10. Economic Constraints to the Intensification of Rainfed Lowland Rice in Laos

Rice production in the rainfed lowlands of Laos faces a number of constraints at the farm level, including poor soil fertility, droughts and floods, and various pests and diseases (Schiller et al. 2001; Linquist and Sengxua 2001; Fukai and Ouk 2012). Furthermore, factors beyond the farm boundary such as rising input costs, fluctuating output prices, and uncertain trade policy continue to limit farmers’ incentive to intensify production beyond that required to achieve household self-sufficiency. Hence, in recent years, household labour and capital have been redirected into a range of other farm and non-farm activities rather than into intensifying rice production (Manivong et al. 2014). With high levels of yield- and price-risk and limited opportunities for consumption smoothing through market mechanisms (credit and insurance), households adopt income-smoothing strategies by adopting Low-Input production systems and income diversification, most notably through migration of family members to earn wages.

While the constraints are numerous, lowland rice production systems have been evolving over the past two to three decades (Chaps. 5 and 6). The traditional farming system that relied on draught animal power, traditional varieties, and organic fertilisers now accounts for a very small proportion of the country’s lowland rice area, with widespread adoption of mechanised land preparation, improved varieties, and low levels of inorganic fertilisers. Despite the achievements of these “green revolution” technologies in terms of increased output, lowland rice production remains an economically marginal activity, providing limited economic incentive for farmers to intensify production beyond household consumption needs.

This poses a challenge for the Government of Laos (GOL) that seeks to keep the price of rice affordable for urban consumers (and net buyers of rice in rural areas), while providing incentives for farmers to intensify production to achieve food security (and even export) objectives. Attempts to maintain national food security, equated by policy-makers with rice self-sufficiency, have included the setting of official yield targets that are high relative to the current situation (4 t/ha for the rainfed wet season [WS] crop and 5 t/ha for the irrigated dry-season [DS] crop), as well as ad hoc trade restrictions prompted by seasonal shortfalls and price spikes. However, in many cases the strategies fail basic economic viability tests at the household level and have created further market uncertainty.

The limited intensification of lowland rice systems reflects the relative resource endowments and livelihood objectives of farm households. Induced innovation theory predicts that farming systems will respond both to changes in resource endowments and to growth in product demand, with new technologies developed and adopted that facilitate the substitution of relatively abundant and low-cost factors for those that are relatively scarce (Hayami and Ruttan 1985). In practice, this depends on the extent to which farmers’ circumstances and national government policies align, and the ability of farmers to influence research and development priorities. In considering the economic and institutional constraints to improved fertility management, Pandey (1999) classifies rice production systems using a matrix of population density and the stage of economic development (as indicated by income levels). He argues that in situations with low population density and low income levels (in which he includes Laos), farms tend to be subsistence-oriented, with limited demand for improved nutrient management technologies that increase yields and returns to land. Such technologies will only be adopted if they also help save labour, the relatively scarce resource. He further argues that in order to stimulate the demand for yield-increasing technologies, policies need to focus on improving the profitability of rice production. This may include the development of export markets and improved market infrastructure, factors that lie outside the farm boundary. Nevertheless, in rainfed regions, production risk will continue to influence the demand for fertility management technologies.

In this chapter, we aim to explain farmers’ decisions regarding the intensification of rainfed lowland rice systems in the context of current resource endowments, product demand, and production and market risk. We first describe the current rice production system in two major lowland provinces in central and southern Laos—Savannakhet and Champasak. We demonstrate that while the rainfed production system remains largely subsistence-oriented, farmers have selectively adopted a range of new technologies and continue to respond to changing incentives. However, to date this has largely involved the adoption of Low-Input, more labour-efficient, and more stable production systems rather than commercially oriented, High-Input, and high-yield systems. We use activity budgeting and sensitivity analysis to explore the economic performance of several input scenarios, ranging from farmers’ practice to input levels required to achieve GOL policy targets. This analysis can be used to reassess aspects of rice policy for the rainfed lowlands in Laos.

Savannakhet and Champasak are two of the most important rice-producing provinces in Laos. In 2009, they accounted for around 40% of the national WS harvested area and a similar proportion of total production (Ministry of Planning and Investment 2010). A diagnosis and assessment of farming systems in these two provinces was undertaken in several phases of fieldwork, including key informant interviews with district agricultural staff, village group discussions, household surveys, and household case studies.

