Latkhoy ViLLage VegetabLe farmers

Lao People’s Democratic Republic

Thongsavath Chanthasombath

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CONTENTS Summary ..................................................................................................................................... ii

1. The producers in the fresh vegetable supply chain .................................................................... 1

2. The supply chain coordinator .................................................................................................... 2

3. Nature and legal status of the main partners in the supply chain ............................................... 3

4. Description of each step in the supply chain .............................................................................. 4

5. Description of the management of the chain ............................................................................. 6

6. Value addition for each of the main parties in the supply chain ................................................. 7

7. PSA analysis of LVVF farmers .................................................................................................... 8

8. Conclusions and lessons learned ............................................................................................. 13

LIST OF TABLES AND FIGURES Tables Table 1: Yearly fluctuation of wholesale vegetable prices (LAK) ............................................................ 7 Figures Figure 1: Map of Lao People’s Democratic Republic showing Vientiane Capital ................................... 1 Figure 2: Vegetables under production by LVVF farmers ....................................................................... 2 Figure 3: Assembling operations before distribution ............................................................................. 5 Figure 4: PSA graph for participating group in Ms Khamby’s vegetable supply chain ......................... 10 Figure 5: PSA graph for farmers not involved in Ms Khamby’s vegetable supply chain ....................... 11

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SUMMARY This case study documents the situation of Latkhoy Village vegetable farmers in the Lao People’s Democratic Republic. These farmers deliver fresh produce to high-value markets in Vientiane City: hotels and restaurants. The farmers’ group has been created and is coordinated by a fellow farmer who is also collector for the group, Ms Khamby Sihavong. The case shows that a dynamic leading farmer who has a market outlet can help other smallholders to develop their production systems so as to group a larger quantity of produce to supply customers who are more demanding on quality. The leading farmer model of linking farmers with markets is particularly suitable in emerging markets where only limited numbers of consumers are demanding higher quality produce.

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1. THE PRODUCERS IN THE FRESH VEGETABLE SUPPLY CHAIN Latkhoy Village vegetable farmers (LVVF) is a group of farmers producing different kinds of leafy vegetables in the village of Latkhoy, Xaythany District, Vientiane Capital, Lao People’s Democratic Republic, which is about 30 km away from the capital city of Vientiane (Figure 1). Figure 1: Map of Lao People’s Democratic Republic showing Vientiane Capital

LVVF was organized in 2005 through the initiative of Ms Khamby Sihavong, the leading farmer who is the focus of this case study, mainly to serve the requirements of hotels and restaurants and partly that of conventional markets in Vientiane City while at the same time, helping fellow farmers in marketing their produce. LVVF is presently composed of 12 farmers, with an average farm size of 2−3 rais (1 rai = 1 600 m2) devoted to vegetables. The farmers traditionally grew yard long bean but they diversified their production by growing leafy vegetables due to the higher income that could be realized from the latter. The leafy vegetables include pakchoi, petchai, kale, green mustard, Chinese mustard, lettuce and kangkong. The farmers did not receive formal training in vegetable production; instead they learned the techniques from their parents and farm input providers (e.g. fertilizer and pesticide marketing agents). Their experience in growing vegetables was further enriched by exchanges with friends particularly on solving problems encountered on the farm. Because of these experiences, production methods have been improved, such as mechanized land preparation using hand tractor, raised bed production system, furrow irrigation using deep well and water pump together with a network of plastic pipes for water distribution, and application of fertilizers and pesticides following recommended dosages.

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2. THE SUPPLY CHAIN COORDINATOR The coordinator of the supply chain and leading farmer is Ms Khamby Sihavong, 42 years old, married to Mr Bunma Sihavong, 56 years old. The couple have four children with one son. Previously, she was a yardlong bean farmer on a rented farm measuring 1 600 m2 and personally sold the produce to the market. Her husband worked in a piggery company, outside of which he sidelined as a tuk-tuk driver. After saving some income for more than ten years, they bought a plot of land of 2 ha, 7 200 m2 of which was devoted to vegetable production while the rest was used for rice production and a fish pond. Ms Khamby has a 2-storey house, light truck, hand tractor, deep well and water pump for irrigation, and small farm equipment or tools (hoes, spade, sprinklers, baskets, etc.). She manages the farm, product collection and marketing while her husband takes charge of family administration.

