDA 5 221.680 1991 1995 1. Technical Training Project SIDA in the country and 1991 1995 abroad 2. Forestry Inventory Project SIDA Vientiane 1991 - 1995 3. Silviculture Project SIDA Nursery Nam Souang 1991 - 1995 Nursery Kengbeng *. Forestry Conservation Project SIDA Luangprabang 1991 - 1995 (17 NationaL Forest reserves) 5. Reducing the Shifting Cultivation SIDA Luangprabang 1991 - 1995 at Thong Kang 6. Forestry Training Center SIDA Houay Gnang 1991 - 1995 7. Development of Forestry Zone SIOA Phongsaly, Boun Neua, 1991 - 1995 Tchepone, Paksong, Lao Ngam, La mam, Sekong, Sachiang II. Mekong Committee Proarame a. Watershed Management Project Mekong 210,000 Nam Ngum reservoir 1991 - 1995 9. DeveLopment of Swamps Mekong/ 142,000 Non Chan, 1991 - 1993 Sweden That Luang (Vientiane) 10. Watershed Classification Mekong/ 173,000 in the whoLe country 1991 - 1993 Sweden 11. Forest Coverage in Mekong Basin Mekong/ 225,000 Mekong basin/Lao Part 1993 1995 Sweden III. CANADIAN furded proiects 12. Research on Rattan, Bamboo and IORC 110,000 Dong Dok Forestry School 1991 - 1994 Benzoin 13. Socio-Economic Survey in IDRC 40,000 Nam Ngum reservoir 1992 - 1993 NUm Ngum reservoir IV. NGO funded proiects 14. Community Forest Project CUSO 20,000 Forestry Oepartment 1993 - 1995 15. Villagers Forest Project JVC 46,000 Khaninuane 1993 - 1995 16. Protection of Pa Kha snd Local ASIA 30,000 Chanpassak 1993 1995 Fish foundation institute for whoLe production V. FAO projects 17. Training of Forest Plarners and FAO 240,000 Planning Staff of 1993 - 1995 Wood marketing District & Provinces of the country 18. Strategic Plarnning of the FAO 60,000 Forestry Department 1993 1994 Agro-forestry System - 122 - Annex 3 page 9 No. Project Title Donor Estimated Project Location Implementation Amount Per iod (USD) Vi. Australian funded proiects 19. Research & DeveLopment of Forest ACIAR 120,000 Nam Souang Nursery 1991 - 1993 Species Pipeeline Proiects 1994-2000 SIDA 5,000,000 Luangprabang, Phongsaly, 1995 - 2000 Saravane, Sekong and Chanipassak 1. Lao-Swedish Cooperation GT2 3,000,000 Dong Ook (Vientiarie) 1993 - 1998 Programne (Germany) 2. Strenthening of Dong Ook Forestry RUF 2,500,000 Vang Vieng (Vientiane) 1994 - 199 School (Germany) 3. Promotion of Forest Plantation World Bank 8,700,000 10 provinces: Vientiane, 1994 - 1998 T.A. 5,500,000 Borikhamsay, Khamnouane, IUCN 5,000,000 Savannakhet, Saravane, 4. Forest Management and Champassak, Sekong, Conservation Attapeu, Oudomsay and Vientiane prefecture 5. Northern Part Watershed IDA 15,000,000 3 provinces: 1995 2000 Management Luangprabang, Oudomsay, PhongsaLy 6. IndustriaL Tree Plantation ADS 10,000,000 Vientiane prefecture, 1994 - 198 Vientiane province, Bolikhamsay, Savannakhet 7. Protection and Conservation of IUCN 1.000,000 Champassak, Saravane to be defined National Forest Reserves 8. Export Promotion of Under Forest IUCN 1.000,000 Champassak, Saravane to be defired Products 9. Community Forest in Luangprabang JICA 2,000,000 Luangprabang 1995 - 2000 (Japan) 10. Promotion of Forest Products NOVi B 1,500,000 Sekong 1994 - 1998 11. Participation of the Community in FAO 2,000,000 Luangnamtha 1994 - 196 the Management of Water Sources i - 123 - Annex 4 Page 1 LAO PDR AN AGRICULTURAL SECTOR STRATEGY Agricultural Supply Response Under Lao Conditions A comparison of profitability among different agricultural activities is usually motivated by the assumption that producers increase output in response to increased opportunities to eam profits. It is sometimes argued that, although a positive output response to increases in prices and profitability is considered normal in economies with developed markets, such a response may not take place in economies with large subsistence sectors like those in Sub-Saharan Africa and Lao PDR. To address this issue, the mission developed interest in testing the hypothesis that a change in producer prices could lead to a change in agricultural output in Lao PDR. However, because of the lack of producer price data and sound GDP deflators, an econometric analysis of supply response could not be done. 1 Rather, the mission resorted to a review of econometric results obtained for economies similar to Lao PDR's, Sub-Saharan African countries, for agriculture as a whole and selected cash crops, and Southeast Asian countries for rice and other food crops. Table A. I presents a summary of short-run and long-run price elasticities of agricultural supply for nine Sub-Saharan African countries for the period 1963-85. The short-run elasticities range from 0.05 for Uganda to 0.54 for Senegal while the long-run elasticities range from 0.07 for Uganda to 0.54 for Senegal. The Sub-Saharan Africa supply elasticities for specific cash crops relevant to Lao PDR are presented in Table A.2. The short-run elasticities range from 0.18 for Kenyan coffee to 0.97 for Nigerian groundnuts; the long-run elasticities range from 0.24 for Nigerian groundnuts to 1.33 for Kenya coffee. The supply elasticities of staples in selected southeast Asian countries are shown in Table 2.2 in the text. It should be noted that short-run elasticities are lower than long- run elasticities. Likewise, elasticities of aggregate output are lower than those of individual crops. Agriculture's short-run elasticities are low because the primary factors of production (land, labor and capital) are fixed in the short-run. Sector output would grow only if there is under-utilization of resources, more resources are devoted to agriculture, or technological progress occurs. In the longer run, as much as ten to twenty years, the factors of production change resulting in a larger supply response. The response also greatly depends on public investment in roads, market facilities, irrigation structures, and their efficient management, as well as health and education. Such public investment is particularly important in the case of Lao PDR as rural infrastructure and human resources are grossly underdeveloped. Individual crop responses are greater than those of the agricultural sector, and are higher in the long-run than in the short-run because farmers can and do shift resources from one crop to another to take advantage of shifts in profitability between crops. This review of econometric results confirms that the agricultural sectors and the supply of cash crops of countries similar to Lao PDR respond positively to producer price incentives. There is no reason to believe that Lao PDR's farmers would not respond positively to producer price incentives and to opportunities for profit making. '/ The only available time series price data of significant length are consumer prices in the capital, Vientiane. This data is used to derive even the GDP deflators. See Annex 4 for details. - 124 - Annex 4 Page 2 Table A. 1: Supply Elasticities of Agriculture in Sub-Saharan African Countries Countrv Period Price Elasticities Short-run Long-run Ghana 1963-81 0.20 0.34 Kenya 1966-80 0.10 0.16 Cote d'lvoire 1969-78 0.13 0.13 Liberia 1966-80 0.10 0.11 Madagascar 1968-81 0.10 0.14 Senegal 1970-79 0.54 0.54 Tanzania 1972-81 0.15 0.15 Uganda 1968-78 0.05 0.07 Burkina Faso 1964-80 0.22 0.24 Average for Sub-Saharan Africa 0.18 0.21 Source: Bond, Marion E., "Agricultural Responses to Prices in Sub-Saharan African countries", IMF Staff Papers, Vol. 30, No. 4 (Dec. 1983): 703-26. Table A.2: Supply Elasticities of Cash Crops in Sub-Saharan African Countries Crop Country Period Price Elasticities Short-run Long-run Groundnuts: Nigeria 1948-67 0.24-0.79 0.24-0.79 Coffee: Kenya 1946-64 0.64 1.33 Kenya (estates) 1946-64 0.18 0.32 Kenya (smallholders) 1946-64 0.18 0.31 Tobacco: Malawi 1926-60 0.48 0.48 Nigeria 1945-64 0.60 0.82 Cotton: Nigeria 1948-67 0.23-0.38 0.28 Nigeria 1950-64 0.67 0.67 Sudan 1951-65 0.39 0.50 Uganda 1922-38 0.25 0.25 Source: Agricultural Responses to Prices in Sub- Bond, Marian E., "Saharan African countries", IMFStaffPapers, vol. 30, no. 4 (Dec. 1983): 703-26. j .1 - 125 - Annex 5 Page I LAO PDR AN AGRICULTURAL SECTOR STRATEGY Agricultural Terms of Trade Data Data Limitations. The pnrce data available to compute measures of the terms of trade (TOT) faced by the agncultural sector in Lao PDR is very limited. Ideally, TOT estimates would use regional or national average prices received by agricultural producers or traders, together with price indices for other sectors of the rural economy. Unfortunately, information on the prices of most goods is not available outside of Vientiane, at least prior to 1992. Producer prices are still not collected systematically. The only price data for constructing TOT series of any significant duration are the Vientiane (Municipality) market prices collected for the CPI. Estimates of the "terms-of-trade" based on these prices are obviously not close substitutes for the genuine article, however, and readers are advised to view them with some caution. In particular, there are indications that movements in Vientiane prices may not be well correlated with movements in prices in other central and southern provinces over relatively short periods. They are likely to be very poorly correlated with price movements in the remoter northern provinces even over long periods. Considering the central and southern regions only, it is nevertheless probable that broad trends in relative pnrces in Vientiane, lasting three or more years, are indicative of price trends at the village level. Assuming this to be the case, TOT series based on the available Vientiane price data are used in the report to describe the general direction and approximate magnitude of trends in sectoral prices from 1981 to 1993. Sectoral Prices. The Vientiane price data was itself quite limited prior to 1988. Very few prices are to be found for items other than food, clothing and about a dozen "daily necessities" like soap, pencils and charcoal. The list of items covered expanded in 1985 to include beef, electricity, tap water and bus tickets. Monthly price data has been collected since at least 12/87, at which time a group of building materials, medicines and several other items were added. As the inclusion of certain government-provided goods like electricity indicates, the terms-of-trade estimates are directly affected by the government's pricing decisions. Before the NEM, moreover, most of the items on the CPI list were also sold through government shops at fixed pnrces, but in practice most transactions probably took place outside of official channels. In the body of the report, two series, covering 1981-86 and 1986-93 respectively, are used to determine the TOT between food and non-food sectors. For the 1986-93 series, the fact that the set of goods covered in the price data expanded in 1988 presents a problem with consistency since only aggregate price indexes were available for 1989-91. This is dealt with by chaining consistent price indices for 1986-88 with the expanded 1988-93 series after making all price indices equal to 100 in 1988. The 1981-86 series used for Figure 2. Ia in the text excludes the items added in 1985. TOT Series. (Annex Tables la through 1. Ic and 2) Table la to Ic present the calculated TOT between domestically produced food items and two other sectors: importable non-agricultural goods (1981-88), and non-tradables (1985-88). Also included are the food/non-food TOT for 1981-88. The weights used to aggregate prices are consumption shares from consumption and expenditure surveys. Table 2 gives 1988-93 estimates of the TOT between all food items and three other categories: services, shoes and clothing, and "other" (daily necessities). The "construction" (building materials) series, although available for 12/87, was not available for this report for the period 1/88 to 12/90. - 126 - Annex 5 Page 2 Table I a: Basic Price Data For Terms-of-Trade (Vientiane Market Prices in Kip/unit) Item Units Weights 1981 1982 1983 1984 1985 1986 1987 1988 Domestic Ag.Tradables Rice kg 21.31 13 17 30 30 50.4 75 102 120 Pork kg 11.16 75 120 200 300 450 550 550 680 Beef kg 7.50 N.A. N.A. N.A. N.A. 600 660 650 760 Chicken each 1.20 60 95 270 300 600 665 550 780 Vegetables kg 6.00 25 15 30 60 50 60 100 90 Egg each 4.00 4 6 13 15 25 28 28 36 Fish kg 8.60 70 80 250 280 600 820 970 1250 Charcoal kg 1.62 5 8 10 17 20 35 35 50 Non-Tradables Electricity kw 3.60 N.A. N.A. N.A. N.A. 7 7 7 7 Water cu. m. 1.52 N.A. N.A. N.A. N.A. 15 18 18 18 Bus Ticket each 1.23 N.A. N.A. N.A. N.A. 20 12 27 28 Rent, house month 7.00 250 500 1500 1800 1900 3000 3000 5000 Non-Ag. Tradables Battery each 0.90 25 40 65 120 157 158 152 200 Beer bottle 1.50 25 30 45 60 120 130 150 165 Bicycle each 1.30 4000 7500 10000 24000 34000 25000 22000 22000 Cigarettes pack 1.30 25 50 135 250 130 200 140 180 CondensedMilk can 1.10 35 60 80 170 180 190 170 220 Cooking Oil liter 2.80 100 120 130 130 200 270 330 410 Detergent kg 1.80 25 70 110 130 213 2C0 210 290 Electric Bulb each 1.00 35 60 70 110 150 170 165 160 Fabric meter 3.50 75 120 180 450 370 265 400 280 Gasoline liter 3.90 25 35 40 60 89.5 120 140 100 Pencil each 0.50 5 8 15 15 30 30 35 35 Rubber Sandals pair 1.00 65 120 170 450 507 450 500 500 Salt kg 1.60 4 5 5 5 20 40 35 50 Shirt each 0.75 120 190 400 450 450 450 500 550 Skirt each 0.61 150 240 350 700 917 875 1000 1580 Soap each 0.50 23 40 65 120 176 170 160 140 Sugar kg 1.20 65 70 140 190 180 145 175 195 Source: Bank of Lao PDR. Table 1 .b: Price Indices (1985 = 100) 1981 1982 1983 1984 1985 1986 1987 1988 Food * 22.6 28.3 51.3 65.4 100.0 130.0 154.8 185.2 Non-Food 17.5 30.5 56.5 88.8 100.0 119.9 125.4 153.1 Domestic Ag. Tradables * 21.1 26.7 51.1 65.2 100.0 132.5 159.5 190.9 Non-Ag. Tradables 22.5 34.1 50.7 78.8 100.0 112.0 115.7 129.2 Non-Tradables N.A. N.A.- N.A. N.A. 100.0 124.1 130.7 176.9 Excludes Beef - 127 - Annex 5 Page 3 Table l c: Terms-of-Trade Indices (1985 = 100) 1981 1982 1983 1984 1985 1986 1987 1988 Food/Non-Food 129.3 93.0 90.9 73.7 100.0 108.4 123.5 121.0 Domestic Ag Tradables/ 93.5 78.5 100.7 82.7 100.0 118.3 137.9 147.8 Non-Ag. Tradables Domestic Ag Tradables/ N.A. N.A. N.A. N.A. 100.0 106.8 122.0 107.9 Non-Tradables Table 2. Terms of Trade Indices, 1988-93 (Ratios of Food Prices to Prices in Other Sectors) Annual Non-food Clothing Services Construction Other (daily Avg. 1/ (bldg. materials) necessities) 1988 96.0 103.3 91.8 N.A. 98.4 1989 104.1 112.8 100.1 N.A. 105.8 1990 98.0 102.3 92.0 N.A. 103.5 1991 79.9 81.3 83.1 70.7 107.9 1992 83.4 81.8 79.9 80.1 120.3 1993 64.9 70.7 56.3 71.8 105.5 Source: Calculated from Vientiane market prices in Table 2.1 in the Statistical Annex. 