The fieldwork was conducted along transects reflecting different farm types, from irrigated lowlands through rainfed lowlands to uplands. However, only data from lowland villages are considered here; upland villages surveyed in the east of Savannakhet have been excluded from the analysis. Thus for present purposes the study region included six villages in Outomphone, Phalanxai, and Phin Districts in Savannakhet and six villages in Phonethong and Sukhuma Districts in Champasak (see Fig. 5.​1 in Chap. 5). A household survey was carried out with 30 randomly selected households in each village, making 360 households in all. Information was sought regarding household composition and assets, cropping practices, livestock practices, off-farm and non-farm employment, migration and remittances, forest collection and hunting activities, access to water, access to credit, group membership, information sources, and rice security. More detailed case studies were conducted with 13 households in Savannakhet and 18 households in Champasak.

Survey and case-study data were supplemented with project and historical agronomic trial results in order to construct model budgets for various input scenarios. These include data from fertiliser response trials conducted by the International Rice Research Institute (IRRI) and the National Agriculture and Forestry Research Institute (NAFRI) over more than a decade (Linquist and Sengxua 2001, 2003; Haefele et al. 2010). Official yield data were not used as these tend to overestimate actual farm yields (Pandey 2001), presumably a reflection of the pressure to show progress in achieving policy targets. In 2013, the model budgets were presented to a farmer focus group for validation and updating with input and output prices relevant to the 2012 wet season. Sensitivity analysis, threshold analysis, and risk analysis (using the @Risk software package) were conducted for each scenario.

The cultivation of rice remains an important livelihood activity for the majority of households in the lowland regions of Laos and creates the platform on which other activities and household decisions are based. Decisions regarding labour utilisation and migration, livestock management, and even religious and cultural festivals, are all made with reference to the paddy production cycle. Around 96% of surveyed households cultivated rice in WS 2010. Household access to paddy lands varied within and between villages, from less than a hectare to over 10 ha, with an average across all villages of around 2 ha (Table 10.1). There was a similar proportion of households with 1 ha or less (33%), 1–2 ha (34%), and over 2 ha (33%). Beyond farm size, other factors such as soil type, position in the toposequence, and access to water sources all affected the productivity of the land, even before any management decisions were overlayed. The stability of the livelihood platform thus varied between households and seasons.

WS 2010 was considered by farmers and researchers to be a drier than a normal year, with reported yields (calculated from farmers’ estimates of cultivated area and production) somewhat lower than in previous years (Table 10.1). Droughts and floods are a common occurrence in the region, with large areas impacted by these climatic shocks. According to Schiller et al. (2006), over a period of 37 years (1966–2002) the Central Region (which includes Savannakhet) was affected by extreme events in 32 years, while the Southern Region (which includes Champasak) was affected in 22 years. These events have a profound impact on household rice self-sufficiency, given that many operate close to a subsistence threshold. Nevertheless, this means that the 2010 yields were not greatly different from the normal run of seasons. It is significant that they were below official yield data for the same season and well below the official target of 4 t/ha.

Households produced limited surplus rice for sale in WS 2010, averaging only 15% across the 12 villages (Table 10.1). Only 40% of surveyed households who were growing rice sold any rice, with the rest either producing rice exclusively for home consumption or buying rice to cover a deficit. However, sellers included some households that had access to irrigation water for the subsequent DS crop (particularly in Boungkeo and Phaling in Champasak).¹ The proportion of households selling rice, just self-sufficient, and buying rice varied significantly between the villages, as shown for the six Champasak villages in Fig. 10.1. There was also a group of households that sold rice immediately after harvest to pay off debt and re-entered the market later in the year as buyers to make up shortfalls. These households received low paddy prices when they sold their rice after harvest and incurred higher prices when they re-entered the market to make purchases.

The household’s rice status is a function of the number of household members (or, strictly, the number of people who share the harvest); the area of paddy land available for cultivation; and the yield of the rice crop (Table 10.1). Given that yields fluctuate between years and many households are close to subsistence levels, the household’s rice status is likely to change from year to year. Hence households formulate their livelihood strategy each year depending on crop performance. For example, the migration patterns of young people in some case-study households were determined by the performance of the WS rice crop and whether cash income would be required to make up shortfalls.

The average household size in the survey was 6.7 members, but this is complicated by household dynamics throughout the year. Members of the household may migrate for periods of the year and not consume from the household’s rice stock. On the other hand, sometimes the rice harvest is shared beyond the immediate household, including relatives who have moved away from the village. Similarly, there are other social obligations involving sharing rice with others, including offerings to monks. Acknowledging these nuances, it is useful to take as a benchmark the national criterion for self-sufficiency, which is 350 kg of paddy (i.e., unmilled rice) per household member per year.

