Climate-Friendly Agribusiness Value Chains Sector Project (RRP LAO 48409-004)

Feasibility Study for Upgrading the Vanida Rice Mill

Subproject

Project Number: 48409-004

June 2018

Lao PDR: Climate-Friendly Agribusiness Value

Chains Sector Project
 LIST OF ABBREVIATIONS

ADB - Asian Development Bank

ADS - Agriculture Development Strategy (to 2025; vision to 2030)
APG - agricultural production group
CCIC - China Certification and Inspection (Group) Company Ltd
CSA - climate smart agriculture
DAEC - Department of Agriculture Extension and Cooperatives
DAFO - District Agriculture and Forestry Office
DOPC - Department of Planning and Cooperation
DPIU - district project implementation unit
EA - executing agency
FAO - Food and Agriculture Organization
GAP - gender action plan
GMP - good manufacturing practice
ha - hectares
HACCP - hazard critical control points
IA - implementing Agency
KDRMG - Khammouane Development Rice Millers Group
kms - kilometers
KRMC - Khammouane Rice Millers Cooperative
MAF - Ministry of Agriculture and Forestry
MOIC - Ministry of Industry and Commerce
NPMO - National Project Management Office
NSEDP - 8th National Socio-Economic Development Plan (2016-2020)
PAFO - Provincial Agriculture and Forestry Office
PCR - project completion report
PIC - project implementation consultants
PPIU - provincial project implementation unit
PPMS - project performance and management system
SFS - smallholders financing scheme
VRM - Vanida Rice Mill

< - less than

> - more than
t - ton
hr - hour

NOTE

In this report “$” refers to United States dollars.

 I. SUBPROJECT SUMMARY

A. Subproject Description and Design

1. The Climate-Friendly Agribusiness Value Chain Sector Project (CFAVCP), under its
suboutput 1.3 (Agribusiness Enterprise Value Chain Infrastructure Improved) will support
upgrading of rice mills (clusters) with service provision to farmers (subproject 1.3[1]). In this
context, the Vanida Rice Mill (VRM), a member of the Khammouane Community Development
Rice Millers Group (KDRMG) and of the newly formed Khammouane Rice Millers Cooperative
(KRMC), has been selected as the subject of a representative subproject feasibility study. The
subject agribusiness enterprise of the feasibility study meets the criteria for support under sub
project 1.3. (1)1 and its eligibility for project support will be revalidated by the executing agency
(EA) during project implementation.

2. The project will support the upgrading of the VRM to (i) construct separate paddy and
milled rice storage areas to comply with good manufacturing practice (GMP) and hazard critical
control points (HACCP) regulations and (ii) extend the mill production facilities to include a
second production line to allow the separation of white and glutinous rice and avoid the
production of mixed rice types. The upgrading of the mill will improve its access to premium
domestic and export markets, improve rice recovery rates and enhance mill capacity usage.

3. The following activities will be undertaken.

4. Provision of storage infrastructure, rice mill equipment, and certification. The

project will provide financial and technical assistance for:

(i) The construction of a separate (from the rice mill structure) paddy storage
warehouse measuring 70 meter (m) x 50m with a capacity of 5,000 tons (t)
/10,000t per annum;
(ii) The construction of a separate (from the rice mill structure) milled rice storage
warehouse measuring 20m x 50m with a capacity of 5,000t/10,000t per annum;
(iii) The provision of the following rice milling equipment: 3 dryers (25t capacity
each)/Pre-cleaner (3t/hr) / Pre-separator (3t/hr) / Paddy husker (3t/hr) / Adhesive
whitener / Rice polisher / Rotary shifter / Rice grader / Color sorter (320
channels) / Weight + bag sewing machine (packaging equipment); and
(iv) GMP and HACCP certification and compliance.

5. Associated investments. Project initiatives associated with this subproject will include:

6. Training and capacity building for farmers and agricultural production groups
supplying the VRM with paddy, on climate-smart agriculture (CSA) techniques, good agricultural
practice (GAP), and organic rice certification; and for agricultural production groups (APGs)
management, administration, book-keeping and accounts, value addition, networking, marketing
and logistics. This initiative will be implemented under project Output 2 (Climate-smart
agriculture promoted), sub-output 2.2 (Capacity strengthening in climate smart agriculture);

7. Technology transfer and mechanization. Financial and technical support to farmers

and APGs regarding farm based CSA infrastructure and mechanization will be supported and
1
See Section III.A.1.
2

implemented under project Output 1 (Critical Agribusiness Value Chains Infrastructure Improved
and Made Climate-resilient), sub-output 1.3 (1) (Agribusiness enterprise value chain
infrastructure improved);

8. Smallholders financing scheme for APGs. To further incentivize farmers and APGs
to adopt new technologies, finance will be provided by the project through a smallholder
financing scheme (SFS) with a budget of $1.25 million based on a grant of approximately
$25,000 for 50 APGs. The SFS funds will be disbursed to APGs APGs), on a group guarantee
basisto enable APGs to borrow funds for their members that supply paddy to the VRM, for the
procurement of CSA technology and mechanization at agreed standard government lending
rates.

9. Further details of the subproject description, design, investment cost, funding

arrangements and financing plan, and procurement arrangements are given below in section III,
IV, and V.D. respectively.

B. Subproject Context and Rationale

10. The project seeks to promote improved resource efficiency and climate resilience of rice
value chains in Khammouane, Savannakhet and Saravan provinces. Government policy
regarding the rice sector is governed by the following three main reference documents: (i) the
Political Report of the 8th Party Central Committee to the 9th Party Congress; (ii) the 8th National
Socio-Economic Development Plan (NSEDP: 2016 – 2020); and (iii) Agriculture Development
Strategy (ADS) to 2025 and Vision to the Year 2030. Rice is the most important food crop
cultivated in Lao PDR, accounting for more than 80% of the area under cultivation within the
country. Since the 1990s, there has been a significant expansion in the country’s rice production
area and productivity; the latter being due, largely, to the introduction of improved rice seed
varieties. In consequence, Lao PDR has now achieved rice self-sufficiency at the national level,
although there are differences in self-sufficiency among the provinces, the deficit areas being in
the north of the country. Recent analysis2 has shown that, although Lao PDR is vulnerable to
extreme climatic events, the expansion of production and the localized nature of most climatic
events such as floods and droughts has meant that the country can produce enough rice for its
needs at national level with enough surplus available for export. The country’s goals and targets
to 2025 for the rice sector have been determined in the ADS and may be summarized as
follows:

(i) total paddy rice production to reach 5 million tons of which 70% to be glutinous
rice and 30% non-glutinous rice;
(ii) rice for national food security to reach 2.5 million tons, paddy equivalent;
(iii) paddy rice for domestic processing to reach 500,000 to 600,000 tons; and
(iv) rice for domestic sale and export to reach > 1.5 million tons.

11. Throughout the 2000s, Lao PDR exported rice, particularly long grain sticky rice and
sweet rice, to the neighboring countries of China, Cambodia, Thailand, and Viet Nam. However,
it remains, in general, uncompetitive regionally due to (i) high transaction costs; (ii) the inability
of many of its mills to comply with international regulations regarding, e.g. GMP, HACCP; and
(iii) the inability of rice farmers to achieve certification for good agricultural practice (GAP) and
organic rice cultivation. Therefore, there is a strong and urgent need for the government to
support the upgrading of rice mills, with the critical mass of production and economies of scale,
2
International Rice Research Institute (IRRI). 2012. Lao PDR, Rice Policy Study. Los Banos.
 3

to compete in both export markets and the growing premium domestic markets, e.g. in the
tourist sector. Furthermore, those rice farmers supplying paddy need to be supported in terms of
extension, training and capacity building, climate-resilient and high yielding rice seed supply,
GAP and organic certification, paddy price guarantees and warranties through contract farming
agreements with rice mills. Such services can be provided by rice mills to their farmer suppliers.

12. The VRM, as a representative case study, has been selected for a subproject feasibility
study as it meets the criteria for project support and has already made progress toward both
exporting rice and providing services to farmers (section II.E.3 below). As a member of the
Khammouane Rice Millers Cooperative (KRMC), and in its existing connections and provision of
services (e.g., seeds and fertilizers) to APGs, the VRM meets the project’s aim of supporting
APGs and cooperatives in accordance with government policy to foster the development of
agricultural production groups and cooperatives under the ADS (section 3.1.7).

13. Subproject context and rationale is further discussed in detail under section II below.

C. Subproject Cost and Financing Plan

14. The subproject is estimated to cost $722,925, inclusive of contingencies.

15. Of the total investment cost of $722,925, 60% will be financed by the project in the form
of a matching grant, and 40% by the subproject owners. The analysis assumed that the
subproject owners will raise 10% equity and take commercial loans for the remaining 30%.3

16. The results of the economic and financial evaluation show that the subproject is
economically and financially viable with an EIRR of 18.6% and FIRR of 14.0%, respectively. The
sensitivity analysis indicates that the subproject is most sensitive to benefits reduction, but the
performance remains above the required threshold levels.

D. Subproject Implementation Plan and Arrangements

17. The implementation schedule for the subproject is dependent upon the time needed for
project approval by ADB and government, as well as the length of time it takes to set up
implementation structures and operational accounts. The construction work on the two storage
warehouses, and the procurement and installation of the equipment for the second rice
production line, should take no longer than six months. The subproject can start in the fourth
quarter of 2018, providing project implementation commences in the third quarter of 2018.

18. The executing agency for the project will be the Ministry of Agriculture and Forestry
(MAF). MAF will delegate the responsibility for overall project coordination and management to
its Department of Planning and Cooperation (DOPC). In turn, DOPC will establish a national
project management office (NPMO) that will be responsible for project coordination and
management, including financial management of project accounts, procurement of goods and
works, recruitment of consultants, and monitoring and reporting.

3
The project will recruit an independent and professional financial management entity (FME) to select grant
applicants through an open and competitive process, based on the proposed investment’s financial viability, grant
applicants’ capacity in executing the investment, and the investment’s alignment with broader project objectives,
such as commitments to support smallholder or female farmers, to promote CSA, or to adopt resource efficient
technologies
4

19. To ensure inter-agency cooperation at the national level, a national steering committee
(NSC) will be established under the food security and commodities committee, which will
establish a dedicated subcommittee for this purpose.

20. Implementing agencies: In the six project provinces of Vientiane, Khammouane,

Savannakhet, Saravan, Champasak and Sekong, the implementing agencies will be the
provincial agriculture and forestry offices (PAFOs). A provincial project implementation unit
(PPIU) will be established in each PAFO to be responsible for financial management at
provincial level, and coordination and management of implementation of subprojects. The PPIU
will also coordinate and supervise the work of the district project implementation units (DPIUs).

E. Subproject Impact and Risks

21. Impact. The subproject is aligned with the National Socio-Economic Development Plan
VIII (2016-2020) (8th NSEDP) and MAF ADS to 2025 and vision to the year 2030. In this
context, the subproject will increase rice productivity, quality and safety, value addition, market
efficiency, and increase rural household incomes. Performance indicators and targets will
include (i) increases in paddy production and decreases in post-harvest losses; (ii) improved
milled rice recovery rates, improved and optimized rice mill capacity usage, enhanced milled
rice quality, production, and differentiated rice grades and types; (iii) VRM GMP and HACCP
certification achieved; (iv) improved rice farmer household rural livelihoods; (v) improved
marketing efficiency and access to domestic and export premium markets and better relative
prices; (vi) improved value chain integration and backward and forward linkages; and (vii)
adoption of climate smart agriculture technology by rice farmers.

22. Risks. The main risks and assumptions regarding the successful implementation of this
subproject are summarized as being:

(i) Competition: It is difficult for Lao PDR rice mills to compete with neighboring
producing countries (Cambodia and Thailand);
(ii) Quality: The mixing of rice varieties collected after paddy harvesting will affect
the quality of milled rice;
(iii) Market policy instability: Export bans, price controls and obstruction to free
markets has had an impact on the rice trade and is a continuing potential risk;
(iv) Compliance with standards: Lao PDR does not have an internationally
competent testing laboratory. The food safety quality of rice (pesticide residues,
heavy metal contamination, etc.) is as important as the sensory quality, and must
be guaranteed to achieve improved market penetration;
(v) Government sector support: Government reduction to supporting agribusiness
development, through insufficient budget allocation to MAF line agencies
represents a potential danger to project sustainability; and
(vi) Climate change impact: Negative impact of climate change on farming systems
will reduce crop yields and profitability.

23. Subproject risks and assumptions are further discussed under section VII below.
 5

II. SUBPROJECT CONTEXT AND RATIONALE

A. Need for the Subproject and Development Context

1. Government Development Policies

24. The five-year 8th NSEDP is a means of implementing the National Strategy on Socio-
Economic Development until 2025 and Vision until 2030. The 8th NSEDP aims to: (i) facilitate
eligibility for graduation from LDC status by 2020; (ii) consolidate regional and international
integration in the context of the launching of the ASEAN Economic Community in 2015; and (iii)
take further steps towards industrialization and modernization and to enhance the well-being of
the people and the prosperity of the country to achieve the ranking as an upper middle income
country by 2030. The government has indicated that the directions of the 8th NSEDP should be
to:

(i) ensure continued economic growth with quality and macro stability; budgeting
goes hand in hand with development targets and is consistent with the new
environment of industrialization and modernization;
(ii) ensure sustainable development bringing together economic development, socio-
cultural development and environmental protection; be prepared to handle
natural disaster in a timely manner; ensure integrated rural development and
poverty reduction;
(iii) strengthen human resources capacity by improving workforce skills, encourage
more discipline and tolerance; increase the number of technical experts and
specialists; enhance technical and professional capacity of civil servants, private
sectors and entrepreneurs to be able to compete within country and abroad;
(iv) maintain political stability, peace, and social order, solidarity, democracy, justice
and civilization values embedded in the society; and
(v) actively continue widening international cooperation in line with the Vientiane
declaration principles and for the benefit of all citizens, enhancing favorable
conditions for regional and international integration.

25. The agriculture sector contributes to the 8th NSEDP through the MAF’s long term
framework for the development of the agriculture and forestry through ADS to 2025 and Vision
to the year 2030. This document includes the following sectoral vision and aim, ensuring food
security, producing competitive agricultural commodities with comparative advantage,
developing clean, safe and sustainable agriculture and a shift gradually to the modernization of
a resilient and productive agriculture economy linking with rural development contributing to the
national economic basis”.4 The following further documents support the implementation of the
government’s policies regarding the sector:

(i) Development Strategy of the Crop Sector 2025 and Vision 2030 (Vision: Crop
production by focusing on modernization, clean, safety, quality, stability,
sustainability and commercialization);5
(ii) Agriculture and forestry sector contribution to the 8th NSEDP;6
(iii) MAF Action Plan, ADS 2025 and Vision 2030;7
4
Government of Lao PDR, Ministry of Agriculture and Forestry. Development Strategy of the Crop Sector 2025 and
Vision 2030. May 2015.
5
MAF, Department of Agriculture (DoA), February 2015.
6
MAF, Department of Planning and Cooperation (DoPC), March 2015.
6

(iv) Lao PDR Rice Policy Study, 2012;8

(v) Strategic Plan for National Organic Agriculture Development 2025, Vision
Towards 2030;9 and
(vi) MAF - Gender Issues in Planning and Investment, 5-year plan from 2015-2020.

26. Food production and food security: To achieve food and nutrition security the aim is
to provide 2,600-2,700 kcal/day per head of population through an increased availability,
accessibility and stock of food products with the following targets by 2020:

(i) Paddy rice production for food security will reach 3.1 million tons, comprising 2.1
million tons for domestic consumption, 400,000 tons for the national reserve,
600,000 tons for domestic processing and 100,000 tons of seeds.

27. Commercial agriculture: With the objective of achieving sector growth ensuring both
quantity and quality of products with focus on the domestic, regional and international markets,
through the combination of various factors including the development of farmers' organizations
and associations/cooperatives of producers and processors, the government has key target by
2020 of the commercialization and export of 1.5 million tons of rice.

28. The ADS to 2020 comprises the following ten action plans which aim to promote each
province comparative advantage:

(i) food production for food security;

(ii) crop/livestock - commercial production;
(iii) forest resources management;
(iv) rural employment;
(v) infrastructures;
(vi) land development and management;
(vii) action-research;
(viii) extension;
(ix) disaster risk reduction and management; and
(x) human resources development.

29. Each action plan is made of several projects and MAF is now developing some priority
projects, with the rice sector at the forefront.

2. Natural features of the selected province for the feasibility study

30. Khammouane province is situated primarily in the Mekong corridor which includes the
banks and floodplains of the Mekong river and the lower alluvial valleys of its tributaries.
Altitudes range from 100 to 200 meters, annual rainfall is between 1,500 to 2,000 millimeters,
and the agricultural growth period ranges from 180 to 200 days. The landscape consists mainly
of plain to modestly sloping areas.

7
MAF, December 2014.
8
MAF Lao PDR Rice Policy Study”, IRRI, Paavo Eliste (World Bank) and Nuno Santos (FAO), under overall guidance
of Dr Parisak Pravongviengkham , Vice Minister, MAF, LAO PDR
9
MAF, Department of Agriculture (DoA), February 2016.
 7

31. The government has conducted a survey which has zoned agriculture land at the
10
provincial and district levels throughout the country. Total agriculture land is approximately 4.5
million ha (equivalent to 19% of the national land area) which is classified into four types:

(i) flat areas suitable for cultivation of rice and short-life plants/cash crops
comprising approximately 2 million ha. Flat agricultural land area refers to areas
that have flat to moderate slopes between 0-26% (or 0-15 degrees); the
elevation of large plains from sea level is below 500 meters above sea level.
There are seven plains with a land area over 30,000 ha. v i z , Vientiane plain,
Bolikhamxai plain, Xebangfai plain, Bebanging plain, Xeon plain, Champasak
plain and Attapeu plain covering nine provinces and 51 districts with total land
area of about 2,370,600 ha. These plains account for approximately 1,208,400
ha of agricultural land area including 718,200 ha of rice paddy fields;
(ii) land area with moderate slopes, deep soil layers which are suitable for cultivation
of food crops such as corn, bean, green bean, fruit trees, industrial plants or
commercial crops comprising an area of about 1.8 million ha;
(iii) land area with natural grass suitable for animal raising, e.g. cattle, buffalo
comprising an area of about 0.65 million ha; and
(iv) the forested area such as dry dipterocarp forest areas, unstocked forest areas,
scrub forest areas and savannah areas which are suitable for livestock raising
comprising an area of about 1.14 million ha.

32. The subproject is in an area classified under item para 31(i), i.e. flat land, and is within
the catchment area of Xebangfai plain.

3. Socio-economic features of the subproject locality

33. Khammouane province comprises 10 districts, i.e., Thakhek, Mahaxay, Nong Bok, Hin
boune, Nhommalath, Na Khai, Sepang Phay, Xayphouthong and Khoun Kham. The total land
area of the province available for rice cultivation is 82,220 ha, from which an average rice yield
of 3.80 tons per ha is being achieved. In 2015, wet season rice production was 312,200 tons
from 69,576 ha. In the dry season, the plan for 2014 to 2015 was to cultivate 12,470 ha, but the
actual cultivated area was only 8,223 ha, with a rice yield of 5.53 tons per ha and a total rice
production of 45,500 tons. Regarding upland rice, the provincial plan was to produce 45,500
tons of rice, however, only 250 ha was used for rice cultivation, yielding 2.00 ton2 per ha, and a
total rice production of 500 tons.

