Unlocking Laos’s Tea Potential: Balancing Growth with Fair Returns for Farmers

Tea farmers and laborers in Phousan, in Laos’ northern province of Xiengkhouang, work tirelessly to pick tea leaves from the village’s wooded slopes. The daily schedule continues until December when the tea-picking season ends. After picking, the leaves are transported to neighboring processing facilities, often financed by Chinese businesses that have played a key role in the sector’s expansion. These firms offer the technology and infrastructure required for processing tea, which is then dried and packed before being sent to China, one of Laos’ major export markets.

Contract farming—wherein farmer and tea processors agree on terms of production and sale ahead of the harvest–has been a key factor in growing Laos’ tea industry, providing an organized way of farming, connecting farmers with buyers, providing consistent income. Done properly, contract farming attracts much-needed investment while ensuring that farmers retain control over their own land.  However, contract farming has been criticized for being opaque, with some farmers receiving only a small  portion of the earnings. Downstream actors benefit more significantly, such as those involved in the tea manufacturing and distribution process. This highlights the urgent need for fair investment models in the tea business.

Laos’ tea industry expansion promises great things for the nation’s economy and the tea industry, especially for smallholder farmers. Transparent and equitable investment models are needed more as Laos’ tea industry develops. With proper assistance and cooperation, Laos can fully live up to its potential for a better future for its farmers and the broader economy. MRLG is working together with communities, companies and government agencies to strengthen the regulation of contract farming through a Prime Ministerial Decree, scheduled for adoption in late 2024.

Comparing investments in the Lao Tea Sector: Concessions, contracts, and outcomes for smallholder farmers, a study produced by MRLG in 2023, reveals that smallholder farmers benefit from ideal growing conditions and the high demand for Lao tea varieties in China. The report emphasizes the importance of choosing appropriate models for responsible agricultural investment that can benefit both investors and farmers. (Photos by Bart Verweij and Leonard Reyes)

Tea is harvested in Phousan District, Xieng Khouang province in Laos beginning March until the end of the year. (photo: Bart Verweij)

Laos benefits from a climate and soil well-suited for tea cultivation. It boasts unique and desirable tea varieties that are attractive to consumers. (photo: Bart Verweij)

Tea pickers in Or An village in Phousan district In Xiengkhouang, Laos harvesting wild tea on the slopes of Phousan mountain. Each farm worker receives around 6000 Kip ($.27) per kilogram of tea leaves. Despite being a significant global beverage, tea production in Laos remains underdeveloped. (photo: Leonard Reyes)

The strong demand for Laotian tea, particularly fermented wild tea of the Pu’er variety, presents a significant opportunity for smallholder cooperatives. By ensuring consistent quality and fair labor practices, farmers and cooperatives can become reliable suppliers to the Chinese market. (photo: Leonard Reyes)

Tea pickers from Or An village harvesting wild tea, which commands a premium price in the Chinese market. However, unsustainable resource extraction and land conversion threaten vital forest and ancient tea resources. (photo: Leonard Reyes)

Inequitable market access arrangements and poor land governance create unequal relationships between producers, processors, and traders.(photo: Bart Verweij)

Tea leaves from a commercial farm in Yod Pieng. Investments in commercially cultivated tea fail to deliver long-term benefits to smallholder farmers due to limited support and resources. (photo: Bart Verweij)

Exclusive trade concessions and informal contracting often leave smallholder farmers with a smaller share of profits
compared to other actors in the supply chain. (photo: Bart Verweij)

Tea leaves being dehydryated on an automated cooker. Encouraging Chinese investment in processing facilities within Laos can create additional income opportunities for smallholders. However, ensuring smallholders have fair access to these facilities is crucial. (photo: Bart Verweij)

Fresh tea leaves are dehydrated in large steel pans prior to the final stages of drying or fermentation. The Lao tea sector faces challenges like unfair investment structures that give farmers a smaller share of profits compared to other actors in the supply chain. Additionally, a lack of infrastructure and processing facilities can hinder the industry’s growth. (photo: Bart Verweij)

At a large-scale tea processing plant, the leaves are laid out to dry inside a drying facility. Transparency in investment deals is essential for smallholders to benefit from Chinese investment. This requires clear contracts, fair pricing mechanisms, and a commitment to sustainable practices. (photo: Bart Verweij)

A viilager from Yod Pieng drying tea in a makeshift solar dryer at a cooperative-owned tea processing facility. Non-market actors like NGOs can play a crucial role in supporting tea producers. They can help farmers access export markets, negotiate better contracts, and promote sustainable farming practices. Tea producer groups or cooperatives, sometimes supported by NGOs, can also empower individual farmers by giving them a stronger collective voice in dealing with investors. (photo: Bart Verweij)

Building a sustainable future for the Laotian tea sector requires a balanced approach. This involves fair contracts with Chinese investors, access to knowledge and technology, and a focus on both economic development and environmental protection for smallholder tea farmers. (photo: Bart Verweij)

Laos’s tea industry can boost income and reduce poverty in remote areas. While Laos has the potential for a thriving tea industry, several challenges need to be addressed. This could involve improving infrastructure, access to markets, and fairer investment models. (photo: Bart Verweij)