Postharvest Practices: Maize Value Chain (Lao - Thailand)

1. Postharvest Practices: Maize Value Chain (Lao - Thailand) Ass. Prof. Nongluck Suphanchaimat Post harvest Practices: Experiences and Best Practices in Israel and Thailand Mekong Institute2 November 2011

2. Postharvest value chain • Free trade and Postharvest value chain of Maize

3. A value chain is a chain of activities for a firm operating in a specific industry. The study focuses on business unit for construction of a value chain. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value. Supply chain VS Value Chain • supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplierto customer.

4. Overview of the vegetable supply chain in Lao PDR Farmers 26% 67% 6% Collectors Wholesalers 39% 14% 61% 47% Wet market vendors Street vendors Grocery shops 19% Restaurants 95% Consumers Source : Surveys in collaboration between AVRDC and MAF (Lao PDR), 2005. N=200.

5. Orange postharvest management 40 bht/kg 150 bht/kg

8. Value Chain Study of “the full range of activities which are required to bring a product or service from conception, through the intermediary phases of production, delivery to final consumers, and final disposal after use” • Mapping actors (roles & responsibilities) • rules & regulation • Cost and margin by actors • mapping constraints and possible solutions (Kaplinsky 1999, pg. 121).

9. VC: Mapping actors Wheel sale Input Consumption Collection Production retail Production Export Village Farmers Processor Consumer Input trades Actor traders Cooperatives Exporter Bank traders Money lender central market

10. VC: Roles of Actors Farmers/ Cooperative Village traders Processor Consumer Exporter Collect Store transport Storage Processing Distribution packaging • - Storage consumer • Grading • Transport • Storage • packaging Growing Harvesting drying

11. VC: Informationof the chain Consumers export production trading processing input • Mature • Purity • Non-toxic • Color • Size • Moisture • Color • Size • Uniformity • Smell • Grade • Color • Taste • - Package • Product • Quality product information

12. Cost : Financial cost Opportunity cost (1) Financial cost : monetary expense of production resources. (land, labor, capital) land : rent labor : wage capital : interest

13. 2. Opportunity cost Opportunity cost : imputed cost to the value chain actor’s time land and capital. Opportunity cost for labor : the cost incurred if a person is employed Opportunity cost of land : the return on leasing the land to another producer. Opportunity cost of capital : the interest rate that one would receive from a bank.

14. VC: Cost and margin Cost : money that an actor in the VC contribute Margin : money that an actor receive minus cost Cost of entry : investment and operating cost required for an actor to enter the VC e.g. border traders in Lao should have own truck and credit with gasoline station, register with trader association.

15. Marketing margins: • the percentage of the final weighted average selling price taken by each stage of the marketing chain. The marketing margin covers the costs involved in transferring produce from one stage to the next and the profit of those doing the marketing.

16. Marketing costs: • the costs involved in moving produce along the marketing chain for example, • produce preparation - packaging costs, - handling and transport costs - storage costs, - processing costs, - product losses, - fees and commissions. Generally, the more complex and lengthy the marketing chain thehigher are the marketing costs.

17. Profit margins (or profit or returns) • the difference between total revenue and total costs calculated for each operator in the marketing chain

18. Free trade and postharvest value chainof Maize • ASEAN Tree liberalization started in 1992 • In 2003 ACMECS framework Cambodia, Lao, Myanmar and Thailand initialize to utilize each countries’ strengths • 2010 Free trade within ASEAN

19. Expectations of the Free Trade • Increase competitiveness, generate growth along the borders • Create employment opportunities • Facilitate relocation of agricultural and industrial industries • Reduce income disparity between countries • Countries act according to comparative advantage

20. Xayaboury Province LaoPDR Loei Province Thailand Laos Thailand china VN 520 km NE of Bangkok. Feed corn area 68,300 ha in 2002 but 40,000 ha in 2007 Arawan district with same landscape as Lao large drop of feed corn 43 registered farmers were interviewed. 30,000 ha of feed corn area 52% of Xyaboury area 48 farmers in village Tak dad, Bung Ma Hui Tang Paklai district were interviewed based on headmen selection

21. In Lao Adopted improved seed “Suwan1” from Thailand 1980 Adopted hybrid seed “888” from Thai private company 1998 2007 Hybrid seed from Vietnam, China are also available 2010 Cassava has become competitive crop

