Farmer-Friendly Opportunity for Rubber Planters Goes Bust Due to Lack of Regulatory Support

Spurred by a booming economy and high demand from China, authorities across northern Laos encouraged smallholder rubber planting in the mid-2000s. This was welcomed by many as a farmer-friendly alternative to the large-scale land concessions dominant in the south, one that could boost local livelihoods while solidifying de facto land claims. What began as an ambitious opportunity has largely gone bust, due in part to the fall in rubber prices, but exacerbated by insufficient regulation, lack of transparency in pricing, poor credit and contracting terms, and coercion of farmers.

Forest Trends’ new information brief presents policy lessons based on one of the first research efforts on the fall in rubber prices in Laos. Major findings include:

• Even before the fall in rubber prices, the sector had been unsuccessful in scaling up smallholder rubber using a contract farming model with Chinese companies. These efforts ran into three problems: unattractive terms of credit, coercive enrollment, and the rise of sales to wealthy elites and Chinese entrepreneurs.

• When rubber prices fell, it became clear that provincial authorities were unwilling to use the limited regulatory leverage they had, and farmers suffered due to both the price drop and opportunistic company behavior. Contracts offered limited protection – those that specified minimum prices were not enforced – and collective marketing efforts fell short.

• While price data were hard to come by, there were significant differences in purchase prices on both sides of the border with Lao producers getting roughly half those of their Chinese counterparts – despite Chinese companies receiving generous subsidies meant to help Lao farmers convert to crops other than opium.
It is clear that the regulatory environment in northern Laos was insufficient to boost the weak role of Lao farmers in the global economy.

The brief recommends that countries invest in regulation that works through active smallholder support; increase community control over land and forests; and institutionalize access to (and disclosure of) information about public-private partnerships and subsidy programs. These lessons are relevant to other sectors and geographies, providing a blueprint for an agricultural system in which small farmers can succeed.

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