Development of commercial agriculture in lao pdr: A case study of savannakhet province

The Lao PDR is primarily an agricultural economy, with this sector contributing 51 percent of the GDP. Approximately 1,880,000 individuals are involved in agricultural work. The Lao PDR’s recent major agricultural census provides an excellent overview of the basic nature of Laos' agricultural system. The results of this survey indicate that 79.7 percent of the total population is engaged in farming. The average land holding is 1.62 hectares with 27 percent of households having 2 hectares or more and 36 percent having less than 1 hectare. An impressive 97 percent of farmers own their own land. About 93 percent of the area devoted to rice production is for the production of sticky rice, a subsistence crop used primarily for home consumption. However, in terms of commercialization of agricultural products, the quantity and quality of agricultural products have not yet been standardized. By comparing neighboring countries, especially Vietnam and Thailand, it can be said that these nations have been able to produce agricultural products for export to generate large amounts of income each year and make their economy much better than Laos. In contrast, Laos has a large land area and a landscape suitable for agricultural production and farmers account for about 80%, but Laos’ agriculture has not developed to produce as much as posible products for export in terms of both quantity and quality. Especially, growth of Laos’ agriculture have reduced in the last five years of 2016-2020, with only 2.1% annually, much lower than the target of 3.4% per year set up in the 8th National Economic and Social Development Plan (2016-2020). Therefore, the development of commodity agriculture or commercial agriculture to speed up growth of agriculture and to exploit Lao’s advantage of cultivating land have been increasingly encouraged in the country economic development strategy. Savannakhet is the largest province among the 17 provinces of Lao PDR. The name derives from Savanh Nakhone (heavenly district or land of fertility suitable for agriculture') the province's original name. It bears the same meaning as Nakhon Sawan, a city in Thailand.

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MINISTRY OF EDUCATION AND TRAINING THE NATIONAL ECONOMICS UNIVERSITY ---------------- PHOUTHALATH XAYYALATH DEVELOPMENT OF COMMERCIAL AGRICULTURE IN LAO PDR: A CASE STUDY OF SAVANNAKHET PROVINCE PHD DISSERTATION IN AGRICULTURAL ECONOMICS HANOI, 2022 MINISTRY OF EDUCATION AND TRAINING THE NATIONAL ECONOMICS UNIVERSITY ---------------- PHOUTHALATH XAYYALATH DEVELOPMENT OF COMMERCIAL AGRICULTURE IN LAO PDR: A CASE STUDY OF SAVANNAKHET PROVINCE Specialization: AGRICULTURAL ECONOMICS Specialization Code: 9620115 PHD DISSERTATION Supervisor: Assoc. Prof. Dr. VU THI MINH HANOI, 2022 i DECLARATION I have read and understood the University’ policy on plagiarism. I hereby declare on my honor that this PhD dissertation is my own work and does not violate the guidelines on good academic practices. PhD Student Phouthalath Xayyalath ii TABLE OF CONTENTS DECLARATION ............................................................................................................ i TABLE OF CONTENTS .............................................................................................. ii ABBREVIATION ......................................................................................................... vi LIST OF FIGURES ................................................................................................... viii LIST OF TABLES ........................................................................................................ ix INTRODUCTION ......................................................................................................... 1 1. Rationale of the dissertation ................................................................................. 1 2. Research objectives ................................................................................................ 3 2.1. Overall objective ............................................................................................... 3 2.2. Specific objectives ............................................................................................. 3 2.3. Research questions ............................................................................................ 3 3. Research scopes ...................................................................................................... 4 3.1. Scope of contents of the study ........................................................................... 4 3.2. Scope of area and timing of study ..................................................................... 4 4. Key findings of the research .................................................................................. 4 5. Dissertation structure ............................................................................................ 6 CHAPTER 1 LITERATURE REVIEW AND RESEARCH METHODOLOGY . 7 1.1. Literature Review ............................................................................................... 7 1.1.1. Research results of commercial agriculture in the world ............................... 7 1.1.2. Research results on commercial agriculture in Laos .................................... 