1. Rice value chains in SE Asia
Andrew W. Shepherd
FAO Consultant
Solo, Indonesia, September 2016

2. My presentation
1. What do we mean by
“value chains”?
2. Traditional rice value
chains in SE Asian
countries
3. Scope for developing
modern value chains
for rice

3. What do we mean by
“value chains”

4. The modern value chain
Value chains involve identifying the needs of
consumers and carrying out activities necessary
to ensure that those needs are met, through
coordinated linkages that add value at all stages
of the chain.

5. Modern rice value chain
Coopss
Company
Extension
Seed
Payment
Paddy
Traceability
Bank
Loans to farmers against contract
Farmers Sustainable Rice Platform
Certification
Specification
Payment
Rice
Traceability
Consumers

6. The traditional value chain
Value chains are basically the production-
marketing system for a commodity in a country
(e.g. the Indonesian rice value chain)

7. Traditional rice “value chains”

8. The traditional rice “value chain” -
Thailand

9. Whichever definition you use
• and chains need to be economically,
environmentally and socially sustainable

10. Traditional rice “value chains” in
SE Asia

11. Cambodia
• Four different production systems depending on the
area. Southern zones can produce three IRRI crops a
year
• Average farm area 2ha. Adaptation to modern
production systems has been slow but heavy use of
pesticides, particularly on IRRI varieties
• Traditional non-aromatic varieties very important for
local consumption
• Domestically, farmers sell wet and dried paddy to
traders/ collectors and mills.
• Rapid increase in harvest mechanization in last decade,
reflecting labour shortages and market opportunities

14. Cambodia (2)
• Exports of wet IRRI paddy to
VN and a lesser extent, to
Thailand. Aromatics also
exported to Thailand
• VN purchase of wet paddy
has caused Cambodia mills
to also start drying to
compete with VN traders
• Significant changes to the
milling sector with several
large-scale mills
constructed and some
medium-sized ones going
bankrupt
• Mobile millers mill for
farmers’ own consumption

15. Indonesia
• Two harvests (Feb-May
60%; Oct. onwards 40%)
• Rice harvesting, post-
harvest and milling are
complex and vary across
the country
• Threshing equipment
usually rented but delays
between harvest and
threshing cause quality
and quantity losses, as
does poor drying

16. Indonesia (2)
• In Java, heavy use of hired labour groups with high
losses. Elsewhere individual farmer harvesting or
community groups
• Farmers sell wet or dry paddy to traders with whom
they sometimes have credit linkages
• Important role of rural cooperatives

17. Indonesia (3)
• Some modern, high-
quality mills mainly
supplying supermarkets
but most are antiquated,
with low conversion rates.
• Around 110,000 mills.
Surplus capacity. Some
smaller mills just remove
the bran and sell on to
larger mills

18. Laos
• Insufficient returns to
labour for small farmers
and number of rice
farmers declining
• Ageing farm population
• At same time, yields are
increasing, mainly
through wet season
lowland production
• Improved seed availability
required

19. Laos (2)
• Multiple traders with
complex marketing
systems
• Large number of small
and medium-sized rice
mills, with most having
2-6 t. a day capacity
• Old technology and low
conversion rates
• Low milling margins

20. Laos (3)
• No resources to upgrade
existing mills but some
investment in new, larger
mills
• Trade restrictions within
country and for export (e.g.
wet paddy to VN or China)
but likely to be significant
informal trade of paddy to
neighbouring countries and
some imports of rice
• Quality issues for sale on
formal export markets

21. Myanmar
• Following marketing liberalization and abolition of
government marketing agency Myanmar again has
(small) export surplus
• Farm size 2-3ha on average. HYV and traditional.
Inadequate seed availability
• 80% production wet season, other 20% in irrigated
areas.
• Farmers often have other work, but employ labour
when needed. Obtaining finance a common problem.
• Government provides seasonal loan but insufficient
• Possibility of warehouse receipt finance being
actively investigated

22. Myanmar (2)
• Sales both at mill and farm
gate. 20,000 mills, half with
capacity over 15t a day.
30,000 dehuskers for
farmers’ own consumption.
• Farmers and traders
sometimes deposit paddy at
mill to await a favourable
price, but this can be risky
as storage is poor
• Efficient system for rice
marketing with wholesale
market in Yangon

23. Philippines
• Farmers do own harvest or
employ labourers
• Threshing is mechanized.
• Palay drying at side of road,
etc. although large
proportion delivered wet to
mills, particularly on Luzon.
• Good-quality drying
facilities limited.
• Both traders and larger
farmers may store paddy for
subsequent sale to mills or
mill the paddy and sell the
rice to wholesalers

24. Philippines (2)
• Palay for farmers’ own consumption milled at
small huller mills known as “kikisan”
• Financing a major constraint. Farmers can
receive production loans from traders as
result of long-term farmer-trader
relationships.
• Market dictated by price and does not reward
good post-harvest handling. Rice sold with
highest proportion of brokens in the region.