34. Total rice production in the province in 2016 was 47,281 tons. In the ten districts of the
province, the plan was to cultivate 83,270 ha of lowland rice; actual rice cultivation in 2016 was
80,569 ha. The yield was 4.5 tons per ha, and a total of 320,560 tons of rice was produced. The
dry season plan was to cultivate 10,000 ha, but only 9,040 ha was cultivated and the yield was
5.23 tons per ha. (PAFO, Khammouane)

35. The total population of Thakhek District, in which the VRM is located is 88,299, of which
44,000 are females (2016 data). There are 91 villages in the district which are divided into five
village clusters as follows:

(i) Cluster 1: 28 Villages (urban centers) business sector, tourism and services;
10
Government of Lao PDR, MAF. 2015. Agriculture Development Strategy to 2015 and Vision to the Year 2030
(Section [Link]). Vientiane.
8

(ii) Cluster 2: 18 Villages (Namoung – Ba nge) rice production, crop production;

(iii) Cluster 3: 14 Villages - all for tourism, rice production and livestock;
(iv) Cluster 4: 18 Villages - fruit trees, rubber trees, rice production; and
(v) Cluster 5: 18 villages near to the VRM, with a land area of 22,772 ha including
rice paddy fields with 13.500 ha for wet season rice production and 142 ha for
dry season production.

4. Subproject rationale

36. In this sub section of the feasibility study subproject rationale is discussed in terms of its
context within current rice sector development, its conformity with government sector policy,
relevance to climate change adaptation, and role in the rice value chain.

37. Subproject context within the rice sub sector. Rice is the most important food crop
cultivated in Lao PDR, accounting for more than 80% of the area under cultivation within the
country. The rice production systems in Lao PDR can be classified into three broad ecosystems
of irrigated lowland, rain-fed lowland and upland rice areas. The MAF’s Agriculture Statistics
Year Book 2014 reports that the total area of rice planted in 2013 was 939,100 ha (728,635 ha
of wet season lowland rice, 92,340 ha of dry season rice and 118,125 ha of upland rice) of
which 891,190 ha was harvested. Over the last 20 years, rice production has more than doubled
(multiplied by a factor of 2.7) to reach around 3.4 million tons of paddy in 2013 and average
yield was 3.83 tons/ha. Average paddy production was between 520 to 540 kgs per person
which is sufficient to supply society’s needs and generate a surplus for sale.

38. Since the 2000s, Lao PDR has been a major producer of long grain sticky rice and
sweet rice in ASEAN with annual rice exports to, Cambodia, China, Thailand and Viet Nam,
other countries of over 300,000 tons per year. However, the export of Lao rice is not competitive
with that of neighboring countries (particularly Cambodia and Thailand) due to the high
transaction costs along the rice value chain11. An exporter, interviewed during the PPTA, and
who received an export quota of 7,200 tons for the China market, reported to the MOIC that his
company cannot achieve the export quota due to: (i) low rice yields (paddy inputs to the mill and
milled rice recovery rates); (ii) scattered production areas and mixed rice varieties; (iii) high
transportation, fumigation12 and import-export taxes13 being higher than the neighboring
countries (Thailand and Cambodia); (iv) inability to meet China Certification and Inspection
(Group) Company Ltd (CCIC) requirements; and (v) Lao PDR milled rice quality tendency to be
heterogeneous/diverse in character.
14
39. The medium to large rice mill plays an important role in marketing to regional and
international markets. However, 90% of the rice mills in Lao PDR are categorized as small with
poor milling equipment and low average daily throughputs of less than six paddy tons per day
with low milled rice recovery rates of 50% to 57%. Consequently, it is difficult for rice processed
from small mills to achieve the quality standard required by the regional and international
markets; neither do they have the critical mass or economies of scale to access export markets.

11
Estimated to be about 5% to 16% more expensive than the rice imported from Cambodia and Thailand.
12
Fumigation costs $6 to $13/tons (Laos) vs $0.8 – $1.5/tons (Cambodia and Thailand).
13
Import-Export taxes cost $6/ton.
14
The size of rice mill is categorized in the IRRI, 2012, “Lao PDR, Rice Policy Study”.as (i) Small: around six paddy
tons / day – covers about 90% of all mills operating in Lao PDR (ii) Medium: around 16 paddy tons / day – round
200 mills (iii) Large: around 33 paddy tons / day – probably only about 10 mills in this category, mainly with
majority foreign ownership.
 9

The role of small mills tends to be: (i) toll processing for local farmers and villagers to provide
milled rice for home consumption and small scale sales; (ii) acting as paddy collectors for sale
to medium and large scale mills; and (iii) supplying mixed rice to large and medium scale mills.
Regarding mills with the capability of serving the export market, there are potentially less than
10 mills in the whole country that can be considered large with average processing capacity of
33 paddy tons per day and 200 medium-sized mills whose average capacity is about 16 paddy
tons per day.

40. Subproject conformity with policy. Government policy regarding the agriculture sector
and particularly the rice sub sector is summarized in section II.A.1. above. The government
recognizes that the country’s rice value chain has strengthened in recent years. However, there
is also clear recognition that the overall efficiency of the chain remains weak because forward
and backward linkages lack the cohesion of cooperating partnerships amongst participants.
Several policy recommendations in the Lao PDR Rice Policy Study of 2012 seek to improve
sector policies, particularly regarding (i) trade facilitation in paddy and milled rice;
(ii) strengthening emergency rice seed and food reserves; (iii) improving the efficiency and
effectiveness of public investments; and (iv) strengthening the rice seed sector.

41. Subproject relevance to climate change adaptation and policy. Within the Lao PDR
Framework Strategy on Climate Change, the agriculture sector is one of seven priority areas for
climate change adaptation and mitigation which seek "to secure a future where the Lao PDR is
capable of mitigating and adapting to changing climatic conditions in a way that promotes
sustainable economic development, reduces poverty, protects public health and safety,
enhances the quality of the natural environment, and advances the quality of life for all Lao
people". The subproject promotes climate-smart agriculture (CSA) technology to APGs
supplying paddy to the VRM. CSA assists the development of agricultural strategies linked to
climate change adaptation and mitigation as CSA provides the means to help stakeholders
identify strategies suitable to their local conditions and climate change challenges. The
infrastructure provided to the rice mill under the subproject will also reduce CO2 emissions by
more efficient fuel consumption.

42. Subproject role within the rice value chain. This subproject will support and build the
capacity of smallholder paddy producers to improve paddy yield, quality and productivity and
address post-harvest issues such as post-harvest crop losses; support small scale rice millers
to integrate themselves into the rice value chain through acting as paddy collectors and sellers
of mixed rice to medium and large millers; and support the private sector medium rice millers to
meet the quality demanded by the regional and international market.

B. Subproject objectives

43. The overall objective of this subproject is to address the major challenges in the rice
value chain, i.e, low paddy yields and productivity; high paddy post-harvest losses; low mill
capacity usage; poor milled rice recovery rates; low and heterogenous milled rice quality; poor
market efficiency and lack of access to premium domestic and export outlets; compliance with
international standards and certification requirements; lack of access to credit for investment
and cash flow purposes; and poor value chain linkages with forward and backward integration.

C. Related development projects

44. The following ongoing development projects have relevance to the subproject, and with
which it will coordinate its activities where considered appropriate.
10

45. ADB Greater Mekong Subregion East-West Economic Corridor Agriculture

Infrastructure Sector Project (EWEC): This project supports the continuing transition of the
EWEC from a transport corridor into an inclusive economic growth corridor, in line with the
Greater Mekong Subregion (GMS) Strategic Framework. It aims to regenerate, replace and
upgrade existing but underdeveloped or outdated agricultural infrastructure.15 The area of
influence of the EWEC covers the southern provinces of Khammouane, Savannakhet and
Saravan and targets areas with good agricultural potential with existing irrigation schemes. The
agriculture infrastructure investments include irrigation infrastructure, as well as rural access
infrastructure associated with the irrigation schemes.

46. ADB Trade Facilitation: Improved Sanitary and Phytosanitary (SPS) Handling in
GMS Trade Project (2012 – 2017). ADB is helping Cambodia and the Lao PDR strengthen
SPS to facilitate trade and protect public health. The project will establish and enhance
surveillance and inspection programs for plant health, animal health, and food safety. It will
improve training of specialists, and promote regional cooperation and harmonization of SPS
measures.

47. ADB TA 8163-REG: Implementing the Greater Mekong Subregion Core Agriculture
Support Program (Phase II): The project, approved by the ADB Board in October 2013, and
funded by an Swedish grant ($7.50 million, ADB TA Special Fund ($0.5 million), Nordic
Development Fund ($5 million), and Multi-Donor Trust Fund under the Water Financing
Partnership Facility ($41.0 million) aims to: (i) strengthen regional policy framework and capacity
for agro-food quality management; (ii) establish electronic trade of environmentally friendly agro-
food production of smallholders; (iii) increase adoption of gender-responsive and climate-
friendly agriculture; (iv) facilitate knowledge management and dissemination; and (v) strengthen
regional cooperation on agriculture in GMS.

48. The subproject will build on lessons learned from the following recently completed
development projects.

49. Sustainable Natural Resource Management and Productivity Enhancement Project

(SNRMPEP): The project was implemented between 2009 and 2015 under a financing plan of
grants totaling $37.475 million, comprising of $20 million (ADB), $15 million (IFAD), $700,000
(Special Grant Fund – TA-JSF) and $41,775 government contribution. The sector project
focused on sustainable agricultural resource conservation, in the five southern provinces of Lao
PDR, namely, Attapeu, Champasak, Saravan, Savannakhet and Sekong. Under the SNRMPEP,
an agreement was signed for a public-private community partnership (PPCP) for organic rice
value chain promotion among Champasak, Provincial Agriculture and Forestry of Champasak
(PAFO) and Urmatt Limited, a Thai private sector buyer of organic rice selling their own brand
into the EU. In this arrangement, Urmatt provided services to rice farmers on Khong Island,
Champasak province, covering the provision of rice seeds, training and capacity building and a
guaranteed paddy price.

50. Smallholder Development Project (SDP). The SDP ran from 2003 until 2015, financed
by two ADB loans of $12 million (2003 to 2012) and $5 million (2012 to 2015) and sought to
promote sustainable commercial smallholder agriculture and associated agribusinesses in
Vientiane, Khammouane, Savannakhet, and Champasak provinces. Focus was given to the
development of farmer production and marketing groups (FPMGs).

15
The term agricultural infrastructure refers to irrigation (pumping stations, weirs, canals, water management and
control structures) and access infrastructure (low volume rural roads and bridges).
 11

51. Enhancing Milled Rice Production in Lao PDR Project (EMRIP). The project was
90% funded by the food facility of the European Union under its facility for rapid response to
soaring food prices in developing countries (2009). The balance of 10% co-funding was
provided jointly by Helvetas and SNV. EMRIP built on the rice value chain development
experience expanding the project area to six provinces with a target of 20 mills, and a
production network of 20,000 smallholder rice producers. Additional elements were added to the
project, including upgrading mills through grant of equipment, and policy dialogue that could
remove bottlenecks in the trade system in Lao PDR. The project ran for 23 months during
2009/2012 with a budget of around €3 million.

D. Key features of the rice sector16

52. To put the subproject in the context of the rice subsector key elements of the sector are
described below including a SWOT analysis of the traditional value chain, production, and
marketing. Reference is given to rice in Khammouane province.

1. Rice production and milling

53. Farm agricultural Inputs. Agricultural input acquisition is the first step in the
Khammouane farmer rice production operations; the key inputs being seeds, fertilizer,
machinery and equipment, and available working capital (finance). There are four main sources
of farmer input acquisition in Khammouane:

(i) Acquired through purchasing. Many farmers buy their agricultural inputs
supplies from local shops in their village or in the surrounding area; seeds are
also available for purchase from APGs in neighboring villages producing rice
seed for sale. Farmers can also buy rice seeds direct from the State Xebangfai
Rice Seed Center, the only government rice seed center in Khammouane
province;
(ii) Acquired through renting or through contractors. Renting is mostly
conducted through contracting. In the case of hiring a tractor (machine and
driver) or a harvester (machine and driver), the condition of payment is per
hectare. In the case of hiring a thresher (machine and operator), the condition of
payment is per sack or per ton of paddy;
(iii) Acquired through donor project/rice miller support. This method of acquiring
agricultural inputs is mostly undertaken through APGs under the support of
NGOs, including organizations working directly with farmers and organizations
working through cooperation with government organizations or the private sector.
Inputs, e.g. machinery and equipment, that the APGs acquire from NGOs are
usually considered the shared property of the group. Members of the group may
use them during the production season and pay a fee for repair and maintenance
of the equipment and machinery. APGs are also supported by rice mill operators
wishing to secure the APG paddy production for their milling operations. Inputs,
e.g. seeds and fertilizers, and sometimes working capital, are usually acquired as
loans, which are repaid in-kind during the harvesting season. These loans are
usually the subject of signed contracts; and
(iv) Machinery and equipment already owned and in the possession of the
farming family. Some farmers collect and store their own rice varieties and plant
their own seeds every year. There are also some farmers who buy their own
16
ADB TA 8897, February 2016, “CFAVC PPTA Inception Report - Annex 2: Rice Value Chain Analysis.”
12

equipment and machines to be used by their households or rented out to

neighboring farmers as a source of additional income. Most farmers already own
pedestrian tractors; a very small percentage still use buffalos for preparation.

54. Production and planting. Rice farms in Khammouane province average 1/2 ha per
household with larger scale farmers holding up to 15 ha. During the rainy season, production
averages around 2.5 per 3 tons of rice paddy per ha with an average of 4 to 5 tons per ha
achieved in the dry season. Seed is applied at an average rate of 30 to 36 kilograms per ha for
glutinous rice and at an average rate of 40 to 50 kilograms per ha for non-glutinous rice.
Farmers use a mixture of chemical fertilizers, manure fertilizers and organic fertilizers. The most
commonly used chemical fertilizer is urea ([Link]) with an average usage of two to three sacks
(50 kilograms per sack) per ha and urea ([Link]) with an average usage of three sacks per ha.
Organic fertilizer is applied at six sacks per ha per season.

55. Harvesting. Paddy harvesting is undertaken by extensive and costly manual labor,
accounting for about 95% and mechanical threshers, accounting for the remaining 5%. Hired
labor is sourced from local villages at a wage rate of about $6 to $7 equivalent per day.
Harvested rice paddy is dried in the field for about two to three days to reduce moisture before
collection and stacking for threshing. The difference between labor intensive harvesting and
machinery intensive threshing is that mechanical threshing requires the use of a rice drying
yard. Post-harvest management begins with the farmers collecting the harvested paddy in
plastic sacks of 30 kilograms each. Following collection, farmers retain and store some paddy to
await sale while some quantity is kept in the household for milling and home consumption.
Current rice storage practices also result in additional losses from moisture based deterioration
and rodent and insect damage.

56. Paddy Aggregation. The smaller rice mills play an important role in the collection of
paddy and conduct both buying and selling transactions with farmers and other larger rice mills.
Small rice mills also toll process paddy for farmers.

57. Processing (milling). Following paddy collection a quality control test, including
moisture and contamination checks, is undertaken. The standard moisture level of wet season
paddy should not exceed 16% and 15% for dry season rice paddy; and contamination should
not exceed 5% for season rice and 3% for off season rice. Following the quality control, paddy is
placed in storage facilities and segregated by variety to avoid mixing. There are two kinds of
milling in Khammouane province, namely:

(i) Double process milling. Milling paddy into brown rice is done by cracking the
shell, after which the brown rice is milled once again to be refined. This kind of
milling can only be done by medium and large size rice mills with a production
capacity > 500 kilograms / per hour. The advantage of milling this way is that
such mills can produce rice with better quality, and with a higher percentage of
unbroken and a lower percentage of broken milled rice. This process also
separates the soft rice bran and hard rice bran, which are priced differently; and

(ii) Milling in a single process. The milling of paddy into rice can be undertaken in
one single process to save time. This process however produces a lower
percentage of head rice and higher percentage of broken milled rice. It also
produces mixed rice bran which is cheaper than separating the bran varieties.
This kind of milling is mostly done by smaller size rice mills, which have a
production capacity of < 6 paddy tons per day.
 13

58. The following rice products are produced: whole kernels of white rice, broken rice, rice
tips, rice bran, and rice husk, all of which can be sold.

59. Processing Rice into Secondary Products. Rice can also be processed into ready-
made products such as beer, noodles, local sweet, distilled spirits, etc. Some rice mills sell rice
to the beer factories in Vientiane to be further processed into beer. About 500 tons of rice from
Khammouane is purchased by the beer factories annually. The rice varieties for this processing
are: VND, BR63, and CA3.

2. Rice marketing

60. Rice markets are divided into (i) local domestic district and provincial markets; (ii)
national domestic markets purchasing milled rice and either for direct consumption or for
processing and conversion into other rice based products such as beer, noodles, local sweets,
distilled spirits and rice wine, etc.; and iii) foreign markets such as China and Viet Nam which
purchase Lao rice through export agents. An unquantified volume of rice is also traded
informally across the porous Lao-Thai border. In addition, there are also exports of premium
and organic quality rice to overseas markets.

61. There are two rice market systems in Khammouane: (i) domestic market and (ii) export
market. The rice market in Khammouane is mostly domestic with many marketing channels.

62. The domestic market channels in Khammouane are as follows:

(i) Rice for domestic consumption (about 80%) is sold in the local markets and
nearby towns through many wholesalers and retailers in Khammouane,
Savannakhet and Vientiane. The retailers usually distribute 2 tons of rice for
consumption per day and operate on a starting capital of not more than $350.
Most rice mills in Khammouane own their own retail shops to increase the
distribution channels for their products;
(ii) In addition to commercial sales, there is also another distribution mechanism that
sells rice products through government programs, and through the Red Cross for
distribution to areas of rice deficits. Another program also includes rice marketing
through the State Food Company to the government as to supply the army and
civil servants;
(iii) Mixed rice, broken rice, and rice tips, are sold to factories to be processed into
secondary products such as the beer factories in Vientiane, noodle processing
factories in Savannakhet and rice noodle, local dessert, and alcohol factories in
Khammouane; and
(iv) Other by-products, which are produced in the rice mills such as rice bran and rice
tips, are sold to farmers who operate swine farm businesses, poultry, and other
livestock enterprises. Rice husk acquired from milling the rice is also sold to
farmers and used as fertilizers for crops and other plants.

63. The main export markets for rice produced in Khammouane province are:

(i) Through an agreement between the Governments of Lao PDR and Viet Nam,
Viet Nam provides a quota for Lao PDR to export milled rice of 70,000 tons per
year. In addition, China is another major distribution channel for Khammouane
rice exports. China has already sent brokers to survey the rice mills in
14

Khammouane to fix the Chinese quote for Khammouane rice exports to China.
There are already some rice millers conducting export business with Chinese
traders; and
(ii) Khammouane also has an import-export company named Phuvong Trading Co.,
Ltd. This company began with an initial capital of $415,000 by operating
exporting businesses with Viet Nam. The rice that this company sells is glutinous
rice (90%) and non-glutinous rice (10%).

3. Traditional rice value chain17

64. Table 1 below analyses the strengths, weaknesses, opportunities and threats of the
traditional rice value chain in Lao PDR.