18 1.1.3. The gaps for this research ............................................................................. 20 1.2. Research methodology ...................................................................................... 21 1.2.1. Research approaches .................................................................................... 21 1.2.2. Data collection methods ............................................................................... 27 1.2.3. Data analysis methods .................................................................................. 30 CHAPTER 2 THEORETICAL FRAMEWORK AND PRACTICAL EXPERIENCES ON DEVELOPMENT OF COMMERCIAL AGRICULTURE 31 2.1. Related definitions and concepts ..................................................................... 31 iii 2.1.1. Definition of agriculture ............................................................................... 31 2.1.2. Definition of commercial agriculture ........................................................... 31 2.1.3. Definition of development of commercial agriculture ................................. 33 2.2. Characteristics of commercial agriculture ..................................................... 34 2.3. Role of development of commercial agriculture ............................................ 35 2.4. Contents of development of commercial agriculture ..................................... 37 2.4.1. The formation of areas of specialization agriculture and the development of cash crops and livestock production ....................................................................... 37 2.4.2. Development of different types of agricultural production organizations ... 38 2.4.3. Development of linkage & cooperation in supply chains of agricultural products ... 39 2.4.4. Increase in eficiency of commercial agriculture .......................................... 41 2.5. Main indicators of development of commercial agriculture ......................... 41 2.6. Main factors influencing development of commercial agriculture .............. 42 2.6.1. Legal policy system for commercial agriculture .......................................... 42 2.6.2. Demand of agro-products and competitive advantages in agricultural markets . 42 2.6.3. Human resources in agricultural sector and related sectors ......................... 43 2.6.4. Sources of investment capital and credit ...................................................... 44 2.6.5. Development of agricultural extension network .......................................... 44 2.6.6. The coordinaiton among concerned stakeholders in agricultural value chains .. 44 2.6.7. Natural conditions and natural resources ..................................................... 44 2.7. International and domestic experiences in developing commercial agriculture ................................................................................................................. 45 2.7.1. Several international experiences ................................................................ 45 2.7.2. Experiences of several provinces in developing commercial agriculture .... 61 2.7.3. Lessons for Savanakhet province in development of commercial agriculture .... 71 CHAPTER 3 CURRENT DEVELOPMENT OF COMMERCIAL AGRICULTURE IN SAVANNAKHET PROVINCE, LAO PDR ........................................................ 73 3.1. Overview of Savannakhet province ................................................................. 73 3.1.1. Natural conditions ........................................................................................ 73 3.1.2. Social and economic conditions ................................................................... 74 iv 3.1.3. Advantages and disadvantages of Savanakhet province in development of commercial agriculture ........................................................................................... 75 3.2. Curent development of commercial agriculture in Savanakhet province .. 76 3.2.1. Development of specialized cultuvating areas and cash crops in the 2011- 2020 period ............................................................................................................. 76 3.2.2. Development of production organization models in the last 10 years ......... 87 3.2.3. Development of linkage and cooperation within agricultural suppy chains in the last 10 years ...................................................................................................... 91 3.2.4. Efficiency of commercial agriculture development in Savanakhet province ... 100 3.3. Factors influencing development of commercial agriculture in Savanakhet .. 108 3.3.1. Improvement of state and provincial policies of encouraging development of cash crops to increase farmers’ income ........................................................... 108 3.3.2. Increase in market demand for agricultural products ................................. 110 3.3.3. Qualifications of human resource in agricultural sector ............................. 111 3.3.4. Increase of investment and credits in the agricultural sector and rural development .... 112 3.3.5. Development of agricultural extension network and services.................... 115 3.3.6. Cooperation among partners in agricultural value chains .......................... 117 3.3.7. Change of natural conditions and diseases ................................................. 