China rubber demand stretches Laos
By Brian McCartan
LUANG NAM THA, Laos - Chinese investments in rubber plantations in northern
Laos will be ready for their first big returns in 2011, with nearly all the raw
material scheduled for harvest then set to be exported to Chinese markets. What
began as a modest way for upland Lao farmers to supplement their incomes has
blossomed into a fast-expanding agro-industry, albeit one surrounded by
mounting concerns of the lack of governmental regulation and controls.
Rubber exports are becoming big business in communist-run Laos, one of Asia’s
poorest and most economically insular countries. Every province in the country,
apart from Hua Pan in the northeast and Xieng Khuang so its south, had
rubber
plantations in place last year or plans to plant, according to the National
Agriculture and Forestry Research Institute of Laos (NAFRIL). Almost all of the
production is being driven by Chinese demand.
China is projected to consume 30% of world rubber production by 2020, with an
annual need for 11.5 million tonnes of natural rubber by that year, after
passing the United States as the world's largest consumer at 3.45 million
tonnes, or 18.2% of total consumption, in 2002. At present it can only produce
4 million tonnes annually. Much of the demand is being driven by the country's
booming automobile industry, where the number of vehicles is estimated to
increase to around 200 million by 2020, from 10 million in 2005.
That demand is helping to drive up global prices. Rubber prices in Tokyo, up 8%
this year, have increased more than threefold since 2001. Demand from China
will rise 35% to 6.83 million tons by 2010, according to the China Rubber
Industry Association, Bloomberg reports.
To meet its needs, China has become the largest investor in Laos, outpacing
neighboring Thailand and Vietnam. Most of that investment has come in the
agribusiness industry, in particular rubber. An individual with knowledge of
the Lao rubber industry who requested anonymity reported that the Chinese
accounted for an estimated US$20 million in investments in northeast Laos, out
of a total $26 million invested.
Rubber cultivation is new to northern Laos, with the first plantation
established in northern Laos in Hat Nyao village in 1994 by ethnic Hmong
refugees who had fled to China during the Indochina War and later returned from
exile with substantial rubber growing expertise. Major expansion of the crop
began around 2002, with substantial foreign commercial interest making inroads
into northern Laos in 2004. Today forest areas are being cleared in
ever-expanding areas across the country to make way for new plantations.
Luang Nam Tha province in the northwest has the largest amount of total
hectares under rubber cultivation, while plantations are sprouting up in other
northern provinces such as Udomxai and Pongsali and especially in Bokeo,
adjoining Myanmar, along the almost finished Route 3 that will connect southern
China to northern Thailand. A 2006 survey by the Forestry Research Center found
nationwide a total of 11,778 hectares was already under rubber tree
cultivation, with a total of 181,840 ha in new plantations planned.
One knowledgeable source estimated that at present more than 10,000 hectares of
rubber had been planted in Luang Nam Tha province, compared with 400 hectares
in 1994 according to NAFRIL. The number of hectares in nearby Vieng Poukha,
including a 3,000 hectares spread granted by the government to a Sino-Lao
consortium, and Na Lae districts is also growing rapidly.
Lao farmers earn anywhere between US$6,000 and $8,000 per hectares per year
from rubber growing, considerably more than they would earn through traditional
rice farming, non-timber forest products and even eco-tourism. The average
rubber plantation in 2006 produced 1,360 kilograms of latex per hectare for a
profit of around US$880, according to NAFRIL. In comparison, rice yielded 1,500
kilograms per hectare for a profit of $146 and opium 8 kilograms for $903
profit.
Division of labor
This has made rubber cultivation very attractive to poor, previously
subsistence Lao farmers. Rubber investment in Laos largely falls under three
general schemes: individual farmers, farmer associations and rubber companies.
Individual farmers who grow rubber generally provide all the inputs and labor
themselves, seek out their own markets and bear all the risks if the crop fails
or world prices fall. Most of these farmers in Laos have relatives on the
Chinese side of the border who have invested in plantations, provide technical
knowledge and help access Chinese markets. Generally these plantations range in
size anywhere between three and 25 hectares.
Under the farmer association scheme, each farmer is contracted by an
association based within the village to work a piece of land. The labor is
shared and at harvest farmers are paid for the amount of rubber received from
the land they worked, minus a fee to the association. Rubber companies operate
under government concessions or on contract with individual farmers or farmer
associations. The largest operations involve land concessions granted either
through the Lao government or the army.
Rubber companies seeking concessions of under 100 hectares make agreements with
district officials, while those over 100 ha are made with the provincial
officials, though these concessions are sometimes guided by connections with
government or army officials in Vientiane. All the inputs are provided by
Chinese companies and local villagers are hired to work the land at an average
of 20,000 Kip or US$2 per day. The companies pay a concession fee of about US$6
per hectare for the use of the land.
Another system has Chinese companies forging agreements with farmers or farmer
associations, sometimes after establishing deals with local Lao authorities as
to which villages they can work in. Under this contract-farming scheme,
villagers plant and care for the crop under the supervision of a Chinese
specialist. Seeds and other inputs, technical support and guaranteed markets
are provided by the Chinese company. At harvest, the profits are generally
split between the villagers and the company on a 30:70 ratio if some form of
salary has been paid, or 60:40 if the farmers receive no salary and only
provide land and labor.
Chinese investment, while bringing guaranteed markets, technical help and
capital investment, comes with substantial downsides. One complaint is that
land concessions granted by the government to Chinese companies are not always
voluntary on the part of the farmers. Sources with knowledge of the situation
claim that some of the land granted actually belonged to villagers who are
simply told by the government or army that it now belongs to a Chinese company.