Table 1: S.W.O.T Analysis of the Traditional Rice Value Chain

Strengths: Weaknesses:
1. About 80% of the population are farmers; 1. Poor access to finance;
2. Developing at expanding farmer groups; 2. Insufficient financial services and high interest
3. Developing and expanding seed producer rates result in low investment in the value chain;
groups; 3. Farmers plant low yielding mixed rice varieties
4. Developing and expanding rice miller groups; and use traditional and low intensity production
5. Some rice seed centers; methods;
6. Irrigation systems being developed; 4. Farmers produce mostly for family consumption
7. Adopted usage of improved seed varieties; with little surplus for sale (usually only sufficient
8. Private sector involved in supply chain (rice to pay for the cost of milling);
5. Unlevel fields, resulting in poor water distribution
millers);
and low yields;
9. Application of contract farming approach;
6. Poor technology transfer mechanisms for
10. Proximity to East-West Economic Corridor;
farmers;
11. 70% of villages electrified;
7. Weak information sharing and facilitation in
12. Good secondary and primary road network;
grading, classifying and standardizing to
13. Commercial agriculture beginning to develop
differentiate product pricing and to encourage
and expand;
farmers produce good rice qualities
14. Some contracts for exports to China and Viet
8. Seed selection driven by subsistence nature of
Nam and significant cross border trading in rice
farming that aims at minimizing risk of crop
with Thai buyers; and
failure rather than profit driven goal of
15. National policy support for strengthening rice
maximizing crop yields and profitability;
value chain(s).

17
Prepared by the PPTA 8897 Consultancy team from an analysis of traditional value chains.
 15

Opportunities: 9. Irrigation is limited and where it is present, the

1. Strong policy support in promoting rice value quality and water management are often poor,
chain in the province; leading to water stress at critical production
2. Contribution from development agencies in stages;
promoting rice value chain; 10. Low rice yields because of poor quality seed
3. Abundant natural resources and suitable land and aged seedlings, with low planting density,
areas for growing rice; insufficient weeding, low soil fertility and poor
nutrient use and water management;
4. Regional linkage (infrastructure): market road
11. High risks of floods and droughts left
to Thailand, Viet Nam and Cambodia; and
unaddressed;
5. Potential additional market channel to Viet
12. Wet season crops are frequently lost because of
Nam (Quota 70,000 tons/year), China and flooding;
Thailand. 13. Contracting rice produced in the wet season is
risky by mill owners who are reluctant to invest
in wet season rice crops;
14. Harvesting methods and post-harvest
processing methods are very poor with average
losses around 35%;
15. High labor costs during critical bottleneck
Threats: periods (planting and harvesting) have eroded
1. Extreme weather events: flood and drought; farmer profits over the years;
2. Low global market competitiveness for Lao 16. Small plots, made smaller by inheritance
rice. fragmentation also make it difficult to mechanize
rice farming and diversify their cropping
patterns;
17. Low throughput capacity and processing
efficiency of mills, resulting in low milled rice
quality output and high milling losses;
18. Absence of enforceable contracts between
millers and farmers, leading to defaulted loan
repayments and adversarial relationships;
19. Uncertain rice standards and certification for
global market competitiveness;
20. Small capacity mills (the majority) have
insufficient economies of scale to finance
infrastructure required to handle large export
volumes; and
21. Weak backward and forward linkages between
producers and consumers in the value chain.

4. The generic rice supply chain in Lao PDR

18
65. Figure 2 below illustrates the generic Lao PDR rice value chain.

18
Wong, L.C.Y. 2011. Foreign Direct Investment in the Rice Value Chain with special focus on the Mill Sector in Lao
PDR. Vientiane.
Figure 1: Generic rice supply chain in Lao PDR
 17

E. Subproject Justification

66. The justification for the subproject is discussed below in terms of the VRM’s current
activities, its development plans, and its suitability for project financial support to meet the goals
of government policy and strategy for the rice sub sector under the ADS. Indirect beneficiaries of
the subproject will be rice milling groups and cooperatives, the development of which is being
promoted under government strategy for the agriculture sector, and whose membership will be
candidates for project support during implementation. Furthermore, APGs and their farmer
member households, supplying the Vanida Mill with paddy, will benefit from the subproject under
its associated investments and activities. The VRM meets the selection criteria for support under
sub project 1.3. (1) as described under section III.A.1. below.

1. Khammouane Community Development Rice Millers Group

67. The Khammouane Community Development Rice Millers Group (KRMG) was
established in 2009 with a membership of 17 rice mills. However due to business problems,
particularly shortage of working capital, membership has been reduced to only 15 mills today, as
shown in Table 2 below. According to latest information given to the PPTA team membership
may have reduced by a further two mills, leaving only 13 full rice mill members.

Table 2: Members of the Khammouane Community Development Rice Millers Group

Capacity Rice mill category
Medium scale (around 16 paddy tons/day) 1. Chanthavong Rice Mill
2. Vanida Rice Mill
3. Soulivan Rice Mill
4. Chantha Rice Mill
5. Bounmy Rice Mill
6. Phetsamon Rice Mill

Small to medium scale (6/8 to 16 paddy tons/day 7. Phanthala Rice Mill

8. Soi Rice Mill
9. Khammany Rice Mill
10. Seth Rice Mill
11. Vasana Rice Mill
12. Soukkaseum Rice Mill

Small scale (< 6 paddy tons/ day) 13. Laithong Rice Mill
14. Mill Bang Rice Mill
15. Lamphoun Rice Mill

68. The KMRG was not registered with the Ministry of Industry and Commerce but was
recognized as a model group by the Provincial Government/Administration. The 13 remaining
members of the KMRG (nine males and four females) have a 5-person executive committee,
one of which is female. The 13 members of the original rice millers group are now members of
the KDC cooperative.

2. The Khammouane Development Rice Millers Cooperative (KDRMC)

69. The owner of the VRM is now President of a rice millers’ cooperative - the Khammouane
Agricultural Development Cooperative (KDRMC). They are in the process of officially
registering/certifying the cooperative with the MAFF, which should be completed by the end of
18

2016. There are 22 rice mill cooperative members, four large mills and 18 smaller mills. There
are six executive members, one of whom is female.

5. The Vanida Rice Mill

70. The upgrading of the VRM has been selected as the subject of a feasibility study as it
meets the selection criteria for project support under sub output 1.3 (1), and was approved as
such by the CFAVC PPTA Technical Committee at the interim workshop held in Vientiane on 1
October 2016. The key features and details of the selected representative subproject, the VRM,
are given in Table 3 below.

Table 3: Key Features of the Vanida Rice Mill

Name Vanida rice mill / established 2000 / business permit: 4409/[Link] (22/017/2016)
Location Laophokham village, Thakhek district, Khammouane Province, Lao PDR
Organization 1 Director
Mr. Phetsamone Bouaphanthavong
020 55650890, vanida_rice@[Link]
3 divisions:
Financial & Accounting: 2 people
Processing & Packaging: 9 people
Procurement: 2 people
14 employees

Institutional President of Khammouane development rice miller cooperative (KDC)

organization
Production 1 production line: 2t of paddy/h (15t of paddy/day)
capacity Current processed quantity: 2,000 – 3,000 t/year (about 30% of production of
15 PGs that the rice mill deals with)

Production 1 product line (mill, grading machine, polisher, color sorter);

facility
Note: The polisher and color sorter (1 set) received from the ADB Loan No. 2809 in
2014

Type of Glutinous rice varieties: TDK8 (since 2009), TDK11 (since 2009)
processed rice White rice varieties: CR105 (since 2009), Xebangphai 2 (since 2014) and Xebangphai
3 (since 2014)

The reason of variety selection:

(i) Market demand (long grain, good aroma and soft)
(ii) Special varieties (high market price)

Inputs Seed: buy from Xebangphai seed research center for Xebangphai 2 and 3 and
farmers for TDK8 and TDK11
Fertilizer:
(i) Cattle manure: Farmers
(ii) Chemical fertilizer: Buy from the local market
Certification Producer: 1 APG (1) in Nongbok district received the GAP certification from the DOA
system this year (2016);
Rice mill: on-process of GMP certification with the Thai Certifying Body (TUV NORD
Thailand). The certification will receive in the end of this year (2016). The project is
supported by Mekong Institute and SDC through SMEPDO. The GMP certification
cost is about $3,200 for the 3 years’ validation.
 19

Note: (1) The rice mill deals with 15 PGs in Nongbok district
Trade Paddy rice: Sell to IPD Savannakhet 2,300 kip/kg (+ 450 kip/kg for the GAP
rice)
Milled rice: Packed rice 1, 5 and 10 kg with the brand “Elephant”
Source: PPTA team Interview 26/11/2016 with the rice mill owner, Mr. Phetsamone Bouaphanthavong (tel +856 20
55650890)

Figure 2: PPTA team hold discussions with Vanida Rice Mill Management

Note: Present were Mr. Boun Me, Director of Planning, Khammouane Province
PAFO; Mr. Phetsamone, owner of Vanida Rice Mill, Dr Sumountha and Ms Helen
Dubok (PPTA team).

71. Vanida rice mill background activities with farmers. As illustrated in Table 4 below,
the mill currently buys rice from some 31 villages representing some 1,249 households and
about 15 APGs in four districts of Khammouane and one district of Savannakhet, covering more
than 1,000 ha.

Table 4: Rice suppliers to the Vanida Rice Mill

Province District No. of villages No. Households
Khammouane Thakhek 8 278
Nong Bok 3 232
XeBang Phay 5 104
Buarapha 10 250
Total 4 26 864
Savannakhet Xayboury 5 385
Grand Total 5 31 1,249

72. During the period of 2009 to 2011, the rice mill received support from SNV, mainly in
capacity building enabling it to support local farmers in their paddy production. During 2011 –
2012 the mill owner continued supporting farmers through the EU-EMRIP project. The support
was through providing capacity building to farmers for rice production. Other support provided
was in supplying new improved seed varieties (HYV), providing technical assistance and
organizing study tours for farmers. Thereafter, support was provided to farmers to establish
farmer production groups with a view to increasing paddy sales to the VRM. The mill owner has
 20

recruited extension advisers to visit the APGs supplying the mill with paddy. However, only one
village is cultivating organic rice comprising 22 households.

73. Support received by the Vanida Rice Mill from EMRIP: The VRM received donor
support for the construction of a concrete rice drying floor (cost approximately $20,000), and
equipment for the rice mill including rice whitener (cost approximately $6,000).

74. Support of the Vanida Rice Mill to small scale mills. Regarding small rice mills,
VRM’s owner was of the view that the future strategy for small rice millers should be to become
the paddy collectors in the village and as their small mills are only capable of producing mixed
rice, this should be sold on to a larger mill for further cleaning and sorting. However, it has been
noted that small mills also have a role in toll processing paddy for farmers and villagers for home
consumption and ad hoc small scale sales.

75. Vanida Rice Mill’s financial position. The mill owner has provided the latest balance
sheet, income statement and cash flow statement of the VRM, as at 31 December 2015, which
are shown under Tables 5, 6 and 7 below.

Table 5: Vanida Rice Mill Balance Sheet as at 31 December 2015

VANIDA RICE MILL
Balance sheet (December 31, 2015)
(with comparative figure for the year 2013 and 2014)
Balance Sheet (USD)
Current Assets 2010 2011 2012 2013 2014 2015
Cash (see income statement) 305,588 316,654 377,422 384,111 702,011 733,087
Accounts receivable - - - - - -
Merchandise inventory - - - - - -
Total current assets 305,588 316,654 377,422 384,111 702,011 733,087

Fixed Assets:
Milling machinery - - - 100,000 - -
Rubber polisher 21,000 - - - - -
Rubber huller (rewinded) - - 30,000 - - -
installed on 2012
Sunshine concrete pavement - - - 10,000 - -
for paddies drying
Building 127,446 138,334 138,633 138,772 245,188 219,926
Total fixed assets 148,446 138,334 168,633 248,772 245,188 219,926

Current liabilities
Accounts payable - - - - - -
Total current liabilities - - - - - -
Capital
Capital 81,019 101,001 130,904 (8,345) 313,138 356,431
Net income 229,465 239,335 299,537 240,426 558,326 576,357
Total capital 148,446 138,334 168,633 248,772 245,188 219,926
 21

Table 6: Vanida Rice Mill Income Statement as at 31 December 2015

VANIDA RICE
Income StatementMILL
(year ended December 31, 2015)
(with comparative figure for the year 2013 and 2014)

Income Statement
2010 2011 2012
(USD) 2013 2014 2015
Income:
Milling amount of owned rice 305,588 316,654 339,680 345,700 561,609 586,470
produced
Milling amount from rice miller - - 37,742 38,411 140,402 146,617
Total
group Revenue: 305,588 316,654 377,422 384,111 702,011 733,087
Cost of production
Milling cost (electricity) 2,700 2,700 2,700 4,000 4,000 4,800
Some engine maintenance 6,689 7,885 8,451 12,577 12,577 13,815
Total cost of production 9,389 10,585 11,151 16,577 16,577 18,615
Gross Profit: 296,199 306,069 366,271 367,533 685,434 714,472
Operating expenses 8,976 8,976 8,976 18,711 18,711 20,426
Operator wages 16,988 16,988 16,988 37,744 37,744 40,325
Helper wages 5,677 5,677 5,677 7,013 7,013 7,013
Supervision fee 560 560 560 850 850 850
Miscellaneous expenses 34,533 34,533 34,533 62,788 62,788 69,500
Total operating expenses 66,734 66,734 66,734 127,107 127,107 138,115
Net income 229,465 239,335 299,537 240,426 558,326 576,357

Table7: Vanida Rice Mill Statement of Cash Flow as at 31 December 2015

VANIDA RICE
MILL (year ended December 31, 2015)
Statement of Cash Flows
(with comparative figure for the year 2013 and 2014)

Statement of Cash Flows (USD)

2010 2011 2012 2013 2014 2015
Cash flows from operating
activities:
Net income 229,465 239,335 299,537 240,426 558,326 576,357
Depreciation expense 9,782 9,782 9,782 14,355 14,355 16,250
Accounts receivable - - - - - -
Merchandise inventory - - - - - -
Net cash provided by 219,683 229,553 289,755 226,071 543,971 560,107
operating activities

Cash flows from investing

activities:
Rubber polisher 21,000
Rewinded rubber hullers 30,000
Net cash flows from financing 21,000 229,553 30,000 226,071 543,971 560,107
activities
Increase (decrease) in cash 198,683 229,553 259,755 226,071 543,971 560,107
Cash balance in the beginning - - - - - -
Cash balance in the end 198,683 229,553 259,755 226,071 543,971 560,107
 22

III. SUBPROJECT DESIGN

A. Subproject Description

1. Subproject selection criteria

76. The Climate-Friendly Agribusiness Value Chain Project (CFAVCP) will support, under its
subproject output 1.3(1), the upgrading of rice mill infrastructure of with service provision to
farmers in Khammouane. Saravan, and Savannakhet provinces. The project will support small
and medium scale rice mills,19 as defined in the Lao PDR Rice Policy Report, which have a
production capacity of around six to 16 paddy tons per day and that are registered, or about to
be registered, as legally recognized rice milling groups. The following specific selection and
evaluation criteria was agreed by the PPTA team with the government for project support under
the subproject 1.3(1):

(i) be a member of a registered rice mill group, and a majority Lao PDR owned legal
entity;
(ii) support the community (farmer’s groups) and establish a production arrangement
(Input supply, credit, minimum guaranteed price, etc.) with the farmer’s groups to
operate efficiently and to operate within a planned business framework of medium
and small-scale rice mills within their registered rice mill group network;
(iii) buy paddy from the small rice mills in their network to balance demand supply
gaps;
(iv) medium sized mills to engage in enhancing the production capacity of the small
rice mills in their network by the transferring knowledge and know-how;
(v) build together an inclusive businesses and investment plan;
(vi) have a legally recognized business license;
(vii) have, or be prepared to adopt, climate smart agriculture (CSA), green energy
saving and food safety (GMP and HACCP certification) polices;
(viii) have a PPCP approach with the paddy suppliers and buyers;
(ix) contribute financially to the sub project, in terms of “in kind contributions (land,
material and labor), own funds, and demonstrate a viable financial situation;
(x) financial and/or technical support will not be available if the applicant has already
secured, or has requested, similar support from other donors;
(xi) involve no involuntary resettlement or land acquisition, physical or economic
dislocation; and
(xii) the subproject should be replicable in other project areas.

77. The proposed upgrading of the VRM subproject, Laophokham village, Thakhek district,
Khammouane province, (a member of the Khammouane Development Rice Millers Group) has
been selected as the subject of this feasibility study. The VRM meets the above project selection
criteria for support under subproject 1.3(1) - the upgrading of rice mill infrastructure with service
provision to farmers.

19
Government of Lao PDR. MAF. 2012, Lao P D R, Rice Policy Study IRRI / FAO / WB – Paave Eliste (Senior
Economist, WB), Nano Santos (Economist, FAO), working under the overall guidance of Dr Phouang Parisak
Pravongviengkham, Vice Minister, MAF, Lao PDR. The Rice Policy Study classifies the size of rice mills in Lao
PDR according to average “paddy tons” capacity per day, viz, (i) small: around 6 paddy tons per day; (ii) medium:
around 16 paddy tons per day; and (iii) large: around 33 paddy tons per day.
 23

2. Subproject description

78. The project will support the upgrading of the VRM to (i) construct separate paddy and
milled rice storage areas to comply with GMP and HACCP regulations and (ii) extend the mill’s
production facilities to include a second production line to allow the separation of white and
glutinous rice and avoid the production of mixed rice types. The upgrading of the mill will
improve its access to premium domestic and export markets, improve rice recovery rates and
enhance mill capacity usage.

79. The following activities will be undertaken.

80. Provision of storage infrastructure, rice mill equipment, and certification. The
Project will provide financial and technical assistance to:

(i) The construction of a separate (from the rice mill structure) paddy storage facility
measuring 70m x 50m with a capacity of 5,000 / 10,000 per annum;
(ii) The construction of a separate (from the rice mill structure) milled rice storage
facility measuring 20m x 50m with a capacity of 5000 / 10,000 tons per annum;
(iii) The provision of the following rice milling equipment: three dryers (25 tons
capacity each) / pre-cleaner (3t/h) / paddy separator (3t/h) / paddy husker (3t/h) /
adhesive whitener / rice polisher / rotary shifter / rice grader / color sorter (320
channels) / weight + bag sewing machine (packaging equipment); and
(iv) GMP and HACCP certification and compliance.

Figure 3: Map of area covered by KDRMG Rice Mills

81. Further details of the subproject investment cost, funding arrangements, financing plan
and procurement arrangements are given below in section IV, and V.D. respectively.

82. Associated investments: Project initiatives associated with this subproject are
described under section III.B. below.
24

3. Feasibility study location and site

83. The Khammouane Community Development Rice Millers Group (KRMG) operate mills in
the Thakek and Nongbok Districts of Khammouane Province. The VRM is located along the
national southern road, at Km 13, at Laophokham Village, Thakhek district, Khammouane
Province. The mill is 30 km from the provincial capital city of Thakek and near to the banks of the
Mekong River as is shown in figure 3 below, which also shows three other larger mills in the
KDRMG, viz, Chanthavong, Vasana and Soulivan.

4. Construction, equipment and engineering requirements

84. The VRM plan to extend the production facility to respond to the premium domestic and
the Thailand export market demand. The current production line processes both glutinous and
white rice. The new second production line will allow the mill to separate the processing of white
and glutinous rice without the cleaning process to avoid the manufacture of mixed rice-types.
Figure 4 illustrates the existing layout of the VRM.

Figure 4: Production and storage layout of the Vanida Rice Mill

Storage room Production line Storage room

(Milled rice) (Paddy rice)
 
Storage
area
(Finish
product
)
Storage area
(1)

(Paddy)
king
Pac

roo


m

Office

Nb:  : Current facility : Extension facility

The second production line will be installed in the current paddy storage area / (1)
 Production line
 Dryer
 Storage room (20 x 50 m)

85. In the above illustration (Figure 4) current facilities are indicated by the symbol “
(current facility)”; and the area of mill extension is indicated by the symbol “ (extension
facility)”. It should be noted that the second production line will be located and installed in the
current paddy storage area, indicated by the symbol “(1). The new paddy and milled rice storage
warehouses will be located outside the existing mill structure.