The 7 200 m2 vegetable farm employs three persons and produces pakchoi, lettuce, petchai, kangkong, green mustard, Chinese mustard and kale (Figure 2). Figure 2: Vegetables under production by LVVF farmers

Vegetable production methods were handed over by their parents and improved through information exchange with friends and farm input providers. Aside from producing vegetables, the farmer also acts as a collector by buying the vegetable produce of other farmers in the area at prevailing market price and assembling it for distribution to market outlets every day. She gets daily information on market requirements and price of vegetables from the hotels, restaurants and wet markets she supplies. Her initial contact with hotels and restaurants was through her sister who has been supplying vegetables for this high-end market. She also helps fellow farmers by providing them with zero-interest loans for production expenses, payable when able, usually from the produce of the farmers. Because of these activities, she was able to establish good relationships with the farmers and at the same time, market the farmers’ produce at a premium price to institutional buyers. Her daily income rose to LAK200 000−500 000 or about US$20−50 from a previous daily income of LAK30 000. Her present annual income is more than LAK100 million.

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3. NATURE AND LEGAL STATUS OF THE MAIN PARTNERS IN THE SUPPLY CHAIN The supply chain is short and straightforward:

In this supply chain, the small vegetable farmers are linked to institutional buyers in Vientiane City through a fellow farmer who also acts as a collector: Ms Khamby. Since the farmer−collector is also part of the farmers’ group, the supply chain can be simplified to consist of only two components: the farmers’ group directly marketing their produce to institutional buyers. The farmers and farmer−collector are separate land owners while the institutional buyers are either small private businesses (Beau Rivage Hotel, restaurants) or corporations (Mekong Hotel). There is no written agreement or contract between the farmer and hotel outlets.

Latkhoy Village vegetable farmers

Farmer−collector Institutional buyers (hotels, restaurants)

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4. DESCRIPTION OF EACH STEP IN THE SUPPLY CHAIN Step 1: Production of vegetables. This stage involves all operations from seedling production and land preparation to cultural management practices just before harvesting. Vegetable seeds are sourced from a local agricultural supplies store. All farmers in the group use the same seeds and production practices. Land preparation is partly mechanized using a hand tractor, which is shared by the group, and 1 × 30 meter raised bed preparation and soil pulverization are done manually using farm tools like hand hoes and spade. Seedlings are usually prepared in seedbeds or seed boxes and transplanted to the raised beds 2−4 weeks after sowing. Transplanting is usually done late in the afternoon to avoid excessive wilting and the transplanted seedlings are watered regularly for fast recovery. Irrigation is done either by using sprinkler or by flooding the furrows through a network of PVC pipes attached to a water pump from a deep well. Fertilizer application involves the use of natural (manure or compost) and industrial (18-8-8 complete fertilizer) materials. Organic fertilizer is applied before transplanting by mixing it with the soil while complete fertilizer is side-dressed one week after transplanting. For one hectare area, 20−30 sacks of organic fertilizer and two sacks of complete fertilizer are used. Pesticide application usually follows the manufacturer’s recommendation. The insecticides Difos 33 and Chlorgyrifes are commonly used at 10−20 ml/20 litres of water while CG, Baket or Tipwathana are used to control snails. Pesticide spraying is done when signs of infestation are observed and is terminated two weeks before harvest.

To enable daily harvesting and delivery of produce to market outlets, staggered planting is employed. Continuous cropping is practiced but for some vegetables, they are not grown in the rainy months of September−October due to high disease incidence and high mortality.

Step 2: Harvesting and field handling. Harvesting is done daily usually between 16.00 and 20.00. All leafy vegetables are harvested about 50 days after transplanting by cutting at the base of the plant using a sharp knife or clipper in the case of pakchoi, petchai and green mustard, or by uprooting the whole plant for kale and Chinese mustard. The harvested produce is then trimmed of its outer leaves, sorted based on size and freedom from defects, and packed in baskets made of bamboo or plastic strips. For other leafy vegetables like kale, temporary wilting is induced by holding them at ambient temperature under shade in the field for about an hour in order to reduce turgidity and susceptibility to leaf tearing during subsequent handling. These activities may be done in the field, under a makeshift shed in the field, or beside a shaded part of the farm house. The produce may be protected from direct contact with the soil using plastic sacks. The produce is then weighed and brought to the farmer−collector’s house using the latter’s light truck.