1/ December 1987 = 100. i - 128 - STATISTICAL APPENDIX Page No. Table 1.1 GDP by Economic Activity, 1987-93 . . . . . . . . . . 130 Table 1.2 Average Household Expenditure and Consumption, 1992/93 131 Table 1.3 General Government Revenue . . . . . . . . . . . . . . 132 Table 1.4 General Government Expenditure . . . . . . . . . . . . 133 Table 1.5 Shares of Government Expenditure . . . . . . . . . . . 134 Table 1.6 Government Spending on Agriculture . . . . . . . . . . 135 Table 1.7 Distribution of Government Spending on Agriculture . . 136 Table 1.8 Expenditures from Local Resources . . . . . . . . . . 137 Table 1.9 Budget Expenditures for Ministry of Agriculture . . . 138 Table 1.10 Public Investment Program Allocations . . . . . . . . 139 Table 1.11 Investment Program Budget, Agriculture & Forestry . . 140 Table 2.1 Vientiane Consumer Price Indices, 1988-93 . . . . . . 141 Table 2.2 Retail Food Prices in Selected Provinces, 1993 . . . . 143 Table 2.3 Average Retail Prices for Selected Foods, 12/91-12/92 144 Table 2.4 Agricultural Land Taxes, 1990-94 . . . . . . . . . . . 145 Table 2.5 Central Bank Interest Rate Guidelines . . . . . . . . 146 Table 3.1 Official and Parallel Market Exchange Rates . . . . . 147 Table 3.2 Export Duties on Agricultural Goods . . . . . . . ... 148 Table 3.3 Import Duties on Agricultural Goods . . . . . . . . . 149 Table 3.4 Current & Proposed Import Tariff Structures . . . . . 150 Table 3.5 Agriculture and Forestry Exports, 1988-93 . . . . . . 151 Table 3.6 Estimates of Livestock Export to Thailand . . . . . . 152 Table 3.7 Rice/Cereal Imports . . . . . . . . . . . . . . . . . 153 Table 4.1 Area Harvested by Crop, 1976-92 . . . . . . . . . . . 154 Table 4.2 Crop Yields, 1976-92 .155 Table 4.3 Crop Production, 1976-92 . . . . . . . . . . . . . . . 156 Table 4.4 Shares of Harvested Area by Crop, 1976-92 . . . . . . 157 Table 4.5 Area Harvested by Crop and Province, 1992 . . . . . . 158 Table 4.6 Shares of Area Harvested by Crop and Province, 1992 159 Table 4.7 Paddy Production by Type and Province, 1990-92 . . . . 160 Table 4.8 Paddy Production by Province, 1976-92 . . . . . . . . 162 Table 4.9 Paddy Harvested Area by Province, 1976-1992 . . . . . 163 Table 4.10 Per Capita Production of Rice by Province, 1976-92 . . 164 Table 4.11 Rice Deficit/Surplus by Province, 1976-92 . . . . . . 165 Table 4.12 Production of Corn by Province, 1988-92 . . . . . . . 166 Table 4.13 Production of Root Crops by Province, 1988-92 . . . . 167 Table 4.14 Production of Leguminous Field Crops by Province, 1976-92 168 Table 4.15 Production of Coffee, Tea, and Tobacco by Province, 1988-1992 .170 Table 4.16 Production of Cotton, Sugar Cane, and Vegetables by Province, 1989-92 .................. 172 - 129 - Page No. Table 5.1 Livestock Distribution by Type and Province, 1992 . 174 Table 5.2 Livestock Production Statistics . . . . . . . . . . . 175 Table 5.3 Livestock Consumption and Growth Statistics . . . . . 176 Table 5.4 Livestock Stocking Rates by Province, 1992 . . . . . . 177 Table 5.5 Quality Livestock Feed Supply and Demand, 1992 . . . . 178 Table 5.6 Indicative Market Prices for Livestock Products . . . 179 Table 5.7 Animal Vaccine Production in Laos . . . . . . . . . . 180 Table 6.1 Population 1976-92, and Principal Ethnic Groups by Province . . . . . . . . . . . . . . . . . . . . . . . 181 Table 6.2 Population and Number of Households by Province, 1992/93 182 Table 6.3 Population Distribution and Characteristics by Age . . 183 Table 6.4 Farm labor Force Availability by Province . . . . . . 184 Table 6.5 Agricultural Land Use and Forest Cover by Region . . . 185 Table 6.6 Irrigated Area by Province . . . . . . . . . . . . . . 186 Table 7.1 Licensed Foreign Investments by Sector . . . . . . . . 187 Table 7.2 Licensed Foreign Investments by Legal Type & Industry 188 Table 7.3 Licensed Foreign Investments by Main Foreign Source . 189 Table 7.4 Enterprises Registered by the Central Tax Department, 1992 190 Table 7.5 Enterprises Registered by the Central Tax Department, 1993 191 - 130 - Table 1. I LAO PDR GDP BY ECONOMIC ACTIVITY, 1987-93 (million kip in 1990 prices) 1987 1988 1989 1990 1991 1992 1993 1/ Agriculture 322,397 308,908 342,206 371,835 365,347 395,537 412,131 Crops 172,748 164,561 206,412 224,974 195,625 221,166 225,662 Livestock & fishery 117,269 116,075 119,901 127,363 145,693 158,851 163,616 Forestry 32,381 28,271 15,894 19,498 24,029 15,520 22,853 Iiduistrv 57,548 56,173 75,839 88,105 105,634 113,587 123,883 Mining & quarrying 926 817 976 896 825 932 718 M9anufacturing 40,047 37,526 52,340 60,462 78,400 85,776 92,449 Construction 10,562 12,174 15,091 17,908 17,735 19,055 21,560 Electricity, gas & water 6,013 5,656 7,433 8,838 8,674 7,825 9,157 Serviccs 129,142 129,328 148,102 147,427 156,993 163,038 172,190 Transportation, storage & communication 33,661 33,702 36,181 31,687 32,124 34,333 35,377 Wlholesale, & retail trade 35,358 31,943 41,177 41,968 46,163 49,415 53,220 Bankling, insurance & real estate 1,593 1,359 4,004 6,939 6,202 6,908 7.256 Ownership of dwellings 10,510 17,542 19,805 24,386 27,950 23,409 26.486 Public admin. & defense 38,344 39,434 39,378 35,633 31,888 31,034 30,985 Non-profit institution 9,270 4,601 6,338 5,459 9,653 11,659 11.996 Hotels & restaurants 92 255 614 922 2,321 5,229 5,785 Otiher services 315 492 500 383 -692 1,059 1.085 GDP in Constant 1990 Prices 513,404 502,587 574,221 612,681 637,160 682,000 719,657 Import duties 4,317 8,178 8,129 5,364 9,186 9,872 11,454 GDP at Factor Cost, 1990 Prices 509,087 494,409 566,092 607,317 627,974 672,162 708,203 Sourcc: Lao l'DR Govemment data. I! Lower of two govemment estimates. - 131 - Table 1.2 LAO PDR AVERAGE HOUSEHOLD EXPENDITURE AND CONSUMPTION, 1992/93 ('000 kip) Group/ltem Urban I/ Rural Average % of Cons. Food Expenditure 635.3 144.8 258.8 26.3 Rice 102.8 27.7 45.1 4.6 Other Cereals & Bread 29.4 6.5 11.9 1.2 Meat 182.2 42.1 74.6 7.6 Fish 66.4 16.8 28.3 2.9 Milk, Cheese & Eggs 19.0 3.2 7.0 0.7 Oils & Fats 3.7 0.8 1.4 0.1 Vegetables, Starchy Roots 67.8 13.4 26.0 2.6 Fruit 18.5 3.2 6.8 0.7 Sugar & Sweets 19.7 7.0 10.0 1.0 Non-acoholic Beverages, Coffee & Tea 29.4 4.3 10.1 1.0 Other Foods 25.3 10.9 14.3 1.5 Prepared Meals 71.2 8.8 23.3 2A Own Produce 220.1 420.7 374.2 38.0 Rice 139.9 251.9 225.8 22.9 Meat 23.9 46.2 41.0 4.2 Fish 27.0 43.2 39.4 4.0 Ve-etables 13.0 35.3 30.1 3.1 Fruit 3.4 4.7 4.4 0.5 Other 13.0 39.5 33.4 3.4 Non-Food Consumption 650.4 260.8 351.5 35.7 Clothing. Footwear & Tailoring 54.6 35.8 40.2 4.1 Housing 107.8 58.4 70.0 7.1 Household Utensils & Operations 76.1 28.4 39.5 4.0 Medical Care 29.3 21.6 23.4 2.4 Transport & Communications 142.7 42.8 66.0 6.7 Education & Writing Materials 21.4 3.8 7.9 0.8 Personal Care 64.0 20.6 30.7 3.l Recreation 80.9 24.7 37.8 3.8 Alcohol & Tobacco 56.4 21.4 29.5 3.0 Other 17.4 3.1 6.5 0.7 TOTAL CONSUMPTION 1,506 826 984 100 less: Own Produce (220.1) (420.7) (374.2) Imputed Rent, Fetched Firewood (70.6) (35.2) (43.4) plus: Cash Gifts 9.1 4.9 5.9 House Construction 114.6 43.2 59.8 Taxes 3.2 1.0 1.4 TOTAL EXPENDITURE 1,342 420 634 64.4 Esimated No. of Households ('000) 156.7 516.6 673.4 Persons per Household 6.714 6.614 6.636 Per Capita Consumption, excl. govt. (SUS) 2/ 313.2 174.5 207.5 Source: Lao Expenditurc and Consumption Survey, 1992/93, State Statistical Center, Lao PDR Il/ Urban villages defined as satisfying at least four of the following: a) the village has a market; b) a road can be used to reach thc villagc by car; c) the provincial or district administration is located in the village; d) most households have access to clcctricity; e) most households havc access to running water. 2V Kip converted to SUS at the ofricial 1292 exchange rate (716 kip - I SUS) - 132 - Table 1.3 LAO PDR GENERAL GOVERNMENT REVENUE (millions of kip) 1988 1989 1990 1991 1992 1992/93 1993/94 Tax Revenue 21,474 27,421 37,644 54,356 63,513 85,928 105,888 Profits tax 6,288 6,196 7,956 13,274 14,615 8,552 11,300 Income tax 22 75 234 1,323 2,989 4,773 6,336 Agricultural tax 1,213 1,358 1,520 2,041 1,604 1,235 0 Business licences 30 54 1,160 136 120 115 156 Turnover tax 7,352 10,919 7,145 9,994 11,717 14,265 20,000 Excise tax .. .. .. 1,873 3,334 4,398 5,101 Customs revenue 6,463 8,588 18,036 20,728 24,848 25,068 33,786 Import duties 4,846 7,127 5,364 9,976 14,104 21,980 25,700 Export duties 1,617 1,461 12,672 10,752 10,744 3,088 8,086 Other taxes 106 231 1,593 4,987 4,286 27,522 29,209 Natural resource tax .. .. 4,017 2,794 65 757 Timber royalties .. 23,550 21,000 Land tax 1,025 2,187 Registration tax .. .. .. .. .. 855 2,344 Other .. .. .. .. .. 2,027 2,921 Nontax revenue 6,801 8,135 23,316 20,317 26,943 27,328 29,088 Public enterprise surpluses 517 380 0 0 0 0 0 Depreciation allowance 2,411 2,746 4,589 4,755 4,138 4,695 3,024 Other 3,873 5,009 18,727 15,562 22,805 22,633 26,064 Of which: Leasing of public enterprises .. 6,300 3,756 5,149 4,895 4,642 Concession of SOEs .. 1,071 345 553 375 Overflight rights .. .. .. 4,618 9,746 8,360 7,236 Interest/amortization .. .. .. 5,821 5,958 7,004 11,999 Sale of SOE assets .. .. .. .. .. 14,593 6,993 TOTAL REVENUE 28,275 35,556 60,960 74,673 90,456 127,849 141,969 (percent of GDP) 12.2% 8.3% 9.9% 10.3% 13.3% 17.7% 1/ 18.2% 2/ Source: Lao PDR government estimates. Note: In 1992, the fiscal year was put on an October 1 st to September 30th basis. 1/ Uses 1993 GDP. 2/ Uses preliminary estimate of 1994 GDP. - 133 - Table 1.4 LAO PDR GENERAL GOVERNMENT EXPENDITURE (millions of kip) 1985 1986 1987 1988 1989 1990 1991 1992 a/ 1992/93 1993/94 Current Expenditure 10,624 15,883 16,833 28,038 39,936 69,864 81,956 92,424 104,930 126,938 Wages and Salaries 2,520 4,760 5,135 11,250 19,590 35,683 36,715 37,334 44,055 56,102 Materials and Supplies 6,810 9,875 10,640 15,485 15,339 26,121 32,784 36,542 39,556 43,164 Transfers 27 45 60 250 2,530 4,805 7,729 9,981 12,440 15,410 Debt Service 1,267 1,203 998 1,053 2,477 3,255 4,728 6,638 6,829 8,500 Severance Payment .. 1,929 2,050 3,762 CapitalExpenditure 10,182 11,732 11,842 47,008 66,455 72,607 84,638 82,217 65,584 139,576 Education 265 780 889 2,169 2,885 4,200 6,479 6,903 6,214 n.a. Health 600 714 748 1,435 258 1,207 1,784 963 876 n.a. Agriculture and Forestry 1,549 1,993 1,936 7,669 5,689 11,000 18,057 21,358 7,900 n.a. Industry, Energy, and Mines 1,556 1,208 1,276 10,122 22,472 20,200 18,276 9,823 7,456 n.a. Commerce and Cooperatives 489 442 507 1,676 83 .. n.a. Transport. & Conmunication 3,716 4,491 4,486 17,495 24,540 31,600 32,376 35,206 35,876 n.a. Public Works 496 654 720 1,527 74 .. . n.a. Other 1,511 1,450 1,280 4,915 10,454 4,400 7,666 7,964 7,262 n.a. TOTAL 20,806 27,615 28,675 75,046 106,391 142,471 166,594 174,641 170,514 266,514 Source: Ministby of Finance, Lao PDR. a/ In 1992, the fiscal year was put on an October Ist to Septenber 30th basis. n.a. Not available. i - 134 - Table 1.5 LAO PDR SHARES OF GOVERNMENT EXPENDITURE (percent) 1985 1986 1987 1988 1989 1990 1991 1992 a/ 1992/93 1993/94 Current Exvenditure 51.1 57.5 58.7 37.4 37.5 50.4 49.2 52.9 61.5 47.6 Wages and Salaries 12.1 17.2 17.9 15.0 18.4 25.0 22.0 21.4 25.8 21.1 Materials and Supplies 32.7 35.8 37.1 20.6 14.4 18.3 19.7 20.9 23.2 16.2 Transfers 0.1 0.2 0.2 0.3 2.4 3.4 4.6 5.7 7.3 5.8 Debt Service 6.1 4.4 3.5 1.4 2.3 2.3 2.8 3.8 4.0 3.2 Severance Payment .. .. .. .. .. 1.4 .. 1.1 1.2 1.4 Capital Expenditure 48.9 42.5 41.3 62.6 62.5 51.0 50.8 47.1 38.5 52.4 Education 1.3 2.8 3.1 2.9 2.7 2.9 3.9 4.0 3.6 n.a. Health 2.9 2.6 2.6 1.9 0.2 0.8 1.1 0.6 0.5 n.a. Agnculture and Forestry 7.4 7.2 6.8 10.2 5.3 7.7 10.8 12.2 4.6 n.a. Industry,Energy,andMines 7.5 4.4 4.4 13.5 21.1 14.2 11.0 5.6 4.4 n.a. Commerce and Cooperatives 2.4 1.6 1.8 2.2 0.1 .. .. n.a. Transport. & Communication 17.9 16.3 15.6 23.3 23.1 22.2 19.4 20.2 21.0 n.a. Public works 2.4 2.4 2.5 2.0 0.1 .. .. n.a. Other 7.3 5.3 4.5 6.5 9.8 3.1 4.6 4.6 4.3 n.a. TOTAL 100 100 100 100 100 100 100 100 100 100 Source: Ministry of Finance, Lao PDR. a/ In 1992, the fiscal year was put on an October I st to September 30th basis. n.a. Not available. - 135 - Table 1.6 LAO PDR GOVERNMENT SPENDING ON AGRICULTURE (Ministry of Agriculture and Forestry, and Provinces) (millions of kip) 1988 1989 1990 1991 1992 Current Expenditures 1,323 1,041 1,717 1,684 1,681 % of Total Govemment Current Expenditures 4.7 2.6 2.5 2.1 1.8 Wages and Salaries 814 804 1,223 1,247 1,164 % of Total Government Wages and Salaries 7.1 4.1 3.4 3.4 3.1 Other Current Expenditures 509 237 494 437 517 Capital Expenditures 7,669 5,689 11,000 18,057 21,358 % of Total Govt. Capital Expenditures 16.3 8.6 15.2 26.1 26.0 % of Total Government Budget 10.2 5.3 7.7 10.9 12.3 Total Budget Allocation to Agriculture 8,992 6,730 12,717 19,741 23.039 % of Total Government Budget 12.0 6.3 8.9 11.9 13.2 Total Goverment Budget: 75,044 106,391 142,471 166,594 174,641 Source: Ministry of Agriculture and Forestry; NMinistry of Finance. Lao PDR. LAO PDR DISTRIBUTI-ION OF GOVERNMviENT ISPENDING ON AGRICULTURE (millionss of kip) A. CAPITAL EXPENDITURES ON AGRICULTURE BY SECTOR 1988 1989 1990 1991 1992 L 1: Total L F iTotal L F Total L F Total L F l'otal Min. of Ag..& Forestry 2,592 5,077 7,669 1,593 4,096 5,689 3,740 7,260 11,000 2,293 15,764 18,057 2,883 18,475 21,358 Agric. & Livestock 779 410 1,189 200 193 393 535 873 1,408 726 11,372 12,098 1,324 11,918 13,242 Forestry 648 1,484 2,132 268 955 1,223 807 1,987 2,794 182 1,678 1,860 288 1,634 1,922 '. Irrigation 1,165 3,183 4,348 1,125 2,948 4,073 2,398 4,400 6,798 1,385 2,714 4,099 1,271 4,923 6,194 Total Government Capital Expenditures 47,006 66,455 72,607 69,123 82,217 Nole: L = Local source; F = Foreign source B. CURRENT EXPENDITURES BY RECIPIENT (Ministry of Agriculture and Foresiry or Provinces) 1988 1989 1990 1991 1992 MAF Prov. Total MAF Prov. Total MAF Prov. Total MAF Prov. Total MAF Prov. Total Wages and Salaries 391 423 814 386 418 804 623 600- 1,223 637 610 1,247 544 620 1,164 C OtherCurrentExp. 