86. The following plans have been prepared by the VRM for the upgrading of their milling
facility including separate paddy and milled rice storage areas, and a second processing line.
 25

Figure 5: Current plan for upgrading the Vanida Rice Mill

26

Figure 6: Location of new dryers in the Vanida Rice Mill

B. Associated Investments

87. Project initiatives associated with this subproject will provide a direct linkage between
sub output 1.3 (Agribusiness Enterprise Value Chain Infrastructure Improved) and:

(i) sub-output 2.2 (Capacity Building CSA Agribusiness and Farm Mechanization) in
the context of training and capacity building of farmers and APGs; and,
(ii) sub-output 1.2 (Crop Production Infrastructure and Mechanization Enhanced) in
the context of project provision of CSA technology and mechanization, and the
establishment and operation of small scale pilot smallholders financing scheme
(SFSs).

88. The objective of fostering the above output linkages is to connect the desired success
and sustainability of the targeted agribusiness enterprise to the improved productivity and
profitability of the farmers and APGs that supply the enterprise with its raw material.
Furthermore, establishing such linkages will assist in developing agribusiness value chain
integration, backward and forward linkages, and public, private, community partnerships (PPCP)
involving the public sector (the government as project implementing agents); the private sector
(the rice mill); and the community / village (through the APGs).

89. The following subproject associated activities will be undertaken.

1. Training and capacity building

90. The project will provide rice farmers and APGs supplying the rice mill with paddy, with
training and capacity building on CSA techniques, and APG management, administration,
marketing and logistics, GAP, and organic rice certification.

91. Raising farmer and APGs awareness, knowledge and skills in applying CSA innovative
farm technology will be supported through field based training including demonstration plots and
farmer field days, programs and workshops, which will be undertaken by the PPIU/District
 27

Agriculture and Forestry Office (DAFO) through the engagement of qualified DAEC staff,
independent service providers (ISPs) and NGOs. The emphasis and focus of the program will
be on practical work rather than formal classroom and workshop instruction. The following
topics will be covered:

(i) GAP and certification procedure and compliance;

(ii) integrated pest management (IPM) practices;
(iii) farm mechanization;
(iv) organic rice farming practices and certification procedure and compliance;
(v) land preparation and sustainable land management (SLM) techniques;
(vi) on-farm micro irrigation techniques and innovation;
(vii) post-harvest handling and storage techniques;
(viii) climate change adaptation techniques;
(ix) environmental issues in farming; and
(x) gender issues in farming

92. Farmer group training. Support and capacity building will be provided to farmer groups
and water user groups in group formation, management, administration, accounts, logistics,
contract farming, value addition and marketing, certification and networking. An important aim of
this type of capacity building is to encourage several APGs in a district to evolve into agricultural
cooperatives.

93. This initiative will be implemented under project output 2 (agribusiness policy and
capacity support services strengthened), sub-output 2.2 (capacity building for climate smart
agriculture, agribusiness, and farm mechanization).

2. Technology transfer and mechanization

94. Financial and technical support to farmers and APGs regarding farm based CSA
infrastructure and mechanization will be provided in the following areas of mechanization/
technology transfer: (i) land clearance and levelling equipment (tractors/laser precision land
levellers, ploughing equipment); (ii) planting equipment (seed drills etc.); (iii) small scale on-farm
irrigation (ponds/drip /sprinkler systems); (iv) water storage and conservation facilities; and (vi)
equipment for the application of agricultural inputs (high quality seeds and planting material, bio-
fertiliser, pesticides, herbicides and agricultural tools and implements). The latest advice from
IRRI will be sought on climate smart new rice varieties and improved land management and
crop establishment, which are resource use (labor, water, energy) efficient, with reduced risk
and drudgery, able to generate avenues for employment and economically attractive to youth
and women.

95. This associated subproject initiative will be implemented under project output 1 (Critical
Agribusiness Value Chains Infrastructure Improved and Made Climate-Resilient), sub-output 1.2
(1) infrastructure and technology transfer for climate smart agriculture improved.

3. Smallholders Financing Scheme

96. A smallholders financing scheme (SFS), with a budget of $1.25 million based on a grant
of approximately $25,000 for 50 APGs, will be established to enable APGs, to borrow funds for
their members, supplying paddy to the mill, on a group guarantee basis for the procurement of
CSA technology and mechanization and agricultural inputs. The following is proposed regarding
the establishment and operation of the SFS.
28

97. Key aspects of the SFS. The project will support the establishment of small scale SFS
to enable members of a registered rice APG to obtain credit to enable them to contribute to the
provision of (i) CSA technology including mechanization equipment and (ii) agricultural inputs,
e.g. seeds, fertilizer. The key elements of SFS formation and operation are as follows:

(i) The formation of the SFS must be driven by the rice APG members themselves,
and overseen by the DAFO;
(ii) The project will provide the APG with “seed capital” of $25,000 (per 25 farming
households);
(iii) Membership is open to all accredited members of the rice APG;
(iv) The APG must open a bank account, approved by the DAFO, with dedicated joint
signatories from the APG management committee;
(v) The farmers must organize themselves into small subgroups of five households,
each subgroup being responsible for repaying loans (with interest) at the end of
the season to the management committee of their group;
(vi) Funds will be loaned at an interest rate of 5% p.a. repayable in full two years
from the date of the loan;
(vii) Non-payment of loans within six months of their expiry date will result in the
debtor subgroup being disbarred from applying for and receiving further loans
from the SFS;
(viii) Funds will be repaid to the SFS and made available to other APG members;
(ix) Loans are guaranteed, by legal document, by each member of each subgroup,
witnessed by the chairman of the APG; and
(x) The funds available in the SFS become the property jointly of the rice APG.

98. Procedure for accessing the SFS. The following is proposed:

(i) The DAFO, through its extension officer, calls a general meeting of all the
farmers in the APG, together with a representative of the CFAVCP staff to
explore the farmers' interest in obtaining a SFS and the financial support
available from the project through SFS;
(ii) The project staff explains how the SFS works, who can be a member, and what
members’ responsibilities, and range of CSA technology and agricultural inputs
that can be financed by the SFS; and
(iii) Following the formation of the SFS and appointment of its officers and sub-
groups an agreement is signed between the APG and the CFAVCP.

99. Monitoring and valuation of the SFS. The management committee will keep
accountancy records of SFS funds disbursed and received in a format agreed by the DAFO,
and the project staff will inspect the books of the SFS on a 6-monthly basis. If, in the view of the
project, unpaid outstanding loans have reached an unacceptable and unsustainable level, the
SFS scheme will be suspended.

C. Land Acquisition and Resettlement

100. The upgrading of the rice mill facility including improved storage will require some 2,000
sq. meters of land which is available within the existing 3 ha plot owned by the rice mill owner.
The 3-ha plot contains the existing rice mill compound and some unused land immediately next
to the existing rice mill. The total value of land used by the owner of the VRM is estimated at
$500,000 and this forms part of the owner’s equity. There is no involuntary land acquisition and
 29

ADB SPS (2009) requirements will not apply in this context. The subproject may be considered
as category C in regards to SPS (2009).

D. Ethnic Group

101. According to 2014 estimates from the Ministry of Health, the provincial population
contains some 19.5% EMGs, however, 76% of these households are from the Lao –Tai EMG
(such as PooTai) who are lowland rice farmers, share the same language and religion and are
fully integrated into mainstream Lao. The remainder comprises mainly Mon-Khmer EMGs who
reside in more upland areas. The subproject does not specifically target EMs but rather targets
a commercial enterprise that could include some ethnic group households as clientele, although
most rice bought by the mill will be grown in lowland areas. There is no compunction for any
farmer to sell produce to the mill, this decision rests with the individual and is determined by an
assessment of the economic benefits in selling to a rice miller. Rice mill buying prices are
publicly available and there is no difference in the benefits that could be received by either a
Lao or ethnic group households selling to VRM. The subproject is classified as category C as no
impacts are perceived in the context of ADB SPS (2009).

E. Environment

1. Environmental Criteria and Standards

102. Screening and Categorization. At an early stage of the project, the environmental
assessment process screens and categorizes proposed projects based on the significance of
potential project impacts and risks. Screening and categorization are undertaken to (i) reflect the
significance of potential impacts or risks that a project might present; (ii) identify the level of
assessment and institutional resources required for the safeguard measures; and (iii) determine
disclosure requirements. A project’s category is determined by the category of its most
environmentally sensitive component, including direct, indirect, cumulative, and induced impacts
in the project’s area of influence. The nature of the environmental assessment required for a
project depends on the significance of its environmental impacts, which are related to the type
and location of the project; the sensitivity, scale, nature, and magnitude of its potential impacts;
and the availability of cost-effective mitigation measures. Projects are screened for their
expected environmental impacts, and are assigned to one of the following four categories:

(i) Category A. Projects could have significant adverse environmental impacts. An

EIA is required to address significant impacts.
(ii) Category B. Projects could have some adverse environmental impacts, but of
lesser degree or significance than those in category A. An initial environment
examination (IEE) is required to determine whether significant environmental
impacts warranting an EIA are likely. If an EIA is not needed, the IEE is regarded
as the final environmental assessment report.
(iii) Category C. Projects are unlikely to have adverse environmental impacts. No
EIA or IEE is required, although environmental implications are reviewed.
(iv) Category FI. Projects involve a credit line through a financial intermediary or an
equity investment in a financial intermediary. The financial intermediary must
apply an environmental management system, unless all projects will result in
insignificant impacts.

103. Standards. Subprojects are obliged to conform to environmental standards of both the
ADB and Lao PDR government. Based on the ADB's rapid environment assessment (REA)
30

checklist, the project is classified as category B, requiring the preparation of an IEE report. The
IEE can be reviewed as a separate linked document.

104. The IEE found that there will be no significant adverse environmental impacts associated
with the proposed works since the proposed project will plan design and construct new buildings
that conform to higher environmental standards. The subproject is not located in
environmentally sensitive areas. The generic mitigation measures described in the IEE will be
used as tool for environmental management and monitoring that can minimize site-specific
negative environmental impacts. However, the IEE will be updated, if necessary, upon
completion of the detailed engineering design.

105. Relevant ADB environmental policies and guidelines used in the preparation of the
IEE are:
(i) Safeguard Policy Statement (SPS) (2009);
(ii) Operation Manual Bank Policies on SPS (2009);
(iii) Environment Policy of the Asian Development Bank (2002);
(iv) Environmental Assessment Guidelines (2003) – Annex 3: Content and Format of
Initial Environmental Examination;
(v) Environmental Guidelines for Selected Agricultural and Natural Resources
Development Projects (November 1991); and
(vi) Rapid Environmental Checklist (2013).

106. The REA checklist for the preparation of IEE was completed and verified by
international and national environment specialists during the site visits on 30-31 March 2016 in
the project provinces. The main purpose of the site visits is the following:

(i) assessment of the existing location and the surrounding environment of the
subproject locations and identify if there are sensitive areas, archaeological sites
and historical sites located in or near the project area;
(ii) identify potential environmental and socioeconomic impacts on the proposed
construction of irrigation;
(iii) consultation with the officials and staff of Provincial Department of Agriculture,
Provincial Department of Environment, Provincial Department of Water Resource
and Meteorology, Provincial Department of Rural Development and local
authorities (villager chief and commune council) about the project;
(iv) consultation with communities involved in the project, including those immediate
beneficiaries to determine their levels of involvement and specifically discuss and
scope relevant environmental issues with them; and
(v) conduct social perception survey through key informant interviews to
stakeholders.

107. Overall, the subproject will result positively. It will contribute to improved agricultural
production, clean agriculture products and it will fit within Lao PDR’s strategy on climate change
2010, in both adaptation options and GHG mitigation as stated “to secure a future where the
Lao PDR is capable of mitigating and adapting to changing climatic conditions in a way that
promotes sustainable economic development, reduces poverty, protects public health and
safety, enhances the quality of the natural environment, and advances the quality of life for all
Lao people”.
 31

IV. TOTAL INVESTMENT, FUNDING ARRANGEMENTS AND FINANCING PLAN

A. Investment costs and financing plan

108. Investment cost. The subproject is estimated to cost $722,925 as shown in the table
below.

Table 5: Subproject Investment Cost ($)

Quantity Cost (US$)
Item UoM Qty Unit Total
Storage (paddy rice) unit 1 300,000 300,000
Storage (finished product) unit 1 100,000 100,000
Pre-cleaner (3t/h) unit 1 10,000 10,000
Paddy separator (3t/h) unit 1 9,000 9,000
Paddy husker (3t/h) unit 1 15,000 15,000
Adhesive whitener unit 1 12,000 12,000
Rice polisher unit 1 12,000 12,000
Rotary shifter unit 1 7,500 7,500
Rice grader unit 1 9,000 9,000
Color sorter (320 channels) unit 1 50,000 50,000
Weight + sewing machine unit 1 9,000 9,000
Dryer (25 tons) unit 3 50,000 150,000
Certification lump sum 5,000 5,000
Base cost 688,500
Physical contingencies 5% 34,425
Total capital cost 722,925
Source: Vanida Rice Mill.

109. Financing plan. The subproject financing plan is summarized in Table 9. As

mentioned, the project will provide up to 60% of the financing in the form of a matching grant,
while the subproject owners will raise the remaining 40% by a combination of commercial loans
and own equity. While grant applicants that are prepared to shoulder more than 40% of
investment costs will be ranked higher, the matching grant scheme will not prescribe the exact
ratio between commercial loans and equity. It is anticipated that beneficiaries are unlikely to
provide the entire 40% with equity alone.20 The financial analysis will thus test the
agribusinesses debt servicing capacity. For analytical purpose, the assumed equity and
commercial loan contributions are assumed to be 10% and 30%, respectively.

110. The commercial loan will have the following terms and conditions: (i) competitive market
interest rate of 13% per annum; (ii) repayment period of 5 years for the principal repayment; (iii)
repayment of the loan principal in equal amounts; and (iv) a grace period of 1 year for the
principal repayment.

20 The FME is tasked with assisting the grant recipients to apply for commerical loans (Para. 7).
32

Table 6: Financing Plan (US$)

Source Amount ($) Percentage
Project grant 433,755 60%
Beneficiary contribution
Commercial loan 216,878 30%
Equity 72,293 10%
Total 722,925 100%
Source: Consultants’ estimates.

B. Estimation methods, unit costs and ratios

1. Estimation methods

111. The construction of the planned paddy and storage facilities adjacent to the mill were
initially costed by the owner of the rice mill using local costs of materials and labor and using
data and quantities based on technical drawings prepared by local contractors for the required
civil works. The estimated building costs were subsequently verified by the experienced national
agro-processing engineer, civil engineer (rural infrastructure specialist), and the deputy team
leader, during feasibility study field work. The owner of VRM had made the mill’s financial
accounts for 2010 to 2015 including the balance sheet, income statement, and cash flow
statements available to the consultants. As the upgrading of the mill includes the duplication of
an existing rice milling processing line, the original cost of equipment was examined for
comparison purposes.

2. Unit costs and ratios

112. The unit costs of rice milling equipment needed to upgrade the VRM were verified with
local suppliers. Reference was also made to detailed rice mill upgrading costs, including
machinery, equipment and civil works under the EU funded Enhancing Milled Rice Production in
Lao PDR Project (2009-2012) which had been made available to the international consultants.
Furthermore, a survey of rice milling costs had been undertaken by the consultants, in the
inception stage of the PPTA, including case studies on six medium to large enterprises. All
costs have been verified by the international and national procurement specialists. The
estimated costs for GMP and HACCP are based on information obtained from the Department
of Agriculture (DOA), Department of Agricultural Extension and Cooperatives (DAEC) and
Khammouane PAFO.

V. IMPLEMENTATION AND OPERATING ARRANGEMENTS

A. Executing and Implementing Agencies

113. The executing agency for the project will be the Ministry of Agriculture and Forestry
(MAF). The MAF will delegate the responsibility for overall project coordination and
management to its Department of Planning and Cooperation (DOPC). In turn, DOPC will
establish a national project management office (NPMO) that will be responsible for project
coordination and management, including financial management of project accounts,
procurement of goods and works, recruitment of consultants, and monitoring and reporting.

114. To ensure inter-agency cooperation at the national level, a national steering committee
(NSC) will be established under the Food Security and Commodities Committee, which will
establish a dedicated subcommittee for this purpose. The NSC will be chaired by a Vice Minister
 33

of MAF and will include representation from the Ministry of Finance (MOF); the Ministry of
Planning and Investment; the Ministry of Industry and Commerce; MPWT; the Ministry of
Foreign Affairs; the Water Resources and Environmental Administration; the National Land
Management Authority; Lao Women’s Union (LWU); the Committee for the Advancement of
Women’s Affairs and the provincial vice governors from the participating provinces. The NSC
will meet annually or as required to review overall implementation progress, approve annual
work-plans and budgets, and provide overall policy guidance. The NPMO will provide secretariat
services to the NSC.

115. The NPMO will be assisted by a team of project implementation consultants (PIC).

116. Implementing agencies: In the six project provinces of Champasak, Khammouane,

Saravan, Savannakhet, Sekong, and Vientiane, the implementing agencies will be the provincial
agriculture and forestry offices (PAFOs). A provincial project implementation unit(PPIU) will be
established in each PAFO to be responsible for financial management at provincial level, and
coordination and management of implementation of subprojects. The PIUP will also coordinate
and supervise the work of the district project implementation units (DPIUs).

117. To assist in implementation at the district level, (DPIUs) will be established within
participating district agriculture and forestry offices (DAFOs). The DPIUs will provide
coordination and supervision of subproject activities at district level. They will be responsible to
assist with: (i) identification of associated initiatives; (ii) community development activities; (iii)
environment management activities and indigenous people development activities; (iv) gender
action plan activities; and (v) monitoring and reporting on physical progress of implementation.

B. Khammouane PAFO/DAFO - Current Human Resources

118. MAF. The total number of MAF staff in Khammouane province is 587 of which 167 are
female. The total number of PAFO staff is 208 of which 68 are female. For the 10 DAFO offices,
the total number of staff is 379 persons of which 100 are female, representing 32% of total staff.
PAFO has 11 Divisions and one Agriculture Development Centre staffed as follows:

• Administration: 11 staff, (4 Female) including 1 female Sub-CAW (Committee for

the Advancement of Women)
• Personnel staff: 7 staff of which 4 are female
• Monitoring: 12 staff of which 4 are female
• Planning: 8 staff of which 5 are female
• Agriculture Crop Production:18 staff of which 7 are female
• Livestock and Fisheries staff:19 staff of which 3 are female
• Forestry: 29 staff of which 12 are female
• Irrigation:15 staff of which 6 are female
• Forest Inspection: 46 staff of which 8 are female
• Extension: 18 staff of which 9 are female
• Land management and Development: 9 staff of which 3 are female
• One Agriculture Development Centre: 11 staff of which 1 female

119. At management level, the number of PAFO Executive members are 5, of which 1 is
female; there are 10 Division Heads, of which 6 are females.

