the economic potential for smallholder rubber production...

The University of Queensland

The Economic Potential for Smallholder Rubber Production

in Northern Laos

A thesis submitted for the degree of Master of Philosophy

at the University of Queensland

Vongpaphane MANIVONG

School of Natural and Rural Systems Management

March 2007

The Economic Potential for Smallholder Rubber Production in Northern Laos

ii

Declaration of Originality

This thesis is the original work of the author except as acknowledged in the text and

in the Statement of Contribution. It has not been submitted for a degree at this or any

other universities.



iii

Statement of Contribution

The work on producing maps in Chapter 7 was assisted by Mr. Thavone

INTHAVONG, the National Agriculture and Forestry Research Institute, Vientiane,

Laos.


Associate Professor Rob CRAMB


iv

Acknowledgments

I would like to begin by thanking Associate Professor Rob Cramb for giving useful

advice during the entire process of writing this thesis. I consider myself fortunate to

have had Rob’s professional and personal support. I also wish to thank Dr. Malcolm

Wegener for his involvement in the supervision of my thesis.

Many thanks to Dr. John Raintree for advice regarding to the selection of the course

and university and to Dr. John Schiller for advice and personal support during my

time in Australia.

My sincere thanks to the National Agriculture and Forestry Research Institute and the

Ministry of Agriculture and Forestry of Laos for giving me the opportunity to study at

the University of Queensland.

Thank you to the Swedish International Development Agency for providing the

financial support during my study at the University of Queensland.

Many thanks to the Soil Survey and Land Classification Centre of the National

Agriculture and Forestry Research Institute for providing the data on soil

characteristics in Luangnamtha province.

I am grateful to the staff of the GIS Unit and Socio-Economic Unit of the National

Agriculture and Forestry Research Institute for providing maps and useful data.

Special thanks to Mr. Thavone Inthavong for producing maps.

Thanks to the staff of the Provincial Agriculture and Forestry Office and Provincial

Agriculture and Forestry Extension Services of Luangnamtha Province for providing

valuable information. Particular thanks go to Mr. Bounthon Sisavan, a research

assistant, for his wonderful cooperation and support during the data collection in

Luangnamtha Province.

Finally, I would like to give thanks to the authorities and farmers of Hadyao Village

who shared their time for the interviews and group discussions.


v

List of Publications

Manivong, V., and Cramb, R.A., 2006. A Case Study of Smallholder Rubber

Production in Lungnamtha Province. Poster paper presented at the Workshop

on Rubber Development in Laos: Exploring Improved Systems for

Smallholder Production. Vientiane, Laos, 9-11 May 2006.

Manivong, V., and Cramb, R.A., 2007. Economics of Smallholder Rubber Production

in Northern Laos. Paper presented at the 51st Annual Conference of Australian

Agricultural and Resource Economics Society. Queenstown, New Zealand,

13-16 February 2007.


vi

Abstract

Rubber smallholdings are being established by shifting cultivators in Northern Laos,

in response to demand from China and encouraged by government land-use policy.

This can be seen as part of a general transition from subsistence to commercial

agriculture in the uplands – in particular, from shifting cultivation to tree crop

production. This study examines the economics of smallholder rubber production in

an established rubber-growing village in Luangnamtha Province and models the likely

expansion of smallholder rubber in the Province. Data were obtained from key

informant interviews, group interviews, direct observation, and a farm-household

survey. Latex yields were estimated using the Bioeconomic Rubber Agroforestry

Support System (BRASS). A discounted cash flow (DCF) model was developed to

estimate the net present value for a representative rubber smallholding. This model

was then combined with spatial data in a Geographical Information System (GIS) to

predict the likely expansion of rubber based on resource quality and accessibility.

The study shows that, given current market conditions and credit support, investment

in smallholder rubber production in the uplands of Northern Laos can be profitable.

The results from the DCF analysis for the study village show that the expansion of

rubber planting in that village is based on good economic returns. The spatial analysis

indicates that the potential for rubber in the study village is not an isolated case; there

are also other areas in Luangnamtha Province that appear to be economically suitable

for rubber. Therefore, rubber can be considered as one of the potential alternatives for

poor upland farmers, in line with the government policy of stabilising shifting

cultivation and supporting new livelihood options for poverty reduction. However,

there are risks associated with rubber production and emerging constraints of land and

labour, hence government should move cautiously in promoting rubber where farmers

are uncertain about reducing their dependence on shifting cultivation. The role for

government, as in other countries where smallholder rubber has played a significant

role in rural development, is to ensure the provision of good quality planting material,

to assist financially during the long investment period when no income is generated,

and to invest in roads and marketing infrastructure. In particular, maintaining secure

access to the China market will be crucial for the sustainability of smallholder rubber


vii

in Northern Laos. If carefully managed, the expansion of smallholder rubber in Laos

has the potential to contribute to sustainable rural livelihoods.


viii

Table of Contents

Declaration of Originality ii

Statement of Contribution iii

Acknowledgments iv

List of Publications v

Abstract vi

Table of Contents viii

List of Tables xii

List of Figures xv

Chapter 1: Introduction 1

1.1 Research problem 1

1.2 Research objectives, framework, and methods 4

1.3 Thesis overview 5

Chapter 2: Literature Review 8

2.1 Introduction 8

2.2 Transition from shifting cultivation to cash production 8

2.2.1 General characteristics of shifting cultivation 8

2.2.2 Principles of transition from shifting cultivation to cash

production 10

2.2.3 The place of tree crops in the transition 11

2.3 Technological aspects of smallholder rubber production 14

2.3.1 Introduction 14

2.3.2 Site selection, land preparation and planting 14

2.3.3 Fertilizer application, weed and pest control, and

intercropping 16

2.3.4 Tapping, processing and marketing 18

2.4 Economic aspects of smallholder rubber production 20

2.5 Overview of world rubber industry 21


2.5.2 Natural and synthetic rubber 22

2.5.3 Natural rubber 25

2.5.4 Future trends of natural rubber 29


ix

2.6 Government schemes supporting smallholder rubber production 31

2.7 Conclusion 35

Chapter 3: The Context of Rubber Development in Laos 38

3.1 Introduction 38

3.2 Physical and socio-economic environment 38

3.2.1 Location 38

3.2.2 Topography 39

3.2.3 Climate 41

3.2.4 Natural resources 44

3.2.5 Population 46

3.2.6 Transportation infrastructure 47

3.2.7 Administration 47

3.2.8 Tenure system and land/forest allocation 48

3.3 Farming systems in Laos 50

3.3.1 Overview 50

3.3.2 Shifting cultivation 52

3.3.3 Limitations of upland farming development 54

3.3.4 Government policies on improved upland farming in Laos 55

3.4 The development of rubber in Laos 56

3.4.1 Introduction of rubber into Lao upland farming systems 56

3.4.2 Government support for the development of rubber 61

3.5 Conclusion 62

Chapter 4: The Study Area 64

4.1 Introduction 64

4.2 Luangnamtha Province 64

4.3 Hadyao Village 68

4.4 Rubber production in Hadyao Village 73

4.5 Conclusion 77

Chapter 5: Resources, Rice and Rubber in the Study Village 79

5.1 Introduction 79

5.2 Data collection and analysis 79

5.3 Household resources 81

5.3.1 Human resources 81

5.3.2 Land 83


x

5.3.3 Livestock 87

5.4 Rice production 89

5.5 Rubber production 96

5.5.1 Rubber planting 96

5.5.2 Rubber production techniques 100

5.5.3 Rubber yield, sales, and income 109

5.6 Conclusion 114

Chapter 6: Bioeconomic Analysis of Smallholder Rubber Production in the Study

Village 116

6.1 Introduction 116

6.2 Modelling yields using BRASS 116


6.2.2 Climate variables 117

6.2.3 Topography and soil variables 120

6.2.4 Rubber management variables 122

6.2.5 Intercrop management variables 125

6.2.6 Model indexes 127

6.2.7 Outputs 130

6.3 Discounted cash flow analysis of smallholder rubber production

in the study village 131


6.3.2 Principles of DCF analysis 131

6.3.3 Identifying costs and benefits 133

6.3.4 Quantifying costs and benefits 137

6.3.5 Discount rates 138

6.3.6 DCF – the base analysis 140

6.3.7 Risk and uncertainty 146

6.4 Other investment criteria 150

6.5 Conclusion 154

Chapter 7: The Scope for Expanded Smallholder Rubber Production

in Luangnamtha Province 155

7.1 Introduction 155

7.2 Defining the scenarios 155

7.2.1 Conceptual basis of the scenarios 155


xi

7.2.2 Levels of resource quality 156

7.2.3 Levels of accessibility 162

7.2.4 Scenarios in terms of resource quality and accessibility 166

7.3 Economic suitability of each scenario 166


7.3.2 Yield profiles for each level of resource quality 167

7.3.3 Prices for each level of accessibility 168

7.3.4 DCF analysis for each scenario 173

7.4 Conclusion 181

Chapter 8: Conclusion 182

8.1 Background 182

8.2 Theoretical framework and methodology 183

8.3 Key findings 185

8.4 Policy implications 190

References 194

Appendices 207

Appendix 1 207

Appendix 2 211

Appendix 3 218

Appendix 4 222

Appendix 5 225

Appendix 6 228


xii

List of Tables

Table 2.1: Natural rubber production by region 23

Table 2.2: Natural rubber consumption by region 24

Table 2.3: Synthetic rubber production by region 24

Table 2.4: Synthetic rubber consumption by region 24

Table 2.5: Rubber planted areas by countries (’000 ha) 25

Table 3.1: Total area of land use and vegetation types distributing on slope classes

(1,000 ha) 46

Table 3.2: Three main farming systems in Laos 51

Table 3.3: Contrasting conditions in the lowlands and uplands 52

Table 3.4: Strategy for the uplands and lowlands 55

Table 3.5: Officially estimated rubber area in Laos, 2005 58

Table 3.6: Investors in rubber in Laos 60

Table 3.7: Potential rubber areas in Laos 61

Table 4.1: Farming systems in Luangnamtha Province 68

Table 4.2: Number of households in Hadyao Village 71

Table 4.3: Types of land use in Hadyao Village 72

Table 4.4: Area under rubber in Hadyao Village 75

Table 4.5: Loans for rubber production in Hadyao Village 76

Table 4.6: Production and sale of rubber in Hadyao Village 76

Table 4.7: Sale of rubber in 2004 in Hadyao Village by month 76

Table 5.1: Distribution of household size in Hadyao 81

Table 5.2: Demographic characteristics of households in Hadyao by wealth status 83

Table 5.3: Distribution of land holdings in Hadyao 85

Table 5.4: Tenure status and location of land cultivated by Hadyao households 86

Table 5.5: Household land resources in Hadyao by wealth status 87

Table 5.6: Ownership of livestock in Hadyao 88

Table 5.7: Data on livestock raising in Hadyao by wealth status 89

Table 5.8: Number of rice growing households by location and type of rice

cultivation 90

Table 5.9: Number of rice growing households by rice cropping patterns and

location of rice cultivation 91


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Table 5.10: Labour requirement for upland rice production 91

Table 5.11: Rice self-sufficiency among Hadyao households 93

Table 5.12: Rice production statistics by wealth status 94

Table 5.13: Variables included in multiple regression analysis of rice area

in 2004 (n=82) 95

Table 5.14: Results of multiple regression analysis of factors affecting

the area of rice in 2004 95

Table 5.15: Distribution of rubber plots per household in Hadyao 96

Table 5.16: Location of household rubber plots by planting phase 96

Table 5.17: Land type of household rubber plots by planting phase 97

Table 5.18: Source of household’s funds for rubber planting by planting phase 97

Table 5.19: Variables included in multiple regression analysis of rubber planting

(n=95) 99

Table 5.20: Results of multiple regression analysis of factors affecting the total

number of rubber trees planted 99

Table 5.21: Incidence of replacement planting by planting phase 103

Table 5.22: Average yields (kg/ha/year) over three years of tapping in Hadyao 109

Table 5.23: Yields (kg/ha/year) of smallholder rubber in Laos, China, and

Thailand 110

Table 5.24: Rubber production data by wealth status of household, 2004 111

Table 5.25: Variables included in multiple regression analysis of rubber

production (n=67) 113

Table 5.26: Results of multiple regression analysis of factors affecting

the production of tub-lump rubber in 2004 113

Table 6.1: Climate variables in the biophysical component of BRASS 118

Table 6.2: Rainfall and temperature data in Luangnamtha Province 118

Table 6.3: Estimated PET and solar radiation in Luangnamtha Province 119

Table 6.4: Assumed rainfall data in Luangnamtha Province 120

Table 6.5: Topography and soil variables in the biophysical component of

BRASS 120

Table 6.6: Rubber management variables in the biophysical component of

BRASS 125

Table 6.7: Intercrop management variables in the biophysical component of

BRASS 127


xiv

Table 6.8: Comparisons of average latex yields from the survey and BRASS

(kg/ha) 128

Table 6.9: Materials used for one hectare of rubber production in Hadyao 134

Table 6.10: Annual labour requirements for one hectare of rubber production in

Hadyao 136

Table 6.11: Average yields of intercropped rice from BRASS and the survey in

Hadyao 136

Table 6.12: Cash flow analysis of one hectare of rubber plantation over 35 years

of production 141

Table 6.13: Results of DCF analysis for smallholder rubber in Hadyao

(2005 prices and wage rate of 17,000 Kip/person-day) 148

Table 6.14: Results of DCF analysis for smallholder rubber in Hadyao

(2005 prices and wage rate of 25,000 Kip/person-day) 148

Table 6.15: Cash flow budget from Year 1-11 (current prices) 152

Table 6.16: Cash flow budget from Year 1-11 (constant 2005 prices) 153

Table 7.1: The number of mapping units in each level of resource quality by

topography and soil properties 162

Table 7.2: Criteria for defining levels of accessibility 163

Table 7.3: The levels of accessibility and resource quality in each scenario 166

Table 7.4: Yields of intercropped rice and rubber wood for three levels of

resource quality 168

Table 7.5: The cost of transporting tub-lump rubber from the moderate

accessibility zone (0.5-3.5 km) to the roadside 170

Table 7.6: The cost of transporting tub-lump rubber from the poor

accessibility zone (>3.5 km) to the roadside 171

Table 7.7: Percentage change in prices for each level of accessibility 176

Table 7.8: Prices of inputs and outputs used in DCF analysis for each scenario 176

Table 7.9: Results of DCF analysis for each scenario at 8% discount rate 178

Table 7.10: Ranking of economic suitability for rubber 178

Table 7.11: Areas within each suitability rank in Luangnamtha Province 179


xv

List of Figures

Figure 1.1: The mountainous upland region of Northern Laos 2

Figure 2.1: World natural and synthetic rubber production 22

Figure 2.2: World natural and synthetic rubber consumption 23

Figure 2.3: Natural rubber production by major producing countries 26

Figure 2.4: Natural rubber consumption by major consuming countries 28

Figure 2.5: Price of natural rubber (TSR20) on the Singapore Commodity

Exchange in US cents per kg 29

Figure 3.1: Location map of Laos 39

Figure 3.2: Elevation map of Laos 40

Figure 3.3: Temperature map of Laos 42

Figure 3.4: Rainfall map of Laos 43

Figure 3.5: Monthly mean rainfall distribution in Luangprabang Province,

Vientiane Municipality, Champasack Province from 1975-2005 44

Figure 3.6: Forest and land cover map of Laos 45

Figure 3.7: Transportation routes map of Laos 48

Figure 3.8: Potential rubber areas in Laos 62

Figure 4.1: Location map of Luangnamtha Province 65

Figure 4.2: Monthly average rainfall distribution and temperature in

Luangnamtha Province from 1994-2004 66

Figure 4.3: Forest and land use map of Luangnamtha Province 67

Figure 4.4: Location map of Hadyao Village in Namtha District of

Luangnamtha Province 69

Figure 4.5: Hadyao Village in Namtha District of Luangnamtha Province 70

Figure 4.6: Resource map of Hadyao Village 72

Figure 4.7: A rubber smallholding in Hadyao Village 74

Figure 4.8: The sale of tub-lump rubber on market day in Hadyao Village 77

Figure 5.1: The distribution of full-time equivalent workers per household

in Hadyao 83

Figure 5.2: The distribution of cultivated land per household in Hadyao 85

Figure 5.3: The distribution of rice area per household in Hadyao 92

Figure 5.4: The distribution of rubber trees planted per household in Hadyao 98


xvi

Figure 5.5: Land prepared for planting with rubber in Hadyao 101

Figure 5.6: Young rubber trees in Hadyao 102

Figure 5.7: The symptoms of yellow-leaf disease (left) and root disease (right)

in Hadyao 105

Figure 5.8: Rice (left) and corn (right) intercropped with young rubber trees

in Hadyao 106

Figure 5.9: Pineapple intercropped with mature rubber trees in Hadyao 106

Figure 5.10: The practice of tapping (left) and collecting latex (right) in Hadyao 107

Figure 5.11: The use of plastic bag (left) and bucket (right) for processing latex

into tub-lump rubber in Hadyao 108

Figure 5.12: Tub-lump rubber is normally kept at the farm in Hadyao 108

Figure 6.1: Variables in the biophysical and economic components of BRASS 117

Figure 6.2: Predicted latex yield in Hadyao over 35 years using BRASS 130

Figure 6.3: Undiscounted annual net returns using a wage rate of 17,000

Kip/person-day 144

Figure 6.4: Discounted annual net returns using 8% discount rate and

wage rate of 17,000 Kip/person-day 145

Figure 6.5: Cumulative NPV using 8% discount rate and wage rate of 17,000

Kip/person-day 146

Figure 7.1: Defining levels of resource quality based on the yields estimated

from BRASS 157

Figure 7.2: Defining topography and soil variables based on the soil properties

in each soil sampling site 159

Figure 7.3: The distribution of average annual latex yields for each mapping unit 160

Figure 7.4: Resource quality map for smallholder rubber in Luangnamtha

Province 161

Figure 7.5: Accessibility map in Luangnamtha Province 163

Figure 7.6: Trucks waiting to collect tub-lump rubber at the roadside 164

Figure 7.7: Transporting rubber by cart 165

Figure 7.8: Transporting agricultural and forest produce using back packs 165

Figure 7.9: Latex yields for three levels of resource quality 167

Figure 7.10: The estimation of cost of transporting the tub-lump rubber to

the roadside by distance 172


xvii

Figure 7.11: The percentage reduction in farm-gate prices of tub-lump rubber

by distance 172

Figure 7.12: Distribution of distance to the main road of villages in the moderate

accessibility zone 174

Figure 7.13: Distribution of distance to the main road of villages in the poor

accessibility zone 175

Figure 7.14: Economic suitability ranking map for smallholder rubber in


Figure 7.15: Simplified economic suitability map for smallholder rubber in



1

Chapter 1

Introduction

1.1 Research problem

Lao PDR (hereafter Laos) is a predominantly rural country with approximately 83%

of the population living in rural areas, of which 66% relies on subsistence agriculture

(Roder, 2001). The national economy is overwhelmingly dependent on agriculture,

which accounts for around 47% of GDP and absorbs approximately 80% of the labour

force (NSC, 2005a). Based on the total area of 236,800 km2 and the population of 5.6

million, Laos is the least densely populated country in Asia at only 24 persons per

km2 (NSC, 2005b), yet with the present annual population growth rate of

approximately 2.5%, the agricultural population density will double over the next 25

years (Raintree, 2002). Laos is one of the poorest nations, with a GDP per capita in

2002 of US$330 and a ranking of 135 out of 175 countries in UNDP’s Human

Development Index (ICEM, 2003; UNDP, 2003). The greatest levels of poverty are in

the mountainous uplands of the Northern Region (Fig. 1.1).

There are various factors behind the poverty in the uplands of Northern Laos, of

which pressure on resources and remoteness from markets are two of the most

significant. The current low ratio of population to land might look like a conducive

circumstance for cultivation; however, much of the land in the north is judged as

being unsuited to agricultural development. The availability of suitable agricultural

land is very unevenly distributed by regions. Most of the land along the flat plains of

the Mekong river is found in the Central and Southern regions, while in the

mountainous region in the north there is noticeably less suitable arable land for

cultivation, with only 6% of the area classified as under 20% slope and 50%

categorized as having a slope of 30% or more (Raintree, 2002). This mountainous

Northern territory is mainly under shifting cultivation (ICEM, 2003).

Shifting cultivation in Laos involves more than 150,000 households (or around 25%

of the rural inhabitants) and may account for up to 80% of the land allocated for

agriculture if the entire area of fallow fields is taken into account. Shifting cultivation


2

in the past was recognized as the best land use alternative for the rural inhabitants in

the mountainous regions of Laos because of low population densities, low incomes,

little opportunity for trade, and limited access to inputs (Roder, 2001). However, this

traditional agricultural production has become increasingly unsustainable, reflecting

the combined effects of population growth, growing market opportunities, natural

resource depreciation, and international awareness of environmental impacts, forcing

farmers to shorten their fallow periods. As a result, widespread problems of weed

invasion, soil erosion, and declining yields are occurring (De Rouw, 2005).

Figure 1.1: The mountainous upland region of Northern Laos (Source: Author’s

photo, August, 2005)

The Government of Laos is concerned about this problem and has put ‘reduction’ of

shifting cultivation as one of the priority national programs. As stated in the

Government’s Strategic Vision for the Agricultural Sector (MAF, 1999), the

government aims to transform the existing ‘harmful’ system of shifting cultivation to

more ecologically stable cultivation systems with proper land management by villages

and individuals. The government is proceeding with land allocation programs, the


3

promotion of cash crops and livestock production, and the promotion of tree-planting

programs with a vision to accomplish effectively the aim of ‘stabilising’ shifting

cultivation by the year 2010. While this policy is controversial and its impacts on rural

livelihoods need to be closely monitored, there is no doubt that upland farmers are

involved in a significant transformation of their traditional subsistence-oriented

farming systems.

To achieve the aim of stabilising shifting cultivation and eradicating poverty in the

mountainous region of Northern Laos, it is recognized that more sustainable and

income-generating agricultural practices have to be identified and adopted. One of the

possible alternative approaches to support this transformation is the introduction of

perennial cash crops such as rubber to increase farmers’ income. Rubber was first

introduced into Laos in 1930, with the first rubber plantation established in Southern

Laos by French planters during the colonial era. However, smallholder rubber in

Northern Laos is a more recent phenomenon. Between 1994 and 1996, the Hmong

village of Hadyao in Luangnamtha Province established rubber over 342 hectares in

the form of smallholdings, and these smallholders started tapping their rubber trees in

2002 (Manivong et al., 2003). Since then, the rubber area in Laos has increased

moderately, but at a more rapid pace since 2003 as many individuals, private sector

entities (both domestic and foreign), and state sector entities have responded to high

rubber prices and the growth in demand from China. Both local and foreign investors,

especially from China, Vietnam, and Thailand, have expressed interest in investing in

rubber plantations throughout Laos by seeking land for concessions and other

arrangements (Alton et al., 2005; FRC, 2005).

In response to the growth in market demand, especially from neighbouring China,

considerable potential is believed to exist for the expansion of rubber. However, only

a relatively small area has been planted with rubber and an even smaller area is in

production, hence there is little information currently available on the potential

economic returns to smallholder producers, and on the technical and market

constraints they face, that can be used as a basis for the promotion of the crop by the

government. Is smallholder rubber a viable option? What factors contribute to its

viability? What are the risks farmers face? Over what areas is smallholder rubber

likely to be economically suitable? What are the possible impacts on village land-use


4

patterns, household incomes, and the distribution of wealth? What role should the

Government play in the development of smallholder rubber?

1.2 Research objectives, framework, and methods

The overall aim of this study was to examine the economic potential of smallholder

rubber production in Northern Laos. The specific objectives were to appraise the

economics of smallholder rubber production in an established rubber-growing village,

and to model the economic potential of smallholder rubber production in a variety of

spatial settings.

The conceptual framework for the study included the theory of transition from

subsistence to commercial production; the concept of discounted cash flow (DCF);

and the concept of land use-capacity. The theory of transition from subsistence to

commercial production was reviewed, with particular reference to the adoption of

plantation tree crops, as a basis for understanding the stages through which upland

farmers in Northern Laos are proceeding and the opportunities and constraints at each

stage. This theory suggests that, in a commercializing agriculture, economic returns to

investment become progressively more important to smallholder farmers. Hence DCF

analysis was used to analyse the economic returns from the investment of household

resources in smallholder rubber production. The DCF framework expresses the

worthwhileness of a long-term investment such as a rubber plantation in terms of its

net present value (NPV), while allowing for risk and uncertainty through sensitivity

analysis. The concept of land use-capacity links the economic suitability of land for a

given use to two major components – resource quality and accessibility. Hence the

DCF model could be extended to measure the economic suitability for smallholder

rubber of different spatial scenarios in the study area.

Within this conceptual framework, the methods used included a review of existing

information from previous studies, the collection and analysis of data sets from the

study village of Hadyao in Namtha District of Luangnamtha Province, and the

extrapolation of that analysis to other settings within the Province. Hadyao Village

was selected for in-depth study as Hadyao was the first village in Laos to plant and

tap rubber. More importantly rubber in this village was planted by smallholder

shifting cultivators who are now well advanced in the transition from subsistence to


5

commercial agriculture and therefore facing a number of issues of relevance to the

study.

Both qualitative and quantitative, secondary and primary data were collected for this

study during fieldwork from June to December 2005. Secondary data were reviewed

and collected from different sources. Reports related to rubber, both published and

unpublished, were collected from government agencies, non-government

organizations (NGOs), and projects at the national, provincial, district, and village

levels. Information about Hadyao Village was obtained from the village authorities

during a reconnaissance visit in July 2005, including the general information about the

village and specific information on rubber planting. Primary data were collected

through key informant interviews, group interviews, direct observation, and a

questionnaire survey of 95 farm-households in Hadyao during an extended period of

fieldwork in August 2005.

The software programs used for analysing the quantitative data were Microsoft Excel,

Statistical Package for Social Scientists (SPSS), the Bioeconomic Rubber

Agroforestry Support System (BRASS), and ArcView 3.2a. Microsoft Excel and

SPSS were used to enter and analyse the data from the household survey of

smallholder rubber farmers in the study village. BRASS was used to estimate the

yields throughout the life of a typical rubber plantation. These yield projections were

necessary for the DCF analysis of smallholder rubber production in the study village

and in other geographical settings as actual yields had only been recorded for three

years in one village. ArcView 3.2a was used to develop maps of resource quality,

accessibility, and economic suitability for rubber in the study area. These techniques

are described in detail in the relevant chapters of the thesis.

1.3 Thesis overview

The thesis is organised into eight chapters. The next chapter reviews the literature

regarding the stages in the transition from shifting cultivation to cash production, with

particular reference to the role of plantation tree crops in this transition; the technical

and economic aspects of rubber production; the recent trends in the world rubber

industry, indicating the reasons for the growth in interest in rubber production in Laos


6

and the longer-term market prospects; and government support schemes and policies

for rubber production in the main rubber producing countries.

Chapter 3 presents the context of rubber development in Laos. It first highlights the

physical and socio-economic characteristics of Laos. It then discusses the farming

systems practised in Laos, with particular reference to shifting cultivation and the

factors that constrain agricultural development in the uplands. This is followed by an

account of the introduction of rubber into upland farming systems.

Chapter 4 describes the study area of Luangnamtha Province and Hadyao Village to

give an understanding of the context in which rubber planting has occurred. A general

account is given of rubber planting in Hadyao.

Chapter 5 investigates the issues of resources, rice and rubber in the study village of

Hadyao. An account is given of the farming resources, activities, and outputs of the

farm households in the study village, with the main focus on smallholder rubber

production. The use of household resources including human resources, land, and

livestock to undertake the two main farming activities – rice and rubber – is analysed,

with attention given to a comparison between households of different wealth status.

Chapter 6 presents the bioeconomic analysis of smallholder rubber production in the

study village of Hadyao. The aim was to build a realistic discounted cash flow (DCF)

model of smallholder rubber production in order to assess the profitability of a hectare

of smallholder rubber in the conditions faced by a typical farmer in Hadyao. This

required modelling the yield of latex over the life of the rubber enterprise, as well as

other outputs, using the Bioeconomic Rubber Agroforestry Support System (BRASS),

which was parameterised and calibrated as far as possible to Hadyao conditions.

These simulated yields were combined with data on costs and benefits obtained from

group discussions with experienced rubber farmers in Hadyao and household survey

data, as well as from other relevant sources. Attention was given to the appropriate

valuation of household labour and the capital invested in the enterprise, as well as

examining a range of investment criteria.


7

Chapter 7 assesses the scope for expanded smallholder rubber production in the study

province of Luangnamtha. The approach was first to define representative scenarios in

spatial terms, drawing on the concepts of land use-capacity, resource quality, and

accessibility, then to use modified versions of the DCF model from Chapter 6 to

estimate the economic suitability of those scenarios for smallholder rubber planting.

These scenarios were then mapped and the potential spatial extent of smallholder

rubber estimated.

The final chapter summarizes the theoretical framework and methodology used for

this study, the study findings, and the policy implications.


8

Chapter 2

Literature Review

2.1 Introduction

The growth of smallholder rubber in Northern Laos needs to be seen as part of a

general transition from subsistence agriculture based on shifting cultivation to

commercial production for the market, which has occurred in many upland regions of

Southeast Asia in the past century. This chapter firstly reviews the stages in this

transition from shifting cultivation to cash production. Next, the technical and

economic aspects of rubber production are examined. Then recent trends in the world

rubber industry are reviewed to understand the reasons for the growth in interest in

rubber production in Laos and the longer-term market prospects. In other rubber-

producing countries various supporting schemes and policies have been put in place

and these are reviewed in the final section.

2.2 Transition from shifting cultivation to cash production

2.2.1 General characteristics of shifting cultivation

Shifting cultivation comprises various land-use practices that differ with location,

altitude, environment, and resources (Vergara, 2001). However, the most common

characteristics of shifting cultivation are the use of fire for land preparation and the

rotation of cropping from one field to another (Christanty et al., 1986). In other words,

fields are cleared from forests, the dried biomass burned, crops planted for one or a

few years, and then the field rested while a new field is cleared in another part of the

forest (Rambo, 1989). Shifting cultivation is judged to be one of the oldest land-use

systems (Roder, 2001). Although shifting cultivation has disappeared in temperate

regions for a long time, it is still common and remains a dominant land-use system in

many parts of the tropical and subtropical world. It is thought to be practised by at

least 250 million inhabitants and covers up to 30% of the world’s exploited land

(Warner, 1991).


9

It is widely accepted that shifting cultivation is a sustainable form of agriculture as

long as the population density is low and therefore the fallow period is long enough

for the soil to re-establish its fertility (Roder, 2001). However, shifting cultivation has

been under pressure in recent decades due to increasing population and decreasing

forest areas and, as a consequence, it is no longer considered a sustainable technology

(Dufour, 1994). The dramatic growth in population has caused an enormous need for

more food production, hence the existing cleared forest is overcultivated, the fertility

of the soil decreases, and weeds and pests invade the land. This results in low

productivity, hence new forest areas have to be exploited.

According to FAO (1984), shifting cultivation can be categorised into pioneer (or

abandonment) and rotational (or establishment) shifting cultivation. Pioneering

shifting cultivation involves non-permanent villages that move into areas of primary

forest and cultivate fields intensively for a longer period of perhaps 10-15 years,

lacking the knowledge of sustainable land-use practices. After many years of

exploiting the forest and land resources, the fields and village sites are abandoned and

a new village is established in another primary forest area. In contrast, rotational

shifting cultivation is the practice of cultivating and fallowing fields in a rotation.

Cultivation is usually practised in an area of secondary forest for a shorter period of 1-

2 years, then moved to other locations in succession, eventually returning to the first

plot. The practice of this type of shifting cultivation involves rotation of plots, but the

village site is not necessarily moved.

Shifting cultivation can also be classified into ‘integral’ and ‘partial’ cultivation

systems (Conklin, 1957, cited in Christanty et al., 1986). Integral shifting cultivation

is the essential component of a subsistence farming system. Farmers employ this

system as their major occupation and devote all of their resources to it. Partial or

supplementary shifting cultivation is only a minor part of the farming system. The

main form of farmers’ production is cash crops or other forms of monetary activity,

hence less attention is given to shifting cultivation.

Peters and Neuenschwander (1988) further distinguished shifting cultivation into

short fallow periods which are generally one to three years and long fallow periods

which sometimes reach up to twenty years or more. This can be related to Boserup’s


10

(1965:15-16) theory of the intensification of subsistence farming systems from more

extensive to more intensive cultivation, changing from ‘forest-fallow cultivation’ to

‘bush-fallow cultivation’, to ‘short-fallow cultivation’, to ‘annual cropping’, and then

to ‘multi-cropping’. She argued that this evolution occurred due to the growth of

population requiring more food to be produced from the same area of land, requiring a

greater input per hectare and per worker. The intensification of subsistence farming to

multi-cropping proposed by Boserup had occurred in many European countries, but

this may not be possible in an environment like Northern Laos. With the growth of

population, the expansion of market opportunities, and the improvement of

infrastructure, the possible alternative pathway of intensification for Northern Laos is

likely to be through incorporating tree crops like rubber, as happened in other

Southeast Asian nations, as it is considered to fit well within the shifting cultivation

systems practised in Northern Laos.

2.2.2 Principles of transition from shifting cultivation to cash production

Shifting cultivators in the uplands of Southeast Asia have progressively taken up cash

crops over the past century. Myint (1973:35-36) categorized two stages of the

transition from subsistence production to production for the market. The first stage

occurs when farmers use the larger proportion of their resources to produce for their

own consumption, but use their spare land and labour to produce for markets. The

second stage occurs when farmers allocate most of their resources to supplying the

markets and rely on purchasing commodities and services, with subsistence farming a

spare-time activity. In other words, farmers change from being ‘part-time’ to ‘full-

time’ producers for the market. The shift is accelerated by the improvement of

infrastructure – especially transportations and communications – and the availability

of markets.

The transition from a subsistence economic system to total production for the market

was classified by Fisk (1975:53) into four stages – ‘pure subsistence in isolation’,

‘subsistence with supplementary cash production’, ‘cash orientation with

supplementary subsistence’, and ‘complete specialization for the market’. The first

stage occurs when farmers’ consumption is entirely reliant on their own production

and the final stage occurs when farmers produce entirely for the market and rely on


11

the market for all the commodities and services they need. The two stages in between

involve a combination of subsistence and commercial production and correspond to

Myint’s two stages. Farmers may produce mainly for their household consumption,

but undertake supplementary production to get access to goods and services not

available from their own resources. On the other hand, they may mainly produce to

supply the markets to earn cash income, but still produce a substantial part of their

basic food and other requirements. In reality there is rarely such a situation as pure

subsistence or pure monetary production. Farmers normally practise stage two or

stage three. For instance, although farmers may only focus on subsistence production,

they tend to cultivate cash crops additionally to get more income if they have spare

land and labour. On the other hand, despite focusing on cash production, they still

produce subsistence output because this will help reduce the risks associated with

market demand.

2.2.3 The place of tree crops in the transition For many Southeast Asian upland farmers the transition from subsistence shifting

cultivation to cash crop production has involved the planting of tree crops or other

perennials. According to Barlow and Jayasurija (1986:635) the development of

smallholder tree crop cultivation can be classified into three stages. The first stage is

‘emergence from subsistence’ when subsistence production is supplemented by a

plantation crop, followed by the stage of ‘agricultural transformation’ when

smallholder farming is rapidly commercialized, and finally the stage of ‘extended

structural change’ characterised by the increasing significance of the industry and

services sectors. It is noted that the transition from subsistence cultivation varies by

countries depending on their resource endowments, socioeconomic elements, and

government policies. The appearance of commercial cultivation of tree crops in

subsistence communities may take place by the development of estates, as in the case

of coffee, rubber, and tea in Southeast Asia and Africa, or by the improvement of

infrastructure as in the case of all tree crops in Malaysia, Sri Lanka, and Papua New

Guinea. It may be also due to market information from merchants as in the case of oil

palm in West Africa. Barlow and Jayasurija (1986) showed that the development of

smallholder rubber in Malaysia had experienced all the three stages.


12

In a more recent contribution, Barlow (1997) outlined five stages of economic growth

in relation to plantation tree crops by taking account of market conditions,

technologies, institutional arrangements, and government interventions. The first

stage is ‘backward economy’ when subsistence family-based agriculture is the main

sector while services and industry are minor ones. There is little trade and fragmented

rural markets. Land is abundant and underutilized, while labour occupied in shifting

cultivation has a low marginal product. Capital is very scarce. Technology is simple

with traditional tools and planting materials. These are typical original situations in

the humid tropics, which form an essential environment for plantation crops. There

was minimum government intervention.

The second stage is ‘early agricultural transformation’ when agriculture remains the

main sector with estates and smallholdings both involved in plantation crop

cultivation, but now has a commercializing orientation while services and industry

sectors are expanding. International trade and rural market development have

commenced. Land and labour become scarce and their prices are increasing. Capital

becomes mores available. Simple labour-intensive tree crop technologies are rapidly

adopted, first by estates and then by smallholdings. Central government starts levying

taxes and providing some services. The third stage is ‘late agricultural transformation’

when agriculture remains one of the larger sectors, but services are growing and

manufacturing based on import-substitution overtakes agriculture. Rural market

development is progressing, especially with government interventions, but many

imperfections persist. Land and labour prices are rising, while capital, management,

and transport prices are declining. New land- and labour-saving but more capital- and

management-intensive high-yielding tree crop technologies are generated and first

adopted by estates and much later by smallholdings. Central government has a

steadily broadened supporting role, providing extensive rural infrastructure and

services, and promoting import-substituting manufacturing.

The fourth stage is ‘early advanced economy’ when manufacturing becomes much

larger than agriculture and moves to an export orientation and includes downstream

plantation crop processing into final goods. Rural markets are much better integrated

and competitive, and pockets of imperfection persist. The trends of resource prices in

stage 3 continue, but the rise of land and labour prices accelerates and the difference


13

between rural and urban wages widens. As a consequence, labour migrates to towns.

The generation and adoption of tree crop technologies as in stage 3 continues with

concomitant spread to producers in different circumstances. Government support as in

stage 3 continues with provision of rural infrastructure and services, while previous

trade regulations are slowly removed.

The final stage is ‘late advanced economy’ when manufacturing prevails and becomes

far larger than agriculture and includes major plantation crop processing into final

goods. Natural rubber from other countries at lower levels is also imported to supply

this goods industry. Rural markets are as in stage 4 but more integrated and

competitive. The trends in resource prices as in stage 4 continue. Traditional

plantation crop production becomes unprofitable, but existing trees are still being

exploited in a ‘sunset’ situation. The generation and adoption of tree crop technology

mainly focuses on quality-improving techniques for the manufactured goods sub-

sector. Government support as in stage 4 is continuing and the support for the

remaining plantation crop is mainly as welfare for older generations.

Barlow (1997) reported that only Malaysia and Thailand had reached all these five

stages, while other rubber producing nations had only reached up to stage 3. In the

case of Laos it can be said that the transition from subsistence shifting cultivation to

cash crop production in the Northern uplands, as in the case of rubber, is still in Stage

2 of ‘early agricultural transformation’. As discussed in later chapters, rubber has

been recently introduced to Lao upland farming systems with simple labour-intensive

technology directly imported from China, though this technology is itself a ‘spillover’

from the more advanced rubber-producing countries, particularly Malaysia.

Subsistence Lao upland farmers are becoming commercialized rubber farmers. The

transition is occurring as a result of both greater integration with the regional

economies of Southeast Asia, particularly China, and the encouragement of

government policies. Most of the change has been driven by robust global demand for

rubber, especially from China. The government policy of ‘stabilising’ shifting

cultivation and generating income for upland farmers is also driving the change

(Thongmanivong and Fujita, 2006). In time, the rubber industry in Laos is likely to

move to stage 3 with the continuing development of rural markets, the generation and

adoption of new land- and labour-saving but more capital- and management-intensive


14

technologies, and support from the government through the improvement of

infrastructure.

2.3 Technological aspects of smallholder rubber production

2.3.1 Introduction

There are actually many species of rubber tree, but Hevea brasiliensis, a native of the

tropical rainforests of the Amazon river basin of South America that grows to a height

of around 20 m and a girth of 2 to 3 m, has provided the major source of natural

rubber since early in the 20th century (Williams, 1975; Kochhar 1981; RBI, 2005).

This section reviews the technological aspects of smallholder rubber production,

including site selection, land preparation, planting, fertilizer application, diseases,

pests, weeds, intercropping, tapping, processing, and marketing. It should be noted

that the practices and technologies mentioned in this section may vary between estates

and smallholders as smallholders do not simply adopt the systems of rubber

management used by the estates. They often adapted the technologies to suit their

circumstances (Dove, 2002).

2.3.2 Site selection, land preparation and planting

The most suitable area for rubber planting is in the humid tropical zones; it is not

likely to be successful in drier or colder areas (RBI, 2005). The area selected for

planting rubber is based on soil quality, rainfall patterns, temperature range, and

altitude (Williams, 1975). The most favourable agro-climatic conditions for rubber

cultivation include a well-drained, fairly deep loamy soil with a pH value of 4.5-6.0; a

high atmospheric humidity; a temperature range of 24-35 °C; and a consistently even

distribution of rainfall of 1,750-2,500 mm (Kochhar, 1981). Rubber trees are very

sensitive to strong winds as their branches are easily broken. Although rubber could

perform well in areas subject to episodic desiccating winds, such rubber trees could

not provide economic production. The topography is also very important for rubber

planting. Agronomists recommend that the land should be flat or gently sloping.

Sharply sloping lands or highly dissected lands should be avoided for the cultivation

of rubber because they make the operations of production and the transportation of

products more difficult and expensive. Rubber thrives best up to an altitude of 300 m


15

above sea level (Opeke, 1982). Although rubber trees can do well up to an elevation

of 1,000 m, their growth is reduced (Kochhar, 1981).

The common practice of land preparation for planting rubber is clear-felling since the

rubber tree does not need shade. After clear-felling, all trash is taken away or burned

(Opeke, 1982). In case of burning, a light burn may be carried out to demolish light

brushwood and branches of trees but too much burn may cause loss of humus and

expose the land to erosion (RBI, 2005). The remaining stumps and roots are removed

as this helps to reduce the risk of the outbreak of root diseases later on for the life of

the trees (Opeke, 1982).

In the past rubber seeds were planted directly in the field, but it has become common

practice to raise rubber seedlings in a nursery either for transplanting into the field as

seedlings or for use as root stocks (Opeke, 1982). Rubber seedlings established in a

nursery can take up to twelve months to reach maturity compared with buddings made

directly in the field (Williams, 1975). There are three types of planting materials –

unselected seedlings, budded stumps, and clonal seedlings (Polhamus, 1962). The

most commonly used planting materials by smallholders in Indonesia are unselected

seedlings or wildlings even though they know that they will get higher returns by

using clonal varieties. Seedlings are generally transplanted using seeds scattered from

nearby trees. Even though these seedlings are normally of poor quality, which is

reflected in low yields, their use is common because there is no preliminary cost other

than the time required to collect them and they need less inputs and less capital

investments (planting materials and maintenance) while the clonal seedlings require

high investment costs (Menz et al., 1999).

Planting on flat or slightly rolling lands can be implemented in a square or rectangular

pattern. For rectangular planting, lines should be taken east-west to get the utmost

benefit of sunlight. In rolling lands, cutting terraces is recommended to help soil

conservation. Contour lining is made by marking out the planting points in level lines

across the slopes. Continuous terraces along contour planting rows are initially high

cost but are economic in the long term as they form the best protection against

erosion. For economy, planting in hilly lands may be undertaken on square platforms


16

about 120 cm square along contours. These are joined later to make completed

terraces or with narrow ledges of 60 cm width to facilitate movement (RBI, 2005).

Whether spaced in a rectangular or a square pattern, the recommended spacing is

typically 6 to 7 m. Experience has shown that avenue planting has facilitated the

operations of a rubber plantation and the growth of the rubber tree. Avenues can be 2

to 4 rows wide, with a space of 5 to 7 m between avenues (Opeke, 1982). Spacing

affects not only the girth increment, but also the thickness and quality of the renewed

bark. Spacing also affects the yield of rubber. The cumulative yield over the life of a

rubber plantation is higher at the denser spacing, but the yield of individual trees is

much higher at the wider spacing (Williams, 1975). Smallholders, however, have

often planted their rubber trees at the denser spacing (Dove, 2002). In practice, the

recommended density for a rubber plantation is 400-600 trees per hectare to avoid

losses due to wind damage, root diseases, and permanent drying up of latex

(Purnamasari et al., 1999).

2.3.3 Fertilizer application, weed and pest control, and intercropping

During the early years after planting, the rubber trees are a minor part of the

plantation and have to compete for soil moisture and nutrients with weeds. Fertilizer

applied during this period is intended to encourage the robust growth of rubber trees

so as to accelerate the time at which the trees may be large enough to be tapped. The

use of complete fertilizer possibly up to five years before replanting is a common

practice in order to maintain the general health of the tree and to reimburse for the

progressive immobilization of nutrients within the tree and the loss of latex from

being tapped (Watson, 1989).

Diseases are likely to be a continual danger in a new rubber plantation and must be

controlled as soon as they are detected. The predominant diseases found in rubber are

root diseases, stem and branch diseases, panel diseases, and deficiency diseases.

