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3rd Stakeholder Consultationon an ADB

Assessment, Strategy, and Roadmap

forAgriculture, Natural Resources,

and Environment (2017-2021)

Lao PDRMinistry of Agriculture and Forestry

22 September 2015

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Country Partnership Strategy (CPS)

• Defines how ADB will contribute to the development effort in Lao PDR.–2011-2016–2017-2021

• Prepare the ASRs for the main sectors which ADB will support.

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Overall & Sector Assessment

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Key macroeconomic data

• Economic growth: mostly from mining and hydropower

• Poverty and inequality rates

GDP growth• 2008 = 7.8% • 2014 = 7.4%• 2013 = 8.5% • 2015 = 7.0%

Poverty rate Inequality rate / Gini

1992 2013 • 2003 = 30.24

• National = 46%

• National = 23% • 2008 = 33.05

• Rural = 28.6% (LSB, 2012/13) • 2013 = 35.52

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Key macroeconomic data

Vulnerable / Sensitive

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Production and production trends

Rice• Self sufficiency since 2000• 2012: 77% of all farmers cultivating rice; 933,700 ha;

3.5 million tons of un-milled rice; estimated value of US$1 billion; 90% glutinous

• Yield: 1.26 tons/ha in 1976; 3.88 tons/ha in 2014 (VN=5.32)

Livestock• 29% of HHs raise livestock for saleFish• 50% of protein come from fish/aquatic products

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Production and production trendsForestry• 5% of national GDP • Wood products = 35% of national export earnings• Forest cover rates = decreased: 41% to 40% = 2002 to 2010

Industrial crops = increasing• Coffee

– Bolovens Plateaux: 70,000 ha = 95% of production – 75% of coffee plantations are owned by smallholder farmers

• Rubber - 225 concessions = 129,614 ha

• Cassava = 81,000 ha (2014)• Sugar cane = 36,000 ha (2014)• Bananas = 9,300 ha (2010/11) • Cardamom = 6,400 (2010/11)

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InfrastructureIrrigation• 458,325 ha; nearly 60% in Central Region, of which

10% is in Savannakhet

Roads• 90% of passenger traffic • 70% of freight traffic • 15% paved

Markets• 688 marketplaces: 434 permanent; 254 non-

permanent

Industry in SEZ• 157 companies invested SEZs: 109 foreign, 32

domestic, 16 joint ventures; US$1,000 + millionindustry: 28.03%

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Agriculture trade• Main destinations = Thailand, China, Vietnam• Exports in 2013

– Agricultural raw materials = 20% of all exports– Food items = 8% of all exports– Some rice exported to Vietnam, Thailand, and China

on informal basis – Other exports to Thailand, China, Vietnam and China

on informal basis – Other exports:

2012 (FAO) 2014 (World Bank)1. Coffee, green 1. Wood in the rough

2. Maize 2. Wood, simply worked

3. Fruit, fresh 3. Natural rubber

4. Bananas

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Key sector issuesFinancial • Constrained government budgets for development investment

and recurrent funding• Access to agricultural production credit and investment

financing • Limited scope of financial servicesPhysical • Mountainous terrain, limited arable land • Poor soils in many areas• Shortage of water resources for irrigation,Economic• Subsistence producers - Cautious about taking risks Limited

access to markets - Scattered production, poor transport infrastructure, limited domestic demand

Capacity• Weak institutional and technical capacities

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OpportunitiesNORTH ANNAMITE UPLANDS SOUTH & BOLOVENS CENTRAL & MEKONG

Ag products for tourism: heritage, cultural, eco-, agro-, export markets

Export primary products to Viet Nam for agro-processing, urban markets, re-export

Sufficient supplies of raw materials for agro-processing industries

Peri-urban agricultureIrrigated agriculture

Connectivity to PRC Connectivity to Viet Nam

Connectivity to Viet Nam, Cambodia, Thailand

Connectivity to Thailand

Potential for food centers / agribusiness clusters

RiceIndustrial crops: cassava, rubber, tobacco, maize, livestock, reservoir fisheries

• Rice• Horticulture:

coffee, fruit, tea, clean & organic products, NTFPs, bananas

• Rice• Horticulture:

fruit, clean & organic vegetables, NTFPs

Industrial crops: rubber, bananas, tea, NTFPs, maize, sesame

• Industrial crops: rubber, cassava, soybeans, sugar cane

• Industrial crops: rubber, cassava, soybeans, sugar cane

Results of the 1st & 2nd ASR-ANRE Consultation

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Themes from 1st Consultation • Up-scale and apply lessons learned (capitalization)• Up-scaling priorities:

– Infra: Irrigation , market and rural– Agro-processing infra

• Agribusiness clusters = food (processing) centers• Certification facilities = laboratories for safe food

products for export• Government provides infra – Private sector

operators • Climate instability adaptation infra• Quality improvement infra

– Cross-border trade infra• Logistics infra

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Themes from 1st Consultation • Convergence

– Unity of actions among government units– Effective policy implementation for common goals

• Inter-sectoral coordination – Convergence for more effective policy & program

implementation – Identify common goals: development, X-sectoral, sectoral– Policy guidelines are necessary to make it work

• Emphasis on quality over quantity – Clean agriculture products– Improvement of indigenous livestock herds– Coffee: organic, fair trade, hand-picked, shade-grown, GI

• Agriculture land management– Land classification: rice and other crops

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Themes from 2nd Consultation • Equitable and secure access to land • Focus on agri land management• Support for capital investment in land & agri mechanization• Adopt Voluntary Guidelines on Responsible Governance of

Tenure of Land, Fisheries and Forests in the Context of National Food Security & FAO’s Principles

• Stress importance of decree on decentralization (saam sang) • Focus on peri-urban agri around urban areas & on high-value

crops with low water use• Emphasis needed on farmer organizations and agri education• Support for agri credit, SME agribusiness investment,

commodity trading• Promote post-harvest technologies• Provide market information to producers• Emphasize farming systems diversification

ANRE Analysis

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Core sector problem

• Low agricultural productivity with a rapidly eroding natural resource base, and unrealized potential for trade.

• The result is that high levels of rural poverty, low levels of productivity, and poorly managed natural resource exploitation, are limiting the base to generate national income and development, and are increasing exposure to climate-related problems.

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Specific sector issues• Sustaining food security; pockets of food insecurity• Low effectiveness of water resources management and community

organizations• Irrigation development constrained by weak management capacity• Trade and value chain development constrained by limited rural

infra: roads, storage and post-harvest facilities, market facilities, logistical support services

• Re-orientation of research and extension: climate change adaptation and mitigation; new trade opportunities for non-rice crops

• Low level of food safety and understanding of SPS measures on agreed international standards impacts on domestic food security and trade

• Public sector management capacity and governance of ANRE needs to be strengthened

• Climate instability is already happening

SWOT factors

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Strengths• Availability of markets• Access to ASEAN markets• Supply of natural products• Producers without bad habits• Quality of agro-biodiversity• Long-term and significant donor

involvement/support; formal participation in formal regional development, trade and investment arrangements

• Resilience of rural communities

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Weaknesses• Marketing skills• Market access: TBT, cross-border trade logistics infrastructure• Quality control -- capacity to certify products for export• Inexperience with risk management • Inexperience of domestic agribusiness• Weak corporate governance• Lack of critical mass of raw materials • Weak monitoring of FDI business plans• Difficulty in obtaining production and investment credit• Land management; overlapping land concessions; protection forest• Lack of crop insurance / disaster risk insurance• Non-market failures: fundamentally weak sector governance • Market failures, weak accountability, (e.g., absence of property

rights, contract enforcement; fails to protect households and investors)

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Opportunities• Strategic location within GMS

• Membership in ASEAN

• Green growth opportunities

• Favorable trade conditions and access to markets

• Smallholder farmer systems more resilient to climate instability

• High level of awareness of agro-biodiversity (NTFPs)

• Major water resources development possibilities

• New mechanisms for environmental management

• Evidence of appetite for change among Lao sector policy-makers (ADS to 2025)

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Threats• Vulnerability to climate change/climate instability

and natural disasters• Vulnerability to external shocks• Strong presence of foreign investors • Land concessions not developed• Poor management of land concessions;

stewardship • Food safety and biosecurity systems are weak • International commodity price movements• ‘Soft’ social control systems can be exploited

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ADB in LAO PDR

• Lao PDR - member since 1966. • ADB sovereign loans 1970 - 2011

totalled $1,186.5M • With cumulative ANRE lending of

$183.24M (15% of ADB total). • ADB contributed 17% of ODA 2013/4. • 2012-2016 allocation to ANRE ~

$117.5M.

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Current Portfolio

• Mixture of:–Rural infra–Agri production and value chain–Conservation and bio-diversity–Climate change

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Key Lesson Learned - ADB

(i) Focus on limited number of sectors, where assistance can contribute to nationwide impacts and outcomes.

(ii) Larger loans and fewer TA projects to reduce transaction costs.

(iii) Assist the gov’t to increase the share of recurrent outlays in public spending, emphasising the consolidation of past gains.

(iv) Support improved financial management and budgeting processes.

