1. Falling Rubber Prices in
Northern Laos: Local
Responses and Policy
Options
Thoumthone Vongvisouk, PhD
National University of Laos, Faculty of Forestry Sciences
Michael Dwyer, PhD
University of Bern, Centre for Development and Environment
Regional Land Forum, Hanoi
21 June, 2016
4. RESEARCH QUESTIONS
1. How are rubber producers and government officials
responding to the recent fall in rubber prices?
2. Are producer responses related to production arrangements,
and if so, how and why?
3. How are rubber prices in northern Laos actually determined?
5. STUDY DESIGN
Broad not deep
• 2 provinces, 5 districts, 7 villages
• Qualitative > Quantitative
• 20 days of fieldwork
Interviews with:
• PAFO, PICO et al. (n=8)
• DAFO, DICO et al. (n=15)
• Village representatives (n=7)
• Private sector actors (n=3)
• TOTAL: 33 interviews with
68 participants
Literature review
• Connect planting with harvesting
• Build on VT (2015) and Shi (2015)
9. Not enforcing contracted floor prices
Contracted floor prices were the exception, not the rule:
• 4 of 7 companies discussed did not have them. (Total: 3 LNT, 4 OUD)
But in the 3 cases we found, these seem to not be enforced.
• Viengphoukha District (LNT): there is contracted floor price, but the company
“could not afford to pay based on the contract.” (Gov’t interview)
• Xai District (Oud): “this set price [of LAK 5,000/kg] have not been enforced … .
Rubber prices in our province and district are based on what buyer offers…”.
(Gov’t interview)
• Houn District (Oud): “The floor prices set in the contract is 5.000 k/kg, but the
company still pay lesser than floor prices. The company is not payment based
on the contract. We proposed this the provincial level many time, but we did
not receive any responses from the provincial level. At the district, we also
proposed the district meeting, but again no responses from the district
authorities.” (Gov’t interview)
10. 1. Waiting for prices to rise (not tapping)
2. Tapping with household labor
3. Land sales to wealthier buyers in or out of village
4. Land leases to outside investors for conversion to other crops
(e.g. bananas)
5. Aggregation (including collective action) to attract higher prices
Responses by rubber producers
“With [prices at] 4 Yuan/kg, we have to tap our rubber by ourselves. In
the case of households that have large area of rubber plantation, they
tap only little part of their rubber plantation based on their household
labor forces.”
(Village interview, Ban Hat Nyao)
12. • Some available statistics (below); conversion to banana also reported
in Xai (conflicting accounts: some yes, some no), Houn and Beng.
• Since land conversion from rubber is now being banned, it is likely to
be under-reported by both villagers and government officials.
Land conversion via lease
Rubber clearance statistics reported
Trees Ha HH Villages Source
Sing district
131,400 292 712 15 PICO
400 PAFO
Long district
25,650 57 46 1 PICO
"No good data" PAFO
Land lease prices: CNY
15-18,000/ha-yr
reported for bananas
13. Where rubber prices come from
Posted rubber price, Yunnan Rubber Co. factory, Luang Namtha
“Rubber prices here in Namtha district are based on two sources: the announcement from
Provincial Industry and Commerce and the prices stated by companies. In fact, the prices
are posted in the board in each rubber processing factory in Namtha district. Thus, when
people access to the factory, they will see the prices posted in the board.” (LNT-NT DAFO)
14. 0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pricespaidtorubberfarmers(RMB/kg)
XSB (KIs, Tang et al. 2009)
XSB (Online data)
Provincial statistics LNT
Village interviews LNT-Sing
Village interviews LNT-NT
Village interviews LNT-VPK
Village interviews OUD-Xai
Village interviews OUD-Houn
Where rubber prices come from
• Prices drop by ~ half from China to Laos
• Some of this is probably quality-related, but some is
market power.
15. Conclusions
• Lao rubber growers are currently seeing the downside of both
the free (global) market and the regulated (Chinese) market –
policies are needed to counterbalance current conditions if
rubber is going to be a successful smallholder crop.
• Need more options than marketing groups and conversion
bans.
• Ban Hat Nyao lessons need to be fully understood: public vs.
private financing of plantation establishment AND timing of
price changes.
• If a smallholder model is going to prevail, a more regulated
model is needed. Enforcing floor prices is just the beginning
Laos experienced a rubber planting boom in the mid-2000s. The current moment – 2015 – is almost exactly the end of the (7-8-year) period over which rubber matures, meaning that almost all of the rubber planting during the boom years of the mid-2000s is or will soon be mature. Unfortunately, this maturation period has coincided almost perfectly with a global fall in rubber prices. This study examines the responses to this price drop from the perspective of Lao rubber growers and the government institutions that support them. It looks at three questions specifically (next slide).
Self-explanatory.
This slide should be relatively self-explanatory. The points of emphasis are (1) our breadth-over-depth research design allowed us to cover a lot of territory, but by necessity “thin” in its investigation in any one location. This created a lot of room for follow-up, described at the end of the presentation. (2) We thought this was a good approach since the topic of responses to falling prices is relatively new. (3) As a key part of understanding current responses to falling prices, we thought it was important to connect the current situation with the literature on plantation establishment during the mid-2000s.
One of the most visible responses to falling rubber prices in northern Laos was the creation in September 2012 of the Luang Namtha Provincial Rubber Management Committee. This was created roughly a year and a half after rubber prices had been falling, and was (likely) the result of sustained complaints by rubber growers in the province. The next three slides discuss three of the main activities the Committee undertook.
Another type of government response to falling prices was attempting to ban the land conversion (especially to bananas) that a number of rubber growers in Luang Namtha – and especially Sing district – have begun to replace their plantations with over the last few years; these conversions often involve land leases to Chinese banana growers (see slide 25 below). Our interviews suggested that conversion bans have only been attempted in Luang Namtha province thus far (not Oudoumxai), although banana plantations have begun to replace rubber in Oudomxai as well over the last few years. The effectiveness of this response is questionable, given the incentives involved (high lease fees in the range of LAK 15-16 million/year) and the widespread belief by both growers and at least some officials that land use decisions are the prerogative of growers.
One of the most striking findings from our interviews was the failure to enforce contractually guaranteed minimum (or “floor”) prices in cases where they existed. These provisions were relatively rare in the mid-2000s when rubber agreements were being established, possibly because they would have drawn attention to the potential for price volatility at a time when rubber was being heavily promoted as a strategic crop with strong and sustained demand due to the strength of the Chinese economy. In the main areas of the Lao rubber sector – Namtha and Sing districts, specifically – floor prices were reported to not have been included in contracts between contract-based producers and companies. (Contracts were promised to us by various interviewees, but were not delivered, so our account here relies on interviews only.) But in the three more peripheral districts of Vieng Phou Kha, Xai and Houn, government staff reported the existence of contractually specified floor prices that were not being enforced – see details in this and the next slide.
Next we examine the range of responses by rubber growers that we recorded through our interviews. This slide summarizes five types of responses examined in more detail in the coming slides.
Stated another way, rubber purchases seem to be roughly twice as high in Xishuangbanna as in Laos. While some of this undoubtedly reflects differences in quality, it is unlikely that this is the only explanation; market power is thus an important issue as well. (And these even overlap: according to one development professional who worked in the area in 2012, at least one of the major rubber-purchasing and -exporting companies graded Lao rubber uniformly low when it came to pricing: even if rubber lumps were of a higher quality (i.e. not contaminated with debris), they would be purchased as if they were.)