There are three major root diseases – white root disease, brown root disease, and red

root disease. The main stem and branch diseases are stem rot, stinking root rot, and

pink disease. The main panel diseases are mouldy rot, black thread or black stripe,

and bark bursts or cortical fissures. Farm sanitation, adequate aeration, the use of


17

clean tapping tools and materials, the use of resistant clones, and appropriate

fungicides are the measures to control these diseases. Deficiencies of the important

nutrients for rubber (nitrogen, phosphorus, potassium, magnesium, calcium, sulphur,

iron, and manganese) can be solved by the application of appropriate fertilizers

(Opeke, 1982).

The main pests associated with rubber are termites, cockchafer grubs, and caterpillars.

These pests can be controlled by hand picking and killing, using nets, spraying with

insecticides or using soil fungicides, and farm sanitation. The other pests are snails,

slugs, rodents, bats and domestic animals (Opeke, 1982).

Weeds are harmful to rubber tree growth as they contend with rubber for light,

moisture and nutrients, especially during the initial years of a plantation (RBI, 2005).

Therefore, weed control has to be undertaken in rubber plantations. The establishment

of leguminous cover crops or intercrops in the initial period of a plantation can help

control weed competition. The need for weeding is significantly reduced in mature

rubber because of the crowded canopy shading out the weeds (Williams, 1975). Weed

control can be done through hand weeding or the use of chemical sprays. In the case

of chemical control, herbicides are used depending on the type of weed for effective

control (RBI, 2005). The main weed found in rubber plantations in most of Southeast

Asia is the grass Imperata cylindrica, which competes vigorously with rubber for

moisture and nutrients. In the early phases of rubber tree development it can diminish

the growth of the tree by up to 50% (Grist et al., 1998). Yields from the cropping

areas infested by Imperata can be decreased by up to 90% (Menz and Grist, 1995).

An alternative option to planting cover crops is to plant a range of crops in the inter-

row areas when the interspaces receive a lot of sunlight during the initial 2-3 years

after planting, before the canopy closes over (RBI, 2005). Intercropping is commonly

practised by smallholders in order to obtain additional income while waiting for the

rubber to come to the period of tapping. The most common intercrops are rice, maize,

cassava, watermelon, banana, tea, coffee, cocoa, pineapple, pepper, and other

perennial crops (Watson, 1989). The general characteristics of a good intercrop are

that the intercrop should not grow as tall as the rubber, should have a different root

system, should be tolerant of shade, should not be more susceptible than rubber to the


18

diseases they have in common, and should not be slow to mature or have a longer

economic life than rubber (Polhamus, 1962). When intercropping is practised,

fertilizer application and weeding are required (Cottrell, 1991).

2.3.4 Tapping, processing and marketing

The major economic product from the rubber tree is the latex which is obtained by

tapping the trunk of the tree (Opeke, 1982). Tapping is a process of carefully

controlled wounding by paring off a small amount of the bark of the rubber tree, just

enough to open up the ends of the latex vessels. Tapping is undertaken with the

purpose to open the latex vessels in the case of rubber trees tapped for the first time or

to remove the coagulum blocking the cut ends of the latex vessels in the case of

rubber trees tapped regularly. In order to get highest yield, tapping should be done to

a depth of less than one millimetre close to the cambium as more latex vessels are

concentrated near the cambium (RBI, 2005). Too much exploitation of the bark

should be avoided to conserve it for rubber production in the future (Polhamus, 1962).

The amount of latex obtained is dependent on the time of tapping. Tapping in the

early morning provides the highest latex production because the flow of latex is

plentiful due to high turgor pressure in the early hours of the morning (Barlow, 1978;

Opeke, 1982). Late tapping reduces the exudation of latex (RBI, 2005). The later the

time during the day that tapping is undertaken, the lower the latex production that is

obtained. Hence, tapping operations should be done in the early morning (Opeke,

1982).

The girth at which tapping commences is a foremost factor affecting the output of a

rubber plantation (Grist et al., 1998). The rubber tree is normally first tapped when its

girth reaches 45 cm or 7 years after planting. Beginning tapping before a tree reaches

45 cm not only lessens the annual girth increment but also reduces total latex

production over the rotation period (Purnamasari et al., 1999). Smallholders, however,

often begin tapping at the girths of less than 45 cm (Grist et al., 1998).

The tools and materials used for tapping and collecting are the tapping knife, spout,

collecting cup, cup hanger, collecting buckets, churns, collecting tanks, and


19

anticoagulants (sodium sulphate, ammonia) (Opeke, 1982). However, smallholders

often use local materials instead. For instance, smallholders in Sri Lankha often

substitute a half coconut for a cup, a piece of bark for a metal spout, and nails for a

hanger (Barlow, 1978). In Indonesia rubber smallholders use plastic bottles as

collecting cups (Cottrell, 1991).

Tapping techniques and tapping knives used by smallholders differ among countries.

Chinese rubber farmers use a tapping knife requiring the tapper to push the knife

upwards along the tapping angle; in contrast rubber farmers in Thailand, Malaysia,

and Indonesia use a tapping knife requiring the tapper to pull the knife at an angle

downwards towards the spout (Alton et al., 2005).

Latex yield is determined by climatic and soil conditions as well as genotype

(Williams, 1975). In general, latex yield will increase over the first few years after

tapping, then plateau, and finally begin to decline (Grist et al., 1998). At the first

tapping, only a small amount of glutinous latex pours out but the yield rises gradually

and reaches full productivity at the age of 12 years (Kochhar, 1981).

Latex can be processed and marketed in several forms and grades. The most common

forms are sheet rubber, crumb rubber, crepe rubber, cyclized rubber, superior

processing rubber, block rubber, and preserved filed latex and latex concentrates

(Opeke, 1982; RBI, 2005). Most rubber smallholders in Malaysia, Thailand and Sri

Lanka process their latex into sheets. Some is dried in a smokehouse and sold as

ribbed smoked sheet (RSS), but most is purchased from the farm as dry unsmoked

sheet and processed to RSS somewhere else. In Malaysia smoking is generally

undertaken at the village level. In Sri Lanka, most rubber is smoked before being sold

to official government rubber buying centres in the local areas. In Thailand the trading

system is different. The market chain starts from travelling traders who may in fact

buy at the farm gate price, through small town vendors, to the final stage of the chain

where rubber sheets are smoked by the traders with very large smokehouses, and who

then grade, pack and export the sheet as RSS (Blencowe, 1989).

In recent years wood from the rubber tree has become an alternative source of timber.

Rubber has the texture and feel of pine wood so when treated and processed it can be


20

made into a variety of quality applications such as furniture, panelling, table tops,

flooring, and household articles (Cheo, 1999; RBI, 2005). Rubber wood is a valuable

product and important for the furniture industry in Malaysia. It is clear that nicely

patterned rubber wood is in high demand for tables and chairs. Moreover, there is an

increased demand in the construction industry as rubber wood is equivalent to other

medium hardwoods (MRRDB, 1983). The use of rubber wood would not only

decrease the quantity of biomass burnt when replanting but also give additional

income to farmers (Gouyon, 1999).

2.4 Economic aspects of smallholder rubber production

There are two phases in the growing of rubber – the immature or establishment phase

and the mature or production phase. The immature phase is when the rubber trees are

providing no latex, usually lasting about 6 to 7 years after planting. During this stage

expenditure is incurred on planting and maintenance of the rubber tree but there is no

return, except the returns from intercrops if intercropping is practised. When the

rubber trees are tappable or in the mature period, there are returns of latex production

until the end of their productive life, normally up to 35 years or even more.

There are two main costs associated with smallholder rubber production – material

costs and labour costs. These costs are incurred throughout the life of rubber

plantation. In the establishment stage, the major materials used are planting materials,

fertilizers, and weedicide. In the mature period, the materials used are tapping

materials (mangles, cups, spouts, tapping knife, pails, pan, headlamp, and formic acid)

and processing materials including the establishment of a smoke house and its

maintenance (DoA, 1985).

The production of smallholder rubber requires intensive labour use, which is the main

input apart from land (Barlow and Tomich, 1990). In the immature phase, the labour

costs for developing a rubber plantation are for land clearing, lining, terracing, holing,

planting, fertilizing, and hand weeding and/or spraying weedicide. The labour used

during the tappable period is for fertilizing, hand weeding, tapping, collecting latex

and processing (DoA, 1985). It can be seen that from the preparation for planting to

the harvesting of the rubber trees by tapping, the production of rubber mainly involves

hand labour, although labour-saving equipment has been used whenever possible.


21

However, budding and tapping have not been adaptable to automotive equipment

(Polhamus, 1962).

The primary output from a rubber plantation is the latex. Hence there is no economic

return from rubber trees during the immature period. In the mature or tappable period,

the rubber trees can produce latex, the yield of which will increase over the first few

years, then plateau, and finally decline (Grist et al., 1998). However, during the

unproductive immature stage, intercropping provides an essential way of increasing

not only land-use efficiency but income (Rodrigo et al., 2001). In Southern Thailand

food crops are intercropped with smallholders’ young rubber trees during the first few

years after planting, whether for their consumption or for the market (Masae and

Cramb, 1995). Intercropping also help reduce the risk from fluctuation in the rubber

price (Raintree, 2005). Apart from the latex and intercrops, when a rubber tree reaches

the end of production, its wood can be a valuable product and provide additional

income to rubber smallholders, as noted above.

Access to capital is crucial for smallholders to invest in a rubber plantation since it

requires high capital investment. The shortfall of cash is definitely the most severe

constraint on rubber smallholders’ investment (Barlow and Tomich, 1990).

Governments, development agencies, and private entrepreneurs play an important role

in providing capital to smallholders to develop their rubber plantation. For instance,

many smallholder rubber producers in Indonesia are supported by government-

sponsored schemes which grant credit with long payback periods, usually 12 to 15

years, at interest rates of 10 to 15% (Purnamasari et al., 2002). In Malaysia,

government schemes for smallholders have included supervised planting grants or

‘subsidies’ to fill the gap in the private capital market. Likewise in Thailand,

replanting of rubber has been subsidised by a government agency. This is discussed

further in Section 2.6.

2.5 Overview of world rubber industry

2.5.1 Introduction

The world rubber industry, including both natural and synthetic rubber, has grown

steadily in the post-war period. Despite early fears that natural rubber would lose out


22

to synthetic rubber, both sectors have continued to grow. This section first reviews the

production and consumption of both natural and synthetic rubber. Then the focus is

shifted to the natural rubber industry, including planted area, production,

consumption, price, and future trends.

2.5.2 Natural and synthetic rubber

Throughout the period of 43 years from 1960 to 2003, the global production of natural

rubber and synthetic rubber increased by an annual rate of 3.5% and 3.8% to be 8.01

and 11.43 million tonnes in 2003, respectively (Jumpasut, 2004; RRIT, 2005; Fig.

2.1).

Natural Rubber Production

Synthetic Rubber

Production

02,0004,000

6,0008,000

10,00012,00014,000

16,00018,00020,000

1990 1992 1994 1996 1998 2000 2002

'000

tonn

es

Figure 2.1: World natural and synthetic rubber production (Source: RRIT, 2005)

World rubber consumption has grown at an average rate of 5.9% per year since 1900

(Jumpasut, 2004) to reach 19.31 million tonnes in 2003 (RRIT, 2005). Since 1960, the

global consumption of natural rubber and synthetic rubber has been rising at annual

growth rates of 3.1% and 3.7% (Jumpasut, 2004) to reach 7.96 and 11.35 million

tonnes in 2003 (RRIT, 2005), respectively (Fig. 2.2).


23

Natural Rubber Consumption

Synthetic Rubber

Consumption

02,0004,000

6,0008,000

10,00012,00014,000

16,00018,00020,000

1990 1992 1994 1996 1998 2000 2002

'000

tonn

es

Figure 2.2: World natural and synthetic rubber consumption (Source: RRIT, 2005)

The data on natural rubber production and consumption by region are shown in

Tables 2.1 and 2.2. Natural rubber is mainly produced in Asian nations (Bangladesh,

Cambodia, China, India, Indonesia, Malaysia, Myanmar, Papua New Guinea,

Philippines, Sri Lanka, Thailand, and Vietnam), accounting for around 93% of the

total production in 2003 (IRSG, 2005), with a small proportion from Latin America

and Africa. Regarding consumption, the countries from Asia/Oceania, European

Union, and North America accounted for approximately 90% of the total natural

rubber consumption in the same year, of which 58% was consumed by Asia/Oceania

(IRSG, 2005). Therefore, it can be said that Asia is the foremost region of natural

rubber production and consumption.

Table 2.1: Natural rubber production by region Region ‘000 tonnes % Latin America 166 2 Africa 373 5 Southeast Asia (a) 6,211 77 Other Asia 1,288 16 Total (b) 8,010 100

Notes: (a) Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Thailand and Vietnam (b) May include balancing adjustments

Source: IRSG, 2005


24

Table 2.2: Natural rubber consumption by region Region ‘000 tonnes % North America 1,225 15 Latin America 465 6 European Union 1,332 17 Other Europe 180 2 Africa 124 2 Asia/Oceania 4,631 58 Total (b) 7,960 100

Note: (b) May include balancing adjustments Source: IRSG, 2005

The data on synthetic rubber production and consumption by region are shown in

Tables 2.3 and 2.4. The production of synthetic rubber is predominantly from

European Union, North America, and Asia/Oceania with nearly 84% of the total

synthetic rubber production in 2003 (IRSG, 2005). These synthetic rubber producing

countries are also the main consumers of synthetic rubber, consuming well over 85%

of the total synthetic rubber consumption in 2003 (IRSG, 2005).

Table 2.3: Synthetic rubber production by region Region ‘000 tonnes % North America 2,344 21 Latin America 642 5 European Union 2,767 24 Other Europe 1,166 10 Africa 77 1 Asia/Oceania 4,408 39 Total (b) 11,430 100


Table 2.4: Synthetic rubber consumption by region Region ‘000 tonnes % North America 2,152 19 Latin America 691 6 European Union 2,652 24 Other Europe 925 8 Africa 117 1 Asia/Oceania 4,709 42 Total (b) 11,350 100



25

2.5.3 Natural rubber

The total area planted with rubber in the world was around 9.5 million ha in 2004

(Table 2.5). Most of this area is in smallholdings of only a few hectares. Almost 6.7

million ha or nearly 70% of the world’s total rubber area is in the three major

producing countries: Thailand, Indonesia and Malaysia. The other countries with a

large area of rubber are China, India, and Vietnam (RRIT, 2005).

Table 2.5: Rubber planted areas by countries (’000 ha) Countries Estates Smallholdings Total Brazil 80.0 100.0 180.0 Cambodia - - 52.3 Cameroon 39.8 2.2 42.0 Central African - - 1.0 China - - 618.0 Congo 25.0 10.0 35.0 Cote d' Ivorie 70.0 25.8 95.8 Guatemala - - 44.5 Gabon 10.0 3.0 13.0 Ghana 16.1 0.8 16.9 Guinea 4.5 1.5 6.0 India 69.0 494.7 563.0 Indonesia 549.0 2,823.0 3,372.0 Liberia 60.4 48.5 108.9 Malaysia 186.0 1,244.5 1,430.7 Mexico - - 21.0 Myanmar 46.0 58.8 104.8 Nigeria 60.0 90.0 150.0 Papua New Guinea 9.5 8.7 18.2

Philippines 92.0 - 92.0 Sri Lanka 57.0 101.0 158.0 Thailand 85.0 1,895.1 1,980.1 Vietnam 334.4 83.6 418.0 Total 1,793.7* 6,991.2* 9,521.2

Note: * These sums do not include the estate and smallholding areas of Guatemala, Mexico, Central African Republic, Cambodia, and China as their total area can not be separated into estate and smallholding

Source: RRIT, 2005

As can be seen in Fig. 2.3, Thailand, Indonesia and Malaysia are the world’s biggest

producers of natural rubber (RRIT, 2005). Currently Thailand is the world’s largest

producer of natural rubber with about 36% of total production. Rubber production of

Thailand has grown significantly since the mid 1980s, surpassing that of Malaysia in

1991, and in 2003 its output was about 2.873 million tonnes (RRIT, 2005). This

resulted from the intensive replanting programs funded by the Office of Rubber


26

Replanting Aid Fund (ORRAF) over a thirty-year period (Sonluksub and

Pruksananont, 2004). It is interesting to note that despite the rapid rise in natural

rubber production in Thailand for almost 20 years, its share is not as great as that of

Malaysia in the mid-1970s when it accounted for almost half of the world’s natural

rubber production (Jumpasut, 2004).

0

500

1,000

1,500

2,000

2,500

3,000

1990 1992 1994 1996 1998 2000 2002

'000

tonn

es

Thailand Indonesia Malaysia India China

Figure 2.3: Natural rubber production by major producing countries

(Source: RRIT, 2005)

Even though there has been a gradual drop in the area planted with rubber in

Indonesia as some smallholders have shifted into oil palm, rubber production has been

rising since 1995 due to an increase in the productivity of the existing rubber

holdings. Indonesia is currently the second largest producer with 22% of global

natural rubber production in 2003 (RRIT, 2005). However, Indonesia’s share of

global rubber output dropped from 30% in 1960 to the current level in 2003 due to

more rapid growth in the output of the other producing countries such as Thailand,

India, China, and Vietnam (Honggokusumo, 2004).

Interestingly, while production from the other rubber producing nations has grown

since 1990, Malaysian rubber production declined. In fact, the drop in natural rubber

production in Malaysia began in the mid-1970s because Malaysia has gradually

substituted its rubber plantations with oil palm due to a declining world demand for


27

natural rubber (Cheo, 1999) and an increasing opportunity cost of growing rubber as

the Malaysian economy develops (Barlow, 1997). Higher wages in other sectors

attracted workers and made rubber production relatively expensive (Jumpasut, 2004).

As a result, approximately one third of the total mature rubber area, or 230,000-

300,000 ha, is not tapped (Ching, 2004). However, Malaysian natural rubber

production started to rise again in 2003 in response to improved prices and Malaysia

still ranks third in production, contributing 12% of global natural rubber output in

2003 (RRIT, 2005).

It can be seen that global development has occurred in the natural rubber industry as

most producing countries have increased their output levels. However, the share of

natural rubber production from the three main producing countries (Thailand,

Indonesia and Malaysia) decreased from 80% in the late 1960s (Jumpasut, 2004) to

71% in 2003 (RRIT, 2005) as more new plantations were established in other

countries, particularly India and China, whose share of output has increased gradually.

As can be seen in Fig. 2.4, the major natural rubber consuming countries in the world

are China, the United States, Japan, and India. With an average growth rate of 8%

since 1960 (Jumpasut, 2004), China overtook Japan to become the second largest

natural rubber consuming country in the world in 1992 and moved ahead of the US to

be the world’s largest consumer in 2001. China’s consumption of natural rubber in

2003 was 1.485 million tonnes or 19% of global natural rubber usage (RRIT, 2005).

The tremendous demand for rubber in China is derived from the robust consumption

in the automotive and tyre industries. China’s economy since the late 1970s has been

developing rapidly and the average growth rate of GDP between 1990 and 2003 stood

at 9.1% (Junheng, 2004). The growth of GDP and incomes led to an enormous

demand for private vehicle ownership and, as a consequence, China has become the

fastest growing automotive market and the third largest automotive producer in the

world, behind the US and Japan. The production of motor vehicles reached 4.44

million units and it is expected that the growth of automotive production will

continue, reaching about 8 million units in 2008 (Lee, 2004). Alongside the rapid

growth of the automotive industry, the tyre industry has also dramatically increased to

reach 0.14 billion units in 2003 because most of the world’s leading tyre

manufacturers had invested in China (Junheng, 2004). A large and rapidly increasing


28

quantity of natural rubber is needed to supply the tyre and vehicles industries, which

are the major rubber consumers (Jumpasut, 2004).

0

200

400

600

800

1,000

1,200

1,400

1,600

1990 1992 1994 1996 1998 2000 2002

'000

tonn

es

China United StatesJapan India Malaysia Korea France Thailand Germany Indonesia

Figure 2.4: Natural rubber consumption by major consuming countries

(Source: RRIT, 2005)

After the price of natural rubber had been dropping for about 20 years, it began to rise

again in 2002 (Fig. 2.5). During the early 1990s rubber production increased more

than total consumption, resulting in low prices. The price recovered when total

consumption grew faster in the mid 1990s, but declined further because of the

substantial drop in the exchange rate of Thailand, Indonesia, Malaysia and other

countries during the period of the Asian financial crisis. Growth in total rubber

consumption rose again in 2000 and 2001; however, large stocks protected prices

from rising. The turning point occurred in 2002 when the price of rubber started to

rise again due to the tripartite agreement between Thailand, Indonesia and Malaysia to

restrict production to push the price up, and the continuing growth in demand for

natural rubber from China due to its massive industrialization (Jumpasut, 2004). The

price of natural rubber on the Singapore Commodity Market in 2004 was about USD

1.35 per kilogram (SICOM, 2005; IRSG, 2005).


29

Figure 2.5: Price of natural rubber (TSR20) on the Singapore Commodity Exchange in

US cents per kg (Source: SICOM, 2005)

2.5.4 Future trends of natural rubber

Although the market for natural rubber in developed countries is mostly saturated and

is not expected to grow in the future, it is expanding in the nations of “New Asia”

(India, ASEAN and especially China). It can be seen that the Asian region has shown

a significant increase in natural rubber consumption in comparison to other regions

over the past decade (Table 2.2). The growing trend is expected to continue in coming

years due to the current low levels of rubber consumption per capita in the Asian

region compared to those in developed countries (Jumpasut, 2004).

The growth in natural rubber consumption is being driven by a robust demand from

the Asian nations, particularly China where rubber imports increased almost 24% in

2003 (RRIT, 2005). Since 2001 China has become the world’s largest rubber

consuming country and will be the key actor driving the growth in natural rubber

consumption in the future. The demand for natural rubber from China is expected to

keep on increasing due to the recovery of the world economy, the rapid expansion of

the Chinese automobile industry, the high investment in the rubber industry, and the

growth in exports of rubber products (Rende, 2004).

Natural rubber is expected to be in short supply in the future. As forecast by

International Rubber Study Group (IRSG), the global demand for natural rubber will


30

be 11.5 million tonnes, compared to only 8-9 million tonnes of production (Ching,

2004). Natural rubber producing countries are consuming more of their production

due to the establishment of industries based on rubber. As a result, the quantity left for

export to the global market is less. The proportion of world natural rubber production

that is exported has dropped significantly from 95% in 1960 to 71% in 2003

(Jumpasut, 2004).

Another factor constraining production and exports is that some natural rubber

producing countries are reaching the period when the opportunity costs are higher

than the returns from producing natural rubber. Farmers find alternative sources of

income more attractive. When they are getting higher incomes from working outside

their farms they will reduce or eventually stop producing rubber. Malaysia has already

reached that period and other major producing countries, particularly Thailand, are

likely to be the next (Jumpasut, 2004).

While the demand for natural rubber in China has rocketed, the growth of Chinese

natural rubber production has slowed since the 1990s due to stagnation in the planted

area (Jumpasut, 2004); therefore, the gap between production and consumption within

China is widening. As a result, China has heavily relied on importing natural rubber to

address the imbalance between domestic production and consumption (Lee, 2004).

The increasing demand for natural rubber from China has strongly affected the world

rubber industry as China is the global largest consumer.

Since there is expected to be an increasing demand for natural rubber while the supply

is forecast to rise less rapidly, the price of natural rubber is expected to rise in the

future. It has been forecast that the price of rubber will continue to increase for at least

10 years before it starts to plateau, and then it may fluctuate like any other commodity

(Burger and Smit, 2004).

It is inevitable, therefore, that there will be interest in expanding the area of

plantations to produce natural rubber in response to the increasing demand and the

supply shortage. As a result, some of the main rubber producing countries (Thailand,

Malaysia, and China) are encouraging new plantations (Ching, 2004). This opens up a

huge opportunity to new rubber producing countries such as Laos, with lower costs


31

and available land, as the high costs of producing rubber in China and Malaysia are

significant obstacles to them competing in the global market (Jumpasut, 2004).

2.6 Government schemes supporting smallholder rubber production

In general the rubber industry in the main rubber producing countries can be

distinguished into two sectors – estates and smallholdings. Over time the relative

share of smallholdings has increased so that it is now the dominant sector. The

governments in the main rubber producing countries – Malaysia, Thailand, and

Indonesia – have launched various schemes to support the smallholder sector of the

rubber industry. Barlow and Jayasuriya (1984) identify two broad approaches to

government schemes supporting rubber cultivation – the focus and dispersal

strategies. The focus strategy involves consolidating resources in large-scale schemes

with capital- and management-intensive technology. This approach involves the use

of an input package including high-yielding bud grafted clones, fertilizers, pesticides,

legume covers, and weedicide, implemented on a large scale with centralised

management. The dispersal strategy, on the other hand, involves spreading resources

to individual small-scale farmers with less capital-intensive technology. This

approach relies on provision of inexpensive or even free improved selected seedling

materials and providing technical advice to individual smallholders.

Malaysia has pursued elements of both focus and dispersal strategies in support of

rubber smallholders. The reason Malaysia applied both strategies is because one of

the government's main policies regarding rubber production was the consolidation of

smallholdings in order to improve productivity and product quality (Balsiger et al.,

2000). The main agencies established by the Malaysian Government to support rubber

smallholdings include the Rubber Industry Smallholders Development Authority

(RISDA), the Federal Land Development Authority (FELDA), the Federal Land

Consolidation and Rehabilitation Authority (FELCRA), the Rubber Research Institute

of Malaysia (RRIM), the Malaysian Rubber Development Corporation (MARDEC),

and the Malaysian Rubber Exchange and Licensing Board (MRELB).

The first three agencies – FELDA, FELCRA, and RISDA – are concerned with rubber

production. FELDA had the major goal of promoting and assisting large-scale land

development schemes for new settlers (World Bank, 1999). In contrast, FELCRA and


32

RISDA schemes were more for smallholders, but these have more recently been

consolidated into mini-estates. FELCRA was established as a result of the

government’s policy for the consolidation and rehabilitation of smallholdings in order

to improve productivity and product quality by convincing owners of small plots to

allow their land to be centrally managed. However, the effort of consolidating the

small, scattered and non-contiguous plots is often filled with difficulties including

multiple ownership, truant landlords, the view of land as a speculative asset, and the

shortage of political will to solve the problem. Difficulties in replanting are

exacerbated by the prevalence of small-scale parcels and affected by the decrease in

replanting funds, the distraction of part of these funds for replanting with oil palm,

and the removal of government top-up resources (Balsiger et al., 2000). RISDA has

broad objectives of providing assistance for replanting, development of mini-estates,

extension, provision of smallholder credit, commercial activities (marketing,

processing, product factories), and crop diversification. Benefits of all these schemes

to participating smallholders were initially quite good, with family incomes above

both poverty levels and rural standards; however, their costs were high, for instance as

far back as 1986, FELDA schemes cost US$15,000 per participating family (World

Bank, 1999).

Apart from the above agencies concerned mainly with production, RRIM was

established to invest in research and development. MARDEC was established to assist

rubber smallholders with marketing through upgrading the quality of smallholders’

rubber and participating in foreign joint-ventures in manufacturing rubber products

and related items. MRELB was established to assist in licensing the network of

private dealers who buy the rubber from the smallholders (MRRDB, 1983; Chamala,

1985). Since 1998 the Malaysian Rubber Board (MRB) was established by merging

three separate organizations, namely, the Rubber Research Institute of Malaysia

(RRIM), the Malaysian Rubber Research and Development Board (MRRDB), and the

Malaysian Rubber Exchange and Licensing Board (MRELB). The main objective of

MRB is to support the development and modernisation of the Malaysian rubber

industry in all aspects including the cultivation of rubber trees, the extraction and

processing of raw rubber, the manufacture of rubber products, and the marketing of

rubber and rubber products (MRB, 2006).


33

In contrast to Malaysia, where the rubber industry was initially dominated by large

estates and then by land development schemes, most rubber plantations in Thailand

are smallholdings (Masae and Cramb, 1995). The reasons why rubber estates did not

develop in Thailand were that the Thai Government did not promote foreign

investment in this industry, there was a shortfall of estate labour, and the Government

was unwilling to encourage the required enormous influx of estate workers.

Moreover, Western capitalists thought that Thailand was not the most suitable place

for rubber plantations (Jumpasut, 1981). Hence the Thai Government has pursued a

dispersal strategy.

The major scheme for supporting rubber smallholders in Thailand is the Office of the

Rubber Replanting Aid Fund (ORRAF), which was established for supporting rubber

smallholders to replant old rubber plantations and establish new plantations with high

yielding clonal varieties, as well as encouraging rubber smallholders to take part in

the formation of cooperatives with the purpose of having more efficient production

costs, higher rubber sheet grades, and group bargaining power (IRRDB, 2006a;

Albarracin et al., 2006). Under the ORRAF program, farmers who have old rubber

plantations received a grant of about 80% of the total replanting cost, including labour

(World Bank, 1999). The extension services provided by ORRAF to rubber

smallholders are separated into two main categories – the replanting program and the

establishment of new rubber plantations. The replanting program focuses on existing

rubber plantations in the Southern provinces while the establishment of new rubber

plantations program is aimed to set up new rubber plantations in the Northern and

North-eastern provinces (Albarracin et al., 2006). The success of ORRAF can be seen

in the fast growth of rubber production. Both planted area and yield have increased

significantly. As a result, Thailand has become the number one natural rubber

exporter (World Bank, 1999).

Various organizations including processing groups, marketing groups, smallholder

cooperatives, and provincial smallholder associations have been established with

support from the Thai Government to increase rubber smallholders’ bargaining

capability as well as to improve the quality of rubber. The government has also

developed the marketing system to help rubber smallholders by introducing auction

markets, a central rubber market, and direct trading (IRRDB, 2006a). Recently, the


34

Thai Government announced plans to set up a new Rubber Authority of Thailand

(RAOT), which will be created by merging and consolidating three separate

organizations including the Office of the Rubber Replanting Aid Fund (ORRAF), the

Rubber Estates Organization (REO), and the Rubber Research Institute of Thailand

(RRIT). The main objectives of RAOT are to increase Thailand’s share of the

international market by continuously replanting existing rubber areas, establishing

new rubber plantations, and achieving higher yields through improved farming

techniques; to support more research and development into the technology and

production of finished rubber products to get better quality and increase Thailand’s

share of the export market in rubber products; and to act as Thailand’s representative

in the International Rubber Conference Organisation (IRCO), which was recently

formed by Thailand, Malaysia and Indonesia to get better collaboration in stabilising

the price of rubber (IRRDB, 2006b).

In contrast to Thailand, the Indonesian Government has pursued a focus strategy,

giving support primarily for large-scale rubber plantations. As a result, most

smallholders did not receive much benefit because the focus strategy has limited the

dispersion of technologies to the rubber smallholders (Barlow and Jayasuriya, 1984).

Since the 1970s the Indonesian Government has attempted to provide some support to

rubber smallholders but the model was derived from the estate model, involving a

rubber monoculture with high use of labour and purchased inputs. Shifting cultivators

were reluctant to adopt the estate model because of the high cost of production, the

lack of credit facilities, the shortage of improved planting materials, and the

inefficiency of extension services. Moreover, the farmers preferred to practise

intercropping for food supply and income generation (Burgers and Boutin, 2001). As

a result, average smallholder rubber production is very low (Balsiger et al., 2000).

Two main types of scheme have been developed for supporting the rubber

smallholders in Indonesia. The first type of scheme was the Nucleus Estate and

Smallholders (NES) scheme. A government-owned or private estate was the nucleus

for the development of surrounding rubber smallholdings. Funding support for these

estates was provided by the government for clearing the land, building the settler

infrastructure and housing, offering employment for settlers, and establishing and

maintaining the rubber plantation. The main constraints of this type of scheme were


35

the deficiency in provision of extension services, the poor organization, and the lack

of financial resources and staff. The second type of scheme was the Project

Management Unit (PMU), which focused on the development and replanting of

scattered rubber smallholdings. Under these schemes rubber smallholders were

provided the long-term credit for planting materials, chemical inputs, labour, and land

titling. These schemes also provided extension services, particularly for on-farm

processing of latex and group marketing systems. The PMU performed successfully,

but was very expensive and as a consequence the dispersion was limited (Cottrell,

1991).

Overall, the experience of the three major rubber producing countries suggests that

government assistance through the application of a dispersal strategy is better suited

to smallholders’ resource base and social and economic circumstances. In the case of

Laos, the dispersal approach is likely to be more appropriate and is in line with the

government policy of increasing income among smallholder farmers.

2.7 Conclusion

Shifting cultivation has been the dominant land use in the sloping uplands of

Southeast Asia for many centuries. Integral, rotational, long-fallow systems such as

practised in Northern Laos are considered to be sustainable. However, the

intensification sequence proposed by Boserup, with longer cropping periods and

shorter fallows, is not feasible in this environment, hence with population growth and

the improvement of infrastructure, shifting cultivators have been motivated to

incorporate cash crops, typically tree or shrub crops, in their farming system.

Myint’s theory of transition from subsistence to commercial production shows how

this typically occurs in two stages. In Stage I farmers maintain subsistence output and

use spare land and labour for the cash crop, while in Stage II, the expansion of the

cash crop involves a reduction in subsistence output and greater reliance on the

market. This enables subsistence farmers to enter global markets step by step, thus

reducing the risk they face.

Barlow’s analytical framework for plantation tree crop development takes this

analysis further, distinguishing five stages: a ‘backward economy’ (with no plantation


36

crops) through to a ‘late advanced economy’ (in which plantation crops are no longer

profitable). In this framework, Laos is at the ‘early agricultural transformation’ stage,

with rapid adoption of simple labour-intensive tree crop technologies, though with the

benefit of previous technology development in other countries. To move into the ‘late

agricultural transformation’ stage will require economic growth, more extensive

government support, and the development of improved tree crop technologies.

The technological aspects of smallholder rubber production include site selection,

land preparation, planting, fertilizer application, weed and pest control, intercropping,

tapping, processing, and marketing. The expansion of smallholder rubber in Northern

Laos is based on the simple land and labour intensive technology of rubber growing,

imported from China. The technology is easily adopted by upland smallholding

farmers as it fits with their current shifting cultivation systems. In the future farmers

are likely to adopt higher level of rubber production technology in order to get higher

return from their rubber plantations.

The important issues related to the economic aspects of smallholder rubber production

are labour utilisation and start-up capital. The production of smallholder rubber

requires intensive labour use, especially during the mature period of a rubber

plantation when tapping and processing begin. Financial and credit supports are also

crucial for smallholders to invest in rubber plantations as considerable capital is

required and returns are delayed.

Global rubber production is mainly from Thailand, Indonesia, and Malaysia. The

growth in rubber consumption is being driven by a robust demand from China. As a

result the price of natural rubber has risen since 2002 after dropping for about 20

years. It has been forecast that the price of rubber will continue to increase in the next

ten years. This is helping to drive the expansion of rubber in Laos.

Rubber holdings in the main rubber producing nations include estates and

smallholders; however, smallholders dominate the rubber planted area in these

countries. Various supporting schemes for rubber development have been

implemented in these countries. Government involvement in the development of

rubber smallholders in Malaysia is larger than in Indonesia, while in Thailand the


37

government had totally supported the development of rubber smallholders. In the case

of Laos, the dispersal strategy of government schemes supporting rubber cultivation

as identified by Barlow and Jayasuriya (1984) is considered to be more appropriate as

the rubber industry in Laos is currently in the early phase of development. ORRAF in

Thailand is a successful example of dispersed assistance to rubber smallholders. Some

of the Malaysian schemes like those of FELCRA and RISDA are more appropriate in

the later stages when the opportunity cost of labour is high and rubber plantations are

left untapped.


38

Chapter 3

The Context of Rubber Development in Laos

3.1 Introduction

Laos is one of the poorest nations, with a GDP per capita in 2002 of US$330 (ICEM,

2003) and a ranking of 135 out of 175 countries in UNDP’s Human Development

Index (UNDP, 2003). Laos is a predominantly rural country with approximately 83%

of the population living in rural areas, of which 66% relies on subsistence agriculture

(Roder, 2001). The national economy is overwhelmingly dependent on agriculture,

which accounts for around 47% of GDP and absorbs approximately 80% of the labour

force (NSC, 2005a).

This chapter gives an overview of the physical and socio-economic characteristics of

Laos. It then discusses the farming systems practised in Laos, with particular

reference to shifting cultivation and the factors that constrain agricultural

development in the uplands. This is followed by an account of the introduction of

rubber into upland farming systems.

3.2 Physical and socio-economic environment

3.2.1 Location

Laos is a land-locked country located on the Indochina peninsula at the centre of the

Greater Mekong sub-region in Mainland Southeast Asia, between 14 and 23 degrees

north and 100 and 108 degrees east (MIC, 2000; Fig. 3.1). The total area of Laos is

236,800 km2, of which 85% lies within the watershed of the Mekong river (Roder,

2001). The distance from the north to the south is 1,700 km, the widest point is 500

km and the narrowest point is 140 km (MIC, 2000). It shares a border of 505 km with

China in the north, 1,835 km with Thailand in the west, 2,069 km with Vietnam in the

east, 236 km with Myanmar in the northwest and 535 km with Cambodia in the south

(NSC, 2005a).


39

Figure 3.1: Location map of Laos (Source: GIS Unit of NAFRI, 2005)

3.2.2 Topography

Laos is preponderantly highland with around 80% of the land area classified as

mountainous or hilly (ICEM, 2003). The topography of Laos can be divided into three

distinct regions – the mountainous north, the mountainous chains, and the plains

region. The north is loomed over by mountains which have an average height of 1,500

m above sea level (Fig. 3.2). The mountainous chains, which range from the southeast

of Phuan plateau to the border of Cambodia, comprise three large plateaus: Phuan

plateau in Xiengkhuang Province, Nakai plateau in Khammuan Province, and


40

Bolaven plateau in the Southern part of Laos. The plains region consists of many

small and large plains along the Mekong river. The three large plains are Vientiane

plain on the lower territory of Ngum river, Savannakhet plain on the lower territory of

Se Bang Fai and Se Bang Hieng rivers, and Champasack plain which is on the

Mekong river between the Thai and Cambodian borders. These major plains, which

contain fertile soil suited for agricultural cultivation, account for approximately one

quarter of the total land area and support more than 50% of the population (MIC,

2000).

Figure 3.2: Elevation map of Laos (Source: GIS Unit of NAFRI, 2005)


41

3.2.3 Climate

Laos has a tropical climate which is dominated by the annual monsoon cycle, with the

six-month rainy season between May and October delivering around 90% of annual

rainfall. Within the six-month dry season from November to April, some months may

have no rainfall over much of the country (ICEM, 2003).

Although the weather in Laos is said to be tropical, in the mountainous north and in

the hills of the mountainous chains in the east, bordering Vietnam, it is semi-tropical.

The average temperature across the country is 25 °C and the difference between

temperatures in day and night time is 10 °C (MIC, 2000; Fig. 3.3). The temperature is

predominantly influenced by altitude in which the average temperature reduces at the

rate of approximately 0.5 °C per 100 m increase of elevation (Roder, 2001). During

the rainy season the temperature gets as high as 37 °C in Champasack Province and in

the dry season the temperature falls to as low as 8 °C in Huaphan Province (NSC,

2001).

The humidity in Laos varies according to the distinct seasons. The highest level of

humidity is registered in July and the lowest in April (NSC, 2001). The wind in Laos

blows from the northeast in the dry season and from the southwest in the rainy season.

There are around 2,300-2,400 hours of sunlight per annum in Laos (MIC, 2000).

The average annual precipitation in Laos is 1,600 mm. There is a significant

difference in rainfall among regions. Mean annual rainfall extends from less than

1,500 mm in Savannakhet Province and much of the north to more than 3,500 mm in

the Bolaven plateau (Fig. 3.4). In the eastern mountainous chains, the wet season can

last for up to ten months of the year. An amount of 270,000 million m3 of annual

rainfall flows to the Mekong river every year and contributes 35% of the total flow.

This implies a surplus of 51,500 m3 of water per capita per annum (based on the

population in 2000); the annual prevailing need of 228 m3 of water per person is only

a tiny proportion of supply (ICEM, 2003).


42

Figure 3.3: Temperature map of Laos (Source: GIS Unit of NAFRI, 2005)


43

Figure 3.4: Rainfall map of Laos (Source: GIS Unit of NAFRI, 2005)

The monthly average rainfall distributions for Luangprabang Province, Vientiane

Municipality, and Champasack Province are presented in Fig. 3.5. The rainfall pattern

is similar with high amount of rainfall concentrated between May and October and

less rain from November to April.


44

0

50

100

150

200

250

300

350

400

450

500

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

r

Dec

embe

r

Month

Pre

cipa

tion

(mm

)

Luangprabang Province Vientiane Municipality Champasack Province

Figure 3.5: Monthly mean rainfall distribution in Luangprabang Province, Vientiane

Municipality, Champasack Province from 1975-2005 (Source: NSC, 2005a)

3.2.4 Natural resources

Water, land, and forest are the main natural resources in Laos. There are many small

rivers, streams, and creeks throughout Laos, but the Mekong river (the eighth largest

in the world in terms of flow) is the main river in Laos draining around 80% of the

total land area and flowing through the country for 1,898 km from the north to the

south (ICEM, 2003). The waters of the Mekong river and its tributaries have

tremendous potential for hydropower development and irrigation capacity (Nilsson

and Svensson, 2005) and over half of the power potential in the Lower Mekong Basin

is held inside Laos (MIC, 2000). The water level in the Mekong river increases in the

rainy season from May to October and falls in the dry season from November to

April.

The forest area in Laos has been reduced significantly in recent decades (Fig. 3.6).

During the 1940s, the forest cover was estimated to be 17 million hectares or 70% of

the total land surface. In the early 1960s, it was reduced to 15 million hectares or

64%. By the late 1980s, based on aerial photos and satellite images, it was estimated

that the forest cover had dropped to 11.2 million hectares or 47%. Recently, the GTZ-


45

MRC project estimated that the forest cover in Laos has been reduced to about 41%,

but this estimate has not yet been confirmed (Tsechalicha and Gilmour, 2000).

Figure 3.6: Forest and land cover map of Laos (Source: GIS Unit of NAFRI, 2005)

Even though the forest coverage in Laos has been diminished considerably as a

consequence of the clearing of lowland forests for permanent agriculture, shifting

cultivation, the construction of roads and reservoirs, and the extensive logging in the

1980s (Tsechalicha and Gilmour, 2000; Nilsson and Svensson, 2005), Laos is still one

of the most heavily forested nations in Asia and one of the biologically richest


46

countries in the region (Raintree, 2002). Currently, there are about 11 million hectares

of natural forest in Laos, of which around 3 million hectares have been kept in reserve

as National Biodiversity Conservation Areas (NBCAs). These forests harbour very

rich biodiversity, providing the habitats of at least 10,000 species of mammals,

reptiles, amphibians, birds, fish, and vascular plants (UNDP, 2001).

The reconnaissance survey by the National Office for Forest Inventory and Planning

(NOFIP) in 1992 used satellite photo interpretation to determine the land use

categories in Laos. The results show that the land area with slopes lower than 5%, and

therefore characterized as arable land, is roughly 5.5 million hectares or 23.5% of the

total land resources (Table 3.1). However, only about 10% of Laos’ land area is suited

to intensive agriculture (ICEM, 2003).

Table 3.1: Total area of land use and vegetation types distributing on slope classes (1,000 ha)

Land use group 0-5% 6-19% 20-30% 31-59% >60% Total areaCurrent forest 2,678.8 651.1 3,795.3 3,072.0 970.8 11,167.0Potential forest 1,137.5 589.3 3,969.2 2,740.5 512.4 8,949.9Other wooded areas 515.7 70.4 339.8 323.3 195.0 1,444.2Permanent agricultural land 825.5 20.2 3.7 0.0 0.0 849.2Other non-forest land 409.8 51.1 364.4 322.5 121.6 1,269.4Total 5,567.3 1,382.2 8,472.4 6,458.3 1,799.8 23,679.7Source: NOFIP, 1992

3.2.5 Population

The population of Laos is 5.6 million with an annual growth rate of 2.7%. Based on

the total area of 236,800 km2, Laos is the least densely populated in Asia with a

density of 24 people per km2. The population density varies from 9 people per km2 in

Xaysomboun Special Zone to 177 persons per km2 in Vientiane Municipality (NSC,

2005b). More than 50% of the inhabitants have settled on the plains along the

Mekong river (ICEM, 2003), where intensive agriculture is practised (NSC, 1997).

The Lao population is ethnically diverse with 68 ethnic groups (NSC, 1997), but these

ethnic groups, based on cultural, linguistic, and geographical characteristics, are

normally divided into three broad groups: Lao Loum (Lowland Lao, who traditionally

settle in the lowlands and make a living from paddy rice cultivation), Lao Theung

(Midland Lao, who usually settle in the uplands and practise shifting cultivation) and


47

Lao Soung (Highland Lao, who commonly settle in the highlands and also practise

shifting cultivation). This categorization is commonly used when referring to the Lao

ethnic groups by government and non-government organizations, and individuals at

international, national and regional levels (Roder et al., 2001). Of the total population,

the Lao Loum comprise 66%, the Lao Theung 24%, and the Lao Soung 10% (NSC,

2005b). Buddhists account for the majority of the population (65%), the others being

Animist (33%), and Christian (1%) (NSC, 1997).