Step 3: Assembling, packing and delivery of produce to market outlets. Once the vegetable arrive at the farmer−collector’s house, they are further cleaned or trimmed, sorted and repacked (Figure 6). Kale and Chinese mustard are trimmed of roots and washed to remove adhering soil particles and rehydrate them. For salad vegetables like lettuce, washing is not done as this can lead to rotting and a change in leaf colour. Furthermore, the buyers do not encourage this as it will increase the gross weight of the produce. The produce is then repacked in plastic bags, each bag weighing about 12 kg. Other vegetables are packed in plastic-strip baskets for large-volume orders. The vegetables are then delivered to hotels, restaurants and the wet markets starting at 2.00 in the morning using the farmer−collector’s light truck. All marketing transactions are usually completed before 5.00 and only then can Ms Khamby and her husband rest.

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Figure 3: Assembling operations before distribution

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5. DESCRIPTION OF THE MANAGEMENT OF THE CHAIN The main decision maker in the supply chain is the leading farmer in this case study. She advises the farmers on the kinds of vegetables to grow, schedule of planting to enable daily harvesting, and the kind and volume of produce to be harvested per day based on the information she has gathered every day from market outlets (hotels, restaurants and wet markets). Production operations are left to the farmers to decide but usually following the practices in the area. Pricing is determined by market forces since Ms Khamby offers to her farmers the prevailing price of produce in the area so as not to disadvantage them. There is no grade standard followed; rather, the vegetable produce is mainly graded based on uniformity in size and freedom from defects.

During the months of September−October when production is low and for some vegetables there is no production, the farmer−collector imports the vegetables from Thailand. This has to be done in order to sustain the requirements of her customers and secure her market outlets. If importation is not resorted to, the stake of losing the market is quite high due to high competition with other suppliers.

The farmer−collector in this case study is the primary source of assistance for the farmers of the group. She provides zero-interest production loans ranging from LAK500 000 to LAK5 million for seed procurement, land preparation, fertilizer, pesticides, irrigation and other farm inputs. In addition, Ms Khamby assures the delivery and marketing of produce of the farmers thanks to her linkages with hotels, restaurants and traditional markets. She does not impose rules and conditions; she buys all the farmers’ produce even in small quantity at the price prevailing in wet markets and informs farmers about the vegetables to grow in order to get a good price.

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6. VALUE ADDITION FOR EACH OF THE MAIN PARTIES IN THE SUPPLY CHAIN The main parties in the supply chain are the farmers together with the farmer−collector. Due to the diversity in vegetables grown, production area, and market prices, it is very difficult, if not impossible, to estimate the production costs and income of each of the farmers. Furthermore, continuous cropping is practiced by the farmers and it is difficult to estimate the area of land devoted to a particular vegetable at a certain time of the year.

In general, it was reported by the farmer−collector in this case study that one cropping of leafy vegetables usually lasts for three months and for a one-hectare farm, the production costs are estimated at LAK4 230 000 (about US$423) broken down as follows:

• Vegetable seeds – LAK30 000; • Land preparation – LAK600 000 kip; • Organic fertilizer (manure or compost) – LAK200 000 kip; • Synthetic fertilizer (18-8-8), 2 sacks – LAK500 000; • Electricity (water pump) – LAK200 000; • Labour, three persons at LAK300 000/month – LAK2 700 000.

