59990 TRADE DEVELOPMENT FACILITY SCOPING STUDY ON CROSS- BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE FINANCED BY: TRADE DEVELOPMENT FACILITY MULTI DONOR TRUST FUND (TDF-MDTF) FINAL REPORT 31 AUGUST 2009 Government of Lao PDR Department of Production and Trade Promotion, Ministry of Industry and Commerce, Government of Lao PDR National Implementation Unit, Ministry of Industry and Commerce, Government of Lao PDR Australia European Commission The World Bank This report was prepared for the National Implementation Unit, the Department of Production and Trade Promotion, Ministry of Industry and Commerce and the World Bank, with resources from the Trade Development Facility - a multi donor trust fund financed by Australia and the European Commission, and administered by the World Bank. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Government of the Lao PDR, the Government of Australia, the European Commission or the World Bank. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 2 FOCUS ON CHAMPASAK PROVINCE Economic development in our country is based on a market mechanism towards socialism. Accordingly, it requires acceleration in upgrading the efficiency of state management to ensure development towards the set target and consistent with the potentials of our country. In doing so, first of all, we will have to urgently improve the legal system and state management regulations such as attentively improving the laws and regulations relevant to the economy according to objective law and market mechanisms; improving administrative regulations and State management transparency; eliminating the remnants and traces of the old mechanism; creating environments in legal, policy and services sectors attractive and conducive to entrepreneurs within the country and abroad, both small-medium and large-sized entrepreneurs; removing impediments, for instance the procedural bottlenecks aimed at delaying the decision-making process. The state must concentrate on the discharge of macro-management function in an effective manner, such as drawing up direction plans, monitoring, managing the macro-balance of the national economic system, enhancing capacity in financial management such as expenditure and revenue, controlling inflation and prices, promoting the expansion of trade and services to rural and remote areas as a complimentary factor in addressing poverty, gradually systemising the comprehensive domestic market as a factor in vividly stimulating business production and enabling the transformation of property into capital. At the same time, import-export management capacity will be enhanced, the export of raw resources will be reduced toward a complete stop, the export of finished products will increase, the mechanisms and regulations, facilitating rapid and smooth circulation of goods, will be created with capability to integrate with neighbouring and others. To be proactive in preparing necessary requirements to fully participate in the ASEAN Free Trade Area, in doing so ensuring that our nation's interests and those of our partners are guaranteed proportionately. To continue preparing to accede to the WTO, which is conceded as factor to free our country from underdevelopment and enable our country to integrate into the world economy. From the Political Report of the 8th Party Congress delivered by President Khamtay Siphandone, March 2006 "The southern region is strategically located in two "development triangles", namely the Vietnam-Laos-Cambodia triangle and the Laos-Thailand-Cambodia triangle. It is also situated on the southern Southeast Asian economic corridor road. There is plenty of untapped natural potential in this part of the country, namely land on the Bolovens plateaux and others that can be used for agriculture and forestry development and potential in fisheries. The south also has potential in mineral resources, hydropower and others. In the next five years, our goal is to enrich the south in economic development and in tourism that ensures its integration with the rest of the region. Therefore, the development focus in the southern region is to develop integrated agriculture and agricultural processing industries, integrated forestry development industries in the triangle and quadrangle areas on a large scale for the purpose of producing food items for trade. This includes raising cattle, buffalos, pigs, industrial tree plantations that have large markets (including plants such as coffee, tea, rubber, agarwood, vegetables and fruits). We will continue to develop infrastructure such as Routes 18, 15, and 16 that open the country to Vietnam. We will develop transport that serves production and tourism including transit transportation linking Thailand and Vietnam." Economic Report to the 8th Party Congress by Deputy Prime Minister & President of the Committee for Planning and Investment, Dr Thongloun Sisoulith March 2006 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 3 PREFACE The Scoping Study on Cross-border Agribusiness in Lao PDR: Focus on Champasak Province was carried out with resources from the Trade Development Facility, a multi-donor trust fund to support trade and investment ­ financed by the European Commission and the Government of Australia, and administered by the World Bank. The Trade Development Facility is implemented by the National Implementation Unit, of the Lao Ministry of Industry and Commerce. The Study was undertaken by Anthony M. Zola, a consultant to the World Bank between 31 May and 31 August 2009. The mission received significant support from the World Bank Office in Vientiane, Lao PDR, the Department of Production and Trade Promotion, the Ministry of Industry and Commerce, and provincial and district officials in Champasak Province. Numerous traders and representatives of the business community in Champasak also were very generous with their time. Administrative arrangements, travel logistics, and appointments with the numerous people contacted in the course of the assignment were all handled with expertise by the staff at the World Bank Office and the Department of Production and Trade Promotion. The author wishes to express his sincere appreciation to everyone involved throughout the mission. Anthony M. Zola Vientiane 31 August 2009 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 4 FOCUS ON CHAMPASAK PROVINCE MAP OF CHAMPASAK PROVINCE, LAO PDR SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 5 LIST OF ABBREVIATIONS, ACRONYMS, AND CONVERSION RATES ACMECS Ayerwaddi - Chao Phraya - Mekong Economic Cooperation Strategy ADB Asian Development Bank AFD Agence Française de Développement AGPC Association des Groupements de Producteurs de Café du Plateaux des Bolovens AISP ASEAN Integration of Preference ANR agriculture and natural resources APB Agriculture Promotion Bank ASEAN Association of Southeast Asian Nations CBTA Cross-Border Transport Agreement (GMS) CLMV Cambodia, Lao PDR, Myanmar, and Vietnam DAFO District agriculture and forestry office DICO District industry and commerce office DPTP Department of Production and Trade Promotion FAO Food and Agriculture Organization of the United Nations FY Fiscal year (1 October to 30 September) GOL Government of Lao PDR GTZ German technical cooperation agency IFAD International Fund for Agricultural Development ITC International Trade Centre LEAP Laos Extension for Agriculture Project MAF Ministry of Agriculture and Forestry MOIC Ministry of Industry and Commerce MOU Memorandum of understanding MPDF Mekong Project Development Facility NTFP Non-timber forest products PAFO Provincial agriculture and forestry office PICO Provincial industry and commerce office PPPD Provincial Public Private Dialogue PPTA Project preparation technical assistance (for the ADB) SPS Sanitary and phyto-sanitary TDF Trade Development Facility TOR Terms of reference UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNESCAP United Nations Economic and Social Commission for Asia and the Pacific UNIDO United Nations Industrial Development Organization US$ United States dollar WTO World Trade Organization Conversion Rates August 2009 8,486 Lao kip = US$1.00 249 Lao kip = 1.00 Thai baht SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 6 FOCUS ON CHAMPASAK PROVINCE TABLE OF CONTENTS PREFACE ............................................................................................................................. 3 MAP OF CHAMPASAK PROVINCE, LAO PDR ............................................................ 4 LIST OF ABBREVIATIONS, ACRONYMS, AND CONVERSION RATES ................. 5 TABLE OF CONTENTS ..................................................................................................... 6 EXECUTIVE SUMMARY: ................................................................................................. 10 1. INTRODUCTION ........................................................................................................... 12 2. METHODOLOGY ........................................................................................................... 13 3. SUMMARY OF A BRIEF DESK REVIEW OF EXISTING ANALYTICAL WORK ON AGRIBUSINESS AND AGRICULTURAL EXPORTS, INCLUDING KEY CONSTRAINTS TO DEVELOPMENT IN LAO PDR ................................................. 14 3.1 EXISTING ANALYTICAL WORK ON AGRIBUSINESS .................................... 14 3.2 EXISTING ANALYTICAL WORK ON AGRICULTURAL EXPORTS .............. 14 4. KEY CONSTRAINTS TO AGRIBUSINESS DEVELOPMENT IN LAO PDR .......... 15 4.1 PRODUCTION CONSTRAINTS ............................................................................ 15 4.2 BUSINESS CONSTRAINTS ................................................................................... 16 4.3 TRADE CONSTRAINTS ......................................................................................... 17 5. REVIEW OF EFFORTS BY CHAMPASAK PROVINCIAL AUTHORITIES TO FACILITATE CROSS-BORDER INVESTMENT IN AGRIBUSINESS .................... 22 5.1 CENTRAL GOVERNMENT LEVEL ..................................................................... 22 5.2 PROVINCIAL GOVERNMENT LEVEL ............................................................... 22 5.2.1 Promotion of investment opportunities in Champasak .................................... 22 5.2.2 Memorandum of Understanding between Champasak and Ubon Ratchathani Provinces ........................................................................................................... 23 5.2.3 Central market at Pakxong District, Champasak Province .............................. 26 5.2.4 Promotion of agricultural exports from Champasak Province ......................... 26 5.3 CONTRACT FARMING VS. THE GENTLEMEN'S AGREEMENT .................. 30 5.3.1 Agribusiness networking: cabbage ................................................................... 30 5.3.2 Agribusiness networking: coffee ...................................................................... 33 5.3.3 Agribusiness networking: the Japanese connection ......................................... 34 5.4 MEASURING TRADE DYNAMICS ..................................................................... 35 6. RECOMMENDATIONS OF FEASIBLE INTERVENTIONS AND REQUIRED POLICY ACTIONS NECESSARY TO SUPPORT CROSS-BORDER AGRIBUSINESS DEVELOPMENT IN LAO PDR ..................................................... 36 6.1 RECOMMENDED POLICY ACTIONS ............................................................ 36 6.2 POTENTIAL INTERVENTIONS ........................................................................... 36 6.3 INDICATIVE SUGGESTION FOR POSSIBLE TDF FINANCIAL INTERVENTIONS .................................................................................................. 37 LIST OF ATTACHMENTS ................................................................................................. 38 ATTACHMENT 1: BASIC CONCEPT / TERMS OF REFERENCE FOR A SCOPING STUDY ON CROSS-BORDER AGRIBUSINESS IN LAO PDR .................................................................................. 39 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 7 ATTACHMENT 2: ITINERARY FOR MISSIONS TO CHAMPASAK 31 MAY-7 JUNE AND 10-12 AUGUST 2009 ................................................ 40 ATTACHMENT 3: LIST OF PERSONS MET ............................................................. 44 ATTACHMENT 4: RESULTS OF A BRIEF DESK REVIEW OF EXISTING ANALYTICAL WORK ON AGRIBUSINESS AND AGRICULTURAL EXPORTS, INCLUDING KEY CONSTRAINTS TO DEVELOPMENT IN LAO PDR .............. 46 APPENDIX 5: SUMMARY OF GOVERNANCE AND PROCEDURES FOR OBTAINING AGRICULTURAL LAND CONCESSIONS ......... 49 ATTACHMENT 6: REGISTRATION REQUIREMENTS FOR A STANDARDIZED COMPANY IN LAO PDR ............................. 50 ATTACHMENT 7: AGRIBUSINESS RELATED MANUFACTURING PROJECTS PROPOSED FOR CHAMPASAK PROVINCE ........................... 50 ATTACHMENT 8: AYERWADDI - CHAO PHRAYA - MEKONG ECONOMIC COOPERATION STRATEGY ...................................................... 51 ATTACHMENT 9: CASE STUDY: PAKXONG DISTRICT CENTRAL MARKET OPERATIONS, CHAMPASAK PROVINCE ............................... 53 ATTACHMENT 10: LIST OF REFERENCES ............................................................... 55 ATTACHMENT 11: COMPARISON OF SELECTED KEY CONCERNS OF ACMECS, AFTA, AND WTO AGREEMENTS .......................... 56 ATTACHMENT 12: AGRICULTURAL COMMODITY EXPORT DOCUMENTATION ..................................................................... 58 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 8 FOCUS ON CHAMPASAK PROVINCE : , . , , - ; ; . . , 3. : - , . . - , , , . - . 3 : . 1. : - . - . , , . 2 2005 - 9.2 2008 . 2010. 2. : - ACMECS (Ayerwadee-Chao Praya Mekong Eco- nomic Cooperation Strategy) 2004 . , , , SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 9 . . (MOU) : - . ; - . ; - . - (SPS) ; - , (East West Economic Corridor) : - . ; : - - ; - ; - ; - ; - , ; , - (LAMIS); ; , - - . SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 10 FOCUS ON CHAMPASAK PROVINCE Executive Summary: SCOPING STUDY ON CROSS- BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE The Scoping Study on Cross-border Agribusi- ad hoc fees, and high transaction ness in Lao PDR: Focus on Champasak costs. Province was undertaken to draw attention - Notwithstanding significant recent to the dynamic nature of agricultural com- investments in transport infrastruc- modity trading and agribusiness development ture in Lao PDR, poor market infra- in southern Lao PDR. The study focuses on structure and logistics are significant the alignment between trade, investment, and constraints to cross-border trade. agricultural development in Champasak Province and other provinces in Southern Provincial authorities have invested Lao PDR, and the market pull factor in Ubon significant time and effort promoting Ratchathani Province, Thailand. Champasak's strategic market location and comparative agro-ecological advantage in The Study is based on a review of recent lit- the Greater Mekong Subregion. As a result, erature analyzing agribusiness and agricul- cross-border trade and agribusiness have tural exports in Lao PDR, and two official expanded; the value of agricultural visits to Champasak Province, from which commodities exported to Thailand has institutional constraints to cross-border trade increased significantly, from US$2.4 and potential solutions agribusiness and million in 2005, to US$9.2 in 2008. This agricultural trade development are offered. figure is expected to continue to increase following the execution of AFTA in The key constraints to agribusiness devel- January 2010. The ACMECS program opment are placed in three categories and initiated by the Thai Government in 2004 include: provided the basis for trade expansion by - Production constraints: applying a zero tariff rate on imports to - For the most part, farmers practice Thailand of selected food and agricultural natural agriculture and produce products produced under contract farming sub-standard food and agricultural arrangements. The products were specified products. in an annual Memorandum of - Most farmers cultivate a monocrop Understanding (MOU) between officials of rice during the main planting from Champasak and Ubon Ratchathani season to ensure food security, with provinces, and participating agribusiness little crop diversification. enterprises. The MOU fostered the - Most farmers lack secure land systemization of agricultural trade and tenure resulting in poor manage- cross-border sourcing of raw materials for ment of land and soils. processing, between the two provinces. Lao - Business constraints: producers have benefited from secure - The granting of land concessions to access to cross-border markets in Thailand; agribusiness investors is an impor- while Thai traders and agro-processors tant GOL policy mechanism for benefited by securing a consistent source of promoting agribusiness develop- satisfactory quality agricultural ment. However, land management commodities from Champasak. policies, laws, and regulations remain imprecise, untested in The Champasak-Ubon Ratchathani trade courts, and lightly enforced. alignment is emerging as a dynamic agro- - Agro-enterprises generally are small; industrial cluster in the GMS region. banking and financial services are Selected trade performance indicators weak; and labor productivity is low. could be formulated and applied to better - Trade constraints: measure future trade development and - Most entrepreneurs and producers associated impacts, including: have little understanding of domes- - Trade and market access profiles tic, regional, and global markets. for selected crops; - Export-oriented enterprises are - Export / import performance of constrained by decentralized trade Champasak Province; rules resulting in time-consuming - Collection and analysis of export official procedures, technical for- prices for all food and agricultural malities, unimpeded collection of products produced in Champasak SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 11 Province for export; - Implementation of the Champasak - Trade competitive index to identify Trade Modernization Project (Cham- the most conducive trade outlet for pa-TMOP) over a two year period as food and agricultural products a model for moderate, sequenced, produced in the southern region, and sustainable trade development. consisting of a Trade-Enabling Environment Index; Productive Resource Index; and, an Infrastructure Index linked to improving trade logistics; and, - Trade and development index linked to quantitative indications and an analytical framework to identify the impacts of provincial trade policies in terms of human development. Recommended policy actions include: - Adjustment of cross-border trade policies to be more inclusive by for- mulating and applying indicators to measure trade dynamics. - Adopting a supply chain analysis approach to agribusiness develop- ment that would identify weak links as well as cross-border trade and investment opportunities. - Intensify support for development of human and institutional resources to harmonize SPS inspection proce- dures with key trade partners. - Review and update trade infrastruc- ture development plans in light of emerging changes in trade relations among neighboring countries, taking into consideration impacts from the East-West Economic Corridor and the full implementation of AFTA. Recommended potential interventions include: - Additional scoping studies on cross- border agricultural commodity trade and agribusiness development in border provinces. - Initiate contract farming pilot projects in all regions within the framework of AFTA and similar cross-border trade agreements. - Development of ASEAN Industrial Estates in designated industrial development zones at major border crossings. - Creation of a cell-phone-based Lao Agricultural Marketing Information System (LAMIS). SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 12 FOCUS ON CHAMPASAK PROVINCE 1. INTRODUCTION 1. The current rapid expansion of prepared by international organizations and contract farming and plantation- and trade and investment specialists. Section 5 concession-based agricultural development summarizes the efforts of Champasak in Lao PDR is, with the exception of coffee, provincial authorities to facilitate cross- largely foreign-driven: mainly by investors border investment in agribusiness. This from neighboring countries. Although the section also includes a discussion of lowland areas have been the principal target projects implemented under the Ayerwaddi of investment to date, expansion into - Chao Phraya - Mekong Economic upland areas, such as the Bolovens Cooperation Strategy (ACMECS) and Plateaux in Champasack Province, also is implications for agribusiness development increasing. in Champasak. Section 6 recommends interventions and policy actions to further 2. A regional agricultural marketing support cross-border agribusiness and agribusiness development specialist development in Lao PDR. Finally, a project (Mr. Anthony M. Zola) was engaged by the concept document is attached that presents World Bank for 30 days between 25 May ideas and options for a trade development and 31 August 2009, to undertake a scoping project. study on cross-border agribusiness in Lao PDR, concentrating on Champasak Province. The terms of reference for the consultant are presented as Attachment 1. The assessment was undertaken with support from the World Bank and Department of Production and Trade Promotion (DPTP), Ministry of Industry and Commerce (MOIC), as part of a multi- donor funded process administered by the World Bank through the Trade Development Facility (TDF). 3. The scoping exercise may result in one or more interventions that would support institutional capacity strengthening of concerned public sector and business organizations at the central, provincial, and district levels, to facilitate cross-border investment and agricultural integration, with the potential of being a key driver of export growth. 