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Non-Wood Forest Products Marketing and Small Enterprise

Development for Poverty Alleviation in Lao PDR

International ConferenceSmall and Medium Forest Enterprise Development for Poverty Reduction:

Opportunities and Challenges in Globalizing MarketsCATIE, Turrialba, Costa Rica, May 23-25, 2006

Session 1: Enabling frameworks for poverty reduction through small and medium forest enterprise development

Vongvilai Vongkhamsao Khamphay Manivong

Joost Foppes Thibault Ledecq

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80% of Lao people live in countryside

They all collect Non-Wood Forest Products (NWFP) regularly

Poorest families and women are most dependent on NWFP

All NWFP consumed per household is $400 – 500 per year, or 30 - 40% of GDP

Private Sector under-developed, few NWFP companies

Mainly raw materials, low prices

Theme 1: Lao PDR: NWFP based economy

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Theme 1 (2): Descriptions of Small and Medium Forest-Based Enterprises (Forest SME) cases in Lao PDR

Case 1: Fresh mushroomsSavannakhet, Central Laos

•SME: 45 families collect wild mushrooms, now they want to cultivate mushrooms to add volume

•Main income is from upland farming, mushrooms are a side-income so far

•Income from selling wild mushrooms is about $30 per family per year, cultivating mushrooms is expected to add $150 per family

Case 2: Paper mulberry, “posa”(Broussonetia papyrifera)Luang Prabang,North Laos

•SME: 69 familiesare engaged in selling bark

•Market chain analysis showed little benefit in paper making at village level.

•Main strategy is now to increase outputs by planting 15 ha of “posa” and focus on better quality by special harvesting and processing.

•“Posa” provides 28% of family cash income per year, or 42$ per family.

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Theme 1 (3): More Forest SME cases from Lao PDRCase 4: Bitter bamboo shoots (Indosasa sinica) Oudomxay, North Laos

•Fresh vegetable, this variety sprouts in the dry season, high demand for off-season product

•Exported to nearby Yunan Province of China, big demand

•SME: Harvesting organized by a village selling group of 50 families (December-April), can collect 50 tons each year. They keep 10% of proceeds in village fund.

•Average income per family $100 or 40% of total family income.

•Bamboo forest of 550 ha, managed by villagers

Case 3: Rattan furniture (Calamus) Champasak, South Laos

•SME: a group of 36 families make rattan furniture all yearround as their main income source

•Low-cost furniture for national market, demand is increasing

•Annual income is $400 per family from rattan furniture selling, or 30% of total family cash income

•Biggest problem is to find raw material, all rattan is collected from the wild, sourced up to 100 km

•Efforts are made to grow rattan, butcanes will need at least 7 years to grow

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Theme 2: Political-legal framework for forest SME development (1): Key elements and issues

National Social Economic Development Plan (2005- 2010)

Forestry Strategy 2020 Forestry Law and

various decrees Decentralization decree Asean Free Trade Area

(AFTA) Export promotion

policies Land law

Some Strong and Weak Points:

+ Customary rights of villagers to collect NWFP for household use recognized

+ Good initiatives to promote exports (AFTA, product promotion strategies etc.)

– Access rights for commercial use are still confusing

– NWFP Trade and small enterprises suffer from over-regulation (quota, taxes etc)

– Few mechanisms or services to promote SME

Basic policies and legislation is in place…

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Themes 2,3: Political-legal framework for forest SME development (2): Forest Access and Resource Issues

Village rights to forests still unclear: land allocation? Concessions?

No documented systems for sustainable harvesting of NWFP

NWFP management is not based on resource assessments

Weak mechanisms for mediating conflicts between villages on sharing benefits from forests

Resource management should be an integral part of village socio-economic development plans

Clarify forest access rights for village producer groups, e.g. through detailed land use zoning, publicized maps

Integrate NWFP in forest management plans of (timber) production forests

Resource assessment should become a requirement for any forest-based enterprise

Some ways to improve:

Some issues:

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Themes 2,3: Political-legal framework for forest SME development (3): Over-regulation affecting markets

Some ways to improve: NWFP produced in

sustainable way do not need to be under forestry quota

Abolish quota, reduce agriculture and forestry tax

Increase tax from mining, industries

Promote SME support services, training and extension support

Develop national NWFP policy

“Chain of fees”: case of broom grass 400 ton/yr exported from Oudomxay

Province to Thailand Farm price 2,000 kip/kg Transport 200 kip/kg (10%) Taxes (10 types, over-regulation) 400 kip/kg (20%) Government takes $24,000 or

$40/ton from poor farmers Less tax would give better farm price

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Theme 4 Commercial forest management and rural livelihoods: (1) bamboo-shoots in Nam Pheng village