120. DAFO Thakhek Office: Total number of staff is 59 of which 24 are females (i.e. more
than 49 % of staff is female), as follows:
34

• Administrative office: 9 staff of which 5 females including 1 female Sub-CAW

• Personnel office: 7 staff of which 4 females
• Monitoring: 2 staff of which 1 female
• Planning: 3 staff of which 1 female
• Agriculture Crop Production 3 staff of which 1 female
• Livestock and Fisheries: 6 staff of which 3 females
• Forestry:10 staff of which 3 females
• Irrigation: 4 staff of which 1 female
• Forest Inspection: 6 staff of which 3 females
• Extension: 4 staff of which 3 females
• Land Management and Development: 4 staff of which 1 female
• 1 Technical Training Centre: 5 staff of which 2 females

C. Subproject Implementation Management

1. Detailed design phase

121. The initial design and costing of this subproject has been undertaken by PPTA
consultants and represents an initial feasibility study and preparation of the subproject within the
confines of the resources and time available to the PPTA team. The NPMO should request a
revision or verification of some details of the subproject’s design. The NPMO will be responsible
for the recruitment of consulting engineers to review the detailed designs, bid document
preparation and, if approved, will supervise the construction, along with the project
implementation consultants (PIC). Detailed designs will be reviewed by NPMO and the engineer
from the PIC to ensure internationally acceptable design standards have been incorporated and
that engineering designs address the potential impact from climate change. Comments will be
referred to the detail design consultants for amendment and subsequent preparation of bidding
documents. Detailed designs must be approved by the NPMO with input from the Director of the
PAFO and submitted to the PSC for funding approval. Once funding approval has been
provided, the recruitment of contractors can proceed. The detailed design consultants can also
proceed with the preparation with bidding documents.

122. As the cost is likely to require only national competitive bidding (NCB), the NPMO will
invite bids for construction in accordance with ADB’s and government’s requirements as set out
in the Project procurement plan.

2. Construction phase

123. Construction supervision will be provided by the PAFO with the assistance of the PIC
and in collaboration with the contractors. The contractor will maintain a construction log from
which the PIC will assess the physical progress of the work against the schedule in the contract
and authorize payments accordingly. If issues arise then the NPMO will be advised accordingly.
Strict adherence to quality standards will be enforced. After the construction and warranty
period, as defined in the contract with the contractors has lapsed, the pack house will be
handed to the Champasak PAFO who will transfer it, legally, to the VPGE.

3. Operational phase

124. The provision of maximum capacity building and advisory input in the first two years of
operation will be the key to the subproject’s sustainability. The PAFO will be responsible for
maintaining close contact with the pack house management, and the Project will support the
 35

VPGE’s operations directly or indirectly through the PAFO to undertaking the following key
activities (i) in association with project training advisers assist in the development of capacity
building programs (ii) networking in the sphere of marketing and ensuring that domestic and
international buyers are linked to the VPGE, and (iii) verification for GAP, GMP and HACCP.

125. The NPMO M&E consultant will monitor the impact of the subproject investment by
carrying out annual impact monitoring surveys relating to storage unit management and
operation, tracking progress and make recommendations for improvement.

4. Role of the PAFO

126. The following tasks will be completed by PAFO under the overall supervision of the
NPMO:

(i) In association with project training advisers assist in the development of capacity
building programs related to climate smart agriculture (CSA) and mechanization,
the cropping calendar, crop post-harvest handling, value addition, marketing and
APG management, administration and logistics;
(ii) The PAFO will organize and arrange open days to the VRM site for other
potential subproject candidates to demonstrate the work undertaken;
(iii) The PAFO will have an oversight on the technical and infrastructure aspects of
the warehouse construction and milling equipment procurement and installation;
(iv) Assist the NPMO M&E consultants in monitoring the impact from the subproject
investment by carrying out annual impact monitoring surveys relating to mill
management and operation, vegetable marketing progress and in making
recommendations for improvement.

5. Role of contractors

127. The Contractor will be responsible for following the detailed design, the construction
process and the quality of work to be established under the contract and will prepare and submit
construction diaries in order that PAFO and NPMO can monitor progress. The contractor will be
responsible for a timely handover of the infrastructure in accordance with the contract.

6. Role of project implementation consultants

128. During the preparation of the detailed design, the project implementation consultants
(PIC) will support the preparation of the detailed engineering design as required. A specialist
rural infrastructure engineer will be part of the PIC and there will be assessment that adequate
provision has been made to accommodate the potential impact from climate change relating to
extreme weather events. The PIC will also review bid documentation to ensure that they
conform to the requirements of ADB and the government.

129. The PIC will ensure that quality assurance is maintained during construction supervision
and will wherever possible, work with the trainers to ensure the satisfactory management and
operation of the pack house. Approval for payments under the construction contract must be
ratified by the PIC before being authorized for payment through the NPMO.

130. The PIC will work with the contractors and with the PAFO to ensure efficient subproject
implementation. The PIC in conjunction with the NPMO will ensure inter-agency coordination.
36

7. Role of subproject beneficiaries

131. The VRM will provide land or purchase land to site the two new storage warehouses and
additional processing equipment.

A. Subproject Implementation Schedule

132. The implementation schedule for the subproject is dependent upon the time needed for
Project approval through ADB and government, as well as the length of time it takes to set up
implementation structures and operational accounts. The construction of the two warehouses
and procurement and installation of rice processing equipment should take no longer than 6
months. The subproject should be able to start in the fourth quarter of 2018 providing project
implementation commences in the third quarter of 2018.

B. Procurement

133. The following procurement packages are envisaged at this stage.

134. Construction of two store rooms – one for paddy rice and the other for finished
product: The package will be procured as a civil works package following NCB method. The
package will be subject to prior review of ADB if it turns out to be the first NCB of the Project,
otherwise it will be subject to post review of ADB. The estimated cost of the package is USD
400,000.

135. Supply of 3 sets of driers (25 tons): The package will be procured as a goods
package following NCB method. The package will be subject to prior review of ADB if it turns out
to be the first NCB of the project, otherwise it will be subject to post review of ADB. The
estimate cost of the package is USD 150,000.

136. The following goods will be procured through shopping (post review of ADB). These
items will be procured through a single package with lots – one lot for one item. The evaluation
and contract award will be done lot-wise.

Table 7: Goods to be procured through shopping method.

Item Quantity Estimated Cost
(USD)
Pre-cleaner (3t/h) 1 10,000
Paddy separator (3t/h) 1 9,000
Paddy husker (3t/h) 1 15,000
Adhesive whitener 1 12,000
Rice polisher 1 12,000
Rotary shifter 1 7,500
Rice grader 1 9,000
Color sorter (320 channels) 1 50,000
Weight + sewing machine 1 9,000

137. The executing agency for the project will be the Ministry of Agriculture and Forestry
(MAF). MAF will delegate the responsibility for overall project coordination and management to
its Department of Planning and Cooperation (DOPC). In turn, DOPC will establish a national
 37

project management office (NPMO) that will be responsible for procurement of goods and works
and recruitment of consultants.

138. All procurement of goods and works will be undertaken in accordance with ADB’s
Procurement Guidelines (2015, as amended from time to time).

139. For goods, ICB procedures will be used for goods valued at $1,000,000 or above;
national competitive bidding (NCB) procedures will be used for goods valued below $1,000,000
but equal to $100,000 or above; and shopping procedures will be used for goods valued below
$100,000. For works, ICB procedures will be used for works valued at $3,000,000 or above;
NCB procedures will be used for works valued below $3,000,000 but equal to $100,000 or
above; and shopping procedures will be used for works valued below $100,000.

140. All consultants will be recruited according to ADB’s Guidelines on the Use of Consultants
(2013, as amended from time to time).

141. Except as the Asian Development Bank (ADB) may otherwise agree, the following
process thresholds shall apply to procurement of goods and works.

Table 8: Procurement of Goods and Works process thresholds

Procurement of Goods and Works
Method Threshold Comments
International Competitive Bidding (ICB) for $3,000,000 and above
Works
International Competitive Bidding for Goods $1,000,000 and above

National Competitive Bidding (NCB) for Beneath that stated for NPMO to procure all NCB
Works ICB, Works packages.
The first package shall follow
prior review procedures. The
first draft English version of
the procurement documents
should be submitted by
NPMO for ADB review and
approval regardless of the
estimated contract amount.
ADB approved documents
should be used as a model
for all subsequent NCB
procurement financed by
ADB and need not be
subjected to prior review.
National Competitive Bidding for Goods Beneath that stated for Same as NCB for works
ICB, Goods
Shopping for Works Below $100,000 NPMO or PPIUs to procure
all shopping packages. The
first package shall follow prior
review procedures. The first
draft English version of the
38

procurement documents
should be submitted by
NPMO for ADB review and
approval regardless of the
estimated contract amount.
ADB approved documents
should be used as a model
for all subsequent shopping
procurement financed by
ADB and need not be
subjected to prior review.

Shopping for Goods Below $100,000 Same as shopping for works

Direct Contracting Below $5,000

Table 9: Procurement of Consulting Services process thresholds

Consulting Services

Method Comments
Quality and Cost Based Selection (QCBS) Prior review, 90:10 (PIC and Financial
Management Entity)

Least Cost Selection (LCS) Prior review (external auditor)

Single Source Selection (SSS) Prior review (IRRI)

Consultants’ Qualifications Selection (CQS) Prior review (External Monitoring Agency)
Individual Consultant Selection (ICS) Prior review
142. Except as ADB may otherwise agree, the following prior or post review requirements
apply to the various procurement and consultant recruitment methods used for the project.

Procurement Method Prior/Post Comments

Procurement of Goods and Works

International Competitive Bidding (ICB) for Prior All

Goods

International Competitive Bidding (ICB) for Prior All

Works

National Competitive Bidding (NCB) for Prior All

Goods: $500,000 or more

National Competitive Bidding (NCB) for Prior All

Works: $1,000,000 or more

National Competitive Bidding (NCB) for Post/Prior First NCB subject to prior review
Goods: less than $500,000 irrespective of value
 39

National Competitive Bidding (NCB) for Post/Prior First NCB subject to prior review
Works: less than $1,000,000 or more irrespective of value

Shopping for Goods Post First Shopping subject to prior

review irrespective of value

Shopping for Works Post First Shopping subject to prior

review irrespective of value

Direct Contracting for Goods Prior All

Direct Contracting for Works Prior All

Procurement of Consulting Services

All selection methods: more than $200,000 Prior All

All selection methods: less than $200,000 Post/Prior First selection following any of the
methods subject to prior review
irrespective of value

All Single Source Selection Prior All

Individual Consultants: $100,000 or more Prior All

Individual Consultants: less than $100,000 Post/Prior Selection of all procurement

consultants and finance consultants
subject to prior review.

VI. SUBPROJECT OUTCOME AND IMPACT

A. Subproject Outcome and Impact

8. Performance Indicators

143. Performance indicators will include (i) increases in paddy production and decreases in
post-harvest losses, (ii) improve milled rice recovery rates, improved and optimized rice mill
capacity usage, enhanced milled rice production (iii) number of rice mills receiving GMP and
HACCP certification enhanced (iv) improved direct and indirect beneficiaries (v) improved
household rural livelihoods (vi) Improved marketing efficiency and access to domestic and
export premium markets (vii) improved value chain linkages and backward and forward
integration of the chain, and (viii) adoption of climate smart agriculture technology by rice
farmers. The proposed subproject has the following potential key overall impacts:

(i) the upgrading of the VRM will result in increased agricultural productivity, quality
and safety, value addition, and increased rural household incomes through the
development of climate-friendly rice agribusiness value chains;
(ii) the example of the subproject will have the impact of encouraging other rice mills
to replicate the investment and thus assist in achieving government policy and
strategy for the rice sub-sector;
40

(iii) generation of additional demand for hired labor to work in the rice mill due to the
improved capacity usage;
(iv) with increased household revenues, school drop-out levels may decrease as
families are better able to pay for their children's education and women's access
to extension. Increased household incomes will lead to a reduction in household
debt levels, and a subsequent decrease in the incidence of domestic violence in
farming households; and
(v) increased awareness of gender equality should lead to improved sharing of
household chores and tasks.

9. Evaluation Arrangements

144. A review of the implementation arrangements will be undertaken after the first month of
the upgrading of the VRM has been completed. Performance indicators will include (i)
increases in paddy production and decreases in post-harvest losses, (ii) improve milled rice
recovery rates, improved and optimized rice mill capacity usage, and enhanced milled rice
production (iii) number of rice mills receiving GMP and HACCP certification enhanced (iv)
improved direct and indirect beneficiaries (v) improved household rural livelihoods (vi) Improved
marketing efficiency and access to domestic and export premium markets (vii) improved value
chain linkages and backward and forward integration of the chain, and (viii) adoption of climate
smart agriculture technology by rice farmers.

10. Reporting Arrangements

145. In line with the overall project performance management system (PPMS) framework, a
participatory benefit monitoring and evaluation program will be carried out following a design
that supports data requirements (segregated by gender) of a result based management system
that is linked to the DMF. Specifically, indicators and targets for all desired subproject outputs,
outcomes, and impacts will be defined for annual and, or episodic points in the subproject cycle
in accordance with the indicators in the DMF. The PPMS will provide a clear indication of
subproject efficiency (planned outputs against allocated inputs) and effectiveness (achievement
of subproject outcomes and impacts because of implementing planned interventions and
investments). PPMS activities will be conducted periodically to assess whether subproject
inputs have delivered the expected benefits to the intended beneficiaries. The PPMS will also
detect deviations between the plan and execution of the subproject. Any deviations between the
plan and achieved results (outputs, outcomes, and impacts) will be recognized by NPMO in a
timely manner, thereby allowing corrective management actions and decisions to be taken.

B. Economic and Financial Evaluation

146. The direct and quantifiable benefits of the subproject come from the net margins of the
outputs generated from the new rice mill production line. These are benefits that accrue from
the purchase of paddies from farmer groups, storing them in the new paddy storage facility with
adequate space, and processing them into high quality product that could fetch premium
domestic and export market prices. Only these benefits are quantified and included in the
economic analysis.

147. The results of the economic and financial evaluation show that the subproject is
economically and financially viable with an EIRR of 17.8% and FIRR of 26.83%, respectively.
 41

The sensitivity analysis indicates that the subproject is most sensitive to benefits reduction, but
the performance remains above the required threshold levels.

148. The financial projections of the subproject for the period 2017-2027 show that the
subproject is financially sustainable. Internal cash generated from operations is sufficient to
repay annual debt service obligations. Net cash inflows accumulated during the period are
adequate to finance the replacement of equipment on the tenth year without the need to incur
long-term borrowings.

C. Social Impact Assessment

149. A social and gender impact assessment and subproject gender action plan is included in
Annex 4 below.

D. Environmental Impact Assessment

150. The IEE was prepared following the ADB Safeguard Policy Statement (SPS) (2009), the
2003 ADB Environmental Assessment Guidelines, the ADB Environmental Guidelines for
Selected Irrigation and Drainage Development Projects and relevant environmental policies and
guidelines of the government. The project is classified under ADB guidelines/rules as a
Category B project. Such projects are judged to have some adverse environmental impacts,
most of which is occurring during construction phase, but to a lesser degree and/or significance
than those for category A projects. An IEE is required to determine whether or not significant
environmental impact warranting an environmental impact assessment (EIA) are likely. If an EIA
is not needed, the IEE is regarded as the final environmental assessment report.

151. During pre-construction: The issues related to project location encompass the
rehabilitation of the existing structures which include design and layout where necessary to
improve the VRM processing to achieve greater efficiencies.

152. During implementation: The major issue during implementation concerns compliance
with the Environmental Management Plan (EMP) regarding VRM processing including the
management of smell and sources of dust, improving OH&S management initiatives, ensuring
site cleanliness, and protection to existing vegetation.

153. Post-construction: The main concern is the maintenance of the OH&S management
initiatives, ensuring site cleanliness, and protection to existing vegetation.

154. Rapid Environmental Assessment: The initial Rapid Environmental Assessment

(REA) for the Project identified a medium climate risk, however the AWARE classification is that
of High risk. This PPTA has therefore completed a Climate Risk Assessment and Management
document, tabled as SD10. In addition, there is a need to undertake a Climate Risk and
Vulnerability Assessment for the whole project including construction and operational (Post
construction) periods. This work has been included in the TOR for the International CC and
Environmental Specialist to complete during implementation, and to be site specific.

155. The IEE includes an EMP which will be implemented by a contractor to avoid or
minimize negative environmental effects by following the IEE documents.
42

VII. CRITICAL RISKS

156. The main risks and assumptions regarding the successful implementation of this
subproject are assessed as being:

157. Competition: It is difficult for Lao PDR rice mills to compete with neighboring producing
countries (Thailand and Cambodia) due to: (a) the higher value chain costs along the rice value
chain caused by high transportation costs, low rice yields, scattered production areas and mixed
rice varieties (b) few rice mills meet China Certification and Inspection (Group) Company Ltd
(CCIC) requirements for milled rice quality21 (c) transportation, fumigation and import-export
taxes are higher than Thailand and Cambodia, e.g. the fumigation costs $6 to 13/tonne in Lao
PDR while it costs $0.8 to $1.5/tonne in Thailand and Cambodia (d) the price of Lao rice is more
expensive than neighboring countries (Thailand and Cambodia), e.g. Lao PDR non-glutinous
rice of costs $997 a tonne while that from Thailand and Cambodia costs $859 a tonne; glutinous
rice costs $780 a tonne in LAO PDR against $740 a tonne22.

158. Quality: The mixing of rice varieties collected after paddy harvesting will affect the
quality of milled rice.

159. Market policy instability: Ban of export, free market, and price control has had an
impact on the rice trade, e.g. price fluctuations; no incentive for the farmers to produce for the
market, and instability of markets. An appropriate policy should be developed, such as the
establishment of maximum access volume for the export (quota), guarantees of minimum price
subject to WTO rules.

160. Compliance with standards: Lao PDR does not have an internationally competent
testing laboratory. The food safety quality of rice (pesticide residues, heavy metal
contamination, etc.) is as important as the sensory quality. The testing laboratory, which
oversees final quality control before sending to the market, is crucial. Currently, the Laboratory
in Lao PDR is not yet compliant with the international laboratory standard (IEC/ISO 17025) and
the testing scope is still limited.

161. Government sector support: Government reduces support to agribusiness

development through insufficient budget allocation to MAF line agencies.

162. Climate change impact: Negative impact of climate change on farming systems will
reduce crop yields and profitability.

