Contract Farming in Lao PDR: Cases and Questions - LAD - nafri

“Before working with Jhai I was earning only about 6 million
kip ($615) a year. Now working with Jhai I earn 15-to-20
million kip,” says May, a mother of five children who with
her husband already tends two hectares of arabica, some
of which is sold to Jhai, and five hectares of robusta, mostly
for sale on the open market, or to pay-off debts to traders.
Other farmers are also turning to contracting, seemingly
with positive results for farmers. “I think based on my
experience of contracting with Dao Heuang that contract
production is better, prices are higher and it’s more stable,”
says Phonsak, 47, a prosperous farmer in Baan Na Sia Noi,
Laongam, Salavan, who bought his first few hectares of
coffee in the 1980s; he now has 10 hectares of arabica and
40 hectares of robusta.
According to Khamdy Atsayavong, director of the coffee
research and experimentation centre in Champasak, about
40 or 50 percent of coffee production in the district is grown
under contract, up from about 20 percent five years ago.
“In the past because poor farmers were busy labouring for
rich farmers they did not have enough time to weed their
own coffee plantations resulting in a low yield. However
now because of groups and contracts farmers can get
better prices so they have more time to tend their coffee, to
use better techniques,” says Khamdy.
Which in turn it seems is encouraging farmers to expand
their plantations in cooperation with the traders, judging
by May’s plans and those of Phonsak: “Next year I plan
to plant another 20 hectares of robusta with saplings
from Dao Heuang, which buys them from the government
research centre in Pakse, because I think the demand of
robusta will continue increasing in the next few years,” says
Phonsak. “In the long-term I think contract farming is good
for farmers.”
Contract prices also give farmers a benchmark for
negotiating with merchants for coffee not grown under
contract. “Before Jhai came they had no knowledge of
world prices, only the trader’s price. Now they can bargain
harder with the traders,” says Ariya Dengkayaphichith, 30,
Jhai’s general manager in Paksong.
Cooperation and conundrums
Farmers may enjoy more direct benefits from joining a
group that provides them with planting material and credit.
Jhai, which describes itself as a cooperative, is particularly
active in trying to build enduring relationships with farmers.
It charges 0.6 percent interest per month, compared to 1
percent typical of microfinance lending and much higher
rates charged by moneylenders and traders.
Jhai’s aim is to wean farmers off of borrowing from traders,
who often demand repayment in coffee beans. Paying off
high-interest debts to traders with coffee beans leaves less
to sell to Jhai or even the open market at better prices. Yet
borrowing from traders remains common. Moreover some
farmers have not repaid loans to Jhai.
Farmers may not repay debts to Jhai because it is unable
to enforce the debt, they do not have the money, or they
consider the loan more of a ‘grant’ or ‘gift’. Traders however
are generally repaid because they demand house or land
ownership papers as security.
Farmers willingness to sell to traders reflects a preference
for cash in hand. “Perhaps only 20 percent is sold to us even
though we offer higher prices because we pay 70 percent
on delivery and the balance when we sell the coffee. They
don’t want to wait,” says Ariya. Jhai’s split payment irritates
some farmers. “I want to receive 100 percent when Jhai
buys from me,” says May, the coffee grower in Paksong. “I
think the price is quite fair though.”
Nevertheless these factors do not entirely explain why
farmers continue borrowing from traders. One explanation
may be that farmers are not convinced Jhai is here to stay,
therefore it makes sense to maintain relationships with
traders and moneylenders which bring reliable lines of
credit.
In the early 1990s Andrew Cornish, an anthropologist,
observed similar relationships among rubber tappers and
traders in southern Thailand which stymied efforts by the
Thai government to empower the tappers, break their
dependence and increase their incomes (Cornish 1997).
Meanwhile Ariya is still working to convince farmers that
they are owners of Jhai. That may be in part because Jhai
describes itself in English as a cooperative, but in Lao as
an association. “I don’t think it’s a cooperative because we
just grow the coffee and sell to Jhai,,” says May, the farmer
in Paksong.
Aside from the contract, which until now has been agreed
with groups not individuals, a member’s handbook is all
that binds farmers to Jhai. The absence of a certificate
of ownership may then explain why a sense of ownership
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