3.2.6 Transportation infrastructure According to the Population and Housing Census in 2005, about 66.4% of the total

villages in Laos could be accessed by road (NSC, 2005b). However, the road

infrastructure is in poor condition and in the hilly areas in particular there is a lack of

road maintenance. In the plains along the Mekong river and within the provincial

towns there are paved roads, but in the mountainous areas almost all roads are

unpaved. In regions without road access, river transportation is used. There are many

rivers for which boat transportation is possible, but due to the small population there

are only five rivers where a public transportation service is provided: the Mekong,

Tha, Ou, Ngum, and Sekong rivers (Yokoyama, 2003; Fig. 3.7).

3.2.7 Administration

Laos is a unitary country. The state administration in Laos is divided into four levels:

central, provincial, district, and village. Administratively, Laos is separated into three

regions – the Northern, Central, and Southern Regions – including 16 provinces and

two equivalent provinces (one special zone and one municipality), 141 districts, and

10,552 villages. The Northern Region is made up of seven provinces – Phongsaly,

Luang Namtha, Bokeo, Oudomxay, Luang Prabang, Huanphanh, and Xayaboury. The

Central Region comprises five provinces – Xiengkhuang, Vientiane, Bolikhamxay,

Khammuane, and Savannakhet, and two equivalent provinces of Xaysomboun Special

Zone and Vientiane Municipality. The Southern Region covers four provinces of

Saravane, Sekong, Champasak, and Attapeu (NSC, 2005a; Fig. 3.1).


48

Figure 3.7: Transportation routes map of Laos (Source: GIS Unit of NAFRI, 2005)

3.2.8 Tenure system and land/forest allocation

Prior to 1975, the ultimate ownership of land belonged to the King and typically

customary rights were applied. After the establishment of the Lao PDR in 1975, land

rights were transferred to the people, represented by the State. The State encouraged

people to cultivate their land cooperatively (Ducourtieux et al., 2005).

The great changes of land tenure in Laos have occurred since 1991 when the Lao

Government adopted a new constitution incorporating the principle that all land


49

belongs to the State, but villages, organizations, and individuals have the rights to use

land (ICEM, 2003). Thereafter, a more formal system of land tenure was instituted in

1993 through the government program of Land Use Planning and Land Allocation

(LUP/LA). This is the basis for the zonation of land and forest and providing farm

families with agricultural land use rights and village communities with access to

forest products (Helberg, 2003). The LUP/LA program has been developed with the

principal objectives of stabilising shifting cultivation and facilitating sustainable use

of agricultural land and forest (ICEM, 2003). Under LUP/LA, the size of the

allocation is based on each household’s available labour and resources (Thongphanh,

2004), but the allocation of agricultural land to a household is limited to up to one

hectare for rice, three hectares for cash crops, three hectares for orchards, and 15

hectares of deforested land or grass land for pasture (Yokoyama, 2003). In order to

retain tenure, the land has to be under cultivation or intensive development within

three years or the land will be returned to the state (Thongphanh, 2004). So far,

LUP/LA has been undertaken in 6,200 villages (50% of all villages in the country),

allocating land to 379,000 households (60% of all agricultural households), and

covering over eight million hectares of land (Thomas, 2003). Traditional land tenure

systems in shifting cultivation areas are still practised in villages where LUP/LA has

not yet been undertaken. Under such systems tenure was conventionally obtained

through the cultivation of land which was not already claimed by others. The

ownership rights over land remained during the fallow periods between cultivation,

but it was possible to hand over cultivation rights to others with the permission of the

previous owners (Sodarak, 2005).

Basically there are now two types of formal land tenure in Laos: temporary land use

rights and permanent land use rights. The temporary land use rights are in the form of

Temporary Land Use Certificates (TLUC) issued by a district authority to individuals

or organizations for the use of the land, but these cannot be transferred, leased, or

pledged as collateral. The permanent land use rights are evidenced by a Land Title

(LT) and can be obtained after the land has been managed and used under three years’

temporary tenure without breaking the land-use regulations. The land under a Land

Title can be transferred, leased, or pledged as collateral (Tsechalicha and Gilmour,

2000).


50

3.3 Farming systems in Laos

3.3.1 Overview

Farming in Laos is traditionally subsistence-based, with the practice of rainfed and

irrigated cultivation in the flatlands and shifting cultivation on sloping lands. Besides

the production of the staple food, vegetables are also grown in small gardens and

livestock is raised to fulfil the daily needs. Lao farming is generally considered as

involving low use of inputs and extensive use of land, and is relatively susceptible to

pests and diseases, as well as adverse weather (Yamada et al., 2004).

The most significant feature of the farming systems in Laos is their diversity. They

can be categorised into three major systems of cultivation associated with the

lowlands, the sloping uplands, and the plateau environments. Table 3.2 presents three

predominant farming systems subcategorized based on crop combinations and the

typical livelihood problems related with each of these categories (GoL, 1998). In

lowland cultivation, rainfed and irrigated farming systems are practised. In the sloping

uplands, people rely heavily on shifting cultivation. In the plateau environment, cash

crops and fruit trees are extensively grown, replacing shifting cultivation.

A noticeable characteristic of the farming systems is the way that home gardens exist

in nearly all categories – only rudimentary in the areas where forests still have the

capability to supply the miscellaneous needs of shifting cultivation households and,

by contrast, highly developed in the more densely inhabited areas where forests have

vanished and home gardens have acted as a replacement for them in the household

economy. Livestock raising in different forms is also found in every system of

cultivation, as well as paddy rice, which would be practised much more extensively in

the uplands if irrigable paddy land was available for cultivation (UNDP, 2001).


51

Table 3.2: Three main farming systems in Laos Farming systems Characteristics Livelihood problems

Lowland Lowland rainfed farming system

Single cropping of traditional glutinous paddy rice varieties (80%), 2-4 varieties of different maturation. Yield 2.5-3 tons/ha (official estimates) to 1.1 tons/ha (Lao-IRRI survey 1989-90). Buffalo and cattle for draft, cash income and occasional meat, free ranging during the dry season, confined in the rainy season. Pigs, poultry, fish and NTFPs important for food and cash income.

Rice shortages of 1-4 months and low household income.

Lowland irrigated farming system

Double cropping of traditional photo-period sensitive paddy rice varieties, with higher use of improved varieties, fertilizer, etc for the 2nd crop which is mainly for cash. Wet season yields 1-3 tons, dry season 2-4 tons/ha. Dry season vegetables grown in areas near urban centres. Relatively few livestock due to shortage of grazing land, buffalo use for ploughing, smallstock for meat and cash income.

Better off than unirrigated farms, but lack cash, especially for investment.

Upland Upland rainfed farming system

Shifting cultivation of rice (intercropped with cucumber, chilli, taro, sesame, etc.) on sloping land with fallow periods of 2-10 years with yields of 1.4-1.5 t/ha. Maize for livestock is 2nd most important crop. Other crops: sweet potato, ginger, cassava, groundnut, soybean, cotton and sugarcane, papaya, coconut, mango tamarind, banana and citrus (more fruit tree species at lower altitudes). Melon & watermelon grown as dry season crop in some areas. Pigs, cattle and poultry are the principal livestock. High dependence on NTFPs for income to purchase rice, etc. Adoption of paddy cultivation is progressing rapidly where possible.

Rice shortage of 3-4 months, low income, poor health, high infant mortality, low life expectancy, lack of access to roads, communication, education & social services.

Highland farming system

Similar to upland rainfed farming system, but with high altitude crops such as opium, sometimes intercropped with lettuce and mustard, and temperate fruit trees such as plum, peach & local apple.

As above.

Plateau Plateau farming system

Coffee, tea and cardamom have largely replaced shifting cultivation, supplemented by fruit trees and vegetables in home gardens. Poor cash crop quality and yields due to poor management, use of poor varieties, no fertilizer, lack of shade, weed problems and poor harvesting and drying technique. Cattle important as savings enterprise, pigs & poultry also kept.

Households have adopted a commercial strategy and have no problems with food security, but household income still only moderate.

Source: GoL, 1998


52

It has been said that farming in the lowland areas along the Mekong corridor

(including plateau areas) is moving into the period of transformation in which market

forces are commencing to bring agricultural inputs through commercial channels and

some of the farm products are consumed by households and the rest are sold in the

markets. In the uplands, on the other hand, farming is more closely connected to the

period of subsistence cultivation and farm households are said to be in poverty. The

major factors behind this difference are highlighted in Table 3.3 (GoL, 2000).

Table 3.3: Contrasting conditions in the lowlands and uplands Lowland conditions Upland conditions Good road linkage and access Adequate agricultural technology flows from regional markets

Rural savings mobilization and agricultural lending mechanisms beginning to function

Domestic and regional markets interaction Market information and price signals operate in many areas

Monetized rural economy Free access for local and foreign entrepreneurs

Agro-geographic conditions favouring flat land farming systems

Poor road and non-existent road linkage Very limited or non-existent agricultural technology flows

Limited or non-existent rural savings mobilization and credit

Little or no domestic and regional markets interaction

No market information mechanisms Basically non-monetized rural economy with predominantly subsistence agriculture and barter transactions

Free access for local and foreign entrepreneurs, but little incentive because of non-functioning markets in most areas

Agro-geography in high relief requires balanced sloping land farming systems and integrated environmental management

Source: GoL, 2000

3.3.2 Shifting cultivation

Shifting cultivation, known as hai in Lao and as ‘slash-and-burn cultivation’ or

‘swidden agriculture’ in English, is the dominant production system in the upland and

mountain environment of Laos, involving more than 150,000 households or around

25% of the rural inhabitants. This subsistence cultivation may account for up to 80%

of the land allocated for agriculture if the entire area of fallow fields is taken into

account (Roder, 2001).

The practice of shifting cultivation in Laos, as in other countries where shifting

cultivation is practised, principally involves clearing the fields, leaving the vegetation

to dry, and then burning it for temporary cultivation (Gansberghe, 2005a). Practised in


53

Laos for centuries, shifting cultivation has been the main source of food production

with upland rice being the principal crop grown in the uplands. It is subsistence-based

farming which provides food, fibre, medicine and other needs from crops, fallow and

forested land (De Rouw, 2005). The Lao shifting cultivation system is not only related

to crop production, but animal husbandry, fishing, hunting and collecting non-timber

forest products (NTFPs) are also integral components. These activities are closely

interrelated with the crop/fallow rotation. For example, fallow land is important for

livestock grazing and cultivated plots must be protected from domestic animals by

fencing. The fallow area is also a main source of biodiversity and longer fallow

periods generally allow the gathering of more NTFPs (Gansberghe, 2005b).

Shifting cultivation systems can be categorised in many ways depending on the

criteria used, but ‘rotational’ and ‘pioneering’ shifting cultivation are usually

distinguished in Laos. In rotational shifting cultivation, the most common type in

Laos, shifting cultivators maintain their villages in the same site but rotate their

cultivated plots within a crop/fallow cycle. In pioneering shifting cultivation, shifting

cultivators move their whole village site after many years of cultivation in the same

place, resulting in the gradual depletion of forest. Shifting cultivation in Laos is also

sometimes classified into ‘integral’ and ‘partial’ cultivation systems. In integral

systems shifting cultivation is the main part of the household’s livelihood, while in

partial systems shifting cultivation is practised as one minor component of the

household’s livelihood; for instance, lowland farmers also do some shifting

cultivation to supplement their needs (Gansberghe, 2005a).

Shifting cultivation in the past was recognized as the best land use alternative for the

rural inhabitants in the mountainous regions of Laos because of low population

densities, low incomes, little opportunity for trade, and limited access to inputs

(Roder, 2001). However, the combined effects of population growth, growing market

opportunities, natural resource depreciation, and international awareness of

environmental impacts have forced farmers to shorten the fallow periods. As a result,

widespread problems of weed invasion, soil erosion, and declining yields are

occurring (De Rouw, 2005). Therefore, the ‘reduction’ of shifting cultivation has

become a policy priority for the Lao Government (Tsechalicha and Gilmour, 2000).


54

3.3.3 Limitations of upland farming development

The development of farming in the uplands of Laos is hampered by a number of

factors. The current low ratio of population to land might look like a conducive

circumstance for cultivation; however, much of the land is judged as being unsuited to

agricultural development. The availability of suitable agricultural land is very

unevenly distributed by region. Most of the land along the flat plains of the Mekong

river is found in the Central and Southern parts, while in the mountainous region in

the north there is noticeably less suitable arable land for cultivation, with only 6% of

the area classified as under 20% slope and 50% categorized as having a slope of 30%

or more (Raintree, 2002). This mountainous Northern territory is mainly under

shifting cultivation (ICEM, 2003).

In addition to the limitation of potentially arable land for agriculture, the existence of

millions of items of remaining Unexploded Ordnance (UXO) scattered around half of

the land surface throughout the country deters the thorough usage of existing

agricultural land area and constrains the expansion of new agricultural areas. This

UXO left over from the Indochina wars of 1964-1975 still injures or kills more than

200 people annually (UNDP, 2001).

Moreover, the agricultural population density of Laos is continuing to increase with

the growth of population. The number of people per thousand hectares of cultivated

crop area in Laos is around 3,500, compared to the figure of 2,600 in Thailand and

well over 10,000 in Vietnam. However, with Laos’ present annual population growth

rate of approximately 2.5%, the agricultural population density will double over the

next 25 years (Raintree, 2002). This will make the current situation of limited arable

land for agriculture much worse.

Marketing is one of the most significant elements accelerating the development of

upland cultivation; however, the present circumstances of Lao upland production

systems are limited by a number of factors. Upland farmers have limited marketing

experience and little understanding of markets. Furthermore, the market distribution

system has not kept pace with the increased production. The lack of traders and the


55

inadequate facilities for warehouses, transportation, and processing are constraining

the market function from operating efficiently (Douangsavanh, 2004).

3.3.4 Government policies on improved upland farming in Laos

As Laos is distinguished by a sharply contrasting rural economy consisting of the flat

land along the Mekong corridor and the sloping land in the upland areas (GoL, 2000),

the Government envisages solving the imbalance between the two sectors by

transferring resources and expanding the development process in the sloping land

areas while maintaining the growth of a market-driven economy in the flat land along

the Mekong corridor. The key elements of the strategy for the uplands and lowlands

prepared by the Ministry of Agriculture and Forests (MAF) are shown in Table 3.4

(GoL, 2003).

Table 3.4: Strategy for the uplands and lowlands Sloping/Uplands Lowlands/Mekong corridor Plan land-use zoning based on biophysical (slope and land capability) and socio-economic parameters

Accelerate participatory land allocation and land use occupancy entitlement

Diversify farming systems and agro-forestry development through adaptive research, trials, and demonstrations of farmers’ fields

Promote community management of natural resources

Sustainable land-use management with soil erosion control, afforestation, plantation forestry and conservation management

Strengthen demand driven extension programmes

Expand and intensify small-scale community managed irrigation schemes

Develop and expand rural savings and credit systems: target credit to support technology adaptation by the poor

Strengthen the capacity and legal framework of State-Owned Commercial Banks (SOCBs) in commercial banking transactions

Open community market access by upgrading and expanding feeder roads and market information

Improve and diversify farming systems with increased and intensified cash crop, livestock, and fisheries production

Expand and intensify value added processing by promoting local and foreign investment

Develop market research and information systems and regional market links between producers and wholesale and retail buyers throughout the region

Develop internationally accepted product grades and standards

Rehabilitate, expand and intensify irrigation schemes with community based management

Strengthen and expand rural credit facilities through free competition and market determined interest rates

Strengthen rural and agribusiness lending by State-Owned Commercial Banks (SOCBs) and private commercial banks

Source: GoL, 2003


56

In the past two decades, the improvement of upland farming has become the foremost

national goal of the Lao Government. The loss of forest due to shifting cultivation in

the uplands has been a continuing concern (Pravongviengkham, 1998). Therefore, the

Government of Laos has issued the national policy of stabilising shifting cultivation

by offering alternative sustainable farming systems for the people living in the upland

and mountainous areas. As stated in the Government’s Strategic Vision for the

Agricultural Sector (MAF, 1999), the government aims to transform the existing

harmful system of shifting cultivation to more ecologically stable cultivation systems

with proper land management by villages and individuals. The key to this policy is

finding suitable alternatives to shifting cultivation. One of the possible alternative

approaches to support this transformation is the introduction of perennial cash crops

such as rubber to increase farmers’ income.

3.4 The development of rubber in Laos

3.4.1 Introduction of rubber into Lao upland farming systems

Because of geographical constraints, subsistence agriculture based on shifting

cultivation is the main faming practice and source of food production in the

mountainous upland area of Laos (Yokoyama, 2003). Recently it has been observed

that upland agriculture is in transition from traditional to intensified commercialized

production in some areas of the country, especially in the case of rubber cultivation

(Bouahom, 2005).

Rubber has recently been introduced into upland areas of Laos, with relatively small

areas having been planted and some areas already in production. In fact, rubber was

first introduced into Laos in 1930, with the first rubber plantation established in

Champasack Province by French planters during the colonial era. Then in 1995 rubber

was again planted in Bachiangchalernsouk District of Champasack Province over an

area of 50 hectares by the Development of Agriculture, Forestry, and Industry (DAFI)

state company. Between 1994 and 1996, the Hmong village of Hadyao in

Laungnamtha Province established rubber over 342 hectares in the form of

smallholdings (Manivong et al., 2003). Since then, the rubber area in Laos has

increased moderately, but at a more rapid pace since 2003.


57

The rubber situation in Laos is changing so quickly that the Ministry of Agriculture

and Forestry is not confident in estimating the area planted, given the sharp increase

in planted area in many parts of the country (Alton et al., 2005). Many individuals,

private sector entities (both domestic and foreign), and state sector entities are

interested in investment in rubber planting in response to high rubber prices and the

perceived demand from China, but the newly planted areas are not yet officially

recorded. The available data recorded by the Forestry Research Centre (FRC) of the

National Agriculture and Forestry Research Institute (NAFRI) are presented in Table

3.5. It can be observed from the table that in the Northern provinces (Borkeo,

Luangnamtha, Oudomxay, and Luangprabang), many areas of rubber are possessed

by individual farmers, but there are also planted areas owned by private companies

(both local and foreign) and state companies. Rubber is usually planted on sloping

land. In contrast, in the Central and Southern provinces (Vientiane Municipality,

Khammuan, Saravane, and Champsack), almost all areas of rubber are owned by

private companies (both local and foreign) and state companies. Only a few rubber

holdings are owned by individual smallholders. Most of the land under rubber in the

Central and Southern provinces is lowland, though some is planted on gently sloping

land.

Both local and foreign investors, especially from China, Vietnam, and Thailand, have

expressed interest in investing in rubber plantations throughout Laos by seeking land

for concessions and other arrangements (Alton et al., 2005). Recently the Lao

Government signed a contract with Vietnamese investors to plant rubber in the

Southern Region of Laos with an expected area of over 10,000 hectares, and in the

near future a rubber processing factory is to be established (Pongkeo, 2004). Table 3.6

shows the tentative list of investors in rubber plantations in Laos with the areas to be

planted. It is also interesting to note that foreign investors have different target areas

based on their location. The Chinese are proposing to invest in the Northern provinces

as China shares its border with these provinces. On the other hand, the Vietnamese

and Thai are focusing on the Central and Southern provinces for the same reason.


58

Table 3.5: Officially estimated rubber area in Laos, 2005

Locations Year planted

Area(ha)

Year tapped Investors Seedlings Seedlings

sources Borkeo Province

2003 120 Private Company

RRIM600, GT1

China Huaysai District

2004 100 State-Private Company

GT1, 772, 774

China

Luangnamtha Province Namtha District

1994-1995

342 2002 Individual farmers

RRIM600, GT1

China Hadyao Village

2003-2005

296 Individual farmers

RRIM600, GT1

China

District town area 2004 4 Lao-SINO Company

RRIM600, GT1, PR107, 772, 774

China

Sing District Phabadnoi Village 1999 12 Individual

farmers GT1 China

Kor Village 2004 21 Individual farmers

RRIM600, GT1

China

Phabadyai Village 2005 30 Zenlee Company and individual farmers

GT1 China

Long District 2004 2 Individual

farmers GT1 China District town area

2005 344 Company and individual farmers

GT1 China


GT1 China Xiangkok area


GT1 China

Viangphoukha District

2005 298 Zenhua Company, Imp-Exp Company and individual farmers

GT1 China

Nalae District Phouviang Village 2003 21 Individual

farmers RRIM600, GT1

China

District town area 2005 7 Individual farmers

GT1 China

Source: FRC, 2005


59

Table 3.5: Officially estimated rubber area in Laos, 2005 (Continue)

Locations Year planted

Area(ha)

Year tapped Investors Seedlings Seedlings

sources Oudomxay Province Xay District 2004 2 Lao-SINO

Company GT1, 772, 774

China

Houn District 2004 879 Chianfong Company

GT1, 772, 774

China


GT1, 772, 774

China Namor District

2004 20 LSUAFRP GT1, 772 LuangnamthaLuangprabang Province Phonexay District 2005 11.14 LSUAFRP GT1, 772 LuangnamthaNan District 2005 70 Individual

farmers GT1, 772 Luangnamtha

Chomphet District 2004 30 Individual farmers

GT1, 772 Luangnamtha


GT1, 772 LuangnamthaNumbark District

2005 25 State Company


PakOu District 2005 10 Individual farmers


XiangNgeun District 2005 1 LSUAFRP GT1, 772 Luangnamtha (experiment)

Pakseuang District 2005 0.2 Kaengben Teak Research Station

GT1, 772 Luangnamtha (experiment)

Vientiane Municipality Sungthong District 1996 114 2004 Individual

farmers supported by GTZ projects

RRIM600 Thailand

Sikhottabong District 2003 16.6 Private Company

RRIM600 Thailand

Khammuan Province Hinboun District 1996 30 2003 Private

Company RRIM600 Thailand

Thakhaek District 1995 80 2003 Mountainous Development Company

RRIM600 Thailand and Vietnam

Saravane Province LaoNgam District 2005 1000 Private

Company na Vietnam

Champasack Province Pakse and Bachiangchalernsouk District

1930 16 French na na

Bachiangchalernsouk District

1995 50 2003 DAFI Company

RRIM600 Thailand

Note: na means data not available Source: FRC, 2005


60

Table 3.6: Investors in rubber in Laos

Locations Area (ha) Amount Investors Comments

Phongsaly Province (Bounneua District, Yo Village)

1,000 US$ 0.9 million

Agricultural Development Company

PPCO signed agreement with Tai Fong Agriculture Development Company to plant 1,000 ha for 400 households in Yo Village

Luangnamtha Province na na Lao-SINO Company, Chinese and others

Planting of seedling nurseries in both Namtha and Sing Districts

Luangprabang Province na na Chinese Signed with Luangprabang Province

Luangnamtha, Oudomxay, Borkeo Provinces


Chinese government and private sectors

Not yet signed; also research station and production facilities

Oudomxay Province (Namor District)

1,300 US$ 1 million

China Chiang Fong company

Plans 6,300 ha in 2004-08

Vientiane, Borikhamxay Provinces


Thai rubber Latex Group

Survey in Vientiane and Borikhamxay; 2,000 workers

Savannakhet Province 11,000 na Thai Hua Rubber Company

Discussions with the government of Savannakhet

Saravane, Sekong, Attapeua Provinces

na na Vietnamese company

Signing contracts

Saravane, Champasack, Sekong Provinces

10,000 US$ 22 million

Vietnam General Rubber Corporation (VGRC)

Rubber factory will be established (18,000 tons/year)

Champasack Province 10,000 US$ 30 million

Vietnam-Laos Rubber Joint-Stock Company (subsidiary of VGRC)

2,000 ha in 2004, 400 local labourers and 100 Vietnamese workers

Champasack Province 10,000 na Quang Tri Rubber Company (subsidiary of VGRC)

2,000 trees in 2005

Champasack Province (Bachiangchalernsouk and Xaysomboun District)

10,000 na Rubber Company from Ho Chi Minh

Signed with the province

Champasack Province (Bachiangchalernsouk District)

3,000 na Agriculture Company of Dak Lak

Also produce organic fertilizer in plant at km 46 in Pathoumphon District; produce fertilizer for rubber

Note: na means data not available Source: Alton et al., 2005


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3.4.2 Government support for the development of rubber

Government support for rubber research has been essential for the development of the

rubber industry in the main rubber producing countries. Regarding the technical and

research support for the development of rubber cultivation in Laos, in the near future

the Ministry of Agriculture and Forestry plans to set up the Rubber Research Centre

in Luangnamtha Province and two rubber research stations, one in Oudomxay

Province and another in Borkeo Province (FRC, 2005).

To foresee the possible expansion of rubber in Laos, the GIS Unit of NAFRI, under

the Ministry of Agriculture and Forestry, undertook mapping of potential areas for

rubber throughout Laos by overlaying the existing data including elevation, slope,

temperature, rainfall, and present land use (Table 3.7 and Fig. 3.8). In addition, crop

requirements for rubber as presented in the FAO Optimum Crop Requirements (Land

Evaluation Part III) were considered. The total area of suitable land for rubber was

estimated to be around 240,000 hectares. It should be noted that the findings were

based large scale analysis. The results need to be tested with field research at a

smaller scale.

Table 3.7: Potential rubber areas in Laos Provinces Areas (ha)Phongsaly 757Luangnamtha 916Oudomxay 6,483Luangprabang 2,933Huaphanh 476Bokeo 6,615Xiengkhuang 1,817Xayabury 30,288Vientiane 27,598Xaysomboun Special Zone 678Borikhamxay 44,745Vientiane Municipality 16,374Khammuane 10,506Savannakhet 46,046Saravane 19,724Sekong 6,386Champasack 9,505Attapeu 9,002Total 240,849

Source: GIS Unit of NAFRI, 2005


62

Figure 3.8: Potential rubber areas in Laos (Source: GIS Unit of NAFRI, 2005)

3.5 Conclusion

Mountainous landscape, limitations of potentially arable land for agriculture and

market opportunity, and increase in population pressure have combined to make

poverty widespread in the uplands of Laos. In addition, traditionally subsistence-

based shifting cultivation, the main production system practised in the upland areas,

faces increasing pressure and is considered no longer sustainable. Therefore, the


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Government’s top priorities are poverty alleviation and stabilising shifting cultivation

by offering alternative sustainable farming systems for the people living in the upland

and mountainous areas. The key to this policy is finding suitable alternatives to

shifting cultivation. One of the possible alternative approaches to support this

transformation is the introduction of perennial cash crops such as rubber to increase

farmers’ income. However, although rubber has been recently introduced into upland

areas of Laos, with relatively small areas having been planted and even less already in

production, there is little information currently available on the potential economic

returns to smallholder producers as a basis for the promotion of the crop by the

Government. The remainder of the thesis focuses on addressing this issue.


64

Chapter 4

The Study Area

4.1 Introduction

As shown in Chapter 3, the earliest and most extensive adoption of rubber planting

among smallholders has been in Northern Laos. In order to evaluate the economics of

smallholder rubber production, the village of Hadyao in Namtha District of

Luangnamtha Province was selected for in-depth study as Hadyao was the first village

in Northern Laos to plant and tap rubber. This chapter provides an overview of

Luangnamtha Province and Hadyao Village to give an understanding of the context in

which rubber planting has occurred. A general account is given of rubber planting in

Hadyao. The results of the household survey in the study village are presented in the

next chapter.

4.2 Luangnamtha Province

The province of Luangnamtha is located in the Northern Region of Laos lying

between 20°30’ and 21°30’ north and 100°30’ and 102°00’ east (Fig. 4.1). It shares a

border of 140 km with China in the north, 130 km with Myanmar in the west, 230 km

with Oudomxay Province in the east and 100 km with Bokeo Province in the

southwest (PPCO, 2005). The province is divided into five administrative districts,

namely Namtha, Sing, Long, Viengphoukha, and Nalae (PPCO, 2005). Luangnamtha

Province is a centre for commerce between China, Laos, and Thailand.

The province has 380 villages, consisting of 26,113 households and 145,231

inhabitants. The population density is about 16 persons per km2 and the population

growth rate is 2.5% per annum (NSC, 2005a). Approximately 90% of the population

is involved in agricultural production, mainly rice cultivation; the remainder is

engaged in commerce, government officials, or others (PPCO, 2005). The population

comprises 39 ethnic minority groups – the largest number in the country – including

Hmong, Akha, Mien, Samtao, Thai Daeng, Thai Lu, Thai Neua, Thai Khao, Thai

Kalom, Khamu, Lamet, Lao Loum, Shan and Yunnanese. As mmentioned in Chapter

3, these ethnic groups are commonly classified into three major categories: Lao Loum


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(Lowland Lao) who speak Tai-Kadai languages, Lao Theung (Midland Lao) speaking

Mon-Khmer languages, and Lao Soung (Highland Lao) who belong to the Tibeto-

Burman and Hmong-Mien language groups (Yamada et al., 2004). Lao Loum usually

reside in the plains and along the rivers, cultivating paddy rice. Lao Theung and Lao

Soung normally inhabit highlands and practise shifting cultivation of upland rice on

less fertile soil (Restorp, 2000). Of the provincial population, 38.1% is Lao Loum,

26.2% is Lao Theung, and 35.7% is Lao Soung (PPCO, 2005). The majority of

inhabitants in the province live in poor conditions, especially in the remote

mountainous areas with little or no access to public services. According to the

Population and Housing Census (2005), about 67.4% of the villages could be accessed

by road, but only 20.3% had electricity, only 6.3% had piped water, only 6.6% had

their own health centre. Most (88.4%) had a primary school located in the area (NSC,

2005a).

Figure 4.1: Location map of Luangnamtha Province (Source: GIS Unit of NAFRI, 2005)

The climate in Luangnamtha Province is humid tropical with an average temperature

of 25 ºC. The annual precipitation in the province is around 1,500 mm (MSLP, 2005)

(Fig. 4.2). The year is classified into two seasons: dry season and rainy season. The

dry season runs from November to April, and the wet season from May to October.

The dry season includes a cool period from November until February and a hot period

starting in March and extending into the wet season. Approximately 90% of the


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annual rainfall is accounted for by the rainy season. The rain usually starts in June and

ends in November with the peak of rain in July and August. The rainfall is very

important for cultivation and is a concern to farmers because recently it has become

less predictable and unevenly distributed.

-

50

100

150

200

250

300

350

Janu

ary

Febr

uary

Mar

ch

Apr

il

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

r

Dec

embe

r

Month

Rain

fall

(mm

)

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5

10

15

20

25

30

Tem

pera

ture

(C)

Average Rainfall Average Temperature

Figure 4.2: Monthly average rainfall distribution and temperature in Luangnamtha

Province from 1994-2004 (Source: MSLP, 2005)

The total land area of Luangnamtha Province is 932,500 hectares or 9,325 km2, of

which 85% is mountainous and only 15% is lowland (PPCO, 2005). The province is

rich in forest resources (Fig. 4.3). The Provincial Agriculture and Forestry Office

reported that the forest covers 59% of the total area, of which 12.5% was National

Biodiversity Conservation Area, 7.3% was Provincial Biodiversity Conservation

Area, and 5.6% was District Biodiversity Conservation Area. The remaining forests

include upland mixed forest (26.6%) and reed or young forest after slash and burn

cultivation (48%). The non-forested land, which constitutes 41% of the land area,

includes wood and shrub land, grass land, agricultural land including shifting

cultivation, and non-agricultural land (PAFO, 2000).


67

Figure 4.3: Forest and land use map of Luangnamtha Province

(Source: GIS Unit of NAFRI, 2005)

Land use in Luangnamtha is still rather extensive owing to the relatively low

population density. Increasing population, however, leads to more intensive forms of

land use. Most of the hill tribes (84% of villages) practise shifting cultivation, which

is the principal upland farming system. Apart from shifting cultivation, lowland paddy

and highland farming are also practised in Luangnamtha. Table 4.1 shows the major

farming systems practised in Luangnamtha. However, it should be noted that these

farming systems rarely appear in their pure forms. They are very often found in

combination with, for instance, animal raising and home gardens (Helberg, 2003).


68

Table 4.1: Farming systems in Luangnamtha Province Farming systems Description Market orientation

Lowland rainfed system

Cultivation of glutinous rice varieties during rainy season only. Rice yields usually higher than upland rice. Buffalo and cattle for draught, free ranging of animals during dry season. Home gardens with vegetables and fruit trees are maintained. Pigs, poultry, fish and NTFPs are important sources for food and income. Limited extent of this system in Luangnamtha.

Rather low. Some fruits, vegetables, animals and NTFPs are sold in local market

Lowland irrigated system

Double cropping of improved rice varieties possible but not very common. Dry season vegetables grown near town markets. Use of off-farm inputs such as fertilizer and pesticides during dry season. Few livestock due to shortage of grazing land, buffaloes used for ploughing. Fishponds are common. Limited uses of NTFPs. Farmers are better of than in the other systems. Very limited extent of this system in Luangnamtha.

Medium. More products sold in local market

Upland rainfed farming

Shifting cultivation of rice, often intercropped with cucumber, taro, sesame and chilli on sloping land with fallow periods of 2-7 years. Farm size 0.5 to 1.5 ha. Other crops include maize, cassava, groundnut, cotton, sugarcane. Cattle, pigs and poultry are principal livestock. Adoption of paddy where possible. Upland households depend heavily on NTFPs for food, construction material and income. Households are very poor. Most common farming system in Luangnamtha.

Medium to high. Livestock and NTFPs sold in local market.

Highland farming

Similar to upland farming, with the exception that high altitude crops, especially opium poppy are grown. In some areas temperate fruit trees such as plum, peach and apple can be found. Opium is the most important cash crop but households are poor as well. Very common in Luangnamtha.

Medium to high with emphasis on opium.

Source: Helberg, 2003

Rubber has been introduced into the farming systems of Luangnamtha Province since

1994. The total planted area of rubber in 2004 was 4,581 hectares, involving 34

villages and 1,559 households. The province has planned to increase the rubber area

by 2,000 hectares in the next five years (PAFO, 2005). Local government considers

rubber as being a solution to the problems of upland farmers by playing a key role in

eliminating shifting cultivation and eradicating poverty.

4.3 Hadyao Village

Hadyao Village is situated in Namtha District of Luangnamtha Province (Fig. 4.4).

This village is around two km from the district centre and near the main road to the

Chinese border via the Boten international checkpoint in Sing District. This road


69

plays a key role as a commercial route between the Northern Region of Laos,

particularly Laungnamtha Province, and China.

Figure 4.4: Location map of Hadyao Village in Namtha District of Luangnamtha

Province (Source: GIS Unit of NAFRI, 2005)

The village was established in 1975, the year the Lao People’s Democratic Republic

(Lao PDR) was founded. The first residents were Lao Soung (Hmong) from Paktha

District in Oudomxay Province (now under the administration of Bokeo Province),

but in the beginning they settled in the mountains above the present Hadyao Village,

practising shifting cultivation and opium growing. Two years later they moved down

to the present village site in search of lowland paddy areas. In the first year there were

55 households with a population of 587. During the first five years of settlement, from

1975 to 1980, nearly 150 people, mainly children, died of malaria and lack of


70

adaptation to the lowland environment. Many people returned to live in the

mountains, leaving only 17 households. Then, in 1985, with the encouragement of the

district authority, people who had returned to live in the mountains started to move

down to Hadyao again and reconstruct the village, build a school, cooperative, and a

state commercial shop, practising group paddy cultivation, and managing livestock

grazing areas (Fig. 4.5).

Figure 4.5: Hadyao Village in Namtha District of Luangnamtha Province

(Source: Author’s photo, August, 2005)

Later, in 1994, 14 households of Hmong refugees from China migrated to

Luangnamtha Province and requested to be allowed to live in Hadyao because they

had relatives there. After the resettlement, these people introduced rubber cultivation

to the village because they had over 15 years of experience working in a rubber

collective in Yunnan Province of China. The village headman and authorities went to

Yunnan to explore the possibility of planting rubber and found that rubber seemed the

most promising alternative to shifting cultivation. They made a proposal to the

provincial authority and asked for loans for rubber cultivation. The province agreed


71

and supported them with some loans. After a few years of rubber planting many

households faced the problem of having to maintain their rubber holding while

cultivating rice for their subsistence because there were no returns from rubber yet. In

addition, they had to face the difficulty of a heavy frost in 1999 killing numbers of

rubber trees. Rubber trees were first tapped in 2002. Twenty three households started

to tap, producing 22 tonnes of ‘tub-lump’ rubber (i.e., coagulated latex) sold to China.

Afterwards, many villagers expanded their rubber holdings, planting more rubber in

their shifting cultivation areas so the area of shifting cultivation has been substantially

reduced.

Currently, there are 102 households in the village (Table 4.2), just over the national

average figure of 91 households (NSC, 2005a). The total population is 964, consisting

of 500 males and 464 females. All the villagers belong to the Hmong ethnic group.

According to the wealth ranking made by the village headman and village authorities,

around 21% of households are classified as wealthy, 52% as middle, and 27% as poor.

The main occupation of Hadyao villagers is agriculture, but there are some who are

government officials, teachers, village traders, and non-agricultural labourers. The

level of education in Hadyao varies from primary school to technical college, but the

majority of the population did not attend school or have only finished the primary

school level.

Table 4.2: Number of households in Hadyao Village Wealth ranking Number % Wealthy 21 20.6 Middle 53 52.0 Poor 28 27.4 Total 102 100.0 Source: Hadyao Village, 2005

The Land Use Planning and Land Allocation (LUP/LA) process was undertaken in

Hadyao in 1997. The land use zoning defined by the district LUP/LA team is

presented in Table 4.3 and Fig. 4.6. The total area of the village is about 4,604

hectares. The land area is classified into six types of land use – conservation forest,

protection forest, agricultural land (both upland area and lowland area), production

forest, grazing area, and residential area.


72

Table 4.3: Types of land use in Hadyao Village Land use types Area (ha) %Conservation forest 700 15.2Protection forest 1,300 28.3Agricultural land 1,700 36.9Production (plantation) forest 700 15.2Grazing area 200 4.3Residential area 4 0.1Total 4,604 100.0

Source: Hadyao Village, 2005

Figure 4.6: Resource map of Hadyao Village (Source: Hadyao Village, 2005)

The limited lowland areas are favourable for wet rice cultivation. The upland areas are

mainly used for shifting cultivation of rice; some areas are planted with cash crops

such as corn, cucumber, cassava, chillies, and other cash crops. The rubber planted

since 1994 is located in the area of agricultural land which in the past was used for

shifting cultivation, hence it competes with upland rice and other upland crops. Since

land allocation, shifting cultivation has been practised with a three-year fallow. This

results in a very low yield of upland crops due to poor soil fertility and weed

competition.


73

The area used for upland rice under shifting cultivation is difficult to determine since

the village declares that it will try to reduce the area of shifting cultivation by planting

rubber, following the government policy of eradicating shifting cultivation. Therefore,

there is no official record of the area of shifting cultivation. Another reason, according

to the Provincial Finance Office, is that now if rice is grown within a rubber holding it

is not counted as rice area under shifting cultivation but as rubber area. However, it is

clear that, since the introduction of rubber into the village, the area of shifting

cultivation has decreased because villagers planted rubber in their old shifting

cultivation areas. Yet shifting cultivation is still practised within the village area, as

well as in other villages, to provide household food security, especially during the

immature phase of rubber cultivation.

Apart from crop production, livestock is also an important source of food and income

for Hadyao villagers. Most farmers raise poultry for household consumption and as an

additional source of cash income. Farmers who have access to lowland areas own

buffaloes or cows, mainly for land preparation for rice or cash crop cultivation. Large

animals (buffaloes, cows, and goats) are raised in grazing areas in other villages.

Hadyao officials asked the province to allocate land outside the village for grazing

areas because animals are not allowed to be raised in the village while rubber planting

is underway.

Besides agricultural activities, some farmers in Hadyao have other livelihood

activities, such as hand weaving, running a retail shop, and petty trading within and

outside the village.

4.4 Rubber production in Hadyao Village

Hadyao Village became well-known in the Northern Region of Laos as the first

village to produce rubber. In fact, Hadyao was not the only village in Luangnamtha

Province to establish rubber during the mid-1990s but most of the rubber trees in

other villages were killed by the frost in 1999, whereas Hadyao was not affected to

the same degree.


74

During the first period of rubber establishment between 1994 and 1996, a total of

154,000 rubber trees were planted, occupying 342 hectares. Unfortunately, the heavy

frost in 1999 killed 34,000 rubber trees or about 75 hectares. The remaining 120,000

rubber trees (266 ha) are the ones that are currently being tapped (Fig. 4.7). Since the

success of rubber cultivation and the first tapping in 2002, there has been a

considerable increase in the number of trees planted. In 2003 and 2004 76,500 trees or

about 170 hectares of rubber were planted, and in 2005 another 56,800 rubber trees or

about 126 hectares were established. All of these rubber trees have been planted

within the 1,700 hectares of village agricultural land shown in Table 4.3. In the

immediate future the village has no plan to expand the area of rubber, just to replant

the dead trees. The village leaders are concerned villagers will not be able to take care

of many more rubber trees.

Figure 4.7: A rubber smallholding in Hadyao Village (Source: Author’s photo, August,

2005)

In summary, from the beginning of the establishment of rubber in 1994 until 2005

around 253,300 rubber trees have been planted on an area of 562 hectares. This

represents 12% of village land and 33% of agricultural land. Of these trees, about


75

120,000 mature trees on an area of 266 hectares are currently being tapped and about

133,300 immature trees (296 ha) have been recently planted and are expected to

commence tapping in 2011 or 2012 (Table 4.4).

Table 4.4: Area under rubber in Hadyao Village Rubber planted Year Tree Ha

Households Remarks

1994 53,000 117 60 The area of hectare is calculated based on 450 trees = 1 ha

1995 81,000 180 60 1996 20,000 44 60 1999 -34,000 -75 Died of frost in December 1999 Sub-total 120,000 266 Being tapped 2003+2004 76,500 170 89 Some of these are replanted trees for those

killed in 1999 2005 56,800 126 89 Total 253,300 562 Source: Hadyao Village, 2005

Credit support was crucial for the establishment of rubber in Hadyao since it required

considerable capital to invest and the villagers had little cash income at that time. As

Table 4.5 shows, the first loan of 12.9 million Kip in 1994 was provided from

provincial funds, with an interest rate of 2% and a 7-year repayment period. The funds

were distributed to the households in the form of rubber seedlings and barbed wire for

fencing to the value of 1-3 million Kip for each household. Then in 1995 the amount

of 10 million Kip was advanced by the Provincial Agriculture and Forestry Office

(PAFO) with the same interest rate and repayment period. In addition, 47 million Kip

was provided by the Agricultural Promotion Bank (APB) with the same interest rate

and repayment period. Later, in 2003 281 million Kip were again provided by APB at

a 7% interest rate for a period of 10 years. It should be noted that the bank increased

the rate and repayment period on seeing the possibility for rubber farmers to pay back

the loan once they had started tapping. In all cases no interest payments were required

until the end of the loan period. It was reported that all loans were in fact repaid.

Approximately 266 hectares (or 120,000 trees) of rubber, planted between 1994 and

1996, is currently in the tappable period. The first harvest of rubber began in 2002

with the production of 22 tonnes. The production of rubber has increased from 95

tonnes in 2003 to 150 tonnes in 2004. Rubber from Hadyao is sold to China in the

form of tub-lump. The total revenue from rubber for the village was 77,000 Yuan in


76

2002, 427,500 Yuan in 2003, and 825,000 Yuan in 2004 (Table 4.6). Chinese traders

come to buy tub-lump rubber at the village usually once a month (Fig. 4.8). In the first

two years of selling, rubber was bought using a grading system. In 2004 rubber was

bought in one grade only. The Chinese traders told farmers the price of tub-lump

rubber because they were the only source of price information. However, the price

offered has increased in line with the world price. Table 4.7 presents the amount of

rubber sold to China each month in 2004.

Table 4.5: Loans for rubber production in Hadyao Village Rubber

seedlings Rubber

areaLoan

amountYear Household no. ha Kip

Source Interest rate

Years to repayment

1994 60 42,450 94.33 12,873,340 Province 2% 71995 33 15,194 33.76 10,000,000 PAFO 2% 71995 63 97,168 215.93 47,000,000 APB 2% 72003 64 76,711 115.00 281,375,948 APB 7% 10Source: Hadyao Village, 2005

Table 4.6: Production and sale of rubber in Hadyao Village Households

tapping Trees

tappedArea

tappedProduction

(Sale) Price Total revenueYear

No. No. Ha Kg Yuan*/Kg Yuan2002 23 120,000 266 22,000 3.5 77,0002003 67 120,000 266 95,000 4.5 427,5002004 67 120,000 266 150,000 5.5 825,000Note: * 1 Yuan = 1,300 Kip, August 2005 Source: Hadyao Village, 2005

Table 4.7: Sale of rubber in 2004 in Hadyao Village by month Date Sale (Kg)April 24, 2004 2,936 May 24, 2004 1,027 June 2, 2004 6,103 June 16, 2004 7,766 July 15, 2004 5,432 September 4, 2004 43,657 October 6, 2004 29,517 November 24, 2004 19,416 December 17, 2004 33,936 Total 149,790

Source: Hadyao Village, 2005


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Figure 4.8: The sale of tub-lump rubber on market day in Hadyao Village


4.5 Conclusion

The study area for this thesis was Luangnamtha Province of the Northern Region of

Laos. The study village of Hadyao in Namtha District of Luangnamtha Province

became well-known throughout the country as the first village to tap rubber. Hadyao

is a Hmong village located on acid upland soils in mountainous terrain. Shifting

cultivation of upland rice for subsistence was the main agricultural practice in the

village. Recently, the most extensive and rapid change in the village has been the

expansion of smallholder rubber due to strong demand for rubber from China and the

introduction of rubber planting skills in the 1990s by Hmong migrants from China.