Value addition activities include cleaning and trimming, sorting, packing and transportation, with a total cost (labour, packaging materials, and fuel) of about LAK300 000 per day. Ms Khamby also divulged that for each day of transaction, she handled and marketed 800–1 200 kg of leafy vegetables. Prices per 12-kg plastic pack in LAK fluctuate within a year, as summarized in Table 1 below. Table 1: Yearly fluctuation of wholesale vegetable prices (LAK)

Vegetable Nov–Jan Feb–May Jun–Aug Sep–Oct Pakchoi 25 000 50 000 80 000–100 000 120 000–150 000 Petchai 25 000–30 000 60 000 90 000 120 000 Kale 15 000–20 000 80 000 90 000 120 000 Green mustard 15 000 30 000–35 000 80 000 No production Lettuce 25 000–30 000 50 000–60 000 60 000–70 000 100 000 Kangkong 20 000 15 000 50 000–60 000 80 000

It was then summarized that her daily net income ranges from LAK200 000–500 000, with an average of LAK300 000 or about LAK9 million per month.

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7. PSA ANALYSIS OF LVVF FARMERS

Two farmer focus groups were formed through Ms Khamby for farmers working with her and agricultural extension staff for farmers not involved in the supply chain of Ms Khamby but working in the same or neighbouring villages. Prior to forming the focus groups and subsequent discussion with them, permission from village heads was sought as a standard procedure; the activity was also explained to them. Introductory formalities were first made to ease the meeting atmosphere and enable the farmers to open up, be truthful and candid enough. The question was then raised and explained to extract the explanatory elements: “What are the reasons that have made you decide to work with Ms Khamby?” for farmers participating in her supply chain and “What are the reasons that have made you decide not to work with Ms Khamby?” for the other farmer group.

The elements identified by farmers working with Ms Khamby and the specific description or response per element are as follows:

1. Information. Knowledge of price, quality and market demand are provided by the buyer. 2. Service. Provision of capital and farm inputs (seeds, fertilizers, pesticide). 3. Market access. Assurance of market thanks to prearranged orders from buyers. 4. Resources. Land, assured income or profit. 5. Relationship. Belief or trust in Ms Khamby who implements unconditional and transparent

transactions. 6. Market requirement. Vegetables produced by the group meet market requirements. 7. Institution. Farmers’ group formed by Ms Khamby. 8. Risk. Not apprehensive of Ms Khamby taking advantage of the group by manipulating price

or rejecting their produce. 9. Infrastructure. Irrigation and tillage machines provided by Ms Khamby if needed. 10. Training and skills. Proper use of fertilizer and pesticides.

The PSA graph and elemental scores are displayed in Figure 4. The elements fall only under buffer and motor. Buffer elements include institution, market requirement, training and skills, risk and relationship, indicating that these elements are of low importance with regards to the farmers’ participation in the marketing arrangement of Ms Khamby. Motor elements include information, market access, service, infrastructure and resources. These elements could have encouraged them to work with Ms Khamby. These farmers decided to work with Ms Khamby due primarily to the assurance of market indicated by higher ratings for information and market access. Information relates to market; indeed, the farmers cited that they knew of the price, quality and market demand of vegetable thanks to the transparent transactions of Ms Khamby. Market access directly relates to an assured market due to prearranged orders from buyers. Secondary reasons to join Ms Khamby’s supply chain were the services (provision of capital and farm inputs), infrastructure (irrigation and tillage facilities), and resource (land, assured income) she helps provide. These three elements relate to farming requirements or inputs to enable the successful production of vegetables. The elements identified and defined by other farmers in Latkhoy and Nontae villages who are not working with Ms Khamby are as follows:

1. Service. Already engaged with another buyer or trader, usually by patronage. 2. Information. No knowledge of Ms Khamby.

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3. Market access. Ms Khamby offers low price and requires farmers to provide an allowance in kind for post-harvest loss.

4. Risk. Ms Khamby is not a regular buyer. 5. Relationship. Mistrust; failure to follow price agreement; consignment sale. 6. Market requirement. No worry to meet market requirements due to presence of many

other buyers, some with better selling arrangements. 7. Resources. Farmers have their own resources so they do not need help for land preparation,

etc. 8. Training and skills. Farmers have followed training on some aspects of vegetable

production.

The PSA graph and elemental scores are displayed in Figure 5.