119 3.4. General evaluation on developemt of commercial agriculture in the province 120 3.4.1. Achievements and causes ........................................................................... 120 3.4.2. Shortages and causes .................................................................................. 121 CHAPTER .4 SUGESSTED SOLUTIONS TO SPEED UP DEVELOPMENT OF COMMERCIAL AGRICULTURE IN SAVANNAKHET PROVINCE ............. 124 4.1. Forecasted contexts for commercial agriculture development in the province ....... 124 4.1.1. Opportunities for development of commercial agriculture in the province ..... 124 4.1.2. Challenges to develop commercial agriculture in comming years ............ 126 4.1.3. Orientation for agricultural development in Savannakhet to the year 2025 and vission to 2030 ............................................................................................... 128 4.2. Recommended solutions to speed up the development of commercial agriculture in Savannakhet province ................................................................... 131 v 4.2.1. Concretize and effectively implement policies for agricultural and economic development especially investment attraction policy ........................................... 131 4.2.2. Promote development and widen application of science and technology advances and standards to agricultral production ................................................. 133 4.2.3. Improve skills of farmers through education and agricultural extention systems 133 4.2.4. Encourage cooperation to develop the linkages within agricultural value chains .. 134 4.2.5. Promote stakeholder participation in various forums to improve models of contract agriculture system ................................................................................... 135 4.2.6. Continue to improve agricultural and rural infrastructure in the province 137 4.2.7. Expand markets for local agricultural products ......................................... 137 4.2.8. Strengthening local capacity to prevent natural harzads and adapt to climate change ...................................................................................................... 138 CONCLUSION AND RECOMMENDATION ....................................................... 139 LIST OF WORKS THAT THE PHD CANDIDATE HAS PUBLISHED ........... 141 REFERENCE............................................................................................................. 142 APPENDIX................................................................................................................. 152 vi ABBREVIATION 7th NEADEP 7th National Economic and Social Development Plan 8th NEADEP 8th National Economic and Social Development Plan ACMECS Ayeyawady Chao Phraya Mekong Economics Cooperation Strategy ADB ASEAN Development Bank AFTR Asean Free Trade Areas APB Agriculture Development Bank ASEAN Association of Southeast Asian Nations ATIGA ASEAN Trades in Goods Agreement CARD Commercial Agriculture and Rural Development . CF Contract Farming DCAP Development of Commercial Agricultural Production DOAF District Office of Agriculture and Forestry FDI Foreign Direct Investments GDP Gross domestic product GOL Government of Lao Lao PDR Lao People’s Democratic Republic LDB Lao Development Bank LDD Land Developmetn Department . LPRP Lao People’s Revolutionary Party MAF Ministry of Agriculture and Forestry MARD Ministry of Agriculture and Rural Department . MDGs Millennium Development Goals MOA Ministry Of Agriculture NAFRI National Agriculture and Forestry Research Institute NEM New Economic Mechamism vii NEW National Econimics University ODA Official Development Assistance PCPP Promotion of Commodity Production Program PDAF Provice Department of Agriculture anfd Forestry REDD Reduced Emission from Deforestation an Forest Degradation SAFD Savannakhet Agriculture and Forestry Department . SPS Sanitary and Phyto Sanitary TBT Technical Barriers to Trade UNDB United Nations Development Business UNDP United Nationals Statistical Development Program USD US Dollar USDA United States Department of Agriculture VND Vietnamese Dong WB World Bank WTO World Trade Organization viii LISTOF FIGURES Figure 1.1. Logical framework for the research on Development of commercial agriculture in Savannakhet province .......................................................... 26 Figure 1.2. Map of study areas of three Districts in Savannakhet Province. ................ 28 Figure 2.1. Production cost of cane sugar in 2015 ........................................................ 46 Figure 2.2. Yield of processed sugar calculated per 1 hectare of harvested sugarcane ...... 47 Figure 2.3. Production cost of sugar and purchase price of sugarcane ......................... 49 Figure 2.4. Structure of world sugarcane production costs ........................................... 49 Figure 2.5. Sugar cane procurement into the production process of sugar mill operator .... 56 Figure 2.6. The Role of the Chief Quota sugarcane ...................................................... 57 Figure 2.7. Benefit allocation pattern of Thai cane and sugar industry ........................ 58 Figure 2.8. Share of sugar imports by China, Indonesia and Malaysia ......................... 60 Figure 2.9. Allocation and cultivating areas of main crops in Lao PDR ...................... 64 Figure 2.10. Laos’ agricultural export in total export during 2012-2018 ..................... 