21 The CCIC is an independent legal entity providing, inter alia, rice inspection, surveying, certification and testing
services
22 Based on the price situation in mid-2016.
43 Annex 1

ANNEX I: DESIGN AND MONITORING FRAMEWORK

Subproject results Performance with targets Data sources and Risks

chain and baselines (as at 2016) reporting
Impact: Aligned with the National Socio-Economic Development Plan VIII (2016-2020) (8th NSEDP) and the
Ministry of Agriculture and Forestry’s (MAF) “Agricultural Development Strategy (ADS) to 2025 and vision to
the year 2030” - increased agricultural productivity, quality and safety, value addition, and increased rural
household incomes through the development of climate-friendly rice agribusiness value chains.
Outcome:
Resource efficiency • Average HH earnings of • Agricultural and • Government reduces
and climate resilience milling families and rice household census support to
of the rice agribusiness farmers rise by 30% by reports; agribusiness
value chain improved 2026 (baseline development through
2017=$1,021); • Bank of Lao PDR insufficient budget
annual reports; allocation to MAF line
• KDRMG enters PPCP agencies;
arrangements with at least • MAF Statistical
2 international rice buyers Yearbook / production • Negative impact of
by 2024? (baseline and investment climate change on
2017=0) statistics; farming systems will
reduce paddy yields
• Women mainstreamed • Project progress and profitability, and
into the rice value chain reports based on lower capacity usage
through: Project Performance of the VRM
o at least 1 female and Management
in VRM System (PPMS)
management indicators;
team (ii) at least 1
female committee • Project Mid Term
member on at Review (MTR);
least 75% of • Project Completion
committees of the Report (PCR);
15 APGs • Project progress
supplying paddy reports based on
to the VRM (base PPMS indicators;
2024)

Output 1:
Critical climate-resilient • 1 paddy storage • PCR; • Market instability due
rice agribusiness value warehouse & 1 milled rice to Gol interventions;
chain infrastructure warehouse constructed & • MTR;
improved operational by mid-2020; • Negative impact of
• VRM financial climate change on
• 2nd rice production line statements (P&L paddy production;
installed & operational by account / Balance
mid-2020; sheet etc.) • Collapse of
international rice
• Annual paddy volume markets to levels
supplied to mill increased under rice C.O.P
by > 30% by 2024;

• Average recovery rate of

milled rice from paddy
increased to > 62% by
2026;
44

o 7000 tons of
premium grade
rice exported by
VRM by end
2019;

Output 2: • >25% of members of rice • Participating PAFOs

Climate -smart APGs supplying the VRM not fully committed to
agriculture promoted trained in climate smart subproject to
agriculture (CSA) by 2022; undertake associated
at least 25% being activities to APGs;
women;
• Insufficient “take up”
• >75% of members of rice by APGs of sub
APGs supplying the VRM project services,
GAP certified by 2024; extension,
mechanization,
• Paddy production by
APGs suppling VRM
increased by 15% by
2024;

• Post-harvest losses
reduced by 10%.
Output 3: • VRM to achieve GMP &
Enabling environment HACCP certification by
for climate-friendly 2021.
agribusiness enhanced
Key activities and with milestones
1.0 Infrastructure / upgrade of VRM
1.1 Construction of paddy storage warehouse separate but adjacent to the VRM
1.2 Construction of milled rice storage warehouse separate but adjacent to the VRM
1.3 Installation of a second rice processing line
1.4 VRM completion of GMP certification
1.5 VRM completion of HACCP certification
2.0 Training & capacity building
2.1 Training of rice farmers in CSA techniques
2.2 Rice APG member completion of GAP certification
2.3 Mechanization & technology transfer to farmers
Inputs
Financing (Infrastructure & equipment only
Nb: APG training, capacity building & GAP certification will be funded from a lump sum allocated to Project
sub outputs 2.2 and 1.2 respectively)
ADB: $ 645,500 (lgrant to GoL)
Government: Nil
Beneficiary: $ 538,000 (land, labor & materials)
Co-financiers: Nil
Consultancy:
Oversight of PIC only (non-specific)

ADS - Agricultural Development Strategy to 2025 and vision to the year 2030; CSA – climate smart agriculture;
APG – agricultural production group; GAP - good agricultural practice; GMP - good manufacturing practice; Gol
- Government of Laos; HACCP - hazard critical control points; HH-Households; KDRMG - Khammouane
Development Rice Millers Group; MTR - mid term report; PCR - project completion report; PIC - project
implementation consultants; PPMS - project performance and management system; VRM - Vanida Rice Mill
45 Annex 2

ANNEX II. MODEL RICE EQUIPMENT LOAN AGREEMENT

Lao People’s Democratic Republic

Peace Independence Democracy Unity Prosperity
*******************

Khammouan Rice Milling Group Khammouane, 09 December 2014

Regulations on the Administration for the use of Agricultural Processing Equipment

(Infrared Rice Heating Machines, Rice Mills, Rice Dryers and Electricity Transformers)
Of the Products-based Agricultural Promotion Project

Pursuant to the loan agreement between the Government of Lao PDR and Asian
Development Bank, Loan No. 2809, dated 24/01/2012.
Pursuant to the direction of the Khammouane Department of Industry and Commerce.
Pursuant to the consensual agreement of the rice mills in Khammouane, Sebang Fai,
Nongbok and Mahaxay districts.

The Khammouan Rice Milling Group consists of 5 rice milling development groups namely; the
Nongbok community development rice milling group, the Sebang Fai rural development and promotion
group, the plateau rice milling development group and Thakek rice milling development group. These
groups operate under the administration and direction of the Khammouan Department of Industry and
Commerce and the Khammouan Department of Agriculture and Forestry to manage and use machines to
improve the quality of rice. The machines include an infrared rice heating machine with 240 blocks, a rice
mill with the capacity of producing 1 ton per hour and a 250 KVA electricity transformer supported by the
Products-based Agricultural Promotion project, Farmers Promotion Department. The regulations thereof
have been established with the following details:

Article 1 Objectives
To promote and strengthen the Agro-business entrepreneur group (Khammouan Rice
Milling group) in the processing and quality improvement of rice to meet the market demand, thus
increasing rice production for exportation of quality rice.
To increase the purchasing volume of rice from farmers.
To encourage entrepreneurship and enable farmers to have more revenues from
participation through the supply chains of Khammouan province.

Article 2 Support
46 Annex 2

The Department of Agriculture and Farming, the central Products-based Agricultural

Promotion project will purchase and supply rice processing machines and improve the rice quality
for the Khammouan Rice Milling Group based on the demands and necessity to capacity building
as outlined in the objectives.
The central Products-based Agricultural Promotion project in collaboration with the
provincial and district Departments of Agriculture and Forestry and the provincial and district
Departments of Industry and Commerce will be involved in the selection and determination of the
above machines used by the Khammouan Rice Milling Group.
Article 3 Names of Rice Mill Owners who receive the rice milling equipment
Ms Vathsana Phothilath received one 250 KVA electricity transformer.
Mr Phetsamone, Bounmy Khammanyvong and Mr Chantha Phanichanh received an
infrared rice heating machine with 240 KVA.
Ms Sisamay received one rice milling machine with the capacity of milling 1 ton per hour.
Ms Niphaphone Kingsalath received a rice dryer for production of 12 tons.
Article 4 Supplying Terms and Support Conditions
The first year of the project: the companies that supply the machines in partnership with
the provincial and district Departments of Agriculture, the Department of Industry and Commerce
shall provide instructions for use and business plans.
The second and third year of the project: the province and districts shall lead the
Khammouan Rice Milling Group/Association to implement the business plans.
The fourth year of the implementation assessment, if unsuccessful in accordance with the
outlined plan, a meeting shall be organized to consider the relocation of the project to other groups
as appropriate.
All the above machines provided by the project shall be handed to the group/association
to incur as fixed assets to the Khammouan Rice Milling Group/association for the future
expansion and use in rice milling by its members.
The support will be given based on the capacity of the above-mentioned rice mills
outlined in Article 3.
Every rice mill in the group must contribute the interest payments to the association at a 5
per cent rate of the total amount of the machine costs outlined in Article 3.
Loan repayment is valid through 7 years. In the respective 6th and 7th year, 50 per cent of
the total amount of the machine costs must be paid.
In the 6th year after repayment of the total amount, the members shall have the right to
submit another loan to improve their rice mills based on their potential and capacity. The
submission shall receive agreement of more than 50 per cent from members and an approval from
the Khammouan Department of Agriculture and Forestry and Department of Industry and
Commerce.

Article 5 Administration and Use

The rice mills must provide a monthly report on the use of those machines to the
Khammouan Department of Agriculture and Forestry (Khammouan Products-based Agricultural
Promotion project) and the Department of Industry and Commerce.
 Annex 2 47

In the case where members have conflict over the use of machines such as damages, break
downs and other issues, the reporting shall be given to the above concerned departments for
information and consideration of solutions.
The approvals to allow members of other groups to access loans shall receive written
agreement from the Department of Industry and Commerce, the Department of Agriculture and
Forestry and the board members of the association.
It is prohibited to modify the above machines prior to seeking a permission from the
project and the supplier (if still under warranty), the Department of Industry and Commerce, the
Department of Agriculture and Forestry and the board members of the association.
Members of the group/association shall be entitled to use the machines such as a rice
dryer, rice mill and infrared rice heating machine with advance payments of 1 week made to the
rice mill owners. They shall share the electricity cost in accordance with a fair and suitable rate.
Article 6: Administration of Loan Repayment to the Group
The rice mills shall pay (interest and loan amounts) to the bank account of the
Group/Association in accordance with the rate calculated in the attachment below.
Upon maturity for interest and loan repayment:
Interest (100% repayment shall have a due date on 31/12/2017)
Loan amounts (50% repayment shall have a due date on 31/12/2020 and 31/12/2021)
Unless implementation of the below tables has not been met (Attachment 1), the
Khammouan Department of Industry and Commerce, Department of Agriculture and Forestry and
board members of the association shall together consider and find solutions. If solutions have not
been reached, the laws of the Lao PDR shall be imposed to resolve such issues.
Tables of Loan Repayment for Agricultural Processing Machines
Infrared Rice Heating Machines
No Value (LAK) 1-7 years 6th year 7th year
Interest 5%/year Loan Amount 50% Loan Amount 50%
1 353,253,600 17,662,680 176,626,800 176,626,800
2 353,253,600 17,662,680 176,626,800 176,626,800
3 353,253,600 17,662,680 176,626,800 176,626,800
1,059,760,800 52,988,040 529,880,400 529,880,400

Modern Rice Mills

No Value (LAK) 1-7 years 6th year 7th year
Interest 5%/year Loan Amount 50% Loan Amount 50%
1 259,200,000 12,960,000 129,600,000 129,600,000
259,200,000 12,960,000 129,600,000 129,600,000

Electricity Transformers
48 Annex 2

No Value (LAK) 1-7 years 6th year 7th year

Interest 5%/year Loan Amount 50% Loan Amount 50%
1 180,000,000 9,000,000 90,000,000 90,000,000
180,000,000 9,000,000 90,000,000 90,000,000

Rice Dryers
No Value (LAK) 1-7 years 6th year 7th year
Interest 5%/year Loan Amount 50% Loan Amount 50%
1 173,115,000 8,655,750 86,557,500 86,557,500
173,115,000 8,655,750 86,557,500 86,557,500

Article 7: Implementation and Enforcement

The regulations are created to facilitate administration, inspection and use of agricultural
processing machines by the Khammouan Rice Milling Group/Association to the highest benefit.
The regulations are amendable when implementation is deemed not applicable through a
meeting organized by the Group/Association and two departments by means of receiving more
than 50 per cent votes from the members.
The regulations enter force from the signing date until amendments and termination will
take place.

Acknowledged by Acknowledged by Khammouane

(Deputy) Head of the (Deputy) Head of Rice Milling
Department of Industry and Commerce the Agriculture and Forestry Group
 Annex 3 49

ANNEX III: LAND ACQUISITION AND INDIGENOUS PEOPLES/ETHNIC GROUPS

LAND ACQUISITION AND RESETTLEMENT SCREENING

The following checklists are to be used in the identification and selection of SPs for implementation. The
objective of the checklists is to ensure that only Category B or C SPs are selected according to project
selection criteria.

Involuntary Resettlement Impact Categorization Checklist

Not Remarks
Involuntary Resettlement Effects Yes No
Known
Will the activity require permanent or temporary X Sufficient land available within existing 3 ha
land acquisition? plot
Is the site and land needed for acquisition N/A: Adjoins existing mill site
known?
Is the ownership status and current usage of land X Rice mill owner’s land
to be acquired known?
Is the area of land required from each affected N/A
HH known?
Will land be acquired involuntarily? N/A

Will land be acquired voluntarily? X Will form owner’s equity

Will easement be utilized within an existing Right N/A

of Way (ROW)?
Was
1 any facility constructed recently on new land X
in anticipation of obtaining further assistance for
the facility from this ADB project?
Was the land acquired legally under GoL? X Only legally acquired land will be
(unknown = No) considered
Are there any outstanding complaints about the X
land used or acquired for the existing facilities?
Will the activity require permanent or temporary X
relocation or displacement of any people (titled or
non-titled)?
Are there any non-titled people (squatters) who X
live at the site or within the COI / Right of Way /
public land?
Will there be any loss of housing or X
accommodation or other residential structures?
 50 Annex 3

Not Remarks
Involuntary Resettlement Effects Yes No
Known
Will there be any loss of residential land? X

Will there be any loss of vegetable gardens or X

agricultural plots?
Will there be any losses of crops, fruit trees or X
private structures?
Will there be loss of income sources and means X
of livelihoods due to land acquisition?
Will any small or informal businesses have to be X
moved or closed temporarily or permanently?
Will there be temporary or permanent loss of X
employment because of the closure of any
businesses resulting from the renovation?

Involuntary restrictions on land use or on access to legally designated parks and protected areas
Will people lose access to natural resources, X
communal facilities and services?
If land use is changed, will it have an adverse X
impact on social and economic activities?
Will access to land and resources owned X
communally or by the state be restricted?
Information on Displaced Persons:
Any estimate of the likely number of persons that will be displaced by the
Project? [ ] No [X ] Yes
If yes, approximately how many? _______None_X______________

Are any of them poor, female-heads of households, or vulnerable to

poverty risks? [X ] No [ ] Yes
Are any displaced persons from indigenous or ethnic minority groups?
[ X ] No [ ] Yes
 Annex 3 51

B. Project Data

Country/Project No./Project : PPTA 8897 – CAM/LAO/MYA: Climate-Friendly Agribusiness Value

Title Chains Sector Project
Laos: Subproject – Support to Vanida Rice Mill

Department/ Division : Southeast Asia Department/ Environment, Natural Resources and

Agriculture Division (SERD)
Processing Stage : Inception
Modality :
[ ] Project Loan [ ] Program Loan [ ] Financial Intermediary [ ] General Corporate Finance [ X ] Sector
Loan [ ] MFF [ ] Emergency Assistance [ ] Grant [ ] Other financing modalities:

C. Involuntary Resettlement Category

[ ] New [ ] Recategorization ― Previous Category [ X ]
Category A Category B Category C Cat egory FI
X
D. Comments
Project Team Comments: SDES Comments:
The project is classified as category C for involuntary
resettlement and/or involuntary land acquisition.
Land required for improvements is available within the
existing land holdings of the rice mill owner. The land
forms part of owner’s equity in the upgrade investment.

E. Approval
Proposed by: Reviewed by:

Project Team Leader, {Department/Division} Social Safeguard Specialist, SDES

ETHNIC GROUP IMPACT SCREENING CHECKLIST:

This checklist is used to screen impacts and aid in project EG safeguard classification:

Subproject: Vanida Rice Mill

Screening Form for Impacts on Ethnic Groups

Key concerns (Please provide elaborations on the remarks Yes No Not Remarks
column) Known
A Indigenous People Identification
1 Are there socio-cultural groups present in or use the project X
area who may be considered as “tribes” (hill tribes, schedules
tribes, tribal peoples), “minorities” (ethnic or national minorities),
or “indigenous communities” in the project area?

2 Are there national or local laws or policies as well as N/A

anthropological researches/studies that consider these groups
present in or using the project area as belonging to “ethnic
minorities”, schedules tribes, tribal peoples, national minorities,
or cultural communities?
52 Annex 3

3 Do such groups self-identify as being part of a distinct social N/A

and cultural group?
4 Do such groups maintain collective attachments to distinct N/A
habitats or ancestral territories and/or to the natural resources
in these habitats and territories?
5 Do such groups maintain cultural, economic, social and political N/A
institutions distinct from the dominant society and culture?
6 Do such groups speak a distinct language or dialect? N/A
7 Has such groups been historically, socially and economically N/A
marginalized, disempowered, excluded, and/or discriminated
against?
8 Are such groups represented as “Indigenous peoples” or as N/A
“ethnic minorities” in any formal decision-making bodies at the
national or local levels?

B
9 Will the project directly or indirectly benefit or target indigenous X
peoples?
10 Will the project directly or indirectly affect indigenous peoples’ X
traditional socio-cultural and belief practices? (e.g. child-
rearing, health, education, arts, and governance)
11 Will the project affect the livelihood systems of indigenous X
peoples? (e.g. food production, system, natural resource
management, crafts and trade, employment status)
12 Will the project be in an area (land or territory) occupied, X
owned, or used by indigenous peoples, and/or claimed as
ancestral domain?
C Identification of Special Requirements Will the project activities include:
13 Commercial development of the cultural resources and X
knowledge of indigenous peoples?
14 Physical displacement from traditional or customary lands? X
15 Commercial development of natural resources (such as X
minerals, hydrocarbons, forests, water, hunting or fishing
grounds) within customary lands under use that would impact
the livelihoods or the cultural, ceremonial, spiritual uses that
define the identity and community of indigenous peoples?
16 Establishing legal recognition of rights to lands and territories X
that are traditionally owned or customarily used, occupied or
claimed by indigenous peoples?
17 Acquisition of lands that are traditionally owned or customarily X
used, occupied or claimed by indigenous peoples?

Anticipated project impacts on Indigenous Anticipated positive effect Anticipated

Peoples negative
Subproject activity effect on
EGs.
1 Outputs: None.
1. Critical agribusiness value chain Improved quality of produce.
infrastructure improved and made climate-
 Annex 3 53

resilient: Improved linkages to VCs and markets,

Suboutput 1.1: Climate-resilient Rural closer linkages to private sector
infrastructure improved agribusinesses.
Suboutput 1.2: Crop production infrastructure
Suboutput 1.3: Agribusiness enterprise value Increased marketability of produce and
chain infrastructure improved better prices for higher quality produce.

B. Project Data
Country/Project No./Project Laos - Climate-friendly
: Agribusiness Value Chain Sector
Title Project.
Subproject: Upgrading the Vanida Rice Mill

Department/ Division Southeast Asia Department/ Environment, Natural Resources and

Agriculture Division (SERD)
Processing Stage Feasibility :
Modality
[ ] Project Loan [ ] Program Loan [ ] Financial Intermediary [ ] General Corporate Finance

[ x ] Sector Loan [ ] MFF [ ] Emergency Assistance [ ] Grant [ ] Other

C. Indigenous Peoples Category
[ ] New [ ] Re-categorization [ X ] Previous Category
[ ] Category A [ ] Category B [ X ] Category C { ] Category FI
D. Project requires the broad community support of [ ] Yes [ X ] No
affected Indigenous Peoples communities.
E. Comments
The SP is classed as Category C for IPs. The SP SDES Comments:
concerns upgrading plant and equipment at a
commercially operated rice mill. The land is owned by
the rice mill owner, it is located in a mainstream Lao
area. The SP is outside the context of SPS (2009).
F. Approval
Proposed by: Reviewed by:

Project Team Leader, {Department/Division} Social Safeguard Specialist, SDES

Date: Date:
Endorsed by:
Social Development Specialist, {Department/Division} Director, SDES
Date: Date:
Approved by:  Highly
Director, {Division} Chief Compliance Officer Complex and
Sensitive
Date: Date:
Project
54 Annex 4

ANNEX 4: SOCIAL IMPACT ASSESSMENT AND GENDER ACTION PLAN

A. Background

1. Vanida Rice Mill (VRM) currently buys paddy from approximately 1,249 households
located in Khammouane province and Savannakhet province, as illustrated in the table below.

Table A.4.1: Districts, villages and farm households

supplying paddy to Vanida Rice Mill
Province District No. of No. Households
villages
Khammouane Thakhek 8 278
Nong Bok 3 232
XeBang 5 104
Phay 10 250
Buarapha
Total 4 26 864
Savannakhet Xayboury 5 385
Grand Total 5 31 1,249
Source: Director, Vanida Rice Mill

2. The range of farm land holdings is from 0.4 ha (small) to 1.5 ha (medium) to 2 ha
(considered large). Farmers are organized in farmers’ producer groups with approximately 100
farmer members in each group.

B. Dong Tai village, Thakhek District

1. Executive Summary

3. Dong Tai village is one of the villages in Thakhek District which sells paddy to VRM, and
has access to good quality inputs and technical assistance from the mill. The population is
characterized by a single ethnic group – the Lao Lum. Because of the lack of water, there is
only one cropping season per year. The nearby irrigation system which serves the area needs
repair and the canals need to be lined to improve efficiency. A second problem cited is that
farmers would like to be able to always sell their paddy to VRM, however this is not always
possible because reportedly there are times when the mill has insufficient financial resources for
purchasing their paddy.