4. In this context, Section 2 of the report presents the methodology for collecting data that was analyzed to complete the study as well as the agricultural trade and investment issues pursued in the course of the data collection in Champasak. Section 3 summarizes the desk review of existing analytical work on agribusiness and agricultural exports that appears in Attachment 4, including constraints to development of agribusiness in Lao PDR. Section 4 discusses specific constraints to agribusiness in Lao PDR, drawing extensively on primary data collected during field visits in June and August 2009, as well as from reports SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 13 2. METHODOLOGY 5. The methodology used by the - Implementation of the Ayerwaddi - consultant to review existing analytical Chao Phraya - Mekong Economic work on agribusiness and agricultural Cooperation Strategy (ACMECS); exports, including key constraints to - Implementation of the 5th memorandum development in Lao PDR consisted of (i) a of understanding (MOU) between review of documents related to contract Champasak and Ubon Ratchathani farming, agricultural concession provinces; management, and agribusiness - Domestic, regional, and international development in southern Laos; (ii) a search trade data for Champasak; and review of documents posted on the - Domestic, regional, and international Internet-based Google website `LaoFAB' agribusiness investment data in (http://groups.google.com/group/laofab?hl Champasak; =en); (iii) an Internet-based search of recent - Production and area of food and media coverage of crossborder trade issues agricultural products in Champasak; between Thailand and Lao PDR; and, (iv) a - Ministry of Agriculture and Forestry review of documents, books, reports, (MAF) and the provincial agriculture studies, and conference proceedings made and forestry office's (PAFO) plans to available through the Internet, including build links to agribusiness; documents from the World Bank, ADB, - Plans for crop diversification; United Nations Economic and Social - Plans for industrial development and Commission for Asia and the Pacific special economic or trade zones; (UNESCAP), United Nations Conference - Land issues linked to facilitating on Trade and Development (UNCTAD), agribusiness trade and investment in World Trade Organization (WTO), Food Champasak; and Agriculture Organization of the United - Credit availability for smallholder Nations (FAO), International Trade Centre production of agricultural commodities (ITC), and other international for export; organizations. A list of references is - Trade logistics issues; presented as Attachment 10. - Issues related to implementation of the ASEAN Free Trade Area (AFTA) and, 6. The consultant undertook two field - Documentation required and processing missions to Champasak Province: on 31 of documents for exporting food and May to 7 June 2009; and, on 10-12 August agricultural products from Lao PDR. 2009, to research the efforts of Champasak provincial authorities to facilitate cross- 8. In formulating recommendations border investment in agribusiness. for feasible interventions and required Representatives from the World Bank, policy actions necessary to support cross- DPTP, and MOIC participated in the field border agribusiness development in Lao mission in June. A representative of the PDR that are included in this report, the Provincial Industry and Commerce Office consultant made use of contributions from (PICO) accompanied the consultant in the following sources: August. The detailed schedule for the two - Impressions provided by World Bank, missions is presented as Attachment 2. In MOIC, and DPTP counterparts who addition to provincial and district officials, participated in the field mission in meetings were held with representatives of Champasak; producer groups, trade and marketing - Ideas, suggestions, and inputs from groups, private enterprises, and technical provincial and district officials, repre- assistance specialists. A list of persons met sentatives of the business sector and during the field missions is presented as producer and trade organizations; and, Attachment 3. - Documents from the Champasak Provincial Planning and Investment 7. In the course of the meetings, Office. issues related to the following agricultural trade and investment topics were discussed: - Plans to promote agribusiness in Champasak Province; SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 14 FOCUS ON CHAMPASAK PROVINCE 3. SUMMARY OF A BRIEF DESK REVIEW OF EXISTING ANALYTICAL WORK ON AGRIBUSINESS AND AGRICULTURAL EXPORTS, INCLUDING KEY CONSTRAINTS TO DEVELOPMENT IN LAO PDR 9. The results of the review of agricultural products for export, and existing analytical work on agribusiness domestic marketing opportunities. and agricultural exports, including key Recommendations are made for promoting constraints to development in Lao PDR, are the commercial production of new crops presented in Attachment 4. A synopsis of and improving existing commercial crop the most important analytical documents is production systems using Champasak presented below. province as a model approach. In the Rockefeller Foundation supported Study on Enhancing Upland Food Security and 3.1 Existing analytical work on Crossborder Agricultural Production agribusiness Supply Chains in the GMS, Zola et al. examined a selection of new and 10. The World Bank's Diagnostic uncommon crops in which upland areas of Trade Integration Study (November 2006) the GMS have a comparative advantage, is likely the most valuable macro-level some of which are already being traded analytical document that examines issues across borders in the region. These include related to challenges and opportunities for traditional upland crops such as hemp, trade in Lao PDR. Two documents sesame, cotton, and castor bean; tree crops prepared by an ADB funded technical such as styrax (for benzoin), cinnamon, and advisory team for the Agriculture and gum Arabica; non-timber forest products Natural Resources Sector Needs such as medicinal herbs and cardamom; Assessment (Fraser and Zola, May 2008) and, organic temperate vegetable crops. provide an up-to-date perspective focused on agribusiness development and agricultural commodity trading in the five southern provinces. These reports include a discussion of institutional constraints and potential solutions to the expansion of agribusiness and agricultural trade. In addition, they provide an examination of procedures for granting agricultural land concessions to investors, agricultural land management issues, and contract farming arrangements, with implications for trade and agribusiness investment in the region. 3.2 Existing analytical work on agricultural exports 11. The World Bank's Diagnostic Trade Integration Study (November 2006) once again is likely the most valuable resource document in that it addresses building export competitiveness. It examines issues related to Customs procedures and logistics for agricultural exports, and the urgent need to upgrade Lao sanitary and phytosanitary (SPS) procedures to meet international standards. Two additional documents prepared for the ADB funded technical advisory team for the Agriculture and Natural Resources Sector Needs Assessment (Chapman and Lord, May 2008) provide detailed analyses of agricultural commercialization, food and SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 15 4. KEY CONSTRAINTS TO AGRIBUSINESS DEVELOPMENT IN LAO PDR 12. The key constraints to agribusiness farm asset after land and a harvested crop. development in Lao PDR discussed below Any remaining human and capital were identified in the course of the June resources are used for gathering non-timber and August 2009 field missions to forest products (NTFPs), fishing, and Champasack Province. They are presented hunting to supplement household food in the context of the documents reviewed supply and generate cash. Off-farm income above and other reports and studies is derived most often from selling prepared or examined by the consultant. A household labor services. Vegetables for list of references used to prepare this report family consumption are generally is presented as Attachment 10. The key cultivated during the cool season using constraints to agribusiness development are residual soil moisture and / or water examined from three perspectives, namely: remaining in seasonal ponds or streams. (i) production; (ii) business; and, (iii) trade. However, all family resources focus primarily on producing rice during the wet season and, if irrigation is available, also 4.1 Production constraints during the dry season (usually for sale). As a result, most rural households depend on 13. The production-based impediments a rice monocrop. There is little or no to agribusiness development are character- significant interest --- nor time, labor, or ized primarily by farmers continuing to capital resources --- in any other on-farm use traditional agricultural practices; an activity. The use of available resources to emphasis on household rice self-sufficiency; produce rice is an important constraint to and, a weak agricultural land tenure system. development of mixed farming systems that could produce raw materials for agro- 14. Natural production of food and agri- processing. cultural products: Most rural households have little or no experience with modern agricul- 16. Slow progress of formal land ture technologies, including using improved tenure security: The 1997 Land Law seed varieties, chemical or bio-fertilizers, or recognizes the transfer and inheritance of pesticides. Instead, agricultural production land use rights, but not title. In flatland is natural; with farmers using indigenous seed areas ownership rights have gradually been varieties; applying little or no soil additives; formalized. Related to weak agricultural and, using no pesticides. Nor do farmers have credit and financing services, land easy access to information about alternative ownership and property rights continue to production techniques and basic agricultural evolve. Although a national land titling production inputs (i.e., quality seeds, irriga- program is underway, the current focus is tion water, credit, bio-pesticides, organic fer- chiefly on land in urban and peri-urban tilizers). The low level of education of areas. More systematic land administration most farmers also is an obstacle to training. in rural areas will be introduced in the Weak extension services hinder the provision future. In the interim, most farm of advice on diversified cropping, commer- households are unable to use their land --- cialized agriculture, agribusiness, farm man- their most valued asset --- to mobilize agement, post-harvest handling, marketing, capital to invest in on-farm and production- food technology, livestock varieties, or an- based activities. In some locations, land imal health. As a result, both productivity and continues to be community property and is product quality are inferior; in most cases sig- allocated by the State, based on village nificantly below standards required by re- needs. Farmers can be allocated up to one gional agro-processors, presenting a serious hectare of paddy land per farm laborer, constraint to agribusiness development. three hectares for commercial crops, three hectares for fruit trees, and 15 hectares for 15. Rice security and monocropping: livestock production. The combination of Traditional farming systems emphasize wet small plots of land, restrictions on season rice production to achieve rice self- consolidation, and common property sufficiency, with minimal crop ownership impedes commercialization of diversification. A secondary priority is to the agricultural sector. Land outside village accumulate livestock, the most important areas is largely unallocated which leads to SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 16 FOCUS ON CHAMPASAK PROVINCE PHOTO 1: Taniyama-Siam Okra Plantation at the national level.1 A summary descrip- tion of the concession authorization procedure is presented in Attachment 5. As currently organized, the land concession system is administered through several dif- ferent laws, decrees, and government agencies, resulting in a complex web of rules, regulations, procedures, and fees that dissuade any but the most tenacious and wealthy investors, and provide opportuni- ties for corruption. High transaction costs, extra-legal surcharges, and facilitation fees Taniyama-Siam Okra Plantation, Thateng District, Sekong Province: The 62 hectare are not unusual. land concession produces okra for export to Japan via Champasak's Vang Tao border crossing with Thailand. The okra is processed on-site and sent to Japan via air freight 19. The less than fully transparent through the Bangkok International Airport. The distance from Thateng to Bangkok via policy and regulatory framework and weak Paksé is about 900 kilometers. law enforcement hinder private enterprise development, as contracts, property rights, tax provisions and other fundamentals lack ambiguities as these are areas in which assurance:2 shifting cultivation typically takes place. - Business registration and licensing pro- Most recently, the GOL has granted land cedures are cumbersome, time consum- concessions on large areas of unallocated ing and discretionary, reflecting a control land, removing it as a potential site for rice and micro-management mindset; busi- production and source of NTFPs. ness registration nominally takes up to 45-60 days in Lao PDR. A similar process takes only about 7 days in Viet- 4.2 Business constraints nam (see Attachment 6 for a summary). - Complications in structuring a 17. The main business-related impedi- business: Almost all tax-registered ments to agribusiness development are char- business in Lao PDR are sole-traders, acterized primarily by a confusing policy, reflecting the complicated registration regulatory, and legal framework; the small procedures and lack of awareness about scale of private enterprise; weak financial other legal options (limited liability and services; and, low labor productivity. public companies). - Amendments to the Electricity Law are 18. Policy, regulatory, and legal frame- needed to facilitate private enterprise in work: The granting of land concessions to providing rural electricity; governance agribusiness investors has emerged as an concerning forestry is particularly important GOL policy mechanism for pro- weak. moting agribusiness development. - Difficulties in the trade regime: Import However, the governance framework of the tariff exemptions and quantitative restric- authorization process and organizing small- tions are applied in a non-transparent holder-based contract farming operations is manner, complicating trade and business complex and is an impediment to develop- development; and, non-formal barriers ing sustainable commercialized agriculture. imposed by neighboring countries are a As a result of the GOL's decentralization serious impediment. policies since 1986, provincial govern- - Discretionary application of the tax ments rather than central authorities are law, frequently through negotiations: responsible for: (i) authorizing company Advance payment of taxes often is 1 World Bank, Building Export Competitiveness in registrations and investment licenses; (ii) required by provincial governments Laos, A Summary Report, East Asia PREM, March firm-level inspections; and, (iii) allocating during periods of cash shortages. 2006, p. 28. land-use rights and an enterprise's access to 2 ADB and Committee for Planning and Cooperation, other resources. The only exceptions are 20. Small scale of private enterprise: Northern Regional Development Strategy, Volume 6, some very large or politically sensitive The scale of most domestic private Business and Private Sector Development Strategy, Vientiane, Lao PDR, March 2004. business ventures that require authorization enterprise is geared to the small size of the SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 17 domestic market and low purchasing power harvest the same crops at the same time, PHOTO 2: MEKONG RIVER FERRY of the population. Particular impediments corresponding with traditional practices AND GABBAGE AT FARMGATE to growth of small firms include the lack of and changing seasons. An important impact access to capital and to market information. is that large volumes of the same The costs of meeting licensing and other unprocessed food and agricultural products requirements are relatively higher for small saturate small local markets and many enterprises.3 regional markets simultaneously, driving down prices. This local decline in 21. Weak financial services: The commodity prices is repeated annually, banking sector continues to be very weak, serving as a disincentive for farmers to especially in rural areas where few people diversify their cropping system. In fact, the have access to financial services. In unstructured nature of local and regional addition, the Bankruptcy Law and the markets provides few incentives for Secured Transaction Law are difficult to farmers to invest additional time, labor, or Mekong River ferry boats crossing enforce, hence banks are reluctant to lend capital in post-harvest handling or value- from Veng Kham, Champasak to Cambodia in southern Champasak to private enterprises. Export credit is added processing at the farm or household Province. generally not available, hampering growth level. For the most part crops are sold to of trade. iterant traders or in undiscriminating local markets. An important outcome is that trade 22. Low labor productivity: Although officials in neighboring countries labor costs in Lao PDR are relatively very periodically impose trade restrictions on low, this advantage is undermined by low Lao products, including import quotas on labor productivity by international and vegetables and field crops and other non- regional standards. The 2008 updated tariff trade barriers; to control the seasonal Human Development Report4 reports that flow of selected Lao commodities. These in 2006 the combined primary, secondary, actions contravene agreements and and tertiary gross enrolment ratio was 59.6 understandings among trade authorities percent (compared to 114.2 percent for (e.g., the 5th MOU signed between Australia and 58.7 percent for Cambodia). Champasak [Lao PDR] and Ubon Cabbage producers on the Bolovens Plateaux selling produce for export at The ethnic diversity of the people poses Ratchathani [Thailand] provinces). In the farmgate. language and other problems impeding addition, trade continues to be hampered by education and skills-training. The adult various levies and fees by both Lao and illiteracy rate (ages 15 and older; 2007) is neighboring country border authorities. All stakeholders asserted that 73.18 percent (compared to 76.32 and These transaction costs seriously impede LOGISTICS is the principal 91.90 percent in Cambodia and Malaysia, trade with China, Viet Nam, and Thailand. constraint to expanding trade of respectively), and the labor force has on Only since 2002 has the Thai Government food and agricultural average less than 5 years of education. supported ACMECS program promoted the Graduates of vocational schools and formation of Lao-Thai joint ventures for university are few. contract farming of selected food and agriculture products; initiating a more systematic approach to border trade and 4.3 Trade constraints resolving tariff and logistical constraints to agribusiness and market development. 23. The principal trade obstacles to agribusiness development are characterized 25. In terms of interacting with by inexperience among entrepreneurs and domestic, regional, and global markets, producers in accessing markets; institutional most Lao entrepreneurs and commodity constraints on export diversification and traders are as traditional as their producer growth; decentralized authority for trade; and, counterparts. They lack awareness of logistical issues. modern, transparent, market-based ways of doing business. They prefer to purchase 3 ADB and Committee for Planning and Cooperation, 24. Market-related issues: Both raw materials at the farmgate and perhaps Northern Regional Development Strategy, Volume 6, entrepreneurs and producers have an carry out some post-harvest value-added Business and Private Sector Development Strategy, inadequate understanding of domestic, processing (drying, cleaning, sorting, Vientiane, Lao PDR, March 2004. regional, and global markets. Lao grading, etc.) that will supplement their 4 UNDP, Human Development Report, Update 2008, producers almost universally cultivate and small trade margin. Agribusiness United Nations, New York, 2009. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 18 FOCUS ON CHAMPASAK PROVINCE PHOTO 3: Lao PDR - Thailand Border Photos of the Vang Tao (Lao PDR) ­ Chong Mek (Thailand) border crossing, located about 100 kilometers from agricultural commodity production siteson the Bolovens Plateaux in Pakxong District, Champasak Province, and about 700 kilometers by road from Chong Mek to Bangkok International Airport. entrepreneurs generally lack a long-term and regulations, consisting of several sets vision. They are motivated more by short- of forms required to export their term gains from traditional trading. commodities. Although the forms are not Entrepreneurs also lack sound investment difficult to complete or unusually detailed, projects for agribusiness expansion or several different departments, offices, and value-added processing. Only a small individuals must be contacted in person; a number of agro-processing facilities exist process that usually requires three to four in Lao PDR. These exceptions are found in days to complete (sometimes longer, selected sectors, namely coffee (e.g., Dao depending upon the availability of Heung, Sinouk, and the Association des `competent' [i.e., legal] authorities and the Groupements de Producteurs de Café du level of surcharge that an exporter is willing Plateau des Bolovens [AGPC], in to pay). Figure 1 presents a flow chart for Champasak); and, fruit and vegetable the processing of export forms, using coffee processing (e.g., Lao Agro Industry, as an example. Vientiane Province; and, Lao Farmers' Products Company, Vientiane Capital). In addition, Table 1 presents the forms required for agricultural exports (coffee and 26. Institutional constraints on export most other crops), including the agency diversification and growth: Agribusiness, responsible for each form, costs of the like agricultural production is impacted by forms, and the number of days required for insecure property rights and an inefficient their processing. Note that the numbers in financial system that inhibit the parentheses ( ) in column 1 correspond to accumulation and use of capital. The the numbers in Figure 1 above. Copies of development of value-added processing these required forms are presented in facilities also is inhibited by a regulatory Attachment 12. system built on control and fee extractions rather than facilitation; restrictions on trade 28. Agricultural commodity traders through licensing regulations; and, report that the process of obtaining and generally weak institutional and fiscal processing all required forms usually takes management capacity.5 from three to four days, but can take up to seven days if authorized officials are absent 27. The efficiency of agribusiness and and/or a weekend is included. Traders export-oriented enterprises also is impacted generally agree that completing and by institutional constraints linked to time- processing the forms is not unnecessarily consuming official procedures and complex or difficult; but persistence is technical formalities. Exporters of food and required. Some traders reported hiring a 5 World Bank, Diagnostic Trade Integration Study (DTIS), Building Export Competitiveness in Laos, agricultural products from Champasak are shipping company to handle all paperwork Summary Report, East Asia PREM, November 2006. obligated to abide by a complex set of rules for exporting commodities. Surcharges SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 19 DIAGRAM 1: SUPPLY CHAIN AND DOCUMENT FLOW CHART FOR AGRI- CULTURAL PRODUCTS (both formal and informal) and unofficial trade. Based on an already weak institutional fees are often imposed for faster service. capacity, the result has been confusion, Although such fees increase transaction with overlapping responsibilities of central costs, they are not unexpected or and provincial governments, making it com- particularly excessive; and, are considered plex for traders and investors to do business a cost of conducting business. in Lao PDR. Important factors include:6 - Unclear and poorly communicated 29. Traders reported that obtaining the government policy toward the business phytosanitary certificate (`phyto'), issued sector and lack of coordination among by the Provincial Agriculture (Crops) line ministries in policy making; Section, proved most challenging. The - High cost of power, transport, telecom- certificate requires the name and signature munications, and other critical services; of a legally competent official who is - Excessive and unnecessary regulation authorized to sign and issue the certificate. of ongoing business operations; Although more than one officer is - Institutional orientation toward control designated as legally competent, the name rather than facilitation by the tax and of the officer physically present is required trade administration systems; on the form. However, since the Crops - Difficult access to land and its limited Section must inspect the shipment -- use as collateral for debt; which takes time ­ the specified individual - A weak legal system to support may be unavailable by the time the form investment, enterprise establishment, reaches his desk for signature. Should this contract enforcement, and commercial occur, the forms must be prepared a second transactions; time; with the name of the replacement - Insufficient intellectual property rights officer who is physically present and is protection for both domestic and legally competent to sign the form. foreign investors; and, - Rigid labor regulations. 