Rubber was planted on sloping land by individual smallholders, taking up around a

third of the land available for shifting cultivation, thus reducing the fallow period to

around three years. Tapping commenced in 2002, making it the first rubber-producing

village in Laos. Since then, rubber production and income have been expanding

rapidly in Hadyao. Because of the profitability of rubber with current high prices,

farmers are becoming commercial farmers, with upland rice beginning to decline in


78

importance. This suggests the village is in transition from subsistence to commercial

agriculture, conforming to Barlow’s stage of ‘early agricultural transformation’. The

next chapter presents the results of a household survey in Hadyao to explore this

transformation in more detail.


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Chapter 5

Resources, Rice and Rubber in the Study Village

5.1 Introduction

In this chapter an account is given of the farming resources, activities, and outputs of

the farm households in the study village of Hadyao, with the main focus on

smallholder rubber production. The results are based mainly on the questionnaire

survey of 95 farm households, but relevant information from other sources is also

included. The chapter first presents an overview of how the data were collected and

analysed. Then it considers household resources, including human resources, land,

and livestock. The use of these resources to undertake the two main farming activities

– rice and rubber – is analysed in the next two sections. A final section summarises

the findings.

Throughout the chapter attention is given to a comparison between households of

different wealth status. Of the 95 surveyed households, 22 were classified as wealthy,

52 as average, and 21 as poor. This classification was undertaken by the Hadyao

Village authorities themselves. Almost every village authority in the country classifies

its households into these three categories for the purpose of development planning.

Different villages may use different criteria. For Hadyao the classification criteria

used were the number of rubber trees tapped, the land area, rice self-sufficiency,

livestock, labour force, and permanency of house. In the past, almost all households in

Hadyao (as with other villages in the northern part of Laos) were classified in the

average or poor status; only a few were categorized as wealthy. After the start of

rubber tapping in 2002, nearly one-third of the total households in the village were

classified as wealthy and over half of them were categorized as average. This in itself

indicates the dramatic change that the adoption of rubber planting has brought about.

5.2 Data collection and analysis

Both qualitative and quantitative data were used to understand the general

circumstances of the study village and of rubber production in that village. Data were

gathered during the two periods of fieldwork in the study village through key


80

informant interviews, group interviews, direct observation, and a questionnaire survey

of farm-households. The software programs used for entering and analysing the

quantitative data were Microsoft Excel and the Statistical Package for Social

Scientists (SPSS).

For me to be able to carry out the research in the village, an official permission letter

from the Ministry of Agriculture and Forestry was issued to the Provincial Agriculture

and Forestry Office (PAFO) of Luangnamtha Province. Then PAFO of Luangnamtha

Province informed the District Agriculture and Forestry Office (DAFO) of Namtha

District. Finally, DAFO of Namtha District informed the village authorities of Hadyao

that there would be a research project undertaken in the village and asked the village

authorities to facilitate my activities.

The first period of fieldwork occurred over a week from 1-7 July 2005. At this time

village information was obtained from the village authorities through a focus group

interview in order to understand the general picture of the study village. The set of

questions used for the focus group interview is presented in Appendix 1. The first part

of the interview was about the general situation of the village. The second part

obtained information about rubber plantations. The third part considered the materials

used for rubber production. The final part focused on the labour used for rubber

production. At the same time field observations were also carried out. Household

interviews with three rubber farmers were also undertaken to pre-test the

questionnaire to be used in the household survey.

The second period of fieldwork was carried out for the whole month of August 2005.

It was decided to interview all farm households registered in the village, given the

small total (102). However, seven households were unable to be interviewed. Two

newly married couples had just left their parents to live in their own houses but they

still cultivated rice and tapped rubber trees with their parents. Two households had

just moved into the village from Vientiane Province. The head of another household

had left to build a house in Oudomxay Province. His wife was at home with young

children and did not know how to answer the questions as most of the work on their

new rubber plantation was carried out by the husband. The head of another household

with two young children was unable to be interviewed due to illness. Another


81

household consisted of one man without any land was said to be mentally ill and

survived by getting food from his relatives. Hence 95 households were successfully

interviewed. These were all the rubber farmers in Hadyao. A pre-tested and modified

questionnaire in the Lao language was used; an English version is reproduced in

Appendix 2. The first part of the questionnaire was about general household

information including household members, land resources, livestock, rice production,

and income sources. The second part sought information about rubber production

including plantation areas, sources of capital, technical aspects, problems, marketing,

changes in practice of shifting cultivation, future plans, and outputs from rubber

production. Interviews were undertaken in the Lao language, in some cases assisted

by local language interpreters. Most of the interviewing was conducted by myself;

some was done by a district agricultural and forestry official as a research assistant.

Most of the interviews were in the respondent’s house as this also provided a chance

to observe living conditions; however, farm visits were also carried out.

5.3 Household resources

5.3.1 Human resources

On average one household had 7.5 members, but the size ranged from 2 to 18. Nearly

51% of the households had 5 to 8 members (Table 5.1). Smaller households consisted

of young parents (or a single parent) and small children, whereas large households

comprised up to four generations living together. This is a general characteristic of

residence patterns of the Hmong ethnic group, that a proportion of households are

stem families, in which a nuclear family (a husband/wife couple and their children) is

joined by elderly parents who cannot take care of themselves or by a young married

pair who have not yet built their own house (LSUAFRP, 2003).

Table 5.1: Distribution of household size in Hadyao

Households Household membersNumber %

2 1 1.13-4 15 15.85-6 18 18.97-8 30 31.69-10 18 18.911-12 7 7.4>12 6 6.3Total 95 100.0


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Usually the senior male is classified as the head of household, but in the case of a

single female parent, she is the head of household. The mean age of household head

in Hadyao was 46 years, but the range was from 18 to 80 years. The education level

of household heads averaged 3.4 years of schooling, but ranged from no schooling to

14 years of schooling.

Generally, a household comprises a primary and secondary labour force. The primary

labour force is made up of adult, full-time workers. The secondary labour force

comprises part-time workers – either older children (aged 10 to 15) who go to school

and help the family farm during the weekend or elderly members of the family who

work a few hours a day or have the responsibility of taking care of their

grandchildren. Larger households tend to have a larger labour force, while single-

parent households with young children would, in general, have only one worker. To

reflect the real situation, the full-time equivalent household labour force was used

throughout the analysis and is referred to as the ‘household labour force’. This was

estimated as the number of full-time workers plus the number of part-time workers,

valued as one-third of full-time workers. In the survey households, the size of the

labour force varied considerably from 0.7 to 6.7, averaging about 3 full-time

equivalent workers (Fig. 5.1). All households had one or more full-time farm worker,

but 10 households (11.5%) had one member (in one case, two members) who worked

off-farm as a government official or local trader.

Demographic characteristics of the three wealth categories of households are

presented in Table 5.2. A One-way ANOVA was conducted for each of these

characteristics, indicating that there were statistically significant differences at the

p<0.05 level in the mean numbers of household members, full-time equivalent

workers, and on-farm workers, but not statistically significant differences in the mean

age of household head, education of household age, or number of off-farm workers.

Post-hoc comparisons using the Tukey HSD test indicated that the mean number of

household members, full-time equivalent workers, and on-farm workers were

significantly higher for wealthy households than for poor households, whereas

average households did not differ from either group. Hence the size of the household


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labour force appears to be an important factor in achieving a higher wealth status in

Hadyao.

Figure 5.1: The distribution of full-time equivalent workers per household in Hadyao

Table 5.2: Demographic characteristics of households in Hadyao by wealth status Wealth status

Demographic characteristics Wealthy(n=22)

Average (n=52)

Poor(n=21)

Mean age of household head (years) 49.5 45.9 41.9Mean education of household head (years) 2.8 3.7 3.1Mean number of household members (persons) 8.9 7.6 5.9Mean number of full-time equivalent workers (persons) 3.5 2.9 2.6Mean number of on-farm workers (persons) 4.7 4.1 3.2Mean number of off-farm workers (persons) 1.3 1.0 1.0

5.3.2 Land

Lao farmers who practised shifting cultivation conventionally used their usufruct

rights to utilize the forest land nearby their villages. However, as explained in Chapter


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3, this is now subject to the government-sponsored Land Use Planning and Land

Allocation (LUP/LA) process, which is being implemented throughout the country

(Gansberghe, 2005a). In Hadyao LUP/LA was completed in 1997 and each household

was provided with a standard three plots of shifting cultivation land, though

households with more members or workers could ask the village for additional plots.

Rubber was introduced to the village in 1994 and farmers mostly planted rubber trees

on their shifting cultivation lands. With the increasing interest in expanding rubber

planting since 2002, many farmers searched for additional shifting cultivation land in

the village to plant rubber or grow upland rice when all their allocated shifting

cultivation plots were planted with rubber. However, the remaining lands were likely

to be located far from the village settlement, requiring a journey on foot of 1-2 hours.

Therefore, some villagers with kinship or other connections to villages that were

located nearby and accessible by road (such as Numdeang, Numchang, Numdee,

Numhuay, Huaydam, Huaynalee, Huaytongching, Bumphiang, Thongdee, Nadeang,

Keovlome, Thongchai, Hongleuay, and Tarvan) obtained land through these

connections. Mostly this did not involve cash payment but sharing the product with

the land owners. The system of sharing the product with the land owners in the case

of growing rice is about one-third of rice production was given to the land owner. In

the case of planting rubber trees, there have not been any agreements on how the

outputs would be divided as rubber trees planted outside the village were not in the

tapping period yet.

The average number of cultivated plots held by a household was 3.5, but the range

was from 1 to 8 plots. Over 90% of the households had between 2 and 5 plots (Table

5.3). The total cultivated area averaged 5.1 ha, ranging from 0.4 to 20.9 ha. Most

households were clustered around the mean; 85% of households had from 1.9 to 7.7

ha; only 10% of households had farms of more than 10 ha (Fig. 5.2).


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Table 5.3: Distribution of land holdings in Hadyao Households Number of plots

Number %1 2 2.12 22 23.23 27 28.44 21 22.15 17 17.96 3 3.27 2 2.18 1 1.1Total 95 100.0

Figure 5.2: The distribution of cultivated land per household in Hadyao

Two thirds of the households had all their plots of cultivated land within the village,

while 28.4% had at least one plot inside the village and one another plot in another

village. About 5.6% only had plots outside the village (Table 5.4). This is an

indication of the increasing pressure on the available land; some households had to

find land outside their village to plant rice or rubber. About 80% of households had


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land use rights to all the plots they cultivated, while 20% had borrowed or rented at

least one plot of land. Of the former group, 67.1% only had plots inside the village,

while 6.6% had land only in another village and 26.3% had land in both locations.

The latter group of households had to borrow or rent lands because their lands in the

village were already planted with rubber. Almost all of them had obtained permission

to access other villages’ shifting cultivation lands by sharing the product with the

landholders. Of the households that borrowed or rented at least one plot of land,

63.2% had land plots only inside the village and 36.8% had land plots both inside and

outside the village.

Table 5.4: Tenure status and location of land cultivated by Hadyao households Location of cultivated land

Land tenure status Only inside village

Only outside village Both Total

Land use rights to all plots 51 5 20 76At least one plot borrowed or rented 12 0 7 19

Total households 63 5 27 95

Household land resources of the three wealth categories of households in Hadyao are

presented in Table 5.5. A One-way ANOVA showed statistically significant

differences between wealth categories at the p<0.001 level in the mean number of

plots of cultivated land and the total area of cultivated land. Post-hoc comparisons

using the Tukey HSD test indicated that the mean number of plots of cultivated land

for poor households was significantly lower than average and wealthy households, but

the latter two categories did not differ significantly. The mean area of cultivated land

differed significantly among all three categories. Chi-square tests showed no

significant differences at the p<0.05 level in the proportion of households that

cultivated land only inside the village, only outside the village, or both inside and

outside the village. Neither were there significant differences at the p<0.05 level in

the proportion of households that had land use rights to all plots of cultivated land nor

that borrowed or rented at least one plot of cultivated land. However, 91% of wealthy

households had use rights to all their plots and 41% had access to at least one plot

outside the village, whereas only 71% of poor households had rights to all their plots

and only 14% could access land outside the village. In general, then, poor households

had more limited access to land.


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Table 5.5: Household land resources in Hadyao by wealth status Wealth status

Household characteristics related to cultivated land Wealthy(n=22)

Average (n=52)

Poor(n=21)

Mean number of plots of cultivated land (plots) 4.3 3.6 2.7Mean area of cultivated land (ha) 7.3 5.0 2.8Households cultivating land only inside village (%) 59.1 61.5 85.7Households cultivating land only outside village (%) 9.1 5.8 0.0Households cultivating land both in and outside village (%) 31.8 32.7 14.3Households with use rights to all cultivated plots (%) 90.9 78.8 71.4Households borrowing or renting at least one plot (%) 9.1 21.2 28.6

Since the land allocated to a household was mainly based on household labour

availability, households with a larger labour force were likely to cultivate more plots

and a larger area of land than households with a smaller labour force. The relationship

between access to land (the number of plots and the total area of cultivated land) and

the full-time equivalent household labour force was investigated using Pearson

product-moment correlation coefficients. There was a moderate positive correlation

between the number of plots and the household labour force (r=0.36, n=95,

p<0.0005). On average, households with 0.7 workers cultivated 1 plot of land and

households with 6.7 workers cultivated 5 plots of land. There was also a moderate

positive correlation between the area of cultivated land and the household labour force

(r=0.30, n=95, p<0.005). The mean area of cultivated land was 1.1 ha for a household

with 0.7 workers and 9.3 ha for households with 6.7 workers. This provides

confirmation of the basis for land allocation and indicates that wealthy households

were better resourced in terms of both labour and land.

5.3.3 Livestock

Livestock is an essential element of household livelihoods among Lao upland farmers.

Livestock are raised for household consumption, cash income, and saving/investment

(Gansberghe, 2005b). Poultry are raised for household consumption and cash income.

Goats and pigs are raised for the purpose of household savings; they are rarely

consumed except on special occasions or ceremonies but are sold in case of shortage

of food or cash. Buffaloes and cattle are raised as draught animals and as household

savings; however, not many are raised as large animals require much capital

(LSUAFRP, 2003).


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In Hadyao, buffaloes and cattle are herded communally and grazed freely in village

grazing areas specially allocated to avoid damage to cultivated crops. Goats are left to

graze freely in small groups in fallow land and in the forest. The number of goats

raised is limited to avoid damage to crops, for which the owner is held responsible.

Pigs are allowed to roam freely and search for food around the house, although

penning is practised by some households. Chickens, ducks and turkeys search for food

around the house during the day and are penned during the night-time. Since rubber

has been planted, the village has introduced a rule that large livestock (buffaloes,

cattle, and goats) are not allowed near rubber holdings but only in the village grazing

area.

About 82% of the households in Hadyao raised at least one type of livestock. The

types of animal raised in the village were buffaloes, cattle, goats, pigs, chickens,

ducks, and turkeys (Table 5.6). The most common types of livestock raised were pigs

and chickens; around 60% of households raised each of these types of livestock,

averaging 4 pigs and 14 chickens. About 24% of households raised buffaloes

(averaging 2.4 head) and 39%, cattle (averaging 4.5 head). The least common types of

livestock were turkeys and goats.

Table 5.6: Ownership of livestock in Hadyao Households Number of livestock Type of

livestock Number % Mean Min. Max. Buffalo 23 24.2 2.4 1 5 Cattle 37 38.9 4.5 1 22 Goat 2 2.1 1.5 1 2 Pig 59 62.1 3.9 1 25 Chicken 56 58.9 13.8 1 80 Duck 14 14.7 7.4 1 17 Turkey 5 5.3 8.8 4 15

Table 5.7 shows livestock ownership by the three wealth categories of households. A

One-way ANOVA showed there were statistically significant differences at the

p<0.05 level between wealth categories in the mean numbers of buffaloes, cattle, pigs,

and chickens, but not statistically significant differences in the mean numbers of

goats, ducks, and turkeys. Post-hoc comparisons using the Tukey HSD test indicated

that the mean numbers of those types of livestock reaching statistical significance for

poor households were significantly different from wealthy households, but average


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households did not differ significantly from either wealthy or poor households. Chi-

square tests showed significant differences at the p<0.05 level only in the proportion

of each wealth category that raised cattle, pigs, and chickens. In contrast, there were

not significant differences at the p<0.05 level in the proportion of each wealth

category that raised buffaloes, goats, ducks, and turkeys. In general, this indicated that

wealthy households were better able to invest in large livestock than poor households.

Table 5.7: Data on livestock raising in Hadyao by wealth status Wealth status

Variable Wealthy(n=22)

Average(n=52)

Poor (n=21)

Mean number of buffaloes 3.5 1.8 1.5 Mean number of cattle 7.6 2.6 1.3 Mean number of goats 0 1.5 0 Mean number of pigs 5.9 3.3 1.8 Mean number of chickens 20.9 13.0 2.4 Mean number of ducks 12.0 6.1 6.2 Mean number of turkeys 10.3 6.5 0 Households raising buffaloes (%) 36.4 25.0 9.5 Households raising cattle (%) 68.2 36.5 14.3 Households raising goats (%) 0.0 3.8 0.0 Households raising pigs (%) 81.8 61.5 42.9 Households raising chickens (%) 68.2 65.4 33.3 Households raising ducks (%) 13.6 13.5 19.0 Households raising turkeys (%) 13.6 3.8 0.0

5.4 Rice production

Rice cultivation is the main livelihood activity of villagers in Hadyao. Farmers

normally grow upland rice for subsistence on sloping land by shifting cultivation;

however, some farmers who can access flat land grow rainfed lowland rice as well.

Traditionally, land preparation for upland rice occurs between March and May, with

planting in June, weeding between July and September, and harvesting in October or

November. Weeding is done two or three times. Farmers considered weeding to be

one of the most difficult tasks for upland rice production. Lowland rice cultivation

generally begins at the start of the wet season (May or June), with land preparation

consisting of two passes of ploughing and one harrowing. Land preparation is mostly

done using buffalo for draught power. Rice is mainly established by transplanting.

The harvesting period is normally between October and November.


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In 2004, 86% of the households in Hadyao cultivated upland rice and/or lowland rice.

This means about 14% of households did not grow rice at all. About 64% of rice-

growing households grew only upland rice, while 23% grew only lowland rice.

Around 13% grew both upland and lowland rice (Table 5.8). Moreover, the land

available for upland rice cultivation has been decreasing since it has been used for

planting rubber trees. Hence many farmers grew upland rice not only in their village

area but in another village as well. Around 44% of rice-growing households grew rice

only in their village area, while 45% grew rice only in another village. Around 11%

grew rice both in their village area and in another village. Of exclusively lowland

rice-growing households, 5% grew rice only in their village while 90% grew rice only

in another village and 5% grew rice in both their village and another village. Of

exclusively upland rice-growing households, 67% grew rice only in their village while

31% grew rice only in another village and 2% grew rice in both their village and

another village. Of households growing both upland and lowland rice, none grew rice

only in their village while 36% grew rice only in another village and 64% grew rice in

both their village and another village.

Table 5.8: Number of rice growing households by location and type of rice cultivation Location of rice cultivation Type of rice

cultivation Only inside village

Only outside village Both

Total

Only upland 35 16 1 52Only lowland 1 17 1 19Both 0 4 7 11Total 36 37 9 82

As well as growing rice in shifting cultivation plots or lowland plots, in 2004 about

39% of rice-growing households intercropped rice in their rubber plantation and in

22% of cases intercropping was the only mode of rice cultivation (Table 5.9). Of

households who only practised rice monocropping, 32% grew rice only in their

village while 64% grew rice only in another village and 4% grew rice in both their

village and another village. Of households who only intercropped rice in their rubber

plantation, 89% grew rice only in their village, while 11% grew rice in another village

and none grew rice in both their village and another village. Of households practising

both rice monocropping and intercropping, 29% grew rice only in their village while


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21% grew rice only in another village and 50% grew rice in both their village and

another village.

Table 5.9: Number of rice growing households by rice cropping patterns and location of rice cultivation

Location of rice cultivation Rice cropping patterns Only inside

villageOnly outside

village Both Total

Only rice monocrop 16 32 2 50Only intercropped with rubber 16 2 0 18Both 4 3 7 14Total 36 37 9 82

Most of the labour inputs for upland rice cultivation are provided by the family, but

there is also some exchange of labour, especially for planting and harvesting. Land

preparation and weeding are usually done by household workers. Data on labour

inputs for upland rice cultivation in Hadyao Village were not collected during the

survey, but the information on labour requirements for upland rice cultivation

collected by the Lao-IRRI Project gives a reasonable guide since the study area was in

northern Laos in similar circumstances to Hadyao. The typical labour requirements

for upland rice cultivation are almost 300 person-days per ha, with about half of this

labour requirement for weeding alone (Table 5.10). The maximum cultivated area per

active labour unit is 0.6 to 0.7 ha, with an average of about 0.5 ha (Lao-IRRI, 1992).

Table 5.10: Labour requirement for upland rice production Activities Person-days/ha % Slashing 33 11.2 Burning 2 0.7 Fencing 2 0.7 Re-burning 14 4.7 Weeding before planting 13 4.4 Planting 29 9.9 Weeding 146 49.7 Harvesting/Threshing 33 11.2 Transport 22 7.5 Total 294 100.0 Source: Lao-IRRI, 1992

Among those who grew rice in 2004, 73% cultivated one plot of rice and 27%

cultivated two plots. The average area of rice cultivated was 1.0 ha. Though the range

was from 0.2 to 5.0 ha, most households (72%) cultivated between 0.5 and 1.5 ha

(Fig. 5.3).


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Figure 5.3: The distribution of rice area per household in Hadyao

Of the households who grew rice in 2004, rice production both from upland

(including rice intercropped with rubber) and lowland cultivation averaged 1,730 kg,

but varied considerably from 90 to 10,000 kg. The average yield of upland rice was

1.4 t/ha, of intercropped rice, 1.0 t/ha, and of lowland rice, 4.0 t/ha. The figure of 1.4

t/ha corresponds well with the figure of about 1.5 t/ha previously reported for upland

rice (Lao-IRRI, 2000). As expected, the mean yield of intercropped rice in Hadyao

was lower than in open fields under shifting cultivation.

Rice self-sufficiency in 2004 was dependent on the previous year’s production. The

average period of rice self-sufficiency in Hadyao was 8 months. About 14% of

households were short of rice for the whole year, whereas 30% had enough rice for

household consumption for the whole year (Table 5.11). Rice-deficit households

obtained additional rice by purchasing and borrowing. About 14% purchased all their


93

rice, 80% bought additional rice to supplement their own rice production, and 6%

borrowed rice from other villagers. Among rice self-sufficient households, only 4

households reported selling any rice.

Table 5.11: Rice self-sufficiency among Hadyao households

Months of rice self-sufficiency Number %

0 13 13.7 1-3 5 5.3 4-6 16 16.8 7-9 21 22.1 10-11 12 12.6 12 28 29.5 Total 95 100.0

One-way ANOVA was conducted to test the significance of differences in the mean

months of rice self-sufficiency among households who grew rice on only upland (8.5

months), only lowland (9.3 months), and both upland and lowland (9.7 months); and

among households who grew rice only inside the village (8.4 months), only outside

the village (9.1 months), and both inside and outside the village (9.6 months). There

were no statistically significant differences at the p<0.10 level among these groups of

households.

Since rubber was introduced to Hadyao, the practice of upland rice cultivation had

changed significantly. In terms of area, nearly 75% of the households reported that

they cultivated a smaller area of upland rice after they had planted rubber trees, about

22% said that their area of upland rice was unchanged, while 3% said that they had

increased their rice area. In terms of yield, around 72% reported that the yield of

upland rice was lower than the yield they could get before the cultivation of rubber,

about 24% said that the yield remained the same, while 4% reported a higher yield. In

terms of labour used, about 78% said that the labour used for shifting cultivation had

decreased since they started to plant rubber, 22% said that it remained the same, and

none reported an increase. The reasons given for the decrease in the cultivation of

upland rice were that there was less land available for growing rice in the village so

they had to grow rice on the same plot for many years, resulting in lower yields.

Moreover, they did not have enough time and labour, especially for those who had

started tapping. However, the practice of lowland rice cultivation (for those

households that owned paddy land) remained unchanged.


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Key statistics relating to rice production for the three wealth categories of households

are presented in Table 5.12. One-way ANOVA showed statistically significant

differences at the p<0.10 level in the mean rice production and mean number of

months of rice self-sufficiency between wealth categories, but no statistically

significant differences in the mean number of rice plots and the mean cultivated area

between wealth categories. Post-hoc comparisons using the Tukey HSD test indicated

that the mean rice production for poor households were significantly different from

wealthy households, but average households did not differ significantly from either

wealthy or poor households. Similarly, the mean rice self-sufficiency months for poor

households were significantly different from wealthy households, but average

households did not differ significantly from either wealthy or poor households. The

chi-square test showed significant differences at the p<0.05 level between wealth

categories in the proportion growing only upland rice, only lowland rice, and both

upland and lowland rice. Likewise, there were significant differences at the p<0.05

level in the proportion growing rice only inside the village, only outside the village,

and both inside and outside the village. On average, wealthy households produced

more rice, were self-sufficient for more months, were less dependent on upland rice,

and were less dependent on village land than average or poor households.

Table 5.12: Rice production statistics by wealth status Wealth status

Household characteristics related to rice production Wealthy(n=22)

Average (n=52)

Poor(n=21)

Mean number of rice plots (plots) 1.2 1.3 1.3Mean area of rice (ha) 1.0 1.0 0.9Mean production of rice (kg) 2,173 1,733 1,194Mean months of rice self-sufficiency (months) 9.3 7.5 6.3Households growing only upland rice (%) 38.1 62.8 94.4Households growing only lowland rice (%) 42.9 23.3 0Households growing both upland and lowland rice (%) 19.0 14.0 5.6Households growing rice only inside village (%) 28.6 39.5 72.2Households growing rice only outside village (%) 47.6 51.2 27.8Households growing rice both inside and outside village (%) 23.8 9.3 0

To explore the relationship between rice area and rubber planting, total rice area per

household in 2004 was regressed on the total number of rubber trees planted, the full-

time equivalent household labour force, the age of the household head, and the

education of the household head (Table 5.13). The data were checked to ensure that


95

there was no violation of the usual assumptions regarding multicollinearity, outliers,

normality, linearity, homoscedasticity, and independence of residuals. The results are

presented in Table 5.14. Although the model was significant at the 10% level

(p=0.09), the adjusted R Square was 0.05, showing that the model explained only 5%

of the variance in the total area of rice in 2004. The coefficients for both the total

number of rubber trees planted and the full-time equivalent household labour force

were positive and statistically significant at the 10% level, though the coefficients

were small. The age and education of the household head were not significant factors.

The results suggest that the area of rice cultivated per household was primarily

determined by other factors. Given that most households were clustered around the

mean of 1.0 ha and that most households were less than 100% self-sufficient, it is

likely that there was an overall shortage of rice land and individual households were

constrained by the land allocation system. Hence the increase in rubber planting was

reducing the total area cultivated, as farmers reported, but this was being spread

across all households rather than being an individual trade-off. That rice land was

being sought outside the village lends support to this argument. Wealthier households,

with more rubber trees and labour force, also appeared to have better access to

lowlands and land outside the village, hence the positive relationship between rice

area and number of rubber trees and household labour force.

Table 5.13: Variables included in multiple regression analysis of rice area in 2004 (n=82) Symbol Definitions Mean SD

TRIA Total area of rice in 2004 including the area of both lowland and upland rice (ha) 1.0 0.7

TRUP Total number of rubber trees planted (trees) 1,930 1,382HHLF Full-time equivalent household labour force (persons) 3.0 1.1HHAG Age of household head (years) 46 13HHED Education of household head (years) 3.4 3.8

Table 5.14: Results of multiple regression analysis of factors affecting the area of rice in 2004

Independent variables

Estimated coefficients t value

(Constant) 0.42 1.18 TRUP 9.86E-005 1.76* HHLF 0.11 1.61* HHAG 0.00 0.04 HHED 0.01 0.43 -R2 = 0.05, F = 2.09, p = 0.09 * Significant at 10% level


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5.5 Rubber production

5.5.1 Rubber planting

As described in Chapter 4, rubber was introduced to Hadyao in 1994 by Hmong

migrants from China and was planted by individual smallholders. All of the surveyed

households had planted rubber. On average, one household had planted 2.3 plots of

rubber, but the number ranged from 1 to 6 plots. About 88% of the households had

from 1 to 3 rubber plots (Table 5.15).

Table 5.15: Distribution of rubber plots per household in Hadyao Households Number of

rubber plots Number %1 23 24.22 36 37.93 25 26.34 10 10.55 0 0.06 1 1.1Total 95 100.0

About 6% of the households planted rubber only in the first phase (1994-96), while

29% planted only in the second phase (2003-05). Nearly 65% planted rubber in both

phases. Of the households who planted rubber in the first phase, around 91% planted

again in the second phase. Around 76% of the households had their rubber plots only

inside the village while 6% had their rubber plots only outside the village. Nearly

18% had at least one rubber plot inside the village and another plot outside the village.

Almost all the households that planted rubber in the first phase planted inside the

village, but some households that planted rubber in the second phase planted in other

villages (Table 5.16).

Table 5.16: Location of household rubber plots by planting phase No. of households

Location of rubber plots Only 1st phase

Only 2nd phase Both

Total

Only inside village 6 20 46 72 Only outside village 0 5 1 6 Both 0 2 15 17 Total 6 27 62 95


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Moreover, almost all of the land planted with rubber in the first phase was located

near the village settlement, while many of households that planted in the second phase

had their rubber plots far from the village centre. These plots were in the village area

but were about 1-2 hours walking distance. Almost all households (93%) had planted

rubber exclusively on upland plots used for shifting cultivation. Five of the seven

households that had planted rubber on lowland plots had planted in the second phase

(Table 5.17). These observations again highlight the emerging shortage of land for

both rice and rubber, particularly well-located land for rubber.

Table 5.17: Land type of household rubber plots by planting phase No. of households

Land type Only 1st phase

Only 2nd phase Both

Total

Only upland 6 25 57 88 Only lowland 0 0 1 1 Both 0 2 4 6 Total 6 27 62 95

About 27% of households borrowed money from the Agricultural Promotion Bank

(APB) for the establishment of their rubber plantation, while 15% used their own

money. The remaining 58% used both their own money and a bank loan. Almost all

of the households who used their own money for rubber cultivation planted in the

second phase (Table 5.18).

Table 5.18: Source of household’s funds for rubber planting by planting phase

No. of households Source of Funds Only 1st

phaseOnly 2nd

phase BothTotal

Only credit 6 9 11 26Only own fund 0 13 1 14Both 0 5 50 55Total 6 27 62 95

The total number of rubber trees planted averaged 1,930 trees per household. Though

the number ranged from 200 to 9,200 trees, most households (65%) had planted

between 500 and 2,500 trees (Fig. 5.4). On average 426 trees had died, ranging from

none to 2,300 trees. Most died due to the heavy frost in 1999, but some died because

of poor seedlings, poor planting technique, poor maintenance, and root diseases.

Before rubber was tapped, farmers were not sure that they would get a return so they


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did not always keep their rubber plots weeded, being busy with rice cultivation.

Therefore, the number of surviving trees averaged about 1,510 per household and

ranged from 120 to 6,900. However, the number of mature trees averaged around 490

per household, ranging from 100 to 1,400.

Figure 5.4: The distribution of rubber trees planted per household in Hadyao

About 71% of households had already tapped their rubber trees; the remaining

households had only immature trees. About 25% of the households who tapped their

rubber trees commenced tapping in 2002, while 66% began tapping in 2003. Only 6%

and 3% started tapping in 2004 and 2005, reflecting the tail-end of the first phase of

planting.

The factors affecting the number of rubber trees planted were investigated through

multiple regression analysis. Seven possible factors were included in the model (Table

5.19). The assumptions regarding multicollinearity, outliers, normality, linearity,


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homoscedasticity, and independence of residuals were checked to ensure that there

was no violation of these assumptions. The results are presented in Table 5.20. The

model was significant at the 1% level (p=0.000). The adjusted R Square of 0.24

showed that the model explained 24% of the variance in the total number of rubber

trees planted. The coefficients for planting rubber in the first phase and for full-time

equivalent household labour force were positive and statistically significant at the 1%

and 5% levels, respectively. The age and education of the household head were not

significant factors, nor were access to additional land, labour or capital (credit). It may

simply be that households with the labour and initiative to plant first had been able to

plant more rubber trees and that, because they now had more experience in rubber

cultivation and money from selling their rubber, they were also better able to invest in

new rubber plots, compounding their initial advantage.

Table 5.19: Variables included in multiple regression analysis of rubber planting (n=95) Symbol Definition Mean SDTRUP Total number of rubber trees planted (trees) 1,930 1,382HHLF Full-time equivalent household labour force (persons) 3.0 1.1HHAG Age of household head (years) 46 13HHED Education of household head (years) 3.4 3.8RCRS Households who received credit support (yes/no) 0.8 0.3ERUP Households who planted rubber in the first phase (yes/no) 0.7 0.4ALOV Households who accessed land outside village for rubber

and/or rice (yes/no) 0.5 0.5

HLRU Households who hired labour for rubber cultivation (yes/no) 0.7 0.5

Table 5.20: Results of multiple regression analysis of factors affecting the total number of rubber trees planted



(Constant) -496.73 -0.75HHLF 247.47 2.05**HHAG 11.81 1.09HHED 13.82 0.35RCRS -53.36 -0.11ERUP 1,056.80 2.67***ALOV 208.23 0.78HLRU 426.83 1.23

-R2 = 0.24, F = 5.25, p = 0.000 **, *** Significant at 5%, 1% level


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5.5.2 Rubber production techniques

Labour used for rubber cultivation in Hadyao included household labour and hired

labour. Around 66% of households hired labour in addition to their family labour,

while 34% used only their own household labour. If households could afford to hire

labour, they usually did so for terracing, planting of seedlings, and weeding. Family

labour was generally used for nursery work, maintenance of rubber trees in the

immature phase (weeding), and tapping. Tapping was definitely undertaken by

household members since tapping work requires skill and care so that the trees are not

damaged by tapping too deep. Hence hired labour for tapping was not common in the

village. In the past labour was often hired from within the village, but in 2004, with

all households having their own rubber plots, it was usually hired from neighbouring

villages.

Rubber production techniques used in Hadyao were derived from China. During the

first period of rubber cultivation in the mid-1990s, all rubber seedlings were imported

from China. The rubber clonal varieties were GT1 and RRIM600, which were the

main varieties found in Yunnan province. Hadyao farmers usually planted both GT1

and RRIM600 in the same plot because they have different characteristics. RRIM600

provides more latex yield but is sensitive to cold and diseases. Farmers said that

RRIM600 is not suitable to plant in low terrain, especially near the stream.

Conversely, GT1 can resist cold and diseases, but gives lower yield of latex.

Since 2003 over half of the households established nurseries by themselves. The

seedling operation was usually done in June, the start of the rainy season. Farmers

collected seeds from their mature rubber trees and spread them in a seed bed. After

the seedlings were 10-15 centimetres tall, they were planted in a seedling plot with

intra-row spacing of 20 centimetres and inter-row spacing of 30 centimetres and 40-

50 centimetres space between each double set of rows. The budding process was

commenced when the seedlings had attained about the diameter of a pencil or pen.

Farmers normally obtained the budwood from their rubber trees. Budding was

undertaken with a patch bud. Budding requires great care and was usually done by

specialists. After the trees were budded for about 15-20 days, the rubber seedlings

were ready to be planted.


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Since rubber trees in Hadyao were planted on land used for shifting cultivation, land

preparation was the same as for upland rice cultivation. Firstly, fields were slashed

and burned, usually in March or April. Then, terracing and lining were prepared

before holes were dug (Fig. 5.5). Even though land clearing involved the use of fire,

there were only a few cases of fire problems as farmers made a fire break around their

plots, which is the common practice for shifting cultivation. The village has a rule

that, if fire spreads, the person responsible has to compensate for the killed trees, so

farmers were alert to avoid fire problems.

Figure 5.5: Land prepared for planting with rubber in Hadyao (Source: Author’s photo,

July, 2005)

After the land had been prepared, rubber trees were ready to be planted (Fig. 5.6).

June and July were the months for planting rubber. Farmers normally planted their

rubber trees with an intra-row spacing of 3 m and an inter-row spacing of 7 m. It

should be noted that these planting distances were recommended by the migrants from

China and farmers had planted their rubber trees with this spacing during the first


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period of rubber establishment in 1994-95. However, in the second phase of rubber

planting in 2003-05 the row spaces used varied from 2-3 m for intra-row spacing and

5-7 m for inter-row spacing. Farmers reported that the intra-row spacing of 3 m and

inter-row spacing of 7 m were appropriate for gently sloping land, while intra-row

spacing of 2-2.5 m and inter-row spacing of 5-6 m were best for steeply sloping land.

Over two-thirds of the farmers reported that they planted their rubber with an intra-

row spacing of 3 m and an inter-row spacing of 7 m.

Figure 5.6: Young rubber trees in Hadyao (Source: Author’s photo, August, 2005)

About 70% of households undertook replacement planting in their rubber plots when

seedlings died or were damaged. Of the households who undertook replacement

planting, 70% did so in all their rubber plots. This mostly occurred in the first year,

though 24% undertook some replacement planting in the second year and 5% in the

third year. Of the households who planted rubber only in the first phase, only 11%

undertook replacement planting. In contrast, around 62% of those who planted rubber

only in the second phase undertook replacement planting and 82% of those who

planted rubber in both phases undertook replacement planting (Table 5.21).


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Table 5.21: Incidence of replacement planting by planting phase No. of households Timing of replacement

planting Only 1st phase

Only 2nd phase Both

Total

No replacement planting 8 10 11 29 Year 1 1 13 33 47 Year 2 0 2 4 6 Years 1 and 2 0 1 9 10 Year 3 0 0 3 3 Total 9 26 60 95

Applying inorganic fertilizer was not common in the shifting cultivation system and

the same applied to rubber planted in Hadyao, though farmers usually put buffalo or

cattle manure into the planting hole. The household interviews indicated that, from the

first planting of rubber in 1994 until 2005, only one farmer had applied inorganic

fertilizer to his rubber trees. This was on the recommendation of Chinese rubber

experts and rubber buyers in order to increase the growth of the trees and start tapping

earlier. However, the Chinese fertilizers applied by that farmer were not the full dose,

which reflects the common practice of under-fertilizing among smallholders (Cottrell,

1991). Households who never applied fertilizer gave a variety of reasons, not

necessarily consistent with each other: (1) the soil was still fertile and their rubber

trees still grew well; (2) they could not afford to buy fertilizers because if they applied

fertilizers at all they had to apply continuously every year, otherwise the soil would be

dry and hard; (3) the rubber trees would be too big and would fall over in a strong

wind; (4) rubber farmers in other countries used fertilizers so Chinese traders wanted

to buy from Laos because fertilizer was not used; (5) they had never applied before

and did not know how to apply; (6) applying fertilizers was not good, causing health

problems; and (7) their rubber trees were still young.

It is interesting to note that more than half of the households mentioned that in the

future they probably would apply fertilizer – when the soil was not fertile any more

and the yield of latex was low, when they had money from selling rubber, when they

knew how to apply it, when they started tapping for more than three years because

tapping for many years would yield less latex, and to increase production as

recommend by the Chinese. Those who did not intend to apply fertilizers in the future

gave much the same reasons as listed above.


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All of the households cleared weeds every year. Weeds were usually cleared by hand

but the use of herbicide had become more common. Around 39% of the households

reported applying herbicide to control Imperata cylindrica. They had started to use

herbicide in 2003, but the number who used herbicide increased from 3 in 2003 to 25

in 2005. Two types of herbicide were used, one from China and one from Thailand.

The former was used to kill grass and broadleaf weeds but could not be identified

from the bottle; the latter was paraquat. Farmers said that the paraquat was more

effective in controlling Imperata cylindrica than the Chinese herbicide. Households

who never applied herbicide reported that they had not enough money to buy, they did

not know how to apply it because they had never used it before, they were still able to

control weeds by hand weeding or hiring labour, they were afraid of being affected by

the chemicals, they were afraid that their rubber trees might die like the grass, and it

was difficult to carry water for herbicide application because their rubber plots were

far from water sources. Nearly two thirds of the households mentioned that they

would use herbicide in the future. The reasons were that when they planted many

rubber trees they might not have enough family labour to clear weeds by hand, that

when they received money from selling rubber they would hire others to spray

herbicide, and that it was more convenient to use herbicide and save labour.

Households who said that they would not apply herbicide in the future gave the same

reasons as above.

Pests were not mentioned by rubber farmers as a serious problem and many of them

reported that there was no pest in their rubber plantation. However, diseases were

reported as a serious issue by nearly 80% of the households. The diseases found were

yellow leaf disease and root disease (Fig. 5.7). Yellow spots appeared on new leaves

in April each year. This did not cause the death of trees, hence farmers did nothing but

left the leaves to recover by themselves. Root disease could spread to other trees and

caused the death of the trees. The only way of preventing its spread was cutting down

the affected trees and digging a trench to prevent the infection of surrounding trees.


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Figure 5.7: The symptoms of yellow-leaf disease (left) and root disease (right) in Hadyao


Almost all households intercropped their rubber plots. Of the intercropping

households, 69% intercropped all of their rubber plots while 31% did not. The most

predominant intercrop was upland rice, followed by maize and pineapple (Figs. 5.8

and 5.9). Of the households who intercropped, around 58% intercropped only rice,

while 29% intercropped rice, maize, and pineapple and about 10% intercropped rice,

chilli, cucumber, eggplant, ginger, cassava, bean, and cabbage. Only two households

intercropped other crops excluding rice. Intercropping, except pineapple, took place

for up to three years, after which there was too much shade. Pineapple was normally

intercropped with mature rubber trees. Of the intercropping households, 34%

intercropped only in the first year, 48% for two years, and 18% for three years or

more.

Livestock raising in rubber plots was not common practice in Hadyao because farmers

were afraid the rubber trees would be destroyed, especially by large livestock.

However, some households raised chickens in their rubber plots during the mature

phase.


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Figure 5.8: Rice (left) and corn (right) intercropped with young rubber trees in Hadyao


Figure 5.9: Pineapple intercropped with mature rubber trees in Hadyao



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Rubber farmers in Hadyao normally go to tap their rubber trees very early in the

morning, from 3 a.m. to 6 a.m., and then come back to their houses for breakfast.

They collect the latex between 9 a.m. and noon (Fig. 5.10). About 71% of households

were tapping their rubber trees at the time of the survey. Most the tapping households

(91%) tapped their rubber trees on alternate days. Only 9% tapped their trees on two

successive days and then let the trees rest for a day. Farmers with many rubber trees

tapped half their trees each alternate day. Of the tapping households, around 21%

reported that they had previously tapped the trees for two consecutive days followed

by one day off. The reason was that they wanted to get more latex and when rain

prevented tapping they felt they had to supplement output by tapping on two

consecutive days. Tapping on alternate days provided farmers with smaller holdings

the opportunity to undertake other livelihood activities when not tapping. Farmers

usually tapped in the 8 month period from April to November. If tapping on alternate

days, this gives a total of 120 tapping days in a year.

Figure 5.10: The practice of tapping (left) and collecting latex (right) in Hadyao

(Source: Author’s photo, August, 2005) Rubber farmers in Hadyao did not process their rubber as in other countries. They just

made ‘tub lump’ rubber and sold it to Chinese traders who came to buy at the village.

Two main techniques are used for processing raw latex into tup lump rubber (Fig.

5.11). The first technique involves using plastic buckets. First, latex is poured into a

sizeable plastic bucket and left for about 24 hours. The latex liquid solidifies as a

bucket-shaped lump and then the tub lump is taken out and kept in a safe place,

usually in the rubber plot (Fig. 5.12). The weight of tub lump rubber is about 30-50

kg, depending on the size of bucket. If the raw latex is mixed with formic acid, the

liquid solidifies faster, but no rubber farmers used formic acid, to reduce the cost of


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processing. The second technique of making tub lump is by using a plastic bag. First,

a hole is dug to the same size as the plastic bag. The plastic bag is placed in the hole

and raw latex is poured into the bag. The latex in the bag is left for about 24 hours to

solidify. After that the tub lump in the bag is taken out and kept in a safe place. Tub

lump rubber in a plastic bag also weighs about 30-50 kg, depending on the size of the

bag.

Figure 5.11: The use of plastic bag (left) and bucket (right) for processing latex into tub-

lump rubber in Hadyao (Source: Author’s photo, August, 2005)

Figure 5.12: Tub-lump rubber is normally kept at the farm in Hadyao



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5.5.3 Rubber yield, sales, and income

Farmers in Hadyao Village have been tapping their rubber trees since 2002. The

average rubber production per tapping household was 655 kg in 2002, 887 kg in 2003,

and 1,211 kg in 2004. However, the total production per tapping household varied

considerably from 60 to 2,000 kg, 110 to 4,000 kg, and 150 to 4,450 kg in the same

years.

