The Adoption of Smallholder Rubber Production by Shifting Cultivators in Northern Laos: A Village Case Study - Smallholder Tree Growing for Rural Development and Environmental Services - page 127

Table 5.10 Results of DCF analysis for smallholder rubber in Hadyao (2005 prices and wage rate
of 17,000 Kip/person-day)
Rubber prices (Kip/kg) NPV (Kip/ha) and BCR at selected discount rates IRR (%)

5 % 8 % 13 %

5,460 −4,958,000 −9,361,000 −10,847,000 3.4

(0.94:1) (0.84:1) (0.71:1)

7,800 23,038,000 7,048,000 −3,347,000 10.7

(1.27:1) (1.12:1) (0.91:1)

10,140 51,034,000 23,463,000 4,153,000 15.4

(1.61:1) (1.40:1) (1.11:1)

1 USD = approx. 10,000 Kip

their investment plans if market conditions change in the future. However, for those
with established gardens, for whom the investment is a 'sunk cost', the price would
have to fall up to 60 percent from 2005 levels before it would no longer be worth-
while to tap. Even in that case, the rubber plots could be left untended and 'opened
up' again for tapping when prices rose sufficiently, which is the practice of small-
holders in other countries. The threat of price falls can also be countered to some
degree by adopting practices to improve yields in the future, as well as improving
the quality of the rubber to obtain a marketing premium. These would translate
directly into improved returns to family labour, hence higher household incomes.
There are other risks associated with the investment in smallholder rubber in the
uplands of Northern Laos, in particular climate and market uncertainty. The occur-
rence of heavy frost in 1999, killing many rubber trees in Luangnamtha Province,
indicates the foremost climatic risk that farmers face. There is a justifiable concern
that this could happen again as most rubber trees in the province are planted at an
elevation of almost 700 m above sea level. Another concern is market uncertainty.
The sudden but temporary close of border trade with China in late 2006 is one
example of market uncertainty that seriously affected Lao rubber farmers as their
only market is China. There is also the likelihood of competition as other rubber
producing countries are also increasing their production in response to the rising
global rubber demand. An improved road network will help to reduce marketing
costs and maintain the farm-gate price of rubber, but the pace and extent of this
investment in infrastructure is itself uncertain.
Manivong and Cramb (2007) also present a spatial analysis of the potential for
the expansion of rubber in other areas within Luangnamtha Province. This shows
that the potential for smallholder rubber in the study village is not an isolated case;
there are other areas in Luangnamtha Province that appear to be economically suit-
able for rubber, consistent with the recent expansion in planting activity. There may
thus be increasing pressure to reallocate land from forest zones to tree crop produc-
tion. This demand could perhaps be met from within the areas zoned for plantation
forests if rubber is found to compare favourably with timber plantations in terms of
economic returns as well as the provision of ecological services. This is an impor-
tant topic for further research.