25. Philippines (3)
• Around 10,000 mills but most not of good
standard.
• Government continues to target self-sufficiency
although rising production costs, rapidly growing
population, production difficulties and antiquated
milling equipment make this difficult.
• NFA has intervened in the market both as a buyer
of palay and as an importer of rice. The Agency is
highly indebted and its activities criticised for
disrupting the market.

26. Thailand
• Farmers sell directly to
traders or to mills at
assembly markets. Around
1000 mills.
• Poorest 50% buy more rice
than they produce.
• Very few facilities for
farmers to mill own paddy
• Millers sell to exporters or
domestic rice traders, who
may carry out further
polishing, cleaning and
broken separation

27. Thailand (2)
• Exports usually account
for 40-50% of production.
• Retailing most advanced
in region. Rice
increasingly sold branded,
with 5% brokens
• Limited contract farming
• Biggest problems faced as
result of abuse of the
Paddy Pledging Scheme

28. Vietnam
• Main production systems: Mekong Delta; Red River Delta and
northern uplands
• Liberalized market and switch to individual rather than
collective production from 1981 moved VN from deficit to
major exporter
• Farm size remains very small and rice quality remains low with
use of farmer-retained seed common
• Production of specific varieties relatively rare
• High-yielding varieties with fertilizer give 3-4 crops a year

29. Vietnam (2)
• Subsidies to sector
gradually reduced and now
concentrated on the
poorest
• Rice remains unprofitable
compared with other crops
and farmers diversifying,
but conversion has to be
approved by Government
• Adoption of integrated
farming in Mekong Delta,
(paddy with ducks, fish,
shrimp,

30. Vietnam (3)
• Significant yield increases as a result of policy reform and
IRRI varieties
• Land consolidation has permitted mechanization but
constrained by lack of finance. Harvesters owned by
mills, richer farmers (who rent them out) and coops
• Farmers sell through collectors and directly to mills. Close
relationship between traders and farmers and credit
arrangements sometimes involved
• Dehusking (to produce brown rice) and polishing (to the
white rice stage) often done by different companies..
One estimate: 300,000 dehuskers and 30,000 milling
plants

31. Vietnam (4)
• Farmers usually sell
paddy to small traders,
after sun or mechanical
drying
• Some paddy is dried by
the traders or mills.
Transportation mainly by
boat
• New value chains slowly
under development to
target niche markets (e.g.
“safe” rice; jasmine rice)
• Increasing differentiation
and branding

32. Summary of main issues relating to
traditional value chains
• Small size of individual farms, unimproved seeds, farming systems
fairly slow to change, low yields and poor returns; ageing farmers
• Poor post-harvest handling (harvesting, threshing, drying)
• Small and inefficient mills with relatively little new investment in
most countries
• Suspicion of intermediaries, including often by donor organizations
• Farmers are consumers too!
• Government involvement in value chains (everywhere)
• Obsession with self-sufficiency (Indonesia; Malaysia; Philippines)
• BUT!
– Evidence of dynamic response where opportunity presents itself

33. Some conclusions re traditional chains
• Difficulties are experienced throughout the value
chain. This argues for a “whole chain” approach to
upgrading
• There is little point in improving production techniques
if post-harvest handling, milling and storage are not
also considered
• Mills and traders are increasingly concerned with
product quality. They should be seen as agents of
change
• Development agencies need to work more with traders
and millers and not see them as the “evil middlemen”.

34. The scope for developing
modern value chains for rice

35. All modern value chains are driven by
consumer trends
• urbanization
• growth of supermarkets
• women’s employment (urban and rural)
• smaller families
• refrigerators and cars
• demand for processed, semi-processed and
ready-to-eat products
• globalization
• increased awareness of quality and safety

36. Modern value chains involving contract
farming can benefit farmers
…
– credit access is enhanced (in-kind or via banks)
– inputs can be more easily obtained (less uncertainty
regarding availability, timing, quality)
– services and technological assistance are also
sometimes available (mechanization, transportation,
extension)
– production and management skills of groups
enhanced
– market outlet is more secure, promoting a reliable
revenue stream and income stabilization
– for perishable produce, production planned to only
meet demand reduces losses

37. Possible risks for farmers
– firms might renege on contractual terms:
• of particular concern for long-term crops
(e.g. oil palm) or other products where
there is “asset specificity”
– firms may fail to deliver inputs on time
– loss of flexibility and possible increase in risk
– inability to benefit from high prices

38. Not all farmers are suitable for
contracts
Despite efforts to develop “inclusive” value chains, farmers
must have capacity to meet market requirements in terms
of:
• agronomic suitability, climate, pests and diseases
• location, input supply and infrastructure
• assets and access to finance (e.g. to pay labourers)
• capacity to meet market requirements
• land area
• social structure and education levels
• a certain willingness to take risk