Rubber in Hadyao Village has been tapped since 2002; however, not all farmers

started tapping in 2002. The number of households who started tapping was 21 in

2002, 42 in 2003, and four in 2004 (Table 5.22). It can be seen that the average rubber

yield of households who had tapped for three years was higher than for households

who had tapped for one year or two years. The average yield in the first year of

tapping was 904 kg/ha, but it increased to 1,380 kg/ha in the second year, and then to

1,999 kg/ha in the third year. This yield pattern is consistent with the normal yield

profile of a rubber plantation.

Table 5.22: Average yields (kg/ha/year) over three years of tapping in Hadyao Year of tapping Calendar year 1st year 2nd year 3rd year Average

2002 1,009 (n=21) 1,009 (n=21) 2003 843 (n=42) 1,566 (n=21) 1,045 (n=63) 2004 1,209 (n=4) 1,295 (n=42) 1,999 (n=21) 1,470 (n=67) Average 904 (n=67) 1,380 (n=63) 1,999 (n=21)

Apart from the natural increase in latex flow, one of the reasons for the sharp increase

in yield in the second and third years may be that tapping was a new skill for Hadyao

farmers. Hence yields were low in the first year of tapping but in the second and third

years they were more familiar with tapping and improved their tapping skill so they

obtained higher yields. Another reason is that the yield of rubber is affected by

weather conditions, particularly rainfall. In 2003 the average rainfall in Luangnamtha

Province was only 951 mm compared to an average annual rainfall between 1994 and

2004 of around 1,500 mm (MSLP, 2005). The average rubber yield of farmers who

first tapped in 2003 was 843 kg/ha compared to the average yields of 1,009 kg/ha and

1,209 kg/ha obtained by those whose first tapping year was 2002 and 2004,

respectively (Table 5.22). It appears that the unusually low rainfall led to a lower

yield in 2003 and it contributed to make the average yield in the first year of tapping


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quite low, apart from the factor of being unfamiliar with tapping during the first year.

It should be noted that in spite of the low amount of rainfall in 2003, the average yield

of farmers whose second year of tapping was in 2003 still increased from 1,009 kg/ha

in 2002 to 1,566 kg/ha in 2003. This may be because these farmers were more

familiar with tapping and if there was no incidence of low rainfall in that year, they

might have obtained an even higher yield than 1,566 kg/ha.

The average yields of the initial three years of tapping in Hadyao Village are

consistent with the average yields over the life of the plantation of smallholders in

North Eastern Thailand and Southern China (Table 5.23), where rubber has been

planted in similar upland areas with similar climate to Northern Laos.

Table 5.23: Yields (kg/ha/year) of smallholder rubber in Laos, China, and Thailand

Locations Average yield Sources Hadyao Village (Northern Laos) 1,428 Household survey, 2005 Southern China 1,200-1,350North East Thailand 1,540 Alton et al., 2005

A comparison of the main characteristics related to rubber production between the

three wealth categories is presented in Table 5.24. As before, One-way ANOVA

showed statistically significant differences at the p<0.05 level in the number of rubber

plots, the mean number of rubber trees, the mean number of newly planted rubber

trees, and the mean number of tapped trees for the three wealth categories, but no

statistically significant differences in the mean tub-lump rubber production, rubber

yields, intercropped rice area, intercropped rice production, and intercropped rice

yields between the wealth categories. Post-hoc comparisons using the Tukey HSD test

indicated that the mean number of rubber plots and rubber trees differed significantly

among all three wealth categories of households. The mean number of newly planted

rubber trees and tapped trees for wealthy households were significantly different from

poor households, but average households did not differ significantly from either

wealthy or poor households. Chi-square tests showed significant differences at the

p<0.001 level in the proportion of households planting rubber only in the first phase,

only in the second phase, and both in the first phase and the second phase, and the

proportion of households tapping their rubber trees. Likewise, there were significant

differences at the p<0.01 level in the proportion of households that hired additional

labour for their rubber plantation. Conversely, there were no significant differences at


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the p<0.05 level in the proportion of households that planted rubber only inside the

village, only outside the village, or both inside and outside the village. Neither were

there significant differences at the p<0.05 level in the proportion of households that

received credit support nor planted rubber only on upland, only on lowland, or both

upland and lowland. In sum, wealthy households had more plots, were more likely to

hire labour, had planted more trees in both phases, had more trees in production, and

hence produced more rubber than average or poor households. An early ability to

plant rubber had clearly opened up a significant economic advantage to these

households that later planters would find difficult to overhaul, given their locational

and financial disadvantage.

Table 5.24: Rubber production data by wealth status of household, 2004 Wealth status

Variable Wealthy(n=22)

Average (n=52)

Poor(n=21)

Mean number of rubber plots 3.0 2.3 1.4Mean number of rubber trees 2,874 1,931 940Mean number of recently planted rubber trees 1,869 1,299 752Mean number of trees tapped 595 423 325Mean production of tub-lump rubber (kg) 1,575 1,225 870Mean rubber yield (kg/tree) 3.0 3.2 2.4Mean area of intercropped rice (ha) 0.5 0.9 0.8Mean production of intercropped rice (kg) 460 875 650Mean yield of intercropped rice in 2004 (kg/ha) 955 1,175 1,035Households planting only in first phase (%) 4.5 5.8 9.5Households planting only in second phase (%) 9.1 23.1 61.9Households planting in both phases (%) 86.4 71.2 28.6Households planting only inside village (%) 63.6 75.0 90.5Households planting only outside village (%) 9.1 5.8 4.8Households planting both in and outside village (%) 27.3 19.2 4.8Households planting only on upland (%) 81.8 94.2 100.0Households planting only on lowland (%) 4.5 0.0 0.0Households planting on both upland and lowland (%) 13.6 5.8 0.0Households receiving credit support (%) 90.9 88.5 71.4Households hiring additional labour (%) 77.3 73.1 38.1Households tapping rubber (%) 86.4 76.9 38.1

Some of the factors affecting the production of tub-lump rubber were investigated by

performing multiple regression analysis. It was hypothesised that production would be

positively influenced by the number of rubber trees tapped, the full-time equivalent

household labour force, the education level of the household head, and the year of

tapping (whether it was the first, second, or third year of tapping), and negatively

influenced by the total rice area and the age of the household head (Table 5.25). The


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assumptions regarding multicollinearity, outliers, normality, linearity,

homoscedasticity, and independence of residuals were again checked to ensure that

there was no violation of these assumptions.

The results are presented in Table 5.26. The model was significant at the 1% level

(p=0.000). The adjusted R Square of 0.39 showed that the model explained 39% of

the variance in the production of tub-lump rubber in 2004. However, only the

coefficient for the number of trees tapped was significantly different from zero. Hence

neither the availability and quality of labour nor competition for labour from rice

production were affecting rubber output. The possible reason is that, at this stage, the

household labour force was still able to handle the tapping work – there was no labour

shortage for tapping yet since the number of rubber trees tapped was not large. The

average labour force of two workers was sufficient for a household to handle the

tapping work. Moreover the restricted area for rice production reduced the degree to

which rice competed with rubber for household labour. In the future when farmers

have more rubber trees to be tapped, their available labour may not be enough to do

the tapping, and then labour will become one of the main factors determining the

production of rubber. The age and education of the household head were also not

significant factors.

For the two dummy variables reflecting years of tapping, the first dummy variable

was not significant, but the second one was weakly statistically significant (p=0.20)

with a coefficient of about 500. This means that production increased by 500 kg on

plots in their third year of tapping compared with plots in their first or second year of

tapping. As mentioned above, this may be both because of the normal increase in

yields in the first few years of a rubber plantation and because, in the third year of

tapping, farmers were more familiar with tapping and had improved their tapping

skill.


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Table 5.25: Variables included in multiple regression analysis of rubber production (n=67)

Symbol Definition Mean SD PTLR Production of tub-lump rubber in 2004 (kg) 1,282 927 RUTT Number of rubber trees tapped in 2004 (trees) 460 281 HHLF Full-time equivalent household labour force (persons) 3.0 1.1 TRIA Total area of rice cultivated in 2004 (ha) 1.0 0.7 HHAG Age of household head (years) 46 13 HHED Education of household head (years) 3.4 3.8 DMV1 First year of tapping vs. second year of tapping 0.7 0.5 DMV2 First year of tapping vs. third year of tapping 0.2 0.4

Table 5.26: Results of multiple regression analysis of factors affecting the production of tub-lump rubber in 2004



(Constant) 561.97 1.03RUTT 2.25 5.13***HHLF 38.09 0.34TRIA -84.17 -0.61HHAG -11.48 -1.05HHED 34.56 1.11DMV1 -44.18 -0.13DMV2 503.87 1.29

-R2 = 0.39, F = 5.61, p = 0.000 *** Significant at 1% level

So far all of the tub-lump rubber produced in Hadyao has been sold to China. Chinese

traders come to buy the tub-lump in the village usually once a month. For the first two

years of selling, rubber was bought using a grading system but since 2004 only one

grade has been used. Chinese traders set the price of tub-lump because they are the

only source of price information. In 2004 the Lao-SINO company established a

rubber processing factory in Luangnamtha Province, but they offered a lower price

than the Chinese traders from Yunnan so farmers sold their rubber to the traders.

There is no marketing contract between the rubber farmers and the Chinese traders.

Every month the village authority will contact the buyers in Yunnan and search for

those who offer the highest price. So far there is not seen to be a marketing problem

because there is strong demand for rubber from China. However, there is a concern

among farmers that if they could not sell their rubber to China, they would have few

alternatives and might get a lower price than the price in China.


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Regarding income sources, about 28% of households reported that their only source

of cash income was selling tub-lump rubber; 29% only earned income from other

sources including livestock, other cash crops, selling rubber seedlings, working for

wages, and receiving money from relatives living in the USA; the remaining 43%

received income from both rubber and other sources. About 69% of the households

mentioned that their highest ranking income source was rubber, while 31% ranked

income from other sources number one.

The main problem related to rubber cultivation mentioned by respondents was the

difficulty faced in the period before the rubber was tapped. During the immature

phase, farmers had to work harder both growing rice and taking care of their rubber,

so they had no time to do other work. Moreover, they faced a rice deficit. Farmers

also mentioned their concern about transporting tub-lump rubber from the newer

rubber plots to the village when the trees reached maturity because the new plots were

located far from the village and there was no road through that area.

About 86% of the households reported that they planned to increase the area under

rubber trees, while only 14% had no plan to plant more rubber trees. The reasons

given for increasing the rubber area were to have many trees for their children, to

have a permanent job as a rubber farmer and stop growing upland rice, to earn more

money because rubber provides a good income, and to claim access to land because of

a fear that there would be no land left to plant in the future as more and more people

became interested in planting. The reasons given for not planting more rubber trees

were that there was not enough labour, there was no land left near the village, and

there was no money to invest more. Around 92% of the households who planned to

increase their rubber area mentioned that they would be able to access the necessary

land, while 8% said they would not. The most common way of accessing land was by

asking permission from the village authority to cultivate more plots of land. The other

way was by seeking permission to cultivate in other villages.

5.6 Conclusion

The household survey in Hadyao shows that farmers are in the middle of a major

transition from primary dependence on the shifting cultivation of rice for subsistence

to dependence on smallholder rubber and the market economy. While rubber has


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helped farmers increase their income, there are some emerging constraints. Land is

becoming a constraint due to a growing demand among farmers to expand their

rubber holdings, though less-accessible land is still available and some farmers are

able to plant rice and rubber in other villages. Labour is also becoming a constraint;

though at this stage family labour can handle the tapping, as more trees come into

production this will be a constraint, putting more pressure on rice production. Rubber

farmers may have to reduce further the area of rice or even stop growing rice

altogether if they want to expand their rubber holdings. The land and labour

constraints mean that most households do not attain rice self-sufficiency any more.

Hence many farmers have now moved into the second and more risky stage in the

transition from subsistence to commercial agriculture.

Despite the popularity of rubber and the stated intention of farmers in the study

village to stop shifting cultivation and plant only rubber, it is unlikely that upland rice

production will be replaced completely. Farmers still need to grow upland rice or

intercrop rice in their rubber plots, especially those whose rubber trees are still

immature. Farmers also face the risk that the price of rubber will fall or that they

cannot sell to China. Hence they may need to expand rice production again. One

advantage of rubber is that, given a major market collapse, it is relatively easy to

revert to shifting cultivation, as seen among rubber smallholders in Indonesia and

Malaysia.

In addition, there has been an increasing inequality between the three wealth

categories of households, particularly between wealthy and poor households, in terms

of land and labour resources, and rice and rubber production. Wealthy households had

a larger labour force, were able to access more land, were better able to invest in large

livestock, produced more rice, were self-sufficient for more months, were less

dependent on upland rice, were less dependent on village land, were more likely to

hire labour, had planted more rubber trees, had more rubber trees in production, and

hence produced more rubber than average or poor households. Hence rubber

production was accentuating economic differences between households.


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Chapter 6

Bioeconomic Analysis of Smallholder Rubber Production

in the Study Village

6.1 Introduction

This chapter presents a discounted cash flow (DCF) analysis of smallholder rubber

production in Hadyao Village. The aim of this analysis was to assess the profitability

of a hectare of smallholder rubber in the conditions faced by a typical farmer in

Hadyao. This required modelling the yield of latex over the life of the rubber

enterprise, as well as other outputs, using the Bioeconomic Rubber Agroforestry

Support System (BRASS), which was parameterised and calibrated as far as possible

to Hadyao conditions. These simulated yields were combined with data on costs and

benefits obtained from group discussions with experienced rubber farmers in Hadyao,

household survey data, and other relevant sources. Attention was given to the

appropriate valuation of household labour and the capital invested in the enterprise, as

well as examining a range of investment criteria.

6.2 Modelling yields using BRASS

6.2.1 Introduction

Since the yield data from the study village were available for only the first three years

of tapping (see details in Section 5.5.3 of Chapter 5) and rubber is a long term

investment, estimates of the yield of latex over the life of the investment were

required. Annual latex yields were estimated using the BRASS model, which is the

best available tool for modelling smallholder rubber production (Grist et al., 1998;

Cacho, 2001). BRASS is the new generation of the Bioeconomic Agroforestry Models

(BEAM): RRYIELD and RRECON which were modified by a project of the

Australian Centre for International Agricultural Research (ACIAR). The original

BEAM was created by the Bioeconomic Agroforestry Modelling Project at the School

of Agricultural and Forestry Sciences, the University of Wales. While BEAM was run

in DOS, BRASS was rewritten to be able to run in Visual Basic for Applications

(Grist et al., 1998). It is important to note that the development of the original BEAM

and BRASS was based on the circumstances of rubber smallholders in Indonesia.


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BRASS has two modules – a biophysical and an economic component (Fig. 6.1). The

biophysical module incorporates many variables in order to estimate the intercrop

yields during the intercropping period, the stream of latex yields over the life of the

plantation, and the volume of harvestable timber at the end of the production period.

These variables are grouped into climate, topography and soil, rubber management,

and intercrop management. The biophysical part focuses on the changes in outputs

(latex, rubber wood and intercrops) in response to those variables. The economic

component is linked with the biophysical component by multiplying the outputs from

the biophysical component with prices in order to verify the economic returns from a

rubber plantation. Labour costs, and costs for establishment, maintenance, and

harvesting of the intercrop and rubber plantation, are used within the model to

determine annual costs. Once the costs and returns are known, the net present value of

the system is determined by using a discount rate. Since the purpose of using BRASS

in this study was to estimate yields, only the biophysical component was used. The

economic component was replaced with a separate spreadsheet analysis for the

calculation of net present value and other investment criteria.

Figure 6.1: Variables in the biophysical and economic components of BRASS

6.2.2 Climate variables

The first group of variables in the biophysical component is climate, including

rainfall, potential evapotranspiration, mean temperature, and solar radiation (Table

6.1). The first three are measured as annual averages while solar radiation is measured


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as a daily average. Ideally, 35 years of data were needed as this was the life of the

plantation used in the model. However, only limited data were available and

compromises had to be made.

Table 6.1: Climate variables in the biophysical component of BRASS Variables Unit Rainfall mm per yearPotential evapotranspiration mm per yearMean temperature C Solar radiation MJ/m2

The data on rainfall and temperature between 1994 and 2004 were available from the

Meteorology Station of Luangnamtha Province (MSLP) (Table 6.2), but potential

evapotranspiration (PET) and solar radiation were not. The temperature in

Luangnamtha Province between 1994 and 2004 was generally quite stable at around

24 C. Its coefficient of variation was very low (1.4%). The annual rainfall, on the

other hand, varied considerably. Its coefficient of variation was quite high (21.4%).

The rainfall between 1994 and 1999 was close to the mean value of nearly 1,600 mm,

but between 2000 and 2002 rainfall averaged over 2,000 mm and 2003 was an

exceptionally dry year with only 951 mm.

Table 6.2: Rainfall and temperature data in Luangnamtha Province Year Rainfall (mm) Mean temp. ( C)1994 1,450 23.81995 1,435 23.91996 1,356 23.71997 1,406 23.81998 1,834 24.31999 1,536 23.92000 2,113 23.82001 1,828 23.92002 2,080 24.22003 951 24.92004 1,610 23.8Average 1,600 24.0

Source: MSLP, 2005

Although the data on PET and solar radiation were not available from the

Meteorology Station of Luangnamtha Province (MSLP), derived data were available

from a study by Inthavong et al. (2004) on ‘Using GIS technology to develop water

availability maps for Lao PDR’. One part of this study was an attempt to estimate

PET using the Penman-Monteith equation. Based on this method, PET was calculated


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by using other data including temperature, humidity, wind speed, and solar radiation.

As solar radiation measurements were not available for most provinces of Laos,

including Luangnamtha, sunshine hours were used to estimate solar radiation.

However, this study could only provide estimates of PET and solar radiation for

Luangnamtha Province during the period 2000-2004 (Table 6.3). The data for 1994-

1999 could not be estimated since there were no records of sunshine hours. It can be

seen that the estimated PET and solar radiation from 2000 to 2004 were very stable

and the value in each year was close to the mean value of 1,504 mm for PET and 19.0

MJ/m2 for solar radiation. The coefficients of variation for these data were quite low –

4.3% for PET and 3.5% for solar radiation.

Table 6.3: Estimated PET and solar radiation in Luangnamtha Province

Year Potential

evapotranspiration (mm)

Solar radiation (MJ/m2)

2000 1,472.7 19.1 2001 1,488.0 18.4 2002 1,489.2 18.8 2003 1,617.5 20.1 2004 1,453.2 18.6 Average 1,504.1 19.0

Source: Inthavong et al., 2004

The issue raised was how to estimate these variables over an assumed 35 year period,

starting in 1994 when the first rubber was planted in Hadyao Village. Since the

temperature, PET, and solar radiation were quite stable, it was decided to use the

average values in each year of the model run (24 C for temperature, 1,504 mm for

PET, and 19 MJ/m2 for solar radiation). However, this was not appropriate for

rainfall, which varied to a greater extent. It was considered better to capture

something of the rainfall variability in the model than simply assume average rainfall

in each year. The approach used was simply to repeat the 11-year rainfall data with

1994 as Year 1 as shown in Table 6.4.


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Table 6.4: Assumed rainfall data in Luangnamtha Province

Year Rainfall (mm)

Year Rainfall (mm)

1 1,450 19 1,828 2 1,435 20 2,080 3 1,356 21 951 4 1,406 22 1,610 5 1,834 23 1,450 6 1,536 24 1,435 7 2,113 25 1,356 8 1,828 26 1,406 9 2,080 27 1,834 10 951 28 1,536 11 1,610 29 2,113 12 1,450 30 1,828 13 1,435 31 2,080 14 1,356 32 951 15 1,406 33 1,610 16 1,834 34 1,450 17 1,536 35 1,435 18 2,113

6.2.3 Topography and soil variables

The second group of variables in the biophysical component is topography and soil

(Table 6.5). These variables include topography, slope, soil depth, drainage, % rock,

soil texture, soil nutrients, soil pH, maximum soil moisture, and wilting point.

Table 6.5: Topography and soil variables in the biophysical component of BRASS Variables Unit/Criteria SelectionTopography Terrace/Flat TerraceSlope Good (0-10%)/Moderate (10-20%)/Bad (>20%) ModerateSoil depth Good (>100 cm)/Moderate (45-100 cm)/Bad (<45 cm) Good Drainage Good (medium)/Moderate (fast/slow)/Bad (very fast/very

slow) Moderate

% rock Good (0-15%)/Moderate (15-40%)/Bad (>40%) Good Soil texture Good (clay loam)/Moderate (50-70% clay)/Bad (>70%

clay) Good

Soil nutrients Good (high)/Moderate (medium)/Bad (low) Moderate Soil pH Good (4.3-5.0)/Moderate (5.0-6.5)/Bad (>6.5, <4.3) Good Maximum soil moisture

(0-400 mm) 300 mm

Wilting point (0-300 mm) 125 mm

For the topography variable, two values are available, terrace or flat land. The land

planted with rubber in the study village was mostly sloping upland that had been

bench terraced. Hence the terraced value was selected for the model.


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The physical and chemical characteristics of the soil have an effect on the growth and

yield of rubber. The essential physical characteristics of the soil are soil depth, slope,

texture and drainage. The important chemical characteristics are soil fertility and pH

(Grist et al., 1998). To determine the soil suitability, seven soil variables are used in

the model including slope, soil depth, drainage, % rock, soil texture, soil nutrients,

and soil pH. These variables are expressed in categorical form with up to three

categories (good, moderate, bad) and each of these categories has its range of criteria.

The decisions on which category (good, moderate, bad) best represented these seven

soil parameters in the study village were based on the land characteristics or primary

land attributes that were recorded by a soil survey in Luangnamtha Province by the

Soil Survey and Land Classification Centre (SSLCC) of the National Agriculture and

Forestry Research Institute (NAFRI) at the nearest soil sampling site to the village.

Approximately 85% of the total land area of the study village is mountainous with

elevation from 600 m to 1,100 m above sea level and slopes between 10% and 20%.

The soil unit is Haplic Acrisols. The texture of the soil is clay loam with a depth of

about 1,100 mm. By interpreting these data, the categories representing the seven soil

parameters for the study village were allocated as follows: moderate for slope, good

for soil depth, moderate for drainage, good for % rock, good for soil texture, moderate

for soil nutrients, and good for soil pH.

The water holding capacity is introduced in the model through the variable maximum

soil moisture, having values between 0 and 400 mm, and the variable wilting point,

having values between 0 and 300 mm. The maximum soil moisture is the difference

between the volume of water in the soil at field capacity (the water content of the soil

where all free water has been drained) and the volume of water in the soil at the

wilting point (the moisture content of the soil at which the plant will wilt and die)

(MAFF, 2002). In Laos soil surveys have been completed for the whole country and

the soil textures in different areas defined, but the data on the water holding capacity

of each soil texture is not available as there has been no research on this yet.

Therefore, the default values for the maximum soil moisture (300 mm) and wilting

point (125 mm) in the model were used for this analysis. This was considered

reasonable as these values were based on the characteristics of tropical soils in which

Indonesian smallholder rubber farmers planted rubber which are similar to those in


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the study village. It should be noted that varying these two values from their default

values results in only small differences in the estimated yields.

6.2.4 Rubber management variables

The third group of variables in the biophysical component is the management of

rubber (Table 6.6). The ‘clone’ variable allows for two types of rubber seedling –

GT1 clone and wildling. A wildling or unselected seedling is grown from seed

scattered from nearby rubber trees. In spite of the fact that these seedlings are

generally of poor quality, their use is popular among Indonesian rubber smallholders

as there is no initial cost other than the time used for collecting them (Purnamasari et

al., 2002). The GT1 clone is included in the model because it is a relatively common

clone used by smallholders in Indonesia. Its growth is assumed to be 30% greater than

wildlings (Grist et al., 1998). In the study village two types of clone were planted

(GT1 and RRIM600) so GT1 was selected for the model.

The variable ‘tree spacing’ specifies the space between trees in metres. Rubber

farmers in the study village normally planted their rubber trees with an intra-row

spacing of 3 m and an inter-row spacing of 7 m. However, from the household survey

the row spaces used varied from 2-3 m for intra-row spacing and 5-7 m for inter-row

spacing. Farmers reported that the intra-row spacing of 3 m and inter-row spacing of 7

m are appropriate for gently sloping land, while intra-row spacing of 2-2.5 m and

inter-row spacing of 5-6 m are best for steeply sloping land. Over two-thirds of the

farmers reported that they planted their rubber with an intra-row spacing of 3 m and

an inter-row spacing of 7 m, hence this spacing was used in the model, resulting in a

tree density of 476 stems per hectare.

The variable ‘rotational calculation method’ offers three criteria. The first criterion is

the rotation ending in a specified year. The second is the rotation ending at a specified

tree girth, measured in centimetres. The third is the rotation ending at a specified tree

volume, measured in m3. For this study the method used was to end the rotation in a

specified year. The related issue was what the length of the rotation should be. The

default value of the model is 40 years, based on the circumstances of Indonesian

rubber smallholders. The length of rotation in this study was assumed to be 35 years.


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No study has yet been undertaken in Laos on the optimal year for farmers to replace

their rubber and it will be many years before farmers’ actual decisions are observable.

Given the newness of the crop it was decided to choose a shorter rotation than the

default, though this was unlikely to affect the discounted returns greatly.

The variable ‘buttlog length’ is used to define the difference between log volume and

small wood volume, measured in metres. The variable ‘canopy permeability’ defines

the level of light penetration after canopy closure, measured in percentage ranging

from 0 to 100%. The default values for buttlog length (2.5 m) and canopy

permeability (5%) were used for this analysis as there was no reason to expect any

major difference from the growth of rubber trees elsewhere.

The variable ‘tapping’ offers two options (Yes or No). The former option means that

rubber trees are in the tapping period, while the latter means that rubber trees had not

yet reached the tapping period. In the study village farmers had already begun tapping

their rubber trees so the ‘Yes’ option was used for this analysis. The variable ‘tapping

calculation method’ offer two options in which the time to start tapping is defined by

girth measured in centimetres or by age measured in years. The second option was

chosen and it was assumed that tapping begins in Year 9 as that was the practice in the

study village. ‘Tapping interval’ defines the frequency of tapping, measured in days.

In the study village, tapping was mostly undertaken on alternate days so the tapping

interval was set at two.

The ‘number of dry months’ defines the period in which rubber trees are not tapped.

In the study village, there was a break in the tapping season of four months from

December to March. So the number of dry months in this case was four. ‘Tapping

days lost’ are the days that tapping cannot take place. During the tapping period there

may be a number of days on which tapping cannot be done due to weather conditions

such as heavy rain or other factors. This reduces the number of tapping days from the

potential 120 days in a year (based on 8 months of tapping and an alternate day of

tapping frequency). For this study it was assumed that the number of days lost was

three days per month or 24 days per tapping year.


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The variable ‘fertilised’ determines whether there is an application of fertiliser or not.

The application of fertiliser will result in faster growth in the early years of tree

establishment (Grist et al., 1998). The variable ‘years fertilised’ specifies the number

of years in which fertiliser is applied after tree planting. The variable ‘fertiliser effect’

provides the proportional improvement associated with fertiliser, having a value

between 0 and 1. The effect of fertiliser on the improvement in tree growth is

necessary to be specified as the effect of fertiliser varies relative to the type and

quantity used (Grist et al., 1998). In the study village fertiliser was not applied so the

value ‘zero’ was used for years fertilised and fertiliser effect.

The variable ‘years of weed control’ defines the number of years in which herbicide is

applied after tree planting and the variable ‘level of weed control’ is the proportion of

weed control and herbicide used, valued from 0 to 1. Even though rubber farmers in

the study village did not use herbicide, they cleared weeds by hand thoroughly every

year, normally three times a year. It can be assumed that the hand-weeding in this case

was equivalent to herbicide use. Therefore, the number of years of weed control was

set at 35 years for this analysis. Also it can be said that the control of weeds by hand

in this case was as effective as by using herbicides. However, control is often not

completely achieved, so a value of 0.8 was used for the level of weed control.

The risk of fire damage is introduced through the variable ‘probability of fire’, having

values between 0 and 1. Although clearing a fire break was practised by rubber

farmers in the study village, there were a few cases of fire. For this analysis the

probability of fire was assumed to be 0.1, or one fire every 10 years. The risk of fire

spreading from neighbouring plots is defined by the variable ‘fire probability value’,

which has values between 0 and 2. For this analysis the fire probability value was

assumed to be 0.3. There were cases of fire spreading from one farm to another, but

the probability of fire spreading was minimal because of the practice of establishing

fire breaks, as mentioned above, and the village regulation that required farmers to

pay compensation for burnt trees if fire escaped from their farm, so farmers were alert

on the fire problem.

The two final variables for rubber management are related to Imperata cylindrica. The

weed Imperata cylindrica was included in the model because large proportions of


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upland areas in Southeast Asia are characterised by invasion of this type of weed.

Yields from the cropping areas infested by Imperata can be decreased by up to 90%

and costs for controlling are normally high (Menz and Grist, 1995). The variable

‘Imperata density calculation’ in the model offers two options – site weed density or

override value. Site weed density is used in the case of the Imperata density on

neighbouring farms being the same as on the farm being considered. In other words,

the neighbouring farm has rubber trees planted at the same time and with the same

management practice. The override value is used if the proportion of Imperata in

neighbouring farms is known (Grist et al., 1998). For this study the option of site

weed density was selected because rubber trees in the study village were planted at

the same time, in the same area, and with the same management.

Table 6.6: Rubber management variables in the biophysical component of BRASS Variables Unit/Criteria Selection Clone GT1/Wildling GT1 Tree spacing – n/s m 7 m Tree spacing – e/w m 3 m Rotational calculation method Year/Girth/Volume Year Rotational calculation value Year/cm/m3 35 years Buttlog length m 2.5 m Canopy permeability (0-100%) 5% Tapping Yes/No Yes Tapping calculation method Girth/Age Age Begin tapping cm/Years 9 years Tapping intervals Days 2 days Number of dry months (0-12 months) 4 months Tapping days lost (0-365 days) 24 days Fertilised Yes/No No Years fertilised Years 0 year Fertiliser effect (0-1) 0 Years of weed control Years 35 years Level of weed control (0-1) 0.8 Probability of fire (0-1) 0.1 Fire probability value (0-2) 0.3 Imperata density calculation S (Site weed density)/

O (Override value) S

Imperata density override 0

6.2.5 Intercrop management variables

The variables related to intercrop management are shown in Table 6.7. The variable

‘ground cover’ has three options including clear, rice, or Imperata. The first option

means that there is no ground cover and the third that the ground is covered by


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Imperata. The ‘rice’ option means that rice is intercropped with the rubber trees. From

the household survey, nearly 60% of the households intercropped only rice with their

rubber trees, about 38% intercropped rice and other cash crops, and only 2% grew

other crops excluding rice. That means that almost all households in the study village

intercropped rice in their rubber plantation. Therefore, rice was selected for this

variable.

The ‘years cropped’ variable specifies the number of years of intercropping. For this

analysis, a rice intercrop was specified for the first three years because this was the

dominant practice of rubber farmers in the study village.

The variables ‘intra-row spacing’ and ‘inter-row spacing’ specify the space between

rice plants, hence the number of plants per hectare. Farmers in the study village

normally planted rice with a spacing of 0.5 m, so this value was applied in the model.

The variables ‘crop row calculation method and value’ offer three alternatives – fixed

distance between rows (measured in metres), fixed number of rows, or minimum row

productivity (measured in %). If the method is the fixed distance between rows or

fixed number of rows, the value provided for the row spacing variable is overridden.

For this analysis, the method of minimum row productivity was used and its value

was set at 20%. This means that the minimum accepted rice yield was 20% of its

initial value, below which the model will not calculate a rice crop.

The yield of the intercrop is introduced through the variable ‘monoculture yield’.

From the household survey the average yield of rice grown in shifting cultivation

plots in the study village was about 1,500 kg/ha and this was consistent with the

average yield of upland rice in northern Laos as reported by Lao-IRRI (2000). Hence

this was the figure used in the model.


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Table 6.7: Intercrop management variables in the biophysical component of BRASS Variables Unit/Criteria Selection Ground cover Clear/Rice/Imperata Rice Years cropped Years 3 years Intra-row spacing M 0.5 m Inter-row spacing M 0.5 m Crop row calculation method D (Fixed distance between rows)

N (Fixed number of rows) P (Minimum row productivity)

P

Crop row calculation value m/No./% 20% Monoculture yield kg per ha 1,500 kg per ha

6.2.6 Model indexes

Apart from the above variables, the biophysical component also comprises a number

of indexes to account for the quality of the site, climate, management practices, and

genetic material contained in the rubber trees. These indexes are termed site index,

latex index, girth clonal index, and yield clonal index and they are based on a

synthesis of scientific studies (Grist et al., 1995).

The site index, which has a value between zero and 100, is the result of the values

chosen for the component variables. It is calculated by multiplying a climate index

and a soil index. The soil index considers the seven soil variables in Table 6.5. The

climate index takes account of the effects of climate variables in Table 6.1. Two

options for calculating the site index are available – applying the static approach using

the same soil and climate factors in every year of calculation, or the active approach

keeping the soil factors constant in every year but varying the climate factors annually

(Grist et al., 1995). The latter approach was applied in this study, but only partly

because only rainfall was varied (Table 6.4), while for temperature, potential

evapotranspiration, and solar radiation (Table 6.2 and 6.3) their mean values were

repeated for each year.

The latex index, having a value between zero and one, is a combination of growing

conditions at the site plus the effect of fertiliser (Purnamasari et al., 2002).

The girth clonal index and yield clonal index account for the growth and yield

potential of the clonal material planted; however, they may depend on management

practices as well. The default girth clonal index was 1.0 for wildings and 1.3 for


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clonal material. The default yield clonal index was 0.6. The yield clonal index

defaulted to a value of 0.6 to reflect the productivity of Indonesian rubber

smallholdings relative to estates, given an index of 2.0 (Purnamasari et al., 2002).

Taking account of the selected values of all variables in the biophysical component of

BRASS and the default values of girth clonal index (1.3) and yield clonal index (0.6),

the yield of latex was obtained as shown in Table 6.8. However, by comparing the

simulated yields during the first three years with the average yields from the

household survey, it was found that the yields from BRASS with the yield clonal

index set at 0.6 were considerably lower than the yields from the survey. Since the

objective of using BRASS in this study was to predict yields of rubber over the life of

a typical rubber holding in Hadyao, the predicted yields needed to correspond as

closely as possible to the actual yields from the study village over the first three years

of tapping.

Table 6.8: Comparisons of average latex yields from the survey and BRASS (kg/ha) Yields from BRASS with different yield clonal indexes Year of tapping Yields

from survey 0.6 0.7 0.8 0.9 1.0 1.1 1.21st year 904 511 596 681 766 851 936 1,0212nd year 1,380 479 558 638 718 798 878 9573rd year 1,999 650 758 867 975 1,084 1,192 1,300Average yields 1,428* 657** 799 941 1,083 1,225 1,367 1,510Peak yield - 841 985 1,280 1,280 1,428 1,577 1,729Note: * First three years average ** 35 years average

It should be noted that the yields from BRASS were not greatly affected by changing

the values of any one of the estimated variables. Yet changes in the girth clonal index

and the yield clonal index had a greater impact on predicted yields. The default values

for girth clonal index of 1.0 for wilding and 1.3 for clonal material were based on

scientific research, hence there was no basis for revising them. However, the default

value of 0.6 for the yield clonal index was based on the fact that the yield performance

of smallholder rubber farmers in Indonesia was less than one-third of the yield from

rubber estates (Purnamasari et al., 2002). Hence the yield clonal index could be

adjusted to reflect the yield performance of rubber farmers in the study village.

Therefore, only the yield clonal index was varied to obtain the closest estimation of

yields to the actual yields from the survey.


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Table 6.8 also shows the comparisons of yields during the first three years of tapping

from the survey and from BRASS using different yield clonal indexes. It was hard to

decide which yield clonal index was the most accurate to use for predicting the yields

of rubber from the study village, given the different rates of yield increase over the

first three years. However, it was decided that the best estimation of the actual yields

from the study village was given by a clonal index of 1.1. The average yield over the

life of the plantation in this case was about 1,367 kg/ha. Even though the yields

predicted by BRASS using a clonal index of 1.1 do not increase as rapidly in the

initial years as the yields from the survey, the overall pattern is similar and the yields

reach a peak of just under 1,600 kg/ha. It was judged appropriate to use an index of

1.1 because, with indexes less than 1.1, the estimated yields averaged less than 1,300

kg/ha, which was substantially lower than the yields from the survey, except in the

first year of tapping. On the other hand, with the index set higher than 1.1, the

estimated yields averaged greater than 1,500 kg/ha and reached a peak of over 1,700

kg/ha. Because of the variation in rainfall and the uncertainty about long-term yields

given limited data, it was considered unwise to predict that yields would reach a peak

of greater than 1,700 kg/ha. This was consistent with the average yields of 1,200-

1,350 kg/ha reported for smallholder rubber farmers in Southern China (Alton et al.,

2005), where rubber has been planted in similar upland areas with similar climate to

Northern Laos. Therefore, a yield clonal index of 1.1 was considered to be the most

appropriate for simulating rubber yields in the study village.

The household survey shows that smallholder rubber farmers in Hadyao village

obtained higher yields than those of Indonesian smallholders at the time when the

model was developed, which were less than two-thirds of the yields from rubber

estates. Indonesian smallholder rubber farms at that time were not well managed.

They were termed ‘jungle rubber’ because other tree species and grasses were allowed

to grow mixed with the rubber trees. So the yields from rubber smallholdings were

quite low compared to the yields from rubber estates which were normally much

better managed (Gouyon, 1999). The yield performance of Lao rubber farmers in

Hadyao village was somewhere between Indonesian smallholders and rubber estates.

Even though Lao rubber farmers did not apply fertilisers, the soils were quite fertile,

having been fallowed for 5-10 years. Moreover, they used clonal planting material


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and weeded thoroughly three times a year. Hence it is reasonable to suggest that their

yields are likely to be above the standard set by Indonesian smallholders.

6.2.7 Outputs

After the values of all variables in the biophysical component of BRASS were

selected in combination with the default value of girth clonal index (1.3) and the value

of 1.1 for the yield clonal index, the estimated latex yields over the productive life of

35 years were obtained, as presented in Fig. 6.2.

0100200300400500600700800900

1,0001,1001,2001,3001,4001,5001,600

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Year

Late

x Y

ield

(kg/

ha)

Figure 6.2: Predicted latex yield in Hadyao over 35 years using BRASS

It can be seen that the yield increased in the initial period, then levelled off, and

finally entered a long decreasing phase. The yield reached a peak of just under 1,600

kg/ha in Years 22. Exceptionally, there was a sharp drop in yield in three years – 10,

21, and 32. This drop occurred in the years with unusually low rainfall as seen in


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Table 6.4. It should again be noted that this estimated yield profile represents the

predicted yield pattern which rubber farmers in Hadyao village would be expected to

achieve, given the current state of knowledge, but the actual yields may vary if

management practices, weather conditions, or other factors change.

6.3 Discounted cash flow analysis of smallholder rubber production in the study

village

6.3.1 Introduction

The economic viability of the rubber enterprise was assessed using discounted cash

flow (DCF) analysis. Even though BRASS has an economic component flowing

similar principles, it was not used in this study since it was built as an add-on to the

biophysical component; the original purpose and most useful function of the model

was to estimate the yield over time. In the economic component users have to input

data into each pre-specified variable and cannot add or control additional factors

which are not included in the model. Therefore, the economic analysis of smallholder

production in this study relied on the development of a budgeting spreadsheet carried

out in Excel. It should be noted that the inputs assumed in the DCF analysis were

entirely consistent with the values of the variables entered in the biophysical model.

6.3.2 Principles of DCF analysis According to Campbell and Brown (2003), DCF analysis is based on the

conceptualization of an investment project as a net benefit stream measured by a ‘cash

flow’ (though this does not require that benefits and costs are all literally cash items).

Economists define an investment in terms of the decision to engage resources at the

present with the expectation of receiving a flow of net benefits over a sensibly long

period of time in the future. DCF analysis is used to assess multi-period investment

projects which have a net benefit stream happening over many years. When funds are

laid out in the beginning as investment outlays, the cash flow is negative. This

indicates that there is a net outflow of funds. Once the project commences to operate,

and benefits are received, the cash flow becomes positive, demonstrating that there is

a net inflow of funds. The net outflow and inflow of funds represent the ‘net cash

flow’.


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There are many criteria or DCF decision-rules that are used to appraise investment

projects. Among these decision-rules the most well-known and commonly used are

net present value (NPV), internal rate of return (IRR), and benefit-cost ratio (BCR).

The NPV of an investment project is the difference between the discounted present

value of future benefits and the discounted present value of future costs. A positive

value of NPV for a given project shows that the project’s benefits are greater than its

costs. Conversely, a negative value of NPV indicates that the benefits from the project

are less than its costs and it is not worthwhile to undertake it.

The IRR is the rate of discount which gives an NPV of zero, that is, the cost of capital

(the cost of financing the investment or the interest rate) in percentage terms which

makes the investment generate neither profit nor loss. When IRR is equal to or greater

than the interest rate, the investment is worthwhile. When IRR is less than the interest

rate, the investment is worthless to implement. It can be seen that the IRR decision-

rule will give precisely the same result as the NPV decision-rule. When the interest

rate is less than IRR, NPV will be positive. In contrast, when the interest rate is equal

to or larger than IRR, NPV will be negative.

The BCR is another method of comparing the present value of a project’s costs with

the present value of its benefits. As an alternative to calculating the NPV, the BCR is

measured by dividing the present value of benefits by the present value of costs. If the

value of BCR is equal to or greater than unity, it is worth undertaking the investment

project, and conversely if it is less than unity. It is obvious that when NPV is positive,

BCR is equal to or greater than unity, and when NPV is negative, BCR is less than

unity.

To conduct the DCF analysis, the costs and benefits of smallholder rubber production

had first to be identified and quantified (whether they were cash items or imputed

values such as labour). Then the issue of the choice of discount rate had to be

addressed. The usual investment criteria of NPV, IRR, and BCR were computed.

Then allowance was made for risk and uncertainty through a sensitivity analysis with

various rubber prices, discount rates, and wage rates. Other investment criteria were

also considered, notably the return to family-owned resources (or farm-family


133

income) and the maintenance of a positive short-term cash flow. These various

aspects of the analysis are now discussed in turn.

6.3.3 Identifying costs and benefits

The costs associated with rubber production in Hadyao were material costs and labour

costs. The materials used for the establishment of rubber plots were for land

preparation, fencing, planting, and intercropping. Those used for land preparation

(slashing, burning, and clearing the field) were an axe and a long knife used only in

the first year. Those used for fencing included hammer, nails, barbed wire, and posts.

Fencing was erected in the first year of the plantation, and was assumed to be replaced

20 years later. Those used for planting and replanting were a hoe and the rubber

seedlings, which again were only required in the first year. Those used for

intercropping were rice seed, required for the initial period of three years of the

plantation. The materials used during the maintenance phase were for weeding only;

no fertilisers or herbicides were used. These materials included a small knife and

medium knife, assumed to be replaced every two years.

The materials used during harvesting period were for tapping and collecting the latex,

and harvesting the trees at the end of their productive life. Those used for tapping and

collecting were bowls, spouts, iron wire, a plastic brush for congregating latex from

the bowl, a tapping knife, a knife sharpening stone, a headlamp, small buckets, large

buckets, plastic bags, chemical powder applied at the tapping cut of the rubber trees

weekly during tapping period to prevent diseases, chemical liquid applied at the end

of tapping season to close the tapping cut of the trees, and a small brush which is used

for applying those chemical power and liquid. The replacement of these materials was

assumed to occur every ten years for bowls, five years for spouts and wire, and three

years for plastic brushes. For the tapping knife, sharpening stone, headlamp, small and

large buckets, plastic bags, chemicals, and small brush, an annual replacement was

assumed. The materials used for tree harvesting were a set of handy saws.

Table 6.9 shows the prices of these materials in 2005 and the quantities used for one

hectare of rubber. It should be noted that the prices were as quoted by farmers at the

time of the survey and the quantities are based on the assumption of a two-person


134

labour force and 476 rubber trees per hectare. Almost all of the items of equipment for

tapping and collecting were imported from China. However, households that could

not afford to buy all imported equipment used local recycled materials instead at

lower cost. For example, halved plastic bottles were sometimes used as cups for

collecting the latex.