351 158 509 116 121 237 346 148 491 302 135 437 362 155 517 Total 742 581 1,323 502 539 1,041 969 748 1,717 939 745 1,684 906 775 1,681 C. PLANNED 1993/94 CAPITAL EXPENDITURES BY SECTOR AND SOURCE (MAF and lProvinces) Sector Local Source Foreign Source Total (%) Agriculture & Extension a, 76 411 487 2.6 Livestock & Veterinary 72 158 230 1.3 Meteorology & llydrology 136 395 531 2.9 Rural Development 450 7,690 8,140 44.0 Training and School 210 - 210 1.1 Forestry 129 747 876 4.7 Irrigation 2,002 6,039 8,041 43.4 TOTAL 3,075 15,440 18,514 100.0 Source: Ministry of Agriculturc and Forestry, and CI'C, Lao PDR -I - 137 - Table 1.8 LAO PDR EXPENDITURES FROM LOCAL RESOURCES 1/ MINISTRY OF AGRICULTURE AND FORESTRY, 1992 A. EXPENDITURE BY DIVISION Division million kip millionS % Cabinet 138 0.19 5.9 Agriculture & Extension 273 0.38 11.6 Livestock 137 0.19 5.8 Irrigation 769 1.07 32.6 Forestry 256 0.36 10.8 Rural Development 249 0.35 10.6 School 534 0.74 22.7 TOTAL 2.356 3.27 t00 B. EXPENDITURE BY CATEGORIES Category million kip million$ % Capital Expenditure 1,440 2.00 61.1 Salaries and Wages 554 0.77 23.5 Other Current Expenditures 362 0.50 15.4 TOTAL 2,356 3.27 100 C. CAPITAL EXPENDITURE BY DIVISION Division million kip million S % Cabinet 0.0 0.00 0.0 Agriculture & Extension 131 0.18 9.1 Livestock 64 0.09 4.5 Irrigation 722 1.00 50.1 Forestry 109 0.15 7.5 Rural Development 249 0.35 17.3 School 165 0.23 11.5 TOTAL 1,440 2.00 100 Source: Ministry of Agriculturc and Forestry. Lao PDR I / Excludes provincial scrviccs. Local resources exclude substantial cxpcnditures from donor resources. - 138 - Table 1.9 LAO PDR BUDGET EXPENDITURES FOR MINISTRY OF AGRICULTURE (local resource component, excluding provincial services) (million kip) Division 1988 1989 1990 1991 1992 Cabinet 98 107 157 170 138 Agriculture & Extension 178 61 188 185 273 Livestock 173 48 112 117 137 Irrigation 594 602 681 815 769 Forestry 194 77 237 176 256 Rural Development 0 0 0 208 249 Schiool 396 407 534 576 534 TOTAL 1,633 1,302 1,909 2,247 2,356 (million S) Division 1988 1989 1990 1991 1992 Cabinet 0.14 0.15 0.22 0.24 0.19 Agriculture & Extension 0.25 0.08 0.26 0.26 0.38 Livestock 0.24 0.07 0.16 0.16 0.19 Irrigation 0.83 0.84 0.95 1.13 1.07 Forestry 0.27 0.11 0.33 0.24 0.36 Rural Development 0.00 0.00 0.00 0.29 0.35 Scihool 0.55 0.57 0.74 0.80 0.74 TOTAL 2.27 1.8t 2.65 3.12 3.27 (percent) Division 1988 1989 1990 1991 1992 Cabinet 6.0 8.2 8.2 7.6 5.9 A,riculture & Extension 10.9 4.7 9.8 8.2 11.6 Livestock 10.6 3.7 5.9 5.2 5.8 I rrigation 36.4 46.2 35.7 36.3 32.6 Forestry 11.9 5.9 12.4 7.8 10.8 Rural Development 0.0 0.0 0.0 9.3 10.6 School- 24.3 31.3 28.0 25.6 22.7 TOTAL 100.0 100.0 100.0 100.0 100.0 Sourcc: Ministry of Agriculturc and Forestry, Lao PDR. i - 139 - Table 1.1O LAO PDR PUBLIC INVESTMENT PROGRAM ALLOCATIONS A. Shares of Overall Public Investment Program (percent) SECTOR Actual Target Target Target Target Target Target 1992/3 1994/5 1995/6 199617 1997/8 1998/9 1999/0 Agriculture & Forestry 21.1 16.2 18.0 19.5 21.1 20.1 20.9 Industry I / 0.9 3.3 3.8 3.5 2.8 2.7 Electricity 1 /2 / 12.5 10.2 7.5 6.7 5.8 4.8 5.1 Transport 3 / 36.6 36.3 35.6 36.3 39.9 37.3 Telecommunications; 3 51.9 4.8 4.8 5.5 5.4 6.6 6.7 Other Infrastructure 2.9 8.2 8.0 7.4 7.1 6.3 6.9 Culture 3.9 2.7 2.4 2.2 2.1 2.0 2.0 Education 6.1 13.9 12.1 11.0 10.1 8.7 9.1 Health 1.5 6.6 7.5 8.5 8.6 8.8 9.2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 B. Total Public Investiment Program Expenditures (Local and Foreign Costs, million SUS, 1994 prices) SECTOR Targct Target Target Target Target Target TOTAL 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 Agriculture & Forestry 23.7 32.5 40.9 50.7 54.5 61.0 263.3 Industry 1_/ 1.3 6.0 8.0 8.5 7.5 8.0 39.3 Electricity 1/2 / 15.0 13.5 14.0 14.0 13.0 15.0 84.5 Transport 3/ 53.7 65.5 74.7 87.3 108.1 108.7 498.0 Telecommunications 3 / 7.0 8.7 11.5 13.0 18.0 19.5 77.7 Other Infrastructure 12.0 14.5 15.5 17.0 17.0 20.0 96.0 Culture 4.0 4.3 4.6 5.0 5.4 5.8 29.1 Education 20.3 21.8 23.1 24.3 23.5 26.5 139.5 Health 9.7 13.5 17.8 20.8 23.8 26.8 112.4 TOTAL 146.7 180.3 210.1 240.6 270.8 291.3 1339.8 II Industry & eectricity combined in 1992/3. 2 / Excludes govemmcnt equity in largc-scalc gencraLion schemes. 3/ Transport and telecommunications combined in 1992/3. Source: "lPublic lnvcstmcnt Program. 1994-2000". Government of Lao PDR. June, 1994 (mimeo): T'ablcs 4 and 5. page 9. - 140 - Table .1.1I LAO PDR INVESTMENT PROGRAM BUDGET, AGRICULTURE & FORESTRY (Total Funds Allocation, million SUS, 1994 prices) PROGRAM 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 TOTA RESEARCH & EXTENSION Ongoing and Commited: Research & Extension Projects 5.0 5.0 4.0 4.0 0.0 0.0 18.0 New Programs: Research, Extension & Crop Promotion Programs 0.0 0.0 0.5 1.0 1.5 2.0 5.0 Rural Credit & Cash Cropping Programs 0.0 0.0 0.5 1.0 2.0 3.0 6.5 TOTAL - Research & Extension 5.0 5.0 5.0 6.0 3.5 5.0 29.5 IRRIGATION Ongoing and Commited: Medium Scale Systems 2.0 2.0 1.4 0.0 0.0 0.0 5.4 Small Scale Systems 0.7 1.0 1.0 1.7 1.0 1.0 6.4 New Programs: Support for Small Scale Systems 0.0 0.0 1.0 1.5 2.0 2.0 6.5 New Progam - Rehabilitation of Existing Systems 1.0 2.5 4.0 4.0 4.0 4.0 19.5 New Program - Small & Medium Systems 2.0 4.5 6.0 8.0 8.0 8.0 36.5 TOTAL - Irrigation 5.7 10.0 13.4 15.2 15.0 15.0 74.3 FORESTRY Ongoing and Commited: Reforestation 1.0 1.5 2.0 2.0 2.0 2.0 10.5 Conservation & Management 2.0 3.0. 5.0 5.0 6.0 6.0 27.0 New Programs: Reforestation 3.0 7.0 7.0 7.0 8.0 8.0 40.0 TOTAL - Forestry 6.0 11.5 14.0 14.0 16.0 16.0 77.5 LIVESTOCK Ongoing and Commited: (none) New Programs: Disease Control Programs 0.0 0.0 0.5 1.0 1.0 1.0 3.5 Breeding Stock Programs 0.0 0.0 0.5 1.0 1.0 1.0 3.5 TOTAL - Livestock 0.0 0.0 1.0 2.0 2.0 2.0 7.0 OTHER AGRICULTURE Ongoing and Commited: Area Developments 6.0 5.0 6.0 12.0 16.5 21.5 47.0 Narcotics Reduction Related Development 1.0 1.0 1.5 1.5 1.5 1.5 8.0 TOTAL - Other Agriculture 7.0 6.0 7.5 13.5 18.0 23.0 75.0 TOTAL AGRICULTURE AND FORESTRY 23.7 32.5 40.9 50.7 54.5 61.0 263.3 ii - 141 - Table 2.1 page I of 2 LAO PDR VIENTIANE CONSUMER PRICE INDICES, 1988-93 Month Year All Items Non-food Food Clothing Services Construction Other Dec 1987 100.0 100.0 100.0 100.0 100.0 100.0 Jan 1988 98.4 100.2 97.4 100.0 100.6 100.0 Feb 1988 97.9 101.6 95.7 100.0 103.7 100.0 Mar 1988 102.2 106.0 99.2 100.0 114.4 99.4 Apr 1988 101.8 106.0 98.4 100.0 115.3 98.7 May 1988 103.2 106.1 101.1 100.0 111.0 103.2 Jun 1988 103.6 102.1 104.5 99.8 102.3 102.6 Jul 1988 103.8 101.3 105.0 100.0 102.3 100.8 Aug 1988 102.5 104.3 101.1 100.0 107.4 102.6 Sep 1988 103.5 105.9 101.7 100.0 110.5 103.3 Oct 1988 113.3 115.8 110.6 101.0 127.4 109.0 Nov 1988 121.7 123.0 120.2 102.6 130.2 122.6 Dec 1988 114.8 123.1 109.2 101.1 130.8 122.5 Jan 1989 113.6 123.8 107.0 94.0 130.8 126.6 Feb 1989 121.0 124.2 118.4 94.0 131.2 127.0 Mar 1989 125.6 125.5 124.8 99.2 132.6 127.0 Apr 1989 137.8 131.4 141.0 128.9 135.4 128.3 May 1989 154.4 138.2 163.8 151.3 135.9 136.1 Jun 1989 176.2 166.0 182.3 157.5 161.0 173.8 Jul 1989 187.6 176.6 192.9 158.9 184.7 174.2 Aug 1989 204.9 191.7 211.7 177.7 196.8 191.1 Sep 1989 210.0 199.3 214.7 186.2 211.7 191.1 Oct 1989 207.9 203.6 209.1 196.7 214.5 194.8 Nov 1989 207.9 205.1 208.2 196.7 217.9 194.9 Dec 1989 201.9 204.9 198.9 196.7 217.6 194.9 Jan 1990 200.9 211.4 193.9 199.3 221.8 204.8 Feb 1990 206.0 215.8 199.8 205.7 222.1 212.6 Mar 1990 212.0 220.4 207.0 210.7 222.1 221.9 Apr 1990 219.0 224.8 216.1 223.8 222.1 227.8 May 1990 229.4 233.6 226.3 223.8 240.6 229.7 Jun 1990 236.0 237.6 232.9 229.0 259.1 218.6 Jul 1990 244.4 238.1 245.9 229.0 259.1 219.8 Aug 1990 243.0 238.8 243.4 229.0 259.1 221.4 Sep 1990 244.8 239.6 245.5 228.6 261.2 221.4 Oct 1990 247.0 242.6 247.0 231.4 267.0 221.4 Nov 1990 243.4 241.5 242.1 231.4 264.6 221.4 Dec 1990 241.5 246.4 235.7 231.5 275.9 221.4 Jan 1991 237.4 279.3 221.0 282.8 260.5 326.4 220.7 Feb 1991 237.5 277.9 221.9 282.8 260.4 322.7 218.8 Mar 1991 245.0 298.5 224.4 282.8 296.4 335.0 221.8 Apr 1991 253.3 299.0 237.3 283.6 292.8 341.1 222.9 May 1991 265.9 307.0 252.2 302.7 292.5 355.5 234.7 Jun 1991 270.9 317.8 254.1 318.5 302.9 366.8 241.1 Jul 1991 274.5 321.3 258.5 314.1 312.0 366.4 240.6 Aug 1991 272.6 319.6 256.1 314.0 310.0 364.0 240.9 Sep 1991 273.7 318.5 258.3 315.5 309.5 360.6 241.1 - 142 - Table 2.1 page 2 of 2 LAO PDR VIENTIANE CONSUMER PRICE INDICES, 1988-93 Month Year All Items Non-food Food Clothing Services Construction Other Oct 1991 275.1 316.9 261.3 315.7 309.5 355.5 241.0 Nov 1991 271.6 312.1 261.9 315.7 309.5 350.2 213.8 Dec 1991 267.4 310.7 256.6 315.7 309.0 348.6 208.1 Jan 1992 267.2 309.3 257.0 315.8 309.0 344.5 207.5 Feb 1992 267.8 308.9 257.7 317.1 308.6 342.6 209.6 Mar 1992 270.5 309.0 261.7 317.1 308.6 341.8 212.4 Apr 1992 274.7 309.2 268.1 317.6 308.6 341.6 213.8 May 1992 284.6 311.9 280.0 323.5 308.6 341.8 231.7 Jun 1992 290.1 315.8 287.1 347.7 308.6 345.7 230.3 Jul 1992 304.5 344.8 295.9 347.9 367.2 350.3 238.2 Aug 1992 308.8 353.3 298.2 349.7 383.3 351.6 243.0 Sep 1992 307.8 353.4 296.5 349.7 383.4 351.8 243.0 Oct 1992 303.9 351.8 290.7 349.7 384.3 345.2 244.1 Nov 1992 291.3 348.4 271.9 349.7 384.3 334.9 243.1 Dec 1992 283.4 360.9 253.7 368.7 397.5 349.1 241.5 Jan 1993 284.4 380.7 251.3 371.2 415.6 384.7 241.5 Feb 1993 284.9 380.6 252.1 371.2 415.1 384.7 242.8 Mar 1993 286.9 369.3 255.0 371.2 416.4 346.6 244.3 Apr 1993 295.5 390.8 259.0 371.2 462.2 348.7 244.3 May 1993 299.3 396.5 261.3 374.1 462.2 362.9 252.5 Jun 1993 305.2 400.3 268.5 375.4 462.8 371.6 257.4 Jul 1993 317.8 433.2 273.3 377.3 532.8 373.5 260.1 Aug 1993 324.8 429.7 286.3 388.3 516.7 381.4 259.9 Sep 1993 327.9 438.9 286.3 389.8 532.9 384.6 266.1 Oct 1993 324.2 438.7 280.6 389.8 532.9 384.6 264.5 Nov 1993 311.7 440.4 259.5 389.8 532.9 389.5 265.3 Dec 1993 308.8 441.7 254.2 389.8 532.9 393.9 265.0 Jan 1994 305.6 445.5 247.3 385.6 544.1 391.3 265.0 Memo: consumption shares are used as weights: 61.9 4.2 12.9 8.4 12.7 Annual All Items Non-food Food Clothes Services Construction Other Avg. 1/ 1985 64.9 77.8 58.8 98.0 75.1 N.A. 74.7 1986 79.9 90.6 74.6 103.0 89.2 N.A. 89.5 1987 89.3 93.3 86.8 109.6 94.6 N.A. 84.0 1988 105.6 108.0 103.7 100.4 113.0 N.A. 105.4 1989 170.7 165.9 172.7 153.1 172.5 N.A. 163.3 1990 230.6 232.5 228.0 222.8 247.9 N.A. 220.2 1991 262.1 309.0 247.0 303.6 297.1 349.4 228.8 1992 287.9 331.4 276.5 337.9 346.0 345.1 229.9 1993 305.1 411.7 267.4 378.0 474.9 372.3 253.3 1/ December 1987 100. Source: Bank of Lao PDR. - 143 - Table 2.2 LAO PDR RETAIL FOOD PRICES IN SELECTED PROVINCES, 1993 (kip/kg) Jan Feb Mar Apr May June July Aug Sept Oct Average Gluitinous Rmce Champasack 150 150 150 150 150 180 183 183 183 183 166 Khammuane 225 210 205 198 235 180 180 150 170 195 Luangprabang -140 140 137 140 140 140 180 145 Savannakhet 152 156 156 160 163 183 180 180 180 180 169 Vientiane 200 200 200 200 200 190 198 200 200 199 White Rie Champasack 180 180 180 180 180 200 370 370 370 370 313 Khammuane 325 235 235 235 275 300 300 300 300 237 Luangprabang 150 150 150 160 160 160 400 400 400 258 Savannakhet 153 163 161 172 192 208 250 250 250 250 278 Vientiane 300 283 285 285 290 275 300 400 400 205 &EPo Champasack 1,525 1,525 1,525 1,525 1,525 Khammuane 1,550 1,600 1,650 1,600 1,650 1,800 1,800 1,800 1,800 1,694 Luangprabang 1,000 1,000 1,000 1,000 1,000 1,100 1 , 100 1,200 1,200 1,067 Savaiinakhiet I1,342 1,286 1,364 1,371 1,379 1,379 1,500 1,500 1,500 1,500 1.412 Vientiane 2,100 2,050 2,050 I,100 2,200 2,200 2,210 2,100 2,100 2,123 Cliampasack 180 200 200 200 200 250 210 tl0 210 210 207 K'hammuanie 450 500 500 500 500 490 Luangcvprabantg 400 300 300 320 350 250 360 320 280 320 Savannakhet 200 208 208 233 329 329 250 250 250 250 251 Vientiane 280 300 320 320 300 325 355 169 115 276 Source: Mviinistry of Agriculture and Forcstry. Lao PDR Note: Ricc and Pork prices refcr to "gradc 1 quality. LAO l'DR AVERAGE RETAIL PIRICES FOR SELECTED FOODS, 12/91 - 12/92 (kip per k-) A. Vientiaine Retail lPrices, Sclectedl Foods: Comimilodity Dec-91 Jan-92 Feb-Apr Mlay Jun Jul Aug Sep Oct Nov Dec Average Glutinous Rice 240 240 N.A. 230 N.A. 300 300 300 283 215 220 259 White Rice 330 330 N.A. 330 N.A. 350 360 360 350 374 335 347 Lettuce' 200 150 N.A. 572 N.A. 700 630 604 660 292 200 445 Tomato 252 175 N.A. 540 N.A. 798 1,108 850 880 484 100 576 Cucumber 152 192 N.A. 200 N.A. 200 200 221 208 200 200 197 Dry Onion 1,100 700 N.A. 428 N.A. 600 600 800 1,000 992 900 791 Banana 150 150 N.A. 180 N.A. 200 200 200 200 200 200 187 Pork 2,000 2,000 N.A. 1,800 N.A. 2,000 2,000 2,000 2,184 2,200 2,100 2,032 Beer 1,816 1,800 N.A. 1.896 N.A. 2,000 2,000 2,000 2,000 1,992 1,900 1,934 Buffalo 1,716 1,700 N.A. 1,708 N.A. 1,800 1,800 1,800 1,800 1,800 1,800 1,769 Fresh Fish 2,000 2,038 N.A. 3,000 N.A. 3,000 3,000 3,000 3,000 2,880 2,000 2,658 B. Regional Retail Prices for Glutinous Rice: Region Jan-92 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Champasack 140 170 170 170 200 IS0 I80 200 200 200 170 I80 liluaphanh 180 200 200 200 200 200 180 180 180 180 160 150 184 Luangprabang 180 160 1.65 180 200 220 200 220 180 160 150 150 180 Savannakhet 160 160 175 186 225 243 234 220 216 190 163 161 194 Vientiane Province 200 220 220 184 184 184 211 220 235 225 166 166 201 Vientiane Munic. 