B4211 Saichay Impacts of contract farming on rural farm ... of contract farming in rural farm...Sugarcane contract farming is new to rural farm households requiring farm management with ... impacts of contract farming on rural farm ... to access inputs ...

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    THE IMPACTS OF CONTRACT FARMING ON RURAL FARM

    HOUSEHOLDS, LAO PDR.*

    Saichay Phoumanivong PhD. Candidate in Development Science,

    Faculty of Humanities and Social Sciences, Khon Kaen University, Thailand. yessaichay@yahoo.com

    Dusadee Ayuwat**

    Assistant Professor, Department of Sociology and Anthropology, Faculty of Humanities and Social Sciences, Khon Kaen University, Thailand.

    dusayu@yahoo.com

    ABSTRACT

    This research is aimed to study the impacts on rural farm households of contract farming in Savannakhet, Lao PDR. The study has been conducted by the qualitative approach, by in-depth interview as well as employing observation techniques. The targets of this research were 10 key informants, such as sugarcane contract farming organizations which include buyers, officers, production groups and the 20 farm households who conduct sugarcane contract farming. Content analysis was employed for the data analysis. The results found that there were both positive and negative impacts on farm households. The positive impacts: both income and farm management skills were improved and household networks were established. Negative impacts: debts, exposure to chemical, pesticides and insecticides, low social relations were found. These are the risks facing the households participating in contract farming in Lao PDR.

    Key words: Contract Farming, Impact, Farm household, Household Risk, Lao PDR.

    INTRODUCTION

    Contract farming is an agreement between farmers and processing and/or marketing firms for the production and supply of agricultural products under forward agreements, frequently at a predetermined price (Eaton and Shepherd, 2001). Contract farming is playing an increasingly important role in many developing countries.

    Contract farming brings expansion of the markets, the promotion of agricultural commodities as a means of raising income, as well as being an alternative method for solving agriculture problems for households. Contract farming in Lao PDR, has been embraced and widely employed since 2002 (Fullbrook, 2007). It has been promoted and actively engaged particularly in provinces that share borders with neighboring countries such as Thailand and China.

    * This article is a part the study entitled, Risk reduction for farm household in contract farming, Savannakhet, Lao PDR, were supported by the Research and Training Center for Enhancing Quality of Life of Working-age People, Faculty of Nursing and Development Science Program, Faculty of Humanities and Social Sciences, Khon Kaen University, Thailand.

    **Corresponding Author.

    ISS & MLBSeptember 24-26, 2013

    ISS 937

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    Contract farming is an alternative income scheme for rural farm households in Lao PDR. Sugarcane contract farming offers new hope instead of conventional income from rice and brings higher returns for households. In practice, the raising of income from sugarcane contract farming in rural farm households has been faced with a number of challenges. Sugarcane contract farming is new to rural farm households requiring farm management with regard to production, profit, skills and knowledge. Moreover, the households are facing a dominant buyer in the factory owners and sugarcane farms that provide an input to households as they may be competitors of the farm households in the planting of sugarcane.

    Xaiburi, Savannakhet Province, is one of three districts in the province promoting sugarcane for raising the income of rural farm households. The sugarcane areas cover a total of 10,077 hectares, the majority of the areas are owned by the Mitr Lao Factory (7,517 hectare), while the rest are owned by rural farm households (2,560 hectare). There are a total of 628 households involved in sugarcane contract farming, while 564 households have debts of, on average, US$ 5,096 per household (Savannakhet Province, 2012).

    Contract farming is diversified and unpredictable as some households stopped growing the sugarcane, while some expanded their farms and others want to become sugarcane farmers. Therefore, the farm households may have some impacts from contract farming in both positive and negative aspects.

    OBJECTIVE OF THE STUDY

    To study the impacts on rural farm households of contract farming in Savannakhet Province of Lao PDR

    SCOPE OF STUDY

    Impact Evaluation (IE) a concept from the World Bank (2013) was combined with qualitative method as examined in this study. IE is an approach of BEFORE and AFTER in analysis and compares the performance of the project by comparing outcomes and beneficiaries both before and after a project has been implemented. While the qualitative method gains in-depth knowledge of impacts for understanding the issues.