Table 6.9: Materials used for one hectare of rubber production in Hadyao

Production phases Materials Unit Quantity

2005 prices

(Kip*/unit)Establishment

Axe Piece 1 50,000Land preparation Long knife Piece 1 50,000

Hammer Piece 1 15,000Nails Kg 5 10,000Barbed wire Roll 22 150,000

Fencing

Posts Post 264 2,000Hoe Piece 1 30,000Planting Rubber seedlings Seedling 476 5,000

Replacement planting **

Rubber seedlings Seedling 48 5,000

Intercropping Rice seed Kg 40 2,000 Maintenance

Small knife Piece 1 6,000Weeding Medium knife Piece 1 20,000

Harvesting Bowl/cup Piece 476 1,200Gutter/spout Piece 476 300Iron wire Roll 2 220,000Plastic brush Piece 2 5,000Tapping knife Piece 2 25,000Knife sharpening stone Set 2 15,000

Tapping

Headlamp Piece 2 97,000Small bucket Piece 2 7,500Big bucket Piece 2 40,000Plastic bag Piece 240 1,500Chemical powder Kg 2.5 64,000Chemical liquid Kg 1.5 50,000

Collecting

Small brush Piece 2 4,000Tree harvesting

Handy saws Set 1 500,000

Note: * 1 US$ = 10,500 Kip, August 2005 ** Replacement planting is based on 10% of the initial 476 seedlings of one hectare Source: Group interview with rubber farmers in Hadyao village, 2005

The labour requirements for each production phase (establishment, maintenance, and

harvesting) for one hectare of rubber, expressed in person-days and calculated on an

annual basis, are presented in Table 6.10. Labour requirements for the establishment


135

phase included land preparation, fencing, planting, and rice intercropping. The total

labour requirement of 80 person-days for land preparation (slashing, burning and

clearing the field, lining, terracing and holing), and planting of seedlings (20 person-

days) occurred in the first year of the plantation. The labour for fencing of about 30

person-days was assumed to occur every 20 years. The labour for intercropping (rice

sowing and harvesting) of 50 person-days occurred during the first three years of the

plantation.

The only labour requirement during the maintenance phase was for weeding. From the

household survey rubber farmers in the study village thoroughly clean-weeded by

hand every year from the establishment of their rubber plantations. They normally

weeded three times a year. It was assumed that they would continue to do so until

Year 14. After that it was assumed they would clean-weed two times a year until the

end of the productive life of the rubber, as weed growth would be reduced under the

shade of the rubber canopy. Given that 40 person-days were required each time, the

total annual labour requirement for weeding was estimated to be 120 person-days

between Years 1 and 14 and 80 person-days between Years 15 and 35.

According to farmers in Hadyao, one person could tap about 300 trees in a day. In

order to finish tapping one hectare of 476 trees before the latex stopped flowing, two

persons were needed. One person was normally able to tap two trees in a minute and

collect latex from four trees in a minute. Based on eight working hours per day and

120 tapping days in a year, the total labour requirements for tapping and collecting

latex for one hectare of rubber trees in a year are were around 119 and 60 person-

days, respectively. Based on the labour requirement for harvesting a rubber tree of 0.3

person-days per tree, about 143 person-days were estimated for harvesting one hectare

of rubber trees (476 trees) at the end of the plantation.


136

Table 6.10: Annual labour requirements for one hectare of rubber production in Hadyao

Production phases Activities Annual labour

requirements (person-days)

Establishment Slashing 30 Burning and clearing 20

Land preparation

Lining, terracing, and holing 30 Fencing Fencing 30 Planting Rubber planting and replacement planting 20

Rice sowing 20 Intercropping Rice harvesting 30

Maintenance Hand weeding (three times a year from Year 1-14)

120

Hand weeding (two times a year from Year 15-35)

80

Harvesting Tapping 119 Collecting 60 Trees harvesting 143

Source: Group interview with rubber farmers in Hadyao village, 2005

The benefits from the rubber enterprise in Hadyao were from intercropping rice,

producing tub-lump rubber, and harvesting rubber wood. Rice was normally

intercropped during the initial three years after the establishment of the rubber. From

household survey, the average yield of intercropped rice was 1.1, 1.0, and 0.9 ton/ha

for the first, second, and third years, respectively. Comparing the yields of

intercropped rice from household survey and from BRASS, it can be seen that the

yields from BRASS were higher and decreased more sharply than from the survey

(Table 6.11). To represent the yields of rice intercropping more accurately, therefore,

the average yields from the survey were used to estimate the benefits from

intercropping.

Table 6.11: Average yields of intercropped rice from BRASS and the survey in Hadyao

Rice yields (kg/ha)Intercropping years BRASS SurveyFirst year 1,687 1,100Second year 1,360 1,000Third year 884 900

Tub-lump rubber was the main output from rubber production. The yields of latex

from BRASS (Fig. 6.2) were used to estimate the benefits from tub-lump rubber.


137

However, farmers in the study village processed the raw latex into tub-lump rubber by

using plastic bags or buckets. Then the tub-lump was left for a month before selling.

There must be some loss in weight from the raw latex compared to the tub-lump

rubber due to the loss of moisture content. The extent of the loss is unknown, but for

this analysis it was assumed to be 10% loss in weight. Therefore, the tub-lump rubber

was calculated from the latex yields from BRASS by taking adjusting downwards by

10%.

At the end of the productive life of the rubber trees, rubber wood was expected to be

the final product from the enterprise. As estimated by BRASS, the volumes of rubber

wood, including both buttlog and small wood, were 203 m3 per hectare, but only 64

m3 per hectare of this was buttlog. The estimated volumes of rubber wood by BRASS

for Hadyao were consistent with the yields of rubber greenwood in other rubber

producing countries, with a total volume of 140 to 200 m3 per hectare and a volume of

usable logs of 54 to 57 m3 per hectare (Balsiger et al., 2000). The yield of rubber

wood varies according to clones, site conditions, and management (smallholdings or

estates). The higher ranges are found in countries where plantations are well managed

such as Malaysia, Thailand, India, and Sri Lanka. The volume of buttlog of 64 m3 per

hectare was used to estimate the benefit from rubber wood in the study village as only

buttlog was likely to be commercialized while small wood was likely to be burnt in

the field.

6.3.4 Quantifying costs and benefits

After all costs and benefits associated with the production of rubber over the life of

the plantation were identified, their values were quantified using constant 2005 prices.

The material costs were estimated from the prices of the materials and the quantities

used for one hectare in each phase of rubber production (Table 6.9). The labour costs

were valued by calculating the labour requirements for rubber establishment and

production over the life of the plantation (Table 6.10) and estimating the opportunity

cost of labour or wage rate. The opportunity cost of labour is the earnings obtained

from the next best employment opportunity, that is, the labour income foregone by

working on the rubber holding. The current wage rate for agricultural work in Hadyao

was 20,000-25,000 Kip/person-day, depending on the type of work (light or heavy),


138

while the wage rate in Luangnamtha town was 25,000 Kip/person-day. These rates

applied to an adult male or female working for eight hours per day. In the study

village, rubber production was undertaken by male and female labour, but school-

children also helped. In many cases school-children assisted by tapping before they

went to school or by collecting latex during the weekend. Also, it cannot be assumed

that all adult household members had the alternative of off-farm employment,

particularly in town. In any case, family labour tends to be used for farming

(including rubber) at times when the opportunity for wage work is less, as these

opportunities vary throughout the year. Therefore, it was decided to use some fraction

of the market wage rate to estimate the opportunity cost of labour. The problem was

deciding what fraction to use as there is no standard way to measure this. Hence it was

assumed that the opportunity cost of labour was about two thirds of the maximum

market wage rate of 25,000 Kip/person-day, that is, around 17,000 Kip/person-day.

Both the market wage rate and the estimated opportunity wage rate were used in the

DCF analysis.

The benefits from intercrops for the initial three years of the rubber enterprise were

estimated from the average rice yields reported in the survey (Table 6.11), valued at

the 2005 price of 3,500 Kip/kg. The benefits from tub-lump rubber from Years 9 to 35

were estimated from the annual latex yields from BRASS after the adjustment of 10%

weight loss as discussed above, valued at the 2005 price of tub-lump rubber of 7,800

Kip/kg. Since there is no existing market for rubber wood in Laos and the nearest

market for rubber wood from Northern Laos is China, the price of rubber wood in

Yunnan Province was used, adjusted to reflect the actual price which is likely to be

offered by Chinese traders. The 2005 price of rubber wood in Yunnan was 360

Yuan/m3 (Alton et al., 2005). The farm gate price in Laos was assumed to be about

280 Yuan/m3 or 364,000 Kip/m3 (1 Yuan = 1,300 Kip, August 2005). Hence, the

estimated farm gate price of rubber wood of 364,000 Kip/m3 and the volume of

buttlog of 64 m3 were used to quantify the benefit from rubber wood.

6.3.5 Discount rates

Because the investment in rubber is long term and the costs and benefits occur at

different times, the use of discount factors was required to revalue the future costs and


139

benefits from the rubber investment in present-day values so that they were

comparable and could be added together. The selection of a discount rate is crucial in

determining the result of the DCF analysis (Campbell and Brown, 2003). In DCF

analysis market prices are used to value project inputs and outputs so that the financial

profitability of the investment project can be determined. The market price of capital

to the investor is the market interest rate and this represents the cost of capital in the

investment project. The right approach to deciding the discount rate used in DCF

analysis is therefore to estimate the cost of capital to the investor.

This will vary depending on wether the investor is a borrower or a lender of funds. If

the project investor is a net borrower, the interest rate at which the project can borrow

is the opportunity cost of the funds. This market borrowing rate should be used as the

discount rate for any project appraisal. If the project investor is a net lender, then

without the project these funds could be invested in the financial market and earn the

market lending rate. The project must earn at least this market lending rate for it to be

worth doing, hence the after-tax market lending rate, the opportunity cost of the funds,

should be used as the discount rate (Perkins, 1994).

The market borrowing rate or interest rate was adopted for this study as most Lao

farmers lack the capital to invest in agricultural production without obtaining credit,

particularly in the early stages of transition to commercial agriculture as in the case

study area. Consideration was given to the interest rates paid by farmers for different

sources of credit in order to determine the appropriate discount rates for use in the

DCF analysis. Rubber farmers in the study village received credit support from the

Agricultural Promotion Bank (APB). In 1994 they were supported with loans at low

interest rates of 2% with a repayment period of 7 years and in 2003 with loans at 7%

and a repayment period of 10 years. The interest rates offered by the APB were

special cases because they were heavily subsidized and especially arranged for the

purpose of demonstrating rubber cultivation, as requested by the provincial

authorities. The borrowing interest rate is normally 12% for the APB, 15% for

commercial banks, and 20% for money lenders (BOL, 2006a). Since the interest rate

varies with different sources of funds, these three rates were used in the analysis –

12%, 15% and 20%. (Note that there is no real evidence of moneylenders financing

long-term investment such as rubber at 20%. This rate was used to provide an upper


140

bound for the discount rate. A higher rate would not have affected the overall results

as the investment was clearly unprofitable at 20%.)

In the above discussion the effect of inflation on interest and discount rates was

ignored. In reality most countries experience at least some inflation in prices so the

discount rates to be used in DCF analysis need to take account of inflation. In Section

6.3.3 constant 2005 prices were used for quantifying costs and benefits. When all

costs and benefits are valued in constant or real terms (i.e., net of inflation), then a

real discount rate must be used to discount the net cash flow. The real discount rate is

calculated by deflating the market interest rate, usually quoted in nominal terms, by

the expected rate of inflation in the economy. Laos is one of the nations that were

affected by Asian crisis in the late 1990s. The inflation in Laos before the crisis was

about 15-20%, then it rose sharply to nearly 90% in 1998, reaching a peak of 134% in

1999. After that it fell considerably to around 23% in the following year. From 2001-

2004 inflation was around 10-15%. In 2005, the year in which field data were

collected, it was 7% (BOL, 2006b). Allowing for the 2005 inflation rate, the real

discount rates used in the DCF analysis were 5%, 8% and 13%.

6.3.6 DCF – the base analysis

This section presents the DCF analysis of a typical hectare of rubber in Hadyao using

the mid-range real discount rate of 8% and the estimated opportunity wage rate of

17,000 Kip/person-day. The full spreadsheet of this analysis is presented in Table

6.12.

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

14

1

Tab

le 6

.12:

Cas

h flo

w a

naly

sis o

f one

hec

tare

of r

ubbe

r pl

anta

tion

over

35

year

s of p

rodu

ctio

n C

osts

and

Ret

urns

Uni

t Y

ear1

Y

ear2

Y

ear3

Y

ear4

Y

ear5

Y

ear6

Y

ear7

Y

ear8

Y

ear9

Y

ear1

0 Y

ear1

1 Y

ear1

2 M

ater

ial I

nput

s

Land

pre

para

tion

‘000

Kip

10

0

Fe

ncin

g

‘000

Kip

3,

893

Plan

ting

and

repl

acem

ent p

lant

ing

‘000

Kip

2,

618

Inte

rcro

ppin

g

‘000

Kip

80

80

80

W

eedi

ng

‘000

Kip

26

26

26

26

26

26

Tapp

ing

‘000

Kip

1,

438

274

274

284

C

olle

ctin

g ‘0

00 K

ip

698

698

698

698

Tr

ee h

arve

stin

g ‘0

00 K

ip

Tot

al M

ater

ial C

osts

‘000

Kip

6,

747

80

106

26

26

2,

162

972

998

982

Lab

our

Inpu

ts

La

nd p

repa

ratio

n PD

s 80

Fe

ncin

g

PDs

30

Plan

ting

and

repl

acem

ent p

lant

ing

PDs

20

Wee

ding

PD

s 12

0 12

0 12

0 12

0 12

0 12

0 12

0 12

0 12

0 12

0 12

0 12

0

Tapp

ing

PD

s

11

9 11

9 11

9 11

9

Col

lect

ing

PD

s

60

60

60

60

Inte

rcro

ppin

g ric

e –

sow

ing

PD

s 20

20

20

In

terc

ropp

ing

rice

– ha

rves

ting

PD

s 30

30

30

Tr

ees h

arve

stin

g PD

s

T

otal

Lab

our

Inpu

ts

PD

s 30

0 17

0 17

0 12

0 12

0 12

0 12

0 12

0 29

9 29

9 29

9 29

9

Wag

e ra

te

‘000

Kip

/PD

17

17

17

17

17

17

17

17

17

17

17

17

T

otal

Lab

our

Cos

ts

‘0

00 K

ip

5,10

0 2,

890

2,89

0 2,

040

2,04

0 2,

040

2,04

0 2,

040

5,07

5 5,

075

5,07

5 5,

075

TO

TA

L C

OST

S

‘000

Kip

11

,847

2,

970

2,99

6 2,

040

2,06

6 2,

040

2,06

6 2,

040

7,23

7 6,

047

6,07

3 6,

057

Rub

ber

Ret

urns

Rub

ber y

ield

– la

tex

K

g/ha

93

6 87

8

1,19

2 1,

247

R

ubbe

r yie

ld –

tub

lum

p K

g/ha

84

3 79

0

1,07

3 1,

122

R

ubbe

r pric

e ‘0

00 K

ip/k

g

7.

8 7.

8 7.

8 7.

8

Rub

ber w

ood

yiel

d m

3 /ha

R

ubbe

r woo

d pr

ice

‘000

Kip

/m3

Tot

al R

ubbe

r R

etur

ns

‘0

00 K

ip

6,57

3 6,

161

8,36

7 8,

753

Ric

e R

etur

ns

R

ice

yiel

d K

g/ha

1.

1 1

0.9

Ric

e pr

ice

‘000

Kip

/kg

3.5

3.5

3.5

T

otal

Ric

e R

etur

ns

‘0

00 K

ip

3,85

0 3,

500

3,15

0

TO

TA

L R

ET

UR

NS

‘0

00 K

ip

3,85

0 3,

500

3,15

0

6,57

3 6,

161

8,36

7 8,

753

NE

T R

ET

UR

NS

(NR

)

‘000

Kip

-7

,997

53

0 15

4 -2

,040

-2

,066

-2

,040

-2

,066

-2

,040

-6

64

114

2,29

4 2,

696

DIS

CO

UN

TE

D N

R

8% d

isco

unt r

ate

‘000

Kip

-7,4

05

454

122

-1,4

99

-1,4

06

-1,2

86

-1,2

05

-1,1

02

-332

53

98

4 1,

071

CU

MU

LA

TIV

E N

PV

‘0

00 K

ip

-7

,405

-6

,951

-6

,829

-8

,328

-9

,734

-1

1,02

0 -1

2,22

5 -1

3,32

7 -1

3,65

9 -1

3,60

6 -1

2,62

2 -1

1,55

1

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

14

2

Tab

le 6

.12:

Cas

h flo

w a

naly

sis o

f one

hec

tare

of r

ubbe

r pl

anta

tion

over

35

year

s of p

rodu

ctio

n (c

ontin

ued)

C

osts

and

Ret

urns

Uni

t Y

ear1

3 Y

ear1

4 Y

ear1

5 Y

ear1

6 Y

ear1

7 Y

ear1

8 Y

ear1

9 Y

ear2

0 Y

ear2

1 Y

ear2

2 Y

ear2

3 Y

ear2

4 M

ater

ial I

nput

s

Land

pre

para

tion

‘000

Kip

Fenc

ing

‘0

00 K

ip

3,

893

Pl

antin

g an

d re

plac

emen

t pla

ntin

g ‘0

00 K

ip

In

terc

ropp

ing

‘0

00 K

ip

W

eedi

ng

‘000

Kip

26

26

26

26

26

26

Tapp

ing

‘000

Kip

27

4 85

7 28

4 27

4 27

4 28

4 1,

428

274

284

274

274

867

C

olle

ctin

g ‘0

00 K

ip

698

698

698

698

698

698

698

698

698

698

698

698

Tr

ee h

arve

stin

g ‘0

00 K

ip

Tot

al M

ater

ial C

osts

‘000

Kip

99

8 1,

555

1.00

8 97

2 99

8 98

2 2,

152

4,86

5 1,

008

972

998

1,56

5 L

abou

r In

puts

Land

pre

para

tion

PDs

Fe

ncin

g

PDs

30

Plan

ting

and

repl

acem

ent p

lant

ing

PDs

W

eedi

ng

PDs

120

120

80

80

80

80

80

80

80

80

80

80

Ta

ppin

g

PDs

119

119

119

119

119

119

119

119

119

119

119

119

C

olle

ctin

g

PDs

60

60

60

60

60

60

60

60

60

60

60

60

In

terc

ropp

ing

rice

– so

win

g

PDs

In

terc

ropp

ing

rice

– ha

rves

ting

PD

s

Tree

s har

vest

ing

PDs

Tot

al L

abou

r In

puts

PDs

299

299

259

259

259

259

259

289

259

259

259

259

W

age

rate

‘0

00 K

ip/P

D

17

17

17

17

17

17

17

17

17

17

17

17

Tot

al L

abou

r C

osts

‘000

Kip

5,

075

5,07

5 4,

395

4,39

5 4,

395

4,39

5 4,

395

4,90

5 4,

395

4,39

5 4,

395

4,39

5 T

OT

AL

CO

STS

‘0

00 K

ip

6,07

3 6,

630

5,40

3 5,

367

5,39

3 5,

377

6,54

7 9,

770

5,40

3 5,

367

5,39

3 5,

960

Rub

ber

Ret

urns

Rub

ber y

ield

– la

tex

K

g/ha

1,

302

1,33

1 1,

395

1,46

8 1,

511

1,54

2 1,

562

1,57

5 1,

237

1,57

7 1,

557

1,54

3

Rub

ber y

ield

– tu

b lu

mp

Kg/

ha

1,17

2 1,

198

1,25

6 1,

321

1,36

0 1,

387

1,40

6 1,

418

1,11

4 1,

419

1,40

1 1,

388

R

ubbe

r pric

e ‘0

00 K

ip/k

g 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8

Rub

ber w

ood

yiel

d m

3 /ha

R

ubbe

r woo

d pr

ice

‘000

Kip

/m3

Tot

al R

ubbe

r R

etur

ns

‘0

00 K

ip

9,13

9 9,

341

9,79

6 10

,304

10

,606

10

,822

10

,966

11

,058

8,

686

11,0

68

10,9

28

10,8

30

Ric

e R

etur

ns

R

ice

yiel

d K

g/ha

Ric

e pr

ice

‘000

Kip

/kg

Tot

al R

ice

Ret

urns

‘000

Kip

T

OT

AL

RE

TU

RN

S

‘000

Kip

9,

139

9,34

1 9,

796

10,3

04

10,6

06

10,8

22

10,9

66

11,0

58

8,68

6 11

,068

10

,928

10

,830

N

ET

RE

TU

RN

S (N

R)

‘0

00 K

ip

3,06

6 2,

711

4,39

3 4,

937

5,21

3 5,

445

4,41

9 1,

288

3,28

3 5,

701

5,53

5 4,

870

DIS

CO

UN

TE

D N

R

8% d

isco

unt r

ate

‘000

Kip

1,

127

923

1,38

5 1,

441

1,40

9 1,

363

1,02

4 27

6 65

2 1,

049

943

768

CU

MU

LA

TIV

E N

PV

‘0

00 K

ip

-10,

424

-9,5

01

-8,1

16

-6,6

75

-5,2

66

-3,9

03

-2,8

79

-2,6

03

-1,9

51

-902

41

80

9

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

14

3

Tab

le 6

.12:

Cas

h flo

w a

naly

sis o

f one

hec

tare

of r

ubbe

r pl

anta

tion

over

35

year

s of p

rodu

ctio

n (c

ontin

ued)

C

osts

and

Ret

urns

Uni

t Y

ear2

5 Y

ear2

6 Y

ear2

7 Y

ear2

8 Y

ear2

9 Y

ear3

0 Y

ear3

1 Y

ear3

2 Y

ear3

3 Y

ear3

4 Y

ear3

5 M

ater

ial I

nput

s

La

nd p

repa

ratio

n ‘0

00 K

ip

Fenc

ing

‘0

00 K

ip

Plan

ting

and

repl

acem

ent p

lant

ing

‘000

Kip

In

terc

ropp

ing

‘0

00 K

ip

Wee

ding

‘0

00 K

ip

26

26

26

26

26

Ta

ppin

g ‘0

00 K

ip

274

274

284

274

1,42

8 28

4 27

4 27

4 28

4 27

4 27

4

Col

lect

ing

‘000

Kip

69

8 69

8 69

8 69

8 69

8 69

8 69

8 69

8 69

8 69

8 69

8

Tree

har

vest

ing

‘000

Kip

50

0 T

otal

Mat

eria

l Cos

ts

‘0

00 K

ip

998

972

1,00

8 97

2 2,

152

982

998

972

1,00

8 97

2 1,

472

Lab

our

Inpu

ts

Land

pre

para

tion

PDs

Fenc

ing

PD

s

Pl

antin

g an

d re

plac

emen

t pla

ntin

g PD

s

W

eedi

ng

PDs

80

80

80

80

80

80

80

80

80

80

80

Ta

ppin

g

PDs

119

119

119

119

119

119

119

119

119

119

119

C

olle

ctin

g

PDs

60

60

60

60

60

60

60

60

60

60

60

In

terc

ropp

ing

rice

– so

win

g

PDs

Inte

rcro

ppin

g ric

e –

harv

estin

g

PDs

Tree

s har

vest

ing

PDs

143

Tot

al L

abou

r In

puts

PDs

259

259

259

259

259

259

259

259

259

259

401

W

age

rate

‘0

00 K

ip/P

D

17

17

17

17

17

17

17

17

17

17

17

Tot

al L

abou

r C

osts

‘000

Kip

4,

395

4,39

5 4,

395

4,39

5 4,

395

4,39

5 4,

395

4,39

5 4,

395

4,39

5 6,

822

TO

TA

L C

OST

S

‘000

Kip

5,

393

5,36

7 5,

403

5,36

7 6,

547

5,37

7 5,

393

5,36

7 5,

403

5,36

7

8,29

4 R

ubbe

r R

etur

ns

Rub

ber y

ield

– la

tex

K

g/ha

1,

499

1,50

2 1,

514

1,49

0 1,

463

1,43

2 1,

399

974

1,32

1 1,

262

1,21

3

Rub

ber y

ield

– tu

b lu

mp

Kg/

ha

1,34

9 1,

351

1,36

2 1,

341

1,31

6 1,

289

1,25

9 87

6 1,

189

1,13

6 1,

092

R

ubbe

r pric

e ‘0

00 K

ip/k

g 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8 7.

8

Rub

ber w

ood

yiel

d m

3 /ha

64

R

ubbe

r woo

d pr

ice

‘000

Kip

/m3

364

Tot

al R

ubbe

r R

etur

ns

‘0

00 K

ip

10,5

19

10,5

41

10,6

25

10,4

57

10,2

67

10,0

55

9,82

2 6,

834

9,27

7 8,

861

31,8

10

Ric

e R

etur

ns

Ric

e yi

eld

Kg/

ha

Ric

e pr

ice

‘000

Kip

/kg

Tot

al R

ice

Ret

urns

‘000

Kip

TO

TA

L R

ET

UR

NS

‘0

00 K

ip

10,5

19

10,5

41

10,6

25

10,4

57

10,2

67

10,0

55

9,82

2 6,

834

9,27

7 8,

861

31,8

10

NE

T R

ET

UR

NS

(NR

)

‘000

Kip

5,

126

5,17

4 5,

222

5,09

0 3,

720

4,67

8 4,

429

1,46

7 3,

874

3,49

4 23

,516

D

ISC

OU

NT

ED

NR

8%

dis

coun

t rat

e ‘0

00 K

ip

749

699

654

590

399

464

408

125

306

255

1,59

0 C

UM

UL

AT

IVE

NPV

‘000

Kip

1,

558

2,25

7 2,

911

3,50

1 3,

900

4,36

4 4,

772

4,89

7 5,

203

5,45

8 7,

048


144

Fig. 6.3 shows the estimated undiscounted annual net returns per hectare. It can be

seen that in the immature phase of the plantation net returns are only positive in Years

2 and 3 when development costs are minimal and a crop of upland rice is harvested.

Net returns become positive from Year 10 after tapping begins and from that point

follow the yield profile as shown in Fig. 6.2. At the end of the productive life of the

rubber in Year 35 there is an additional return from rubber wood.

-10,000,000

-5,000,000

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Year

Undi

scou

nted

Ann

ual N

et R

etur

ns (K

ip/h

a)

Figure 6.3: Undiscounted annual net returns using a wage rate of 17,000 Kip/person-day

However, when all costs and benefits are discounted at 8%, the result is as presented

in Fig. 6.4. In the initial period between Year 1 and Year 9 the discounted annual net

returns are negative in almost every year, except for Years 2 and 3 as before. From

Years 10 to 16 the discounted annual net returns are positive with a slight increasing

trend. Then, from Year 17 until Year 34 the discounted annual net returns steadily

decrease, until in Year 35 there is the additional return from rubber wood, though the


145

effect of discounting reduces the net return in this year from 24 million Kip to 1.6

million Kip.

-8,000,000

-7,000,000

-6,000,000

-5,000,000

-4,000,000

-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Year

Dis

coun

ted

Ann

ual N

et R

etur

ns (K

ip/h

a)

Figure 6.4: Discounted annual net returns using 8% discount rate and wage rate of

17,000 Kip/person-day

Fig. 6.5 shows the discounted net returns on a cumulative basis (or cumulative NPV)

over the life of the plantation. The cumulative NPV becomes positive from Year 23.

In other words, a planning horizon of at least 23 years is needed for this investment to

be attractive.

In terms of the three investment criteria applied, the NPV was 7.048 million Kip, the

IRR was 10.7% (well above the discount rate of 8%), and the BCR was 1.12. Hence

the investment in rubber in this case was clearly profitable, given the yield, price and

cost estimates and assumptions. The result is plausible and helps confirm the farmers’


146

assessment that smallholder rubber is a worthwhile investment, thus helping to

explain the expansion of rubber planting in the study village.

-15,000,000

-10,000,000

-5,000,000

0

5,000,000

10,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Year

Cum

ulat

ive

NPV

(Kip

/ha)

Figure 6.5: Cumulative NPV using 8% discount rate and wage rate of 17,000

Kip/person-day

6.3.7 Risk and uncertainty

The previous section presented the DCF analysis for a typical hectare of rubber in

Hadyao using a discount rate of 8%, an estimated wage rate of 17,000 Kip, and the

2005 market price of tub-lump rubber of 7,800 Kip/kg. However, when an investment

project involves forecasting future costs and benefits, particularly for a long-term

investment like rubber, there is no guarantee that the exact estimate of NPV, IRR, or

BCR will be obtained. Risk and uncertainty are always involved in predictions about

the future and should be taken into account in DCF analysis. There are various

methods to integrate risk and uncertainty into DCF analysis. The most commonly


147

used technique is sensitivity analysis. This establishes the degree to which the

outcome of the DCF analysis is susceptible to the assumed values used in the analysis.

The sensitivity analysis involves, first, identifying key variables which are likely to

have the greatest impact on the outcome of an investment project and are most

changeable or uncertain and, second, repeating the DCF analysis for high, moderate,

and low values for each of the key variables. As a consequence, a set of estimates of

NPV, IRR, or BCR will be obtained (Upton, 1996).

The key factors which are likely to profoundly affect the outcomes of the investment

in smallholder rubber in Northern Laos are the price of tub-lump rubber, the discount

rate, and the wage rate. For this study, the price of rubber was varied from a low of

5,460 Kip/kg to a high of 10,140 Kip/kg, 30% below and above the 2005 market

price. The low value for the discount rate was 5% and the high value was 13%,

reflecting the different sources of credit as discussed above. The wage rate was only

varied between 17,000 Kip/person-day, the estimated average opportunity cost of

family labour, and 25,000 Kip/person-day, the market wage rate.

Table 6.13 presents the results of the sensitivity analysis for the three discount rates

and three prices of tub-lump rubber at the estimated wage rate of 17,000 Kip/person-

day. At the low price, the investment in rubber was unprofitable at all discount rates.

At the 2005 market price the investment was profitable at the low and middle discount

rates, shading into the unprofitable zone at a discount rate of 13%. At the high price,

the investment was lucrative at all discount rates. Table 6.14 presents the results of the

sensitivity analysis at the market wage rate of 25,000 Kip/person-day. At the low

price and 2005 prices, investment in rubber was unprofitable at all discount rates. At

the high price, the investment was worthwhile at the low and middle discount rates,

but unprofitable at a discount rate of 13%.


148

Table 6.13: Results of DCF analysis for smallholder rubber in Hadyao (2005 prices and wage rate of 17,000 Kip/person-day)

NPV (Kip/ha) and BCR at selected discount rates Rubber prices (Kip/kg) 5% 8% 13%

IRR(%)

5,460 -4,958,000 (0.94:1)

-9,361,000 (0.84:1)

-10,847,000 (0.71:1) 3.4

7,800 23,038,000 (1.27:1)

7,048,000 (1.12:1)

-3,347,000 (0.91:1) 10.7

10,140 51,034,000 (1.61:1)

23,463,000 (1.40:1)

4,153,000 (1.11:1) 15.4

Table 6.14: Results of DCF analysis for smallholder rubber in Hadyao (2005 prices and wage rate of 25,000 Kip/person-day)

NPV (Kip/ha) and BCR at selected discount rates Rubber prices (Kip/kg) 5% 8% 13%

IRR(%)

5,460 -35,135,000 (0.69:1)

-30,017,000 (0.62:1)

-23,599,000 (0.53:1) -5.9

7,800 -7,139,000 (0.94:1)

-13,605,000 (0.83:1)

-16,100,000 (0.68:1) 3.4

10,140 20,857,000 (1.18:1)

2,807,000 (1.04:1)

-8,600,000 (0.83:1) 8.8

The findings from the sensitivity analysis show that at the low price of tub-lump

rubber the investment in smallholder rubber is no longer worthwhile, indicating that

the expansion of rubber planting may stop if there is a decline in the price of tub-lump

rubber in the future. In fact, at the wage rate of 17,000 Kip/person-day and a discount

rate of 8%, when the price of tub-lump rubber decreases more than 13% from the

current market price the investment in smallholder rubber becomes unprofitable. This

could perhaps be countered by increasing yields (e.g., through use of fertilizer) or

obtaining a higher farm-gate price by improving the quality of rubber and reducing

transport costs. Nevertheless, the current expansion is clearly vulnerable to a price

downturn.

It should be noted that the long-run investment decision (i.e., to establish a new

plantation) is different from the short-run decision to go on tapping an existing

holding. Once investment has occurred it is a ‘sunk cost’, so the decision to go on

tapping depends on whether the net returns to the additional labour used at least

equals the estimated opportunity cost of 17,000 Kip. The short-run decision whether

to continue tapping will vary depending on the yield level in each year. In the year of

lowest yield, a price decrease of 17% would be enough to discourage the farmer from


149

tapping, but in the year of peak yield, it would take a 60% price decrease for tapping

to become unprofitable. Moreover, in the case of the short-run decision, farmers can

stop tapping without damaging their investment, i.e., they can return to tapping again

when the price increases. This reduces the risk they face.

Similarly, at the high discount rate – in fact, at a threshold discount rate of 11% or

more – the investment is unprofitable, indicating that if farmers had to borrow money

at a high interest rate they may have to reconsider their investment. Farmers in

Hadyao have benefited from subsidized credit support with a low interest rate and a

long repayment period. However, the 8% real interest rate used for the base analysis

reflects commercial rates, indicating that all farmers really need is a grace period

during establishment, with deferred payments of principal and interest.

Again, when labour costs are valued at the market wage rate, even with the current

market price of tub-lump rubber the investment in smallholder rubber is not

worthwhile, suggesting that farmers could not afford to hire other people at the market

wage rate to carry out all of the labour requirements for rubber production. However,

it is not likely that farmers in the uplands of Northern Laos would rely on hiring

labour. According to the household survey in Hadyao, poor households normally used

only their family labour for rubber production while middle or wealthy households

used a combination of family labour and hired labour if they could afford to do so. It

is the ability to use family labour at low opportunity cost (as well as minimal

supervisory costs) that makes smallholder rubber an economic proposition, even with

low yields and quality. This suggests that labour costs may be a serious constraint for

estate production in this environment, without relying on imported labour.

There are other risks associated with the investment in smallholder rubber in the

uplands of Northern Laos, in particular climate and market uncertainty. The

occurrence of heavy frost in 1999, killing many rubber trees in Luangnamtha

Province, is the foremost climatic risk that farmers face. There is a justifiable concern

that this could happen again in the future as most rubber trees in Luangnamtha

Province are planted at an elevation of almost 700 metres above sea level. Another

concern is market uncertainty. The sudden but temporary close of border trade with

China in late 2006 is one example of market uncertainty that seriously affected Lao


150

rubber farmers as their only market is China. There is also the likelihood of

competition as other rubber producing countries are also increasing their production in

response to the rising global rubber demand. This may lead to a drop in the price of

rubber and as a result Lao rubber farmers may have to add value to their rubber

through better processing. An improved road network will also help to reduce

marketing costs and maintain the farm-gate price of rubber, but the pace and extent of

this investment in infrastructure is uncertain.

6.4 Other investment criteria

The usual criteria for investment in agriculture are those used above, namely, NPV,

IRR, or BCR. However, the conventional investment criteria may not be entirely

applicable in the case of semi-commercial smallholder agriculture, in which the

markets for land and labour are incomplete. It can be argued that the relevant criterion

is the net return to the family’s own resources of labour and land, sometimes termed

farm family income (Herdt, 1978). This can be computed by removing family labour

from the costs included in the DCF analysis (land was not costed in any case given the

restricted nature of the land tenure system). Using a discount rate of 8%, this gave a

substantially higher NPV of 50.945 million Kip. To put this in perspective, the NPV

per person-day was around 29,000 Kip. This is higher than the off-farm wage of

25,000 Kip/person-day, again reflecting the farmers’ calculation that rubber is a

worthwhile use of family resources.

Another criterion which a semi-commercial smallholding farmer would consider is

the short-term cash flow, taking borrowings and repayments into account. The cash

surplus for any period is defined as net cash flow plus cash loans received minus

payments of interest and principal (Dillon and Hardaker, 1993). Farmers could not

afford to have a negative cash surplus and would want to ensure they had the

capability to service their loans. Hadyao rubber farmers received loans with a 2%

interest rate and a 7-year repayment period in 1994-95 and then in 2003 they received

loans with a 7% interest rate and a 10-year repayment period. In both cases interest

charges were accumulated and paid at the end of the loan period. To check the

capacity of farmers to pay back their loans and not suffer a cash flow problem, cash

flow budgets were developed for the first eleven years of a one-hectare rubber

enterprise (thus including three years of tapping), using both current prices and


151

constant 2005 prices. It should be noted that the costs and returns of rice intercropping

in the initial three years of the plantation were not considered since rice seed was from

the farmers’ own stock and rice was not sold but only used for household

consumption. There were no cash labour costs as most of the labour was supplied by

household members.

The cash flow budget using current prices, which are the historical prices actually

encountered by farmers, is presented in Table 6.15. The capital required to establish

one hectare of rubber was about 0.973 million Kip, including the material costs for

land preparation, fencing, and rubber seedlings. Supposing this amount was advanced

as credit with an interest rate of 2% and a repayment period of seven years, the total

amount which would have to be paid back would be about 1.118 million Kip. Because

of the high inflation rate in the past decade, particularly in 1999, the capital

requirement for the establishment of one hectare of rubber in 1994 was low compared

to the first year revenue of around 2.949 million Kip. When taking account of the

amount paid back for the loan, the cumulative cash surplus after 11 years was 9.433

million Kip. However, there was a small negative cash surplus in Years 3 and 5 due to

the purchase of weeding tools, and a negative surplus in Year 7 when repayments fell

due, prior to the commencement of tapping, though the cumulative shortfall was

easily wiped out in the first year of production.

The cash flow budget using constant 2005 prices is shown in Table 6.16. The capital

required to establish one hectare of rubber was about 6.667 million Kip, which

includes the material costs for land preparation, fencing, and rubber seedlings.

Suppose this was supported by credit with an interest rate of 7% and a repayment

period of ten years, the total amount which would have to be paid back would be

about 13.115 million Kip. When taking account of the amount paid back for the loan,

the cumulative cash surplus was 3.776 million Kip. Again, there was a small negative

cash surplus in Years 3, 5, and 7 due to the purchase of weeding tools, but the

repayment of principal and interest in Year 10 caused the cash surplus to go negative

again, until the greater income in Year 11 wiped out the cumulative shortfall.

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

15

2

Tab

le 6

.15:

Cas

h flo

w b

udge

t fro

m Y

ear

1-11

(cur

rent

pri

ces)

Y

ear1

Y

ear2

Y

ear3

Y

ear4

Y

ear5

Y

ear6

Y

ear7

Y

ear8

Y

ear9

Y

ear1

0 Y

ear1

1 Pa

ymen

ts (K

ip)

Land

pre

para

tion

Axe

10

,000

Long

kni

fe

8,00

0

Fe

ncin

g

Ham

mer

4,

000

N

ails

15

,000

Bar

bed

wire

66

0,00

0

Post

s 13

2,00

0

Pl

antin

g an

d re

plac

emen

t pla

ntin

g H

oe

7,00

0

Rub

ber s

eedl

ings

13

0,90

0

W

eedi

ng

Smal

l kni

fe

1,50

0

2,00

0

2,50

0

4,00

0

4,50

0

5,50

0

Med

ium

kni

fe

5,00

0

8,00

0

11,0

00

14

,000

17,0

00

19

,000

Ta

ppin

g

Bow

l

47

6,00

0

Gut

ter

119,

000

Ir

on w

ire

400,

000

Pl

astic

bru

sh

6,00

0

Tapp

ing

knife

40

,000

44

,000

48

,000

Kni

fe sh

arpe

ning

ston

e

20

,000

24

,000

28

,000

Hea

dlam

p

13

0,00

0 15

0,00

0 17

0,00

0 C

olle

ctin

g

Smal

l buc

ket

10,0

00

12,0

00

14,0

00

B

ig b

ucke

t

40

,000

60

,000

70

,000

Plas

tic b

ag

240,

000

288,

000

336,

000

C

hem

ical

pow

der

100,

000

125,

000

150,

000

C

hem

ical

liqu

id

54,0

00

60,0

00

67,5

00

Sm

all b

rush

6,

000

6,40

0 7,

000

Tot

al P

aym

ents

(Kip

)

973,

400

10

,000

13,5

00

18

,000

1,66

2,50

0 76

9,40

0 91

5,00

0 R

ecei

pts (

Kip

)

Tub-

lum

p ru

bber

2,

949,

365

3,90

9,76

7 7,

080,

000

Tot

al R

ecei

pts (

Kip

)

2,94

9,36

5 3,

909,

767

7,08

0,00

0 N

et C

ash

Flow

(Kip

)

-973

,400

-10,

000

-1

3,50

0

-18,

000

1,

286,

865

3,14

0,36

7 6,

165,

000

Cas

h L

oans

Rec

eive

d (K

ip)

97

3,40

0

In

tere

st a

nd P

rinc

iple

Pay

men

ts (K

ip)

1,

118,

131

Cas

h Su

rplu

s (K

ip)

0

-1

0,00

0

-13,

500

-1

,136

,131

1,28

6,86

5 3,

140,

367

6,16

5,00

0 C

umul

ativ

e C

ash

Surp

lus (

Kip

)

0 0

-10,

000

-10,

000

-23,

500

-23,

500

-1,1

59,6

31

-1,1

59,6

31

127,

234

3,26

7,60

1 9,

432,

6001

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

15

3

Tab

le 6

.16:

Cas

h flo

w b

udge

t fro

m Y

ear

1-11

(con

stan

t 200

5 pr

ices

)

Y

ear1

Y

ear2

Y

ear3

Y

ear4

Y

ear5

Y

ear6

Y

ear7

Y

ear8

Y

ear9

Y

ear1

0 Y

ear1

1 Pa

ymen

ts (K

ip)

Land

pre

para

tion

Axe

50

,000

Long

kni

fe

50,0

00

Fenc

ing

H

amm

er

15,0

00

N

ails

50

,000

Bar

bed

wire

3,

300,

000

Po

sts

528,

000

Plan

ting

and

repl

acem

ent p

lant

ing

Hoe

30

,000

Rub

ber s

eedl

ings

2,

618,

000

Wee

ding

Sm

all k

nife

6,

000

6,

000

6,

000

6,

000

6,

000

6,

000

M

ediu

m k

nife

20

,000

20,0

00

20

,000

20,0

00

20

,000

20,0

00

Tapp

ing

B

owl

571,

200

G

utte

r

14

2,80

0

Iron

wire

44

0,00

0

Plas

tic b

rush

10

,000

Tapp

ing

knife

50

,000

50

,000

50

,000

Kni

fe sh

arpe

ning

ston

e

30

,000

30

,000

30

,000

Hea

dlam

p

19

4,00

0 19

4,00

0 19

4,00

0 C

olle

ctin

g

Smal

l buc

ket

15,0

00

15,0

00

15,0

00

B

ig b

ucke

t

80,0

00

80,0

00

80,0

00

Pl

astic

bag

360,

000

360,

000

360,

000

C

hem

ical

pow

der

160,

000

160,

000

160,

000

C

hem

ical

liqu

id

75,0

00

75,0

00

75,0

00

Sm

all b

rush

8,

000

8,00

0 8,

000

Tot

al P

aym

ents

(Kip

)

6,66

7,00

0

26,0

00

26

,000

26,0

00

2,

162,

000

972,

000

998,

000

Rec

eipt

s (K

ip)

Tu

b-lu

mp

rubb

er

6,57

2,87

1 6,

160,

845

8,36

7,27

3 T

otal

Rec

eipt

s (K

ip)

6,

572,

871

6,16

0,84

5 8,

367,

273

Net

Cas

h Fl

ow (K

ip)

-6

,667

,000

-26,

000

-2

6,00

0

-26,

000

4,

410,

871

5,18

8,84

5 7,

369,

273

Cas

h L

oans

Rec

eive

d (K

ip)

6,

667,

000

Inte

rest

and

Pri

ncip

le P

aym

ents

(Kip

)

13

,114

,998

Cas

h Su

rplu

s (K

ip)

0

-2

6,00

0

-26,

000

-2

6,00

0

4,41

0,87

1 -7

,926

,153

7,

369,

273

Cum

ulat

ive

Cas

h Su

rplu

s (K

ip)

0

0 -2

6,00

0 -2

6,00

0 -5

2,00

0 -5

2,00

0 -7

8,00

0 -7

8,00

0 4,

332,

871

-3,5

93,2

82

3,77

5,99

1


154

In practice farmers had little problem with cash flow and could comfortably pay back

the loans. This was, firstly, because they gained the benefit from high inflation in the

past decade, making the invested funds considerably cheaper in nominal terms by the

time of repayment, and, secondly, because the interest rate was subsidised and both

interest and principal payments were deferred. If they had not received the support of

such low interest loans, they may have had to finance the investment from their own

savings or borrow from other sources of credit with higher interest rates and shorter

repayment periods. As a result they may have had difficulty in paying back the loans.

This means that in order to invest in smallholder rubber, farmers in the uplands of

Northern Laos need credit supports, at least with a grace period during the

establishment phase if they are planting for the first time. Similar support (even

outright planting grants) has been given to rubber smallholders in the past in the major

producing countries, such as Thailand and Malaysia.

6.5 Conclusion

The results from the DCF analysis for the study village, given current market

conditions and credit support for establishment, show that the investment in

smallholder rubber production is profitable and this helps confirm that the expansion

of rubber planting in that village is based on good economic returns, even allowing for

some variability in price and cost assumptions. Therefore, rubber can be considered as

one of the potential alternatives for poor upland farmers in settings such as Hadyao, in

line with the government policy of restricting shifting cultivation and supporting new

livelihood options for poverty reduction. However, this analysis has focused on rubber

as a single farm enterprise. To decide on the optimal extent of rubber planting would

require an analysis at the whole-farm and whole-village scale, comparing rubber with

other farm enterprises and land uses, including forest conservation, which is beyond

the scope of the thesis.


