Considering the overall economic
structure, Lao PDR is an unsophisticated economy in with agriculture accounts
for nearly half of the country’s gross domestic product and employs around 77
percent of the national workforce (UNDP/ NSC, 2006). Since most of the workers are
in informal sector, these workers are considered one of the most vulnerable groups
who experience intensive food insecurity, unstable income generation, and lack
of social protection. WFP (2006) estimated that there were approximated 30 percent
of the population experiencing chronic good shortage and 47 percent of them
suffered from chronic malnutrition. Families
of these workers need both cash and non-cash assistances to improve their
abilities to produce enough food and/or create opportunities for income
generation to buy food in local markets.
At the same time, over the past years, food price has been driven upward
mainly from a rapid increase of rice price. A sharp increase in food/rice price
came mainly from both supply shock, such as droughts and floods that regularly
take place in Lao PDR, and several structural factors, such as the increased
use of bio-fuels in many developing countries, the weakened U.S. dollar, and
the shifts in diets. The recent spike in rice price might also have been driven
by policy factors such as restrictions on rice exporters on some exporters and
large scale tenders by rice importers (Grosh, et.al., 2008). The rice price in the world market was tripled
from 324 US $ per ton in May
2007 to 962 US $ per ton in May 2008. The food price index in Lao
PDR indicates an upward trend from 2004-2009 with a sharp spike in 2008
by 12 percent. The consumer price index (CPI) was reflected by a higher food
price index with an upward trend (in real terms) of 15 percent increase in the
food price index between 2007 and 2008.
Since
around 77 percent of the Lao workforce is working in agriculture, the immediate
impacts of rising food prices on Lao households depends on whether the farmers
are net consumer or net producer of food, location they are living, and their
economic activities. As an agricultural
economy, even though rising food prices can provide opportunity for many farmers to increase
their income from agricultural products, many farmers in Lao PDR have a net deficit of food production. Moreover, their purchases are mainly food
items.[1]
In addition, small farms in the Lao PDR are at risk of being excluded from the
opportunities for value-added production. Farmers in small farms typically lack
necessary resources such as fertilizer and land ownership, knowledge, and
information to efficiently compete in the market. Farmers are excluded from the
growing high-value crop markets due to lack of not only improved varieties,
fertilizers, and pesticides, but also infrastructure, such as road assess
especially in rural area.
The
per capita net production of rice in the provincial level shows a deficit of net
productions in Northern provinces .[2]
Farmers in the Central area of Lao PDR are found to be sufficient to their
production with the exception of two provinces (Xiengkhuang and Xaysomboun).
All Southern provinces of Lao PDR had a surplus of net rice production. Many
deficit provinces are mountainous-landscape with poor or limited road assess.
Nonetheless,
the LECS-4 data show that farmers in rural areas are left with no choice but
consuming their self-produced foods. Around
82.8 percent of rice consumption among households in Lao PDR comes from own produced
rice. Households in rural area are more depending on produced rice (89.9
percent) than households in urban area (58 percent). The proportion of
food consumption that is own-products is 89.4 percent in rural area with road
assess and as high as 93.3 percent in rural area without road assess. Non-poor households and non-farmers are consuming
rice from their purchases more than poor farmers.
The Value and Percentage of Produced and Purchased Rice
Rice consumption (kip)
|
Rice consumption (%)
|
|||
Produced
|
Purchased
|
Produced
|
Purchased
|
|
All
|
356,746.7
|
73,962.6
|
82.8%
|
17.2%
|
Urban
|
191,313.5
|
138,816.5
|
58.0%
|
42.0%
|
Rural:
|
423,749.0
|
47,696.0
|
89.9%
|
10.1%
|
Rural with road
|
428,029.9
|
50,731.4
|
89.4%
|
10.6%
|
Rural without road
|
396,887.0
|
28,648.7
|
93.3%
|
6.7%
|
Non-farmer
|
53,319.7
|
202,834.0
|
20.8%
|
79.2%
|
Farmer
|
425,161.0
|
44,905.7
|
90.4%
|
9.6%
|
Non-poor
|
347,448.3
|
86,996.3
|
80.0%
|
20.0%
|
Poor
|
381,768.1
|
38,889.8
|
90.8%
|
9.2%
|
Source: Computation from LECS-4
Food prices in rural area, such as those in
the Southern region and the Northern region tend to be higher than those in the
Central region, which is more likely to be urban areas. Spatial variations of
food price are typically determined by several factors, for example road
assess, market competition, border effect, etc. The higher price in the Northern provinces
compared to the national level comes mainly from a lack of well-functioned
market system due to mountainous surroundings with limited road assess and high
transportation costs. These barriers to market assess is a major obstacle to
Lao farmers to improve their productivity.[3]
Farmers in Northern provinces
have to rely on a quasi one-way trade direction from traders to communities.[4] There are, however,
fewer trading centers in the Northern
provinces . Deficit production patterns, coupled with
limited road access, cause the market structure
in the Northern provinces
to be less competitive than that in other regions.
Since the highest proportion of deficit food
production is in Northern provinces ,
the prevalence of stunting food insecurity and the burden of rising food prices
will be more likely to be found in poor households in this region. Glutinous
or waxy rice is still the most important crop for subsistent farming economies
in the hills of Northern Laos , while maize,
cassava, and products from the forest are major rice substitutes for food
security in remote areas. Nonetheless, cross-border trade with
China and Thailand and
food aid from the government and other donors are important to ensure food
security in this region.