    Positive impacts: the aim is to examine the impacts of contract farming on rural farm households, focusing mainly on positive aspects that occurred before and after the households participated in sugar cane contract farming.

    Negative impacts: the aim is to examine the impacts of contract farming on rural farm households, focusing mainly on the negative aspects that occurred before and after the household participated in sugar cane contract farming.

    RESEARCH METHODOLOGY

    Qualitative approach was employed in this study to explore the in-depth situation of the impacts of contract farming on rural farm households. The Nadaeng sugarcane growers group, Xaiburi District, Savannakhet Province, Lao PDR, was selected as a study site. The Nadaeng group is one of 28 groups in the district that comprise household members, who are sugarcane growers that have been planting sugarcane for the Mitr Lao sugar factory since 2007. It is larger than other groups nearby in terms of land growing area and its number of members. It is expected that the number of members will be increasing every year.

    ISS & MLBSeptember 24-26, 2013

    ISS 938

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    There are a total of 30 target groups in this study. Organization and household level are the nits of analysis. Organization level included 10 key informants such as middlemen, officials, sugarcane producer group and sugarcane association as their work is relevant to sugarcane promotion. Household level included 20 rural farm households who have been growing or who used to grow sugarcane under contract farming for the Mitr Lao factory, are members of the Nadaeng grower group and are based on at least one yield season in order to examine their impact on contract farming.

    In-depth interview combined with Semi-structured interviews (Creswell, 2012) were applied for data collection based on 2 different semi-structure interviews. One set of guidelines is for organization level and another is for household level. At household level, the head, or a member of the household who is working or used to work closely with sugarcane contract farming would be the representative of the household and was interviewed, group interviews and observation techniques were added in this study.

    Content analysis was employed, combined with triangulation to enhance the accuracy of the data (Creswell, 2008). The analysis mainly focuses on the impacts, both positive and negative on farming household levels in contract farming, mainly on economic, social, health and environmental aspects.

    RESULTS AND DISCUSSION

    The findings of this study leading to impacts of contract farming on rural farm household and are presented into 5 main topics: Contract Farming in Lao PDR at Household Level, Characteristics of Nadaeng Households, Practices of Contract Farming at Nadaeng Sugarcane Grower Group, Positive Impacts of Contract Farming, Negative Impacts of Contract Farming.

    1. Contract Farming in Lao PDR at Household Level

    Contract farming is one of 2+ 3 Policy- divided benefits between villagers and investment, 2 things contributed by villagers or farm households are land and labor, while 3 things contributed by an investor or buyer are inputs, technical advice and market (Fullbrook, 2012). This contract farming policy mainly aims at improving the livelihoods of farm households, particularly in rural areas in raising income and employment. Besides, it will help in solving the problems of market and price that households have been facing for a long time. Furthermore, it gives households the ability to access inputs and improve agricultural farming techniques.

    Due to high demand for agricultural products in both domestic and international markets, together with promotion by government agencies and buyers, contract farming has become widely developed. The government, especially at district level works closely with both farmers and buyers and acts as a mediator in the case of a dispute between the two sides, as well as promoting the setting up of groups in order to maximize benefit to households. Furthermore, the government monitors and supports the contract agreements, for example allowing buyers to register at the district office and by facilitating contact between buyers, the farmers or the farmers groups. As for the private sector, such as buyers, they ensure market and price, supply inputs for households on credit as well as promoting new agricultural techniques.

    With promotion from many sectors, rural farm households have opportunities in contract farming that are new and offer an alternative method for raising the income of rural households along side conventional income sources from rice. Households who provide land and labor have been trying contract farming with a wish for a high return.