39. Obligations of farmers
• To follow recommended production practices
and schedules
• To utilise inputs supplied under the contract for
intended purposes
• To sell all products produced under contract to
the company unless otherwise permitted
• To repay loans
• Not to deliver to the company produce not
produced under the contract

40. Gender and other social problems
• social structures and gender relations might be
disrupted
– land used by women for food crops is allocated by
men for contract production
– contracts in man’s name, men attend training courses
but women do the work
– payment to men, who spend the money unwisely
– social obligations (e.g. funerals and religious
observations) can conflict with contractual obligations
– contracting farmers may encounter jealousy from
those without contracts

41. Developing modern value chains
for rice through contracts could permit
• Introduction of new varieties to an area
• Strict technical supervision
• Closer collaboration between farmers and buyers
• Certification
• Traceability
• Approved input supply
• Farmer organization
• Finance support for mechanization

42. However, this requires
TRUST!

43. Developing mutual trust in value chains
• Transparency – maximizing communication (e.g.
through exchange visits)
• Clear transparency in grading and pricing
• Timely delivery of inputs and price transparency
• Timely payments
• Arbitration procedures
43

44. Developing mutual trust in value
chains (2)
• Working through groups or
through farmer leaders
• “On-the-ground” presence of
extension workers
• Planning for possible
problems right from the
beginning
• Contract flexibility
• Contract language that is
easily understood
44

45. “Modern” value chains in the rice
sector in Asia are not easy to find
• Possible reasons:
– Rice is mainly a “commodity” that can be traded without
meeting exacting quality requirements
– For standard types of rice there are multiple buyers so
market guarantees provided by contracts are not required
– With many buyers, side-selling (pole vaulting) is easy
– Farmers find quality standards difficult to meet
• However, there are a few examples of modern rice
chains and the number is likely to increase
• Alternative models also emerging, particularly
marketing contracts

46. Enhancing Milled Rice Production in
Lao PDR (EMRIP)
• Project provided training to mills and mills
received support for improvements
• Millers organized and paid for extension to
farmer groups with intention of buying high-
quality paddy from farmer.
• Main lessons:
– Flexible pricing arrangements were preferred
– Farmers needed to be sure of alternative outlets
– Side selling an issue unless strong relationships are
built
– Rules and regulations achieve little

47. Lao Arrowny Corporation - Laos
• joint venture between Lao and Japanese investors in
Vientiane province
• koshihikari rice was marketed as “bio-organic” rice as
some fertilizers permitted
• 2004 study concluded that contract farming had been
beneficial to farmers involved
• no in-house processing capacity and high transport
costs to have paddy processed in Thailand for export to
Japan.
• 2009 flooding in Laos made production difficult and
farmers unable to repay credit
• political turmoil in Thailand increased milling problems

48. Rice seed production for
PT Pertani Indonesia
• smallholders provided with free foundation seed and
extension advice
• must deliver at least 75% of production to PT Pertani
and remaining 25% only for own use
• four extension visits per farmer.
• 15% of crop rejected on visual inspection prior to
harvest but could be sold for consumption purposes
• company does drying of paddy
• price paid about 50% of market price but accepted by
farmers given other benefits provided by the company

49. SL Agritech, Philippines
• Company has contract farming arrangements for
hybrid seed. Claims to be largest hybrid seed
company in Asia
• Also does contract growing for its brand, “Dona
Maria Premium Quality Rice”, with hybrid seeds
provided on credit
• Expansion planned in Visayas and Mindanao to
meet needs of rapidly growing urban areas.
• Yields of over 14t per hectare have been achieved

50. AKR Cambodia
• Contracted with farmers to grow aromatic variety
• At one time 87,000 participating farmers, working
through farmer associations.
• Company provide seed, with farmers supplying
mill with the same quantity of paddy at harvest
• Associations monitor production progress and
providing technical advice.
• Tendency for farmers to move out of the contract
as they became more experienced

51. AMRU Cambodia
• Around 2,000 farmers to produce organic rice,
increasing to 10,000
• Supported by French-funded project
• Contracts implemented through agricultural
cooperatives
• Contract development and negotiation involves MAFF
• No financial support or input supply to farmers
• Company provides technical support and training,
transport for the paddy, and bags, which are marked to
ensure identification of the producer.

52. Elsewhere
• Thailand. Production of “Japanese rice”
– Several mills involved, using variety of contractual terms and
conditions
– Seed shortage a problem
– Mill liquidity also a problem
• Myanmar. Rice Leading Companies (RLCs)
– Provide inputs on credit as well as technical support
– Aim to improve quality and link with exporters
– Liquidity has been a problem
• Vietnam. e.g. An Giang Plant Protection Joint Stock
Company (AGPPS)
– Input supply, private extension service, storage to await price
rises
– An Giang’s model has encouraged replication by other
companies

53. Terima Kasih; ຂອບໃຈ; Salamat
Andrew Shepherd
Agricmarketing@gmail.com