240 230 230 230 240 250 300 300 300 283 215 225 254 Xiengkhuang 130 130 130 130 130 140 160 160 160 140 130 140 140 C. Glutinous Rice Price Differences Relative to Vientiane I/ Region Jan-92 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Champasack 100 60 60 60 40 70 120 100 100 83 45 76 Huaphanh 60 30 30 30 40 50 120 120 120 103 55 75 69 Luangprabang 60 70 65 50 40 30 100 80 120 123 65 75 73 Savannakhet so 70 55 44 15 7 66 80 84 93 52 64 59 Vientiane Province 40 10 10 46 56 66 89 80 65 58 49 59 52 Xiengkhuang lID 100 100 100 110 110 140 140 140 143 85 85 114 Source: Ministry of Agriculture and Forcstry, Lao I'DR I/ Vicntiane MUnicipality price minus provincial price a- - 145 - Table 2.4 LAO PDR AGRICULTURAL LAND TAXES, 1990-94 A. 1990 - 93 Taxes on Rice Land 1/ Land/Productivity Class Yield per season Tax per hectare Lowland Paddy low yield: < 2,500 kg/ha 80 kg medium yield: 2,500 - 3,500 kg/ha 100 - 120 kg high yield: > 3,500 kglha 140 kg Upland Fields Fixed fields 30 kg Rotation upland fields 50 kg B. 1994 Taxes on Permanent Annual Crop Land 2/ Productivity Yield per Double Season (Irrigated) Single Class Season One crop Two crops Season (kip per hectare) Plains; low < 3,000 kg/ha 4,000 3,000 2,000 medium 3,000-3,500 kg/ha 5,000 4,000 3,000 high > 3,500 kg/ha 6,000 5,000 4,000 Mountains: lowv < 2,500 kg/ha 3,000 2,000 1,000 medium 2,500-3,000 kg/ha 4,000 3,000 2,000 high > 3,000 kg/ha 5,000 4,000 3,000 C. 1994 Taxes on Tree Crop Land 21 Industrial Fruit Tree Other Tree Stands Orchards Orchards (kip per hectare) in villages 5,000 4.000 3,000 beside roads 4,000 3,000 2,000 other 3,000 2,000 1,000 Mountains: p in villages 4,000 3,000 2,000 beside roads 3,000 2,000 1,000 other 2,000 3,000 500 D. 1994 Taxes on Upland fields 2/ Location Type o Field Fax Rate (kip/ha) Plains: Fixed field 3,000 Rotation upland fields 4,000 Other types 5,000 Moiuntains: Fixed field 1,000 Rotation fields 1,500 Other types 2,000 Source: Part A is from Yvcs Bourdct, 'Rural Reforms and Agricultural Growth in Laos', Macroeconomic Studics No. 36/93, Dept. of Economics, University of Lund, 1993. 1/ Decree No. 47/CCM, June 1989 2/ Decree No. 50, Mvlarch 13, 1993 - 146 - Table 2.5 LAO PDR CENTRAL BANK INTEREST RATE GUIDELINES Jan 88 to Sept 89 to July 91 to Dec 91 to Aug 89 1/ July91 Nov91 Present 2/ Deposit Rates (min. - max.) (minimum) Time deposits 12 month 18% 36% 24 - 30 % 18% 6 month 14% 33% 20 - 26 % 16% 3 month 10% 30% 18 - 24 % 15% Demand deposits 0.0% 1.2% 0- 1.2% 1.2% Saving deposits 7% 24% 16 - 20 % 12% Lending Rates (short, medium, and long term rates 3/) Agriculture and Forestry 28. .., 26 28, 27, 27 15, 9, 7 14, 12, 10 Industry and Handicrafts 28, .., 26 28, 27, 27 22, 12, 10 23, 18, 18 Construction and Transport 28, .., 26 29, 28, 28 25, 15, 12 25, 19, 18 Commerce and Services 32, ..,28 29, 28,28 30, 12, 10 26,20, 18 Source: Bank of Lao PDR 1/ Lending rates are for November 1988 to August 1989. Medium term rates not availabic 2/ The revised guidelines of July 93 seL the maximum lending rate at 24 percent. Short, medium, and long term rates for the ncw Agriculture Development Bank were set at 7. 8 and 10 perccnt respectively. 3/ Medium tcrm loans are from onc to three ycars duration. LAO IPDR OFFICIAL AND PARALLEL MARKET EXCHANGE RATES (buying rate, kip/$US) Monith 1988 1989 1990 1991 1992 1993 Official Parallel Official Parallel Official Parallel Official Parallel Official Parallel Official Parallel January 380.0 372.0 450.0 479.0 710.0 717.0 695.0 699.3 711.0 724.0 716.0 718.0 February 380.0 361.0 470.0 483.0 710.0 726.0 700.0 703.4 711.0 728.9 716.0 723.1 March 350.0 351.0 470.0 505.0 710.0 739.0 700.0 708.3 716.0 738.8 716.0 722.0 April 350.0 357.0 550.0 523.0 710.0 752.0 700.0 705.6 716.0 739.6 716.0 720.4 May 355.0 360.0 550.0 601.0 710.0 752.0 700.0 708.2 716.0 737.3 716.0 719.8 June 360.0 377.0 571.0 616.0 710.0 743.0 700.0 713.5 716.0 734.9 716.0 720.0 July 400.0 400.0 583.0 637.0 710.0 737.0 700.0 714.0 716.0 732.0 716.0 723.1 August 420.0 422.0 595.0 694.0 709.5 724.0 700.0 715.2 716.0 727.6 716.0 725.0 September 435.0 449.0 634.0 716.0 709.5 711.0 706.0 722.7 716.0 727.8 716.0 725.0 October 440.0 455.0 709.0 722.0 698.0 703.0 706.0 721.6 716.0 726.0 716.0 726.2 November 445.0 472.0 713.0 723.0 695.0 700.0 706.0 726.7 716.0 725.4 716.0 730.0 December 450.0 496.0 710.0 720.0 695.0 698.0 711.0 726.7 716.0 720.1 716.0 730.0 AVERAGE 397.1 406.0 583.8 618.3 706.4 725.2 702.0 713.8 715.2 730.2 716.0 723.6 Sources: Bank or Lao PDR; World Bank Estimates 0* - 148 - Table 3.2 LAO PDR EXPORT DUTIES ON AGRICULTURAL GOODS 1/ Item Resource tax Export duty Crop Pr,oducts Rice, Maize, and Starchy Crops exempted Cardamom $0. I 0/kg Coffee $0.10;/kg Tea $0.07/kg Tobacco (leaves and processed leaves) S0.07/1kg Live Domestic Animals Poultry exempted Fish S0.05/kg Horse S30/head Cattle $35/head Buffalo S40/head Pig exempted Sheep/goat $5/head Other Domestic Animals S5/head Wildiife Elephant S 1500/head S6500/head Tiger S500/head $1500/head Bear SOfOhead S 150/head Deer $25/head $75/head Monkey S I 0/head $30/head Meat of Domestic and Wild Animals Beef and Buffalo Meat S0.20/kg Meat of Wild Animals $0.30/1kg Poultry Mleat . exempted I/ Figurcs refer to latc 1993. - 149 - Table 3.3 LAO PDR IMPORT DUTIES ON AGRICULTURAL GOODS 1/ Item Import duty Purchased Agricultural Inputs Seed 20% Farm Implements 5% Animal Feed 5% Animal Vaccine and Drugs 5% Agricultural Chemicals 5% Food Crop Products Cereals (paddy, milled rice, maize, broken rice, rice bran) 5% Root Crops 25% Cereal Flour 5% Vegetables and Fruit for Consumption 25% Dried or Processed Products (chilli, beans, etc.) 25% Coffee and Tea Raw Coffee Beans, Roasted Coffee 50% Raw or Dried Tea 50% Instant Coffee and Tea 20% Tobacco Fresh or Dried Whole Leaves 5% Dried and Shredded Leaf 40% Cigarettes 80% Fibre Products 5% Animal Products Poultry SY Livestock 5% Meat and Eggs 20% Fresh Milk, Yogurt, Cheese, Butter, etc. 10% Milk Powder, Condensed Milk 5% 1 / Figurcs rcfcr to latc 1993. - 150 - Table 3.4 LAO PDR CURRENT & PROPOSED IMPORT TARIFF STRUCTURES 1/ (percent) Current Proposed Import Duty Turnover Tax Import Duty Turnover Tax Agnriulture* Food - 5-25 5 10 5 Seeds 20 5 10 5 Fertilizer 5 5 10 5 Animal Feed 5 5 10 5 Other Stock-raising 5-30 5-10 20 5 Other 5 5 10 5 Manufacurina Raw Materials 5-10 5-10 10 5 Packaging 10-20 5 10 5 Energy 5-15 5-10 10 5 Machinery 5-20 5 10 S Trucks 5-30 5 20 5 Manufactured Products 30-80 5-10 30 10 Beer & Other Protected Manufactured Goods 30-80 5-10 40 10 LuLxtre Food 20-80 5-10 30 10 Non-food 10-100 5-10 30 10 Source: World Bank, Lao PDR Country Economic Memorandum, (draft, Dec. 1993). I/ As proposed under the IMr's Exicnded Structural Adjustmcnt Facility. - 151 - Table 3.5 LAO PDR AGRICULTURE AND FORESTRY EXPORTS, 1988-93 (millions of US dollars) Product 1988 1989 1990 1991 1992 1993 est Convertible Area: Logs 18.2 4.0 3.2 3.0 9.7 14.0 Wood products 2.6 11.6 15.4 37.9 33.0 32.7 Coffee 0.5 3.6 1.4 2.2 2.4 2.0 Other Ag./forest products 4.2 9.0 7.0 3.7 7.3 14.0 Nonconvertible Area: Coffee 6.8 5.8 7.2 0.9 - - Logs & Wood Products 9.3 5.8 7.3 0.8 - - TOTAL Ag. & Forest Products 41.6 39.8 41.5 48.5 52.4 62.7 % of Total Official Exports 72.0 62.9 52.8 50.2 40.2 - Source: World Bank and IMF staffestimates. - 152 - Table 3.6 LAO PDR ESTIMATES OF LIVESTOCK EXPORTS TO THAILAND A. EXPORTS OF LIVE CATTLE AND BUFFALO, 1989 (head) Border Province Official Estimated Unofficial Total Borikhamsay 497 1 - 2,000 1,500 - 2,500 Champasack 3,585 3 - 6,000 6,500 - 7,500 Khammuane 109 2 - 3,000 2,100 - 3,100 Samavane 5,225 500 - 1,000 5,700 -6,200 Savannakhet 3,972 8- 12,000 12,000 - 16,000 Vientiane Municip. 140 2,000 2,150 - 3,150 Vientiane Province 183 -- 100 - 500 TOTAL 13,711 16-26,000 30-40,000 As % of National Herd 0.75 0.85 - 1.4 1.6 -2.2 B. VALUE OF LIVE BUFFALO, CATTLE, AND PIG EXPORTS (millions of SUS) 1/ Year Buffalo Cattle Pigs Total Value 1987 1.9 -2.8 0.9- 1.9 0.1 -0.2 3.0 -4.9 1988 2.8 - 4.3 1.4 -2.1 0.3 - 0.4 6.3 - 6.8 1989 5.4 - 7.2 2.1 -2.8 0.3 - 0.4 7.9- 10.5 1990 5.7 - 7.2 2.7 - 3.6 0.5 - 0.6 8.9 - 11.4 1991 7.4 - 12.0 4.2 - 8.4 0.6- 1.2 12.2 -21.6 1992 7.6- 12.3 4.4 - 8.9 0.6- 1.3 12.7 - 22.6 1993 2/ 7.8 - 12.5 4.8-9.5 0.6- 1.3 13.2 - 23.3 1994 2/ 8.1 - 13.0 5.0 - 10.0 0.7 - 1.4 13.8 - 24.4 C. ESTIMATED EXPORTS OF LIVE BUFFALO, CATTLE, AND PIGS (head) Year Buffalo Cattle Pigs 1987 7,000 - 10,000 4,500 - 9,500 6,500 - 10,200 1988 10,300 -15,500 7,000- 10,500 14,200- 18,500 1989 19,500 - 26,000 10,500 - 14,000 16,500 - 21,500 1990 20,500-22,600 13,500- 18,000 23,000-27,000 1991 26,500 - 42,900 21,000 - 42,100 28,000 - 56,000 1992 27,100 - 44,200 22,300 - 44,600 29,000 - 58,000 1993 2/ 28,000 - 45,300 23,800 - 47,700 30,200 - 60,400 1994 2/ 29,000 - 46,700 25,200 - 50,500 31,200 - 62,400 Sources: Livcstock SectorStudy, ADD, 1990; Basic Design Study, Integrated Agricultural Rural Developmcnt Project in Savannakhct Provincc, August 1993; Department of Livestock and Vetcrinary Services, August 1993. I/ Bascd on the rollowing avcrage liveweights and prices: Buffalo 350 kg and USS0.801kg Cattle 250 kg and USSO.80/kg - Pigs 9 kg and USS2.50/kg 2/ Lao PDR government projcction. - 153 - Table 3.7 LAO PDR RICE/CEREAL IMPORTS ('000 metric tons) Year Quantity Imported 1974 53 1975 60-100 1976 60-100 1977 60-100 1978 120 1979 132 1980 121 1981 50 1982 27 1983 35 1984 37 1985 38 1986 34 1987 37 1988 115 1989 64 1990 54 1991 44 1992 44 Sourcc: World Bank, World Devclopment Reports ("Ccreal Imports'); ror 1975-78, World Bank .Country Economic Mcmorandum, 1979: for 1979. World Bank. Agricultural Sector Revicw, 1981. LAO PDR AREA HARVESTED BY CROP, 1976-92 (o000 lia) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Rice 524.6 561.0 622.6 708.8 732.1 745.1 737.0 694.3 625.1 663.5 651.8 566.1 556.2 606.4 667.9 570.1 608.0 Lowland Rice 317.7 329.6 398.6 434.7 426.9 433.2 435.2 396.4 360.3 383.1 385.0 349.1 331.3 381.5 396.5 322.8 392.5 Upland Rice 204.1 228.3 216.6 263.7 297.4 305.3 296.2 291.9 256.2 270.4 256.6 207.3 213.5 214.7 260.0 234.0 200.0 Irrig. Dry Season 2.7 3.1 7.5 10.3 7.7 6.5 5.7 6.0 8.6 10.0 10.1 9.7 11.4 10.2 11.4 13.3 15.5 Corn 29.4 29.7 27.5 30.2 28.3 30.9 31.6 29.8 28.6 26.9 29.6 24.8 37.8 30.4 48.1 34.2 32.1 Sweet Potatoes 5.5 5.6 5.7 8.6 9.1 11.0 12.0 11.8 11.9 10.2 8.7 14.7 27.8 27.5 19.8 16.6 14.5 Mungbeans 1.9 2.3 2.3 3.0 2.9 3.0 3.0 3.0 3.1 2.4 1.8 2.8 3.5 4.9 4.6 3.2 7.7 Soybeans 3.0 3.1 4.3 4.4 4.8 5.6 5.6 4.8 5.2 3.1 3.5 5.6 5.9 6.0 5.6 6.1 6.1 Peanuts 4.7 4.9 9.5 10.4 10.7 11.3 11.5 11.4 11.6 6.6 5.2 4.7 5.4 6.1 8.5 5.6 7.7 _ Un Tobacco 1.3 1.3 3.0 3.4 4.0 4.4 4.4 3.7 3.9 3.7 3.2 5.5 7.1 8.1 12.0 10.2 10.5 Coffee 3.4 4.5 4.8 5.4 6.5 7.7 7.7 8.2 11.1 12.6 13.1 14.5 15.5 15.8 17.3 17.9 17.8 Cotton 3.1 3.2 5.9 6.9 7.0 7.1 7.1 7.2 7.2 5.2 4.2 5.7 6.7 7.2 6.9 8.0 7.8 Tea - 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.3 0.3 0.4 0.4 0.4 0.6 Cardamom - - - - - - - 1.7 2.1 5.9 5.7 10.5 5.3 - Sugarcane 0.7 0.7 0.8 1.0 0.9 0.9 0.9 1.1 1.4 2.6 2.6 2.9 3.9 3.8 4.0 2.8 3.3 Vegetables 3.7 3.9 4.4 5.3 5.2 5.4 5.0 5.0 5.0 6.9 2.7 6.0 9.6 7.7 7.9 6.8 1.7 Fruit - 2.5 - 7.8 4.6 3.1 4.5 5.0 5.5 5.5 - TOTAL AREA 581.3 620.1 691.0 787.4 814.2 832.5 826.0 780.4 714.2 751.6 732.7 658.8 690.3 735.0 818.8 692.8 717.7 Source: State Statistical Center, Ministry of Economy, l'lanning and Financc and Ministry of Agriculture and Forestry, Lao PDR pa LAO PDR CROP YIELDS, 1976-92 (lols/ha) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Rice 1.26 1.24 1.18 1.21 1.44 1.55 1.48 1.59 2.11 2.10 2.23 2.15 1.80 2.32 2.26 2.15 2.47 Lowland Rice 1.43 1.44 1.28 1.33 1.65 1.81 1.68 1.92 2.55 2.67 2.81 2.63 2.07 2.72 2.75 2.61 2.94 Upland Rice 0.99 0.95 1.00 1.02 1.13 1.18 1.18 1.12 1.48 1.28 1.33 1.31 1.32 1.55 1.46 1.44 1.47 Irrig. Dry Season 1.27 1.22 1.19 1.45 1.44 1.89 2.18 2.08 2.49 2.65 2.70 2.69 3.02 3.13 3.43 3.28 3.56 Corn 1.03 1.06 0.98 1.09 1.00 1.06 1.10 1.07 1.19 J.24 1.41 1.44 1.35 1.44 1.70 2.01 1.80 Sweet Potatoes 8.54 8.73 8.92 8.01 8.80 8.84 8.17 8.52 8.12 8.37 7.54 7.05 6.85 5.81 8.23 7.95 7.27 Mungbeans 0.55 0.47 0.56 0.52 0.56 0.57 0.61 0.61 0.60 0.62 0.54 0.67 0.64 0.63 0.57 0.66 0.71 Soybeans 0.58 0.58 0.67 0.74 0.69 0.70 0.75 0.74 0.70 0.67 0.75 0.60 0.75 0.81 0.80 0.90 0.88 Peanuts 0.73 0.73 0.75 0.73 0.74 0.77 0.80 0.77 0.77 0.78 0.80 1.23 0.83 0.97 0.94 1.01 1.45 ' Tobacco 4.08 4.13 4.19 4.24 4.16 4.34 4.48 4.19 4.19 4.30 4.37 4.11 4.42 4.14 4.86 4.44 4.61 Coffee 0.82 0.62 0.62 0.64 0.68 0.65 0.67 0.65 0.52 0.49 0.38 0.48 0.50 0.34 0.31 0.38 0.42 Cotton 0.72 0.76 0.63 0.70 0.70 0.71 0.72 0.69 0.71 0.56 0.63 0.71 0.66 0.61 0.72 0.59 0.68 Tea 4.15 4.09 4.16 3.54 4.04 4.00 3.47 3.78 3.85 4.00 4.40 4.38 1.65 4.18 4.22 4.02 Cardamom - - - - - - - 0.47 0.19 0.20 0.30 0.26 0.50 - Sugarcane 24.77 24.78 25.67 26.89 26.73 26.66 27.91 26.51 37.94 27.66 27.92 27.74 26.96 32.93 27.82 28.40 28.67 Vegetables 7.76 7.94 8.07 7.93 8.14 8.09 8.93 8.75 8.98 5.71 6.82 6.78 7.12 8.54 7.70 7.52 10.99 Fruit - - 6.06 - - - 6.15 12.22 10.51 10.51 10.60 10.00 - - Source: State Statistical Center, Ministry of Economy, P'lanning and Finance and Ministry of Agriculture and Forestry, Lao PDR c- iw LAO PDR CROP PRODUCTION, 1976-92 ('000 m. tons) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 196 1987 1988 1989 1990 1991 1992 Rice 661 693 735 861 1,053 1,155 1,092 1,101 1,321 1,395 1,450 1,216 1,003 1,404 1,508 1,223 1,502 Lowland Rice 455 473 508 577 705 782 731 762 919 1,023 1,082 917 686 1,039 1,088 842 1,153 Upland Rice 202 216 217 269 337 360 349 326 380 345 341 272 283 333 381 338 294 Irrig. Dry Season 3 4 9 15 11 12 12 12 21 27 27 26 35 32 39 44 55 Corn 30 31 27 33 28 33 35 32 34 33 42 36 51 44 82 69 58 Sweet Potatoes 47 49 51 69 80 97 98 100 97 85 66 104 190 160 163 132 105 Mungbeans 1.0 1.1 1.3 1.5 1.6 1.7 1.9 1.8 1.8 1.5 1.0 1.9 2.2 3.1 2.6 2.1 5.5 Soybeans 1.7 1.8 2.9 3.3 3.3 3.9 4.2 3.5 3.6 2.1 2.6 3.4 4.4 4.9 4.5 5.5 5.4 Peanuts 3.5 3.5 7.2 7.6 7.9 8.7 9.2 8.7 8.9 5.2 4.2 5.8 4.5 5.9 8.0 5.6 11.2 Tobacco 5.5 5.2 12.7 14.6 16.6 19.1 19.7 15.5 16.5 15.7 14.0 22.7 31.5 33.5 58.4 45.3 48.3 Coffee 2.8 2.8 3.0 3.5 4.4 5.0 5.2 5.3 5.7 6.1 5.0 7.0 7.8 5.4 5.3 6.8 7.4 Cotton 2.3 2.4 3.7 4.8 4.9 5.0 5.1 5.0 5.1 2.9 2.6 4.0 4.4 4.4 5.0 4.7 5.3 Tea - 0.3 0.3 0.3 0.3 0.5 0.5 0.6 0.6 0.5 0.2 1.1 1.4 0.7 1.6 1.7 2.5 Cardamom - - - - - - - - 0.8 0.4 1.2 1.7 2.7 2.6 - Sugarcane 17 18 20 26 24 24 26 30 55 73 72 82 106 126 112 81 94 Vegetables 28 31 36 42 43 44 45 43 45 39 19 41 69 66 61 51 18 Fruit - - - I - - - - 48 56 32 47 53 55 - - Source: State Statistical Ccnicr, Ministry of Economy, I'lanning and Finance and Ministry of Agriculture and Forcstry, Lao PDR a- La LAO PDR SI-IARES Ol IIARVESTED AREA BY CROP, 1976-92 (percent of total cropped area) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Rice 90.2 90.5 90.1 90.0 89.9 89.5 89.2 89.0 87.5 88.3 88.9 85.9 80.6 82.5 81.6 82.3 84.7 Lowvland Rice 54.6 53.2 57.7 55.2 52.4 52.0 52.7 50.8 50.4 51.0 52.5 53.0 48.0 