Figure 10.2 shows the yield required for an average household to achieve self-sufficiency for a range of paddy areas. The “self-sufficiency curve” indicates the large difference in required yield as the land size varies. For example, a household with 2 ha of paddy land only requires a yield of around 1.2 t/ha to achieve household self-sufficiency, while a household with only 1 ha would require a yield of close to 2.5 t/ha. The scatter plot presents the yield and area combinations for WS 2010. Self-sufficient households tend to track the “self-sufficiency curve”, suggesting that households are trading off yield and paddy area, pursuing higher yields only when farm size is limited. As expected, most net purchasers of rice fall below the “self-sufficiency curve” in Fig. 10.2 and most net sellers are above the curve (remembering that actual family sizes vary between points). Some households remain net purchasers of rice, despite relatively large paddy areas, due to low yields, while other households achieve relatively good yields but, due to area constraints, still fail to meet household requirements.

The “market-oriented curve” in Fig. 10.2 shows the yield-area combinations enabling the average household to sell 50% of production, and the “market entry curve” shows the combinations for sales of 20% of production, reflecting an incipient market orientation. There were few households above the “market-oriented curve”, especially in Savannakhet. As indicated in Fig. 10.2, a large proportion of households selling rice in 2010 were from Champasak, reflecting the higher average yields in 2010 in that province. Again, the scatterplot shows that the opportunity for a household to meet these market criteria varies considerably with paddy area. Households with 3 ha or more could achieve a 50% surplus with 2 t/ha or less, while the few market-oriented households with less than 2 ha were achieving yields of 3–4 t/ha.

In general, the data suggest that currently the majority of households remain largely subsistence-oriented (with respect to rice farming) and are willing to trade-off yields with paddy area to meet household requirements, limiting the incentive for intensification. Even in cases where households have access to irrigation water allowing double cropping, significant areas of the land were left fallow as rice prices fell to the extent that only 3 ha of DS rice were planted in Phaling village in 2012 compared to around 50 ha for the survey year in 2010.

While there are many physical and biological constraints that continue to limit rice productivity in the rainfed lowlands, the farming system has by no means remained static over the past two decades. The traditional production system that relied on draught animal power for land preparation, traditional varieties, and organic fertilisers has almost completely disappeared from the landscape. Indeed, only 11 households from the 347 households surveyed that were growing rice had not adopted any of the three main technologies—mechanised land preparation, improved varieties, or inorganic fertilisers. The current status of adoption of these technologies is summarised below.

To help understand the adoption patterns for fertiliser use, enterprise budgeting scenarios were developed for a hectare of WS rainfed rice based on household survey data and field experimental results. These representative budgets were first developed using average values for prices and yields, then sensitivity analysis was applied to allow for variability in these two key parameters. A range of indicators was used to capture farmers’ decision criteria with regard to input use, including net returns to land (NR), with imputed costs for household labour deducted; net returns to household resources (NRHR), with no costing of household labour or land; and net returns to household resources per day of household labour (NRHL). When presenting the representative budgets to groups of farmers, these three indicators were assessed in terms of their usefulness for evaluating activities. Farmers preferred the NR measure to the NRHR measure as it explicitly placed a value on their own labour, but they also found the NRHL measure an easy way to compare the returns they received to the wage rate at different times of the year and for different household members.

The survey evidence from Central and Southern Laos shows that farm-households in the rainfed lowlands continue to manage rice production systems that are largely subsistence-oriented. The adoption of new technologies, especially improved varieties, has been important in helping households meet self-sufficiency objectives and has enabled some to produce a small surplus. Despite this, rice production remains an economically marginal activity that is under increasing pressure from rising costs, particularly for labour. Rural livelihoods in the study area have become increasingly diversified, with households allocating labour to a range of alternative farm and non-farm activities. However, rice production continues to be the platform on which these other livelihood activities are based. The development and adoption of technologies that enable households to achieve self-sufficiency in a labour-efficient and cost-effective manner are important to improving household welfare in this context.

The budget models show that, given their resource endowments and the high degree of production and market risk they encounter, households in the rainfed lowlands have been rational in adopting a Low-Input system rather than intensifying rice production to achieve government yield and production targets. As the costs of labour continue to increase, technologies that improve labour productivity and enable labour to move off-farm are likely to be adopted more readily than technologies that seek to intensify production. In the same way, the development and adoption of improved varieties that are well adapted to abiotic and biotic stresses and reduce risks in specific environments can potentially improve the profitability and stability of the rainfed lowland system. Moreover, improving the efficiency of fertiliser application through site-specific recommendations may be more important than increasing absolute fertiliser rates.

While the improvements in profitability that these technologies bring may induce some intensification, we argue that the strategy of diversifying livelihoods while maintaining a largely subsistence-oriented rice production system is likely to persist, given the current economic trends. While this may not help lift rice production to reach national targets, it is likely to improve the livelihood outcomes of the numerous households living in this marginal environment.