Promoting Commercial Production of Banana in Lao PDR
Updated on : 08-04-2016
Commercial production of banana is a good strategy with the potential to generate income for Lao people in rural areas, but it has negative impacts on farmers’ health and soil quality. In theory, commercial production refers to an increase in the quantity and quality of agricultural products by using better quality of inputs and securing product markets. Commercial production in Lao PDR generally follows the contract farming under the “2+3” model, which is an agreement between farmers and investor on banana production. The agreement specifies the terms, in which farmers contribute two productive factors, namely labor and agricultural land, while investor contributes three factors, namely seeds, techniques of production, and market.
The implementation of commercialization policy for banana production has satisfactorily brought benefits to rural people. The most notable outcome of such policy is the attraction of Chinese investors to support banana production of Lao people in Northern provinces such as Borkeo, Luangnamtha, and Oudomxay. Over the past four years, banana export increased tenfold from US$3.8 million in 2011-12 to US$40 million in 2014-15. The main markets for Lao banana export include China and Thailand. In these two markets, banana export to China increased rapidly, resulting in a change in market structure from Thailand-oriented export market in the past to China-oriented export market in the present. Banana export to China increased from 42% of total banana export in 2011-12 to 88% in 2014-15. Such export is expected to increase continuously.
Although economic benefits from banana production are substantial, such benefits are unevenly distributed. According to the preliminary research findings of the National Agriculture and Forestry Research Institute on commercial production of banana in 2016, there are three parties involved in the production process, namely Chinese investor, land owner, and laborer. In Luangnamtha province, for example, net economic return to investor is 20 million kip/hectare/year or about US$2,500 per hectare per year; economic return from land lease for land owner is 15 million kip/hectare/year or about US$1,875 per hectare per year; and economic return for laborer is 780.000 kip/hectare/year or about US$97 per hectare per year. Overall, the research findings indicate that net economic return is much higher for investor than Lao people who contribute land and labor.
In addition, the income gap among stakeholders from banana production becomes larger if social and environmental costs are included in the cost-benefit analysis. In particular, the research findings of the National Agriculture and Forestry Research Institute (2016) indicate that there has been an intensive use of herbicides and pesticides in banana production which has negative impacts on the quality of life of farmers and people living around the banana plantation and on soil fertility. If the cost of soil recovery is added to the cost-benefit analysis, land owner will have lower net economic return for land lease. Similarly, if the cost of health treatment is added to the cost-benefit analysis, laborer will have lower net economic return for labor.
To sum up, commercial production of banana can be an important source of income for poverty reduction in rural areas of Lao PDR. But Lao people have not yet fully benefited from banana production and in some cases banana production has adverse impact on the quality of life of rural people and environment. Consequently, the following two recommendations are proposed to turn the commercialization of banana production in a way that meets the need of Lao people and improves the quality of investment. These recommendations include:
- Strengthening legal enforcement for investment approval in line with Investment Promotion Law; and monitor and evaluate investment projects for banana production in line with Plantation Protection Law and relevant regulations on the management of pesticides, herbicides, and fertilizers.
- Initiate Lao-Chinese investment partnership to exchange information on accessing Chinese markets for agricultural products and to facilitate trade and investment in Lao PDR, especially procedures of investment approval, procedures for the importation of agricultural inputs, and labor market characteristics.
Written by: Sithanonxay Suvannaphakdy
Trade Facilitation Secretariat
Department of Import and Export
Ministry of Industry and Commerce
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