30. Decentralized authority for trade: 6 World Bank, Diagnostic Trade Integration Study Administrative decentralization that began 31. In addition, provincial and border (DTIS), Building Export Competitiveness in Laos, in 1986 also decentralized authority for authorities have little knowledge or Summary Report, East Asia PREM, November 2006. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 20 FOCUS ON CHAMPASAK PROVINCE Table 1: Forms required for most agricultural exports Responsible Form / Communication Cost Processing Time Organization 1 2 3 4 5 (1) Communications between Lao Licensed Lao exporter Cost of communications. Immediate exporters and Thai export brokers at and registered Thai a Thai port regarding shipping times export broker. and volumes of a commodity to be exported; usually facsimile. (2) Letter from the exporter to the Provincial Transport No cost Immediate Provincial Transport Office Office requesting permission for a truck to move a commodity. (3) Letter from the exporter to the Provincial Transport · Cost of truck rental; Immediate Provincial Transport Association Association moving 1 container of coffee to requesting rental of a (registered and Bangkok is 9.73 million kip or insured) truck to move a commodity. 39,000 baht or US$1,145 · 20,000 kip / ton for laborers on Lao side and 20,000 kip / ton for laborers on the Thai side of the border (4) Weight certificate issued for the Weighing station at 2 10,000 kip Immediate weight of the truck. locations. (5) GOL issued export forms: · Certificate of Quality STO / Techno 400,000 kip per shipment Immediate (1 container) · Test Report STO / Techno · Phytosanitary Certificate PAFO / Phyto 400,000 kip per shipment Immediate to up to 3 (1 container) days; depends on presence of legally competent official. · Form A (Europe, Japan) PICO 25,000 kip per shipment Immediate · Form D (ASEAN) PICO % of value: Immediate · US$1.00-$10,000 = 40,000 kip · $10,001-$40,000 = 60,000 kip · $40,001-$60,000 = 80,000 kip · $61,000 and above = 100,000 kip · Form AISP (Thailand) PICO 25,000 kip per shipment Immediate · Form SPT (China) PICO 25,000 kip per shipment Immediate · Form S (Vietnam) PICO 25,000 kip per shipment Immediate · Tax receipt Pay to: Payment of tax: Immediate · Village chief, or · 200 kip/kg, or · Inspection point, or · 300 kip/kg, or · Revenue Office · 200 kip / kg · Customs Declaration Form Customs Office 35% of value of commodity x 5% Immediate (6) Export forms issued by business associations · Form B (Packing List & Weight Champasak Chamber of 1,300 kip / ton 3 days Certificate; also referred to as Commerce Surcharge: 20,000 kip 2 work days "CO-White") Surcharge: 30,000 kip 1.5 work days Surcharge: 40,000 kip 1 work day Surcharge: 50,000 kip Immediate · Coffee movement certificate Lao Coffee Association 20 kip / kg Immediate SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 21 understanding of the terms and conditions years, several roads, including some PHOTO 5: ECONOMIC CIRCLE IN of various trade agreements administered strategic to expanding agricultural trade INDOCHINA (THAI-LAOS- through the World Trade Organization and investment in southern Lao PDR, CAMBODIA) (WTO), ASEAN Free Trade Area (AFTA), require upgrading. As a result of the and the China-ASEAN Free Trade Area development of various east-west and (CAFTA). This institutional lack of north-south regional economic corridors, knowledge leads to significant trade regime development patterns and trade dynamics uncertainties. A matrix that compares have changed, while plans to upgrade selected aspects of ACMECS, AFTA, and infrastructure that have been prepared for WTO is presented as Attachment 11. an era of pre-trade liberalization and pre- economic corridor, remain static. The Ubon 32. Logistics: The mountainous terrain Ratchathani Chamber of Commerce in most areas of the country and poor pointed out to the study team a vision for market access road network, together with trade and business development in the cross-border trade impediments with neigh- southern northeastern region of Thailand boring countries, has meant high transport and southern Lao PDR. This vision costs and fragmented markets. The generally includes a new `Lower East-West Corridor' poor condition of the road network results that links northeastern Thailand and Since 2004, the Ubon Ratchathani in high rates of damage to both trucks and northern Cambodia, through Champasak, and Champasak Chambers of Com- cargo. Trucking monopolies in Thailand and Saravan, Sekong, Attapeu provinces of Lao merce have annually participated in rent-seeking by Customs and other officials PDR, to Da Nang and other ports on the negotiations organized by their respective provincial commerce (including business "tycoons") throughout coast of Vietnam. Given the potential to offices on cross-border trade of a the region add to the costs of transit and trade. develop mining, tourism, and agro- growing list of food and agricultural Agribusiness development also is constrained industries in southern Laos, and the products produced under contract farming arrangements between Lao by the limited number of international- comparative advantage of the Bolovens and Thai agro-enterprises. The level cross-border points and facilities and Plateaux for expanding temperate climate results of the negotiations are docu- officials qualified to verify sanitary and phy- agricultural production, the infrastructure mented in an MOU signed by the to-sanitary (SPS) standards, mandatory aspects of this vision are well worth Ubon Ratchathani and Champasak provincial governors. Members of under WTO regulations. considering. the Ubon Ratchathani Chamber of Commerce have a high level of 33. Trade infrastructure, including bank- awareness of the strategic location ing and financing services at cross-border of their region. This is reflected in a map produced by the Ubon Cham- trade locations are limited or non-existent. ber (left) projecting their vision of Storage facilities for agricultural products in future transport developments lead- rural areas and particularly at cross-border ing to shorter distances to ocean locations are limited, inadequate, or lacking. PHOTO 4: LAO-THAI BORDER AT ports for the export of fresh and VANG TAO, PHONTHONG processed agricultural commodities. Notwithstanding the conclusion of the DISTRICT, CHAMPASAK Greater Mekong Subregion (GMS) Cross- border Transit Agreement (CBTA) and other cross-border trade and transit agreements: (i) Thai owners of containers do not allow emp- ty containers to be transported into Cham- pasak Province for loading, mostly fearing that they will not be returned; (ii) Lao products are obligated to be loaded on to Lao trucks in Laos, incurring labor costs; and, un- loaded on to Thai trucks or into a Thai con- tainer on the Thai side of the frontier, incur- ring labor costs for a second time. Further, Logistics complexities at the Lao- the weighing of vehicles and products being Thai border at Vang Tao, Phonthong traded continues to be an issue; with Lao and District, Champasak Province: Thai scales not being equally calibrated. Produce must be transferred from Lao trucks to Thai trucks before being shipped to Thai markets. Such 34. Notwithstanding the significant transfers waste much time and investments in road and transport double the cost of labor required to infrastructure in Lao PDR over the past 30 load, unload, and re-load trucks. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 22 FOCUS ON CHAMPASAK PROVINCE 5. REVIEW OF EFFORTS BY CHAMPASAK PROVINCIAL AUTHORITIES TO FACILITATE CROSS- BORDER INVESTMENT IN AGRIBUSINESS 5.1 Central government level 5.2 Provincial government level 35. At the central government level, 5.2.1 Promotion of investment authorities have taken the lead to modify opportunities in Champasak cross-border interactions in support of additional investment in agribusiness. The 36. Provincial authorities in GOL7 has streamlined the number of border Champasak have received support from agencies to only three: customs, GTZ and the Centre for International immigration and quarantine; thus removing Migration and Development (CIM) in trade officials from border check points preparing documentation that promotes (MOIC Order No. 0453/MOIC, 26 March, investment opportunities in the province. 2007). In addition, single-stop inspection The well-prepared and attractive brochure has been operational at the Lao Bao - reports8 that 184 projects have been Dansavanh border crossing under the GMS approved with a value of US$391 million. Cross-Border Transport Agreement Priority areas of investment are agriculture, initiative since June 2005; and, at the tourism, manufacturing, and services. A Mukdahan ­ Savannakhet crossing since new commercial area is being developed in early 2007. A Lao International Freight Paksé city, at the Lao Nippon Friendship Forwarder Association (LIFFA) was Bridge. A second large-scale commercial established by Ministerial decree No. development is underway at the Lao-Thai 4149/MCTPC, 13 December 2001, to guide border at the Vang Tao ­ Chong Mek development of the freight transport border crossing. In 2006, the provincial industry. Two new transit transport Department for Planning and Investment corridors are operational, namely Route 8 established a `one stop shop service unit' to from Paksane, Lao PDR to Cua Lo Port, facilitate the investment approval process, Vinh, Vietnam; and, Route 9 from resulting in investment licenses being Vientiane to Danang Port, Vietnam. issued within 15 days. The positive Competition was initiated for goods investment environment has resulted in transport operators between Lao PDR and significant increases in agribusiness Thailand on 1 March 2004. MOIC also investments, totaling nearly US$100 reports that Customs procedures, million between 2000 and 2008, with more formalities and documents have been than half that total coming in fiscal year, simplified and unnecessary inspections 2006-2007 (FY2007). The Provincial eliminated. As a result, transit and transport Public Private Dialogue (PPPD) was costs have been reduced by some 20 to 30 recently initiated with donor support and percent. Further, the GOL has proposed six has been institutionalized to facilitate the additional border crossings for inclusion in dialogue between business and the GMS CBTA. government. Three industrial zones Table 2: Priority Foreign Direct Investment Projects in the Agriculture Sector No. Agriculture and Forestry Location / District 1. Organic farm plantations Pakxong and Bachiengchareunsouk 2. Aquaculture, fish production Khong 7 Economic Research Institute for Trade (ERIT), 3. Cattle production, pasture management Mounlapamok Ministry of Industry and Commerce (MOIC), Vientiane, Lao PDR, presentation by Xaysomphet Norasingh at the 4. Biofuel crops, sugar cane, oil palm, 4 western districts Regional Policy Forum on Trade Facilitation and SMEs cassava in Times of Crisis, Beijing, China, 20-22 May 2009. 5. Livestock production and aquaculture 10 districts 8 Champasak Provincial Department of Planning and 6. Commercial vegetable production 10 districts Investment, Investment Opportunities in Laos: Champasak Province, 2009. 7. Coffee plantations Pakxong SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 23 covering an area of 2,284 ha have been interested Lao and Thai companies that designated and are being developed. Table have registered with their respective 2 presents the highest priority projects for provincial commerce offices. The MOU investment in the agriculture sector, and the essentially serves as an umbrella agreement preferred locations for each category. acknowledged by provincial government authorities under which Lao and Thai 37. Other agribusiness related companies record the results of their trade manufacturing projects also are proposed; negotiations, specifying the terms and these are presented in Attachment 7. conditions for trading a range of food and agricultural products. In total, five MOUs have been concluded between Champasak 5.2.2 Memorandum of and Ubon Ratchathani provinces between Understanding between 2005 and 2009. Champasak and Ubon - As explained by provincial authorities: Ratchathani Provinces A two-tiered meeting is held annually, at which Lao and Thai provincial 38. The Ayerwaddi - Chao Phraya - commerce officials conduct a policy Mekong Economic Cooperation Strategy level dialogue to review and resolve (ACMECS) was launched by the Thai trade issues between the two provinces. Government in 2003. The program is an Simultaneously, registered Lao and outcome of the Association of Southeast Thai trading companies negotiate trade Asian Nations' (ASEAN) Integration terms for a list of food and agricultural System of Preference (AISP) initiative products for the next year. During both aimed at narrowing the development gap discourses, problems that arose during between ASEAN's original member the past year are reviewed; measures countries and the newest members for resolving problems are discussed; (Cambodia, Lao PDR, Myanmar, and proposals for new initiatives are Vietnam or CLMV). The AISP was reviewed; a list of agricultural products introduced in 2002 as a unilateral and to be traded under the contract farming voluntary tariff reduction to hasten the project during the next year is CLMV's integration into the mainstream of formulated; and, the terms and global and regional markets for goods and conditions for importing those products services. Some 300 items are covered by into Thailand, including floor prices, the AISP. are established. - In Champasak Province the Provincial 39. ACMECS has emerged as an Industry and Commerce Office (PICO) important Thai Government policy instru- serves as the host organization. In ment for simultaneously implementing the Ubon Ratchathani Province, Thailand, AISP and promoting bilateral trade and the Provincial Commerce Office coor- investment between Thailand and CLMV. dinates the program. ACMECS provides the policy framework for contract farming that has emerged as 41. The broad objective of the MOU, the principal mechanism for sourcing agri- facilitating trade in food and agricultural cultural raw materials from farmers in products between Lao PDR and Thailand, selected border areas of CLMV, for pro- has been achieved. Less immediate cessing by Thai agroindustries. Additional objectives of the MOU also are being information on ACMECS is presented in realized, namely: Attachment 8. - Achieving selected policy objectives of the Lao and Thai governments, 40. The Ubon Ratchathani provincial specifically related to implementing commerce office formulated a contract AISP. farming project in 2004 to operate within - Achieving GOL agricultural develop- the ACMECS framework. The project is ment policy goals related to the consistent with the AISP and operates following: under a memorandum of understanding - Increasing the agriculture and (MOU) negotiated annually between forestry GDP growth rate; SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 24 FOCUS ON CHAMPASAK PROVINCE - Developing and supplying a diver- - Sourcing of food and agricultural sity of agricultural raw materials to imports from neighboring countries the industrial and services sectors where commodities can be pur- for value-added processing and chased in Thai baht, thus reducing consumption, respectively; the need to utilize non-baht curren- - Increasing the export share of cies to settle trade transactions; agriculture and forestry products; - Demonstrating Thailand's effective - Organizing production and estab- implementation of the AISP to lishing economic structures at the meet ASEAN policy objectives; grassroots level; namely, farmer - Creating on-farm income generat- production and marketing groups; ing opportunities in neighboring - Strengthening farmer groups to countries as alternative livelihood enable the production of raw mate- options that contribute to poverty rials for local and regional markets alleviation and preventing poor and processing; and, farmers from migrating to seek - Formulating relevant procedures economic opportunities in Thai- for systematized production of land; and, agricultural products for export; - Maximizing the use of infrastruc- namely, contract farming. ture developed to facilitate regional - Achieving Thai Government foreign cross-border trade. agricultural policy goals related to the - Providing a formal framework for trade following: relations between the two provinces. - Sourcing large quantities of low - Registering cross-border trading com- cost raw materials regionally for panies with provincial commerce value-added processing in Thai- authorities. land, demonstrating Thailand's - Keeping provincial commerce officials interest in supporting agricultural informed about cross-border trade development in neighboring least activities. developed countries; - Specifying and limiting crops to be - Expanding regional cross-border imported into Thailand at zero tariffs. trade in agricultural commodities - Establishing floor prices for selected linked to raw material needs of crops in advance, thus providing Lao Thai agro-processors; farmers and traders with benchmark prices for crops included in the MOU. 42. Each MOU stipulates the number Table 3: 25 Crops Covered in the 5th MOU between Champasak and Ubon of agricultural products to be included in Ratchathani Provinces, 2009 the contract farming project. Eight products were listed in 2005, increasing to ten in 2006; eleven in 2007; and, nine in 2008. In 1. Cabbage 14. Mustard greens 2009, under the 5th MOU, the list of crops of interest to the Thai companies for 2. Bananas 15. Lettuce contract farming was increased to 25. Table 3. Tamarind 16. Carrots 3 presents the crops included in the 2009 4. Chinese cabbage 17. Sweet peas MOU. 5. Cotton 18. Asparagus 6. Kapok seed 19. Chili peppers 43. To qualify for the contract farming program, the registered, participating Thai 7. Job's tears 20. Tomatoes firm is obligated to provide seed as credit 8. Soybeans 21. Ash gourd or wax gourd in kind, to its Lao counterpart company that 9. Fodder maize 22. Mushrooms is handed-over to farmers for planting. This 10. Castor bean 23. Strawberries arrangement fulfills the GOL's definition of 11. Sweet radish 24. Avocado contract farming using the `2+3' approach, wherein farmers provide land and labor 12. Ginger 25. Turnips (`2'), while the investors provide 13. Groundnuts (peanuts) technology, credit, and market access (`3'). SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 25 The seed supplied by the Thai firms is PHOTO 6: PHONGSAVANH BANK expected to be high quality (i.e., industry- best technology). In most cases Lao farmers already are familiar with the promoted crop: thus technical training is not always required. Some of the participating companies (Lao and Thai) also provide chemical fertilizer on credit. The Lao firms facilitate the entire contract farming process on the Lao side: channeling the inputs (seed and fertilizer) to Lao farmers. The Thai companies provide credit financing and market access. If the promoted crop requires technical training, that too is provided by the Thai company. 