68 Figure 3.1. Wet Season paddy production in Savannakhet ........................................... 79 Figure 3.2. Dry paddy production in Savannakhet ........................................................ 79 Figure 3.3. Wet and Dry Season Paddy production in Savannakhet ............................. 80 Figure 3.4. Cash crops production in Savannakhet ....................................................... 82 Figure 3.5. Sugarcane production in Savannakhet ........................................................ 83 Figure 3.6. Cassava production in Savannakhet ............................................................ 84 Figure 3.7. Watermelon .production in Savannakhet .................................................... 85 Figure 3.8. Banana production in Savannakhet ............................................................. 85 Figure 3.9. Structure of main cash crops in terms of prodution value in 2020 ............. 86 Figure 3.10. Percentage of types of agriculture products exported in 2011-2020 ...... 104 Figure 3.11. Growth rate of Savannakhet’s Gross.Domestic Product (%) . ............... 106 Figure 3.12. GDP per Capita in the period of 2011-2020 (USD/Capita/Year) ........... 107 Figure 3.13. Economic structure of Savannakhet in 2016, 2020 and Plan 2020 ........ 108 Figure 3.14. Better education results in higher labor productivity .............................. 112 ix LIST OF TABLES Table 2.1. Average yield of sugarcane in some countries in the World... .................... 50 Table 2.2. Area harvested of main crops in Laos in the last decade ............................. 61 Table 2.3. Yield of main crops in Laos in the last decade ............................................ 62 Table 2.4. Production of main crops in Laos in the last decade .................................... 63 Table 2.5. Growth in population of major livestocks in the last decade ....................... 65 Table 2.6. Growth in production of major livestocks in the last decade ....................... 65 Table 2.7. Laos’ export quantity of main cash-products in the last decade .................. 66 Table 2.8. Laos’ export value of main agro-products in the last decade ....................... 67 Table 2.9. Major markets for Lao agricultural export by share during 2014-2018 ....... 69 Table 3.1. Structure of crops in terms of cultivating area in Savannakhet ................... 77 Table 3.2. Structure of cash crops in terms of production value in Savannakhet ......... 78 Table 3.3. Annual average growth rates of cash crops in 2011-2020 (%) ................... 82 Table 3.4. Commercial crop production in the year 2020 ............................................. 86 Table 3.5. Number of agricutural households by year in Savannakhet ......................... 87 Table 3.6. Number of agricutural commanies by year in Savannakhet ........................ 88 Table 3.7. Number of respondents classified by districts .............................................. 96 Table 3.8. Number of respondents classified by gender ............................................... 96 Table 3.9. Number of respondents classified by age group .......................................... 97 Table 3.10. Number and percentage of respondents classified by education level ....... 97 Table 3.11. Households classified by main activities for income ................................. 97 Table 3.12. Farmers’ oppions on advantages of contract farming for sugar factories . 98 Table 3.13. Farmers’ oppions on disadvantages of contract farming for sugar factories .... 99 Table 3.14. Efficiency of production of cash crops in the year 2020 ......................... 101 Table 3.15. Export of agricultural products of Savannakhet in years 2011-2020 ....... 103 Table 3.16. Detail export of agricultural products of Savannakhet in 2011-2020 ...... 104 Table 3.17. Laos’ Poverty Incidence from 1992–1993 to 2019 (%) .......................... 107 1 INTRODUCTION 1. Rationale of the dissertation The Lao PDR is primarily an agricultural economy, with this sector contributing 51 percent of the GDP. Approximately 1,880,000 individuals are involved in agricultural work. The Lao PDR’s recent major agricultural census provides an excellent overview of the basic nature of Laos' agricultural system. The results of this survey indicate that 79.7 percent of the total population is engaged in farming. The average land holding is 1.62 hectares with 27 percent of households having 2 hectares or more and 36 percent having less than 1 hectare. An impressive 97 percent of farmers own their own land. About 93 percent of the area devoted to rice production is for the production of sticky rice, a subsistence crop used primarily for home consumption. However, in terms of commercialization of agricultural products, the quantity and quality of agricultural products have not yet been standardized. By comparing neighboring countries, especially Vietnam and Thailand, it can be said that these nations have been able to produce agricultural products for export to generate large amounts of income each year and make their economy much better than Laos. In contrast, Laos has a large land area and a landscape suitable for agricultural production and farmers account for about 80%, but Laos’ agriculture has not developed to produce as much as posible products for export in terms of both quantity and quality. Especially, growth of Laos’ agriculture hav

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