51.9 48.4 46.6 54.7 Upland Rice 35.1 36.8 31.3 33.5 36.5 36.7 35.9 37.4 35.9 36.0 35.0 31.5 30.9 29.2 31.8 33.8 27.9 Irrig. Dry Season 0.5 0.5 1.1 1.3 0.9 0.8 0.7 0.8 1.2 1.3 1.4 1.5 1.7 1.4 1.4 1.9 2.2 Corn 5.1 4.8 4.0 3.8 3.5 3.7 3.8 3.8 4.0 3.6 4.0 3.8 5.5 4.1 5.9 4.9 4.5 Sweet Potatoes 1.0 0.9 0.8 I.l 3.3 1.3 1.4 1.5 1.7 1.4 1.2 2.2 4.0 3.7 2.4 2.4 2.0 Mungbeans 0.3 0.4 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.3 0.2 0.4 0.5 0.7 0.6 0.5 1.1 I Soybeans 0.5 0.5 0.6 0.6 0.6 0.7 0.7 0.6 0.7 0.4 0.5 0.9 0.9 0.8 0.7 0.9 0.9 un Peanuts 0.8 0.8 1.4 1.3 1.3 1.4 1.4 1.5 1.6 0.9 0.7 0.7 0.8 0.8 3.0 0.8 3.3 Tobacco 0.2 0.2 0.4 0.4 0.5 0.5 0.5 0.5 0.6 0.5 0.4 0.8 3.0 3.3 1.5 1.5 1.5 Coffee 0.6 0.7 0.7 0.7 0.8 0.9 0.9 3.3 1.6 1.7 1.8 2.2 2.3 2.2 2.1 2.6 2.5 Cotton 0.5 0.5 0.9 0.9 0.9 0.9 0.9 0.9 0.O 0.7 0.6 0.9 3.0 3.0 0.8 1.2 I.l Tea 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 Cardamom - - - - - - - 0.2 0.3 0.9 0.8 1.3 0.8 - Sugarcane 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.4 0.4 0.4 0.6 0.5 0.5 0.4 0.5 Vegetables 0.6 0.6 0.6 0.7 0.6 0.6 0.6 0.6 0.7 0.9 0.4 0.9 1.4 3.0 3.0 3.0 0.2 Fruit - 0.3 - - - - 1.0 0.6 0.5 0.7 0.7 0.7 0.8 - Source: State Statistical Ccntcr, Ministry of Economy, Ilanning and Finance and Ministry orAgriculturc and Forestry, Lao PDR cr Z- LAO PDR AREA H-IARVESTED BY CROP AND PROVINCE, 1992 (hectares) Attapcu Bokeo Borik- Cham- llua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- TOTAL hamxay pasack phanh muane namtha prabang xay saly vane nakhet Reg. Prov. Munic. bury Khuang Paddy: Lowvland 9,270 4,880 17,600 70,850 7,210 39,630 2,540 7,730 5,040 4,750 34,280 83,420 1,720 3,840 32,410 42,670 11,940 12,720 392,480 Upland 3,520 4,220 12,180 5,220 18.830 1,240 7,460 41,070 20,290 19,950 7,900 7,750 4,300 3,180 21,000 350 12,200 9,420 200,070 Dry Season 20 - 20 590 400 1,300 - 1,040 50 30 140 2,270 10 670 1,240 7,330 430 - 15,540 Total Paddy 12,810 9,100 29,800 76,660 26,430 42,170 10,000 49,850 25,380 24,720 42,320 93,440 6,030 7,690 54,650 50,350 24,570 22,140 608,080 Com 510 498 1,029 193 3.811 796 1,020 6,289 4,070 1,683 707 1,035 1,382 555 2,810 1,000 927 3,820 32,140 Root Crops 370 181 300 225 265 541 68 1,642 476 1,138 2,019 413 2,000 227 1,679 52 67 2,787 14,450 _ I.11 Soybean 314 154 42 345 470 587 204 949 155 1,239 723 . 2 5 22 347 250 139 170 6,120 0 Mungbean 80 81 365 379 200 206 136 127 344 540 110 15 5 - 343 800 25 84 3,840 1 Peanut 25 51 25 317 380 '143 160 1,692 275 930 402 328 38 32 620 350 1,647 270 7,690 Coffee 8 - - 12,486 29 19 - 595 48 91 3,248 1,200 - - 6 16 17,750 Tea - - 15 358 70 15 - 16 25 25 - - 60 - - 25 610 Tobacco 26 320 238 633 1,020 800 1,900 632 225 340 720 407 8 - 1,345 1,100 70 690 10,470 Cotton 329 850 106 199 1,220 54 605 800 500 573 400 326 7 - 320 218 1,170 146 7,820 Sugarcane 17 130 12 59 360 310 110 30 215 55 65 53 142 - 219 1,181 250 80 3,290 Vegetables 136 152 48 - - - 693 592 - - - - - 48 - 1,670 TOTAL 14,630 11,520 31,980 91,850 34,260 45,630 14,220 63,300 32,300 31,330 50,740 96,020 10,820 8,530 62,390 55,300 28,920 30,230 713,920 Source: State Statistical Ccnter, Ministry of Economy I'lanning and F:inancc, Vicntiane L. LAO PDR SHARES OF AREA l-IARVESTED BY CROP AND PROVINCE, 1992 (percent of total province area harvested) Attapcu Bokeo Borik- Chani- llua- Klham- Luang- Luang- Oudomi- I'hong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- TOTAL hamxay pasack phanh muane namiha prabang xay sal)' vane nakhet Reg. Prov. Munic. bury Khuang Paddy: Lowland 63.4 42.4 55.0 77.1 21.0 86.9 17.9 12.2 15.6 15.2 67.6 86.9 15.9 45.0 51.9 77.2 41.3 42.1 55.0 Upland 24.1 36.6 38.1 5.7 55.0 2.7 52.5 64.9 62.8 63.7 15.6 8.1 39.7 37.3 33.7 0.6 42.2 31.2 28.0 Dry Season 0.1 - 0.1 0.6 1.2 2.8 - 1.6 0.2 0.l 0.3 2.4 0.1 7.9 2.0 13.3 1.5 - 2.2 Total Padjy 87.6 79.0 93.2 83.5 77.1 92.4 70.3 78.8 78.6 78.9 83.4 97.3 55.7 90.2 87.6 91.0 85.0 73.2 85.2 Corn 3.5 4.3 3.2 0.2 11.1 1.7 7.2 9.9 12.6 5.4 1.4 1.1 12.8 6.5 4.5 1.8 3.2 12.6 4.5 Root Crops 2.5 1.6 0.9 0.2 0.8 1.2 0.5 2.6 1.5 3.6 4.0 0.4 18.5 2.7 2.7 0.1 0.2 9.2 2.0 Soybean 2.1 1.3 0.1 0.4 1.4 1.3 1.4 1.5 0.5 4.0 1.4 0.0 0.0 0.3 0.6 0.5 0.5 0.6 0.9 Mungbean 0.5 0.7 1.1 0.4 0.6 0.5 1.0 0.2 1.1 1.7 0.2 0.0 0.0 - 0.5 1.4 0.1 0.3 0.5 Peanut 0.2 0.4 0.1 0.3 1.1 0.3 1.1 2.7 0.9 3.0 0.8 0.3 0.4 0.4 1.0 0.6 5.7 0.9 1.I Coffee 0.1 - 13.6 0.1 0.0 - 0.9 0.1 0.3 6.4 - 11.1 - * - 0.0 0.1 2.5 Tea - 0.0 04 0.2 0.1 - 00 D1 0.0 - - 0.1 - - 0.1 0.o Tobacco 0.2 2.8 0.7 0.7 3.0 1.8 13.4 1.0 0.7 1.1 1.4 0.4 0.1 - 2.2 2.0 0.2 2.3 1.5 Cotton 2.2 7.4 0.3 0.2 3.6 0.1 4.3 1.3 1.5 1.8 0.8 0.3 0.1 0.5 0.4 4.0 0.5 1.1 Sugarcane 0.1 1.1 0.0 0.1 1.1 0.7 0.8 0.0 0.7 0.2 0.1 0.1 1.3 - 0.4 2.1 0.9 0.3 0.5 Vegetables 0.9 1.3 0.2 - - - - 1.1 1.8 - - - - - - 0.2 - 0.2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: State Statistical Ccnter. Mvlinistry of l'conomy l'lanning and Financc, Vicntianc -1 a- LAO PDR PADDY PRODUCTION BY TYPE AND PROVINCE, 1990-92 Attapeu Bokeo Borik- Chan- Hua- Khamn- Luang- Luang- Oudom Phong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane namtha prabang xay saly vane nakhet Reg. Prov. Munic. bury Khuang LOWLAND PADDY: Area ('000 ha) 1990 9.3 4.5 17.0 74.5 8.1 43.5 4.5 8.5 9.9 4.9 33.3 78.9 1.5 0.0 32.5 41.6 10.6 13.5 396.5 1991 7.6 4.3 11.2 58.7 6.8 23.8 2.0 8.0 12.5 4.9 30.3 61.5 1.0 0.0 28.3 39.0 9.1 13.8 322.8 1992 9.3 4.9 17.6 70.9 7.2 39.6 2.5 7.7 5.0 4.7 34.3 83.4 1.7 3.8 32.4 42.7 11.9 12.7 392.5 Yield (tons/ha) 1990 2.70 3.10 2.60 2.30 3.20 2.60 2.98 3.00 3.30 2.80 2.62 2.83 1.90 - 3.00 3.25 2.47 2.80 2.75 1991 2.48 3.20 1.98 2.58 2.76 1.95 2.20 2.50 3.50 2.92 3.23 2.53 1.94 - 2.40 2.57 2.32 3.20 2.61 1992 3.00 2.58 2.37 3.00 3.00 2.72 3.00 2.70 2.90 3.00 3.00 2.97 2.47 3.00 3.00 3.00 2.70 3.00 2.94 Production ('000 tons) 1990 25.0 13.8 44.2 171.2 25.8 113.1 13.3 25.5 32.7 13.7 87.3 223.3 2.8 - 97.5 135.0 26.2 37.8 1,088 1991 19.0 13.7 22.1 151.1 18.8 46.3 4.5 19.9 43.8 14.2 97.9 155.5 2.0 - 67.9 100.2 21.1 44.2 842 1992 27.8 12.6 48.1 212.9 21.7 108.0 7.6 20.9 14.6 14.2 105.8 247.3 4.2 11.5 97.4 128.2 32.3 38.2 1,153 UPLAND PADDY: Area ('000 ha) 1990 3.4 4.3 12.0 5.5 33.3 1.5 14.3 63.0 32.3 20.0 7.8 6.9 6.0 0.0 25.0 0.6 15.0 9.2 260 1991 3.4 4.2 10.7 3.7 22.6 1.4 13.2 54.4 34.7 26.6 8.2 7.9 3.7 0.0 19.8 1.1 9.1 9.5 234 1992 3.5 4.2 12.2 5.2 18.8 1.2 7.5 41.1 20.3 19.9 7.9 7.8 4.3 3.2 21.0 0.4 12.2 9.4 200 Yield (tons/ha) 1990 1.05 2.00 1.60 1.99 1.70 1.50 1.39 1.32 1.66 1.30 1.37 1.27 1.30 - 1.20 1.22 1.50 1.76 1.46 1991 1.00 1.91 1.50 2.19 1.60 1.07 1.20 1.32 1.73 1.16 1.63 1.46 1.30 - 1.00 1.00 1.93 1.80 1.44 1992 1.28 1.36 1.61 1.98 1.50 1.45 1.20 1.40 1.40 1.30 1.60 1.50 1.40 1.70 1.51 1.50 1.50 1.74 1.47 Production ('000 tons) 1990 3.6 8.6 19.2 11.0 56.7 2.3 19.8 83.4 53.6 26.0 10.6 8.8 7.8 0.0 29.9 0.8 22.5 16.3 381 1991 3.4 8.0 16.1 8.0 36.2 1.5 15.9 71.9 60.0 30.8 13.4 11.6 4.8 0.0 19.8 1.1 17.5 17.1 337 1992 4.5 5.7 19.6 10.3 28.2 1.8 8.9 57.5 28.4 25.9 12.6 11.6 6.0 5.4 31.7 0.5 18.3 16.4 294 (b F _ n o 42 LAO PDR PADDY PRODUCTION BY TYPE AND PROVINCE, 1990-92 Attapeu Bokeo Borik- Cham- Hua- Kham- Luang. Luang- Oudom Phong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane namtha prabang xay saly vane nakhet Reg. Prov. Munic. bury Khuang Area (ha) 1990 20 - 47 440 - 712 18 848 170 - 240 1,281 - - 800 6,368 448 - 11,392 1991 - - - 170 400 1,180 110 900 50 - 130 2,010 - - 1,090 6,480 800 - 13,320 1992 24 - 18 585 395 1,302 - 1,044 51 31 142 2,271 9 670 1,235 7,331 427 - 15,535 Yield (tons/ha) 1990 3.00 - 4.26 3.58 - 3.50 1.17 2.95 3.00 - 1.98 2.93 - - 3.27 3.78 1.80 - 3.43 1991 - - - 3.53 1.50 4.00 2.91 2.98 1.20 - 2.92 3.38 - - 2.95 3.50 2.08 - 3.28 1992 3.04 - 1.67 3.56 2.00 4.05 - 3.60 2.80 2.26 3.21 3.23 2.22 3.00 3.36 3.86 1.90 - 3.56 Production (tons) 1990 60 - 200 1,575 2,492 21 2,500 510 - 476 3,753 - 2,617 24,091 806 - 39,101 1991 - - - 600 600 4,720 320 2,680 60 - 380 6,800 - - 3,220 22,680 1,660 - 43,720 1992 73 - 30 2,083 790 5,273 - 3,758 143 70 456 7,335 20 2,010 4,150 28,298 811 - 55,300 TOTAL: A rea (00 ha) 1990 12.7 8.8 29.0 80.4 41.4 45.7 18.7 72.3 42.3 24.9 41.3 87.1 7.5 0.0 58.3 48.6 26.1 22.7 668 1991 11.1 8.5 21.9 62.5 29.8 26.4 15.4 63.3 47.2 31.4 38.6 71.5 4.7 0.0 49.2 46.5 19.0 23.3 570 1992 12.8 9.1 29.8 76.7 26.4 42.2 10.0 49.8 25.4 24.7 42.3 93.4 6.0 7.7 54.6 50.4 24.6 22.1 608 Yield (tons/ha) 1990 2.26 2.56 2.19 2.29 1.99 2.58 1.77 0.16 2.05 1.60 2.38 2.71 1.42 - 2.23 3.29 1.90 2.38 2.26 1991 2.02 2.56 1.74 2.56 1.86 1.99 1.34 1.49 2.20 1.43 2.89 2.43 1.44 - 1.85 2.66 2.12 2.63 2.14 1992 2.52 2.01 2.27 2.94 1.92 2.73 1.66 1.65 1.70 1.63 2.81 2.85 1.70 2.46 2.44 3.12 2.09 2.47 2.47 Production ('000 tons) 1990 28.6 22.5 63.6 183.9 82.5 117.9 33.1 111.4 86.7 39.7 98.5 235.9 10.6 0.0 130.0 159.9 49.5 54.1 1,508 1991 22.4 21.7 38.2 159.7 55.6 52.6 20.6 94.4 103.8 45.0 111.6 174.0 6.8 0.0 90.9 123.9 40.3 61.3 1,223 1992 32.3 18.3 67.8 225.3 50.7 115.0 16.6 82.2 43.2 40.2 118.9 266.3 10.3 18.9 133.3 157.1 51.4 54.6 1,502 Source: State Statistical Center, Ministry of Economy Planning and Finance, Vientiane co _! o 4> ILAO PDR PADDY PRODUCTION BY PROVINCE, 1976-1992 ('000 toils) Province ' 1976 1977 1978 1979 1980 1984 1985 1986 1987 1988 1989 1990 1991 1992 Average Average C.V. 1985-87 1990-92 Attapeu 9.5 7.9 20.6 19.9 21.3 26.3 28.8 29.6 25.7 18.1 28.2 28.6 22.4 32.3 28.0 27.8 0.17 Bokeo .. .. .. .. .. 17.6 17.8 19.7 17.7 19.6 15.6 22.5 21.7 18.3 18.4 19.1 0.12 Borikhamxay .. .. .. .. .. 47.4 45.0 40.2 47.1 53.2 52.3 63.6 38.2 67.8 44.1 50.9 0.21 Champasack 153.6 183.5 66.8 119.1 154.1 211.9 244.8 252.4 207.6 105.8 167.9 183.9 159.7 225.3 234.9 193.4 0.25 Huaphanh 39.5 40.8 51.4 56.7 50.6 79.2 59.6 53.0 71.2 66.6 64.4 82.5 55.6 50.7 61.3 62.9 0.17 Khammuane 33.4 35.6 62.8 84.1 73.4 85.4 106.2 107.2 82.2 34.1 98.6 117.9 52.6 115.0 98.5 89.2 0.34 Luangnamtha 19.4 13.0 21.3 45.1 49.0 33.0 28.9 30.6 26.0 28.1 35.7 33.1 20.6 16.6 28.5 27.5 0.23 Luangprabang 46.0 52.8 64.7 62.9 69.0 89.7 83.3 87.3 54.9 65.5 71.7 111.4 94.4 82.2 75.2 81.3 0.22 Oudomxay 44.0 58.5 34.2 49.6 45.1 64.4 60.9 84.0 75.4 82.9 85.7 86.7 104.4 62.1 73.4 80.3 0.18 Phongsaly 20.1 21.7 26.8 25.8 26.1 35.2 38.2 39.0 15.8 33.0 36.4 39.7 45.0 40.2 31.0 35.9 0.25 Saravane 38.2 40.3 60.7 64.0 95.2 84.3 89.4 97.7 88.2 73.4 102.8 98.5 111.6 118.9 91.8 97.6 0.15 Savannakhet 101.1 102.1 116.8 152.5 175.5 188.1 235.1 234.3 233.6 94.0 247.6 235.9 174.0 266.3 234.3 215.1 0.26 Sekong .. .. .. .. .. 10.3 10.2 11.1 10.2 4.4 8.8 10.6 6.8 10.3 10.5 9.1 0.26 Vientiane 101.3 72.3 137.9 123.7 183.5 119.7 121.5 128.5 91.1 104.0 138.5 130.0 90.9 133.3 113.7 117.2 0.16 Vientiane M. .. .. .. .. .. 98.9 106.1 114.8 92.2 125.2 136.9 159.9 123.9 157.1 104.4 127.0 0.19 Xayabury 37.2 44.8 35.6 33.2 73.9 71.0 56.4 57.0 39.3 47.3 65.2 49.5 40.3 51.4 50.9 50.8 0.17 Xiengkhuang 17.6 19.9 24.2 30.3 36.4 58.8 63.6 63.5 37.3 48.0 48.0 54.1 61.3 54.6 54.8 53.8 0.17 Total 661 693 724 867 1,053 1,321 1,395 1,450 1,216 1,003 1,404 1,508 1,223 1,502 1,353.7 1,338 0.13 % Change .. 4.86 4.42 19.78 21.48 .. 5.61 3.95 -16.19 -17.45 39.94 7.43 -18.90 22.80 Source: Statc Statistical Center, Ministry ot Economy Planning and Finance, Vientiane -l a. LAO PDR PADDY I IARVIiSTED AREA BY PROVINCE, 1976-1992 ('000 ha) Province 1976 1977 1797 1979 1980 1984 1985 1986 1987 1988 1989 1990 1991 1992 Average Average 1985-87 1990-92 Attapeu 10.0 10.2 14.1 14.3 15.0 12.0 12.6 13.5 12.9 11.0 12.1 12.7 11.1 12.8 13.0 12.4 Bokeo .. . . . . 9.3 9.7 9.5 9.4 9.2 5.4 8.8 8.5 9,1 9.5 9.4 Borikhamxay .. . . . . 21.5 22.5 19.2 24.2 22.9 24.1 29.0 21.9 29.8 22.0 22.1 Champasack 75.6 87.9 53.1 95.9 97.0 76.7 84.0 80.9 77.0 60.1 77.5 80.4 62.5 76.7 80.6 72.6 Huaphanh 34.0 35.6 42.3 49.6 42.1 46.2 39.6 33.9 43.2 45.1 30.5 41.4 29.8 26.4 38.9 40.7 Khammuane 46.6 49.6 48.5 59.0 50.4 43.0 42.1 41.0 32.5 22.1 39.2 45.7 26.4 42.2 38.5 31.8 Luangnamtha 23.7 22.6 19.5 34.3 34.2 21.9 18.7 1 8.8 16.9 16.1 17.8 18.7 15.4 10.0 I18. 1 17.3 Luangprabang 43.2 46.6 47.3 50.3 51.4 62.7 59.6 57.2 34.1 40.0 42.1 72.3 63.3 49.8 50.3 43.8 Oudomxay 35.9 50.1 37.7 43.7 40.3 47.0 43.5 52.6 43.6 45.9 40.4 42.3 47.2 25.4 46.6 47.4 Phiongsaly 20.8 27.8 26.2 23.3 29.0 24.8 27.0 24.3 9.8 22.1 23.8 24.9 31.4 24.7 20.4 18.7 Saravane 38.7 47.6 53.1 49.5 56.0 36.2 36.0 37.7 34.5 43.7 40.2 41.3 38.6 42.3 36.1 38.6 Savannakhet 71.0 72.7 89.4 117.5 113.4 8 1.0 94.0 90.6 92.4 89.0 90.2 87.1 71.5 93.4 92.3 90.7 Sekong .. . . . . 7.2 7.6 7.6 7.7 6.4 7.3 7.5 4.7 6.0 7.6 7.2 Vientiane 79.2 60.8 93.5 93.1 113.4 58.8 58.7 58.0 41.8 41.3 58.2 58.3 49.2 54.6 52.8 47.0 Vientiane M. . . . ..42.5 37.5 38.2 33.9 36.7 39.7 48.6 46.5 50.4 36.5 36.3 Xayabury 26.1 31.0 26.4 34.1 55.1 39.3 33.8 27.9 25.4 22.9 27.4 26.1 19.0 24.6 29.1 25.4 Xiengkhuang 16.9 18.7 22.9 24.4 27.1 24.9 28.1 30.8 17.3 19.5 20.2 22.7 23.3 22.1 25.4 22.5 Total 522 561 579 689 724 655 655 642 556 554 596 668 570 608 618 584 % Change .. 7.5 3.2 19.0 5.1 -9.6 ' 0.0 -2.0 -13.3 -0.5 7.6 12.1 -14.6 6.6 -5.5 Source: State Statistical Center, Ministry or Economy Planning and Finance, Vientiane Nowc: Data unavailable for 198 1-83. 1992 iotwl includes 7,700 ha for Special Region -4 hcs .J h... - . - I-AO PDR PER CAP'I'T'A PRODUCTIION 01 RICE BY PROVINCE, 1976-92 (kg per capita) I'rovince 1976 1980 1985 1986 1987 1988 1989 1990 1991 1992 Avcrage Average %Change 1985-87 1990-92 5-7 to 90-2 Northern: Bokeo N.A. N.A. 318 340 300 327 252 351 329 176 319 285 -10.7 Huaplhanh 234 271 281 243 318 290 273 375 246 218 281 280 -0.3 Luangnamtha 159 360 295 303 250 262 322 278 169 133 283 193 -31.6 Luangprabang 193 261 280 285 175 203 216 331 274 231 246 *279 13.1 Oudomxay 292 270 322 433 377 301 303 306 359 238 377 301 -20.2 Phongsaly 203 237 308 305 120 247 263 282 310 270 244 287 17.5 Xayabury 207 369 249 246 166 272 366 268 212 264 220 248 12.4 Xiengklutianig 136 253 390 378 216 270 262 299 330 286 328 305 -7.0 Central: BorikNAan3ixay N.A. N.A. 366 319 357 394 373 445 260 449 347 384 10.8 Khammuane 124 245 494 485 360 145 407 481 209 446 446 379 -15.2 Vientiane M. N.A. N.A. 278 293 228 301 319 345 260 321 266 309 15.9 Vientiane 196 320 455 467 321 355 459 426 291 415 414 378 -8.9 Ssotllilern: Attapeu 170 343 411 411 348 238 361 362 276 390 390 343 -12.2 CIhamnpasack 474 428 601 602 483 239 368 406 344 472 562 407 -27.6 Saravane 199 449 473 503 446 363 499 438 483 502 474 474 0.0 Savannakhet 231 362 428 415 400 156 399 369 265 396 414 343 -17.1 Sekong N.A. N.A. 200 213 190 78 155 187 115 175 201 159 -20.9 TOTAL 229 329 386 390 318 255 346 364 288 345 364 332 -8.8 % Change from previous year 1.04 -18.51 -19.80 36.04 5.17 -20.99 19.71 Sourcc: Calculations based on data froni Statc Statistical Ccnter, Ministry or Economy Planning and Finance, Lao PDR. LAO PDR RICE DEFICIT/SUPLUS BY PROVINCE, 1976-92 (assuming consumption equals 300 kg paddy per person) ('000 metric tons of paddy) Province 1976 1980 1985 1986 1987 1988 1989 1990 1991 1992 Avg.'88-92 CV Attapeu -7.3 2.7 7.8 8.0 3.5 -4.7 4.8 4.9 -1.9 7.4 2.1 1.1 Bokeo .. .. 