155

Chapter 7

The Scope for Expanded Smallholder Rubber Production in

Luangnamtha Province

7.1 Introduction

The previous chapter presented a DCF analysis for smallholder rubber production in

the study village of Hadyao, showing that, under current market conditions and levels

of support, investment in rubber is worthwhile, explaining the recent expansion of

rubber planting in Hadyao and other villages in the study area. The purpose of this

chapter is to assess the scope for further expansion of smallholder rubber within

Luangnamtha Province. The approach was first to define representative scenarios in

spatial terms, drawing on concepts from land resource economics, then to estimate the

economic suitability of those scenarios for rubber planting. It needs emphasising that

this analysis is restricted to answering the question whether a given area is

economically suitable for rubber; it does not compare rubber with other agricultural or

conservation land uses.

7.2 Defining the scenarios

7.2.1 Conceptual basis of the scenarios

Different scenarios can be defined in many ways, depending on the criteria used. For

this study, the scenarios were based on the concept of land use-capacity, which is a

function of two major attributes – resource quality and accessibility (Barlowe, 1986).

These are in turn derived from the classical determinants of the net returns to land, or

‘land rent’, as first theorised by Ricardo (resource quality) and Von Thunen

(accessibility).

Resource quality involves the relative ability of the land resource to produce desired

products, returns, or satisfactions (Barlowe, 1986). With agricultural lands, quality is

usually viewed in terms of native fertility or fertility in combination with the ability to

respond to fertilizer inputs. Quality may reflect climate advantage – favourable

temperature and precipitation, low wind velocity, or infrequency of storms.


156

Accessibility involves the convenience, time, and transport cost saving associated

with specific locations with respect to markets, transport facilities, and other resources

(Barlowe, 1986). Areas near the road, city, or market have more advantage than those

located at greater distance. The extent of this advantage corresponds with differences

in transportation costs; fields located at greater distances from market naturally have

higher transportation costs and thus receive a lower price for products and incur a

higher price for inputs.

In discussions of the productivity of farmlands, use-capacity is often equated with

differences in fertility, and in discussions of site location advantage, it is frequently

associated with transportation costs. However, both these dimensions are relevant.

The areas with the highest use-capacity typically have the greatest inherent production

potential and most favourable location in terms of transport to markets.

The first task, therefore, was to define levels of resource quality and levels of

accessibility within Luangnamtha Province. These were then mapped separately

before being combined into scenarios which were also mapped.

7.2.2 Levels of resource quality

In general the potential yield is the best summary measure of resource quality because

it reflects all the different biophysical dimensions in a given location. Hence resource

quality categories were based on the aggregate yield of latex over the life of a rubber

plantation for various locations within Luangnamtha Province, estimated through the

biophysical component of the Bioeconomic Rubber Agroforestry Support System

(BRASS) (Fig. 7.1). As mentioned in Chapter 6, there are four main groups of

variables in the biophysical component of BRASS including climate, topography and

soil, management of rubber, and management of intercrop to be used for estimating

the yield of rubber. The climate and topography and soil groups of variables are

consistent with the concept of resource quality.


157

Figure 7.1: Defining levels of resource quality based on the yields estimated from

BRASS

For estimating the yield potential in various locations within Luangnamtha Province,

the climate, rubber management, and intercrop management variables were

maintained at the same values as for the case of study village. This is because the

climate does not vary greatly within Luangnamtha Province and was unlikely to be a

significant driver of differences in resource quality, and there was no reason to expect

any major differences in the management practices used as the technology of rubber

production in Hadyao and elsewhere in the province was similarly derived from

China. The details of these variables and the selected values or criteria are found in

Sections 6.2.2, 6.2.4, and 6.2.5 of Chapter 6.

However, the topography and soil variables, with the exception of maximum soil

moisture and wilting point, were varied depending on the measured characteristics of

soils in Luangnamtha Province. The variables of maximum soil moisture and wilting

point were set at the default values, as for the case of study village, because of the

lack of data on the water holding capacity of each soil texture in Laos. The details are

discussed in Section 6.2.3 of Chapter 6. The variables of topography, slope, soil

depth, drainage, % rock, soil texture, soil nutrients, and soil pH were all varied

according to the characteristics of soils in the Province. The details of the criteria for

these variables are found in Table 6.5 of Chapter 6. The decisions on which category

(good, moderate, bad) to use for each of the soil variables and which category

(terrace, flat) to use to represent the topography variable were based on land

characteristics or primary land attributes that were recorded by a soil survey in


158

Luangnamtha Province undertaken by the Soil Survey and Land Classification Centre

(SSLCC) of the National Agriculture and Forestry Research Institute (NAFRI).

For analysing these land characteristics, the soil map of Luangnamtha Province was

rasterized by using the grid spatial function in a GIS program (ArcView 3.2a) to

create 116 five km by five km grid cells (or mapping units), which represented both a

geo-registered grid map surface and an array of records in a tabular data matrix, with

each record representing a grid cell of those land characteristics. Each mapping unit

could contain one or more soil sampling sites, but for the purpose of mapping only

one site was randomly selected to represent the soil characteristics in each mapping

unit. The reason for this procedure was that different sampling sites could have

different land characteristics which could not be meaningfully averaged to get a

representative set of characteristics. The characteristics of the selected site

representing each mapping unit are presented in Appendix 3 and the selected

categories (good, moderate, bad) for the eight variables of topography and soil in each

mapping unit are presented in Appendix 4.

Fig. 7.2 shows how the soil properties from the survey were used to select the values

for topography and soil variables in BRASS. The category of soil nutrients was

derived from the percentage of organic matter. The categories of slope and

topography were based on the slope percentage. The category of soil depth was

defined as such. The categories of soil texture and drainage were derived from soil

texture. The pH in water (pH H2O) was used for defining the category of soil pH. The

percentage of stone contamination was used to define the category of percentage rock.

As discussed in Chapter 6, apart from the above variables, the biophysical component

also contains a number of indexes to account for the quality of the site, climate,

management practices, and the quality of genetic material. These indexes are termed

site index, latex index, girth clonal index, and yield clonal index. The values of these

indexes were kept the same as in the case study village. They are discussed in Section

6.2.6 of Chapter 6.


159

Figure 7.2: Defining topography and soil variables based on the soil properties in each

soil sampling site

By incorporating the same values for climate, rubber management, intercrop

management, and indexes as in Chapter 6 with the selected categories for the eight

topography and soil variables in Appendix 4, the yield of latex over the life of the

rubber plantation, of rice during the initial three years, and of rubber wood at harvest

for each mapping unit were obtained, as shown in Appendix 5.

Resource quality could be defined continuously or categorically into many levels, but

for this study it was classified into three levels – high, moderate, and low. The

decision on which level of resource quality represented each mapping unit was based

on average annual latex yields from Years 9 to 35 for each mapping unit (Appendix

5). These average yields then had to be categorized as high, moderate, or low. Fig. 7.3

presents the distribution of these average yields for each mapping unit. It can be seen

that the lowest group of yields was concentrated between 400 kg/ha and 1,000 kg/ha

making up about 14% of the total mapping units. The middle group was from 1,000

kg/ha to 1,300 kg/ha covering nearly 60% of the total mapping units. The highest

group of between 1,300 kg/ha and 1,600 kg/ha constituted around 26%. Therefore, the


160

low, moderate, and high yield levels were defined as average yields of less than 1,000

kg/ha, between 1,000 and 1,300 kg/ha, and greater than 1,300 kg/ha, respectively.

Figure 7.3: The distribution of average annual latex yields for each mapping unit

By integrating these three levels of yield in a GIS, a resource quality map for

smallholder rubber in Luangnamtha Province was produced (Fig. 7.4). It can be seen

that the majority of the area in the Province was at the moderate level of resource

quality, with only a small proportion at either the low or high level. The significant

features in terms of topography and soil properties for these three levels of resource

quality are presented in Table 7.1. The main differences were that the areas of low

resource quality were predominantly Eutric Cambisols that were shallow, rocky, of

poor nutrient status, and steeply sloping topography, while the areas of moderate


161

resource quality were predominantly Haplic Acrisols and Dystric Cambisols that were

limited by moderate levels of soil nutrients, soil pH, drainage, and steeply sloping

topography. The areas of high resource quality were predominantly Haplic Acrisols

that had good soil depth, texture, and drainage, and relatively flat topography. It is

interesting to note that Hadyao is located in a region of moderate resource quality.

Figure 7.4: Resource quality map for smallholder rubber in Luangnamtha Province


162

Table 7.1: The number of mapping units in each level of resource quality by topography and soil properties

Resource Quality Topography and soil properties Low Moderate High

Flat 12 Topography Terrace 15 71 18 Ferric ACRISOLS 4 Haplic ACRISOLS 4 32 13 Dystric CAMBISOLS 3 27 8 Eutric CAMBISOLS 8 Gleyic CAMBISOLS 5 Ferric LUVISOLS 1 Haplic LUVISOLS 5 4

Soil Unit

Haplic LUXISOLS 2 Bad 8 Moderate 5 4 Soil Depth Good 2 71 26 Bad Moderate 3 9 Soil Texture Good 12 62 30 Bad 8 12 Moderate 6 50 27 Soil Nutrient Good 1 9 3 Bad Moderate 15 38 19 Soil pH Good 33 11 Bad 3 9 Moderate 4 54 11 Drainage Good 8 8 19 Bad 8 Moderate % Rock Good 7 71 30 Bad 15 59 8 Moderate 12 10 Slope Good 12

7.2.3 Levels of accessibility

The accessibility attribute was also divided into three levels – good, moderate, and

poor accessibility – based on the distance from a main road. Areas less than 0.5 km

from a main road were defined as good accessibility, from 0.5 to 3.5 km as moderate

accessibility, and more than 3.5 km as poor accessibility (Table 7.2). By integrating

these three levels of accessibility in a GIS, an accessibility map for Luangnamtha

Province was produced (Fig. 7.5). The map also shows the transport infrastructure,


163

including main roads, cart-tracks, and footpaths, and the location of individual

villages.

Table 7.2: Criteria for defining levels of accessibility Levels of accessibility Distance from main road (km) Good < 0.5 Moderate 0.5 - 3.5 Poor >3.5

Figure 7.5: Accessibility map in Luangnamtha Province

Each level of accessibility had its own characteristics in terms of the location of

villages and the nature of transportation, including the dominant mode of transport


164

used and the condition of the road. Villages with good accessibility were located

alongside or very close to the main road, which is the main route linking

Luangnamtha Province with other northern provinces of Laos and Yunnan Province in

China, hence agricultural produce could be collected directly by traders or transported

by truck to the market (Fig. 7.6). Most villages with moderate accessibility were

located in gently sloping areas and could access the main road by cart-tracks, though

some may only have had footpaths. Agricultural produce from this zone was normally

transported by human-drawn carts (Fig. 7.7) to the side of the main road and then

collected by traders or transported to the market. Most villages with poor accessibility

were located in hilly areas reachable only by footpaths. Agricultural produce was

normally back-loaded (Fig. 7.8) to the main road and then collected by traders or

transported to the market.

Figure 7.6: Trucks waiting to collect tub-lump rubber at the roadside


165

Figure 7.7: Transporting rubber by cart

Figure 7.8: Transporting agricultural and forest produce using back packs


166

Obviously the time spent in transporting produce to the roadside increases as

accessibility declines due to the greater distance, poorer condition of the road, and

more difficult mode of transportation, resulting in higher unit cost of transportation.

However, it should be noted that these categories were not fixed; according to

provincial agricultural officials, some villages in the more accessible parts of the poor

accessibility zone had already started planting rubber, with the intention to upgrade

their footpaths to cart-tracks when they started tapping.

7.2.4 Scenarios in terms of resource quality and accessibility

After the levels of resource quality and accessibility had been defined, these

dimensions were combined to form scenarios. Three levels of resource quality and

three levels of accessibility gave nine scenarios (Table 7.3). For example, Scenario A

combined a high level of resource quality and a good level of accessibility, while

Scenario I combined a low level of resource quality and a poor level of accessibility.

Each of these scenarios were spatially referenced to the 116 mapping units referred to

above.

Table 7.3: The levels of accessibility and resource quality in each scenario Accessibility Resource quality Good Moderate Poor

High Scenario A Scenario D Scenario G Moderate Scenario B Scenario E Scenario H Low Scenario C Scenario F Scenario I

7.3 Economic suitability of each scenario

7.3.1 Introduction

In order to define the economic suitability of these scenarios, hence of the spatial units

they described, a DCF analysis was undertaken for each scenario. The DCF model for

a typical hectare of smallholder rubber production in the study village (using the

opportunity cost of farm labour and the mid-range discount rate) was modified by

developing new yield profiles from the BRASS model for each level of resource

quality and adjusting input and output prices based on the estimated unit transport

costs for each level of accessibility. However, the values of the other variables in the

DCF model for Hadyao, including the quantity of materials and days of labour used in


167

each phase of production (Section 6.3.2 of Chapter 6), were applied to all scenarios

within Luangnamtha Province as the technology and management practices were not

expected to differ. As each scenario was the combination of the level of resource

quality and accessibility, the first task was to estimate the yield profiles for each level

of resource quality, then to estimate the prices and wage rates for each level of

accessibility, and finally to undertake the DCF analysis for each scenario.

7.3.2 Yield profiles for each level of resource quality

The latex yields for each mapping unit were estimated by BRASS, as discussed in

Section 7.2.2 and presented in Appendix 5. These yields were then averaged across all

the mapping units in a given category of resource quality, giving the three latex yield

profiles shown in Fig. 7.9 and Appendix 6. The same procedure was followed for the

annual yield of intercropped rice and the yield of rubber wood (Table 7.4). It should

be noted that, as expected, the yield patterns of latex and rubber wood were consistent

with the levels of resource quality, i.e., the yields are higher for higher resource

quality, but the yield pattern of intercropped rice did not entirely correspond to the

level of resource quality, i.e., the rice yield was lower for the higher resource quality.

One possible explanation is that, with high resource quality, the rubber trees grow

faster, providing more shade and competing for more nutrients with the intercrop,

hence the intercropped rice yields less.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Year

Late

x yi

elds

(kg/

ha)

Low resource quality Moderate resource quality High resource quality

Figure 7.9: Latex yields for three levels of resource quality


168

Table 7.4: Yields of intercropped rice and rubber wood for three levels of resource quality

Intercropping rice (kg/ha)Levels of resource quality Year 1 Year 2 Year 3Rubber wood at harvest

(m3/ha) Low 1,724 1,584 1,296 34 Moderate 1,698 1,429 979 55 High 1,681 1,320 839 68

7.3.3 Prices for each level of accessibility

The prices in Table 6.9 of Chapter 6 were those that applied to the study village,

which was one of the villages with good accessibility. There is no information on the

prices in villages with moderate or poor accessibility. Hence those values had to be re-

estimated. The distance from the main road and the condition of the road or track

would determine the price of tub-lump rubber, other outputs, and material inputs for

each level of accessibility. For example, it would cost more to transport tub-lump

rubber from a farm located far from a main road than from one which was nearby.

Also, it would cost more to transport rubber from a farm accessed by a road in very

bad condition than from one located the same distance but along a road in good

condition. In this section, the percentage reduction in the farm-gate price of tub-lump

rubber for moderate and poor accessibility is estimated, and these percentages are

used to adjust other prices.

For the good accessibility zone it was assumed that there was no cost of transporting

the tub-lump rubber to the market as it was supposed that Chinese traders would bring

their trucks to buy the rubber at the roadside every month, as in Hadyao. Farmers

could stockpile their rubber at home and sell it directly to the traders. Hence, farmers

in this zone were assumed to receive the 2005 market price of 7,800 Kip/kg for their

tub-lump rubber.

For the moderate accessibility zone it was also assumed that there was no cost of

transporting the tub-lump rubber from the roadside to the market. The costs incurred

were the cost of transporting the tub-lump rubber from the rubber plot to the roadside,

the cost of building a shelter for storing the rubber, and the cost of guarding the rubber

stockpile by sleeping in the shelter overnight (Table 7.5).


169

Based on observations during fieldwork, one adult person using a two-wheeled cart

was able to transport 40 kg of tub-lump rubber per trip to the roadside. Each trip

would require about half an hour per km (including uploading, downloading, rest

breaks, and the return trip). Assuming 1,500 kg of tub-lump rubber sold per year (the

average in Hadyao), about 38 person-trips per year would be required. So the amount

of time spent transporting tub-lump rubber to the roadside in a year would be about 19

hours or 2.3 person-days per km, assuming a working day of 8 hours. If this labour is

valued at 17,000 Kip/person-day (the estimated average opportunity cost of family

labour), the cost of labour for transporting the tub-lump rubber to the roadside would

be about 39,000 Kip per km per year.

The cost of a hut for storing the tub-lump rubber was measured in terms of the labour

expended to build the hut, estimated to be 5 person-days. It was assumed that a hut

lasted for two years. At 17,000 Kip/person-day, the cost of a hut per year was about

42,500 Kip. The cost of guarding overnight was based on the number of nights needed

to look after the tub-lump rubber during the period of waiting for the traders. It was

assumed that the person who transported the rubber to the roadside would sleep

overnight by him/herself. Otherwise he/she would have to pay for another person to

look after the rubber. Within this zone a person could get all his rubber for the month

down to his storage hut in one day, requiring him only to stay overnight until the

traders came. This would occur once in each of the eight months of the tapping

season, making a total of eight nights per year. Using a wage rate of one-third the

market wage as this is light work with low opportunity cost, the cost of guarding

overnight per year was estimated to be around 67,000 Kip.

Altogether, the total cost of transporting the tub-lump rubber to the roadside from the

moderate accessibility zone was about 149,000 Kip per km per year. On a unit weight

basis the cost was about 100 Kip per kg-km.


170

Table 7.5: The cost of transporting tub-lump rubber from the moderate accessibility zone (0.5-3.5 km) to the roadside

Items Unit AmountQuantity of tub-lump rubber sold per household kg/year 1,500Quantity of tub-lump rubber which one adult labourer can transport by cart per trip

kg/trip 40

Time spent per km per trip hr/km/trip 0.5Time spent per km per year hr/km/year 18.8Labour used per km per year person-

day/km/year 2.3

Wage rate Kip/person-day 17,000Cost of labour for transporting the tub-lump rubber to roadside per km per year

Kip/km/year 39,100

Labour used for building a hut person-day 5Cost of building a hut Kip/year 42,500Cost of guarding overnight Kip/year 66,700Total cost per km per year Kip/km/year 148,300Total cost per kg of tub-lump rubber per km Kip/kg-km 99

For the poor accessibility zone it was also assumed that there was no cost of

transporting the tub-lump rubber from the roadside to the market as the Chinese

traders brought their trucks to buy the rubber at the roadside. The costs incurred were,

as before, the cost of transporting the tub-lump rubber from the farm to the roadside,

the cost of building a shelter for storing the rubber, and the cost of guarding the rubber

overnight (Table 7.6).

Based on observations made during fieldwork, one adult person could transport 20 kg

of tub-lump rubber per trip by back-loading to the roadside, requiring about 1 hour per

km (including uploading and downloading, breaks, and the return trip). With 1,500 kg

sold per household per year, about 75 trips per year would be required. So the time

spent transporting rubber to the roadside would be about 75 hours or 9.4 person-days

per km. At 17,000 Kip/person-day, the cost of transporting the rubber would be about

160,000 Kip per km per year.

The cost of building a hut for storing the tub-lump rubber would be the same as for

the moderate accessibility zone. The cost of guarding overnight was also estimated in

the same way as for the moderate accessibility zone. Assuming two people were

involved in transporting the rubber, it would take an average household five days to

bring down their rubber to the roadside, meaning one person would have to spend five

nights per month or 40 nights per year guarding the stockpile. At one-third the market


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wage, the cost of guarding would be about 333,000 Kip per year. While this might

seem unrealistic it serves to highlight the transportation bottleneck facing farmers in

the more remote villages.

Altogether, the cost of transporting the tub-lump rubber to the roadside from the poor

accessibility zone was about 536,000 Kip per km per year. On a unit weight basis, it

was around 360 Kip per kg-km.

Table 7.6: The cost of transporting tub-lump rubber from the poor accessibility zone (>3.5 km) to the roadside

Items Unit AmountQuantity of tub-lump rubber sold per household kg/year 1,500Quantity of tub-lump rubber which one adult labour can transport by back-loading per trip

kg/trip 20

Time spent per km per trip hr/km/trip 1Time spent per km per year hr/km/year 75Labour used per km per year person-

day/km/year 9.4

Wage rate Kip/person-day 17,000Cost of labour for transporting the tub-lump rubber to roadside per km per year

Kip/km/year 159,800

Labour used for building a hut person-day 5Cost of building a hut Kip/year 42,500Cost of guarding overnight Kip/year 333,300Total cost per km per year Kip/km/year 535,600Total cost per kg of tub-lump rubber per km Kip/kg-km 357

The estimated cost of transporting the tub-lump rubber to the roadside per kg and the

percentage reduction in the farm-gate price of tub-lump rubber for various distances

are presented in Figs. 7.10 and 7.11. For the moderate accessibility zone the cost of

transporting the tub-lump rubber was about 100 Kip at 1.5 km, 200 Kip at 2.5 km, and

300 Kip at 3.5 km. For the poor accessibility zone the range was much greater, from

around 1,500 Kip at 4.5 km to just under 8,000 Kip at 22.5 km (Fig. 7.10). It can be

seen that the transportation cost increased more sharply in the poor accessibility zone

than in the moderate accessibility zone due to the smaller maximum loads per trip and

slower speed when back-loading as compared with using carts.

The percentage reduction in the farm-gate price of tub-lump rubber was about 1.5% at

1.5 km, 2.5% at 2.5 km, and 4% at 3.5 km for the moderate accessibility zone and

ranged from nearly 19% at 4.5 km to just over 100% at 22.5 km for the poor


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accessibility zone (Fig. 7.11). In fact, the distance for the poor accessibility zone

extends further than the 22.5 km shown in the graphs because the percentage

reduction in the farm-gate price of tub-lump rubber for greater distances is over

100%. It is unlikely that farmers who live in these areas would plant rubber as the

price for their rubber would not even cover the transportation cost.

0

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Figure 7.10: The estimation of cost of transporting the tub-lump rubber to the roadside

by distance

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Figure 7.11: The percentage reduction in farm-gate prices of tub-lump rubber by

distance


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The estimation of the percentage reduction in the farm-gate price of tub-lump rubber

as presented above is consistent with the change in prices of agricultural produce and

purchased material inputs in other upland areas of Laos. A marketing survey by

Manivong et al. (2005) in the upland villages in Samet-Saysana Zone in Sayabouly

District of Sayabouly Province found that the prices of agricultural produce at the

mid-remote villages and the remotest villages were almost 50% and 75% lower than

at the market in town. This was because of the greater distance from the town, poorer

road condition, and the lack of market information. Therefore, villagers’ capacity to

obtain full value for their produce was very low and they had often been taken

advantage of in trading. Farmers in the remotest villages had to back-load their

produce to sell to traders who were waiting at the roadside or transport their produce

to the market by themselves by paying for transportation costs. Conversely, the prices

of imported goods such as salt, flavouring ingredients, clothes, construction materials,

and agricultural inputs sold in the mid-remote villages and the remotest villages were

nearly 50% and 75% higher than at the market in town. It should be noted that the

percentage reduction in prices of agricultural produce reported by that survey was in

the range of the percentage reduction in the farm-gate price of tub-lump rubber

estimated for the poor accessibility zone in this study, which likely corresponds to the

‘mid-remote’ and ‘remote’ classifications used by Manivong et al. (2005).

7.3.4 DCF analysis for each scenario

To perform DCF analysis for each scenario, the output of tub-lump rubber was

calculated from the latex yield profiles for each level of resource quality (Fig. 7.9 and

Appendix 6) by taking account of the estimated 10% loss in weight, as discussed in

Section 6.3.2 of Chapter 6. The outputs of intercropped rice and rubber wood for each

level of resource quality were calculated by using the yields in Table 7.4.

The prices of outputs and inputs had to be adjusted to reflect the variation in transport

costs associated with each accessibility zone. As shown in Fig. 7.11, there was no

change in the farm-gate price of tub-lump rubber in the good accessibility zone but

the percentage reduction in the farm-gate price varied within the moderate and poor

accessibility zones depending on the actual distance from the main road. Hence a


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price adjustment had to be made that was representative of the actual location of the

majority of the villages within these zones. This was done by using the average

distance from main road in each zone. The average distance of the villages located in

the moderate accessibility zone was about 2 km, ranging from 0.5 km to 3.5 km (Fig.

7.12). From Fig. 7.11 the percentage reduction in farm-gate price of tub-lump rubber

at this distance was around 2%. Therefore this percentage was used to adjust farm-

gate prices for those scenarios involving moderate accessibility (Scenarios D, E, and

F). The average distance to the main road of the villages located in the poor

accessibility zone was about 11 km, ranging from 5 km to 35 km (Fig. 7.13). From

Fig. 7.11 the percentage reduction in the farm-gate price of tub-lump rubber at this

distance was about 50%. Hence this percentage was used to adjust prices for the

scenarios involving poor accessibility (Scenarios G, H, and I).

Figure 7.12: Distribution of distance to the main road of villages in the moderate

accessibility zone


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Figure 7.13: Distribution of distance to the main road of villages in the poor

accessibility zone

Thus the farm-gate price of tub-lump rubber was unchanged for the good accessibility

zone and reduced by 2% and 50% for the moderate and poor accessibility zones,

respectively. The same percentage deductions were applied to the price of rubber

wood. The price of intercropped rice was increased by the relevant percentage as most

farmers were net purchasers of rice, hence every kilogram of rice produced substituted

for rice purchased from the market. The prices of material inputs were likewise

increased (Table 7.7). In principle, the opportunity cost of labour should also have

been adjusted to reflect increased distance but this would have introduced some

circularity as a figure of 17,000 Kip per person-day was assumed in computing

transport costs, labour being the main component of these costs. To the extent that the

opportunity cost of labour was in fact lower for the scenarios with poorer

accessibility, the estimated returns to investment in smallholder rubber would be

underestimated. However, it is unlikely that this would have greatly affected the

results reported below. Table 7.8 details the prices used for each scenario.


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Table 7.7: Percentage change in prices for each level of accessibility Level of accessibility Items Good Moderate Poor

Tub-lump rubber 0 –2 –50 Intercropped rice 0 +2 +50Rubber wood 0 –2 –50 Material inputs 0 +2 +50

Table 7.8: Prices of inputs and outputs used in DCF analysis for each scenario Scenarios A, B, C

Scenarios D, E, F

Scenarios G, H, I Items Unit

(Kip/unit) (Kip/unit) (Kip/unit) Materials Establishment phase Axe Piece 50,000 51,000 75,000 Long knife Piece 50,000 51,000 75,000 Hammer Piece 15,000 15,300 22,500 Nails Kg 10,000 10,200 15,000 Barbed wire Roll 150,000 153,000 225,000 Posts Post 2,000 2,040 3,000 Hoe Piece 30,000 30,600 45,000 Rubber seedlings Seedling 5,000 5,100 7,500 Rice seed Kg 2,000 2,040 3,000 Maintenance phase Small knife Piece 6,000 6,120 9,000 Medium knife Piece 20,000 20,400 30,000 Harvesting phase Bowl/cup Piece 1,200 1,224 1,800 Gutter/spout Piece 300 306 450 Iron wire Roll 220,000 224,400 330,000 Plastic brush Piece 5,000 5,100 7,500 Tapping knife Piece 25,000 25,500 37,500 Knife sharpening stone Set 15,000 15,300 22,500 Headlamp Piece 97,000 98,940 145,500 Small bucket Piece 7,500 7,650 11,250 Big bucket Piece 40,000 40,800 60,000 Plastic bag Piece 1,500 1,530 2,250 Chemical powder Kg 64,000 65,280 96,000 Chemical liquid Kg 50,000 51,000 75,000 Small brush Piece 4,000 4,080 6,000 Handy saws Set 500,000 510,000 750,000 Outputs Rice Kg 3,500 3,570 5,250 Tub-lump rubber Kg 7,800 7,644 3,900 Rubber wood m3 364,000 356,720 182,000 Costs of labour Wage rates Person-day 17,000 17,000 17,000

The results of the DCF analysis in terms of NPV, IRR, and BCR for each scenario

using a discount rate of 8% are shown in Table 7.9. It can be seen that the investment


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in rubber is clearly worthwhile in Scenarios A and D (NPV of 12-14 million Kip/ha),

and marginally so in Scenarios B and E (NPV of 1.5-3.0 million Kip/ha), but not in

scenarios C, F, G, H, and I (NPV < 0). Hence low resource quality and poor

accessibility combined to make rubber unattractive.

Given that these scenarios were based on the average distance from the road in each

accessibility zone, a threshold analysis was undertaken to see at what distance a

scenario might switch from unprofitable to profitable. It was found that the investment

in smallholder rubber was worthwhile in Scenarios A, B, D, and E (moderate to high

resource quality and moderate to good accessibility) even at the outer margin of the

relevant accessibility zone. Conversely, rubber was unprofitable in Scenarios C, F, H,

and I (low resource quality and poor to moderate accessibility) even at the inner

margin of the accessibility zone. However, for Scenario G, combining poor

accessibility and high resource quality, the investment became marginally profitable if

the plot was located less than 5 km from the main road, making the change in prices

less than 22%.

The nine scenarios were ranked according to NPV per hectare to give a measure of

economic suitability (or land-use capacity) for smallholder rubber in Luangnamtha

Province (Table 7.10). By integrating these nine categories of economic suitability in

a GIS, an economic suitability map for rubber in Luangnamtha Province was

produced (Fig. 7.14). Table 7.11 presents the areas in each rank. Given that the

categories 1 to 4 were associated with a positive value for NPV per hectare,

approximately 239,600 hectares (or 26% of the total provincial area) were considered

as economically suitable for smallholder rubber. These economically suitable areas

were concentrated along the main road, indicating that road access was a key factor,

but moderate to high resource quality was also important. However, only 1% of the

total area was highly suitable while 25% was marginally suitable, as defined above.

Fig. 7.15 aggregates the rankings in Fig. 7.14 to show the areas of highly and

marginally suitable land.


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Table 7.9: Results of DCF analysis for each scenario at 8% discount rate Scenario NPV (Kip/ha) IRR (%) BCR

A 13,935,000 13.8 1.24 B 2,730,000 9.5 1.05 C -15,428,000 -23.9 0.74 D 12,662,000 13.4 1.22 E 1,712,000 9.0 1.03 F -16,026,000 -26.5 0.73 G -17,769,000 -12.0 0.73 H -22,600,000 -37.2 0.66 I -30,250,000 NC* 0.54

Note: * Not Computable

Table 7.10: Ranking of economic suitability for rubber Ranking Scenario

1 A 2 D 3 B 4 E 5 C 6 F 7 G 8 H 9 I


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Figure 7.14: Economic suitability ranking map for smallholder rubber in Luangnamtha

Province

Table 7.11: Areas within each suitability rank in Luangnamtha Province Rank Areas (ha) %1 454 0.12 6,744 0.73 49,239 5.24 183,132 19.65 165,624 17.86 121,712 13.17 133,484 14.38 219,851 23.69 52,260 5.6Total 932,500 100.0


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Figure 7.15: Simplified economic suitability map for smallholder rubber in

Luangnamtha Province

It should be noted that these areas designated as economically suitable for smallholder

rubber are upper bound estimates, ignoring the requirements for other land uses such

as rice cultivation, residential areas, and conservation areas. Ideally, it would be

possible to overlay maps of these other uses to indicate the area remaining for rubber.

However, such data were not readily available. An indication can be given by using

the example of Hadyao. As discussed in Chapter 4, the land allocation process in

Hadyao resulted in 15.2% for conservation forest, 28.3% for protection forest, 36.9%

for agricultural land, 15.2% for plantation forest, 4.3% for grazing area and 0.1% for


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residential area. At the most, only agricultural and plantation land could be used for

rubber, accounting for about half of the village lands. If this proportion applied across

the Province, then 120,000 hectares or 13% of the total land area would be both

suitable and available for smallholder rubber (including marginally suitable land).

This still leaves open the question of how much land could or should be retained in

subsistence production for a balanced rural economy.

7.4 Conclusion

The results from this chapter indicate that the potential for smallholder rubber in the

study village is not an isolated case; there are other areas in Luangnamtha Province

that appear to be economically suitable for rubber. An upper bound estimate is that

26% of the Province has potential for rubber. However, this is based on analysis of the

rubber enterprise only and ignores the requirements of other land uses. If current land

use allocations are taken as a guide, perhaps only half of this potentially suitable land

is actually available for rubber planting. Nevertheless, given that rubber produces a

good financial return to the smallholder, whereas conservation areas generate mainly

non-market returns to the wider community, there may be increasing pressure to

reallocate land to tree crop production, raising important policy issues that are taken

up in the concluding chapter.


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Chapter 8

Conclusion

8.1 Background

In the past decade or more there has been major change in the uplands of Southeast

Asia due to the economic growth of these countries. One significant change in the

upland areas of Northern Laos in recent years has been the transition from subsistence

production based on shifting cultivation to smallholder commercial production.

Subsistence farmers in the uplands are becoming commercialized. The change in

farming systems in Northern Laos is a result of both the integration with the regional

economies of Southeast Asia, particularly Southern China, and of government policies

directed towards upland development. Most of the change in agriculture has been

driven by market forces and foreign investors, particularly from China. The

government policy of ‘stabilising’ shifting cultivation and improving road access has

helped drive the change.

The most extensive and rapid change in the uplands of Northern Laos has been the

expansion of smallholder rubber, made possible by robust global demand for rubber,

especially from China. While rubber provides an attractive investment opportunity for

foreign investors from China, Vietnam, and Thailand, the Government of Laos

envisages it as a way of stabilising shifting cultivation and generating income for

upland farmers. As a result of this rapid growth in market demand for rubber and the

support of government land-use policy, rubber is considered to be one of the

promising alternatives for upland farmers.

This study has examined the economic potential of smallholder rubber production in

the uplands of Northern Laos, particularly Luangnamtha Province. The specific

objectives were to appraise the economics of smallholder rubber production in an

established rubber-growing village (Hadyao in Namtha District), and to use this as a

basis for modelling the economic potential of smallholder rubber production in a

variety of settings to indicate the potential for further expansion in Luangnamtha

Province.


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8.2 Theoretical framework and methodology

The theory of intensification of shifting cultivation and of transition from subsistence

to commercial production was reviewed as a basis for understanding the change in

cultivation underway in the uplands of Northern Laos. Boserup’s theory of

intensification of food crop production from shifting cultivation to continuous

cultivation does not seem to apply to the mountainous terrain of Northern Laos.

Hence it may not be possible to ‘stabilise’ shifting cultivation without a transition

from subsistence production to new commercial crops. Myint’s theory of

commercialisation identifies two stages in this transition. In Stage I farmers maintain

subsistence output and use spare land and labour for the cash crop, while in Stage II

the expansion of the cash crop involves a reduction in subsistence output and greater

reliance on the market. This is encouraged by improvement in infrastructure, the

activities of market intermediaries, and increased confidence on the part of

smallholders in the benefits of producing for the market.

For many Southeast Asian upland farmers the transition from subsistence shifting

cultivation to cash crop production has involved the planting of tree crops or other

perennials. Barlow’s theory identifies five stages in tree crop development, starting

with subsistence agriculture with no plantation crops (as in Laos until recent decades)

and ending in a late advanced economy in which plantation crops have become less

profitable due to high costs of land and labour (a stage now reached by Malaysia and

Thailand). In the second stage (early agricultural transformation) subsistence

agriculture is still dominant and farmers adopt simple labour-intensive tree crop

technologies. In the third stage (late agricultural transformation) commercial

agriculture is dominant and new land- and labour-saving but more capital- and

management-intensive high-yielding tree crop technologies are generated and

adopted. In the fourth stage (early advanced economy) manufacturing is dominant and

the generation and adoption of tree crop technologies as in the third stage continues

and spreads to farmers in different circumstances. Upland farmers in Laos are clearly

in the ‘early agricultural transformation’ stage, but with the opportunity to borrow and

adapt tree crop technologies from neighbouring countries.


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The theory of transition implies that farmers are increasingly interested in the

financial returns they obtain from their investment. The conceptual model of

discounted cash flow (DCF) analysis was used for analysing the returns from the

investment of household resources in smallholder rubber production. The criteria of

DCF analysis used for appraising investment projects were net present value (NPV),

the internal rate of return (IRR), and the benefit-cost ratio (BCR). Within this

framework, consideration was given to the difficult subjects of the appropriate

valuation of unpaid household labour and of the appropriate discount rate to use in

calculating present values, given that farmers are only partially engaged in labour and

capital markets. In addition, when an investment project involves forecasting future

costs and benefits, particularly for a long-term investment like rubber, there is no

guarantee that the exact estimate of NPV, IRR, or BCR will be obtained. Therefore,

risk and uncertainty are taken into account in the DCF analysis through sensitivity

analysis. The conventional investment criteria (NPV, IRR, or BCR) may not be

entirely applicable in the case of semi-commercial smallholder agriculture, in which

the markets for land and labour are incomplete. It can be argued that the relevant

criterion is the net return to the family’s own resources of labour and land, sometimes

termed farm family income. This measure makes more sense in Stage I of the

transition, but in Stage II it makes more sense to value all resources at their

opportunity cost, with the exception of land as it is not transferable.

Since rubber is a long term investment, estimates of the yield of latex over the life of

the investment were required. Annual latex yields were estimated using the

Bioeconomic Rubber Agroforestry Support System (BRASS), which is the best

available tool for modelling smallholder rubber production. BRASS has a biophysical

and an economic component, of which only the former was used in this study. The

biophysical module incorporates many variables in order to estimate the intercrop

yields during the intercropping period, the stream of latex yields over the life of the

plantation, and the volume of harvestable timber at the end of the production period.

These variables are grouped into climate, topography and soil, rubber management,

and intercrop management. Though limited by the available data, the model provided

plausible estimates of latex yield over time, sufficient to be reasonably confident of

the economic appraisals undertaken.


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As well as considering economic returns over time, the study considered the spatial

potential of rubber. For this the concept of land use-capacity was essential. Land use-

capacity has two major components – resource quality and accessibility. Resource

quality involves the relative ability of the land resource to produce desired products,

returns, or satisfactions. Accessibility involves the convenience, time, and transport

cost saving associated with specific locations with respect to markets, shipping

facilities, and other resources. The areas with the highest land use-capacity ordinarily

have the greatest production potential and yield the highest return. In this study

resource quality was based primarily on the soil properties affecting latex yield, and

accessibility was based on the distance from the main road and the corresponding

mode of transporting rubber to the point of sale. These dimensions were mapped

using GIS techniques and incorporated in further DCF analysis, resulting in a map of

the relative economic suitability of the study area for smallholder rubber.

8.3 Key findings

Global rubber production is dominated by Thailand, Indonesia, and Malaysia. The

recent growth in rubber consumption is being driven by robust demand from China,

which is now the major consumer. As a result the price of natural rubber began to rise

again in 2002 after dropping for about 20 years. It has been forecast that the price of

rubber will continue to increase in the next ten years. However, this depends on China

maintaining its rate of economic growth and on the responses of other rubber

producing countries.

The economic structure of the rubber industry in the main rubber producing nations is

similar, with both estates and smallholders; however, smallholders have come to

dominate the planted area in these countries. Various schemes to support smallholder

rubber development have been implemented. Rubber smallholders in Thailand and

Malaysia have benefited from well-targeted technical and financial assistance over

many decades, conforming to the ‘dispersal strategy’ advocated by Barlow and

Jayasuriya (1984). An agency like the Office of Rubber Replanting Aid Fund

(ORRAF) in Thailand is a successful example of the assistance given to rubber

smallholders to help them through the establishment phase and to replant with high-

yielding clones. Some of the Malaysian agencies like the Rubber Industry

Smallholder Development Agency (RISDA) are more appropriate in the later stages


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of development when the opportunity cost of labour is higher and rubber holdings are

being left untapped. In Indonesia more reliance has been placed on nucleus estate and

smallholder schemes, which have been less effective. In the case of Laos, a ‘dispersal

strategy’ with widespread support for smallholders on the Thai model would seem

appropriate as the rubber industry is currently in the early phase of development.

Rubber has recently been introduced into upland areas of Laos, with relatively small

areas planted and even less under tapping. The rubber area is expanding rapidly in

response to growth in market demand from neighbouring China. Both local and

foreign investors, especially from China, Vietnam, and Thailand, have been interested

to invest in rubber plantations throughout the country by seeking land for concessions

and other arrangements. Currently, about 75% of rubber planting in Laos is through

concessions by both foreign and local investors, the rest is under smallholding farms.

In the study area the main arrangement is the direct financing of smallholders and the

roadside purchase of raw latex or ‘tub-lump’ rubber. The relative success of this

investment in smallholder rubber provides an important alternative model to the large-

scale concessions being sought.

Hadyao Village has become well-known in Laos as the first village to plant and tap

rubber. Rubber from Hadyao is sold directly to traders from China in the form of tub

lump. Due to the success of the early planters, rubber planting and production is

expanding rapidly in the study village, based on low-level technologies imported from

China and direct access to the Chinese market. After the first phase of rubber planting

in the mid-1990s, and with the recent upturn in price, there has been an increase in

rubber planting and rubber has become the main source of income for farmers in the

village.

The household survey in Hadyao shows that farmers are in the middle of a major

transition from primary dependence on the shifting cultivation of rice for subsistence

to dependence on smallholder rubber and the market economy. While rubber has

helped farmers increase their income, there are some emerging constraints. Land is

becoming a constraint due to a growing demand among farmers to expand their

rubber holdings, though less-accessible land is still available and some farmers are

able to plant rice and rubber in other villages. Labour is also becoming a constraint;


187

though at this stage family labour can handle the tapping, as more trees come into

production this will be a constraint, putting more pressure on rice production. Rubber

farmers may have to reduce further the area of rice or even stop growing rice

altogether if they want to expand their rubber holdings. The land and labour

constraints mean that most households do not attain rice self-sufficiency any more.

Hence many farmers have now moved into the second and more risky stage in the

transition from subsistence to commercial agriculture.

Despite the popularity of rubber and the stated intention of farmers in the study

village to stop shifting cultivation and plant only rubber, it is unlikely that upland rice

production will be replaced completely. Farmers still need to grow upland rice or

intercrop rice in their rubber plots, especially for those whose rubber trees are still

immature. Farmers also face the risk that the price of rubber will fall or that they

cannot sell to China. Hence they may need to expand rice production again. One

advantage of rubber is that, given a major market collapse, it is relatively easy to

revert to shifting cultivation, as seen among rubber smallholders in Indonesia and

Malaysia.

In addition, there has been an increasing inequality between the three wealth

categories of households, particularly between wealthy and poor households, in terms

of land and labour resources, and rice and rubber production. Wealthy households had

a larger labour force, were able to access more land, were better able to invest in large

livestock, produced more rice, were self-sufficient for more months, were less

dependent on upland rice, were less dependent on village land, were more likely to

hire labour, had planted more rubber trees, had more rubber trees in production, and

hence produced more rubber than average or poor households.

Smallholder rubber in Hadyao is based on simple labour-intensive technology

imported from China. The technology has been easily adopted by upland farmers as it

readily fits with their current shifting cultivation system. However, the technology is

not at the lowest level identified by Barlow (1997) as farmers are planting clones such

as RRIM600 and GT1, terracing their hillsides, and maintaining their holdings to a

reasonable standard. Moreover, their yields are comparable to smallholders elsewhere,

e.g. Southern China and North East Thailand. However, they do not fertilise their


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rubber trees and the latex is sold in raw form as ‘tub lump’ without even processing

into sheets. In the future farmers are likely to adopt higher levels of rubber production

and processing technology in order to get a higher return from their rubber holdings,

but this may depend on appropriate support, as discussed below.

The DCF analysis of a typical hectare of rubber in the study village, using a discount

rate of 8% and an estimated opportunity cost of labour of 17,000 Kip/person-day,

shows that the investment in rubber is worthwhile, whether using the conventional

investment criteria or the net return to the family’s own resources of labour and land

(farm family income). The analysis also shows that farmers had little problem paying

back credit, whether in nominal or real terms, or at subsidised or commercial interest

rates, except for the upper bound rate charged by moneylenders. The key was that

repayments of interest and principal were deferred until tapping had commenced. The

results from this analysis are likely to represent the reality of current investment in

rubber in the study village. That is the reason for the expansion of rubber planting in

that village and in other areas as it provides good economic returns to farm families.

This confirms the view that smallholder rubber is an economic proposition and

suggests that smallholders should be at the forefront of any national rubber

development policy.

The findings from the sensitivity analysis show that at the low price of tub-lump

rubber, e.g., a decrease of more than 13% from the current market price, investment in

smallholder rubber in Hadyao is no longer worthwhile, indicating that farmers may

have to re-evaluate their investment plans if there is a market downturn in the future.

However, for those with established gardens, for whom the investment is a ‘sunk

cost’, the price would have to fall up to 60% from 2005 levels before it would no

longer be worthwhile to tap. Even in that case, the rubber plots could be left untended

and ‘opened up’ again for tapping when prices rose sufficiently, which is the practice

of smallholders in other countries. The threat of price falls can also be countered to

some degree by adopting practices to improve yields in the future, as well as

improving the quality of the rubber to obtain a marketing premium. These would

translate directly into improved returns to family labour, hence higher household

incomes.