44. In 2008, the contract farming project was expanded to include Saravan and Sekong provinces. Fourteen crops were au- thorized under the ACMECS arrangements for each of the provinces, with three com- panies in Saravan and two companies in Sekong signing trade contracts with Thai companies. Most of the crops are essentially The recently established Phongsavanh Bank is promoting itself as a full-service the same as those for Champasak Province. international bank, with modern branches throughout Lao PDR. A branch was opened in Paksé in March 2009 to support the expansion of agricultural production and contract farming. It recently was granted authorization by the Bank of Thailand to 45. In addition to the contract farming open a branch in Ubon Ratchathani Province to provide full-service banking to Thai project, the Ubon Ratchathani provincial and Lao cross-border traders. The bank also is collaborating with a Thai agribusiness commerce office operates a business to finance a contract farming project in Pakxong District for the production of green (bell, sweet) peppers for export to Thailand. matching project that promotes trade and investment between Lao and Thai compa- nies. The 5th MOU 2009 lists 15 categories of products and 24 activities that qualify for Thai Government trade promotion 46. Each MOU lists the Lao and Thai incentives, presented in Table 4. The busi- companies that have registered with their ness matching project also expands the respective provincial commerce office to coverage of investment promotion to participate in the contract farming and include Saravan and Sekong provinces. cross-border trading program. The 5th Table 4: Business Categories Promoted by the Ubon Ratchathani Provincial Commerce Office for Joint Ventures with Lao Investors 1. Construction materials 9. Agricultural production inputs 2. Tourism 10. Consumer goods 3. Hotels 11. Fresh and dried foods 4. Cosmetics 12. Health and medical facilities 5. Spas / Massage facilities 13. Equipment / air conditioning 6. Restaurants 14. Furniture 7. Vehicle repair and maintenance 15. Interior decorating 8. Agricultural equipment SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 26 FOCUS ON CHAMPASAK PROVINCE PHOTO 7: CENTRAL MARKET AT MOU (2009) lists four Lao companies 49. To facilitate the marketing process PAKXONG DISTRIC based in Champasak that are participating for farmers and local traders, a new central in the contract farming project, namely: market was constructed in 2007-8 in - Pakxong Development Enterprise Pakxong District, by the Asian Export-Import Development Bank (ADB) supported - Bolovens Plateaux Trade Development Smallholder Development Project. The Company GOL, through the Pakxong District - Société Lao Import-Export (provincial Industry and Commerce Office (DICO) enterprise) facilitates production and marketing - Seng Arthit Development Company arrangements for participating enterprises (Lao-Thai joint venture) and farmers through this market. The DICO plays a role as an arbitrator among the key 47. The four participating Thai coun- stakeholders; supervisor of the district-level The recently completed central mar- terpart companies (sole-proprietorships state enterprise that manages the central ket at Pakxong District, Champasak registered in Thailand) that provide trade market at Pakxong, where trading will take Province. Pakxong District commerce financing, credit in kind to farmers, and place in the future; coordinator with farmer officials are working with local agro- enterprises to develop this market as market access were identified by the names production and management groups a wholesale market for food and of their owners, namely: organized by the ADB supported agricultural commodities produced - Mr. Teu Smallholder Development Project to by smallholder farmers on the - Mrs. Vannapha produce crops for export; and, liaison with Bolovens Plateaux. The plan is for products to be shipped to Thailand - Mrs. Chit Khanthong other GOL agencies at the district level. A and Vietnam from this market. - Mrs. Phet Loy more detailed description of the operations at the Pakxong central market is presented 5.2.3 Central market at Pakxong as Attachment 9. District, Champasak Province 50. The manager of the district level 48. Soon after the first MOU for enterprise created to administer the contract farming was signed in 2005, an `ad Pakxong Central Market has demonstrated hoc market' was established by Thai buyers the important role that a knowledgeable, a few kilometers from the Lao-Thai border effective, and reliable official can play in near the village of Ban Vang Tao, supporting and facilitating trade Phonthong District, Champasak Province. development. He is eager to know about This facility has been operating as a trade and market developments and serves logistical point of transfer of commodities as a channel of information for public from Lao to Thai transporters. In addition, officials, entrepreneurs, traders, and many farmers from Pakxong District travel producers. He is an important liaison (100 kilometers) to sell their produce to between the local government and Thai buyers at this trading center. A more business, keeping everyone informed of detailed description of this market facility frequently changing circumstances. He also is presented below (Lead crops: Cabbage is a strategic thinker, understanding the and Chinese cabbage). unique trade opportunities available to producers on the Bolovens Plateaux and pursuing a trade development agenda that responds to those opportunities. Table 5: Value of Contract Farming Exports from Champasak Province, 5.2.4 Promotion of agricultural 2005-2008 exports from Champasak (million US$) Province Year Value of Agricultural Exports 51. Data provided on the contract farming project by the Champasak PICO 2005 2.4 presented on Table 5 indicate a significant 2006 2.8 increase in the value of food and agricultural exports to Ubon Ratchathani 2007 5.9 between 2005 and 2008. 2008 9.2 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 27 Table 6: Value of All Agricultural Exports from Champasak Province, 2007- 2008 (million US$) Commodity Year / Value +/- % Change 2007 2007 Coffee 31 29 - 25 Vegetables (unprocessed) 6 9 + 50 Wood 10 7 - 30 Total 47 39 - 17 52. Between 2005, when the 1st MOU company (STB Agency Ltd., Part., was signed, and 2008, when the 4th MOU Northern Region Agricultural Product- was operational, the value of agricultural Central Market Chiangmai Province) to exports from Champasak to Ubon promote the production of bell peppers by Ratchathani increased more than 280 farmers in Pakxong District. To date 68 percent, from US$2.4 to $9.2 million. smallholder farmers are participating as members of joint-liability credit groups, 53. The PICO reports that while the also providing collateral in the form of land value of all exports from Champasak documents to the bank (e.g., land Province in 2008 increased from US$47 occupancy or land use right documents million in 2007, to $49 million in 2008, the endorsed by village chiefs). Financial value of agricultural exports decreased to support is provided in the form of credit in $39 million, from $47 million in 2007. The kind in three phases to 2011. Since the decrease is reportedly a result of lower Phongsavanh Bank's program was coffee prices during 2008. Other products launched earlier in 2009, it is too early to (specifically shoes) exported to Europe had comment on its results. a value of approximately $10 million. The breakdown of the value of agricultural 55. Brief discussion of microfinance: exports is presented on Table 6. The Phongsavanh Bank is one of the first commercial banks in Lao PDR to organize 54. It is very likely that the demand for and operate a bank supported crop food and agricultural products from the production program. Although the GOL's Bolovens Plateaux will continue to expand Agriculture Promotion Bank (APB) was with the implementation of AFTA in 2010. established to operate such programs, and Likely in response to the continued was a pioneer in providing credit to liberalization of trade relations among smallholder farmers in the 1990s and early ASEAN member countries and in 2000s, institutional interference seriously anticipation of expanded regional trade, a hampered bank operations since its new Lao banking corporation, the launching. Numerous studies and Phongsavanh Bank (see photo above), was successful programs highlight the registered in Lao PDR in 2007. The bank important role of microfinance, short-term recently opened a large, modern branch in production credit, and small loans to micro- Paksé. Bank representatives have signed a enterprises in alleviating poverty. MOU with Pakxong District trade officials - A 2008 study by Kongpasa Seng- and have made available US$1 million in sourivong, examining microfinance credit to support the production of bell from village-based savings and loan peppers (Capsicum annuum)9 on the projects, conducted in six villages during Bolovens Plateaux. Further to discussions 2005 - 2006, in a semi-urban area of Lao with the Phongsavanh Bank in Champasak PDR, points to positive outcomes includ- (August 2009), bank managers pointed out ing increases in house value, household 9 Sometimes also referred to as green peppers or sweet that they were collaborating with a Thai livestock production income, household peppers. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 28 FOCUS ON CHAMPASAK PROVINCE agriculture production income, house- lessons learned from these successful hold rental expenses, and household ed- micro-finance interventions. ucation expenses. The results from this study illustrate that savings group par- 56. The MOU between Champasak ticipation has large positive and signif- and Ubon Ratchathani clearly has been icant effects on all of these outcomes, ex- important to both the Lao and Thai. cept household agriculture production in- Specifically, the Lao have benefitted in come. Essentially, the participation in a several ways, namely: savings group can increase household as- - With access to Thai markets assured, sets, household income from self-em- agricultural production in Champasak ployment activities, and support the and Saravan provinces has been inten- education of children.10 sified. Lao farmers have responded to - Similarly, a recent study11 was the contract farming project in large undertaken by the World Bank on the numbers to meet the needs of Thai impacts of the Thailand Village and markets: at times beyond what Thai Urban Revolving Fund (Village outlets can absorb. On-farm small- Fund) on household expenditure, holder income likely has increased and income, and assets. Financing of the poverty can be expected to be reduced. Village Fund was from the - Having a larger number of farmers par- disbursement of $2 billion to locally- ticipate in contract farming has con- run committees in almost all of tributed to agricultural diversification, Thailand's 74,000 villages and more increased agricultural incomes and the than 4,500 urban communities in 2001. production of commercial crops, while By May 2005, the committees had lent reducing poverty; increased the use of a total of about $8 billion, with an improved seeds and plant material, and average loan of $466. The World created on-farm income generating op- Bank's evaluation reveals that portunities: all important agricultural participants had 1.9 percent more policy goals of the GOL. income, 3.3 percent more expenditure, - Planning of agricultural production and and about 5 percent more ownership of commodity marketing have been facil- durable goods than non-participants. itated significantly with the knowledge - Finally, the Grameen Bank (GB)12 in that Thai traders have agreed in princi- Bangladesh provides credit to the poor ple to pay a minimum or floor price for who have no collateral. The Grameen selected products (i.e., cabbage and Bank's system is based on mutual trust, Chinese cabbage). The floor price accountability, participation and mechanism is not 100 percent reliable, creativity. As of July 2009, it has 7.93 but it has functioned as intended most million borrowers, 97 percent of whom of the time. are women. With 2,558 branches, GB - Lao farmers are exposed to enforcement provides services in 84,573 villages, of quality standards (i.e., number of ba- covering more than 100 percent of the nanas on a hand and number of hands on total villages in Bangladesh. The GB a stem) and introduced to sanitary and stopped accepting donor funds in 1995 phytosanitary (SPS) standards. Their and has been profitably self-sustaining level of awareness of maintaining prod- since 1992. The cumulative amount uct quality and linkage to prices has been disbursed since 1983 is more than raised significantly. US$8.27 billion; with a rate of recovery - The Ubon Ratchathani business 10 Sengsourivong, Kongpasa. The Impact of ration of 97.89 percent. The average matching and contract farming projects Microfinance on Household Welfare: Case Study of a loan size for a micro-enterprise is encompassed in the 5th MOU define Savings Group in Lao PDR. Vientiane: EBIT Consultancy Co., Ltd., 2008. $361.32. The GB is recognized mechanisms that provide a credible role internationally as the most successful for the public sector. Through the 11 Boonperm, Jirawan, Jonathan Haughton, Shahidur R. micro-finance programs aimed at contract farming project, exporting Khandker. Does the Village Fund Matter in Thailand? Policy Research Working Paper 5011. Washington: alleviating poverty of the poorest agricultural products from Lao PDR World Bank, July 2009. people. has been systematized, providing an 12 Grameen Bank. Accessed on 23 August 2009, - Efforts of the Phongsavanh Bank, opportunity for the GOL to play a more www.grameen-info.org discussed above, are building on the constructive role in promoting cross- SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 29 border agricultural trade and - Enhanced trade opportunities and agribusiness investment. strengthened institutional capacity to conduct cross-border trade. 57. Although Lao and Thai entrepre- - Creation of trade clusters and networks neurs have traded food and agricultural between Thai and Lao entrepreneurs products for many decades, the dealings and traders. were largely informal. Ubon Ratchathani's - Reduced labor migration from Lao contract farming project has provided an PDR and the need to budget for opportunity for the Thai Government to services to economic migrants. more formally engage local traders and to - Creation of a positive attitude toward systematize cross-border commerce: per- and a positive image of Thailand and haps for the first time ever. The most Ubon Ratchathani Province. important incentive used to promote partic- - Reduction of any distrust that may ipation by local Thai entrepreneurs is the detract from Thailand's sincere efforts zero tariff rates on selected imported agri- to be of assistance. cultural commodities produced through the contract farming project in Lao PDR (and 59. In summary, the MOU has con- all CLMV countries). Although ASEAN tributed significantly toward systematizing member countries agreed to establish the cross-border trade. It has fostered a greater ASEAN Free Trade Area (AFTA) in 1992, awareness of the existence of international which will result in zero tariff rates on agri- trade procedures among inexperienced and cultural products imported from any uninformed provincial and district officials. ASEAN member country in 2010 (except In addition, it has introduced these officials for food and agricultural products imported to business-oriented contract farming into the CLMV), Thai firms participating arrangements and official border clearance in ACMECS essentially have been operat- procedures, as well as highlighting the ing under such an arrangement since 2005. complexities of trade logistics. The immi- Thai buyers and Lao (and Cambodian and nent enforcement of SPS standards and Myanmar) producers have had a head-start WTO agreements on Lao producers, entre- on formal execution of the AFTA zero tariff preneurs, and traders by Thailand (in rates and should now be able to anticipate 2010), and eventually by Vietnam and and more easily resolve potential difficul- China, will require significant additional ties. As a result of several years of investment in strengthening the capacity of experience with cross-border trade, they Lao human resources, institutions, and have become familiar with official proce- infrastructure to better administer cross- dures, business practices, and potential border trade systems. The alternative may logistic bottlenecks. With the full execution be for Laos to be marginalized by key of AFTA by Thailand in January 2010, it is actors in global supply chains. likely that cross-border contract farming will expand to take even greater advantage 60. ACMECS has provided an official of the agro-ecological potential and com- framework for the five MOUs. The MOUs parative advantage of Lao PDR to produce designate specific roles, responsibilities, a diversity of high value food and agricul- duties, and obligations for which each tural products, including niche market and stakeholder ­ public and private sectors and organic commodities, non-timber forest producers -- is held accountable. The products, and natural crop and livestock annual policy dialogue and technical products. In any case, the ACMECS zero meetings between Champasak and Ubon tariff mechanism will become redundant. Ratchathani provide an opportunity to review and evaluate the strengths, 58. The Ubon Ratchathani provincial weaknesses, threats, and opportunities of commerce office sees the following cross-border trade arrangements over the benefits from the annual MOU: past year and to examine proposals for - Strengthened economic relations resolving those issues. The MOU between Thailand and Lao PDR, documents the results of the dialogue and specifically between Ubon Ratchathani establishes the framework for trade and Champasak provinces. relations for the next twelve months. It is SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 30 FOCUS ON CHAMPASAK PROVINCE therefore important as a tool to manage cross-border contract farming, namely trade relations and to facilitate the assigning responsibilities to key administration of cross-border trade stakeholders; and, (ii) establishing relations. procedures for cross-border trading of commodities from producers participating in contract farming projects. It may be 5.3 Contract farming vs. the possible to use the imminent (1 January Gentlemen's Agreement 2010) AFTA trading system to further develop cross-border trading procedures to 61. It should be noted here that in most the next level; including requiring traders locations where contract farming and agro-processors to have written arrangements are operated in Champasak contracts with producers or farmer groups Province, traders and agro-processors do or associations. The GOL (at some level of not have formal written contracts with administration) likely would have an producers. Instead, the producer-buyer important role to play in the arbitration and relationship is based on trust. This form of enforcement of such contracts. `social contract farming' is referred to by the Ubon Ratchathani provincial commerce 5.3.1 Agribusiness networking: office as a `gentlemen's agreement'. The cabbage `gentlemen's agreement' has been used by Lao and Thai cross-border traders for 64. The ACMECS supported contract decades. In many cases traders on both farming project and accompanying of sides of the border are part of an extended MOUs have focused primarily on family or are friends who have been doing producing and trading fruit and vegetable business for several generations. Given the crops sourced in Champasak and adjacent similarity in culture, traditions, customs, provinces (Saravan and Sekong). The agro- social norms, and business practices ecological conditions on the Bolovens between Lao and Thai people, particularly Plateaux are favorable for producing in border provinces, verbal contracts based cabbage and Chinese cabbage (Brassica on trust have been the norm; written campestris var Pekinensis; that require contracts have been the exception. cooler temperatures to thrive) the year round, as well as Arabica coffee. Cabbage 62. In light of the increased complexity and Chinese cabbage were first introduced of regional and global trading systems, the to Lao producers by Thai traders who functionality of the `gentlemen's agree- aimed to meet seasonal shortages of both ment' gradually will be more limited. The crops in Thai markets. Soon, Thai emerging global trade paradigm is one that consumers expressed a preference for the requires transparency and accountability by better tasting Lao cabbage, which is less all stakeholders; arrangements that can be contaminated with toxic pesticides than monitored through supply side audits; and, Thai products, and consumer demand the maintenance of standards of good cor- increased. As a result of subsequent price porate and official governance, as well as increases, a larger number of Lao rigorous enforcement of SPS standards. It smallholder farmers began to produce both is not likely that `gentlemen's agreements' crops. Through Ubon Ratchathani's can withstand the level of monitoring contract farming project, participating Thai required by these complex standards; stan- traders have supplied seeds, fertilizer, and dards that are executed as normal some pesticides as credit in kind to procedures in most developed areas of the individual farmers and farmer groups; world. By not adopting these standards, sometimes, but not always through Lao Lao producers and traders risk having their traders. Eventually, 38 farmer production food and agricultural products rejected by and marketing groups were organized enterprises operating in global supply through the ADB supported Smallholder chains. Development to produce cabbage and Chinese cabbage under contract to Lao and 62. ACMECS has been useful in Thai traders. Some have written contracts, initiating the process of (i) systematizing but most do not. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 31 65. At harvest time, individual farmers producers of cabbage and Chinese cabbage or farmer group representatives transport in and around Pakxong District selling to the produce for sale at the Lao-Thai border traders, either directly or through a farmer's crossing at Ban Vang Tao, Phonthong group representative. Many farmers District, Champasak Province; located transport their cabbages to the temporary some 100 kilometers from the production sales and transshipment point near the areas in Pakxong District. Initially trading border village of Vang Tao. Similarly, took place at the border crossing itself, but bananas are shipped from Lao Ngam and as a result of the increased volumes and other districts in Saravan Province for sale space required to handle the commodities, to Thai traders at the same temporary local Lao officials and Thai traders market. It is estimated that some 40-50 tons negotiated moving the sales and of farm produce are shipped through this transshipment point to a suitable location market daily. Lao trucks and trailers pulled some 5-6 kilometers inside Champasak by hand tractors laden with produce arrive province. This market operates from about all night. When the Thai buyers arrive in 04.00 to 0.800 hours each morning. the early morning, the produce is unloaded, Although the market is administered by recorded, processed, and re-loaded on to Phonthong District officials, the simple Thai trucks for shipment to Thai markets. thatched roof pavilions were constructed by the three principal traders that purchase at 68. The principal actors that operate at and ship from this transshipment point. the Vang Tao market include: Produce (cabbage and Chinese cabbage - Lao producers delivering their cab- from Pakxong, and bananas from Lao bages or bananas Ngam District, Saravan Province) are unloaded from Lao trucks and trailers 69. The principal actors that operate at pulled by hand-tractors; weighed; recorded; the Vang Tao market include: sorted; peeled; and, packaged (in plastic - Lao producers delivering their cab- bags) for shipment using Thai trucks to bages or bananas outlets throughout Thailand. This market - Producer representatives delivering cum logistics facility operates under the commodities supervision of Phonthong District officials, - Collectors delivering commodities who are responsible for security and sanitation, for which they collect a fee from the Thai traders. DIAGRAM 2: INDICATIVE SUPPLY CHAIN FOR CABBAGES AT THE LAO- 66. The Pakxong District Agriculture THAI BORDER AT VANG TAO, CHAMPASAK and Forestry Office (DAFO) has reorganized the 38 farmer production and management (Note: Dotted line (------) indicates future situation.) groups, originally formed by the ADB sup- ported Smallholder Development Project to produce cabbage and Chinese cabbage for export, into two farmer associations. These enlarged groups are being registered with the Pakxong District commerce and agriculture authorities, thus enabling them to qualify for agricultural production loans from various state banks. Characteristics of the cabbages supply chain 67. An indicative supply chain analysis for cabbage and Chinese cabbage produced in Pakxong District is presented on Diagram 1. The supply chain consists of SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 32 FOCUS ON CHAMPASAK PROVINCE PHOTO 8: CABBAGE MAKE-SHIFT LAO-THAI BORDER MARKET agent) and displayed on the windshield. Many of the decals were observed either to be photocopies or to have been sun- bleached and faded. Commodity prices 71. Based on data collected at the Vang Tao market on 16 July 2009, the prices for the three principal commodities traded at the Vang Tao market are presented on Table 7. 