Higher food prices in the
Southern provinces, on the other hand, come possibly from the presence of large-scale
traders such as SFE and many small private traders. Many farmers, who sell
their crops to local traders, also trade with Thai traders on the borders at a
higher price. These higher prices of exporting food somehow bring higher
domestic prices even though trading was found to be very little since producing
areas have limited stocks left.
Note that compared to other crops, food price in
Lao PDR is more stable than the world food price. It can be observed that the food
price in the Lao PDR seems to be not reflected by the spike in the global food
price, especially that in rural market.[5]
There are a number of reasons. First, rice is a stable food in Lao PDR which is not only the main cereal produce of the country
but also the main source of livelihood consumption in with its cultivation covers more than 70 percent of the total
cropped area. Rice consumption is accounted around 17.8 percent of total food
consumption of Laotian household and about 85 percent of total rice consumption
is glutinous
rice in which its price is relatively more stable than the price of
non-glutinous rice (WFP, 2006). Given the fact that both glutinous rice and
non-glutinous rice are produced for local consumption and less for exportable
market, the impacts from rising food price is found be small even though production balances are still not high enough to generate marketable
surpluses.[6]
Second,
The State Food Enterprise (SFE) of Lao PDR, operating as a profit-making
organization, procures rice during harvest for government staff and sells rice
stocks to general people during rice shortage. This process can possibly help
rice price more stable in local markets. The SFE is responsible for operating food
procurement from farmers and traders in the Central and Southern provinces and
provide production support and technical advices to farmers. Farmers are
committed to provide a specific commodity in quantities and at quality
standards determined by the purchaser. Market prices are influenced as farmers are
engaging to contract farming by receiving provision of not only forward/advance
payments, but also seeds and fertilizer. The emergence of contract farming
arrangements become one of the recent features of the commercialization of
agriculture in the Northern uplands.
Third,
food imports also play an important role in providing complementary supply when
crop productions are shortfalls. Since rice is one of the main items of cereal imports
(around 70 percent) from Thailand
and Vietnam
Forth,
an increase in the world food price can be accompanied by a real
depreciation of the US dollar and other major currencies. It can be possible
that the depreciation of US$ or relatively real appreciation of Kip helps
neutralizing a substantial proportion of the increase in world prices.[8]
Food Price Index in the Lao PDR
Figure: Food Price Index (World, Lao PDR, and Thai) by
normalized to “one”
Even though, the trend of food price shows that domestic
food price in Lao PDR seems to be more stable than the world’s food price, domestic
food price is however more dispersed in rural area than in urban area. Explained by van der Weide (2006), the reasons why rural villages are subject to a
higher dispersion in prices for all food is because firstly, urban areas enjoy
higher and more complete levels of market integration that implies lower
transportation costs and higher market competition. Secondly, urban villages
have sufficient storage facilities that enable them to store crops when they
are plentiful during wet season and are able to store and sell them in times
when food supplies are low, generally during the dry season. Due to insufficient storage facilities, Laotian
farmers in rural area have to sell their products at
post-harvest period when prices are typically low (WFP, 2006). The ability to
store products over the period of wet season to dry season not only reduces
price dispersion in rural area, but also helps stabilizing its seasonal fluctuations over time.
[1]
Regarding survey by WFP in 2006, even though during in the harvest time, 13
percent of rural production had poor food consumption and it is likely to
increase during the peak of lean season. Regarding to LEC4 data, 90.4 percent
of total rice consumption to farmers comes from their produced rice.
[2] WFP (2006) estimates net per capita rice production
as a percentage of requirements per province during 2001-2005. All provinces (7
provinces) in northern area had a deficit rice production, while 4 of them (Phongsaly,
Oudomxay, Luangprabang and Huaphanh) had more than one third of the estimated
per capital requirement. See Table 3 from the report.
[3]
The average productivity of agricultural population in Lao PDR in 2004 was
US$232 per agricultural workers, which was higher than that in Cambodia (US$
148), Vietnam (US$159), but lower than that in Thailand (US$ 413)
(Setboonsarng, et.al., 2008).
[4] The commercial trade in rice is dominated by a state-owned enterprise
namely, the State Enterprise and Food Crop Promotion (SEFCP), which controls
around three-forth of the market.
[5]
Computed monthly standard deviation since 2004 for world’s food price, Lao’s
food price, and Thailand ’s
food price is 32.4, 14.2, and 11.5 respectively.
[6]
The correlation coefficient between world’s food price and Lao PDR’s food price
is 0.75, which is higher than the correlation coefficient between world’s food
price and Thailand ’s
food price (0.68). There are couple reasons why Thai price is less affected by the
global trend than those in Lao PDR. First, Thailand Thailand are high enough to
generate marketable surplus. Second, The Thai government collects tax on rice
by setting a monopoly price on exports to keep domestic prices low. When the
world price rises, the Thai government can impose a marginal tax on exports to
prevent the domestic price from rising proportionally. Third, to help
mitigating higher cost of living, the Thailand ’s Ministry of Commerce
maintain price ceiling for several consumer goods including food and non-food.
Domestic commodity specific policies in Thailand have further stabilized domestic prices relative
to the change in world prices.
[7]
Nevertheless, food price in Thailand
[8]
Dawe (2008) explain that a real depreciation of US dollar accompanied by
increase of world cereal prices has neutralized changes of those domestic
prices in Asian countries (but not all), especially in least-developed
countries.