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Similarly, at the high discount rate, e.g. a discount rate of 11% or more, the

investment is unprofitable, indicating that if farmers had to borrow money at a high

interest rate they may have to reconsider their investment. Farmers in Hadyao have

benefited from subsidized credit support with a low interest rate and a long repayment

period. However, the 8% real interest rate used for the base analysis reflects

commercial rates, indicating that all farmers really need is a grace period during

establishment, with deferred payments of principal and interest.

Again, when labour costs are valued at the market wage rate, even with the current

market price of tub-lump rubber the investment in smallholder rubber is not

worthwhile, suggesting that farmers could not afford to hire other people at the market

wage rate to carry out all of the labour requirements for rubber production. However,

it is not likely that farmers in the uplands of Northern Laos would rely on hiring

labour. According to the household survey in Hadyao, poor households normally used

only their family labour for rubber production while middle or wealthy households

used a combination of family labour and hired labour if they could afford to do so. It

is the ability to use family labour at low opportunity cost (as well as minimal

supervisory costs) that makes smallholder rubber an economic proposition, even with

low yields and quality.

There are other risks associated with the investment in smallholder rubber in the

uplands of Northern Laos, in particular climate and market uncertainty. The

occurrence of heavy frost in 1999, killing many rubber trees in Luangnamtha

Province, is the foremost climatic risk that farmers face. There is a justifiable concern

that this could happen again in the future as most rubber trees in Luangnamtha

Province are planted at an elevation of almost 700 metres above sea level. Another

concern is market uncertainty. The sudden but temporary close of border trade with

China in late 2006 is one example of market uncertainty that seriously affected Lao

rubber farmers as their only market is China, though this source of risk is likely to

decrease in the long term. There is also the likelihood of competition as other rubber

producing countries are also increasing their production in response to the rising

global rubber demand. An improved road network will help to reduce marketing costs

and maintain the farm-gate price of rubber, but the pace and extent of this investment

in infrastructure is uncertain.


190

The spatial analysis of the potential for the expansion of rubber in other areas within

Luangnamtha Province shows that the potential for smallholder rubber in the study

village is not an isolated case; there are other areas in Luangnamtha Province that

appear to be economically suitable for rubber. Approximately 26% of the total

provincial area was considered as economically suitable for smallholder rubber, of

which only 1% was highly suitable and 25% marginally suitable. These areas were

concentrated along the main road, indicating that road access is a key factor, but

moderate to high resource quality was also important. It should be noted that these

areas designated as economically suitable for smallholder rubber are upper bound

estimates, which is based on analysis of the rubber enterprise only and ignores the

requirements for other land uses such as rice cultivation, residential areas, and

conservation areas. If current land use allocations are taken as a guide, at most only

half of this potentially suitable land (up to 13% of the provincial area) is actually

available for rubber planting. Nevertheless, given that rubber produces a good

financial return to the smallholder, whereas conservation areas generate non-market

returns, there may be increasing pressure to reallocate land to tree crop production,

raising important policy issues of how much land could or should be retained in

subsistence production for a balanced rural economy.

8.4 Policy implications

This study shows that, given current market conditions, investment in smallholder

rubber production in the uplands of Northern Laos can be profitable. The DCF

analysis for the study village shows that the expansion of rubber planting in that

village is based on good economic returns. The spatial analysis indicates that the

potential for rubber in the study village is not an isolated case; there are also other

areas in Luangnamtha Province that appear to be economically suitable for rubber.

Rubber can be considered as one of the potential alternatives for poor upland farmers,

in line with the government policy of stabilising shifting cultivation and supporting

new livelihood options for poverty reduction. However, the following issues need

consideration so that smallholder rubber can be a sustainable solution for poverty

reduction for Lao upland farmers.


191

As in the main rubber-producing countries, various support services for rubber

development need to be established in Laos, including technical support, extension,

credit, and marketing. A rubber research station should be established to provide

technical support for rubber cultivation. It will become important to make rubber

more productive through the adoption of improved technologies such as high yielding

varieties, fertilizer, and especially improved processing techniques. The rubber

seedlings should be produced in Laos with quality control to guarantee the high

quality of seedlings and their adaptability to local conditions. Apart from selling the

rubber in the form of tub-lump, Lao rubber farmers should be encouraged to do the

processing of latex into other forms such as raw rubber sheets or smoked rubber

sheets in order to increase the quality and value of their rubber. Smallholder rubber

groups or associations could be established in order to assist rubber farmers in

accessing improved production and processing techniques, and possibly to improve

their marketing. In addition, mechanisms to provide market information to rubber

smallholders, especially price information, need to be developed in order to protect

farmers from unfair trading. So far, rubber smallholders in Northern Laos receive

information on rubber prices only from Chinese traders. While Hadyao village

authorities have engaged in some prior negotiation with traders, it is essentially a

buyers’ market at present.

Financial support is crucial for smallholders to invest in a crop with a long

establishment phase like rubber. The analysis has shown that rubber is profitable at

commercial interest rates but farmers need credit to get them through to the tapping

period. If farmers had not received institutional credit with no repayments required

until after tapping had commenced, they would have had to draw on their own limited

savings or borrow from moneylenders at higher rates and on less favourable terms.

This would have reduced their ability to invest, even though the crop was profitable.

Moreover, better access to credit is usually associated with the possession of land

titles. However, as most Lao farmers have only temporary use rights, they have

difficulty in getting loans. Land certificates and tenure rights should be issued to

smallholders in order to improve access to long-term credit for investment in rubber

and other tree crops.


192

Improving road access should be considered as a high priority for the development of

the rubber industry in the uplands of Laos (as well as being part of a general poverty-

reduction strategy). This is evident from this study, with the economically suitable

areas for rubber mostly concentrated in the more accessible areas along the main

roads. When National Road No.3 is completed it will open new marketing

opportunities for many Lao upland farmers. However, upgrading village cart tracks to

all-weather roads is also needed to make marginally suitable land more profitable for

tree crop development. At the same time, pressure on land is increasing as more

farmers are interested to expand their rubber holdings. This will create inevitable

pressure to reallocate village lands for tree crop production. Hence land use policy

should discourage farmers from clearing village forests for rubber planting, but

instead encourage them to grow rubber on their degraded fallow land. This is

consistent with the government goals of reducing deforestation and shifting

cultivation.

In addition, research on rubber should be undertaken as part of agroforestry systems

and livelihood systems, including other crops, non-timber forest products (NTFPs),

and livestock, in order to reduce the risk from the boom-bust cycle of rubber, ensure

food security, increase income, and reduce negative environmental impacts from

monoculture rubber (loss of biodiversity, increased soil erosion, and reduced

watershed functions). Since most Lao farmers conventionally practise diversified

farming systems, rubber agroforestry systems could be integrated well into their

current farming systems. Instead of monoculture rubber, intercropping should be

promoted among smallholder farmers as intercrops provide additional income apart

from latex and rubber wood. Experience from other rubber-producing countries shows

that many types of cash crop can be intercropped with rubber such as rice, maize, tea,

coffee, cardamom, and others. Rubber-based systems with forages and livestock

raising can be developed for mature rubber plantations as well. Therefore, research on

different models of intercropping with rubber trees, both in the immature and mature

phases, should be undertaken to find suitable cropping models for the uplands of

Northern Laos. If farmers have a diversified farming system, they can stop tapping

when prices are low and concentrate on other crop and livestock activities, while

retaining their rubber trees for when the price of rubber rises again.


193

As mentioned at several points above, the study has highlighted the viability of

smallholder production in the uplands. To help reduce poverty among upland farmers,

smallholder rubber cultivation should be promoted ahead of large-scale private

concessions. Large-scale concessions could perhaps play a role as nucleus estate

models for transferring technologies to smallholdings, though this has not been

particularly successful in Indonesia. Since rubber offers good employment

opportunities, the policy should be to encourage the use of local labour. However, the

concern is that the amount of local labour needed for rubber planting and tapping

might be not enough to work on the large-scale rubber estates planned by investors

and the government, as Laos has low population and a small labour force. To

overcome the shortage of labour, foreign investors may seek to bring their own labour

and as a consequence there may be social problems. This may be exacerbated if local

farmers also feel they have lost their land to foreign concessionaires.

On the whole, the roles for government, as in other countries where smallholder

rubber has played a significant role in rural development, are to provide research and

technical support, to assist financially during the long investment period when no

income is generated, and to invest in roads and marketing infrastructure. In particular,

maintaining secure access to the China market will be crucial for the sustainability of

smallholder rubber in Northern Laos. More generally, the socioeconomic and

environmental impacts of the expansion of rubber planting should be carefully

monitored. Land use and livelihoods are undergoing rapid change in the uplands due

to the expansion of rubber. If carefully managed, this change has the potential to

contribute to sustainable rural livelihoods.


194

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207

Appendices

Appendix 1: Focus group interview guidelines Part 1. General information

1. In what year was the village established? 2. Where did the first settlers come from?

3. What were the major events happened in the village? What years did they happen?

Note: Ask villagers to provide information into the timeline history.

4. How many ethnic groups are there in the village?

5. How many households/populations were there when the village was established?

6. How many households/populations are there at the present time?

7. What are the occupations of people in the village?

8. What are the education levels of people in the village?

9. What is the socio-economic status of households in the village? Note: The classification of household is undertaken by the villagers themselves.

10. What were the livelihood activities (both agricultural and non-agricultural activities)

undertaken in the village? Note: Ask villagers to provide information into livelihood activities calendar.

11. How many households practice lowland cultivation, shifting cultivation and both

lowland cultivation and shifting cultivation? 12. What are the main sources of income of the village? How much are the amounts and

the rankings of those income sources?

13. Is there any problem of rice shortage in the village? If yes, how many households faced rice shortage? On average how many months did villagers face rice shortage? How did the rice shortage households solve this problem?

14. When was the land allocation taken place?

15. What are the land use types in the village?

Note: Ask villagers to draw a village resources map and also ask about the area for each type of land use.

16. What are the changes in land uses? For example, the change of agricultural land and

forest area.

17. How many areas (hectares) and productions (tonnes) of crops/fruit trees/tree plantations are there in the village?


208

18. What kinds of livestock were raised in the village? How many heads are there in each type of livestock?

Part 2. Rubber plantation information

19. When did rubber first introduce to the village? How many households planted rubber during that time? What was the total planted area?

20. When did rubber first harvest? How many areas were first tapped? What was the total

production?

21. At the present time how many households own rubber plantations? What is the total planted area and tapped area? What is the total production?

22. What is an average rubber holding plot and area?

23. Why did villagers start to grow rubber?

24. How did villagers know about rubber?

25. From whom did rubber farmers learn the techniques of rubber cultivation (planting,

tapping, processing)?

26. Where did rubber farmers get the funds to plant their rubber? If borrow, what is the interest rate? How long is the payback period?

27. What location (type of land, slope, elevation) was rubber planted in the village?

28. Did rubber farmers have enough labour for their rubber plantations? If not, where did

they get labour from? Did they hire labour? If yes, what was the wage rate? Was the wage rate the same for all types of work (land preparation, planting, tapping, collecting, processing, etc)? Were there any problems with hiring labour?

29. How was the land for rubber cultivation prepared? Did rubber farmers slash and burn

the field before planting?

30. What rubber varieties were used?

31. Where did rubber farmers get the rubber seedlings from? Did they make the seedlings nurseries?

32. How were the seedlings purchased? By cash, credit, or other forms? How much was

the price of seedlings?

33. What was the planting space? How many rubber trees were planted in one hectare?

34. Did rubber farmers intercrop their rubber plantations during the first few years after planting? If yes, what crops did they plant with their rubber trees? Did they grow any crops in the mature rubber?

35. Did rubber farmers raise livestock in their rubber plantations? If yes, what types of

livestock? Which period (immature or mature) of rubber cultivation did they raise?

36. Did rubber farmers use fertilizers? If yes, how often did they use? What kinds of fertilizers did they use; chemical or organic? What is the application rate? Which


209

period (immature or mature) of rubber cultivation did they apply? Did they use fertilizers every year?

37. Did rubber farmers clear weed? If yes, how often did they weed? How did they clear

weed? Did they clear weed by hand or use herbicides? If herbicides applied, what herbicides did they use? What is the application rate? Which period (immature or mature) of rubber cultivation did they apply? Did they use herbicides every year?

38. Did rubber farmers have problem of pests in their rubber plantations? If yes, what

kinds of pests were they? Which period (immature or mature) of rubber cultivation did the pests interfere? How did they solve the problem? If pesticides used, what pesticides did they use?

39. Did rubber farmers have problem of diseases interfered their rubber trees? If yes,

what kinds of diseases were they? Which period (immature or mature) of rubber cultivation did the diseases incur? How did they solve the problem? If chemical substances used, what did they use?

40. Did rubber trees die from cold weather? If yes, how did rubber farmers solve the

problem?

41. Did rubber farmers have problem of fire? If yes, did they have a system for controlling fire in their rubber plantations? Did they use fire line?

42. What tapping techniques were used? Which period of time did rubber farmers tap

their rubber trees and collect latex? What is tapping frequency? How many days in a month did they tap? How many months in a year did they tap?

43. To whom did rubber farmers sell their rubber? What forms of rubber did they sell?

What was the price of rubber? Were there any marketing problems? Where was the marketing information come from? Were there any contracts with companies or traders to buy rubber? What were the marketing arrangements?

44. Did rubber farmers process their rubber latex? If yes, which period of time did they

make processing? What forms did they process the latex into?

45. How did the rubber change the practice of rice shifting cultivation in the village?

46. What are the main problems of rubber cultivation in the village?

47. What is the future of rubber cultivation in the village?


210

Part 3. Materials used for one hectare of rubber plantation Production phases Materials Unit Quantity 2005 prices

(kip/unit) Working

life Establishment

Axe Land preparation Long knife Hammer Nail Barbed wire Fencing

Post Hoe Planting & replacement

planting Rubber seedlings Intercropping Rice seeds Maintenance

Small knife Weeding Medium knife Utilization

Bowl Gutter Iron wire Plastic brush Tapping knife Knife sharpening stone

Tapping

Headlamp Small bucket Big bucket Plastic bag Chemical powder

Chemical liquid

Collecting

Small brush Tree harvesting Handy saw Part 4. Labour used for one hectare of rubber plantation

Annual labour Production phases Activities Persons Days Person-days

Establishment Slashing Burning & clearing Land preparation Lining, terracing & holing

Fencing Fencing Planting Rubber planting & replacement planting

Rice sowing Intercropping Rice harvesting Maintenance Hand weeding Utilization

Tapping Collecting

Tree harvesting


211

Appendix 2: Household questionnaire Household no: ………………………………. Household wealth ranking: …………………. Interviewee: ………………………….……… Date of interview: …………………………… Interviewer: …………………………………. Part 1. General information

1. Household members How many people are there in your household (including the head of household)? ...… people Name Sex

(Male, Female)

Age Ethnic group

Years of schooling

Full-time labour

Part-time labour

Work on-farm

Work off-farm

2. Land resources

How many plots of land do you own or use or let others use? ……...………………..… plot(s) Plot no.

Plot name

Tenure status (Codes 1)

Tenure details Eg. Crop share

Area (ha or trees)

Land type (Codes 2)

Crops planted last year

Codes 1: O = Owned, B = Borrowed, R = Rented, OB = Others borrowed, OR = Other rented Codes 2: CP = Crops plantation, FR = Fruit trees plantation, TR = Trees plantation (including rubber), GA = Garden, FP = Fish pond, FA = Fallow land, OT = Other land (specific)


212

3. Livestock What types of livestock do you have? ………………….……………………….……………... Types of livestock Number (head)Buffalo Cow Goat Horse Pig Duck Chicken Fish Other (specific): ……….

4. Rice production

How many plots of land did you grow rice last year? ………………….……...……...…plot(s) Plot no.

Plot name

Location (Code 3)

Distance (km/walking time)

Elevation (Code 4)

Area (ha)

Production (kg)

Yield (kg/ha)

Code 3: IN: In the village boundary, OU: Outside the village boundary Code 4: FL = Flat land, GSL = Gently sloping land, SSL = Steeply sloping land How much rice did your household consume, purchase, borrow, or sell last year? Amount (kg) Consumption Purchase Borrow Sale The rice you produced last year is enough for ………………...…………………….. month(s)

If you have insufficient rice, How did you get the rice for the rice shortage month(s)? ____ Borrow ____ Buy ____ Eat other foods Why? ……………….…….. ____ Go without Why? …………….....…….. ____ Other (specific): …………………….………… If buy rice, Where did you buy? ____ Market ____ Neighbour ____ Other (specific): ………...…… If borrow rice, Where did you borrow? ____ Neighbour ____ Rice lender

____ Village rice bank ____ Other (specific): ……......….… What is the interest rate of rice loan? ………


213

If you have surplus rice, Did you sell rice? ____ Yes ____ No If yes, Where did you sell? ____ Market ____ In the village ____ Other (specific): ….……….. If no, Why? …………...………………..

5. Household main income sources and their rankings in terms of income earned and

labour used Main income sources Income earned ranking Labour used ranking Part2. Rubber cultivation information

6. Do you have any rubber plantations? ____ Yes ____ No

If no, Only ask these below questions Why did you not plant rubber? ………………...…...…………...… Do you have any plan to grow rubber in the future?

____ Yes ____ No

If yes, Why? …………………..………………… If no, Why? ………………………..……………

If yes, Continue to ask the next question until the end of the questionnaire

7. How many plots of rubber do you have? …………………………………….. plot(s) Plot no.

Plot name

Location (Code 3)

Distance (km/walking time)

Elevation (Code 4)

Land type before rubber (Code 5)

Area planted (trees or ha)

When planted

Trees died

When started tapping

Area tapped (trees or ha)

Code 3: IN: In the village boundary, OU: Outside the village boundary Code 4: FL = Flat land, GSL = Gently sloping land, SSL = Steeply sloping land Code 5: CL = Crops planted land, FA = Fallow land, UN = Unopened land, OT = Other (specific)


214

8. Why did you start to grow rubber? ……………………………...…………….….....… 9. How did you know about rubber? …………………………………..….................…… 10. From whom did you learn techniques for rubber cultivation?

____ Chinese people ____ Provincial agricultural and forestry officials ____ Other (specific): …………………………………………………….…..……

11. Where did you get the funds to plant rubber?

____ Your own money ____ Borrow ____ Other (specific): ……………………………………………………......….…

If borrow, Where did you borrow from? ____ Money lender ____ Agricultural Promotion Bank ____ Provincial government ____ Other (specific): ………………………………...…

What is the interest rate? …...…………………..…….….….. How long is payback period? …………...……………...……

12. Did you make replacement planting after the first planting?

____ Yes ____ No

If yes, For how many years? ……………...............……………...……..…… If no, Why? …………………………………...………………....……..……

13. What is the planting space? …………….……..………m X ………………………..m 14. What rubber clonal seedlings did you use?

____ RRIM600 Why did you use this? ……………....……... ____ GT1 Why did you use this? ………………...…… ____ Other (specific): …………… Why did you use this? ………………..….…

15. Did you make the seedling nursery?

____ Yes ____ No If no, Where did you buy the seedlings? …………………………...…....….

What was the price of the rubber seedlings? ……….……… kip/plant 16. Did you hire labour?

____ Yes ____ No

If yes, Which period of rubber plantation did you hire labour? ____ Establishment What for? ………………………………...… ____ Maintenance What for? ……………………………...…… ____ Tapping What for? ………...…………………………

If no, Why? …………………………...……………………………...….…..

17. Did you apply fertilizers with your rubber trees?

____ Yes ____ No

If yes, What fertilizer did you use? …………………………………...…....... What is the price of fertilizer? …………………………..…... kip/kg


215

What is the application rate? ………………………..…..…… kg/tree How many years did you apply? …………………...…………...…. How many times in a year did you apply? ……………...………..... How many persons apply fertilizers in each time? …….....….. person How many days spent for applying the fertilizers in each time? …day

If no, Why? ………………………………………...…………………..…… Will you apply fertilizers in the future? ____ Yes Why? …………………………………...………..….. ____ No Why? ……………………...………………...…….....

18. Did you clear weed in your rubber plantation?

____ Yes ____ No

If yes, How many years did you clear weed? ………………………...…...… How many times in a year did you clear weed? ……………...…...…. How many persons clear weed in each time? …………...…… person How many days were spent for clearing weed in each time? ....… day

If no, Why? …………………………...…………………………………..… 19. Did you use herbicide?

____ Yes ____ No

If yes, What herbicide did you use? ………………………...……………….. What is the price of herbicide? …………………...…………... kip/kg What is the application rate? ………………………...…....…. kg/tree How many years did you use? ………………………...……...……… How many times in a year did you use? ………...……………............ How many persons apply herbicide in each time? ……...…..... person How many days were spent for applying in each time? ……....… day

If no, Why? …………………………………………...………………..…… Will you use herbicide in the future? ____ Yes Why? ………………………………………...…....… ____ No Why? ………………………...…………............……

20. Did you have problem of pests in your rubber plantation?

____ Yes ____ No

If yes, What kinds of pests were they? …………………...……...………….. Which period of rubber cultivation did the pests interfere?

____ Immature period (year1-7) ____ Mature period (tapping period)

How did you solve the problems? ____ Used pesticides ____ Did nothing

If pesticides used, What did you use? ….…….. If nothing done, Why? ……………...….…...

21. Did you have problem of diseases interfered your rubber trees?

____ Yes ____ No

If yes, What kinds of diseases were they? ……………...……........................ Which period of rubber cultivation did the diseases incur?

____ Immature (year1-7) ____ Mature (tapping period)


216

How did you solve the problems? ____ Used chemical substances ____ Did nothing

If chemical substances used, What did you use?…… If nothing done, Why? ………..…….…

22. Did you have problem of fire?

____ Yes ____ No

If yes, How did you prevent the fire? ____ Dig a fire line ____ Other (specific): …………..…………...……….………

23. Did your rubber trees die from cold weather?

____ Yes ____ No

If yes, When? …………………………...…………………………....…...…. 24. Did you intercrop your rubber plantation during the first few years after planting?

____ Yes ____ No

If yes, Which crops did you intercrop? ………………………………...……. How many years did you intercrop? …………….…………...……..... How many times in a year did you intercrop? …………………...…...

If no, Why? …………………………………...………………………......… 25. Did you raise livestock in your rubber plantation?

____ Yes ____ No

If yes, What types of livestock? …………………………………..…………. Which period of rubber cultivation did you raise?

____ Immature (year1-7) ____ Mature (tapping period)

If no, Why? …………………………………………...…..………………… 26. For how many years after planting did you start to tap your rubber trees? ……………

How many months in a year did you tap? …. From (month) …...… to (month) …...… What is tapping frequency? ………………………………………………...….……… Which period of time did you tap your rubber trees? From (time) …. to …. (time) How many persons did tapping in a tapping day? ……………………......…… person

27. Which period of time did you collect latex? From (time) ….…. to ….…… (time)

How many persons collect latex? …………………………...………..……… person

28. To whom did you sell your rubber? ____ Lao traders ____ Chinese traders ____ Other (specific): ……………………..……...……………………………..…

Do you have any contracts with companies or traders to buy your rubber? ____ Yes ____ No

Did you have any marketing problem? ____ Yes ____ No

If yes, What kinds of problem? …………………………………...………...


217

How did you solve the problems? ………………………..………..… 29. Did rubber cultivation help increase your household income?

____ Yes ____ No If yes, In what way? ………………………………………...……………….. If no, Why? ………………………………………...………………………..

30. How did rubber cultivation change your practice of rice shifting cultivation in terms

of area? ____ Increased ____ Decreased ____ Unchanged Why? ………………………………………………….…...……………….……….….


of yield? ____ Increased ____ Decreased ____ Unchanged Why? ………………………………………………….……………...….……….…….


of labour used? ____ Increased ____ Decreased ____ Unchanged Why? ……………………………………………………………………….....…….….

33. Will you increase your rubber plantation in the future?

____ Yes ____ No

If yes, Why? ………………………………...………………………….….… Will you be able to access to land for expanding your rubber plantation?

____ Yes ____ No

If yes, How will you access to that land? ....………. If no, Why? …………...……………………...…...

If no, Why? …………………………………...………………………..…… 34. In your opinion, what are the main problems of rubber cultivation? ………...…...…… 35. Outputs from rubber plantation

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32.5

6 C

L 2.

283.

93

0.19

11.6

00.

06

10.0

0 0.

23

34.8

0 5.

09

3.99

0.

00

1.20

0.80

0.58

0.19

2.77

11

.77

23.5

3 e

72

LT.P

.220

A

Ch

D

32.1

6 35

.28

32.5

6 C

L 2.

283.

93

0.19

11.6

00.

06

10.0

0 0.

23

34.8

0 5.

09

3.99

0.

00

1.20

0.80

0.58

0.19

2.77

11

.77

23.5

3 e

73

LT.P

.220

A

Ch

D

32.1

6 35

.28

32.5

6 C

L 2.

283.

93

0.19

11.6

00.

06

10.0

0 0.

23

34.8

0 5.

09

3.99

0.

00

1.20

0.80

0.58

0.19

2.77

11

.77

23.5

3 e

74

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

75

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

76

LT.P

.117

C

Md

D

56.1

6 23

.28

20.5

6 C

L 1.

322.

28

0.11

11.5

80.

07

15.5

0 1.

72

10.8

0 5.

57

4.58

0.

00

3.20

1.60

0.30

0.15

5.25

9.

90

53.0

3 e

77

LT.P

.102

A

Cf

D

52.1

6 31

.28

16.5

6 SL

1.

883.

24

0.16

11.6

00.

05

17.5

0 0.

95

11.2

0 4.

92

3.79

0.

00

1.40

1.40

0.26

0.15

3.21

12

.36

25.9

7 e

78

P.N

T.33

9 C

Md

M

18.8

8 33

.28

47.8

4 H

C

2.48

4.28

0.

2111

.59

0.08

6.

75

0.65

7.

60

5.40

4.

41

0.00

6.

403.

600.

430.

2110

.64

19.8

0 53

.74

e

79

P.N

T.34

0 C

Md

D

41.8

4 18

.88

39.2

8 C

L 2.

724.

69

0.24

11.6

00.

08

6.25

0.

67

5.

60

4.96

0.

00

0.19

3.00

1.80

0.20

5.19

16

.94

30.6

4 e

80

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

81

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

82

MS

14

LVh

D

44.0

0 39

.00

17.0

0 LL

1.

953.

36

0.16

11.6

10.

05

4.50

1.

91

5.20

5.

90

4.90

0.

00

0.

800.

090.

23

83

LT.P

.229

LV

h D

46

.16

31.2

8 22

.56

LL

1.84

3.17

0.

1511

.61

0.07

5.

50

0.63

12

.40

6.02

4.

79

0.00

8.

602.

600.

280.

1611

.64

16.2

9 71

.45

d

84

LT.P

.229

LV

h D

46

.16

31.2

8 22

.56

LL

1.84

3.17

0.

1511

.61

0.07

5.

50

0.63

12

.40

6.02

4.

79

0.00

8.

602.

600.

280.

1611

.64

16.2

9 71

.45

d

85

LT.P

.220

A

Ch

D

32.1

6 35

.28

32.5

6 C

L 2.

283.

93

0.19

11.6

00.

06

10.0

0 0.

23

34.8

0 5.

09

3.99

0.

00

1.20

0.80

0.58

0.19

2.77

11

.77

23.5

3 e

86

LT.P

.220

A

Ch

D

32.1

6 35

.28

32.5

6 C

L 2.

283.

93

0.19

11.6

00.

06

10.0

0 0.

23

34.8

0 5.

09

3.99

0.

00

1.20

0.80

0.58

0.19

2.77

11

.77

23.5

3 e

87

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

88

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

89

LT.P

.102

A

Cf

D

52.1

6 31

.28

16.5

6 SL

1.

883.

24

0.16

11.6

00.

05

17.5

0 0.

95

11.2

0 4.

92

3.79

0.

00

1.40

1.40

0.26

0.15

3.21

12

.36

25.9

7 e

90

LT.P

.131

LX

h D

34

.16

33.2

8 32

.56

CL

1.76

3.03

0.

1511

.62

0.13

17

.75

1.64

32

.00

5.66

4.

63

0.00

3.

603.

400.

770.

157.

92

13.9

2 56

.90

e

91

P.N

T.32

3 C

Md

D

54.8

8 27

.28

17.8

4 SL

2.

203.

79

0.19

11.6

10.

06

11.2

5 0.

45

42.0

0 5.

77

4.74

0.

00

2.80

2.00

0.37

0.15

5.32

10

.17

52.3

1 d

92

LT.P

.233

C

Md

D

60.1

6 27

.28

12.5

6 SL

1.

602.

76

0.13

11.5

90.

06

8.50

0.

56

10.4

0 5.

39

4.35

0.

00

3.00

1.40

0.23

0.18

4.81

10

.81

44.5

0 a

93

P.N

T 33

5 C

Md

D

32.1

6 23

.28

44.5

6 H

C

1.96

3.38

0.

1611

.60

0.08

5.

00

1.55

15

.60

4.95

3.

87

0.00

1.

401.

200.

550.

083.

23

14.0

3 23

.02

e

The

Econ

omic

Pot

entia

l for

Sm

allh

olde

r Rub

ber P

rodu

ctio

n in

Nor

ther

n La

os

22

1

94

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

95

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

96

MS

14

LVh

D

44.0

0 39

.00

17.0

0 LL

1.

953.

36

0.16

11.6

10.

05

4.50

1.

91

5.20

5.

90

4.90

0.

00

0.

800.

090.

23

97

LT.P

.117

C

Md

D

56.1

6 23

.28

20.5

6 C

L 1.

322.

28

0.11

11.5

80.

07

15.5

0 1.

72

10.8

0 5.

57

4.58

0.

00

3.20

1.60

0.30

0.15

5.25

9.

90

53.0

3 e

98

MS

32

AC

h D

28

.00

34.0

0 38

.00

CL

1.95

3.36

0.

1611

.61

0.06

5.

35

2.06

25

.60

5.20

4.

20

0.00

1.10

0.52

0.13

99

P.N

T.33

1 A

Ch

D

58.8

8 29

.28

11.8

4 SL

1.

121.

93

0.09

11.6

10.

04

6.25

0.

41

18.8

0 4.

96

3.90

0.

00

0.80

0.40

0.11

0.15

1.46

7.

16

20.3

9 e

100

MS

18

LVf

D

26.0

0 47

.00

27.0

0 LL

1.

432.

47

0.12

11.5

80.

03

3.65

1.

67

5.60

5.

60

5.50

0.

00

0.

600.

100.

20

101

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

102

LT.P

.125

C

Md

D

52.1

6 29

.28

18.5

6 SL

2.

083.

59

0.18

11.5

90.

14

11.0

0 0.

97

8.80

4.

95

3.83

0.

00

0.80

0.60

0.19

0.15

1.74

10

.74

16.2

0 e

103

LT.P

.131

LX

h D

34

.16

33.2

8 32

.56

CL

1.76

3.03

0.

1511

.62

0.13

17

.75

1.64

32

.00

5.66

4.

63

0.00

3.

603.

400.

770.

157.

92

13.9

2 56

.90

e

104

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

105

MS

14

LVh

D

44.0

0 39

.00

17.0

0 LL

1.

953.

36

0.16

11.6

10.

05

4.50

1.

91

5.20

5.

90

4.90

0.

00

0.

800.

090.

23

106

MS

14

LVh

D

44.0

0 39

.00

17.0

0 LL

1.

953.

36

0.16

11.6

10.

05

4.50

1.

91

5.20

5.

90

4.90

0.

00

0.

800.

090.

23

107

LT.P

.223

C

Mg

D

54.1

6 17

.28

28.5

6 C

L 1.

442.

48

0.12

11.6

10.

03

23.7

5 0.

41

5.60

5.

02

4.07

0.

00

0.60

0.10

0.11

0.16

0.97

6.

07

15.9

8 b

108

LT.P

.223

C

Mg

D

54.1

6 17

.28

28.5

6 C

L 1.

442.

48

0.12

11.6

10.

03

23.7

5 0.

41

5.60

5.

02

4.07

0.

00

0.60

0.10

0.11

0.16

0.97

6.

07

15.9

8 b

109

P.N

T.33

1 A

Ch

D

58.8

8 29

.28

11.8

4 SL

1.

121.

93

0.09

11.6

10.

04

6.25

0.

41

18.8

0 4.

96

3.90

0.

00

0.80

0.40

0.11

0.15

1.46

7.

16

20.3

9 e

110

P.N

T.32

1 C

Md

D

26.8

8 27

.28

45.8

4 H

C

2.68

4.62

0.

2311

.60

0.15

3.

00

0.18

3.

60

4.98

3.

98

0.00

0.

802.

600.

300.

153.

85

14.8

8 25

.87

c

111

LT.P

.117

C

Md

D

56.1

6 23

.28

20.5

6 C

L 1.

322.

28

0.11

11.5

80.

07

15.5

0 1.

72

10.8

0 5.

57

4.58

0.

00

3.20

1.60

0.30

0.15

5.25

9.

90

53.0

3 e

112

LT.P

.223

C

Mg

D

54.1

6 17

.28

28.5

6 C

L 1.

442.

48

0.12

11.6

10.

03

23.7

5 0.

41

5.60

5.

02

4.07

0.

00

0.60

0.10

0.11

0.16

0.97

6.

07

15.9

8 b

113

P.N

T.32

9 C

Md

D

66.8

8 23

.28

9.84

SL

1.

282.

21

0.11

11.5

80.

05

14.2

5 0.

63

24.0

0 5.

27

3.99

0.

00

0.80

1.00

0.14

0.19

2.13

7.

53

28.2

9 b

114

LT.P

.223

C

Mg

D

54.1

6 17

.28

28.5

6 C

L 1.

442.

48

0.12

11.6

10.

03

23.7

5 0.

41

5.60

5.

02

4.07

0.

00

0.60

0.10

0.11

0.16

0.97

6.

07

15.9

8 b

115

LT.P

.223

C

Mg

D

54.1

6 17

.28

28.5

6 C

L 1.

442.

48

0.12

11.6

10.

03

23.7

5 0.

41

5.60

5.

02

4.07

0.

00

0.60

0.10

0.11

0.16

0.97

6.

07

15.9

8 b

116

P.N

T.32

9 C

Md

D

66.8

8 23

.28

9.84

SL

1.

282.

21

0.11

11.5

80.

05

14.2

5 0.

63

24.0

0 5.

27

3.99

0.

00

0.80

1.00

0.14

0.19

2.13

7.

53

28.2

9 b

Not

e:

SOIL

UN

IT: A

Cf =

Fer

ric A

CR

ISO

LS, A

Ch

= H

aplic

AC

RIS

OLS

, CM

d =

Dys

tric

CA

MB

ISO

LS, C

Me

= Eu

tric

CA

MB

ISO

LS, C

Mg

= G

leyi

c C

AM

BIS

OLS

, LV

f = F

erric

LU

VIS

OLS

, LV

h =

Hap

lic L

UV

ISO

LS, L

Xh

= H

aplic

LU

XIS

OLS

SO

IL D

EPTH

: R (R

ock

out c

rop)

= 0

-30

cm, S

(Sha

llow

soil)

= 3

0-50

cm

, T (T

hin

soil)

= 5

0-75

cm

, M (M

oder

ate

deep

soil)

= 7

5-10

0 cm

, D (D

eep

soil)

= >

100

cm

SOIL

TEX

TUR

E: C

L =

Cla

y Lo

am, S

L =

Sand

y Lo

am, L

L =

Ligh

t Loa

m, H

C =

Hea

vy C

lay

%C

= %

Org

anic

Car

bon,

%O

M =

% O

rgan

ic M

atte

r, %

N =

% N

itrog

en, C

/N =

Car

bon/

Nitr

ogen

Rat

io, T

OTP

= T

otal

Pho

spho

rus,

AV

AIL

P =

Ava

ilabl

e Ph

osph

orus

, TO

TK =

Tot

al P

otas

sium

, AV

AIL

K =

Ava

ilabl

e Po

tass

ium

, CA

= C

alci

um,

MG

= M

agne

sium

, K =

Pot

assi

um, N

A =

Sod

ium

, CEC

S =

Tota

l Bas

e C

onte

nt in

Soi

l, C

ECT

= To

tal E

xcha

ngea

ble

Cat

ion

in S

oil,

% B

S =

% B

ase

Satu

ratio

n SL

OPE

: a =

0-2

% (F

lat o

r alm

ost f

lat),

b =

2-8

% (U

ndul

atin

g), c

= 8

-16%

(Rol

ling)

, d =

16-

30%

(Hill

y), e

= 3

0-55

% (S

teep

ly d

isse

cted

), f =

>55

% (M

ount

aino

us)

Sour

ce: S

SLC

C, 2

005


222

Appendix 4: The selected categories for the topography and soil variables in each grid

Grid Soil depth Soil texture Drainage Soil nutrient Soil pH Topography Slope % Rock 1 Good Good Moderate Moderate Moderate Terrace Bad Good 2 Good Good Moderate Bad Good Terrace Bad Good 3 Good Good Moderate Bad Good Terrace Bad Good 4 Good Good Moderate Bad Good Terrace Bad Good 5 Good Good Good Moderate Good Terrace Bad Good 6 Good Good Moderate Moderate Moderate Terrace Moderate Good 7 Good Good Moderate Moderate Moderate Terrace Moderate Good 8 Bad Good Good Bad Moderate Terrace Bad Bad 9 Good Good Moderate Good Good Terrace Bad Good 10 Good Good Good Moderate Moderate Terrace Moderate Good 11 Good Good Good Moderate Moderate Terrace Moderate Good 12 Good Good Moderate Bad Good Terrace Bad Good 13 Good Good Good Moderate Good Terrace Bad Good 14 Good Good Good Moderate Moderate Terrace Bad Good 15 Bad Good Good Bad Moderate Terrace Bad Bad 16 Bad Good Good Bad Moderate Terrace Bad Bad 17 Good Good Moderate Moderate Moderate Terrace Bad Good 18 Good Good Moderate Moderate Moderate Terrace Bad Good 19 Good Good Moderate Moderate Good Terrace Bad Good 20 Good Good Moderate Moderate Good Terrace Bad Good 21 Good Good Moderate Bad Good Terrace Bad Good 22 Good Good Moderate Bad Good Terrace Bad Good 23 Good Good Moderate Moderate Good Terrace Moderate Good 24 Good Good Good Moderate Good Terrace Bad Good 25 Bad Good Good Bad Moderate Terrace Bad Bad 26 Good Good Moderate Moderate Moderate Terrace Bad Good 27 Good Good Moderate Moderate Moderate Terrace Bad Good 28 Good Good Good Moderate Good Terrace Bad Good 29 Good Good Moderate Bad Good Terrace Bad Good 30 Good Good Moderate Bad Good Terrace Bad Good 31 Good Good Moderate Bad Good Terrace Bad Good 32 Good Good Moderate Bad Good Terrace Bad Good 33 Good Good Good Moderate Good Terrace Bad Good 34 Good Good Good Moderate Moderate Terrace Moderate Good 35 Good Good Moderate Moderate Moderate Terrace Bad Good 36 Good Good Moderate Moderate Moderate Terrace Bad Good 37 Moderate Good Good Moderate Moderate Flat Good Good 38 Moderate Good Good Moderate Moderate Flat Good Good 39 Bad Good Good Bad Moderate Terrace Bad Bad 40 Bad Good Good Bad Moderate Terrace Bad Bad 41 Bad Good Good Bad Moderate Terrace Bad Bad 42 Good Good Good Moderate Moderate Terrace Bad Good 43 Good Good Moderate Moderate Moderate Terrace Bad Good 44 Moderate Good Moderate Moderate Moderate Terrace Bad Good 45 Moderate Good Moderate Moderate Moderate Terrace Bad Good 46 Moderate Good Moderate Moderate Moderate Terrace Bad Good 47 Moderate Good Good Moderate Moderate Flat Good Good 48 Good Good Moderate Moderate Moderate Terrace Bad Good


223

49 Good Good Moderate Moderate Moderate Terrace Bad Good 50 Good Good Moderate Moderate Moderate Terrace Bad Good 51 Bad Good Good Bad Moderate Terrace Bad Bad 52 Good Good Moderate Moderate Good Terrace Bad Good 53 Good Moderate Bad Moderate Moderate Terrace Bad Good 54 Good Moderate Bad Moderate Moderate Terrace Bad Good 55 Good Good Moderate Moderate Moderate Terrace Moderate Good 56 Good Good Good Good Good Terrace Bad Good 57 Moderate Good Moderate Moderate Moderate Terrace Bad Good 58 Good Good Good Moderate Moderate Terrace Moderate Good 59 Good Good Good Moderate Moderate Terrace Moderate Good 60 Moderate Good Good Moderate Moderate Flat Good Good 61 Good Good Moderate Moderate Good Terrace Bad Good 62 Good Good Moderate Moderate Moderate Terrace Bad Good 63 Good Good Moderate Good Good Terrace Bad Good 64 Good Good Good Moderate Good Terrace Moderate Good 65 Good Good Good Moderate Good Terrace Moderate Good 66 Good Moderate Bad Good Good Terrace Moderate Good 67 Good Moderate Bad Good Good Terrace Moderate Good 68 Good Good Good Moderate Moderate Terrace Bad Good 69 Good Good Moderate Moderate Moderate Terrace Bad Good 70 Good Good Moderate Moderate Moderate Terrace Bad Good 71 Good Good Moderate Moderate Moderate Terrace Bad Good 72 Good Good Moderate Moderate Moderate Terrace Bad Good 73 Good Good Moderate Moderate Moderate Terrace Bad Good 74 Good Good Moderate Moderate Good Terrace Bad Good 75 Good Good Moderate Moderate Good Terrace Bad Good 76 Good Good Moderate Moderate Moderate Terrace Bad Good 77 Good Good Moderate Moderate Good Terrace Bad Good 78 Moderate Moderate Bad Good Moderate Terrace Bad Good 79 Good Good Moderate Good Moderate Terrace Bad Good 80 Good Moderate Bad Good Good Terrace Moderate Good 81 Good Moderate Bad Good Good Terrace Moderate Good 82 Good Good Good Moderate Moderate Terrace Bad Good 83 Good Good Good Moderate Moderate Terrace Moderate Good 84 Good Good Good Moderate Moderate Terrace Moderate Good 85 Good Good Moderate Moderate Moderate Terrace Bad Good 86 Good Good Moderate Moderate Moderate Terrace Bad Good 87 Good Good Moderate Moderate Good Terrace Bad Good 88 Good Good Moderate Moderate Good Terrace Bad Good 89 Good Good Moderate Moderate Good Terrace Bad Good 90 Good Good Moderate Moderate Moderate Terrace Bad Good 91 Good Good Moderate Moderate Moderate Terrace Moderate Good 92 Good Good Moderate Moderate Moderate Flat Good Good 93 Good Moderate Bad Moderate Good Terrace Bad Good 94 Good Moderate Bad Good Good Terrace Moderate Good 95 Good Moderate Bad Good Good Terrace Moderate Good 96 Good Good Good Moderate Moderate Terrace Bad Good 97 Good Good Moderate Moderate Moderate Terrace Bad Good 98 Good Good Moderate Moderate Moderate Terrace Bad Good 99 Good Good Moderate Bad Good Terrace Bad Good 100 Good Good Good Moderate Moderate Terrace Bad Good 101 Good Good Moderate Moderate Good Terrace Bad Good 102 Good Good Moderate Moderate Good Terrace Bad Good


224

103 Good Good Moderate Moderate Moderate Terrace Bad Good 104 Good Moderate Bad Good Good Terrace Moderate Good 105 Good Good Good Moderate Moderate Terrace Bad Good 106 Good Good Good Moderate Moderate Terrace Bad Good 107 Good Good Moderate Moderate Moderate Flat Good Good 108 Good Good Moderate Moderate Moderate Flat Good Good 109 Good Good Moderate Bad Good Terrace Bad Good 110 Good Moderate Bad Good Good Terrace Moderate Good 111 Good Good Moderate Moderate Moderate Terrace Bad Good 112 Good Good Moderate Moderate Moderate Flat Good Good 113 Good Good Moderate Moderate Moderate Flat Good Good 114 Good Good Moderate Moderate Moderate Flat Good Good 115 Good Good Moderate Moderate Moderate Flat Good Good 116 Good Good Moderate Moderate Moderate Flat Good Good

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1,76

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61,

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1,73

3 1,

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1,68

61,

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1,62

71,

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41,

559

72

1,67

61,

293

806


228

Appendix 6: The annual latex yields over the life of the plantation for three levels of resource quality

Levels of resource quality Year Low Moderate High

1 0 0 0 2 0 0 0 3 0 0 0 4 0 0 0 5 0 0 0 6 0 0 0 7 0 0 0 8 0 0 0 9 509 815 1,004

10 477 764 941 11 648 1,038 1,277 12 678 1,086 1,336 13 709 1,134 1,395 14 725 1,160 1,425 15 761 1,216 1,495 16 801 1,280 1,572 17 825 1,317 1,618 18 838 1,343 1,652 19 842 1,359 1,675 20 840 1,368 1,690 21 644 1,070 1,330 22 817 1,362 1,695 23 792 1,341 1,676 24 769 1,325 1,663 25 728 1,281 1,619 26 713 1,279 1,625 27 700 1,284 1,640 28 668 1,258 1,618 29 632 1,228 1,592 30 594 1,196 1,563 31 554 1,161 1,531 32 298 783 1,079 33 464 1,080 1,455 34 407 1,021 1,396 35 355 971 1,347

the economic potential for smallholder rubber production...

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