4. In the farm household, both husband and wife take active responsibility for selling farm
produce such as paddy and livestock. Some vegetables also produced by the farm households
are sold locally in the village market. Paddy is mainly sold to VRM and to other local collectors.
Both male and female farmers have attended rice production training and additional technical
training related to high-yielding seed varieties and integrated pest management (IPM). Village
leaders have received leadership training and capacity building in collecting data for the
elaboration of progress reports. Concerning property rights, women are treated equally with
men and land titles are in the names of both the husband and wife. A gender action plan has
been elaborated for the subproject and is attached.
 Annex 4 55

2. Introduction

5. This annex contains the findings of the social analysis carried out with farmers during
November 2016 in Dong Tai village, Thakek District, Khammouane province. From mixed
gender discussions, and interviews with village leaders an assessment of the social, poverty
and gender dimensions of some of the secondary beneficiaries of the rice mill feasibility study
area has been elaborated.

3. Socioeconomic characteristics

6. The total village population is 1,833 of whom the total number of females is 981. The
total number of households is 333. The total area of available farm land is 639 ha and the
average size of land holding per household is 1 – 2 ha per household.

4. Out-migration

7. Twenty-eight people have migrated out of the village: 15 females and 13 males. Some
women went to Chanthaburi province in Thailand to work in restaurants or as domestic help and
others went to Vientiane to work in the service industry and in restaurants. The men went to
work in Thailand to work as building construction workers, or in the fishing industry, or as car
mechanics. Since they received only 300 Thai Baht per day which was insufficient to live on, the
men in recent times have returned to the village.

5. Membership of organizations and producer groups

8. The following table indicates male and female membership in village authority and in
people’s organizations:

Table A4.14: Membership of organizations and producer groups in Dong Tai village
Position Total Male Female
Leadership
Village Chief 1 X
Deputy Village Chief 2 X
LNFC Lao National Forum for
3 X
Construction
Lao Women’s Union 3 X
Youth Union 3 1 2
Security / Police 6 X
Army 3 X
Executive Committee Members
LNFC 2 X
Lao Women’s Union 2 X
Youth Union 2 X
Security / Police 2 X
Army 1 X
56 Annex 4

Position Total Male Female

Membership of organizations
Farmer Rice Producer Group 21 X X

9. Women are active leaders of the Lao Women’s Union and the Youth Union and are also
active members of the village rice producer group.

6. Poverty levels

10. Per village leaders, Dong Tai has two very poor households; 191 households which are
considered average / middle income level; and 40 well-off households with above average
household incomes. The two very poor households lack agricultural land, and rent parcels from
other farm households through a share-cropping arrangement where 10% of the crop goes to
the owner of the land, and the farmer keeps 90% of the harvest.

7. Vulnerability and inclusion

11. There is only one ethnic group in the village the Lao Lum and there is no ethnic group
which suffers from exclusion from the village because of language or because of increased
vulnerability. The village has a school, a health center and because the condition of the access
road is good, it is possible for villagers to travel to the hospital in Thakek without difficulty.

8. Local production patterns

12. At the start of the growing season the DAFO extension staff come to the village. Their
mobilization costs and materials are covered by VRM. This team meets the village head and
determines how many farms request rice seed and how much it will cost. Subsequently the
village authorities meet with all the farmers and check with the farmers how much seed they
need. Some farmers need cash advances as working capital. Some farmers need both seed
and fertilizer. Approximately one month after harvest the village chief contacts Vanida and
advances are paid back in paddy.

13. All the producer group households in Dong Tai village sell their paddy to VRM and
villagers reported their satisfaction with this arrangement because the purchase price offered to
farmers is fair and higher than that offered by other local collectors. The close working
arrangement with VRM which supplies quality inputs to farmers and guarantees a fair price for
paddy, has reportedly led to significant livelihoods improvements.

14. There are significant numbers of livestock in the village as follows: 280 buffalo, 640
cows, 500 pigs, 60 goats and 2,000 poultry.

9. Work profiles in paddy production

15. Tasks carried out by different household members in Dong Tai village are as follows:
 Annex 4 57

Table A.4.3: Work profiles in paddy production in Dong Tai village

Responsible
Paddy production and livestock tasks
Male Female Both
1 Land preparation X
2 Irrigation preparation X
3 Buying inputs X
4 Seed sowing and nursery preparation X
5 Pulling seedlings X
6 Planting/transplanting X
7 Weeding X
8 Fertilizer application X
9 Pesticide/herbicide application X
10 Harvesting X
11 Hauling/Transport X
12 Small animal management x
13 Poultry management X
14 Selling household produce X

10. Main responsibilities for household chores

16. The responses on household work distribution between females and males were as
follows:

Table A.4.4: Main responsibilities for household chores in Dong Tai village
Responsible
Household Task
Male Female Both
1 Financial budgeting and management X
2 Money earner X
3 Keeper of household cash X
4 Purchasing household needs X
5 Child rearing X
6 Cooking X
7 Washing clothes and dishwashing X
8 Housekeeping / Cleaning, X
9 House repair/construction X
10 Fuel wood gathering X
12 Livestock raising of large animals (cows, X
58 Annex 4

Responsible
Household Task
Male Female Both
buffalo)

17. Results show that women are usually responsible for and perform: a) purchasing
household needs; b) child rearing; c) cooking; d) washing clothes and dishwashing; e) cleaning
the house and gathering fuel wood. Men are responsible for and perform house
repair/construction and looking after large animals which are considered to require physical
strength.

11. Investment and expenditure-related decisions for the household and the farm

18. Investment and expenditure decisions are made by both husband and wife for both the
farm produce and for household expenditure as illustrated in the following table:

Table A.4.5: Investment and expenditure-related decisions

for the household and the farm
Responsible
Investment / expenditure decision
Male Female Both
Household budget allocation X
Education of children X
Decisions on sale of crops: for chili, onion,
cucumber, pumpkin, tobacco, cabbage – both
X
male and female decide (crops sold locally in
village)
Which livestock to raise X
Which farm equipment to buy X
Which home appliances to buy X

12. Marketing the farm and household agricultural and livestock produce

19. Both husband and wife take active responsibility for selling farm produce such as paddy
and livestock. Some vegetables produced by the farm households are sold locally in the village
market. Paddy is mainly sold to VRM and to other local collectors. The Vanida mill buyer comes
directly to the village to purchase paddy and is the preferred buyer because a fair price is
offered to farmers.

13. Rice production problems faced by male and female farmers

20. The main problem faced by farmers in Dong Tai village adjacent to VRM is insufficient
water for cultivation purposes. Consequently, households are only able to grow one crop of rain-
fed rice per year because there is no supplementary irrigation water available. The local
irrigation system needs rehabilitating and the main canal needs to be cement-lined. Farmers
would like to be able to produce two crops of paddy per year.
 Annex 4 59

21. A second problem cited is that local farmers would like to be able to sell their paddy to
VRM, however this is not always possible because reportedly there are times when the mill has
insufficient financial resources for purchasing paddy.

14. Laws and regulations related to land ownership

22. Concerning property rights, both men and women are treated equally. Land titling has
been completed in this locality and the land title is in both the husband’s and wife’s name.
However, if it is the wife who inherited the land parcel from her parents, then the woman’s
signature is first. If it was the husband who inherited land from his family, then the man’s
signature is first on the land title. If the married couple buy land after marriage, automatically the
man’s signature is first on the land title. If a loan is taken from the Agriculture Development
Bank and from Policy Bank it is necessary for both the signature of the husband and wife on the
loan agreement. The land title is used as collateral. If a loan is taken from a private money-
lender only one signature is required. There has been one case in the village where a farm
household lost land as repayment for a loan taken out with a private moneylender (where the
annual rate of interest was 20%).

23. When a couple marries, in some cases the husband goes to live with the wife’s family
and in some cases the wife goes to live with the husband’s family. Sometimes they may set up
a nuclear family independently of their parents. Male and female children have equal inheritance
rights. However, since it is the youngest daughter who traditionally takes responsibility for taking
care of elderly parents, she consequently inherits a larger share than her brother and sisters,
such as inheriting the house and homestead in addition to land.

24. In the case of divorce where the man is the guilty party, the land will still belong to the
first wife and their children, and the village authority is informed accordingly. In this case if the
parents die, the first born will inherit the land.

15. Access to and control over productive resources

25. In general, in this village both husbands and wives may control the income generated
from different household livestock and agricultural activities and from any outside employment.

• Regarding access to and control over land – both the man and woman in the
household reportedly have equal access to land
• Regarding access to and control over capital (i.e. household income and cash) –
reportedly both husband and wife have equal access to capital
• Regarding access to information and knowledge, training opportunities, and
extension services - both men and women are considered to have equal access
• Regarding access to markets – both husband and wife have equal access.

16. Agricultural labor / construction work / employment in construction work / using

machinery

26. The daily wage rate for transplanting rice is 70,000 kip per day for both men and women,
and for harvesting rice, the daily wage rate is 50,000 kip per day for both men and women.

27. In this village, it is not the practice for women to work as laborers on building
construction sites - only men. The reason given was that construction work is too hard and
husbands do not give their permission for female family members to work as laborers on
60 Annex 4

construction sites. The daily wage rate for construction workers is more than 100,000 kip per
day for men. In this village, women do not drive vehicles or tractors.

17. Access to skills training

28. Both male and female farmers have attended rice production training and additional
technical training related to high-yielding seed varieties, integrated pest management (IPM) and
ICS. Village leaders have received leadership training and capacity building in collecting data for
the elaboration of progress reports. Training and orientation for organic farming has also been
received although subsequently, organic farming has not been adopted.

29. For all the farmer training mentioned above, only seven female participants attended
training. The farmers in the village are closely monitored by DAFO extension staff through
regular weekly visits. DAFO also provides farmers with disease-prevention vaccines for
livestock, since livestock production is the second major source of household income, after
paddy production. The third main source of income is from vegetable production. Annual income
from sale of vegetables may amount to up to 20 million per household. Another source of
income is from sale of basket work handicrafts to Chantaburi province in Thailand.

18. Climate change

30. Farmers said that they do not have any knowledge concerning climate change although
they have observed increased flooding events and changes in the arrival of the monsoon
season, with the rains sometimes arriving earlier than before. They have received some
information from Thai television (the Thai language is very like Lao language) but in general
they do not understand the implications or impact of climate change.

19. The proposed feasibility/subproject

31. When asked, village leaders reported that farming households in neighboring Dong Tai
village are supportive of VRM because the owner frequently supports farmers by lending them
money at low interest. They are also able to purchase inputs from him. The main priority of local
farmers is to be able to sell their paddy at a fair price to Vanida. Unfortunately, per these
farmers there have been occasions in the past when the mill has not purchased their paddy
reportedly due to lack of funds on the part of the owner.

32. The priority needs of the village include the following:

• Rehabilitation of the irrigation system to ensure sufficient water for paddy

production. The canals need to be lined for greater efficiency
• The capacity of the farmer rice production group should be improved and
structured rules and regulations should be further developed and membership
should be registered
• Training is needed to improve farmer group management, financing, accounting
and marketing functions
• Training in pest and weed control in rice production is necessary
• Information on contract farming mechanisms is needed
• Support for a microfinance facility is necessary.
 Annex 4 61

C. Gender Action Plan

FEASIBILITY STUDY 1 – KHAMMOUANE DEVELOPMENT RICE MILLERS COOPERATIVE:

UPGRADING OF THE VANIDA RICE MILL

THAKHEK DISTRICT, KHAMMOUANE PROVINCE

Project outputs Gender activities/actions Performance Responsible Budget

indicators/targets agency(ies)
Output 1: Critical climate-resilient rice agribusiness value chain infrastructure improved
Gender Objective Involve women farmer Target: Women are at EA, IA, and Refer to Output
1.1: group members and Sub-CAW least 40% of MAF Gender 1 costs related
Ensure women Gender Focal Points and Lao participants in each Unit (DAW), to subproject
and men’s equal Women’s Union (LWU) event (2024) Sub-CAW implementation
participation in representatives actively and (point of reference: Gender Focal
decision-making meaningfully in each individual total number of female Points, LWU
related to critical event for all consultations and farmers collaborating and TA
agribusiness VC planning of activities related to with Vanida:
infrastructure improvement and climate- approximately 1,349
resilient rice agribusiness in feasibility
supported by the project. study/subproject 1)
Conduct a gender awareness Baseline: 0 (2017)
training (linked to MAF Gender
Strategy 2.5.4) for each
subproject including (i) project
gender requirement/targets (ii)
awareness raising on land
titling(iii) impact of agro-
chemicals, HIV and human
trafficking (iv) division of labor
(v) access to and control
resources, decision making.
This would mean paying
attention to the following
aspects: convenient time,
adequate venue, information
sharing with visual
aids/illustrations, having female
facilitators, child care
arrangements even if informal,
etc.
Linked to Output 1.1a,1.1b of
CFAVC DMF; linked to MAF
Gender Strategy Output 2.5.4
– increasing the participation
of women in decision-making
Gender Objective 1.2.1 Ensure women benefit At least 30% of EA, IA, and Refer to Output
1.2: from any jobs created by the workdays created will MAF Gender 1 costs related
Job creation for project related to infrastructure be filled by women Unit (DAW), to subproject
women construction as well as serving disaggregated by Sub-CAW construction
in any management committees skilled/unskilled and Gender Focal
of operations related to type of work Points, LWU
upgrading rice mills Baseline: 0 (2017) and TA
This would mean that Target: 30% (2024)
information about such
employment opportunities will be At least 35% of
shared through adequate management
channels to reach out women in committee members
the communities. are female
Core labor standards will be Baseline: 0 (2017)
62 Annex 4

complied with (equal pay for Target: 35% (2024)

work of equal value, no child
labor) for all civil works related to
the project.
Other measures that are needed
will be taken so that interested
women can grasp such
opportunities.
Linked to Output 1.2c,1.2d,
1.3g and 1.3h of CFAVC DMF;
linked to MAF Gender
Strategy Output 2.5.4 –
increasing the participation of
women in decision-making
Provide infrastructure Number of women EA and IA Refer to Output
related skills enhancement for trained in building 1 costs related
women in construction (e.g. skills. to subproject
masonry and building skills), Baseline: 0 (2017) capacity building
Linked to Output 1.2c and 1.2d Target: 3 (2024)
of CFAVC DMF; linked to MAF
Gender Strategy Goal 2.4.4 –
increasing participation of
women in technical training
Output 2: Strengthened agribusiness policy and support services
Gender Objective Involve women farmers Target for 1: Women EA, IA, Sub- Refer to Output
2.1: and Sub-CAW Gender Focal are 40% of CAW Gender 2 costs related
Strengthen Points and LWU representatives participants in each Focal Points, to training
women farmers’ actively and meaningfully in training event LWU
(individual and each individual capacity-building (point of reference:
farmer groups event supported by the project: total female farmer
members) (Linked to MAF Gender population in FS 1:
involvement Strategy III. Program 2; and 1,349 female farmers)
along Climate- Goal 1.1 Objective 11) Baseline: 0 (2017)
friendly (1) technical training in
agribusiness VCs Climate Smart Target: At least 40%
Agriculture (CSA); rice APG members
capacity building in trained in climate
Good Agricultural smart agriculture
Practices (GAP) (CSA) by 2024 are
certification women farmers;
(linked to MAF Gender Baseline: 0 (2017)
Strategy Goal 2.4.4 –
increasing participation of Target: At least 50%
women in technical training) rice APG members
This would mean paying special who become GAP
attention to the following certified by 2024 are
aspects: adequate venue, women
timing, duration, way that Baseline: 0 (2016)
invitation is being done (not to
head of household), use of
visual aids and other illustrated
materials, use of female
facilitators/demonstrators and
extension agents, child care
arrangements even if informal,
etc.
Linked to Output 2.2b,
2.2c,2.2d,2.2e of CFAVC DMF
Strengthen linkages Baseline: 0 (2017) EA, IA, Sub- Refer to Output
between women-run small Target: 10 women’s CAW Gender 2 costs for
farms/women farmer groups and groups in each Focal Points, capacity building
agro-processing and CFAVC target LWU
 Annex 4 63

agribusiness industry province (2024)

Linked to Output 1.2e of
CFAVC DMF; linked to MAF
Gender Strategy Goal 1.5.1.
Raise awareness Baseline: 0 (2017) EA, IA, Sub- Refer to Output
among women farmers/women Target: all women CAW Gender 2 costs for
producer groups about existing farmers in CFAVC Focal Points, training
credit facilities, green financing areas (2024) LWU
and required formalities to
access these
Linked to Output 2.3f of
CFAVC DMF; linked to MAF
Gender Strategy Goal 1.2
Objective 17
Gender Objective At project inception, Report prepared with EA, IA. TA Refer to Output
2.2: conduct a gender analysis for clear Project 2 costs for
Institutionalize each of the 4 targeted value recommendations Gender training
gender chains (VC) and develop a set of based on gender Specialists
mainstreaming in clear recommendations to analysis of the 4 VCs.
the Climate- strengthen women farmers’ Baseline: no report
friendly involvement along the different (2014)
agribusiness VCs VCs. Target: report on 4
sector Linked to Output 2.1a of VCs (2018)
CFAVC DMF
Integrate key Key recommendations EA, MAF Refer to Output
recommendations from the from gender analysis Gender Unit 2 costs for
above-mentioned gender of 4 targeted VCs (DAW) institutional
analysis of VCs and key features integrated in the draft strengthening
of the MAF Gender Policy into Agribusiness Policy.
the Agribusiness policy and Baseline: 0 (2016)
other related documents Target: integrated
prepared under the project. gender
This would also mean that recommendations in
gender stakeholders (MAF policy for 4 VCs
Gender Unit and gender focal (2024)
points) participate in policy
committees and meetings.
Linked to Output 2.1a of
CFAVC DMF; linked to MAF
Gender Strategy 2.2 (Strategy
2030), Objective 2.
Integrate a session on Number of sessions EA, TA Refer to Output
gender equality in Climate- provided on gender Gender 2 costs for
friendly agribusiness VCs equality in Climate- Specialists training
(based on gender analysis friendly agribusiness
report mentioned above) into the VCs; target groups;
training program and awareness number of people
raising activities for relevant trained disaggregated
project stakeholders (i.e. by sex.
relevant departments in MAF, Baseline: 0 (2017)
agricultural extension officers, Target: All MAF staff
local leaders and government in target provinces of
officials, MAF Gender Unit and CFAVC (2024)
Gender Focal Points, and LWU).
Linked to Output 2.1a of
CFAVC DMF
Actively involve the Project EA, IA, Sub- Refer to Output
MAF Gender Unit, the Sub-CAW implementation and CAW Gender 2 costs for
Gender Focal Points, and the monitoring reports for Focal Points, training
LWU as key partners in project GAP by Sub-CAW LWU,
implementation and monitoring, Gender Focal Points
especially for the GAP activities. and LWU
 64 Annex 4

This also entails partnering with

the Sub-CAW and LWU as
facilitators for agricultural
extension and technical
capacity-building, awareness-
raising and information sharing
targeted at farmers including
provision of market information.
** Tor of International and National Gender Specialists stipulate that they will be responsible for collecting quantitative
data to formulate GAP baseline and target indicators
ADB = Asian Development Bank, APG = agricultural production group, DAW = Division for the Advancement of
Women, LWU = Lao Women’s Union, MAF = Ministry of Agriculture and Forestry, NPMO = National Project
Management Office, PAFO = Provincial Agriculture and Forestry Office, DAFO = District Agriculture and Forestry
Office, PPO = Province Project Office, Sub-CAW = Subcommittee for the Advancement of Women, TA = technical
assistance, TBD = to be decided, PPMS = Project Performance Monitoring System

33. Project management gender related activities to be implemented by NPMO/PPIUs:

• Appoint gender focal points for the project in the NPMO/PPIUs - representatives from
the MAF Gender Unit and sub national Dept. of Agriculture gender focal points at
provincial levels.
• Prepare annual work plans to implement the activities of the GAP.
• Gender consultants (national and international) to be recruited and build capacity of the
gender focal points and NPMO/PIU staff in gender analysis and mainstreaming, and
support GAP implementation, monitoring and reporting.
• Collect and analyze data disaggregated by sex where relevant and integrate gender
sensitive indicators (from the DMF and the GAP) in the Project Performance Monitoring
System.
• Ensure regular monitoring and reporting (at least semi-annually to ADB) on the progress
of GAP implementation.