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Figure 4: PSA graph for participating group in Ms Khamby’s vegetable supply chain

Coordinates of elements

No. Elements Activity ratio Degree of inter-relationship

1 Information 1.77 21 2 Service 1.05 15 3 Market access 1.4 17 4 Resources 3.39 6 5 Relationship 0.62 3 6 Market

requirement 0.83 11

7 Institution 0.88 22 8 Risk 0.19 9 9 Infrastructure 1.29 4 10 Training/skill 0.83 8

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52 Symptom Critical element

Buffer Motor

Deg

ree

of in

ter-

rela

tions

hip

Activity ratio 10

Market requirement

Market access

Service

Institution

Infrastructure

0 1

Information

Relationship

Resources

Risk

Training/skill

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Figure 5: PSA graph for farmers not involved in Ms Khamby’s vegetable supply chain

Coordinates of elements

No. Elements Activity ratio Degree of inter-relationship

1 Service 1.33 15 2 Information 1.02 32 3 Market access 1.38 8 4 Risk 0.73 41 5 Relationship 0.52 11 6 Market

requirement 0.98 26

7 Resources 1.87 4 8 Training/skill 1.24 17

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71 Symptom Critical element

Buffer Motor

Deg

ree

of in

ter-

rela

tions

hip

Activity ratio 10

Market requirement

Market access

Service

0 1

Information

Relationship

Resources

Risk

Training/skill

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Except for risk (a symptom element, which is greatly influenced by other elements) and relationship and market requirements (buffer elements), all elements fall under the motor quadrant. This result suggests that information, training and skills, service, market access and resources were the main factors why these farmers did not join Ms Khamby’s marketing arrangement. These farmers did not work with Ms Khamby mainly because they had no knowledge about her (information). This suggests that these farmers are unaware of quality-led marketing chains or that Ms Khamby did not approach them because she did not need their produce. They resorted to patronage marketing of produce with other buyers (service). For those who knew Ms Khamby, they revealed that her marketing arrangement was disadvantageous. She offered low farmgate prices and required producers to supply without cost a certain volume allowance of produce to cover her post-harvest losses (market access). The farmers were also self-reliant in farming since they had obtained knowledge and skills in vegetable production (training and skills) and had their own resources for cultivating vegetables.

The two groups of farmers have commonalities and differences particularly in terms of motor elements. The two groups have three common motor elements: information, market access and service. This implies that the two following development activities could be very decisive in leading farmers to participate in quality-led marketing chains; assisting the marketing of farmers’ produce (providing market information, presence of ready buyers, product quality management) and providing the necessary inputs for production and marketing. Farmers who were not involved with Ms Khamby had training and skills as an additional motor element. Training programmes in vegetable production and marketing may therefore have a great impact on quality-led marketing chains.

Ms Khamby’s group of farmers has infrastructure as an additional motor element. The irrigation and tillage facilities provided by Ms Khamby have contributed to the farmers’ decision to join her group. If these facilities can be provided, probably through government or private-sector support, farmers could be encouraged to participate in quality-led marketing chains.

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8. CONCLUSIONS AND LESSONS LEARNED The viability and sustainability of the vegetable supply chain in the case reported here are guaranteed by three underlying factors:

(1) The farmer−collector Ms Khamby is the main success factor due to her good working relationship with the farmers in the group. She is the main source of assistance for farm inputs and she also holds the linkages with markets;

(2) The farmers are willing to cooperate fully with Ms Khamby; (3) The institutional buyers and traditional markets, which are assured of the supply

of vegetables by the farmer−collector.

Once one of these factors becomes partially or totally non-operational, the profitability and sustainability of the chain would be adversely affected. At present, none of the three parties feels to be at a disadvantage.

In anticipation for further quality requirements by its customers, other improved production and post-harvest methods could be introduced in the farms, such as protected cultivation (e.g. use of plastic houses), organic agriculture or pesticide-free production, and improved packaging and handling systems. The PSA results of this case study point to the needed interventions to produce the desired impact of involving more farmers in quality-led supply chains. These interventions may be summarized as follows:

o Market support systems (e.g. market information system, market outlets, product standards, branding and certification system);

o Product quality management systems; o Farm infrastructure and input support; o Capacity building or strengthening in vegetable production and marketing.

It is also evident from the PSA results that the market is the overriding driver of production and post-harvest activities and when assured, quality-led marketing chains would readily prosper and technological and non-technological interventions could easily diffuse into the farm-to-market continuum.