72. Based on a preliminary analysis, the price differential between the farmgate price of cabbages and bananas and the price at the Vang Tao transshipment market - 3 principal Thai buyers appears to be small; ranging between 6.2 - Lao and Thai truck drivers percent for bananas to 9.7 percent for - Lao daily laborers cabbage. The mark up between the Vang - District fee collectors Tao market and Thai markets is relatively greater, ranging for 16.7 percent for 70. Thai trucks that ship commodities bananas to 33.3 percent for cabbage. It is to Thai markets are expected to be likely that the significant price difference registered and issued with a decal (sticker) reflects transaction costs incurred by that indicate that it is carrying produce traders in the course of cross-border Cabbages produced under the contract farming project supported being imported from Lao PDR to Thailand operations. Such costs are said to include by the ACMECS framework being under the ACMECS supported contract fees for rental and maintenance of the Vang unloaded from Lao trucks and re- farming program. This marker is purchased Tao market; parking fees for trucks, and loaded on to Thai trucks at the from the DICO by each trucker (cost: 500 make-shift Lao-Thai border market overtime pay and per diem for district at Ban Vang Tao, Phonthong baht; reimbursable from the Thai buying personnel who collect taxes, maintain District, Champasak Province. Table 7: Price analysis of the principal commodities traded at the Vang Tao Market (16 July 2009) Price per kilogram (244 Lao kip = 1 Thai baht) Location (8,695 Lao kip = US$1.00) Lao kip Thai baht US dollar % change Cabbage - Farmgate: Pakxong District 700 2.90 0.08 - Vang Tao market 768 9.7 3 .00 0.09 - Thailand 895 to 1,151 14.2 ­ 33.3 3.50 to 4.50 0.11 to 0.14 Chinese cabbage - Farmgate: Pakxong District 800 3.28 0.10 - Vang Tao market 854 6.3 3.50 0.09 - Thailand 1,279 33.2 5.00 0.15 Bananas - Farmgate: Lao Ngam District 12,000 49.18 1.44 - Vang Tao market 12,792 6.2 50 .00 1.53 - Thailand 15,350 16.7 60 .00 1,84 SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 33 security, and supervise cleanliness; Française de Développement (AFD). The PHOTO 9: AGPC'S BURLAP BAG immigration and Customs documentation PAB has made significant progress toward FOR COFFEE EXPORTS for Thai trucks and truck drivers; overtime launching Lao coffee as a global brand. For charges, entry-exit taxes, parking, and other example, AGPC's coffee recently was miscellaneous expenses at the Thai and Lao granted both `Fair Trade' and `Certified border check points; fees for Customs Organic' status by European certifying documentation for the commodities; and, organizations and is being marketed in assorted gratuities, surcharges, contribut- Europe. AGPC's membership consists of ions, facilitation charges, and other formal 51 producer groups (2,725 families), and informal payments that are required to located in 84 coffee producing villages in ensure that goods and people flow smoothly. three districts of Champasack, Saravane, & Sekong provinces. They produce Arabica 5.3.2 Agribusiness networking: coffee on 3,300 ha and robusta coffee on coffee 16,000 ha located on the Bolovens Plateaux Burlap bags of the type used to (1,100-1,300 m.a.s.l.). Membership fees are export certified Lao Arabica coffee to Europe. The coffee is produced by 73. Coffee is the largest agricultural 100,000 kip per producer group per year members of the AGPC (Lao coffee export from Lao PDR. Currently an and 20,000 kip per producer per year. producers association) in three estimated 23,000 families depend on coffee Investment in the project has been districts on the Bolovens Plateaux. production for a livelihood. For the most US$25,000 per group (or per village; not part, these producers sell to some 29 including technical assistance). The companies that are members of the AGPC's objective is to make coffee Association of Coffee Exporters, which producers self-sufficient by introducing sells over 10,000 tons of Lao coffee abroad collective wet mills. The PAB project has every year,13 comprising about 3 percent of plans to obtain a geographic indicator (GI) Lao exports.14 Coffee production areas in for coffee sourced on the Bolovens Laos in 2007 covered some 45,000 ha, with Plateaux to establish an `origin' for the 99 percent derived from the south and the coffee. majority on the Bolovens Plateaux and in Pakxong District, Champasack Province 76. The AGPC operates through a (from 400 m.a.s.l. to 1400 m.a.s.l.).15 The network of village representatives and principal varieties produced are Arabica officers of each member group. These units and upland robusta (globally unique). In are supported by 14 coffee technicians paid April 2008, the local price of parchment by the association (currently supported by coffee was 20,000 kip / kg and an estimated the PAB project). In the longer-term, the 10,000 tons was exported from the region AGPC aims to resolve the two most serious in 2007, with a market value of about problems: securing markets for quality Lao US$22.9 million. coffee; and, identifying sources of credit for use by its members. It also hopes to be able 74. Many coffee farmers participate in to negotiate higher prices for its members contract farming arrangements with local by ensuring volumes and guaranteeing the well-known traders and processors. They quality of coffee being sold through the often sell all or a portion of their crop in association. Currently, the services advance, while it is still on the bush, for provided by the association include: which they receive a significantly lower - Surveying the production of coffee price, which serves as the interest on the each season to determine the volume (loan) advance payment.16 They are then that members can be expected to 13 Tea & Coffee Asia, A Romance with Café Lao, 2007. obligated to sell their coffee to these buyers provide for marketing through the 14 at harvest. association; Lord, Montague, Draft of Partial Report: Formulation of ANR Sector Loan, Annex on Trade & Investment, - Regulating the quality of coffee being TA 4843-LAO, ADB & Ministry of Agriculture & 75. The Association des Groupements provided to buyers by groups and their Forestry, March 2008. de Producteurs de Café du Plateaux des members; 15 Keith Chapman, PPTA-4843 (LAO): Agriculture and Bolovens (AGPC), not yet a member of the - Negotiating prices and signing con- Natural Resources Sector Needs Assessment, Phase 2, Coffee Exporters Association, was tracts with buyers on behalf of AGPC Annex: Agronomy, Draft Report, March 2008, p. 18. organized in November 2006 through the members; 16 Personal communication with Mr. Will Thomalson, Point d'Application des Boloven (PAB) - Monitoring international coffee prices investor in the Jhai Coffee Foundation Cooperative, 9 with support from the GOL and Agence and marketing trends and disseminat- February 2008. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 34 FOCUS ON CHAMPASAK PROVINCE PHOTO 10: OKRA PLANTATION AND FACILITIES the company is cultivating okra (Abelmoschus esculentus) on the land, which is processed at a small facility located at the site. The okra is processed, packaged, and chilled prior to export to Japan, via the cross-border check point at Vang Tao and Bangkok International Airport. The facility currently processes approximately 500 kilograms of okra daily. The commodity is not organic but integrated pest management (IPM) technology and reduced application of pesticides is employed. The operation utilizes about 200 local laborers and 85 Lao ing this information to members; and, technicians regularly. The target is to raise - Linking farmers to technical advice production to 2.5 tons per year to meet and advanced coffee production and standing orders from Japan of one ton per processing techniques. day. 77. Although the institutional capacity 79. According to the project managers, and strength of such commodity associa- the local laborers have become increasingly tions has yet to be conclusively tested, capable okra producers and are able to provincial authorities and investors are work without the intensive level of keenly interest in having them play a The land, facilities, and okra crop of supervision that was required when the the Japanese-Thai joint venture, greater role in coordinating production with project began. The company is planning to Taniyama-Siam Co., Ltd from farmers. AGPC members have benefited by expand okra production through contract Thailand. This Thailand based firm moving up the coffee value chain. By expanded its production to Thateng farming with local farmers using the adopting improved production technolo- District, Sekong Province, in 2007. laborers trained at the project, using the The small okra processing facility gies, farmers have increased the `2+3' approach.17 This also will allow the can package 50 tons per day. productivity of their coffee trees, a farm company to use the land concession to Current production is sufficient to asset. By processing their raw coffee using process 2.5 tons per day. The experiment with other crops, including the wet mills, they are able to add value to company has plans to diversify into asparagus and carrots; for export to the other crops and to encourage their assets and to create wealth, thus alle- Japanese market. plantation workers to become viating poverty. Working as a group, AGPC contract farmers. members have been economically empow- 8. This model demonstrates how a ered and are in a better position to negotiate relatively small investment was effective in with buyers than they were when they were developing a product previously unknown selling raw coffee beans as individual in Laos: okra, which has a niche market in growers. Japan. Some of the critical factors for success would likely include: 5.3.3 Agribusiness networking: - Previous experience of the company the Japanese connection with large-scale okra production in Thailand; 78. The Taniyama Siam-Advance Agro - Facility in obtaining a land concession Company is a Thailand-Japan joint venture in an area with fertile soils; located in Thateng District, Sekong - Satisfactory road infrastructure to Province. The Taniyama Siam Company facilitate the transport of processed has had a successful joint venture in okra from Thateng District to the Thailand for the production and export of international airport in Bangkok; and, vegetables to Japan for several years before - Japanese and Thai technical assistance deciding to expand their program to more was available for a reasonable period to fertile land in Lao PDR. Taniyama Siam train Lao laborers to cultivate a crop took over the Advance Agro investment in previously unknown to them. Lao PDR in May 2007, investing 17 The `2+3' approach means that farmers provide land approximately US$1.88 - $2.19 million in a and labor (`2') while the investor provides credit, 81. Although the model is relatively 62 ha 30 year land concession. Currently, technology, and market access (`3'). self-contained, it provides a vision of future SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 35 plantation-style agricultural production, well as the overall value. The data Lao style; with on-site or local value-added presented in a time series format should processing for export, linked to producers be analyzed to identify export market trained in advanced agricultural production growth, product performance, and techniques by private agribusiness. Farmers trends that reflect export market who are trained in producing one or more preferences. crops at a land concession (or on land - Trade competitive index: A trade com- rented from local farmers who are then petitive index could be established for trained and paid to work their own land as Champasak Province to identify the company workers18) soon realize that they most conducive trade outlet for food and are able to earn more by producing a crop agricultural products produced in the under contract to a company than working southern region. This index could consist as a daily laborer. The straightforward of several sub-indices including: a Taniyama-Siam model has the potential to Trade-Enabling Environment Index, be replicated successfully elsewhere in Lao reflecting the economic and local insti- PDR. tutional environment's conduciveness to trade; a Productive Resource Index, measuring the availability of direct 5.4 Measuring Trade Dynamics inputs to production, such as land and la- bor; and, an Infrastructure Index, meas- 82. Cross-border trade of food and uring the availability of indirect inputs agricultural products in the Champasak- that enable the movement of goods and Ubon Ratchathani agroindustrial alignment services, including transport networks, is likely to continue to grow, particularly energy infrastructure, and communica- considering the execution of AFTA in tion networks. January 2010. It is anticipated that an - Trade and development index: A trade increasing number of Thai (as well as and development index could be Vietnamese and perhaps Cambodian) formulated for Champasak Province on traders, investors, and agro-processors will a pilot basis (for application later to take advantage of AFTA's zero tariff rate to other border provinces) to provide a seek sources of raw materials and scarce quantitative indication and an products from Lao sources. In addition to analytical framework to identify the strengthening the collection of cross-border impacts of provincial trade and trade statistics at the various Customs development policies in terms of check-points and provincial trade maximizing benefits and minimizing performance, additional indicators could be costs from trade liberalization and adopted by the Champasak PICO to better globalization. The impacts of trade measure the dynamism of trade would be measured in terms of human development, including: development (based on the Millennium - Trade and market access profiles for Development Goals) as well as health selected crops: In the case of Cham- expenditures per capita, domestic credit pasak, these crops could include coffee, to agriculture and agribusiness, access cabbages and Chinese cabbage, to water, electricity, and education; bananas, peanuts, soybeans, and green access to standard (Basel 2) banking (bell or sweet) peppers. services, and gender development - Export/import performance of statistics. Champasak Province: A comparison between export figures for food and agricultural products produced in Champasak Province with agricultural production inputs used by farmers in the province. - Export prices: Data could be collected on export prices for all food and 18 This model is used successfully by the Lao Agro agricultural products produced in Industry Company to produce sweet corn for export Champasak Province for export, as from Thoulakhom District, Vientiane Province). SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 36 FOCUS ON CHAMPASAK PROVINCE 6. RECOMMENDATIONS OF FEASIBLE INTERVENTIONS AND REQUIRED POLICY ACTIONS NECESSARY TO SUPPORT CROSS-BORDER AGRIBUSINESS DEVELOPMENT IN LAO PDR 6.1 Recommended policy regional meetings and technical workshops actions should be organized to inform and instruct agro-processors and traders about SPS 83. The GOL should adjust cross- requirements, procedures, and document- border trade policies to be more ation. inclusive; thereby ensuring that trade contributes both to economic growth and 86. The GOL should schedule a com- balanced social development. This can be prehensive review of trade infrastructure achieved through the implementation of facilities in light of emerging changes in policies that protect intellectual property trade relations among neighboring coun- rights, enforce labor and environmental tries; to take into consideration economic standards, and further liberalize the service and trade impacts from the East-West sector. Specific indicators used to measure Economic Corridor and the full imple- the dynamics of trade liberalization and mentation of AFTA in January 2010. globalization should be adopted (see Consideration should be given to upgrading Measuring Trade Dynamics above). strategic trade roads in southern Lao PDR, specifically roads that would facilitate trade 84. The GOL should adopt a supply with Cambodia and Vietnam; and, roads that chain analysis approach to agribusiness would stimulate investments in small- and development that would identify weak medium-scale agro-processing enterprises. links as well as trade and investment op- Funding for infrastructure investments portunities in cross-border agricultural should be sought from strategic trade partners production supply chains. Policy objectives who have vested interests in developing the would include improving the organization trade facilitating infrastructure in Lao PDR. and management of cross-border trade; supporting more systematic contract farming arrangements between smallholder farmers 6.2 Potential interventions and regional agribusiness; improved manage- ment and dissemination of market informa- 87. Undertake additional scoping tion; and, a clear role for government in mon- studies on cross-border agricultural itoring and evaluation of commercial agri- commodity trade and agribusiness cultural development arrangements (i.e., development in border provinces with contract farming and agricultural conces- high priority for accelerated investment sions). and growth. The criteria for selection of locations for the scoping studies (similar to 85. The GOL should intensify this one for Champasak) could include the support for the development of human following: (i) trade development priorities and institutional resources to harmonize of the GOL; (ii) intensity of interest by SPS inspection procedures with key regional and international investors; (iii) trade partners. Crossborder sanitary and the level of completion of transportation phytosanitary (SPS) procedures should be and market infrastructure (i.e., prepared- applied more effectively to domestic ness for accelerated trade development); production to ensure raw material and, (iii) willingness (based on commit- traceability and accountability in existing ment and level of awareness) of provincial and expanding supply chains. Rigorous officials --- namely, senior provincial application of SPS standards to Lao food administrators, planning and investment and agricultural products would enhance officials, agriculture and forestry officials, the quality of Lao products leading to the and industry and commerce officials --- to development of a quality Lao brand in collaborate, in an effort to facilitate cross- global markets. In this regard, the GOL border trade and investment. In applying should take the lead in mobilizing resources these criteria, it is recommended that a to engage agribusiness leaders and scoping study for Savannakhet Province be concerned business associations to become given high priority. Subsequent scoping familiar with SPS issues and the need to studies also could be considered for harmonize Lao food safety regulations with Attapeu, Bokeo, Khammouane, Luang WTO standards. A series of high-profile Namtha, Xayabouli, and Xieng Khouang. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 37 88. Initiate contract farming pilot would contribute to achieving policy objec- projects in all regions of Lao PDR within tives related to development of border areas the framework of AFTA and similar with neighboring countries; supporting and agreements (with China), using promoting Lao enterprises and entrepre- Champasak Province as a model, with a neurs to undertake international business; carefully defined role for government,. elimination of constraints to full participa- The development objective of the tion in the World Trade Organization and intervention would be to upgrade the AFTA; establishment of industrial process- technical capacity of Lao smallholder ing that uses agricultural and forestry farmers to systematically produce a products; and, promotion of production for diversity of high quality raw materials on a export and transit trade. continuous and dependable basis. This would be achieved by (i) effectively linking 90. Creation of a cell-phone-based smallholder farmer production and Lao Agricultural Marketing Information marketing groups to domestic and regional System (LAMIS) that would facilitate ac- agro-processors through contract farming; cess to market information for smallholder (ii) opening access to regional markets for producers and SMEs. The objective of this Lao food and agricultural products; and, intervention would be to promote economic (iii) transferring industry-best technologies empowerment among smallholder farmers and best practices to Lao farmers to ensure and SME through increased access to market that SPS standards are met. This information by way of contact with domestic intervention would contribute to achieving and regional traders and contract farming or- policy objectives related to establishing a ganizations. The intervention would build on steady supply of agricultural raw materials the existing Agricultural Marketing Informa- for domestic processing industries and to tion System (AMIS) at the Department of increase the export share of agriculture and Production and Trade Promotion, supported forestry products to 30 percent of total by a loan from the Asian Development exports (approximately US$1 billion) by Bank. The existing system that focuses on 2010. agricultural commodity prices would be strengthened and expanded to include infor- 89. Development of ASEAN Indus- mation related to quality and bio-safety trial Estates in designated industrial standards that comply with ASEAN and development zones at major border WTO procedures and principles. Price infor- crossings, using Champasak Province as mation from major regional agricultural a functional model. The GOL could des- markets (e.g., Bangkok, Ho Chi Minh City, ignate `preferred development zones' in Singapore) also could be added. selected areas near border crossing points wherein a one-stop service for processing of all aspects of business registration and 6.3 Indicative suggestion for trade and investment services would be possible TDF financial available to investors. The objective would interventions be to overcome the cumbersome, time con- suming, and discretionary procedures 91. Champasak Trade Moderniza- currently in use. The industrial estates tion Project (Champa-TMOP): A new would be created around existing industrial trade dynamic is emerging in the GMS. clusters (e.g., Beer Lao in Champasak Accelerated cross-border trade between Province), to attract small- and medium- Champasak and Ubon Ratchathani and scale support enterprises as well as emergence of a synergistic alignment is additional large-scale investments. To pro- evidence of this transformation. Local mote investment in the `preferred agribusiness organizations, producer asso- development zones,, an ASEAN road-show ciations, agro-industries, and research and would be staged in Kunming, Hanoi, Ho financing institutions are rapidly expanding Chi Minh City, Bangkok, and Singapore, their knowledge-base. Chinese, Thai, and with the objective of promoting agribusi- Vietnamese agro-enterprises increasingly ness trade and investment opportunities in realize the multiple benefits of the agro- selected areas of Lao PDR. The project ecological and strategic location of the SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 38 FOCUS ON CHAMPASAK PROVINCE currently active in the production and pro- cessing of food and agricultural products from Champasak Province. 