NWFP situation in 1996: Villagers are poor, sell

NTFP to buy food

Villagers competed with each other selling shoots by bundles, not per kg

Poor prices from traders

NWFP situation in 2006: Food security achieved

Income increased 5 fold

Diversified livelihoods

Village generates its own funds for development

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Theme 4 Commercial forest management and rural livelihoods: (2) interventions and impacts in Nam Pheng

IUCN Project InterventionsVillage rice banks: food security,

less need to sell NWFP cheaply

Forest land allocation: secure access, better harvesting rules and control

Marketing groups: selling in group, by weight, not by bundle

Drinking water supplies: Reduced workload, better health, more time to collect NWFP

Women’s savings group: Providing credit for new enterprises, more collaboration within village

Changes in wealth ranking for households 1996 - 2006, Ban Nampheng

0%

10%

20%

30%

40%

50%

60%

w ell-off middle poorest

Wealth Rank

Per

cen

tag

e o

f to

tal h

ou

seh

old

s

1996

2002

2006

Impacts: big increase in cash income (income multiplied by 5, 10% put aside for village development) food security reduced need to over-sell NWFP or sell cheaply Sustainable Forest Management Various wealth indicators: clean water, school, electricity supply

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Theme 4 Commercial forest management and rural livelihoods: (3) Potentials and limits for scaling-up

1. NWFP not a poverty “trap” but an “escape ladder”!

Increased cash income from NWFP sales holds over time Number of poor households was reduced over years Food security achieved, health and education improved NWFP funds are used to fund new small enterprises2. Side-ways and up-ways spread from pilot sites Ban Nam Pheng is very well known, institutional impacts: NWFP have become prominent in Government Policy NWFP network of 50 organizations replicate the model 3. How to scale up from here? Limits remaining: Poor leadership and organization skills at village level Lack of providers of training and other services needed

for successful group building It is not always easy to identify the “golden” NWFP

marketing solution… NWFP-based SME has to compete with “Big business”

(rubber, eucalyptus plantations)

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Theme 4 (4): Commercial forest management and rural livelihoods: Changing Context

NTFP-based SME have good potential for poverty alleviationbut they will get competition from large-scale small-holder schemes for planting rubber, eucalyptus etc.

Case of Rubber: 200,000 ha target, driven

by Chinese and Vietnamese investors

Promising income around $600-$1200 per family

Plantations will replace forests, reduce income from NWFP

What will be the long term effect on land tenure, on labor migrations (in- and –out) and on NWFP based SME?

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Theme 5: Forest SME and poverty reduction: (1) Understanding the value chain

Phase 1: Assess the Existing Situation. List existing resources and products and identify local people interested in developing enterprises

Phase 2: Identify Products, Markets and Means of Marketing. Identify potential markets and resources by local people. Organise stakeholder meetings. Identify opportunities and constraints to select promising NWFP products.

Phase 3: Plan Enterprises for Sustainable Development. Prepare enterprise strategy and business plans. Entrepreneurs are guided through a pilot phase and training, learn to monitor progress and to adapt when change is needed.

FAO&RECOFTC Market Analysis and Development (MA&D) approach:

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1. Between Village Producers and Traders• Market demand and quality requirements clarified• Stakeholder meeting generate solutions and agreements• Village groups want technical training, who can provide?• Village groups need better access to credit

2. Between Village Producers and Government• Village groups want to be registered as SME, have quota• Village groups need clearer rules and recognition of their rights to access/use forests• Villagers need extension support from Government to scale-up the facilitation of MA&D processes country-wide

3. Between Traders and Government• Traders and Government want to build Market Information Systems (MIS) at province and national level• Traders need more efficient trade permits and tax systems• Government needs a more equitable tax system

Theme 5: Forest SME and poverty reduction(2) Impact of MA&D on relations along the chain

trader

village

Gov.

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Theme 5: Forest SME and poverty reduction(3) How are benefits shared?

Who? Benefits Costs Issues

Villagers

food security cash income large share of value kept (50%?)

labor loss of resource

resource dwindles low prices keep income low

Government

tax income saving 30% of GDP every year as villagers feed themselves

very little, as we do not invest in resource management

low income from NTFP sub-sector biodiversity loss

Lao companies

easy to sell to foreign buyers (but can only sell raw)

quota system credit for cash advances

low benefits no incentive for investment

Foreign buyers

cheap raw material no responsibility to manage resource

low costs as prices stay low

low quality insecure supply

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Theme 5 (4): Missing technical, business and financial services

B: Missing Services: Training service providers,

increase number and skills of (district) extension officers

Finance service providers for NWFP producer groups, how to promote saving groups

Storage capacity to benefit from seasonal price changes Support for institutional change

in Government services in NWFP sector: tax, quota, forest tenure

Challenge: how to develop such services and their suppliers?

