Comparing investments in the Lao Tea Sector: Concessions, contracts, and outcomes for smallholder farmers

Most tea in Laos is produced by smallholder farmers, who benefit from highly suitable growing conditions and strong demand for sought-after varieties from the vast Chinese market. However, the sector faces many challenges to achieve its full potential. A key barrier in the northern provinces has been the tendency towards monopsony trade concessions, in which the production of a whole district can be under exclusive control of one buyer. Such arrangements were initially beneficial to catalyse investment in an immature market, but have ultimately stifled competition and held back value chain development. Although contract farming has improved the livelihood benefits for tea growers in some locations, there are still challenges to ensure clear definitions, rights and obligations among the parties. Moreover, the limited processing that takes place in Laos, and the inability of domestic enterprises to export in their own right, mean that smallholders gain a modest share of profits compared to downstream actors. This study compares different investment models and their outcomes for farmers and investors in the Lao tea sector. The comparison of trade concessions and contract farming offers valuable policy insights for governing more responsible agricultural investments in Laos.

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