    ISS & MLBSeptember 24-26, 2013

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    Savannakhet Province, one of many provinces active in contract farming, has a shared border with Thailand to the West. Sugarcane is spread throughout Savannakhet and is second only to rice plantation areas and covers a large part of this area in Lao PDR because Savannakhet has 3 sugar factories in the province. Mitr Lao, which is owned by Mitr Phol group in Thailand, is the largest factory and plantation in Savannakhet. Mitr Lao Factory was established in 2005 to produce sugar for domestic use and for export to Thailand for further processing and re-export to Europe. The factory received a total of 10,000 hectares of concession land from the Lao government, valid for 40 years and in 3 districts: Xayburi, Champhone and Outumphone. However, not all the concession land is usable as some pieces are strewn with stones (IUCN and NERI, 2011).

    Xayburi is one of 3 districts in Savannakhet planting sugarcane for the Mitr Lao Factory. It is located about 68 Km to the north of Savannakhet city. The district has a total land area of 91,254 ha with a population of 59,539 people (Xaiburi District, 2013). The district still relies on agriculture and rice is a main source of income, with a minority sourced from livestock, corn, planting tobacco, peanuts and vegetables. Xaiburi has potential for sugarcane plantations because of its road connections, convenience of transportation and fertile land. The sugarcane factory is also located in this district.

    To ensure the supply to the sugar factory and promote income of local communities nearby, the Mitr Lao factory agreed to have sugarcane contract farming with rural farm households. Rural farm households will grow sugarcane for the factory, while the factory will provide mainly necessary inputs to the farm grower households such as clearing land and planting, sugarcane stalk seed, fertilizer, chemicals for weed control as well as technical support.

    After few years of the establishment of the factory, sugarcane contract farming was promoted for RFHs in Xaiburi District, there are 28 sugarcane grower groups, accounted for 628 farm households (Savannakhet, 2012). The groups were formed in order to promote planting sugar cane for raising household income in the district and maximize profit for farm households who are the members.

    2. Characteristics of Nadaeng Households.

    The Nadaeng group was formed in 2007 and promoted as one of 28 groups in Xaiburi District. The Nadaeng sugarcane growers group includes three villages, namely Nadaeng, Dongpaivan and Namuan Village, consisting of 31 sugarcane grower households, who cultivate of 211 hectares of sugarcane, ranging from 3 to 15 hectare per household. It is larger than other neighboring groups, such as Werntai group 1 (162.7 Hectares), YangKam (149 Hectares), in terms of land area and the number of members.

    As with other groups, before sugarcane came, Nadaeng households relied mainly on rice plantation with additional sources of income from livestock, corn and tobacco. Because of the plentiful supply of water almost all of the Nadaeng households were able to plant both rain season and irrigated rice. Usually rain season rice was for home consumption while irrigated rice was for sale as a source of income of the household. Rice planting households use their own labor and some households pay for labor because of a shortage of workers. We observe two labor structures in Nadaeng, the first is the main labor of a husband, wife and their children, second, is parents and daughter, daughter in law or son in law.

    Livestock, especially cows, was the second main income source of Nadaeng sugarcane grower households before sugarcane contract farming started. The correspondent 17 out of 20 households earned US$ 400- US$ 600 per year.

    ISS & MLBSeptember 24-26, 2013

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    With high input costs for irrigated rice, but low returns on sales, some households are considering stopping planting rice and looking for a better, new source of income. Comparing both seasons, irrigated rice growers have to pay for water and fertilizer while rain season rice does not have these costs. So they consider it is not profitable to invest and are looking for a new source of income that is sugarcane contract farming.

    The Nadaeng sugarcane growers group is comprised of households who are growing sugarcane for Mitr Lao factory. The households own both rice fields and some vacant land that they did not use for growing rice because of reasons such as a lack of labor, insufficient water and the low price of rice. A few years after the sugarcane factory was established in 2007, many households started growing sugarcane because they had enough land and were ability to access labor, so this was an opportunity for rural farm households to raise a new source of income from sugarcane contract farming. The households had a new hope that sugarcane contract farming would bring greater benefits than growing rice.

    3. Practices of Contract Farming at Nadaeng Sugarcane Grower Group.

    Almost all households in the Nadaeng group were subsistence based, owned land and provided their labor. Therefore, when they participated in contract farming, almost all other inputs were provided by the Mitr Lao factory. As with other groups, all the input costs were provided by the factory on credit and the households repaid their debt, with a 6 percent interest rate...

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