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Key Lesson Learned in ANRE(i) ANRE important to county’s economy and linked to

poverty reduction;

(ii) Sector and project strategy - selective and focused;

(iii)Need to address broader economic and policy issues that adversely affect performance of agri sector;

(iv)Needs to adjust lending program to ADB’s own capacity to service projects;

(v) The key to successful development is to have replicable models as a basis of project design;

(vi)Irrigation models have been successfully developed (community-managed and farmer ownership)

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Key Lesson Learned in ANRE(vii) Need for ongoing technical support and

extension outreach after the infra schemes upgraded and turned over;

(viii) Iinflux of FDI and improved transport links to neighbouring countries, - much better access to markets for agri produce, but significant land use and social problems;

(xi) Better rural roads in poorer districts is a viable delivery mechanism to yield developmental benefits to poorer and remote communities;

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Key Lesson Learned in ANRE(x) Strong unmet demand for credit - Access to

finance is a constraint to expansion of agri values chains.

(xi) Creating linkages to village savings funds, upgraded rural livelihoods programs, and social protection initiatives can expand financial inclusion and more sustainably reduce poverty.

(xii)Agri extension has high pay-off when relevant to farmer needs, well supported by extension staff, and done over enough time to allow farmers to observe and digest the results

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Key Lesson Learned in ANRE

(xii)Transition to commercially oriented production is a lengthy process that is seldom achieved in less than 10 years or by any single project. Attitudinal change is a slow process; and

(xiii)Targets aimed at including vulnerable groups should be based on a thorough understanding of realities and local institutional capacity.

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Future DirectionConsiderations:• Lessons learned;• Debt level and economic impacts;• Assumed allocation 2017 – 2021 ~ $120M tbd;• Transaction costs;• Capacity to invest at large scale;• Partnerships;• Multi-sector solutions;• Integrate sustainable use and conservation of natural

resources & climate resilience into investments; and • Geo-target north and southern regions.

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Future Direction

Focus based upon considerations of ADB’s comparative advantage:• productive rural infra development; • commercial agri development; and,• institutional and human capacity

strengthening.

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Productive Rural Infrastructure

Irrigated agricultural development: • Investment in a phased program of irrigation

development, concentrating on community-based repairs, improvement, and maintenance.

• Increase productivity through the transfer of technologies linked to crop diversification for market-oriented crops and farming systems in support of rural income generation and regional trade development.

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Productive Rural InfrastructureMarket and value chain infra • Investment in rural market access roads,

village water supply, and trade logistics infra at priority X-border trade centres.

• Modernization of infra leading to pro-poor and green value chains and increased productivity of subsistence farmers.

• Basic socio-economic infra is needed to facilitate transport and distribution of food and agri commodities and agri production inputs.

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Sustainable Agricultural Commercialization

• Within the scope of ADB projects as appropriate - strengthen Farmer Organizations by collaborating with development partners:– civil society groups for partnerships with agro-

processors; – agribusiness that works with smallholder farmers under

reasonable contract farming arrangements; – farmer organizations to transfer post-harvest

technology and upgrade marketing skills; and– financial institutions that facilitate access to institutional

credit for farmer organizations and domestic SME agro-enterprises.

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Sustainable Agricultural Commercialization

• Off-farm income generating: post-harvest technologies; community-based value-added processing; and increased agri trade;

• Optimize efficiency of smallholder value chains based upon four critical interventions: (i) channel support into production clusters to achieve a critical

mass that attracts investors and traders; (ii) increase the production capacity of smallholders - use of

smallholder inclusive business models; (iii)develop producer organizations to improve market linkages on

a commercial basis; and,(iv)quality improvement along the supply chain to add value.

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Sustainable Agricultural Commercialization

• Support mechanisms - efficient operation of cross-border, regional, and global value chains, including platforms for public-private partnerships among Gov’t and agribusiness associations and farmer groups.

• Support convergence to ensure inter-sectoral coordination at the national level with key stakeholders, to: facilitate agri trade modernization; improve the logistics for X-border and regional agri commodities trading; and upgrade market infra.

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Institutional and Human Capacity Strengthening

Within the scope of ADB projects as appropriate – • Support agri technology transfer by

public sector & non-state actors;• Link to infra operations, • Capacity strengthening of farmer

organizations to participate in and respond to a modern market economy;

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Institutional and Human Capacity Strengthening

• Strengthen institutional, organizational, and human capacities to manage rural development, diversified farming systems, rural infra, and village-based preliminary agro-processing infra to improve competitiveness; including:– post-harvest handling, – primary value-added processing, and – marketing of agri commodities consistent

with SPS measures.

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Institutional and Human Capacity Strengthening

Emphasize two broad areas:

(i) individual and group capacity development; and,

(ii) institutional structures and processes, –prominent role for the private sector in

agro-economic development and increased partnership between gov’t and civil society organizations.

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Sustainable use and conservation of natural resources and climate

resilience

Within the scope of ADB projects as appropriate – • Continue support for environmental

and social protection for mainstreaming environment and social safeguards and of climate change adaptation