93. The principal outcomes from the project would include: - Modernization of the trading system for food and agricultural products from Champasak. - Champasak-based agribusiness enterpris- Champasak­Ubon Ratchathani corridor es would be engaged with global supply when compared to elsewhere in the GMS. chains. While significant potential and opportunity - Officials, entrepreneurs, and producers exist in the area and provide the necessary have a better understanding of interna- pull factors for expanded growth, equally tional trade. essential push factors from the public sec- - The awareness of food and agricultural tor are generally weak. commodity quality standards and trends in international bio-safety requirements 92. The long-term development objec- trade will be raised among officials, tive of the Champa-TMOP is to create an en- traders, entrepreneurs, students, and abling environment for expanding the trade producers. of agricultural commodities produced in Southern Lao PDR. The proposed project 94. MOIC would be the executing would have three components, namely: (i) agency of the project, and DPTP and installation of science-based quality control Champasak PICO would be the imple- laboratories and professional inspection menting agencies. A project steering procedures; (ii) implementation of a quality committee would provide policy guidance standards awareness program; and, (iii) de- and a Champasak based implementation velopment of an agroindustrial cluster. The committee and a project management principal actors would include, but not be unit would have responsibility for imple- limited to, MOIC, DPTP, Champasak PICO, menting project activities over a two year Champasak University, Ubon Ratchathani period (24 months). An indicative budget University, and one or more agro-enterprises for the project is estimated at US$132,300. LIST OF ATTACHMENTS Attachment 1: Terms of Reference of the Consultant Photos of an increasing number of agricultural products produced in Attachment 2: Itinerary for missions to Champasak, 31 May-7 June and 10-12 Southern Lao PDR being exported August 2009 through Champasak Province. Attachment 3: List of persons met during missions to Champasak Attachment 4: Results of the review of existing analytical work on agribusiness and agricultural exports Attachment 5: Summary description of the concession authorization procedure Attachment 6: Business registration and licensing procedures Attachment 7: Agribusiness related investment projects proposed for Champasak Attachment 8: Ayerwaddi - Chao Phraya - Mekong Economic Cooperation Strategy (ACMECS) Attachment 9: Description of the Pakxong District Central Market Operations Attachment 10: List of references Attachment 11: Comparison of selected key concerns of ACMECS, AFTA, and WTO agreements Attachment 12: Export trade forms SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 39 ATTACHMENT 1: BASIC CONCEPT / TERMS OF REFERENCE FOR A SCOPING STUDY ON CROSS- BORDER AGRIBUSINESS IN LAO PDR OBJECTIVE the forms can be obtained and how much The key objective of this assignment is to each costs, including particularly differ- investigate recent efforts in Champassak ent costs for ACMECS, ASEAN Form province to facilitate cross-border D, AISP, and under the Memorandum of agribusiness investments and to assess the Understanding with Ubonratchathani potential that such arrangements have to province, Kingdom of Thailand. generate exports, employment and income - Provide a brief assessment of the possible generating activities in the Lao PDR. The impacts of the ACMECS framework, consultant should seek to identify the Thailand's upcoming AFTA commitment obstacles to facilitating cross-border starting from January 1, 2010, and Lao agribusiness investments, and gauge the PDR's ongoing WTO accession negoti- institutional efforts and results that have ation, on agribusiness development, fo- been achieved in this area by the local cusing on the case of Champasak authorities in Champassak. province. - Finalize and submit a final report. SPECIFIC TASKS The consultant is expected to carry out the DELIVERABLES following activities: Draft and final reports of no more than 20 pages (excluding annexes), with clear and 1) Conduct a brief desk review of exist- specific recommendations for policy and for ing analytical work on agribusiness feasible interventions. The target audience and agricultural exports, including key for this study is the World Bank Vientiane constraints to development, in Lao Office, and the Ministry of Industry and PDR. Commerce (National Implementation Unit 2) Investigate and review the efforts by the and Department of Production and Trade Pro- provincial authorities in Champassak to motion). facilitate cross-border investment in agribusiness. ANTICIPATED INPUTS 3) Prepare a draft report to present recom- The expected duration of service is 20 days. mendations of feasible interventions and required policy actions necessary REPORTING to support cross-border agribusiness The consultant will work closely with the development in Lao PDR. PREM cluster staff in the World Bank Lao 4) Organize a dissemination workshop to Country Office, and will report to Richard present the draft report for critical Record, Trade Specialist. review. 5) Revise and submit a final report. Additional specific tasks (Draft ­ August 4, 2009) In order to gather additional information to fulfilling the above objective, the consult- ant will perform additional tasks arising from his previous assignment. These spe- cific tasks are to: - Draft a concept note for raising private sector awareness of sanitary and phy- tosanitary standards in agricultural production and how to scale up into private sector SPS intervention on veg- etable production in Champasak province (an annex to the final report.) - Provide additional review on the process- es, times and requirements of detailed procedures, forms and paperwork that are required to export agro products, where SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 40 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 2: ITINERARY FOR MISSIONS TO CHAM- PASAK 31 MAY-7 JUNE AND 10-12 AUGUST 2009 Agribusiness Scoping Mission to Champasak Province, Lao PDR 31 May to 7 June 2009 Department of Production and Trade Promotion Mr. Khampanh Sengthongkham, Deputy Director General Mr. Sysangkhom Khotnhotha, Division Deputy Chief Mr. Somvixay Vongthirath, Division Staff Ms Pinphakone Xayavong, TDF GSEU Project Coordinator National Implementation Unit Ms. Vilayvanh Bounleuth, Trade Analyst World Bank Mr. Richard Record, Trade Specialist Mr. Konesawang Nghardsaysone, Trade Analyst Consultant Mr. Anthony M. Zola, Lead Researcher and Agribusiness Development Specialist Day Date Activity Remarks 1 Sunday, Afternoon: Thai Airways TG022, lv Bangkok at 1340 hours; arr 31 May Zola travels by air from Bangkok to Ubon Ubon at 14.45 hours; travel by road to Paksé. Ratchathanee and by road to Paksé, Lao PDR. Zola stays at Seng Aroun Hotel, Paksé, tel. +856-21-216-906 2 Monday, Morning: Agenda for PICO: 1 June 0900 hours: Meeting with Deputy Director of Discussion on trade and investment in Champasak, Champasak Province Industry and Commerce including plans to promote agribusiness and Office (PICO). incentives for regional investors. 12.00 hours: Lunch in Paksé. Review of implementation of ACMECS. Discuss implementation of 5th MOU between Afternoon: Champasak and Ubon Ratchathanee. 13.30 hours: Meeting with Deputy Director of Obtain detailed data on domestic, regional, and Provincial Agriculture and Forestry Office (PAFO). international trade through Champasak customs 16.00 hours: Team Wrap-up Meeting; impressions check points. of the day. Obtain detailed data on domestic, regional, and international foreign investors in Champasak. Agenda for PAFO: Discussion on agribusiness investments in Champasak. Obtain data on production and area of food and agricultural products produced and those produced for specifically for export. Discuss MAF and PAFO plans to build links to agribusiness. Discuss any crop diversification program. 3 Tuesday, Morning: Agenda for discussion with PLMA: 2 June 0900 hours: Meeting with Mr. Sutsamonh Discuss plans for industrial development zones. Thongchaleun, Deputy Chief, Planning Division, Discuss plans for special trade zones at Thai and PAFO, Champasak; to discuss availability of land in Cambodian borders. Champasak Province for plantations and Discuss land classification for agricultural and concessions. agribusiness development. 10.30 hours: Meeting with Mr. Bounsay Other land related issues linked to facilitating Saphangthong, Deputy Director, Champasak agribusiness trade and investment in Champasak. Provincial Land Management Agency (PLMA) 12.00 hours: Lunch in Paksé. Afternoon: 13.30 hours: Meeting with Mr. Viengkham Sinsanguouane, Administrator, Lao Coffee Exporters Association, and selected members, to discuss trade issues. 15.30 hours: Meeting with Mr. Chansamone Lomany, General Manager of AGPC, to discuss coffee trade issues. 17.00 hours: Team Wrap-up Meeting; impressions of the day. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 41 Day Date Activity Remarks 4 Wednesday, Morning: 3 June 08.30 hours: Meeting with Mr. Chinda Vongsouly, President, Champasak Chamber of Commerce and Industry and selected members, to discuss agricultural trade issues. 09.30 hours: Mr. Bounmee Khamphihoun, Chief, Investment Section, Provincial Planning and Investment Office, to discuss plans for development of industrial estates and special economic zones. 10.30 hours: Meeting with Mr. Mr. Xamlath Boulath, Chief, Tax Section, Finance Division, to discuss issues related to taxation procedures for agricultural exports. 12.00 hours: Lunch in Paksé. Afternoon: 13.30 hours: Meeting with Lao Import-Export Company, Paksé; to discuss export procedures. 15.30 hours: Meeting with Seng Arthit Development Company, Phonthong District; to discuss trade with Thailand. 17.00 hours: Team Wrap-up Meeting; impressions of the day 5 Thursday, Morning: 4 June 07.00 hours: Travel to Ban Vang Tao, Phontong District, Lao-Thai border, to observe market activities. 08.00 hours: Travel to Ubon Ratchathanee, Thailand. 10.00 hours: Meet Mr. Richard Record and others from World Bank, traveling to Ubon Ratchathanee from Khon Kaen. 10.30 hours: Meeting with Ubon Ratchathanee Provincial Commerce Office, to discuss trade issues with Champasak. 12.00 hours: Lunch in Ubon Ratchathanee. Afternoon: 13.30 hours: Meet with the President of the Ubon Chamber of Commerce and selected members, in Ubon; tel. +66 45 243-603. 15.00 hours: Visit to wholesale market, Ubon Ratchathanee. 16.30 hours: Travel to Paksé. 6 Friday, Morning: 5 June 08.30 hours: Meeting with Mr. Bertrand Salee, Technical Advisor/Coffee Expert, PAB, in Paksé to discuss trade issues related to coffee; Office Telephone : 031-214-126. 09.30 hours: Travel to Pakxong District. 10.30 hours: Meet with Director, Pakxong District Industry and Commerce Office and Director, Pakxong District Agriculture and Forestry Office; and, Mr. Bountieng, Director, Phouphieng Bolovens Development Company, to discuss trading activities and issues related to trading food and agricultural products. 12.00 hours: Travel to Thateng District, Sekong Province. 12.45 hours: Lunch in Thateng. Afternoon: 13.30 hours: Visit to Taniyama-Siam Company, Thateng District, Sekong Province. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 42 FOCUS ON CHAMPASAK PROVINCE Day Date Activity Remarks 14.30 hours: Meet with Director, Thateng District Industry and Commerce Office, Thateng District, Sekong Province; to discuss agribusiness investments in the district and trade issues. 15.00 hours: Travel to Xeset Hydropower Project, Lao Ngam District, Saravan Province. 15.30 hours: Team Wrap-up Meeting at Tadlo Lodge, Xeset Hydropower Project. Discussion of next steps. 17.30 hours: Travel to Paksé. 7 Saturday, Morning: 6 June 09.00-12.00 hours: Visit to potential sites for the Study Workshop Afternoon: World Bank officials travel back to Vientiane. Zola: Report preparation 8 Sunday, Morning: 7 June DPTP officials travel to Vientiane. Zola travels to Bangkok. Scoping Study on Cross-border Agribusiness in Lao PDR World Bank & Department of Production and Trade Promotion Ministry of Industry and Commerce Itinerary Fact-finding Mission to Champasak Province, Lao PDR 10-12 August 2009 Participants: 1. Mr. Anthony M. Zola, Lead Researcher and Agribusiness Development Specialist 2. Mr. Phaitoun Ietsomesouk, Technician, Champasak Provincial Industry and Commerce Office, Paksé Day Date Activity Remarks Monday, Morning: Thai Airways TG022, lv Bangkok at 1340 hours; arr 10 August Review of draft report and comments from Paksé Ubon at 14.45 hours workshop held on 23 July 2009. Afternoon: Zola travels by air from Bangkok to Ubon Ratchathani. 15.30 hours: Meeting with representatives of the Contact: Food Science Department, Faculty of Agriculture, Professor Michael D. Hare, and others concerned at Ubon Ratchathani Ubon Forage Seeds, University, Thailand Proposed Agenda for Meeting Faculty of Agriculture, at Ubon Ratchathani University Introductions by Dr. Ubon Ratchathani University, Michael Hare. Ubon Ratchathani 34190, Welcome to Mr. Zola by a University THAILAND Representative. (66) 081 879 6263 Brief summary of the Trade Development Facility study on cross-border trade between Champasak and Ubon Ratchathani provinces by Mr. Zola. Briefing on the faculty, staff, and research and SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 43 Day Date Activity Remarks academic priorities of the Department of Food Science of Ubon Ratchathani University by a University Representative. Including a description of any initiatives with the public and private sectors related to food safety and sanitary and phytosanitary (SPS) standards. 17.00 hours: Zola travels by road to Paksé, Lao PDR. Zola stays at Seng Aroun Hotel, Paksé, tel. +856-21-216-906 Tuesday, Morning: GOL Counterpart: Mr. Paitoun, 020 5277772 11 August 0900 hours: Meeting with Mr. Somboun Agenda for PICO: Vongkhamla, Deputy Director, Industry and Discuss forms and paperwork requirements Commerce Division, Provincial Industry and required to export agro products - in particular the Commerce Office (PICO), Paksé, different costs for ACMECS, ASEAN Form D, AISP 1030 hours: Meeting with Mr. Champa and under the MoU with Ubon. Review the different Khamsouksay, Director, Provincial Planning and requirements, processes, times, where the forms Investment Office, cell phone: 202-550-0678, to are obtained, and how much they each cost. discuss plans for development of agribusiness Zola stays at Seng Aroun Hotel, Paksé, clusters in Champasak. tel. +856-21-216-906 Afternoon: 13.00 hours: Meeting with Mr. Chongkao Surathathaom, Technician, Product Inspection Unit, Science and Technology Division, Paksé 13.30 hours: Meeting with Mr. Viengkham Sinsanguoane, Administrator, Lao Coffee Association, Paksé, Champasak; Office: 031 212 644; to discuss export procedures for coffee. 15.30 hours: Meeting with Mrs. Kinphakone Nhouyvanisavong, Chief of Cabinet, Lao Chamber of Commerce and Industry, Paksé, Champasak, Office: 031 254 339; to discuss forms related to exporting agricultural commodities from Champasak Province. Wednesday, Morning: QV202, Lv ZVK 15.00 hours; Arr VTE 17.30 hours 12 August 08.00 hours: Meeting with Mr. Chansamone Zola stays at Hotel Khamvongsa, Ban Vat Lomany, General Manager, AGPC; discuss coffee Chanthaboury, tel. 021-223-257 export procedures. Office telephone : 031-214-126 09.00 hours: Meeting with Mr. Kham Douangchem, Agricultural Product Development Co., Ltd., tel: 031.213585; to discuss trade issues related to the export of vegetables from Champasak Province. 10.00 hours: Meeting with Mr. Vanitja Sayasane, Branch Manager, and Mr. Viengvilay Sayalath, Credit Manager, Phongsavanh Bank, Paksé, to discuss agricultural credit issues. 10.30 hours: Travel to Savannakhet. Afternoon: 15.00 hours: Flight from Savannakhet to Vientiane. Thursday, Morning: 13 August Report preparation. 10.30 hours: Meeting with DPTP/TDF team, DPTP, Vientiane; review findings from field visit. Afternoon: Report preparation 16.30 hours: Meeting with TDF team at World Bank, Vientiane; review findings from field visit. Friday, Morning: TG015, Lv UTH 20.00 hours; Arr BKK 21.00 hours 14 August Report preparation. Afternoon: Report preparation. 16.00 hours: Travel from Vientiane to Udonthanee, Thailand 20.00 hours: Travel from Udonthanee to Bangkok. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 44 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 3: LIST OF PERSONS MET Date Name / Position Principal Contact Mission to Champasak: 31 May ­ 7 June 2009 1 June Mr. Saythong Xayavong, Chief Industry and Commerce Division Office: 031 251 550 Provincial Industry and Commerce Office Paksé, Champasak Mr. Sukan, Technician Industry and Commerce Division Provincial Office: 031 251 550 Industry and Commerce Office Paksé, Champasak Mr. Suksavanh Vilayvong, Technician Industry and Commerce Division Cell phone: 020-773-6009 Provincial Industry and Commerce Office Paksé, Champasak Mr. Saly Siriphokha, Deputy Director Provincial Agriculture and Office: 031 212 259 Forestry Office Paksé, Champasak Mrs. Kinphakone Nhouyvanisavong, Chief of Cabinet, Lao Chamber Office: 031 254 339 of Commerce and Industry, Paksé, Champasak 2 June Mr. Somlit Vilavong, Deputy Chief, Cabinet Office, Provincial Office: 031 212 234 Agriculture and Forestry Office, Paksé, Champasak Mr. Soutsamonh Thongchaleun Chief, Planning Division, Provincial Office: 031 212 259 Agriculture and Forestry Office, Paksé, Champasak Mr. Bounsay Saphangthong, Deputy Director Provincial Land Office: 031 251 967 Management Organization Paksé, Champasak Mr. Viengkham Sinsanguoane, Administrator Lao Coffee Office: 031 212 644 Association, Paksé, Champasak Mr. Bounthiengtham Nouanpaseuth, Manager Agro Lao Import Cell phone: 020 404 1555 Export, Ltd. Bachieng District, Champasak Mr. Chansamone Laomany, General Manager Association des Office: 031-214 126 Groupements de Producteurs de Café du Plateau des Bolovens Email: lomanyc@yahoo.fr (AGPC) Paksé, Champasak 3 June Mr. Chinda Vongsouly, President Champasak Province Chamber of Office: 031 254 339 Commerce and Industry, Paksé, Champasak Email: cbfgroup@laotel.com Mr. Bounmee Khamphihoun, Chief Investment Section, Provincial Cell phone: 020 563 4003 Planning and Investment Office, Paksé, Champasak Mr. Xamlath Boulath, Chief, Tax Section, Finance Division, Paksé, Champasak Mr. Hounla Manichanh, Manager Societe Lao Import-Export, Paksé, Office: 031 212 337 Champasak 3 June Mr. Ekasak Phoumvama, Factory Manager Seng Arthit Development Cell phone: 020 226 0231 Co. Ltd. Km. 12 Village, Route 10, Phonthong District, Champasak Mr. Khamla Sengmany, Production Manager Seng Arthit Cell phone: 020 543 3216 Development Co. Ltd. Km. 12 Village, Route 10, Phonthong District, Champasak 4 June Mr. Kitikorn Klinsong, Assistant Director Provincial Office of Office: 045 244 771 Commercial Affairs Ubon Ratchathani, Thailand Mr. Chavalit Ongkavanit, Advisor to the President, Ubon Chamber of Office: 045 243 603 Commerce 23 Promthep Road, Nai Muang, Muang District, Ubon Email: ongkavanit@hotmail.com Ratchathani Mrs. Maliwan Chaisongkram, Vice President Ubon Chamber of Office: 045 243 603 Commerce 23 Promthep Road, Nai Muang, Muang District, Ubon Email: y.s.g@tahi.com Ratchathani Mr. Somchai Surapat, Managing Director, Ubon Takerng Tour Co., Office: 045 242 400 Ltd. 425 Promraj Road, Nai Muang, Muang District, Ubon Email: tktubon@yahoo.com Ratchathani SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 45 Date Name / Position Principal Contact Mission to Champasak: 31 May ­ 7 June 2009 5 June Mr. Bertrand Sallee, Technical Advisor/Coffee Expert, PAB-PCADR Office: 031 214 126 Project, Paksé, Champasak Mr. Bounphone Bounnalath, Manager Pakxong Central Market Cell phone: 020 527 3251 Enterprise Pakxong District, Champasak Mr. Khanty Mouisengmany, Director, District Industry and Commerce Cell phone: 020 982 0634 Office, Pakxong District, Champasak Mr. Thavone Maothai, Deputy Director, District Agriculture and Cell phone: 020 583 4215 Forestry Office, Pakxong District, Champasak Mr. Bountieng Thansaphang, Director, Bolovens Plateaux Trade Office: 031 214 244 Development Company, Pakxong District, Champasak Cell phone: 020 583 5305 Mr. Soukan Chansipaseut, Director, District Industry and Commerce Cell phone: 020 667 4898 Office, Thateng District, Sekong Province Mr. Santi Kaewnaha, Administrative Manager, Taniyama Siam / Cell phone: 020 553 8864 Advance Agro Farm, Thateng District, Sekong Province Date Name / Position Principal Contact Fact-finding Mission to Champasak: 10-12 August 2009 10 August Assoc. Prof. Dr. Watcharapong Wattanakul Dean, Faculty of Office tel.: +66-45-353 559 Agriculture, Ubon Ratchathani University, Ubon Ratchathani, Thailand Assoc. Prof. Dr. Worapong Suriyapat, Consultant, Faculty of Office tel.: +66-45-353 516 Agriculture, Ubon Ratchathani University, Ubon Ratchathani, Thailand Dr. Michael Hare, Ubon Forage Seeds, Faculty of Agriculture, Ubon Office tel.: +66-45 353 506 Ratchathani University, Ubon Ratchathani, Thailand 11 August Mr. Somboun Vongkhamla, Deputy Director, Industry and Commerce Office tel.: 031 212 227 Division, Provincial Industry and Commerce Office (PICO), Paksé Mr. Champa Khamsouksay, Director, Provincial Planning and Cell phone: 020 550-0678 Investment Office, Paksé Mr. Bounyong Sounthone, Deputy Chief, Promotion Investment Office tel.: 031 212 542 Sector, Provincial Planning and Investment Office, Paksé Mr. Chongkao Surathathaom, Technician, Product Inspection Unit (Techno), Science and Technology Division, Paksé Mr. Viengkham Sinsanguoane, Administrator, Lao Coffee Office tel.: 031 212 644 Association, Paksé Mrs. Kinphakone Nhouyvanisavong, Chief of Cabinet, Lao Chamber Office tel.: 031 254 339 of Commerce and Industry, Paksé 12 August Mr. Chansamone Lomany, General Manager, Association des Office tel. : 031 214 126 Groupements de Producteurs de Café du Plateaux des Bolovens (AGPC) Mr. Kham Douangchem, Manager, Agricultural Product Development Office tel.: 031 213 585 Co., Ltd., Mr. Vanitja Sayasane, Branch Manager, and Mr. Viengvilay Office tel.: 031 260 311 and 031 260 277 Sayalath, Credit Manager, Phongsavanh Bank, Paksé SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 