1.0 2.3 0.0 1.6 -3.0 3.3 1.9 -12.9 -1.8 -7.3 Borikhainxay .. .. 8.1 2.4 7.5 12.7 10.3 20.7 -5.9 22.5 12.0 0.9 Champasack 56.4 46.1 122.7 126.7 78.6 -27.1 31.1 48.0 20.2 82.2 30.9 0.9 Huaphanli -11.2 -5.5 -4.0 -12.4 4.0 -2.4 -6.4 16.5 -12.2 -18.9 -4.7 -2.5 Khammuane -47.6 -16.3 41.7 40.9 13.8 -36.4 26.0 44.4 -23.0 37.6 9.7 1.7 Luangnamtha -17.2 8.2 -0.5 0.3 -5.2 -4.0 2.4 -2.6 -16.0 -20.9 -8.2 -1.4 Luangprabang -25.4 -10.2 -6.1 -4.8 -39.3 -31.4 -27.6 10.3 -9.1 -24.3 -16.4 -1.0 °u Oudomxay -1.3 -5.0 4.2 25.8 15.4 0.4 0.8 1.8 17.1 -16.2 0.8 2.1 Plhongsaly -9.6 -6.9 1.0 0.6 -23.5 -7.2 -5.0 -2.6 1.5 -4.5 -3.6 -1.6 Saravane -19.4 31.6 32.7 39.5 28.8 12.8 41.0 31.0 42.3 47.8 35.0 0.3 Savannakihet -30.3 30.0 70.4 64.8 58.4 -86.9 61.3 44.2 -22.8 64.4 12.0 1.8 Sekong .. .. -5.1 -4.5 -6.0 -12.4 -8.3 -6.5 -10.9 -7.4 -9.1 -0.4 Vientiane -53.8 11.6 41.4 46.0 5.9 16.1 47.9 38.5 -2.7 37.0 27.4 0.7 Vientiane M. .. .. -8.2 -2.8 -29.0 0.4 8.2 20.7 -18.9 10.4 4.2 -11.8 Xayabury -16.8 13.9 -11.4 -12.6 -31.8 -4.9 11.8 -6.0 -16.7 -7.1 -4.6 -1.2 Xiengkhuang -21.4 -6.8 14.7 13.1 -14.6 -5.4 -6.9 -0.2 5.5 -2.7 -2.0 23.9 Total -204.9 93.4 309.8 333.7 67.1 -178.6 188.2 266.4 -51.6 194.4 83.7 1.1 Sourcc: World Bank mission cstimatcs based on State Statistical Centcr dala. 0r LAO PDR PRODUCTION OF CORN BY PROVINCE, 1988-92 AllapCu Bokeo orilk- Clham- Ilua- Kham- Luang- Luang- Oudomn- I'hong- Sara- Savan- Sekong Spec. Vicnt. Vient. Xaya- Xieng- Total hamxay pasack phanh muane naimtha prabang xay saly vinc nakihet Reg. Prov. Munic. bury khuang Area Q'000 ha) 1988 0.75 0.39 1.20 0.73 5.43 0.80 0.84 11.08 3.43 1.38 0.64 1.29 1.18 - 2.67 1.01 0.96 4.04 37.8 1989 0.46 0.41 1.50 0.02 2.94 0.87 0.60 8.07 3.89 1.38 0.67 0.80 0.83 - 1.70 1.57 0.74 3.92 30.4 1990 0.50 0.45 1.75 0.85 8.13 0.90 1.00 10.96 6.40 1.65 0.70 3.44 0.90 - 2.80 1.90 1.79 3.94 48.1 1991 0.50 0.46 1.76 0.19 7.64 0.91 1.01 4.52 5.15 1.67 0.70 0.27 0.97 - 2.81 0.48 1.16 3.98 34.2 1992 0.51 0.50 1.03 0.19 3.81 0.80 1.02 6.29 4.07 1.68 0.71 1.04 1.38 0.56 2.81 1.00 0.93 3.82 32.1 Yield (lonALa) 1988 0.80 3.20 1.90 1.16 0.88 2.10 1.75 1.20 1.39 1.64 1.74 1.96 1.00 - 1.49 1.60 1.66 1.38 1.32 1989 1.20 3.20 1.57 1.00 1.73 2.22 1.75 0.80 1.39 1.64 1.99 1.52 1.21 - 2.50 1.80 1.65 1.43 1.89 1990 1.18 3.20 1.58 1.90 0.88 2.25 2.50 1.20 2.60 2.55 2.60 1.70 1.20 - 2.30 2.00 2.63 1.56 2.08 1991 1.24 3.20 1.58 1.30 0.88 2.25 2.50 2.39 3.50 2.55 2.60 1.90 1.20 - 2.30 1.95 1.71 1.56 2.55 1992 1.30 4.50 2.00 1.31 0.88 2.07 2.50 1.29 2.50 2.55 2.60 2.00 1.20 2.00 2.30 2.00 2.45 1.56 2.40 Production (Coo tons) 1988 0.60 1.25 2.28 0.85 4.78 1.68 1.47 13.30 4.77 2.26 1.12 2.52 1.18 - 3.98 1.62 1.60 5.58 39.65 1989 0.55 1.33 2.35 0.02 5.08 1.93 1.05 6.46 5.41 2.26 1.33 1.22 1.01 - 4.25 2.83 1.21 5.59 43.85 1990 0.59 1.44 2.77 1.60 7.13 2.03 2.50 13.15 16.64 4.21 1.82 5.84 1.08 - 6.43 3.80 4.73 6.14 81.89 1991 0.62 1.45 2.78 0.25 6.72 2.04 2.53 10.81 18.03 4.25 1.83 0.52 1.17 - 6.47 0.94 1.99 6.20 68.58 1992 0.66 2.24 2.06 0.25 3.35 1.65 2.55 8.10 10.18 4.29 1.84 2.07 1.66 1.11 6.46 2.00 2.27 5.96 58.70 Source: State Statistical Center, Ministry of Economy Planning and Financc, Vicntianc -I a- LAO PDR PRODUCTION OF ROOT CROPS BY PROVINCE, 1988-92 Attapcu Bokco 13orik- Chain- I lua- Khaim- L.uang- Ltiang- Oudoin- I'hong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xicng- 1otal harnxay pasack phai intianie naitliha prabanig xay saly vane nak-het Reg. Prov. Munic. bury khuang Area ('000 ha) 1988 0.38 0.12 0.70 0.74 8.58 1.14 0.27 0.10 1.66 0.83 1.47 1.30 1.23 - 0.40 0.17 0.15 8.54 27.77 1989 0.33 0.21 0.80 0.09 7.32 1.23 0.30 0.63 1.67 0.97 1.72 0.47 2.10 - 0.40 0.67 0.07 8.54 27.50 1990 0.38 0.24 0.92 0.23 2.55 1.30 0.37 0.50 1.75 1.10 1.96 1.08 2.10 - 1.62 0.98 0.01 2.69 19.76 1991 0.62 0.14 0.94 0.23 0.26 1.32 0.07 0.79 3.00 1.12 1.99 0.17 1.53 - 1.64 0.05 0.02 2.74 16.62 1992 0.37 0.18 0.30 0.23 0.27 0.54 0.07 1.64 0.48 1.14 2.02 0.41 2.00 0.23 1.68 0.05 0.07 2.79 14.45 Yield (ton/ha) 1988 8.74 7.50 5.48 7.95 7.00 8.20 8.35 7.52 8.00 8.72 7.71 9.45 7.29 - 6.33 6.20 4.76 5.10 6.74 1989 6.65 8.64 5.50 13.67 3.63 8.19 7.00 8.00 8.00 8.79 7.76 8.06 7.29 - 8.00 7.66 5.12 5.10 5.81 1990 6.30 8.67 6.11 4.04 6.99 8.20 8.45 8.00 8.00 8.84 7.81 15.59 7.29 - 7.31 10.91 3.20 8.35 8.23 1991 2.11 8.50 6.24 2.08 7.00 8.38 8.64 6.37 8.00 9.05 8.00 7.01 10.80 - 7.51 25.00 2.88 8.53 7.95 1992 2.00 8.40 5.00 2.08 7.14 2.77 8.87 6.09 6.00 9.27 8.20 5.00 7.28 5.99 7.63 25.06 3.31 8.72 7.25 Production ('000 tons) 1988 3.32 0.90 3.84 5.84 60.07 9.38 2.26 0.77 13.29 7.20 11.3 12.29 8.95 - 2.53 1.04 0.70 43.6 187.2 1989 2.18 1.82 4.40 1.23 26.56 10.05 2.10 5.03 13.34 8.48 13.4 3.76 15.29 - 3.20 5.13 0.37 43.6 159.9 1990 2.37 2.08 5.62 0.93 17.83 10.66 3.09 4.00 14.00 9.72 15.3 16.84 15.29 - 11.85 10.69 0.02 22.5 162.7 1991 1.31 1.21 5.85 0.47 1.82 11.09 0.58 5.00 24.00 10.13 15.9 1.20 16.55 - 12.32 1.25 0.05 23.4 132.1 1992 0.74 1.52 1.50 0.47 1.89 1.50 0.60 10.00 2.86 10.55 16.5 2.07 14.56 1.36 12.82 1.30 0.22 24.3 104.8 Source: State Statistical Ccntcr, Ministry of Econoiny lPlamning and Finance, Vicitiatie C- L.J LAO PDR PRODUCTION OF LEGUMINOUS FIELD CROPS BY PROVINCE, 1989-1992 Attapeu Bokeo Borik- Chamn- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane namtha prabang xay saly vane nakhet Reg. Prov. Munic. bury khuang SOYBEAN: Area (ha) 1989 720 100 50 250 400 - 200 827 300 1,430 860 9 470 - 150 70 26 166 6,028 1990 16 100 40 230 460 575 200 469 280 1,215 826 15 540 - 100 100 278 166 5,610 1991 30 101 40 308 465 581 202 500 478 1,227 1,350 45 4 - 101 280 215 168 6,095 1992 314 154 42 345 470 587 204 949 155 1,239 723 2 5 22 347 250 139 170 6,117 Yield (tons/ha) 1989 0.83 0.50 0.50 0.60 0.86 - 0.60 0.80 1.10 0.88 0.79 1.22 0.86 - 0.80 0.66 1.08 0.70 0.82 1990 0.81 0.50 0.50 0.80 0.87 0.70 0.60 0.80 0.80 0.87 0.80 1.33 0.87 - 0.80 0.68 0.94 0.80 0.81 1991 0.53 0.50 0.50 1.00 0.87 0.70 0.60 0.80 1.00 0.87 1.19 0.71 0.50 - 0.80 1.00 0.49 0.80 0.90 1992 1.01 0.97 0.60 0.91 0.88 0.71 0.61 0.90 0.80 0.88 0.72 1.00 1.00 0.82 0.80 1.00 0.70 0.80 0.84 Production (ton) 1989 600 50 25 150 345 - 120 661 330 1,260 683 11 405 - 120 46 28 116 4,950 1990 13 50 20 184 400 400 120 375 224 1,060 660 20 470 - 80 68 260 132 4,536 00 1991 16 51 20 309 404 407 121 400 478 1,068 1,600 32 2 - 81 280 106 134 5,509 1992 317 150 25 313 415 415 125 858 124 1,085 524 2 5 18 278 250 97 136 5,137 MUNGBEAN: Area (ha) 1989 46 50 300 828 250 125 - 247 940 600 180 347 8 - 200 655 15 130 4,921 1990 71 55 350 985 105 150 130 300 810 520 100 350 8 - 290 250 18 80 4,572 1991 74 56 357 355 150 153 133 150 46 530 103 11 8 - 296 500 215 82 3,219 1992 80 81 365 379 200 206 136 127 344 540 110 15 5 . - 343 800 25 84 3,840 Yield (tons/ha) 1989 0.91 0.50 0.50 0.62 0.66 0.65 - 0.60 0.66 0.55 0.72 1.29 0.75 - 0.80 0.27 0.87 0.77 0.63 1990 - 0.49 0.50 0.78 0.60 0.67 0.58 0.60 - 0.54 0.70 0.90 0.75 - 0.86 0.90 0.89 0.75 0.57 1991 0.80 0.55 0.50 0.53 0.60 0.68 0.57 0.60 0.89 0.55 0.71 0.82 0.63 - 0.86 0.90 0.49 0.76 0.65 1992 0.81 0.88 0.51 0.55 0.61 0.85 0.57 0.64 0.70 0.55 0.73 0.80 0.80 - 0.87 0.92 0.88 0.77 0.71 Source: State Statistical Center, Ministry of Economy Planning and Finance, Vientiane LAO PDR PRODUCTION OF LEGUMINOUS FIELD CROPS BY PROVINCE, 1989-1992 Attapeu Bokeo Borik- Chamn- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Spec. Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane namtha prabang xay saly vane nakhet Reg. Prov. Munic. bury khuang MUNGBEAN (cont.) Production (tons) 1989 42 25 150 513 165 81 - 148 625 330 130 449 6 - 160 177 13 100 3,114 1990 - 27 175 767 63 101 75 180 - 280 70 315 6 - 249 225 16 60 2,609 1991 59 31 180 188 90 104 76 90 41 289 73 9 5 - 254 450 106 62 2,107 1992 65 71 185 207 121 175 78 81 241 298 80 12 4 - 298 736 22 65 2,739 PEANUT: Area (ha) 1989 11 47 500 426 273 135 150 552 350 850 482 445 9 - 195 165 1,246 260 6,096 1990 13 47 350 606 367 170 150 125 2,700 900 851 500 9 - 370 243 809 260 8,470 1991 20 48 355 316 373 173 152 400 384 914 500 80 9 - 376 8 1,180 264 5,552 1992 25 51 25 317 380 143 160 1,692 275 930 402 328 38 32 620 350 1,647 270 7,685 Yield (tons/ha) 1989 0.82 0.30 0.50 0.82 0.86 0.87 0.60 1.80 1.04 0.86 0.70 1.07 0.89 - 0.85 0.78 1.18 0.71 0.97 1990 0.77 0.30 0.66 0.92 0.60 0.89 0.60 0.80 0.90 0.89 0.96 1.10 0.89 - 1.19 0.89 1.49 0.71 0.95 1991 0.80 0.29 0.66 0.59 0.61 0.90 0.61 0.80 1.00 0.90 0.80 0.91 0.89 - 1.20 1.50 1.73 0.72 1.01 1992 0.88 1.78 0.68 0.68 0.62 0.90 0.63 0.60 0.80 0.91 0.89 0.90 0.71 0.59 1.21 1.10 1.11 0.74 0.88 Production (tons) 1989 9 14 250 350 235 117 90 993 365 730 337 478 8 - 165 129 1,466 185 5,921 1990 10 14 230 559 220 151 90 100 2,430 800 821 550 8 - 441 217 1,208 185 8,034 1991 16 14 236 185 226 155 93 320 384 822 400 73 8 - 453 12 2,039 190 5,626 1992 22 91 17 217 235 129 100 1,021 220 845 356 295 27 19 750 385 1,830 200 6,759 Source: State Statistical Center, Ministry of Economy Planning and Finance, Vientiane o LAO PDR PRODUCTION OF COFFEE, TEA ,AND TOBACCO BY PROVINCE, 1988-1992 Attapeu Bokeo Borik- Cham- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane namtha prabang xay saly vane nakhet Prov. Munic. bury khuang COFFEE: Area (ha) 1988 6 - - 12,490 19 15 - 110 18 52 2,154 - 668 - - 3 8 15,543 1989 6 - - 12,093 19 20 - 40 18 52 2,726 - 832 - - 11 10 15.827 1990 13 - - 12,349 23 25 - 313 30 62 3,366 - 1,080 - - 6 10 17,277 1991 13 - - 17,396 29 25 - 114 30 81 3,988 - 1.148 - - 6 10 22,840 1992 8 - - 12,486 29 19 - 595 48 91 3,248 - 1,200 - - 6 16 17,746 Yield (tons/ha) 1988 0.67 - - 0.54 0.53 0.47 - 0.50 0.61 0.58 0.35 - 0.40 - - 0.60 0.30 0.50 1989 0.67 - - 0.33 0.53 0.45 - 0.55 0.61 0158 0.29 - 0.58 - - 0.55 0.30 0.34 1990 0.69 - - 0.30 0.65 0.48 - 0.55 0.63 0.58 0.28 - 0.40 - - 0.50 0.30 0.31 1991 0.69 - - 0.33 0.59 0.56 - 0.50 0.63 0.59 0.36 - 0.60 - - 0.50 0.30 0.35 1992 0.25 - - 0.36 0.62 0.58 - 0.61 0.65 0.54 0.25 - 0.60 - - 2.00 0.31 0.37 Production (tons) 1988 4.0 - - 6,687 10 7 - 55 11 30 754 - 267 - - 2 2 7,829 1989 4.0 - - 4,035 10 9 - 22 11 30 800 - 483 - - 6 3 5,413 ° 1990 9.0 - - 3,686 15 12 - 172 19 36 935 - 432 - - 3 3 5,322 1991 9.0 - - 5,740 17 14 - 57 19 48 1,418 - 689 - - 3 3 8,017 1992 2.0 - - 4,550 18 11 - 363 31 49 821 - 720 - - 12 5 6,582 TEA: Area (ha) 1988 - - 8 195 65 - 6 - 4 10 10 - - 20 - - - 318 1989 - - 10 250 65 - 9 - 6 15 15 - - 40 - - 15 425 1990 - - 10 200 65 12 - 6 15 15 - - 40 - - 20 383 1991 - - 11 205 68 - 13 - 8 16 16 - - 45 - - 22 404 1992 - - 15 358 70 - 15 - 16 25 25 - - 60 - - 25 609 Yield (tons/ha) 1988 - - 3.63 4.70 3.71 - 3.67 - 3.75 3.70 3.70 - - 3.70 - - 4.31 1989 - - 3.70 0.24 3.80 - 3.85 - 3.83 4.00 3.80 - - 4.10 - - 3.80 1.74 1990 - - 3.60 4.70 3.71 - 3.58 - 3.67 3.73 3.73 - - 3.70 - - 3.70 4.22 1991 - - 3.64 4.72 3.72 - 3.62 - 3.75 3.69 3.69 - - 3.71 - - 3.73 4.22 1992 - - 3.67 0.24 3.74 - 3.67 - 3.75 3.72 3.72 - - 3.73 - - 3.72 1.68 80cr - C LAO PDR PRODUCTION OF COFFEE, TEA ,AND TOBACCO BY PROVINCE, 1988-1992 Attapeu Bokeo Borik- Chamn- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Vient. Vient. Xaya- Xieng- Total hamxay pasack phanh muane naintha prabang xay saly vane nakhdt Prov. Munic. bury khuang TEA (cont.) Production (tons) 1988 - - 29 917 241 - 22 - 15 37 37 - - 74 - - -1,372 1989 - - 37 60 247 - 35 - 23 60 57 - - 164 - - 57 740 1990 - . 36 940 241 - 43 - 22 56 56 - - 146 - - 74 1,614 1991 - - 40 968 253 - 47 - 30 27 59 - - 167 - - 82 1,673 1992 - - 55 86 262 - 55 - 60 93 93 - - 224 - - 93 1,021 TOBACCO: Area (ha) 1988 180 155 285 130 720 620 1,380 81 400 235 495 680 160 243 831 62 470 7,127 1989 220 102 400 150 875 711 1,675 304 400 285 600 644 195 410 917 97 103 8,088 1990 260 110 300 1,900 1,000 850 1,879 166 455 330 700 650 230 1,500 1,000 25 670 12,025 1991 29 111 303 633 1,010 859 1,898 300 450 333 707 326 232 1,515 782 48 677 10,213 1992 26 320 238 633 1,020 800 1,900 632 225 340 720 407 8 1,345 1,100 70 690 10,474 Yield (tons/ha) 1988 4.69 4.50 4.30 0.30 4.60 4.65 4.65 2.99 0.50 4.64 4.80 4.49 4.75 0.60 5.06 2.35 4.70 4.19 1989 4.75 4.80 5.00 0.30 '4.70 4.58 4.70 2.50 0.50 4.75 4.85 4.00 4.79 0.60 5.56 1.79 4.00 4.14 1990 4.90 4.80 4.70 4.90 4.80 4.59 4.78 0.50 4.90 4.85 4.90 4.50 4.91 5.20 5.60 4.76 4.90 4.86 1991 0.72 4.92 4.75 0.39 4.85 4.63 4.82 0.50 6.00 4.90 4.95 0.50 4.97 5.25 5.50 3.10 4.95 4.44 1992 6.00 6.00 1.55 0.39 4.90 4.00 4.95 3.10 5.15 4.91 5.00 5.00 4.50 5.30 6.00 4.86 5.00 4.61 Production (tons) 1988 845 698 1,225 39 3,310 2,883 6,420 242 200 1,090 2,375 3,053 760 156 4,205 146 2,210 29,857 1989 1,045 490 2,000 45 4,115 3,256 7,875 759 200 1,355 2,910 2,576 935 246 5,099 174 412 33,492 1990 1,275 528 1,410 9,310 4,800 3,901 8,975 83 2,230 1,600 3,430 2,925 1,130 7,800 5,600 119 3,285 58,401 1992 156 1,920 369 244 4,995 3,200' 9,400 1,961 1,159 1,670 3,600 2,034 36 7,129 6,600 340 3,450 48,263 Source: State Statistical Center, Ministry of Economy Planning and Finance, Vientiane. Note: No production reported for Special Zone. NCD o - ~. n. LAO PDR PRODUCTION OF COTTON, SUGAR CANE, AND VEGETABLES BY PROVINCE, 1989-92 Attapeu Bokeo Borikh- Chamn- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Vient. Vient. Xaya- Xieng- Total amxay pasack phanh muane namtha prabang xay saly vane nakhet Prov. Munic. bury khuang COTlrON: Area (ha) 1989 260 75 90 55 1,120 - 550 1,008 450 500 154 715 3 190 160 1,725 132 7,187 1990 310 744 100 65 1,150 50 570 75 450 540 222 750 5 290 180 1,287 138 6,926 1991 8 800 103 119 1,185 52 587 750 1,000 