Agriculture Reference
In-Depth Information
APB surveys showed that the area actually planted with tree seedlings represented
only 60 per cent of the area for which loans were extended (ADB 2005b: 36).
Analysis in the ADB's project completion report (ADB 2005a: 4) showed a similarly
worrying discrepancy. The extent of smallholder credit default was also becoming
clear, with APB data indicating that up to 87 per cent of the sub loans extended to
early borrowers were non-performing by December 2003. At the end of 2003, the
ITPP project alone formed approximately 45 per cent of the total loan portfolio of
the Lao APB (ADB 2005a), implying that the APB itself was heading towards
insolvency. Even without the high levels of default, the inflation rate in Laos
through the project period often reached much higher than the seven percent inter-
est rate charged in the ITPP loans, particularly in the years following the 1997
Asian financial crisis. The actual commercial lending rate in Laos was generally
between 20 to 30 percent through this period, implying that the ADB and Lao
APB were distributing credit at an extreme discount.” Overall, in 2003 the Lao
APB was holding 108 billion kip in non-performing loans, representing 46 percent
of the institution's gross loan portfolio (ADB 2005a). The ADB advised that APB
would require significant re-capitalization from the central Bank of Laos to remain
financially viable, even as the ADB's own ITP project represented the most direct
contributor to this situation.
As mentioned, in 2000, as the project was experiencing difficulties in identifying
suitable borrowers under the initial screening format, the Lao Project Coordination
Unit extended its geographical scope to include more districts. Many of the even-
tual 32 districts which were included in the extended target area were likely outside
the transportation range of any wood buyers.
4
The closest major pulpwood pur-
chaser for plantations in central and southern Laos, is the Phoenix Pulp and Paper
factory at Khon Kaen, northeast Thailand. Thus, even if the subsistence-oriented
farmers enrolled into the project were successful in achieving the minimum annual
growth rates, for many there would be no existing, viable market for their trees.
Yet, by 2003 the smallholder eucalyptus trees were clearly showing very poor
growth rates. For corporate tree plantation projects in the region, a mean annual
increment (MAI) of approximately 18 to 20 cubic meter per hectare is generally
considered as the minimum rate which will provide an adequate return on invest-
ment. But mensurational surveys of smallholder and individual eucalyptus growers
enrolled in the ITPP project indicated MAI's as low as one to three cubic meter per
hectare per year. Given their scattered locations in smallholder plots, these yields
would render it grossly unprofitable to even harvest the trees. Indeed, it appears that
the majority of the smallholder plantations under the ITPP were a complete
4
Given prevailing prices, the maximum overland hauling distance for pulp logs is usually consid-
ered to be in the range of 250 to 300 km. However, from 2000 in Thailand, there has been a cycli-
cal reduction in the supply of pulpwood logs, leading to increased competition between Thai pulp
factories for supplies. As a result the Thai source ranges have extended into Laos. This situation
is not expected to remain in place permanently (see Barney 2005). Even with these extended sup-
ply ranges, sites such as rural Salavane province would have remained outside of the interest of
these Thai buyers. There may have been a limited number of smaller wood purchasers, located in
southern Laos.
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