A: Services provided by NAFRI/FAO/SNV:

1 Training services: Building producer groups and leadership skills Facilitating MA&D processes

at village (cluster) level Processing technology skills NWFP resource assessment

and plantation skills2: Market Information Service

Awareness raised National taskforce set up,

provincial initiatives Key elements and

approaches defined

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Enterprises/marketing groups

Financial services

Business development services and service

providers

- Marketing groups - Micro and small enterprises- Private sector investment- Integration into value chains

- Government institutions (NAFES,, NAFRI, TPC, PAFO, provinces- I/NGOs/projects-Associations/BMOs- Private enterprises/trainers

Sustainable management/

production system

Enabling policy environment

Research and information-MIS

Collaboration, linkages, and learning mechanism

- Village funds- Saving and credit groups- Financial institutions (Agriculture development bank, commercial banks, other banks/FIs)

Participatory (village based)

Theme 5 (4): Role of technical, business and financial services: support concept

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Conclusions NWFP are vital for rural livelihoods, they

are not a poverty trap but an escape ladder out of poverty

There is convincing evidence of the potential of NWFP-based SME for poverty alleviation and biodiversity conservation

Institutional challenges remain: To build organizations and leadership, especially

at village level To build up service providers delivering a range

of support services, especially at district level To create supportive policies based on

stakeholder consultation A national NWFP strategy is needed to link

national policy goals to building of province and district level institutions and more efficient and equitable regulations

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References: Binayee, Surya (ANSAB), Nepal, 2005. Marketing Information System: an overview of agriculture

marketing systems in South Asia. Technical report prepared for the FAO-TCP 3002 on Marketing System Development for NWFP in Lao PDR. February 2005.

Chandrasekharan, Dr. C. (FAO) 2006. Effective Policy, Law and Regulations for Sustainable Development and Marketing of Non-wood Forest Products. Technical report prepared for the FAO-TCP 3002

on Marketing System Development for NWFP in Lao PDR. February 2005. Connel, John (CIAT) 2005. Alternative Approaches to Agro-enterprise development. Presentation for the

Steering Committee of the CIAT-SDC Project on Small Enterprise Development in the Uplands (SADU), November 2005.

EDC, 2006. Participatory training and multi-stakeholder workshops on Village Level Capacity Building on Market Analyses and Development (MA&D) and Business Planning in 6 Villages

(TCP/LAO/3002) in Lao PDR. Technical report prepared for the FAO-TCP 3002 on Marketing System Development for NWFP in Lao PDR. January 2006.

Fisher, R.J, Stewart Maginnis, W.J. Jackson, Edmund Barrow and Sally Jeanrenaud, 2005. Poverty and Conservation: Landscapes, People and Power. IUCN, Gland, Switzerland, Cambridge, UK.

Ingles, Andrew W. (IUCN Asia) 2006. Non-timber forest products (NTFP) and rural livelihoods in Lao PDR: reducing poverty through forest development and conservation interventions. Presentation on behalf of IUCN-Asia for the GMS BCI symposium, April 2006.

Lecup, Isabel and Ken Nicholson (FAO) 2000. Community-based tree and forest product enterprises: Market Analysis and Development. A manual. FAO, Rome.

McLennan, Karen (WFP) 2004. VAM – VULNERABILITY ANALYSIS & MAPPING in Lao PDR: Analysis of Forest Dwelling Populations and Vulnerability to Food Insecurity at the Village Level. World Food Program, Lao PDR.

Rosales, Rina Mara, Mikkel F. Kallesoe, Pauline Gerrard, Phokhin Muangchanh, Sombounmy Phomtavong and Somphao Khamsomphou (IUCN & WWF) 2003. The Economic Returns From Conserving Natural Forests In Sekong, Lao PDR. IUCN Asia Regional Environmental Program, WWF Indochina Program, Ministry of Agriculture and Forestry, Lao PDR.

Vernon, Eddie, 2006. Marketing Analysis Report. Oudomxay Community Initiatives Support Project, Department of Planning, Oudomxay Province, Lao PDR, IFAD Loan No. 586-LA, UNOPS No. LAO/02/F01, LD No. LAO/412.

THANK YOU !Vongvilai Vongkhamsao, NAFRI, vongvilay_v@nafri.org.la P.O. Box 7174, Vientiane, Lao PDRKhampay Manivong, NAFRI, khamphay.m@nafri.org.la P.O. Box 7174, Vientiane, Lao PDRThibault Ledecq, FAO, victib@laotel.com P.O. Box 1640, Vientiane, Lao PDRJoost Foppes, SNV, jfoppes@snvworld.org P.O. Box 9781, Vientiane, Lao PDR