556 300 316 12 299 10 1,788 142 8,027 1992 329 850 106 199 1,220 54 605 800 500 573 400 326 7 320 218 1,170 146 7,823 Yield (ton/ha) 1989 0.75 0.29 0.50 0.35 0.74 - 0.70 0.50 0.50 0.70 0.40 1.10 0.67 0.55 0.69 0.44 0.27 0.62 1990 0.70 0.60 0.50 0.34 0.73 0.56 0.69 0.31 0.50 0.69 0.50 0.64 0.60 0.55 0.40 1.17 0.27 0.72 1991 0.25 0.60 0.50 0.88 0.74 0.56 0.70 0.60 1.00 0.70 0.40 0.60 0.70 0.56 0.40 0.24 0.27 0.59 1992 0.71 0.60 0.51 0.35 0.75 0.56 0.70 0.30 0.50 0.70 0.62 0.65 0.71 0.56 0.40 1.20 0.27 0.68 Prod. (ton) 1989 195 22 45 19 830 - 385 504 225 350 62 789 2 105 110 766 35 4,444 1990 217 446 50 22 840 28 393 23 225 373 111 480 3 160 72 1,510 37 4,990 1991 2 480 52 105 873 ,.29 409 450 1,000 388 120 189 8 166 4 435 39 4,749 1992 235 510 54 70 909 30 426 240 250 403 248 212 5 179 88 1,404 40 5,303 SUGAR CANE: Area (ha) 1989 14 112 250 64 300 279 100 160 420 40 25 346 27 500 1,031 93 65 3,826 1990 60 112 100 300 350 300 100 69 300 50 60 150 50 650 1,081 220 70 4,022 1991 18 113 101 40 354 303 101 95 455 51 61 32 51 657 220 112 71 2,835 1992 17 130 12 59 360 310 110 30 215 55 65 53 142 219 1,181 250 80 3,288 Yield (ton/ha) 1989 4.1 4.7 15.0 12.3 20.5 34.1 20.0 25.0 25.0 24.8 26.5 37.2 28.0 40.0 31.6 21.1 15.0 32.9 1990 26.0 15.0 18.6 19.0 21.0 32.5 26.2 25.0 25.0 24.5 27.0 20.0 24.0 36.0 33.0 23.7 15.0 27.8 1991 23.9 15.2 18.8 8.6 21.2 32.8 26.5 25.0 28.0 24.5 27.1 24.0 24.0 36.3 35.0 29.7 15.1 28.4 1992 26.0 7.5 2.9 11.3 21.3 32.9 27.0 25.6 26.0 24.8 27.8 24.0 28.0 37.0 33.7 30.0 15.5 28.7 o v LAO PDR PRODUCTION OF COTTON, SUGAR CANE, AND VEGETABLES BY PROVINCE, 1989-92 Attapeu Bokeo Borikh- Cham- Hua- Kham- Luang- Luang- Oudom- Phong- Sara- Savan- Sekong Vient. Vient. Xaya- Xieng- Total anuxay pasack phanh muane namtha prabang xay saly vane nakhet Prov. Munic. bury khuang SUGAR CANE (cont.) Prod. (ton) 1989 58 524 3,750 790 6,150 9,504 2,000 3,999 10,500 990 662 12,884 756 20,000 32,544 1,961 975 108,047 1990 1,560 1,680 1,860 5,700 7,350 9,750 2,620 1,725 7,500 1,225 1,620 3,000 1,200 23,400 35,673 5,000 1,050 111,913 1991 430 1,714 1,897 344 7,498 9,946 2,673 2,375 12,750 1,250 1,653 768 1,224 23,870 7,700 3,328 1,071 80,491 1992 442 975 50 665 7,680 10,210 2,970 767 5,590 1,362 1,809 1,271 3,976 8,103 39,800 7,510 1,236 94,416 VEGETABLES: Area (ha) 1989 - 145 230 - 290 210 80 365 320 310 760 1,400 160 600 981 121 520 6,492 1990 280 200 240 1,000 260 400 80 309 230 280 670 670 150 600 995 995 580 7,939 1991 190 202 242 1,010 263 404 81 250 232 283 677 176 152 606 453 1,030 556 6,807 1992 136 152 48 - - - - 693 592 - - - - - - 48 - 1,669 Z Yield (ton/ha) 1989 - 9.0 7.8 - 9.0 9.0 9.0 5.0 6.9 9.0 9.0 9.0 8.9 8.5 8.2 3.0 9.3 10.1 1990 7.6 7.7 8.0 8.7 8.6 8.6 8.6 5.2 8.5 8.6 8.6 8.4 8.6 8.4 8.2 3.2 8.6 7.6 1991 5.5 7.8 8.1 8.8 8.7 8.7 8.7 4.0 8.6 8.7 8.7 8.3 8.7 8.5 8.0 3.2 9.2 7.5 1992 4.6 11.0 5.0 - - - - 4.3 6.0 - - - - - - 5.0 - 5.6 Prod. (ton) 1989 2,495 1,305 1,795 8,900 2,610 1,890 720 1,825 2,220 2,790 6,840 12,600 1,425 5,070 8,022 360 4,840 65,707 1990 2,125 1,540 1,920 8,700 2,236 3,440 688 1,600 1,955 2,408 5,762 5,628 1,290 5,040 8,159 3,185 5,005 60,681 1991 1,045 1,571 1,959 8,875 2,281 3,509 702 1,000 1,994 2,456 5,878 1,465 1,316 5,141 3,640 3,287 5,106 51,225 1992 630 1,667 240 - - - - 2,977 3,552 - - - - - - 240 - 9,306 Source: State Statistical Center, Ministry of Economy Planning and Finance, Vientiane at o 0% LAO PDR LIVESTOCK DISTRIBUTION BY TYPE AND PROVINCE, 1992 I'rovince Ftluilait Pop. Cattle Buffalo lPigs Slioats I/ Poultry Cattle Buffalo Pigs Shoats I/ Poultry ( 000) ( 000) ( 000) ( 000) ( 000) ('000) per capita per capita per capita per capita per capita Attapeu 81 5 43 34 0.6 214 0.06 0.52 0.42 0.01 2.64 Bokeo 2/ 104 24 26 87 2.4 259 0.23 0.25 0.84 0.02 2.49 Borikhamxay 190 29 47 49 1.7 210 0.15 0:25 0.26 0.01 1.11 Champasack 478 132 130 131 0.3 1,316 0.28 0.27 0.27 0.00 2.75 Huaphanh 226 26 52 140 14.0 709 0.11 0.23 0.62 0.06 3.14 Khammuane 271 42 86 115 0.5 375 0.15 0.32 0.42 0.00 1.38 Luangnamtha 124 18 18 65 4.6 163 0.14 0.14 0.53 0.04 1.32 Luangprabang 344 28 58 150 17.0 816 0.08 0.17 0.44 0.05 2.37 Oudomxay2/ 188 35 58 146 20.0 451 0.18 0.31 0.77 0.11 2.40 Ph6ngsaly 154 2 29 57 0.7 231 0.01 0.19 0.37 0.00 1.50 Saravane 250 93 71 103 2.9 396 0.37 0.28 0.41 0.01 1.58 Savannakhet 652 267 223 132 11.1 653 0.41 0.34 0.20 0.02 1.00 Sekong 61 14 22 35 3.0 138 0.22 0.36 0.56 0.05 2.25 Special Region 73 14 14 13 40.0 146 0.18 0.19 0.18 0.55 2.00 Vientiane 318 99 98 122 7.3 693 0.31 0.31 0.39 0.02 2.18 Vientiane M. 523 59 58 23 2.1 1,107 0.11 0.11 0.04 0.00 2.12 Xayabury 211 35 56 74 3.1 626 0.17 0.26 0.35 0.01 2.96 Xiengkhuang 220 58 44 78 11.5 403 0.26 0.20 0.35 0.05 1.83 TOTAL 4,470 978 1,130 1,555 142.8 8,904 0.22 0.25 0.35 0.03 1.99 Sources: Population is from the LECS except Oudomixay, Bokco and Special Region (sce note 2). Livestock data rrom State Slatistical Center I/ Sheep and goals. 2/ Beginning in 1992, Pha oudom and Paktha districts of Oudomxay province became part or Bokeo. while Xienghone and Hongsa districts became Special Region. wH Table 5.2 LAO PDR LIVESTOCK PRODUCTION STATISTICS A. LIVESTOCK NUMBERS ('000 head) Year Buffaloes Cattle Pigs Goats & Poultry Sheep 1976 641 326 764 31 4,076 1977 677 351 819 34 4,259 1978 722 389 697 32 4,507 1979 757 399 830 35 4,633 1980 853 447 1,111 49 4,621 1981 880 455 1,176 54 5,538 1982 898 473 1,223 56 5,760 1983 897 486 1,300 60 6,704 1984 937 547 1,360 63 7,203 1985 939 627 1,190 82 6,471 1986 980 646 1,280 74 6,360 1987 1,028 703 1,420 82 7,962 1988 1,041 764 1,268 89 6,869 1989 1,026 817 1,350 105 8,250 1990 1,072 842 1,372 139 7,884 1991 1,100 899 1,469 117 8,029 1992 1,130 978 1,555 143 8,904 Source: Miinistry of Agriculture and Forcstty, and Statc Statistical Ccntrc, Lao PDR B. PHYSICAL OUTPUT OF LIVESTOCK (tons) Type 1987 1988 1989 1990 1991 1992 Buffalo 32,215 32,626 32,169 33,599 37,794 42,513 Cattle 20,018 21,770 21,351 23,986 29,021 32,500 Pigs 58,485 52,236 55,967 59,726 68,645 73,000 Poultry 8,785 9,516 11,219 11,069 11,762 12,499 Goats & Sheep 940 833 1,000 956 984 1,013 Source? Lao PDR statistical ycarbook - 176 - Table 5.3 LAO PDR LIVESTOCK CONSUMPTION AND GROWTH STATISTICS A. ESTIMATED LIVESTOCK OFFTAKE FOR DOMESTIC CONSUMPTION Species Annual Total Annual Estimated Consumable Estimated Consumption Consumption Liveweight Yield Local Consumption at Offtake (kg/person) (tons) (kg/head) (%) (no.) (%) b/ Pig 5 20,700 30 70 985,700 63 Poultry 3 12,420 1.3 70 13.65 mil. 153 Buffalo 1.8 7,450 340 60 a/ 36,500 3.2 Cattle 1.2 4,970 260 55 a! 34,750 3.6 a/ High yield due to human consumption of most offal and, in the case of buffalo, the hide. b/ Percentage of total national species population. B. LIVESTOCK OFFTAKE, DOMESTIC CONSUMPTION, AND EXPORT AVAILABILITY Species Annual Population Annual Domestic Estimated Yield Growth Offtake Consumptio Export Availability (%) (%) (%) (%) (No.) (% of herd) Pin 85 3 82 63 295,000 a/ 19 Poultry 165 6 159 153 53,400 b/ 6 Buffalo 10 3 7 3.2 42,950 c/ 3.8 Cattle 12.1 6 6.1 3.6 24,500 d 2.5 Source: World Bank (missioni estimates). a/ T his is not consistent with DLVS cstimates of 48,150 head, but fits with the known strong demand from Thailand a flow of suckling pigs from Vietnam. b/ No DLVS cstimate availabic.-4Howcver, Thai demand for indigcnous fowl is known to be strong. c/ Roughly comparablc to DLVS cstimatcs. d/ Lower than DLVS estimates duc to lower mission cstimate of annual yield. C. GROWTH IN LIVESTOCK PRODUCTION IN SELECTED ASIAN COUNTRIES (1981 = 100) Country 1983 1985 1987 1989 1991 Avg. Annual Increment (%) Laos 113 126 137 145 155 5.4 Myanmar 110 117 116 93 92 -0.7 Thailand - 100 107 114 133 143 4.3 Vietnam 121 125 138 163 187 8.6 Asia 110 127 138 154 170 6.9 Table 5.4 LAO PDR LIVESTOCK STOCKING RATES BY PROVINCE, 1992 Province Area Tropical Livestock Livestock Area TLU per TLU per Units (TLU) 1/ 2/ Distribution per TLU Capita Household (km2) ('000) (%) (hectares) Attapeu 10,320 29 2.4 35 0.35 2.3 Bokeo - - 6,196 34 2.8 18 0.33 3.4 Borikhamxay 16,470 44 3.6 37 0.29 2.2 Champasack 15,415 144 11.7 11 0.30 2.1 Huaplianh 16,500 55 4.5 30 0.24 1.7 Khammuane 16,315 78 6.3 21 0.30 1.9 Luangnamtha 9,325 24 2.0 38 0.19 I.4 Luangprabang 16,875 61 4.9 28 0.17 1.2 Oudomxay 15,370 63 5.1 24 0.33 1.9 Phongsaly 16 770 23 1.9 71 0.15 1.1 Saravane 10,691 91 7.5 12 0.39 2.9 Savannakhet 21,774 256 20.9 9 0.38 3.0 Sekong 7,665 22 1.8 35 0.37 2.7 Special Region 4,594 17 1.4 27 0.23 Vientiane 19,990 III 9.1 18 0.35 2.4 Vientiane M. 3,920 61 5.0 6 0.12 1.0 Xayabury 11,795 54 4.4 22 0.28 1.4 Xiengkhuang 17,315 59 4.8 -30 0.31 2.4 TOTAL 236,800 1,224 100 19 0.28 2.0 Source: Livestock, arca and population data from Statc Staistical Center Lao PDR 1/ Excluding poultry. 2! Derined as 250 kg (live weight) per unit. InTLU's. estimates use: cattle -.45; Buffalo -.55; pigs- .1; and sheep - .05. LAO PDR QUALITY LIVESTOCK FEED SUPPLY AND DEMAND, 1992 Province Rice Maize Mung Soybean Peaniut Tubers Estimated Quality Est. Qtiality Feed Protein in Bean & Roots Feed Availability Requirement Quality Feed (tons) (tons) (tons) (tons) (tons) (tons) (tons) (tons) (%) Attapeu 32,329 602 65 317 22 740 6,639 7,171 8.8 Bokeo 18,294 1,594 71 IS0 91 1,520 4,578 18,136 8.3 Borikhamxay 67,770 1,646 186 25 17 15,000 19,382 10,207 7.3 Champasack 225,335 367 208 314 216 468 43,148 27,427 9.0 Huaphanh 50,683 3,354 122 414 235 1,892 11,431 29,089 8.6 Khammuane 115,046 1,799 175 417 129 1,499 23,034 23,947 8.9 Luangnanitha 16,575 2,550 78 124 101 603 4,171 13,615 8.6 Luangprabang 82,169 7,547 81 854 1,015 10,000 21,974 31,197 8.0 Oudomxay 43,153 10,582 241 124 220 1,856 12,145 30,318 8.6 1 Phongsaly 40,234 4,292 297 1,090 846 10,549 13,263 11,956 7.3 Saravane 118,856 1,838 80 521 358 16,556 29,804 21,453 7.8 c Savannakhet 266,298 1,760 12 2 295 2,065 51,966 27,566 8.9 Sekong 10,332 1,658 4 IS 27 14,560 8,287 7,186 5.0 Special Region 18,943 1,110 2,727 18 19 1,360 4,614 2,777 8.7 Vientiane 133,260 6,632 298 278 750 12,811 32,500 25,510 8.1 Vientiane M. 157,055 2,000 736 250 385 1,303 31,030 4,865 8.9 Xayabury 51,422 2,429 22 97 1,824 222 10,685 15,459 9.1 Xiengkhuang 54,607 5,959 65 136 200 24,581 22,016 16,170 6.5 TOTAL 1,502,361 57,719 5,468 5,146 6,750 117,585 350,667 324,048 8.3 Feed Availability 1/ 0.19 0.30 0.05 0.05 0.05 0.40 Protein level 2/ 0.09 0.09 0.23 0.26 0.25 0.03 I/ Proportion of feed allocated for livestock use. Ricc by-products include bran (94%o), polisliings (3%), broken rice, and brccwrs' waste (7%). 2/ Crude protein level in available feedstulT. '- - 179 - Table 5.6 LAO PDR rNDICATIVE MARKET PRICES FOR LIVESTOCK PRODUCTS (late 1993) A. Live Animals ('000 kip) Animal Unit Location Vientiane Savannakhet Xiengkhuang Buffalo, Male @ 450 kg 170 - 200 150 -180 100 - 120 Buffalo, Female @3 75 kg 130 - 170 130 - 140 80 - 100 Cattle, Male @3 25 kg 120 - 150 100 - 120 80 - 100 Cattle, Female @ 273 k8 100 - 120 80 - 100 70 - 80 Weaned Piglet I each 10-15 4-10 5 -10 Fattened Pig @ 50 kg 50 30 - 40 40 - 50 Hen @ 1.25 kg 1.8 - 2.2 1.2 B. Other Livestock Products (kip). Product Unit Location Vientiane Savannakhet Phonsavan 2/ Pork kg 1,800 1,600 1,000 Chlicken each 1,500 1,300 1,200 Duck each 2,000 1,700 N.A. Hen Eggs each 70 60 60 Buffalo Meat kg 1,800 1,400-1,800 1,200 Beef kg 2,000 1,800 1,200 Fish kg 2,000 700-1,500 1,500-2,500 Sourcc: World Bank mission estimatcs. I/ Pricc is substantially highcr in the dry scason. 2/ Located in Northcast Thailand. - 180 - Table 5.7 LAO PDR ANIMAL VACCINE PRODUCTION IN LAOS ('000 doses) Vaccine 1987 1988 1989 1990 1991 1992 Anthrax 14.0 13.2 6.9 6.0 24.8 3.4 Black Leg 79 55 181 53 83 52 Duck Plague 9 34 26 53 51 58 Fowl Cholera 216 226 28 94 183 316 Fowl Pox 46 89 132 139 57 135 Haemorr. Septicaemia 590 622 409 346 483 342 Infectious Bronchitis 60 74 70 50 14 88 Newcastle Disease F 339 405 193 489 582 770 Newcastle Disease M 473 412 440 318 345 414 Rabies 1.1 1.6 2.6 2.9 4.2 7.2 Swine Fever 45 65 52 38 121 45 Source: Vaccine Factory, Vientiane LAO PDR I'OPULATION 1976-92, AND PRINCIPAL ETI-INIC GROUPS BY PROVINCE Population: (0ooos) Principal Ethnic Groups (% of Provincial Population) Region 1976 1980 1985 1992/93 Growth Laotian Phu Hniong Khmu Ta- Lu Ko Other Ethnic Groups Rate 1/ Tai Tai liang North 1,366 1,644 2.S0 Bokeo N.A. N.A. 56 68 2.78 2/ 10.6 2.1 12.0 -- 26.9 3.2 Muser/Lamct 14.9/6.5 Huaphanhi 169 187 212 226 0.86 29.1 36.2 -- -- Luangnamtha 122 136 98 124 3.20 -- 10.2 1.8 12.5 -- 17.5 26.8 Yoan/Kui 15.3/4.3 Luangprabang 238 264 298 344 1.93 30.2 4.1 13.1 47.0 3.5 -- -- Nyoan 1.1 Oudomxay 151 167 189 297 2.50 2 9.1 1.8 11.7 56.8 -- 12.9 2.1 Lament 9.1 Phongsaly 99 110 124 154 2.95 4.5 5.1 -- 26.9 -- 9.1 21.6 PhuNoi/Ilo 17.3/4.4 Xayabury 180 200 226 211 2.47 3/ 64.7 -- 6.0 6.5 -- 10.5 -- Thinh/Yoan 6.1/4.4 Xiengkhuang 130 144 163 220 4.05 39.3 13.7 35.6 9.6 -- -- -- Central 986 1,302 3.78 Borikhamxay N.A. N.A. 123 190 5.93 33.2 43.9 9.3 4.7 -- -- -- Phong/Toom 3.1/1.3 x Khammuane 270 299 215 271 3.15 35.9 42.1 -- -- -- -- -- Ma Kong/Chui 16.4/1.5 Vientiane 517 573 267 318 2.35 55.9 13.7 15.5 12.6 -- -- -- Yao 0.9 Vientiane M. N.A. N.A. 381 523 4.32 93.7 2.5 0.5 -- -- -- -- Vietnamese/Khmer 1.2/0.3 SDJth 1,266 1,523 2.50 Attapeu 56 62 70 81 1.98 36.9 -- -- -- 10.5 -- -- Lava/Oi 17.8/16 Champasack 324 360 407 478 2.18 86.7 -- -- -- -- -- -- -- Saravane 192 212 189 250 3.82 61.6 1.5 -- -- -- -- -- KaTank/Suai 13.1/8 Savannakhet 438 485 549 652 2.32 52.2 20.7 -- -- -- -- -- Ka Tang/Ma Kong 7.6/6.3 Sekong N.A. N.A. 51 61 2.48 3.6 -- -- -- 32.5 -- -- Katu/AIaIi 27/16.3 Total 2,886 3,199 3,618 4,470 2.86 Sources: 1985 Populaiion Census, Lao PDlt; Lao lHouseihold l.xpendittirc and Constiiiiptioit Survcy, 1992/93, Statc Statistical Ccnicr, Lao I'DR, August 1993 1/ Beginning in 1992. Pha oudom and Paktha districts of Oudomxay provincc becamc part of l3okco, while Xienghone and Hongsa districis became Special Region. 2/ Annual growth rates from 198S to 1992/93 assuming 7.5 years between estimates.. 3/ Growth rate for 1980-85. 