46 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 4: RESULTS OF A BRIEF DESK REVIEW OF EXISTING ANALYTICAL WORK ON AGRIBUSINESS AND AGRICULTURAL EXPORTS, INCLUDING KEY CONSTRAINTS TO DEVELOPMENT IN LAO PDR 1. Existing analytical work on challenges and opportunities to trade for Lao agribusiness PDR; reducing the costs of engaging in in- ternational trade; addressing institutional Alastair Fraser, Natural Resources Manage- challenges to doing business; and, putting in ment Specialist: ADB, PPTA-4843 (LAO): place mechanisms to overcome the key Agriculture and Natural Resources Sector constraints to improving the competitiveness Needs Assessment, Phase 2, Main Report: of Lao products. Proposed Sector Development Program; Draft Report, May 2008. Anthony M. Zola, Contract Farming and This report is the main or integrative report Plantations Specialist: ADB PPTA-4843 for a technical assistance study undertaken (LAO): Agriculture and Natural Resources for MAF and supported by ADB. The report Sector Needs Assessment, Phase 2, Annex: serves as the basis for the recently initiated Contract Farming & Plantations: A Prelim- Sustainable Natural Resource Management inary Assessment of Contract Farming and Productivity Enhancement Project sup- Arrangements and Plantations in the Agri- ported by the ADB and International Fund culture and Natural Resources Sector of for Agricultural Development (IFAD). The Southern Lao PDR, Draft Report, May Project addresses institutional and capacity 2008. building requirements to enable improved This report consists of a summary typology management of the sector on a sustainable of a range of regional and international basis while contributing to the Government's investments in the agriculture and natural overall objectives of enhancing agricultural resources (ANR) sector in southern Lao productivity, promoting commercialization PDR; a description of emerging trade and of agriculture, and protecting the country's investment trends based on an analysis of natural resources. Project outputs are expect- these investments; a summary of the ed to consist of (i) capacity built in sector current situation with respect to contract management, (ii) investment in resource farming and concession-based agriculture: management and productivity enhancement, ANR sector governance implications of and (iii) an effective project management current and future investments in the structure. absence of procedural and policy changes; proposed principles for good practice for David Fullbrook, Contract Farming in provincial and central authorities towards Lao PDR: Cases and Questions: Produced ANR investments in future; and, proposals by the Laos Extension for Agriculture for policy, procedural, and investment Project (LEAP) for the Government-Donor requirements to promote good practice and Sub Working Group on Farmers and strengthen MAF planning and management Agribusiness, October 2007. of foreign investments in the medium-term. This report, prepared for MAF by the Government-Donor Sub-Working Group Anthony Zola, Contract Farming and Plan- on Farmers and Agribusiness (SWGAB), tations Specialist: Synopsis of Contract contains an analysis of case studies that Farming in Selected Areas of the GMS: A illustrate different types of agribusiness Focus on Cambodia and Lao PDR, May interventions in Lao PDR. The report draws 2007. on the experience and opinions of local The report examines recent progress of actors: traders and investors, district contract farming for export in Lao PDR and officials and development workers, and Cambodia, with an emphasis on the farmers. Two case studies are from potential for expanding contract farming Champasak Province, namely: contract and factors that constrain more rapid farming of coffee production; and, contract expansion. The report proposes policy and farming of vegetables for export. institutional changes for both countries and neighbor countries to enhance the impact World Bank, East Asia PREM: Diagnostic of contract farming on farmers and the Trade Integration Study: Building Export economy. The report also explores private Competitiveness in Laos, Summary sector participation in Lao agriculture for Report, November 2006. both export and domestic markets. This report examines in significant detail the SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 47 2. Existing analytical work on Volume 6, Business and Private Sector agricultural exports Development Strategy. ADB, Performance Evaluation Report, K.R. Chapman, Agronomist: ADB, PPTA- Lao People's Democratic Republic and 4843 (LAO): Agriculture and Natural Socialist Republic of Viet Nam: Greater Resources Sector Needs Assessment, Mekong Subregion: East-West Corridor Phase 2, Annex: Agronomy; Draft Report, Project (Project Number: PPE: LAO- March 2008. 29271/VIE-32105, Loan Numbers: 1727- This agronomy report focuses on the Gov- LAO(SF) and 1728-VIE(SF), December ernment of Lao PDR (GOL) priority of 2008. commercial production of crops including Among the lessons learned from the evalu- plantation farming and contract farming ation are the following: full regional with the aim to establish a process for com- benefits of the Project will be realized only mercial production of new crops and im- after the Cross-Border Transport Agree- proving existing commercial crop produc- ment (CBTA) has been ratified and tion systems using Champasak province as implemented to strengthen project achieve- the model approach. Champasak was se- ments; for the Lao PDR to benefit fully lected for the following reasons: from the road and transport facilitation - The most opportunities exist for potential project, it will require complementary commercialisation of high value-added investments and capacity development and industrial and horticultural crops based it needs to attract labor-intensive agro- on the agro-ecology, as well as lowland industries and activities, and to further and upland rainfed rice based systems; identify key imports and exports where it - Plantation concessions have been devel- has comparative advantage; and, road oped with large areas of smallholder cof- improvement is not sufficient to trigger fee and plantation coffee; domesticated investments from the private sector, but production of non-timber forest products policy and institutional changes are neces- (NTFPs); protected forest areas; and, in- sary to encourage private sector activities dustrial tree plantations; in production and services. In addition, the - Road links provide good access to Viet- Project opened up markets and enhanced nam, Thailand, and Cambodia, for ex- consumer choices through (i) cheaper ports to those countries and overseas prices, and (ii) product availability and markets, and provide the most opportu- diversity. Improved connectivity along the nities for high value-added commer- corridor also helped form surplus areas of cialization. production, which resulted in changes in - Champasak districts have the most data the livelihood and living standards of local on current land use, updated in 2006, residents. However, the depth of project the recent satellite imagery and agro- impact varied with each household's access ecological and topographic data needed to productive resources and the adoption of to identify new crops and enterprises. appropriate technology. - Several recent marketing studies are available for horticultural crops (Ver- ADB and Committee for Planning and Co- non, 2005) and studies on industrial operation, Northern Regional Development crops for development (Chapman, Strategy, Vientiane, Lao PDR, March 2004. 2001). The province already exports The study formulated a plan of action for some of these high value products. development of the nine northern provinces - Champasak already has production of of Lao PDR in eight volumes that builds on cash crops such as maize, soybean, the GOL's Socio-Economic Development cassava, peanuts, for contract farming Plans (to 2005, 2010, and 2020) and the enterprises. National Growth and Poverty Eradication Strategy (NGPES). Three volumes are of Montague Lord, Trade Specialist: ADB, particular interest, namely: Volume 2, PPTA-4843 (LAO): Agriculture and Nat- Agriculture, Forestry, and Environmental ural Resources Sector Needs Assessment, Development Strategies; Volume 5, Trade Phase 2, Annex: Trade and Investment; and Tourism Development Strategy; and, Draft Report, May 2008. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 48 FOCUS ON CHAMPASAK PROVINCE The report focuses on trade and investment Rockefeller Foundation and MIDAS Agro- related-activities of the ANR Sector Devel- nomics Co., Ltd., Bangkok, March 2008. opment Program. A strategy for trade and This research paper uses a case study ap- investment is proposed that adopts existing proach to analyse market-oriented upland value chain models and other available agricultural and rural development interven- tools to identify specific key ANR product- tions in the GMS. The report concludes that related activities with a long-term the following are critical factors for success: comparative advantage in the domestic, - Links to domestic and regional markets regional and world markets. A detailed - Dependable technical assistance at the analysis is presented of product commer- farm level cialization and export and domestic market - Familiarity with activities being intro- opportunities, as well as the associated duced product development support that is needed - Linkages to food security and quality of in each of the identified activities. Products life with `World Market Import Growth, meas- - Access to natural resources ured by the income elasticity of import - Role for business demand, and divided into high growth product markets include: avocados, ginger, The study also discusses the comparative chili, spices, palm oil, coffee, sugarcane, advantages of upland areas of the GMS and and coconuts. Products with `Domestic identifies and reviews several new or Production Opportunities' with links to under-utilized crops that could be promoted agro-processing by micro- and small enter- in those areas, including: Traditional Upland Crops Hemp White Sesame Cotton Castor bean Tree Crops Styrax (for benzoin) Cinnamon Gum Arabica Non-timber forest products Medicinal herbs Cardamom Biofuel Crops Jatropha Organic Crops Temperate climate vegetables prises and small- and medium-scale World Bank, Diagnostic Trade Integration enterprises (SME) that feed into global Study (DTIS), Building Export value chains include avocados, ginger, Competitiveness in Laos, Summary chili, spices, palm oil, coffee, peaches, cin- Report, East Asia PREM, November 2006. namon, nutmeg, cardamom, peppers, The report examines the opportunities and rubber, bananas, and tea. Market Prospects, strengths of several sectors including measured over the medium to long-term, tourism, light manufacturing, and agricul- are favorable for avocados, ginger, chili, tural products. The role of the GOL in spices, nutmeg, cardamom, peppers, sugar- promoting export competitiveness is exam- cane, cashew, kiwi, and pomelos. ined, with recommendations for facilitating trade with European, North American, Anthony M. Zola, Development Economist Japanese, East Asian and ASEAN markets. and Lead Researcher, Fraser, A., Forester, Issues related to streamlining Customs, Aungsumalin, S., Economist, Sudsawasd, logistics, and sanitary and phyto-sanitary S. Social Specialist, and Sciortino, R., Edi- (SPS) procedures are addressed. Finally, tor, Study on Enhancing Upland Food the report proposes several recommenda- Security and Crossborder Agricultural tions for creating an enabling environment Production Supply Chains in the GMS, for investment in the sectors reviewed. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 49 APPENDIX 5: SUMMARY OF GOVERNANCE AND PROCEDURES FOR OBTAINING AGRICULTURAL LAND CONCESSIONS19 1. The GOL declared a moratorium could apply for land concessions directly surveys. on the granting of new land concessions in with provincial governors and district - It should be pointed out that investors are May 2007. This action was taken to allow chiefs, who would then coordinate with eager to obtain documentation approving the GOL to review its policies and PAFO and DAFO, respectively, to conduct land concessions for submission to procedures for granting large-scale land land surveys in areas identified as suitable banks and financial institutions to support concessions. It is likely that the principal for concessions. A business development loan requests. reason for this suspension order is the and investment plan would be prepared and - Provincial and district governments inadequate implementation of laws and submitted to the provincial or district sometimes are shareholders in land policies by government agencies and planning and investment department for concession operations. In some such officials. Hanssen states that there has been consideration and forwarded to the cases, shares in the projects are a lack of capacity within State provincial governor or district chief for provided as payment for facilitating the organizations and a `perceived' lack of final approval. Current procedures investment process. incentives for local level officials to however, require that investors interested in implement rules and regulations properly.20 obtaining land concessions first contact the 8. Laws are often broken. For provincial or district office of the NLMA. example, the amended Law on Promoting 2. Discussions with PAFO and DAFO Suitable land is identified and PAFO and Investment (2004) says that a foreign personnel confirm that existing procedures DAFO staff are mobilized to undertake an investor cannot employ more than 10 designate different levels of government to on-site land survey, with the participation percent of foreign workers in its labor grant land concessions of various sizes, of representatives of local villagers. A force. However, large foreign land-based namely: survey report and business development investments in the south and in the north proposal is prepared and submitted to the often import labor from neighboring 3. Provincial governors have the district chief and provincial governor for countries well beyond the stipulated limit. authority to allocate land up to 100 ha. consideration and final approval. Although district chiefs have the legal right - The 100 ha limit on granting land con- to allocate only up to 3 ha, they can do this cessions by provincial governors in multiple amounts. In practice, provincial remains unchanged. Often governors authorities empower district chiefs to approve 100 ha to allow the conces- allocate up to 100 ha, also in multiple sionaire to demonstrate his genuine amounts. interest in investing, after which he can return to request additional land. 4. Land concessions of up to 10,000 - The role of DAFO in the land survey ha can be approved by MAF at the central process is to consult with villagers government level, while areas exceeding regarding the availability of land in the 10,000 ha must be authorized by the community. The role of PAFO is to National Assembly. determine the status, suitability, and capability of the land identified. No 5. Hanssen reports that `these regula- forest lands are available for land tions...seem to be largely ignored, with some concessions. concessions of thousands of hectares granted by provincial authorities.'21 In breaking the 7. PAFO and DAFO personnel also rules, it appears that provincial officials are point out that there are weaknesses in the not willing to relinquish authority over, current system. and benefits from, the granting of large land - Occasionally investors apply for a land concessions, to authorities at the national lev- concession directly to central govern- 19 Anthony M. Zola, Contract Farming and Plantations el. ment officials without first contacting Specialist: ADB PPTA-4843 (LAO): "Agriculture and Natural Resources Sector Needs Assessment, Phase 2, provincial officials. Similarly, at times Annex: Contract Farming & Plantations: A Preliminary 6. Information on rules, regulations, investors contact the provincial governor Assessment of Contract Farming Arrangements and and procedures for granting land directly, who authorizes a concession. If Plantations in the Agriculture and Natural Resources Sector of Southern Lao PDR," Draft Report, Asian concessions obtained from field interviews the request for a concession (usually Development Bank, May 2008. of PAFO and DAFO personnel in the large) is approved, the concerned provin- 20 southern provinces were generally cial and local government officials are Cor. H. Hanssen. "Lao land concessions, development for the people?" at the International Conference on consistent. Procedures have changed obligated to make land available. The Poverty Reduction and Forests: Tenure, Market, and recently, as a result of the creation of offices PAFO and DAFO offices are nearly al- Policy Reforms. Regional Community Forestry of the National Land Management Agency ways the last to know about land alloca- Training (RECOFT) Center for Asia and Pacific, Bangkok, 3-7 September 2007, p. 1. (NLMA) at the central, provincial, and tion for concessions, but are duty-bound district levels. As recently as 2006 investors to identify land and undertake ground 21 Ibid., p. 8. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 50 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 6: REGISTRATION REQUIREMENTS FOR A STANDARDIZED COMPANY IN LAO PDR (Legal Form: Private Limited Liability Company) No. Procedure Time to Complete Cost to Complete 1 Apply for operational license 30 days No charge 2 Pick up a company registration 1 day 30,000 kip 3 Obtain the declaration of sentencing (Form No. 3) from the Lao 3 days 10,000 kip court. 4 Register the company with the Enterprise Registration Office of 7-10 days 20,000 to 2 million kip the Domestic Commerce Department of the Ministry of Industry and Commerce and obtain an enterprise registration certificate 5 Obtain approval to make a sign indicating the company name 5 days 10,000 kip 6 Register with the Financial Department for taxes. 2 days 25,000 kip (application form) + 150,000 kip (tax certificate 7 Make a company seal 45 days 120,000 kip for Lao language and 123,000 kip for Lao and other languages 8 Register the workers for social security 7 days no charge Total Maximum: 103 days Minimum: 100 days Source: Doing Business website; accessed on 28 June 2009. ATTACHMENT 7: AGRIBUSINESS RELATED MANUFACTURING PROJECTS PROPOSED FOR CHAMPASAK PROVINCE No. Manufacturing / Agribusiness Location / District 1. Coffee processing Industrial zone 2. Fruit processing Industrial zone 3. Rubber processing Industrial zone 4. Cashew nut processing Industrial zone 5. Bio-fertilizer production Industrial zone 6. Animal feed factory Industrial zone 7. Paper processing Sanasomboun 8. Vegetable oil mill Sanasomboun 9. Cassava flour processing Pathoumphon 10. Bio-ethanol / bio-diesel factory Sanasomboun 11. Vermicelli production Industrial zone 12. Fruit juice factory Industrial zone 13. Banana processing Bachiengchaleunsouk 14. Pickled vegetable processing Pakxong 15. Meat and fish processing Industrial zone (Km 16) Source: Champasak Provincial Department of Planning and Investment, Investment Opportunities in Laos: Champasak Province, 2009. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 51 ATTACHMENT 8: AYERWADDI - CHAO PHRAYA - MEKONG ECONOMIC COOPERATION STRATEGY ACMECS: The Thai Government's Ayer- specific food and agricultural products for waddi - Chao Phraya - Mekong Economic contract farming in neighboring countries. Cooperation Strategy (ACMECS) Plan of Originally these included soybeans, maize, Action was launched in 2003. It has groundnuts (peanuts), cashew nuts, castor emerged as the principal policy mechanism beans, potatoes, and livestock. Subsequent for promoting bilateral trade and invest- meetings of ACMECS (i.e., the First ment between Thailand and Cambodia, Meeting of the Sectoral Working Group on Laos, Myanmar, and Vietnam. Investment Agricultural and Industrial Cooperation in the form of contract farming has been under ACMECS, October 2005) agreed to the major vehicle for producing food and add crops to the original list. As a result, in agricultural raw materials by farmers in Myanmar the list of contract farming crops selected border areas of Cambodia, Lao now includes rubber, tropical fruit, and bio- PDR and Myanmar, encouraged specifi- fuel crops (such as sugar cane and oil cally for importation and use by Thai palm). In Cambodia, the list was expanded agroindustries. to include tropical fruit and Eucalyptus trees; while in Lao PDR, the list of crops Initially five areas were designated for the for contract farming remained unchanged. promotion of contract farming by Thai companies registered with Thai provincial Priority initiatives that have emerged authorities in border areas adjacent to Cam- among ACMEC member countries include: bodia, Laos, and Myanmar. Discussions at (i) collaborative research and development subsequent ACMECS meetings resulted in of potential food and agro-industrial crops; new areas being designated (with others (ii) strengthening and harmonizing sanitary likely to be added later), expanding the and phytosanitary (SPS) standards for food number of areas currently to seven, crops and livestock; (iii) promoting namely: investments in value-added processing of - Sakeo Province, Thailand & Banteay food crops; (iv) joint ventures for the Meanchey Province, Cambodia production of hybrid maize seed, - Nakhon Phanom Province, Thailand & vegetables, and flowers; and, (v) technical Khammouane Province, Lao PDR assistance and farmer training courses on - Mukdahan Province, Thailand & Savan- field crops, potatoes, and cashew nuts. To nakhet Province, Lao PDR this end, proposals have been formulated - Chiangrai Province, Thailand & Bokeo for feasibility studies to establish national Province, Lao PDR accreditation boards, including the creation - Chiangrai Province, Thailand & of verification centers, and for enhancing Tachilek, Myanmar cooperation between the standards bodies - Ubon Ratchathani Province, Thailand of each of the ACMECS group of countries. & Champasak Province, Lao PDR Initiatives to harmonize quality control - Tak Province, Thailand & Mawlamyine, measures and enforce SPS standards also Myanmar would benefit agro-processors in China and Vietnam. Other areas being considered for inclusion in the future include: China-ASEAN Trade in Goods - Nan Province, Thailand & Xayaboury Agreement: This agreement is likely to Province, Lao PDR have a greater impact on cross-border - Loei Province, Thailand & Xayaboury contract farming enterprises in the northern Province, Lao PDR uplands than in the south. However, several Chinese firms also have been granted In the context of ACMECS, the provinces of concessions in the southern provinces. It is primary interest for this study include Muk- likely that some of this investment has been dahan Province, Thailand and Savannakhet stimulated by the signing of the China- Province, Lao PDR; and, Ubon Ratchathani ASEAN Trade in Goods (TIG) Agreement Province, Thailand and Champasak Province, signed