Rice is Lao PDR’s biggest agriculturalcommodity in terms of farmers involved in production,cropland area allocated, and food consumption. Rice alsogenerates important economic spillover effects, supportingjobs in milling, trading, and food catering sectorsnationwide. Vegetables are emerging as a new source ofgrowth, benefiting from the rising demand of more affluentand urbanized Laotians for nutritious and diverse diets.This report studies the extent of commercialization of riceand vegetables value chains in Lao PDR, the main challengesand opportunities, and ways to increase their contributionto the country’s economic development. Economic benefits aremaximized when farmers have incentives to produce for profitwhile consumers gain from reasonable prices and good qualityof products. Therefore, this report focuses on the costbuildup between farmers and consumers, motivated by the highretail rice prices in Vientiane vis-à-vis complaints of lowfarm-gate prices. The report follows a qualitative andquantitative value chain approach combined with a detailedregulatory assessment. It is based on about 100 interviewswith key experts and stakeholders. It studies the valuechain for rice from Khammouane to Vientiane Capital and forvegetables from Vientiane Province to Vientiane Capital.Theresults are not country representative; they should beread as a snapshot of the selected value chains in selectedareas in 2017. Yet this work is unique for Lao PDR, amongthe first to generate detailed estimates of cost build-up ateach stage of the value chain using primary data andapplying a consistent methodology. It is also unique ingenerating knowledge on the vegetables value chain, which isless studied than those of rice and other agriculturalcommodities in Lao PDR. The study finds that Lao farmersreceive a relatively high farm-gate price, yet highproduction costs “eat” their profits (rather than lowfarm-gate prices, as often perceived in the country).However, the share of farm-gate prices in wholesale andretail prices in Lao PDR is the lowest among its peers. Thisdampens farm supply responses. In addition, the issuesholding back the rice sector in Lao PDR pertain to: (i) lowproductivity and quality management at the farm andimmediate post farm levels; (ii) a fragmented milling sectordominated by small operators with old technology; (iii) anoverall market system that fails to provide incentives forproduct quality; and (iv) the lack of a significant consumerclass with high purchasing power that could fosterconsolidation of wholesale and retail sectors and reducetheir costs. In summary, the high cost of paddy productionand operational inefficiencies among multiple players in thevalue chain areresponsible for high consumer rice prices.
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