22. Maize import tax to Thailand Before 2003 • Import tax 2.75 bht/kg • Require Phytosanitary certificate • Complicated custom procedure After 2003 • Tax free • Require Phyto. Certificate • Require certificate of origin • Relax custom procedure

23. Feed corn production and yield in trading countries Thailand Lao Thai production is declining while Lao has increased even without chemical fertilizer. Area expansion in Lao is obvious after 2003

24. Import from Lao and farm gate price in Thailand Increase in farm gate price in Thailand despite an increase in import volume from Lao

25. Thailand Import Export of Maize After free trade Thailand import more and re-export also increase. Each year Thailand needs about 1 million imported maize volume for domestic use

26. Contract farming

27. Lao Thai Lao feed corn have to be mixed with Thai product at 1:1ratio

28. mapping actors : Maize Lao Maize growers Production On farm feed consumption Traders in Lao (23) Collection Thai Maize growers Border trader (16) - Uncobbed processing Trader with silo Animal feed Export - Clean & mix Consumption

30. Lao Thai use more chemical input and use seedling machine

31. Lao Thai Farm gate price in Lao Is related to the Thai market

32. Logistic cost Maize traders in Lao

34. VC –Maizein Oct 2007

35. VC -Maize

36. VC: Example of roles & regulation

37. Mapping constraints and possible solutions

38. Impact from free trade • Although open markets and economic integration can enhance rural growth but at the same time encounter risk of economic losses to superior competitors, instability, and worsening inequality • (Rosegrant and Hazell 2001).

39. Impact of free trade on Thai-Lao farmers • Large expansion into sloping areas • increase use of hybrid seed and herbicide

40. 0.16 0.4 Lao PDR Myanmar Taiwan Vietnam 1 Cambodia 0.1 Indonesia Malaysia Flow in Singapore Flow out Planted Area in mllion ha Commodity flows after free trade

41. Problems in market credit link • Thai traders buy Lao product at mixed grade. • For Thai product, 14% moisture is standard and price will reduce about 0.12 bht/kg for each 1% increase in moisture. • In bad year, Lao farmers have to wait for traders who provided credit who tend to prolong their collection or wait for the price to increase. Indebted farmers will be affected most since they generally depend on maize income to buy rice and pay back debt.

42. Problems in logistic High fixed cost in transportation and poor road limited investment in transportation services in Lao, traders should have own vehicles 40-60% of the operating costs of traders were on fuel. So, concerns over fuel efficiency is necessary. Causes of fuel inefficiency are empty running, Lao traders transport construction material from Thai Inefficient border procedures causing delays and double-handling. This has been solved. Lao vehicle is allowed to load products across Thai border and stay for a few days, Border staffs work overtime.  Other problems are access to loans and credit,  high interest rates 3% per month in Lao

43. Value chain improvement Governance of the Value chain involve improvement of efficiency of the chain and relations of actors. Rules and regulations Chain management process

44. Investments to improve the value chain • Develop trust, Thai traders receive credit from bank and suppliers so able to provide credit for seed and cash advance to Lao traders based on hybrid seed purchased. Initially, credit service is provided among acquainted trading partners. • Rely on initiative and leadership of a private company for sustainability of a chain project. Lao traders initiate trade union and try to develop mutual fund. • Provide incentivesprice by grain quality

45. Differentiation of food products • In recent year, the use of geographic branding and certification has become a common tool to protect and differentiate high quality food products. Advantages are: 1. it enables producers to control supply which has obvious advantages. 2. it enables groups of producers within the region to collectively decide how to improve the quality or process. 3. the producers learn how to produce and market a highly differentiated product that could be extended to other products.

46. Guarantee price of feed corn in Thailand Under free trade gov’t intervention cannot confine to only domestic market • Due to high oil price in 2008, the Thai gov’t • supported farmers by setting high mkt price ended • up high gov’t stock and had absorbed feed corn from • neighboring countries. • In 2009, gov’t change to support price system, • Registered Thai farmers can receive subsidized price. Actual market price was lower.

47. How farmers are better linked to the chain? • Lao traders invested in shelling equipment facilitate un-cob maize help left maize cob to replenish the soil • Lao government promote traders with silo to invest in the planting location. • Allow competitive market for good hybrid seed • Promote farm credit through Agricultural bank .

48. Challenges • How can small scale farmers in Lao benefit from the value added process? • How can marketing competitiveness can be improved in both countries?