1988 populalion of Xayabury previously cstimalcd to be 174,000 - 182 - Table 6.2 LAO PDR POPULATION AND NUMBER OF HOUSEHOLDS BY PROVINCE, 1992/93 No. of Population % of Tot. Avg. House- % Male % Urban I/ Households Population hold Size ('OOOs) ('OOOs) Attapeu 14.0 81.1 1.8 5.8 50.6 28.6 Bokeo 10.0 68.3 1.5 6.8 47.7 41.3 Borikhamxay 27.6 189.5 4.2 6.9 51.8 0.9 Champasack 76.2 478.4 10.7 6.3 46.3 20.6 Huaphanh 32.7 226.0 5.1 6.9 46.7 10.7 Khammuane 43.9 271.4 6.1 6.2 49.3 15.6 Luangnamntha 18.5 124.1 2.8 6.7 49.8 60.9 Luangprabang 54.5 343.9 7.7 6.3 49.2 10.4 Oudomxay 46.0 296.8 6.6 6.5 49.4 8.7 Phongsaly 23.3 154.2 3.5 6.6 48.0 0.0 Saravane 37.3 250.3 5.6 6.7 48.7 10.7 Savannakhet 94.5 652.2 14.6 6.9 49.1 19.6 Sekong 8.8 61.3 1.4 7.0 46.8 0.0 Vientiane 46.8 317.9 7.1 6.8 48.9 20.7 Vientiane M. 79.6 523.4 11.7 6.6 51.2 75.1 Xayabury 32.0 211.1 4.7 6.6 51.6 26.0 Xiengkhuang 27.8 219.6 4.9 7.9 49.0 13.4 TOTAL 673.5 4,469.5 100.0 6.6 49.1 23.5 Sourcc: Lao Expenditure and Consumption Survey, 1992193, State Statistical Center, Vientiane, Lao PDR I/ Urban villages defined as satisfying at least four of the following: a) the village has a market, b) a road can be used to rcach the village by car; c) the provincial or district administration is located in the villagc; d) most houscholds have access to electricity; e) most households have access to running water. - 183 - Table 6.3 LAO PDR POPULATION DISTRIBUTION AND CHARACTERISTICS BY AGE Age Group Number % of Tot. Females Urban Pop. 1/ (QOO0s) Population Per 1000 Pop. (% of age group) 0 - 4 676.3 15.1 496 24 5 - 9 720.4 16.1 482 27 10- 14 633.5 14.2 491 32 15- 19 450.9 10.1 541 41 20 - 24 302.4 6.77 569 39 25 - 29 296.5 6.63 551 29 30 - 34 256.3 5.73 523 30 35 - 39 283.0 6.33 513 33 40 - 44 180.5 4.04 463 30 45 - 49 166.0 3.71 514 33 50 - 54 128.4 2.87 487 35 55 - 59 113.6 2.54 505 30 60 - 64 89.1 1.99 492 30 65 - 69 78.3 1.75 485 41 70 - 74 41.5 0.93 537 29 75 - 79 25.3 0.57 478 30 80 - 84 16.0 0.36 575 22 85 + 11.5 0.26 617 29 TOTAL 4,470 100.0 509 24 Source: Lao Expenditure and Consumpuion Survcy, 1992/93, Statc Statistical Center. Vientiane, Lao PDR 1/ Urban villages dcfined as saLisfying at least four of the following: a) the village has a market. b) a road can be uscd to reach the village by car, c) the provincial or district administration is located in the village. d) most houscholds have access to electricity, c) most households have access to running water. - 1 84 - Table 6.4 LAO PDR FARM LABOR FORCE AVAILABILITY BY PROVINCE Population Farnting Agricultural Area Cultivated Population/ Labor Force/ Population Labor Force Cultivated Area/Buffalo Cultivated Cultivated ('000s) ('000s) 1/ 2/ ('000s) 3/ ('000 ha) 4/ (hectares) Hectare Hectare North 1,644 1,143 519 329 0.96 5.00 1.58 Bokeo 68 40 18 14 0.53 4.94 1.32 Huaphanh 226 163 74 41 0.79 5.50 1.80 Luangnamtha 124 62 28 17 0.95 7.27 1.66 Luangprabang 344 248 113 76 1.31 4.53 1.48 Oudomxay 297 217 98 72 5/ 1.24 3.01 1.36 Phongsaly 154 118 54 38 1.30 4.10 1.43 Xayabury 211 138 63 35 0.62 6.08 1.81 Xiengkhuang 220 156 71 36 0.82 6.05 1.95 Central 1,302 780 354 234 0.81 5.56 1.51 Borikhamxay 190 145 66 38 0.82 4.94 1.71 Khammouane 271 190 86 55 0.64 4.96 1.57 Vientiane 318 215 98 75 0.76 4.25 1.31 Vientiane M. 523 230 104 66 1.14 7.89 1.57 SQouth 1,523 1,049 476 317 0.65 4.81 1.50 Artapeu 81 52 24 18 0.41 4.62 1.35 Champasack 478 324 147 110 0.85 4.34 1.34 Saravane 250 181 82 61 0.86 4.11 1.35 Savannakhet 652 445 202 115 0.52 5.66 1.75 Sekong, 61 47 21 13 0.59 4.72 1.65 TOTAL 4,470 2,971 1,349 880 0.78 5.08 1.53 Source: LECS (Lao Expenditure and Consumption Survey, 1992/93, State Statistical Center, Vientiane, 1993) I/ Based on LECS data, 33 percent of "urban" households and 76.8 percent of rural hh's are farm households. 2/ Urban villages defined as satisfying at least four of the following: a) the village has a market, b) a road can be used to reach the village by car. c) the provincial or district administration is located in the village. d) most households have access to electricity, e) most households have access to running water. 3/ Farm population less 8.8 percent too old or sick, and 45.4 percent under 15 (LECS. 1993). 4/ Cultivated area assumed to equal 1.2 times 1992 area harvesied of all crops. 5/1991. - 185 - Table 6.5 LAO PDR AGRICULTURAL LAND USE AND FOREST COVER BY REGION ('000 ha) Agricultural Land Use by Slope, 1989: Slope North Center South TOTAL Pernanent Ag. Land 0-5 % 44 288 494 825 6-19 % 12 7 1 20 20-30 % I 1 2 4 31-59 % 0 0 0 0 60% + 0 0 0 0 TOTAL 57 296 496 849 Total, 1982 51 234 423 709 REAY 0-5 % 16 55 56 127 6-19 % 22 24 13 60 20-30 % 214 43 30 288 31-59 % 95 28 5 127 60% + 18 5 1 23 TOTAL 365 155 106 626 Total, 1982 352 144 101 598 Unstocked Forest 0-5 % 79 425 432 936 6-19 % 160 151 103 413 20-30 % 2326 389 255 2970 31-59 % 1638 310 126 2073 60 % + 271 65 64 399 TOTAL 4473 1340 979 6791 Total, 1982 4320 1246 935 6499 Total, All Agricultural Land 4895 1791 1581 8266 Total, All Ag. Land, 1982 4723 1624 1459 7806 Annual Rate of Growth (%) Agricultiral Land, 1982-89 0.51 1.41 1.15 0.82 Forest Cover, 1989: North Center South TOTAL Total Area 9,821 7,229 6,630 23,680 Current Forest 1/ 3,563 3,739 3,866 11,168 % of Area 36.3 51.7 58.3 47.2 High Density Forest 2/ 801 2,178 1,548 4,527 % of Area 8.2 30.1 23.3 19.1 % of Current Forest 22.5 58.3 40.0 40.5 Source: Dcpartment of Forestry, National Reconnaissance Survey, 1992 1 / Crown density > 20%. 2/ Crown density > 40 % and diameter of dominant trees > 30 cm. - 186 - Table 6.6 LAO PDR IRRIGATED AREA BY PROVINCE (hectares) Province Wet Season Dry Season Total Dry Season Designed Capacity Attapeu 900 900 Bokeo 3,146 3,146 30 Borikhamxay 3,200 69 3,269 117 Champasack 9,005 460 9,465 1,200 Huaphanh 4,000 1,500 5,500 1,800 Khammuane 4,700 470 5,170 2,250 Luangnamtha 3,170 3,170 50 Luangprabang 7,670 90 7,760 2,301 Oudomxay 7,312 112 7,424 145 Phongsaly 4,422 4,422 220 Saravane 8,200 30 8,230 2,300 Savannakhet 10,690 1,200 11,890 3,763 Sekong 95 23 118 23 Vientiane 17,750 470 18,220 1,566 Vientiane M. 25,061 5,003 30,064 14,481 Xayabury 7,108 745 7,853 1,000 Xiengkhuang 10,312 0 10,312 500 TOTAL 126,741 10,172 136,913 - 31,746 Sourcc: Lao PDR govcrnmcnt sources. - 187 - Table 7.1 LAO PDR LICENSED FOREIGN INVESTMENTS BY SECTOR (September 1988 to September 1993) A. Amount Invested ('000 $US) Sector 1988 1989 1990 1991 1992 1993 Total Sep. - Dec. Dec - Sep. Agribusiness 0 0 140 16,010 7,000 7,756 30,906 Garments/textile 0 484 9,814 6,381 13,590 10,716 40,985 Wood-based industries 446 1,923 4,011 4,801 42,512 18,249 71,492 Other manufacturing 0 4,467 1,125 14,536 42,130 17,325 79,583 Mining/petroleum 246 22,650 29,500 5,078 7,706 18,043 83,223 Import/export 2,200 7,378 2,299 7,306 6,995 4,960 31,138 Hotels/tourism 0 31 2,475 96,871 6,605 3,714 109,695 Banking/insurance 0 4,000 0 2,000 20,000 10,000 36,000 Consulting 30 100 410 160 109 1,692 2,501 Construction/transportation 0 2,639 44,160 714 12,311 8,679 68,503 Telecommunications 0 0 0 500 0 0 500 Others 0 0 0 135 874 3,779 4,788 TOTAL 2,922 43,672 93,934 154,492 159,832 104,913 559,314 B. Number of Investments Sector 1988 1989 1990 1991 1992 1993 Total Sep. - Dec. Dec - Sep. Agribusiness 0 0 2 4 12 18. 36 Garments/textile 0 2 8 12 22 13 57 Wood-based industries 2 3 4 7 6 10 32 Other manufacturing 0 10 5 17 21 23 76 Mining/petroleum 1 4 2 2 3 5 17 Import/export 2 14 12 8 I1 12 59 Hotels/tourism 0 1 6 9 6 4 26 Banking/insurance 0 1 0 1 4 2 8 Consulting 1 3 5 4 3 6 22 Construction/transportation 0 2 3 2 6 7 20 Telecommunications 0 0 0 1 0 0 1 Others 0 0 0 2 8 16 26 TOTAL 6 40 47 69 102 116 380 Sourcc: Foreign Investment Management Committee, Lao PDR - 188 - Table 7.2 LAO PDR LICENSED FOREIGN INVESTMENTS BY LEGAL TYPE & INDUSTRY (September 1988 to September 1993) Sector 1988 1989 1990 1991 1992 1993 Total Sep. - Dec. Jan. - Sep. Investment by Legal Type Business by Contract: No. 1 3 4 2 6 2 18 Aggregate Value ('000 $US) 246 1,972 20,982 885 22,093 3,561 49,739 Average Size 246 657 5,246 443 3,682 1,781 2,763 Joint Ventures: No. 3 24 23 32 39 48 169 Aggregate Value ('000 $US) 430 10,821 10,422 123,829 58,695 32,459 236,656 Average Size 143 451 453 3,870 1,505 676 1,400 Wholly Foreign Owned: No. 2 13 20 35 57 66 193 Aggregate Value ('000 $US) 2,246 30,878 62,530 29,778 79,044 68,893 273,369 Average Size 1,123 2,375 3,127 851 1,387 1,044 1,416 Investments by Industrial Sector Agribusiness: No. 0 0 2 4 12 18 36 Aggregate Value ('000 $US) 140 16,010 7,000 7,756 30,906 Average Size 70 4,003 583 431 859 Wood-based Industries: No. 2 3 4 7 6 10 32 Aggregate Value ('000 $US) 446 1,923 4,011 4,801 42,512 18,249 71,942 Average Size 223 641 1,003 686 7,085 1,825 2,248 TOTAL. ALL SECTORS No. 6 40 47 69 102 116 380 Aggregate Value ('000 $US) 2,922 43,671 93,934 154,492 159,832 104,913 559,764 of which domestic 217 3,945 3,341 31,847 26,646 9,490 75,486 of which foreign 2,705 39,726 90,593 122,645 133,186 95,423 484,278 Average Size 487 1,092 1,999 2,239 1,567 904 1,473 Agribusiness Relative to Total Investments % of Total Investments (No.) 0.00 0.00 4.26 5.80 11.76 15.52 9.47 % of Total Investment (Value 0.00 0.00 0.15 10.36 4.38 7.39 5.52 Source: Foreign Investment Management Committce, Lao PDR - 189 - Table 7.3 LAO PDR LICENSED FOREIGN INVESTMENTS BY MAIN FOREIGN SOURCE (September 1988 to September 1993) Source Number of Aggregate Average Number in Investments Value Investment Agribusines ('000 SUS) ('000 SUS) Australia 27 27,083 1,003 3 Austria 2 118 59 1 Belgium 1 140 140 Canada 8 1,193 149 1 China (PRC) 34 21,914 645 2 Denmark 3 242 81 France 39 37,607 964 3 Germany 3 1 ,50 417 Hongkong 17 15,716 924 1 India 1 350 350 Italy 3 146 49 Japan 8 2,305 288 1 Korea 6 6,412 1,069 2 Lebanon 1 214 214 Macao 2 3,135 1,568 Malaysia 6 21,897 3,650 1 Myanmar 1 30 30 New Zealand 2 93 47 Russia 13 16,834 1,295 2 Singapore 10 4,916 492 Sweden 5 456 91 1 Switzerland 1 150 150 Taiwan, China 22 45,411 2,064 2 Thailand 155 180,028 1,161 11 United Kingdom 9 12,653 1,406 l USA 22 82,504 3,750 5 Vietnam 6 1,479 247 1 TOTAL 1 407 484,276 1,190 38 Sourcc: Foreign Investment Management Committee, Lao PDR. 1/ Total investment excludes the contribution oa local Lao partners (includcd in the preceding tabil). Some investments have multiple foreign partners. - 190 - Table 7.4 LAO PDR ENTERPRISES REGISTERED BY THE CENTRAL TAX DEPARTMENT, 1992 (Jan. 1992 to Nov. 30, 1992) Number of Enterprises and Companies Registered: Type of Enterprise Registration Extended Newly Registered Tota Central Local Total Central Local Total State Enterprise 76 17 93 8 8 16 109 Production 24 8 32 3 3 6 38 Domestic Trade 3 3 3 Export/Import 14 3 17 3 3 6 23 Services 35 6 41 2 2 4 45 Semi-state Enterprises 26 2 28 8 7 15 43 Production 7 1 8 4 4 12 Domestic Trade 0 Export/Import 9 1 10 1 7 8 18 Services 10 10 3 ; 13 Private Enterprises 158 14 172 108 100 208 380 Production 45 4 49 48 49 67 116 Domestic Trade I I I Export/import 53 5 58 14 77 91 149 Services 60 5 65 45 4 49 114 TOTAL 260 33 293 124 115 238 531 Source: CcnLral Tax Dcpartmcnt, Lao PDR - 191 - Table 7.5 LAO PDR ENTERPRISES REGISTERED BY THE CENTRAL TAX DEPARTMENT, 1993 (Oct. I, 1992 to Sept. 30, 1993) Number of Enterprises and Companies Registered: Type of Enterprise Registration Newly Total Extended Registered State Enterprises 84 5 89 Production 27 27 Domestic Trade I I Export/Import 15 15 Services 41 5 46 Semi-state Enterprises 34 5 39 Production 9 3 12 Domestic Trade Export/Import 11 II Services 14 2 16 Private Enterprises 233 122 355 Production 77 48 125 Domestic Trade 2 2 Export/Import 65 25 90 Services 89 49 138 TOTAL 351 132 483 Paid-up Registration Fees: Sector No. of License % of Tot. % of Tot. Units Payments Number Payments ('000 kip) Production 164 1,656 34% 24% Transport 10 218 2% 3% Construction 20 205 4% 3% Trading 119 3,418 25% 50% Services 170 1,385 35% 20% TOTAL 483 6,581 100% 100% Sourcc: Central Tax Dcpartmcnt. Lao PDR Acknowledgements This report is based on the findings of a mission which visited Lao PDR in October/November, 1993. The mission members were: Frank Byamugisha (mission leader and principal author), Arie Chupak (rural finance; Bank Staff), Gary Smith (livestock development; FAO/CP), Daniel Gustafson (institutional development; consultant), Johan Toborn (private sector development; consultant), Frank Peacock (irrigation management; consultant), Jan Vingerhoets (food security; consultant financed by FAO), Sumphorn Manodham (public expenditures, and donor aid; local consultant), Soudchay Nhouyvanisvong (livestock production, local consultant) . Mr. Malcolm Mayfield (consultant) provided support for statistical analysis and drafting parts of Chapter 1. Ms. Pamela Cox (previous Division Chief, EAlAn) reviewed and provided helpful comments on the White Cover draft, (as responsible Division Chief) as did Mr. Mark Sandburg (previous country economist for Lao PDR). Ms. Sarian Wilkinson provided secretarial assistance. The work was carried out under the supervision of Mr. Jeffrey Gutman, Division Chief (EAlAE) . The Peer Reviewer was Mr. James Coates (AFEAE), the Lead Economist was Mr. William McCleary (EAlDR) and the Department Director was Mr. Callisto Madavo (EA1) . A draft of the report was discussed with the Government of Lao PDR in January 1995 by Messrs. William McCleary (EAIDR) and Frank Byamugisha (Task Manager). The World Bank would like to express its gratitude to the Ministry of Agriculture and Forestry and to other ministries and agencies that assisted in the preparation of this report. IBRD 25510 The boundories. colors,- CHINA CHINA denorm,not,ons an,d any >< CHINA _ X other infor-otion shown MYANMA IMnply, On t e part of 22r The World Honk Group, I any judgment On the legal l f Pho7nigSo,I 8 L status of ony terr.tory, or any endorsement M ANMAR ± mNGSALy g or acceptance of such P GSALY b uncdones. gUANG \ g ~~~~VIET NAM SNAMTHA\w_LBr _L W THAILAND VIENTIA PREFECTURE OF VIENT'ANE LAO PEOPLE'S DEMOCRATIC REPUBLIC 8 j A m 7kniROADS ELVTIN IN METERT PRM L AVE PEO LE' -d B.i _ PRIMARY UNOAVED 200 -500 -'^' - SECONDARY PAVED 500 -00A 1099 SECONDARY UNPAVED 1000 - 2000 -EW 2000 ond Abo-e . t i RIVER5SJ SEO G AIRPORTS O PROVINCE HEADQUARTERS SE; W 4D NATIONAL CAPITAL \l _ PROVINCE BOUNDARIES 1 \ K 7?ES .. S RQQ _~~~~ INTERNATIONAL BOUNDARQES OKTPE -' . J CAMBODIA Q % ,._BODI JANUAIRY 1994