in July 2005. The TIG Agreement is Lao PDR. as a significant step towards forming a China-ASEAN Free Trade Area (CAFTA) The ACMECS Plan of Action identifies by 2010. CAFTA would be the world's SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 52 FOCUS ON CHAMPASAK PROVINCE third largest free trade area after the EU and from the Thai Government to promote NAFTA, with a combined population of 1.8 cross-border contract farming has included billion and GDP exceeding US$2 trillion. the elimination of tariffs on selected agri- The CAFTA-TIG Agreement covers tariff- cultural raw materials imported from lines representing more than 95 percent of neighboring countries (specifically imports China-ASEAN trade, which grew annually that may be consumed in Thailand or else- by 23 percent from 1997-2005 to reach where). Ten crops were placed on this list US$130.5 billion.22 As part of the Early in 2006 and an eleventh was added in 2007, Harvest Program (EHP) under the TIG, namely: tariffs on about 600 agricultural products 1) Potatoes have been reduced, including those on 2) Sweet maize aquatic products, fruits and vegetables, and 3) Field maize live animals, as well as meat and edible 4) Mungbeans meat offal, fish, dairy produce, other animal 5) Cashew nuts products, live trees, and edible vegetables, 6) Job's tears fruit, and nuts. All tariff rates on these 7) Soybeans products were brought down to zero in 8) Groundnuts (peanuts) 2006.23 9) Castor beans 10) Eucalyptus wood Subsequent to signing the TIG Agreement, 11) Sesame (added in 2007) China exchanged letters with Cambodia, Laos, and Myanmar on 11 December 2005 approving special and preferential tariff Customs reform: In addition to the re- treatment on several categories of goods gional development framework and incen- exported to China. Effective 1 January tives provided by the ACMECS, CAFTA, 2006, a preferential policy was applied to EHP, and TIG Agreement, customs reform 83 categories of goods from Cambodia, 91 within the GMS is facilitating the expansion from Lao PDR, and 87 from Myanmar. of cross-border contract farming arrange- This is in addition to preferential tariff ments. The GMS Business Forum26 has pre- treatment for 335 categories of goods pared a `Customs Code Comparison' that imported from Cambodia, 239 from Laos, summarizes regulations and procedures for and 133 from Myanmar24 provided since 1 the imports and exports of each GMS coun- January 2004. try. GMS member countries have adopted the Harmonized Commodity Description Although the central government in China and Customs Coding System that serves as has declared zero-tariff on approximately a classifying procedure for goods entering 600 agricultural raw material imports from through customs as imports and leaving as Laos,25 it continues to impose a 20 percent exports. Ninety-seven chapters cover all tariff on rubber imported from Laos; a commodities that are traded among GMS principal contract farming crop being member countries. Customs reform and har- promoted by Chinese investors, traders, and monization of trade regulations are impor- rubber processors throughout the country. tant elements in the trade liberalization The TIG Agreement and the special and process and contribute to facilitating trade, preferential tariff treatment for Lao investment, cross-border contract farming 22 China-ASEAN Free Trade Area and Implications for products is not specifically aimed at initiatives, and the movement of raw mate- Hong Kong as a Trade Hub Hongkong Trade promoting contract farming. However, the rials for processing among ACMECS mem- Development Council, 29 June 2006. ability to export from Laos a broad range ber countries. 23 Minister Bo Xilai Answering Questions of the Press of agricultural raw materials to China with on China-ASEAN FTA, Ministry of Commerce of zero import tariffs serves as an incentive for China, 10 August 2006. Chinese traders, investors, and agro- 24 China View, 11 December 2005, www.chinaview.cn, processors to source raw materials through accessed on 25 March 2007. 25 contract farming arrangements. Personal communication with Lao Ministry of Agriculture and Forestry, February, 2007. Thailand's zero-tariff on selected agricul- 26 GMS Business Forum & Directory, Customs Code Comparison, at www.gmsbizforum.com accessed on 25 tural imports: In addition to mechanisms March 2007. established through ACMECS, support SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 53 ATTACHMENT 9: CASE STUDY: PAKXONG DISTRICT CENTRAL MARKET OPERATIONS, CHAMPASAK PROVINCE27 1. In Pakxong District, Champasak cover the operational costs of the market fees Province, a wholesale market has operated are collected from users. A schedule of since 2006. It was initiated through the Ay- fees has been established as follows: erwaddi - Chao Phraya - Mekong Economic Cooperation Strategy (ACMECS), a Thai 4. The MMG is providing the follow- Government initiative for promoting contract ing services through the wholesale market: farming among neighboring countries with - A local primary market venue for the specific aim of providing raw materials smallholder farmers on the Bolovens to Thai agroindustries. To date, ten Lao com- Plateaux; saving farmers a 100 km panies and four Thai companies that tradi- (each way) trip to the Lao-Thai border; tionally have traded at the Champasak (Lao - Issuing of the "ASEAN Integration of PDR) ­ Ubon Ratchathanee (Thailand) bor- Preference" (AISP) Form to Thai der (at Vang Tao) have registered with Thai traders, allowing tax free movement of and Lao authorities to purchase agricultural produce from Laos to Thailand; products at the Pakxong wholesale market, - Certification of weights and measures; which has been operational since June 2007. later to be upgraded to include Upgrading of the Pakxong wholesale market inspection and certification of quality; facility is underway with support from the - A sanitary area where traders and ADB financed Smallholder Development farmers can conduct trade; Project and is expected to be completed in - Booths for Lao and Thai traders to May 2008. purchase food and agricultural products from farmers and sell agricultural 2. Before the wholesale market production inputs to farmers; concept was operational, farmers were - Identifying, screening, and registering of obligated to transport their produce (mostly Thai companies (and enterprises of cabbages and bananas) to the Lao-Thai other nationalities) interested in purchas- border at Vang Tao-Chong Mek, a distance ing produce from producer groups in of more than 100 km from the Pakxong Pakxong District (and neighboring dis- District town. Farmers had no advance tricts); and, knowledge of the price they would receive - Support for DAFO staff to promote for their produce, nor were they sure that crop production in response to the they would be able to sell their crops. Often needs of local and regional traders, they were obligated to `dump' their using the production promotion fund. produce. 5. The formation of trading joint 3. The Pakxong MMG was established ventures between Lao and Thai traders has to administer the wholesale market. It is reg- been facilitated by the Pakxong wholesale istered with Pakxong District officials. To market enabling Thai traders to operate Wholesale Market User Fees Paid · Farmer: fee for sanitary · Delivery fee for a 2-3 ton truck = 3,000 kip maintenance of market facility & · Delivery fee for a 5-7 ton truck = 5,000 kip tax waiver certificate · Trader: fees for market Total fee: 14 kip / kg, broken down as follows: administration, central fund for · Administration costs = 7.79 kip / kg production promotion, & · Production promotion fund = 5.00 kip / kg commodity movement tax (paid to · Commodity movement tax = 1.25 kip / kg the District Finance Office) 27 Prepared for the ADB supported Agriculture and Natural Resources Sector Assessment, May 2008. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 54 FOCUS ON CHAMPASAK PROVINCE more easily. In the past, Lao traders and - When market prices fall (in Thailand), transporters operated as middlemen for the Lao traders have insufficient cash to Thai traders based at the border at Vang intervene and pay a previously agreed Tao-Chong Mek. As a result of working minimum price to farmers for their more closely at the wholesale market, these produce. relationships have been formalized and four - A producer revolving fund is needed to joint venture companies are now registered purchase seed and fertilizer in bulk at at the district level. The Lao partners take lower prices that can be passed on to responsibility for the administrative Lao farmers. paperwork required by district officials and - MMG staff lack transportation to follow for transporting the raw materials to the up on production promotion funds and Thai border. The Thai traders, working out provide administrative tasks related to of the same booth as their Lao partners (at operating the wholesale market. the wholesale market), handle the - The wholesale market lacks cool store purchasing, weighing, measuring, grading, facilities for fresh produce to enable and packing of the produce; as well as all price hedging. financial transactions, including cash - The MMG (and DAFO and DICO) payments and allocation of credit (in kind; lacks the knowledge and capacity to if any) to producers. undertake certification of produce (for SPS, bio-safety, organic certification, 6. Informal contract farming is taking fair trade certification, etc.) being sold place through the wholesale market facility. to Thai traders. Thai traders who have purchased produce - Not all producers and producer groups from Lao farmers at the Lao-Thai border are trading with Thai traders through for many years continue to trade with the the wholesale market. AISP certificates same farmers through the wholesale were issued for 7,000 tons of produce market. DAFO and District Industry and shipped to Thailand in 2007; whereas, Commerce Office (DICO) staff report that as of November 2007, 12,000 tons of Thai traders provide credit in kind to produce had been shipped to Thailand approximately 30 percent of the Lao from Pakxong District (figures are farmers trading at the wholesale market; in based on collection of district com- the form of seeds, chemical fertilizer, and modity movement tax at Kilometer 28, pesticides. There are no written contracts on Route 16E, between Pakxong and but the arrangements are organized on trust Paksé). between the two parties that has developed over many years of trading. 9. Benefits from wholesale market operations include the following: 7. Linked to the Pakxong District - Exports to Thailand from Pakxong wholesale market and also supported by the District have increased (no figures were Smallholder Development Project, DAFO available). has organized 23 producer groups currently - The provincial officials at Ubon producing coffee, cabbage, Chinese Ratchathanee assist with negotiations cabbage, and bananas that utilize the with Thai companies that trade at the wholesale market. Other crops that can be wholesale market when requested by marketed through this facility in the 2008- Lao authorities. 2009 season include castor beans, maize, - Thai trading companies tend to cheat and ginger. less, particularly since the MMG is responsible for administering standards 8. DAFO and DICO staff point out for weights and measures at the that the wholesale market system has wholesale market. several weaknesses as it currently functions, namely: - The role of Lao traders has changed. Lao entrepreneurs are no longer traders but act as shipping agents for the Thai traders. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 55 ATTACHMENT 10: LIST OF REFERENCES Anderson, Kym. (1996). Lao PDR and Vimolsiri, Porametee. (2007). ACMECS WTO Accession: Implications for Agriculture and Thailand. [PowerPoint slides]. Retrieved and Rural Development. Adelaide: School from http://www.toodoc.com/ACMECS- of Economics and Centre for International ppt.html . Economic Studies, University of Adelaide. World Bank. (2006). Diagnostic Trade In- Boonperm, Jirawan, Jonathan Haughton, tegration Study: Building Export Competi- Shahidur R. Khandker. (2009). Does the tiveness in Laos, Summary Report. Washing- Village Fund Matter in Thailand? Policy ton, DC: World Bank. Research Working Paper 5011. Washing- ton: World Bank. Zola, Anthony, Fraser, A., Forester, Aung- sumalin, S., Sudsawasd, S. (2008). Study on Department of Planning and Investment of Enhancing Upland Food Security and Cross- Champasak Province. (2009). Potential border Agricultural Production Supply and Opportunities for Investment and Chains in the GMS. Bangkok: MIDAS doing Business in Champasak Province. Agronomics Co., Ltd. [PowerPoint presentation]. Paksé, Lao PDR: Department of Planning and Zola, Anthony. (2008). Agriculture and Investment, Office of the Governor. Natural Resources Sector Needs Assess- ment, Phase 2, Annex: Contract Farming & Department of Planning and Investment. Plantations: A Preliminary Assessment of (2009). Investment Opportunities in Laos: Contract Farming Arrangements and Plan- Champasak Province. Paksé, Lao PDR: tations in the Agriculture and Natural Department of Planning and Investment, Resources Sector of Southern Lao PDR. Office of the Governor. Vientiane: Asian Development Bank [PPTA-4843 (LAO)]. Grameen Bank. (2009). Retrieved from www.grameen-info.org. Hanssen, C.H. (2007). Lao land conces- sions, development for the people? Bangkok: International Conference on Poverty Reduction and Forests: Tenure, Market, and Policy Reforms. Regional Community Forestry Training (RECOFT) Center for Asia and Pacific. Islam, Roumeen and Gianni Zanini. (2009). World Trade Indicators 2008: Benchmarking Policy and Performance. Washington, DC: World Bank. Malaysia External Trade Development Cor- poration. (2007). ASEAN Free Trade Area. Retrieved from http://www.matrade.gov.my. Norasingh, Xaysomphet. (2009) Lao Country Paper, Regional Policy Forum on Trade Facilitation and SMEs in Times of Crisis. Beijing: United Nations ESCAP. Sengsourivong, Kongpasa. (2008). The Impact of Microfinance on Household Welfare: Case Study of a Savings Group in Lao PDR. Vientiane: EBIT Consultancy Co., Ltd. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 56 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 11: COMPARISON OF SELECTED KEY CONCERNS OF ACMECS,28 AFTA,29 AND WTO30 AGREEMENTS Selected key ACMECS AFTA WTO31 concerns Membership Cambodia, Lao PDR, Myanmar, 10 ASEAN member countries · 153 members and 30 observer Vietnam, Thailand members. · Cambodia, Myanmar, Thailand, and Vietnam are WTO members. Lao PDR is an observer; currently negotiating membership. Tariffs · Zero import tariff rates for Zero import tariff rate for member · Each WTO Member has a selected agricultural countries on all products applies to: "schedule" of tariff concessions commodities (25 in 2009) · ASEAN-6 on 1 January 2010 covering all agricultural products. produced under contract farming (Brunei, Indonesia, Malaysia, · Replacement of agriculture- by CLMV. Philippines, Singapore, specific non-tariff measures with · Crops selected for zero import Thailand).32 a tariff providing an equivalent tariff rates negotiated by private · CLMV: zero import tariff rates level of protection. sector representatives in border phased in: 2013, 2014, 2015, · The schedule sets out for each provinces. 2018. individual agricultural product, the maximum tariff that can be applied on imports into the member country concerned. Non-tariff barriers · Quality preferred by Thai trader NTBs are classified into 3 boxes · Article 4.2 of the Agreement on (NTBs) is negotiated among trading Agriculture prohibits the use of Box Treatment enterprises and included in each agriculture-specific non-tariff MOU. Green NTBs can be retained. measures. · Lao producers and exports must · Such measures include accept standards agreed to in Red NTB must be eliminated. quantitative import restrictions, the annual MOU. Amber Elimination of NTBs is variable import levies, minimum subject to negotiations. import prices, discretionary import licensing procedures, voluntary export restraint agreements, and non-tariff measures maintained through state-trading enterprises. · Certain non-tariff import restrictions are allowed, specifically those consistent with the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Technical Barriers to Trade, or other general, non- agriculture-specific WTO provisions. MOUs between · Annual MOU between Thai · No mechanisms yet devised to · No MOU required. Trade is border provinces. border provinces for contract facilitate cross-border trade. regulated by WTO rules. farming and business matching · In August 2009, the Thai · Makes agricultural market for promoted investments. Government was studying a access conditions more · MOU established a floor price for proposal to continue the annual transparent, predictable, and selected agricultural MOU mechanism. In place of competitive. commodities. establishing a floor price for · Strengthens links between · Trading enterprises are selected crops, the MOUs would national and international registered with provincial instead focus on minimum agricultural markets. commerce offices. quality standards for selected · Markets guide scarce resources 28 ACMECS = Ayerwaddy ­ Chao Phraya ­ Mekong Economic Cooperation Strategy 29 AFTA = ASEAN Free Trade Area 30 WTO = World Trade Organization 31 Source: WTO website accessed on 22 August 2009; www.wto.org (trade topics/agriculture/market access) 32 Except for limited Sensitive and Highly Sensitive Unprocessed Agricultural Products. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 57 Selected key ACMECS AFTA WTO31 concerns crops. into their most productive uses, within agricultural sector and economy-wide. · The special safeguard provisions for agricultural products allow imposing additional tariffs where certain criteria are met. The criteria involve either a specified surge in imports (volume trigger), or, on a shipment by shipment basis, a fall of the import price below a specified reference price (price trigger). This could be applied by China, Thailand, and Vietnam when they feel it is justified. · Developing countries agreed to cut tariffs on agricultural products 24 percent to be implemented over ten years following membership. Benefits to Lao · Regulated contract farming and · Adoption of ASEAN Harmonised Benefits to producers and traders: PDR co-production arrangements. Tariff Nomenclature (AHTN). · Greater and more-secure transit · Farmers engaged in contract · Duty exemptions on food and rights protected by an farming with secure market agricultural products. independent WTO dispute access and increased incomes · Increased intra-regional trade settlement body for resolving from agriculture. and investment and improved transit disputes; · Systematized trade; use of resource allocation within the · Greater, more secure, and less- formal trade channels; trade is region. discriminatory market access regularized. · Higher income per capita and globally for exports; · Border areas are transformed economic welfare and greater · Availability of legal mechanism into zones of economic growth. economic resilience for the Lao for resolving bilateral trade · Trade statistics are collected. economy. disputes; and, · Infrastructure development in · AFTA will facilitate specialization · Greater discipline on the GOL to response to expanded trade on the basis of comparative practice sound economic policies opportunities. advantage, technology transfer and avoid responding to special · CBTA, Single-stop Inspection, among businesses, and consideration by interest-groups. One-stop Service improved resource pricing and management. Benefits to the country: · Lower prices for imported · Better allocation of national products leading to increased resources toward industries with real consumption and the strongest comparative (potentially) investment. advantage; · Increases in imports and a larger · Introduction and adoption of new trade deficit. technologies from interacting · Increased exports to Thailand more with the rest of the world; and other countries.33 · Greater flexibility, via trade, for dealing with shocks such as natural disasters; and, · Less wasteful rent-seeking lobbying activities by groups seeking GOL assistance and protection. 33 KYOPHILAVONG, Phouphet. Analyzing the effect of AFTA on Lao economy: Macroeconomic model approach. Vientiane: National University of Lao PDR, 2004. SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 58 FOCUS ON CHAMPASAK PROVINCE ATTACHMENT 12: AGRICULTURAL COMMODITY EX- PORT DOCUMENTATION List of Export Forms: - Invoice - Authorization to Release Transport Vehicle - Phytosanitary Certificate - Certificate of Quality Control - Test Report - Receipt from Provincial Revenue Division: Export Tax on Coffee (2 forms) - Customs Declaration - Packing List and Weight Notes - Coffee Movement Tax: Lao Coffee Association (2 forms) - Form A: GSP form for Europe, Japan, Australia, etc. - Form AISP: ASEAN form for Thailand - Form D: For ASEAN countries - Form S: For Vietnam - Form SPT: For China SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 59 1. INVOICE SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 60 FOCUS ON CHAMPASAK PROVINCE 2. AUTHORIZATION TO RELEASE TRANSPORT VEHICLE SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 61 3. PHYTOSANITARY CERTIFICATE SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 62 FOCUS ON CHAMPASAK PROVINCE 4. CERTIFICATE OF QUALITY CONTROL SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 63 5. TEST REPORT SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 64 FOCUS ON CHAMPASAK PROVINCE 6. RECEIPT FROM PROVINCIAL REVENUE DIVISION: PROFIT TAX/EXPORT TAX ON COFFEE (2 FORMS) A. RECEIPT OF PROFIT TAX PAYMENT SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 65 B. RECORD OF COMMODITY EXPORTS SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 66 FOCUS ON CHAMPASAK PROVINCE 7. CUSTOMS DECLARATION FORM SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 67 8. PACKING LIST AND WEIGHT NOTES A. COMPANY FORM SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 68 FOCUS ON CHAMPASAK PROVINCE B. CERTIFICATE FROM THE CHAMBER OF COMMERCE AND INDUSTRY SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 69 9. COFFEE MOVEMENT TAX: LAO COFFEE ASSOCIATION (2 FORMS) SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 70 FOCUS ON CHAMPASAK PROVINCE 10. COFFEE MOVEMENT TAX: LAO COFFEE ASSOCIATION (2 FORMS) SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 71 11. FORM A: GSP FORM FOR EUROPE, JAPAN, AUSTRALIA, ETC. A. BLANK FORM SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 72 FOCUS ON CHAMPASAK PROVINCE B. SAMPLE OF USED FORM SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 73 12. FORM AISP: ASEAN FORM FOR THAILAND SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 74 FOCUS ON CHAMPASAK PROVINCE 13. FORM D: FOR ASEAN COUNTRIES SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: FOCUS ON CHAMPASAK PROVINCE 75 14. FORM S: FOR VIETNAM SCOPING STUDY ON CROSS BORDER AGRIBUSINESS IN LAO PDR: 76 FOCUS ON CHAMPASAK PROVINCE 15. FORM SPT: FOR CHINA