A general lack of land title deeds and the country’s communist system means
that the exploited villagers have little if any legal recourse. In many cases,
no compensation is paid by the government, although some villagers have been
able to negotiate 10,000-15,000 Kip, or $1 to $1.60 per hectare from the
companies. Although the villagers are allowed to work on what once was their
land, they are only paid one-third of what a Chinese worker generally receives.
Chinese companies say that they are not completely to blame for the imbalances,
arguing that they are only doing business and it is the Lao government that
should be responsible for setting appropriate standards and controls. Rubber
investment has been largely decentralized, with district and provincial
authorities able to make deals without having to consult the central
government.
This has reportedly allowed Chinese businesses with political or military
connections to manipulate the system and some say has encouraged corruption
among poorly paid local officials. Without a clear government policy and
central control of investment procedures, rubber-related investments are almost
completely unregulated.
At the same time, contracts agreed to with Chinese companies are often of
little legal value, underscoring the risks to both sides. According to NAFRIL,
contracts written by Chinese investors ''fail to meet any internationally
recognized standards and are woefully inadequate by every measure''. Some are
informally signed with no involvement by local authorities, while others are
legally signed with the involvement of local authorities.
In both cases, the terms are often vague and without sound legal reasoning.
Many of the farmers who sign the contracts have no real knowledge of the law
and their rights. Indeed, many of the upland villagers are illiterate in the
Lao language, much less Chinese. In some of the more egregious agreements,
farmers have later learned that they in effect signed away their rights to
their land for an extended period of time and cannot change to another crop if
their rubber trees fail or world prices drop.
Flawed model
Although China’s experience with rubber cultivation is being used widely as a
blueprint for rubber plantations in northern Laos, there are many glaring flaws
in the Chinese model. Chinese rubber cultivation began in its southwestern
Yunnan province in a protected environment, wherein markets were guaranteed and
prices fixed. This is not the case in Laos, where the industry is not protected
and markets guaranteed only as long as demand exists and high prices hold.
The Chinese model also shows the dangers of environmentally unsustainable
practices. A 2005 report by the German Organization for Technical Assistance
and Cooperation (GTZ), a non-governmental organization, found that rubber
cultivation in Yunnan had resulted in severe erosion, which would severely
affect the long-term ecological sustainability of the area.
According to environmentalists tracking the situation, growing and extensive
mono-crop rubber cultivation in Luang Nam Tha will have other dire
consequences. The loss of biodiversity due to the conversion of natural forests
to rubber will cut harvests of non-timber forest products that so many
villagers rely on. The Nam Tha and Sing river valleys will also likely
experience a reduction in size and diversity, they say.
The Lao government has failed to provide technical help to farmers in line with
the increase in investment in rubber plantations. Nor has there apparently been
any official research conducted into rubber or into which varieties are best
suited to the growing and climatic conditions of the country. All of the
technical knowledge and inputs, including seeds, bud grafting material and
tapping equipment come unregulated from China. This has quickly made Lao
farmers highly dependent on Chinese inputs.
Nor have there been any substantive controls placed on the areas under rubber
cultivation. The Land Use Planning and Land Allocation law was instituted by
the Lao government to encourage farmers to protect land and use it more
effectively through delineating land-use areas and village boundaries. The law,
however, has not been effectively implemented or enforced in a majority of
villages. One aspect of the law, which stipulates that land left fallow for
more than three years reverts to community ownership, has resulted in farmers
planting rubber on the land, whether it is suitable or not, simply to retain
the land-use rights.
In some areas, protected areas and conservation forests are being encroached
upon. In particular, the growth of rubber plantations has recently become a
direct threat to the Nam Ha National Protected Area (NPA). The NPA, which spans
222,400 ha in Luang Nam Tha province, has been declared an Association of
Southeast Asian Nations (ASEAN) natural heritage site and has become
increasingly popular with globetrotting eco-tourists, with 49,258 arriving in
2005 and a projected 79,916 by 2013, according to the Lao National Tourism
Administration.
Despite this, until recently there has been very little protection of the area
against the breakneck expansion of rubber, which breaches Prime Ministerial
Decree 164 issued in 1993 and the Forestry Law of 1996, which set forth that
the purpose of the protected areas was to conserve biodiversity, protect
watersheds, maintain ecological stability and protect the scenic beauty of the
area for research and tourism. One source said he felt ''the NPA will be gone
in 10 years'' due to growing rubber cultivation.
This year, the government instituted a modest program to better protect
conservation areas. Teams from the Luang Nam Tha Provincial Agriculture and
Forestry Department have been posted in three to four villages with the purpose
of regulating the spread of rubber plantations, especially in the NPA. The
impact of the teams will not be known for a few months. At the same time, the
province is beginning to enforce better zoning and land use in some areas.
A prime ministerial order handed down in 2006 called for a moratorium on
granting foreign land concessions. It is unclear what impact if any this has
had since at least one Chinese company has since been granted land concessions
in Muang Long district. Another prime ministerial order which in future might
have more impact called for an increase in the number of people involved in
forest protection.
The large amounts of money involved in the business argues against progress.
The Lao Army and high level political leaders are known to have invested
heavily in rubber plantations and grass roots dissenting views on the crop’s
expansion are seldom, if ever, heard.
Brian
McCartan is a Thailand-based freelance
journalist. He may be contacted through
brianpm@comcast.net.
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