34. List of participants and people met – VRM/Dongtai village, from 01 -03 November 2016:

Table 18: List of participants and people met – Vanida Rice Mill / Dongtai Village
No. Date Location Name of participant Gender Position Telephone number
1 1/11/2016 Thakhek District, Mr. Bounme Male Director of 020 555556949
Khammouane Planning (PAFO) [Link]@mail
Province .com

2 2/11/2016 Mrs. Soude Female Planning of DAFO 020 5566 3072

3 Mr. Chantalangse Male Dong Tai Village 020 56549458
Head
4 Mr, Chan Male Dong Tai Deputy
Phengsavath Village Head
5 Mr. Phetsamone Male Vanida Rice Mill 02055650890
Bouaphanthavong Director
6 Mrs. Vanida Female Finance manager 020 590 22998
7 Mrs. Sim Phets Female Head of Marketing 020 5911997
8 Mrs. Hong Female Rice packer
9 Mr. Na Pha Male Mabor manager 030 565 9303
10 Mr. Kham Se Female Packing office 020 5670 1`686
 Annex 5 65

ANNEX 5: ECONOMIC AND FINANCIAL ANALYSIS

1. The economic and financial analysis of the proposed subproject, Vanida Rice Mill (VRM)
subproject, was conducted in accordance with ADB’s Guidelines for the Economic Analysis of
Projects and Financial Management and Analysis of Projects.23 The suboutput (Agribusiness
Enterprise Value Chain Infrastructure Improved) of the project will support “Upgrading of Rice
Mills with Service Provision to Farmers”. In this context, the VRM, a member of the
Khammouane Development Rice Millers Group (KDRMG) and of the newly formed
Khammouane Rice Millers Cooperative (KRMC), was selected as the subject of a
representative subproject feasibility study.

A. Methodology and Assumptions

2. The evaluation was conducted through a comparison of the without-project and with-
project scenarios. The assumptions used in the evaluation were as follows:

(i) Economic and financial analyses and the calculation of the economic internal
rate of return (EIRR) and financial internal rate of return (FIRR) were undertaken
at constant 2016 prices; the domestic price numeraire was adopted in the
analysis.
(ii) An exchange rate of Kip8,100 per US$1.00 was used.
(iii) In the economic analysis, the financial values of the inputs and outputs were
converted to their economic values using the appropriate conversion factors;
tradable goods were converted using the shadow exchange rate factor (SERF) of
1.11; for non-tradable goods, market price in the project area was used and a
standard conversion factor of 0.9 was applied; a shadow wage rate factor of 0.8
for rural unskilled labor was applied.24 Transfer payments such as taxes, duties
and subsidies were excluded in the economic analysis.
(iv) Economic life of the subproject is assumed for 15 years with proper and
adequate maintenance of the subproject facilities; subproject equipment are
assumed to be replaced on the tenth year.
(v) Subproject operation is assumed at an average of 300 days each year during its
economic life with the subproject equipment utilized at an average of 60% of its
capacity of 16 tons per day. The subproject equipment is assumed to be a
dedicated production line for white rice.
(vi) The economic opportunity cost of capital (EOCC) is assumed at 12%.
(vii) The projected financial statements consisting of the income statement, cash flow
statement and the balance sheet are stated at current prices; price escalation
factor of 1.4% for 2017 and 1.5% for 2018 and thereafter were used for foreign
currency costs and 2.5% for 2017 and 3.0% for 2018 and thereafter were used
for domestic currency costs.

B. Without Project and With Project Situations

3. The existing VRM equipment is of low technology. Quality of rice produced is of lesser
grade compared to the quality of rice sold at premium domestic and export markets. Existing
23
ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila; ADB. 2005. Financial Management and
Analysis of Projects. Manila.
24
The economic conversion factors are identical to those used in two recent ADB-financed projects in Lao: (i)
Northern Rural Infrastructure Development Sector grant project (Grant 0235-LAO) and (ii) Northern Smallholder
Livestock Commercialization Project (RRP LAO 47300).
66 Annex 5

equipment cannot attain a 60% minimum recovery of milled white rice. Equipment is used for
the production of mixed rice types (white and glutinous rice). Storage facility is limited and
cannot accommodate increased production.

4. The project will support the upgrading of the VRM to: (i) construct separate paddy and
milled rice storage areas to comply with good manufacturing practice (GMP) and hazard critical
control points (HACCP) certification and compliance regulations; and (ii) extend the mill’s
production facilities to include a second production line to allow the separation of white and
glutinous rice and avoid the production of mixed rice types. The upgrading of the mill will
improve its access to premium domestic and export markets, improve rice recovery rates and
enhance mill capacity usage.

C. Economic Analysis

5. Economic benefits. The direct and quantifiable benefits of the subproject come from
the net margins of the outputs generated from the new rice mill production line. These are
benefits that accrue from the purchase of paddies from farmer groups, storing them in the new
paddy storage facility with adequate space, and processing them into high quality product that
could fetch premium domestic and export market prices. Only these benefits are quantified and
included in the economic analysis.

6. The subproject will benefit cooperative members who will access the financing facility
that will be established out of the repayment proceeds of the subproject equipment that VRM
will pay to the cooperative. The farmer groups that supply the mill with their paddies will benefit
from the increased paddy requirements of the mill. Labor that will be employed under the
subproject will likewise benefit.

7. The data used in quantifying benefits and costs and the conversion of financial values
into economic values are presented in the tables below.

Table 19: Production Input and Output Economic Price Adjustment

Price Input Recovery
Item Kip/kg (tons/year) (%) EPA
Rice
Paddy 2,300 2,880 1.00
White or head rice 4,209 60% 1.00
Rice husk 200 17% 1.00
Rice bran 1,800 15% 1.00
Broken rice 2,500 5% 1.00
Capital and O&M costs
Tradable SERF 1.11
Non-tradable SCF 0.90
Unskilled labor SWRF 0.80
O&M = operation and maintenance; EPA = economic price adjustment; SERF = shadow exchange rate factor; SCF
= standard conversion factor; SWRF = shadow wage rate factor
Source: Consultants’ estimates
 Annex 5 67

Table 20: Investment Cost in Financial and Economic Prices (US$)

Item Financial Economic
Storage (paddy rice) 300,000 256,741
Storage (finished product) 100,000 85,580
Pre-cleaner (3t/h) 10,000 9,378
Paddy separator (3t/h) 9,000 8,440
Paddy husker (3t/h) 15,000 14,067
Adhesive whitener 12,000 11,254
Rice polisher 12,000 11,254
Rotary shifter 7,500 7,034
Rice grader 9,000 8,440
Color sorter (320 channels) 50,000 46,891
Weight + sewing machine 9,000 8,440
Dryer (25 tons) 150,000 140,674
Certification 5,000 4,091
Base cost 688,500 612,286
Physical contingencies 34,425 30,614
Total capital cost 722,925 642,900
Source: Consultants’ calculation

8. Results of economic evaluation. The results of the economic and sensitivity analysis
are summarized in the Table below. The subproject is economically viable in the base case
scenario and robust against downside risks. The subproject economic performance is most
sensitive to benefits reduction, but the performance remains above the required threshold levels
(Kip 0 for NPV, 12% for EIRR). Table 22 shows the details of the EIRR calculation.

Table 21: Economic Evaluation Results and Sensitivity Analysis

NPV / 1
Scenario Change EIRR (%) SI / 2 SV / 3
(Kip million)
Base Case 6,592 31.88%
Increase in Capital Costs + 10% 6,062 28.88% -1.03 -97%
Increase in Paddy Costs + 10% 2,199 19.01% 3.93 25%
Increase in O&M Costs + 10% 6,012 30.23% -1.71 -59%
Decrease in Benefits + 10% 430 13.44% 6.72 15%
1/ NPV = Net Present Value discounted at EOCC of 12%
2/ SI = Sensitivity Indicator (ratio of % change in EIRR above the cut-off rate of 12% to % change in a variable)
3/ SV = Switching Value (% change in a variable to reduce the EIRR to the cut-off rate of 12%)
Source: Consultant’s calculation

9. Distribution and poverty impact analysis. The subproject benefits will accrue primarily
to the owner of the rice mill. Although the subproject will employ labor, their benefits are small
and insignificant. Thus, no distribution analysis has been carried out for the subproject.
68 Annex 5

Table 22: EIRR Calculation (Kip million)

Capital Paddy O&M Net Inflow
Year Cost Purchased Cost Benefits (Outflow)
2017 5,207 (5,207)
2018 6,333 803 8,445 1,309
2019 6,610 875 9,289 1,804
2020 6,623 879 9,353 1,850
2021 6,624 879 9,357 1,854
2022 6,624 879 9,357 1,854
2023 6,624 879 9,357 1,854
2024 6,624 879 9,357 1,854
2025 6,624 879 9,357 1,854
2026 6,624 879 9,357 1,854
2027 2,261 6,624 879 9,357 (407)
2028 6,624 879 9,357 1,854
2029 6,624 879 9,357 1,854
2030 6,624 879 9,357 1,854
2031 6,624 879 9,357 1,854
2032 6,624 879 9,357 1,854
2033 6,624 879 9,357 1,854
2034 6,624 879 9,357 1,854
2035 6,624 879 9,357 1,854
2036 6,624 879 9,357 1,854
2037 6,624 879 9,357 1,854
NPV 6,452 49,206 6,496 69,020 6,592
EIRR 31.88%
Source: Consultants’ calculation

D. Financial Analysis

10. Investment cost. The subproject is estimated to cost $722,925 as shown in the table
below.

Table 23: Investment Cost (US$)

Quantity Cost (US$)
Item UoM Qty Unit Total
Storage (paddy rice) unit 1 300,000 300,000
Storage (finished product) unit 1 100,000 100,000
Pre-cleaner (3t/h) unit 1 10,000 10,000
Paddy separator (3t/h) unit 1 9,000 9,000
Paddy husker (3t/h) unit 1 15,000 15,000
Adhesive whitener unit 1 12,000 12,000
Rice polisher unit 1 12,000 12,000
Rotary shifter unit 1 7,500 7,500
Rice grader unit 1 9,000 9,000
Color sorter (320 channels) unit 1 50,000 50,000
Weight + sewing machine unit 1 9,000 9,000
Dryer (25 tons) unit 3 50,000 150,000
Certification lump sum 5,000 5,000
Base cost 688,500
Physical contingencies 5% 34,425
Total capital cost 722,925
Source: Vanida Rice Mill
 Annex 5 69

11. The new line of processing equipment will be installed inside the existing plant while the
storage facilities will be constructed at the vacant idle space of the existing site.

12. Financing plan. The ADB loan and grant proceeds that will be received by the
government will finance the subproject cost under the following scheme: (i) civil works and
certification components will be provided as 100% grant to the beneficiary; and (ii) equipment
component will be financed as a loan to the beneficiary under concessional terms. The loan will
have the following terms and conditions: (i) interest rate of 5% p.a.; (ii) repayment period of 7
years, inclusive of a grace period of 5 years for the principal repayment; (iii) repayment of the
loan principal in equal amounts on the 6th and 7th year; and (iv) the interest and principal
repayments of the loan will be paid to the Khammouane Rice Millers Cooperative (KRMC). The
amounts received by the KRMC will be maintained in a dedicated bank account acceptable to
the government. The account will be operated as a financing facility of the cooperative members
for their rice milling equipment needs.

13. Under the ADB Smallholders Development Project (ended December 2015), a
methodology was developed whereby cooperative member rice millers were granted loans at
concessional rates for the purchase of milling equipment, the repayments of which will be
credited to an account opened by the Rice Milling Cooperative, and will serve the purpose of a
financing facility. It is proposed that this methodology is used in this subproject and example of
the model loan agreement between the Government (DAEC and MOIC) and the rice milling
company, is included under Annex II (Model Rice Equipment Loan Agreement).

14. The beneficiary will contribute US$18,000 worth of construction materials, US$18,000
worth of construction labor and the use of the vacant space at the existing site. The subproject
financing plan is presented in the table below.

Table 24: Financing Plan (US$)

Source Amount Percent
Government
Loan 297,675 41
Grant 389,250 54
Beneficiary contribution 36,000 5
Total 722,925 100
Source: Consultants’ calculation

15. Weighted average cost of capital. The calculation of the weighted average cost of
capital (WACC) of the subproject is presented below.

Table 25: Weighted Average Cost of Capital

Item Loan Grant Equity Total
Weight (%) 41% 54% 5.0% 100.0%
Nominal Cost (%) 5.0% 12.0% 12.0%
Tax Rate (%) 24.0% 0.0% 0.0%
Tax Adjusted Nominal Cost (%) 3.8% 12.0% 12.0%
Inflation Rate (%) 1.5% 1.5% 3.5%
Real Cost (%) 2.3% 10.3% 8.2%
Weighted Component of WACC (%) 0.9% 5.6% 0.4%
Weighted Average Cost of Capital (Real Terms) 6.9%
Source: Consultants’ calculation
70 Annex 5

16. Results of financial evaluation. The results of the financial and sensitivity analysis are
summarized in the Table below. The subproject is financially viable in the base case scenario
and robust against downside risks. The subproject financial performance is most sensitive to
revenues reduction, but the performance remains above the required threshold levels (Kip 0 for
NPV, WACC for FIRR). Table 28 shows the details of the FIRR calculation.

Table 26: Financial Evaluation Results and Sensitivity Analysis

NPV / 1
Scenario Change FIRR (%) SI / 2 SV / 3
(Kip million)
Base Case 10,504 26.83%
Increase in Capital Costs + 10% 9,841 24.21% 1.32 76%
Increase in Paddy Costs + 10% 3,922 14.98% 5.95 17%
Increase in O&M Costs + 10% 9,550 25.19% 0.83 121%
Decrease in Revenues + 10% 1,254 9.67% 8.62 12%
1/ NPV = Net Present Value discounted at WACC
2/ SI = Sensitivity Indicator (ratio of % change in FIRR above the WACC cut-off rate to % change in a variable)
3/ SV = Switching Value (% change in a variable to reduce the FIRR to the WACC cut-off rate)
Source: Consultant’s calculation

17. Financial sustainability. The financial projections (income statement, cash flow
statement and balance sheet) of the subproject for the period 2019-2035 (Annex 1) show that
he subproject is financially sustainable. Internal cash generated from operations is sufficient to
repay annual debt service obligations. Net cash inflows accumulated during the period are
adequate to finance the replacement of equipment on the tenth year without the need to incur
long-term borrowings.

Table 27: FIRR Calculation (Kip million)

Capital Paddy O&M Net Inflow
Year Cost Purchased Cost Revenue (Outflow)
2017 5,856 (5,856)
2018 6,333 880 8,445 1,231
2019 6,610 960 9,289 1,720
2020 6,623 964 9,353 1,766
2021 6,624 964 9,357 1,769
2022 6,624 964 9,357 1,769
2023 6,624 964 9,357 1,769
2024 6,624 964 9,357 1,769
2025 6,624 964 9,357 1,769
2026 6,624 964 9,357 1,769
2027 2,411 6,624 964 9,357 (642)
2028 6,624 964 9,357 1,769
2029 6,624 964 9,357 1,769
2030 6,624 964 9,357 1,769
2031 6,624 964 9,357 1,769
2032 6,624 964 9,357 1,769
2033 6,624 964 9,357 1,769
2034 6,624 964 9,357 1,769
2035 6,624 964 9,357 1,769
2036 6,624 964 9,357 1,769
2037 6,624 964 9,357 1,769
NPV 7,587 70,372 10,201 98,894 10,504
FIRR 26.83%
Source: Consultants’ calculation
 Annex 5 71

Appendix 1

Unit 2022- 2031-

Unit 2019 2020 2021 2030 2035
cost 2029 2034
Inflows
Sales revenue, net of VAT
White or head rice per ton 4.21 0 7,273 7,273 7,273 7,273 7,273 0
Rice husk per ton 0.20 0 98 98 98 98 98 0
Rice bran per ton 1.80 0 778 778 778 778 778 0
Broken rice per ton 2.50 0 360 360 360 360 360 0
Impurities per ton 0.00 0 0 0 0 0 0 0
Total revenue 0 8,509 8,509 8,509 8,509 8,509 0
Change in AR 0 -425 -10 -10 -10 -10 415
Net inflows 0 8,083 8,498 8,498 8,498 8,498 415
Outflows
Project capital costs
Land $/hectare 0 0 0 0 0 0 0 0
Storage (paddy rice) $/unit 300,000 2,461 0 0 0 0 0 0
Storage (finished product) $/unit 100,000 820 0 0 0 0 0 0
Pre-cleaner (3t/h) $/unit 10,000 82 0 0 0 69 0 0
Paddy separator (3t/h) $/unit 9,000 74 0 0 0 62 0 0
Paddy husker (3t/h) $/unit 15,000 123 0 0 0 104 0 0
Adhesive whitener $/unit 12,000 98 0 0 0 83 0 0
Rice polisher $/unit 12,000 98 0 0 0 83 0 0
Rotary shifter $/unit 7,500 62 0 0 0 52 0 0
Rice grader $/unit 9,000 74 0 0 0 62 0 0
Color sorter (320 channels) $/unit 50,000 410 0 0 0 345 0 0
Weight + sewing machine $/unit 9,000 74 0 0 0 62 0 0
Dryer (25 tons) $/unit 150,000 1,230 0 0 0 1,035 0 0
Certification $, lump sum 5,000 41 0 0 0 35 0 0
Physical contingencies 5% 5% 282 0 0 0 100 0
Total investment costs 5,929 0 0 0 2,091 0
Prorated Project Management
Cost Kip 4,042 24 0 0 0 0 0 0
O&M costs
Fixed
Supervision per year 60 0 60 60 60 60 60 0
Others per year 40 0 40 40 40 40 40 0
Variable
Direct labor Kip/kg 50 0 144 144 144 144 144 0
Utilities Kip/kg 100 0 288 288 288 288 288 0
Supplies Kip/kg 100 0 288 288 288 288 288 0
Transport Kip/kg 50 0 144 144 144 144 144 0
Total operating costs 0 964 964 964 964 964 0
Paddy purchase cost per ton 2.30 0 6,624 6,624 6,624 6,624 6,624 0
Net VAT liability -635 -99 -99 -99 -314 -99 0
Change in AP 0 -759 -19 -19 -19 -19 740
Change in CB 0 170 4 4 4 4 -166
Corporate income tax % 24% 0 78 93 107 152 155 0
Net outflows 5,319 6,978 7,567 7,581 9,503 7,629 574
Net resource flow -5,319 1,105 931 917 -1,004 869 -159
AP = accounts payable, AR = accounts receivable, CB = cash balance, kg = kilogram, O&M = operations and
maintenance, t/h = tons per hour, VAT = value added tax.
Source: Consultants’ estimates.