Money Can Grow on Trees: Teak assets in Northern Laos

Claire Fram, ForInfo Project Associate, writes on teak trees as piggy-banks or insurance policies in Bokeo, Lao PDR, where the ForInfo project is helping increase the monetary value of these assets.

Teak trees in Bokeo, Laos

Villagers use teak trees, like these in Bokeo, Laos, as fungible assets in times of financial stress. (Photo credit: Claire Fram)

Huaythongtai village,  Paktha district, Bokeo Province, Lao PDR: A villager in Huaythongtai can sell one teak tree of a 50+ cm DBH (diameter at breast height, a standard method of expressing the diameter of a standing tree), to a trader in the provincial capital, Huay Xai, for about US $150.  When villagers are in need of quick cash, their teak trees are their most reliable liquid assets.

We visited Mr. Bounton, the village chief, to learn how teak is used by the community. We heard story after story of villagers who needed emergency medical treatment and sold a teak tree to cover the cost.

As Fabian Noeske, ForInfo Technical Advisor, says, “People are using their teak plantations like piggy-banks.” For village communities in Northern Laos, saving money is tough. For most of the year, they rely on rice, corn, or coix grass seeds as both cash and subsistence crops. Saving is difficult because local incomes often barely meet daily expenses, and between crop harvests cash flow in villages can be especially tight. When emergencies arise, like a family member needing urgent surgery or the death of goats in a farmer’s herd, people cannot turn to capital savings to make up for the sudden need for cash. Instead, they turn to their trees.

Of the 180 households in Huaythongtai, 90 grow teak. Even though the plantations are each less than a single hectare, setting aside this land is a significant investment for villagers as it cannot be used for agriculture, which makes up the greatest portion of their  livelihood.

When villagers need to tap into their piggy-bank of teak, they can do so in several ways. In some cases, they use the Temporary Land Use Permits for their teak plantations as collateral to obtain a loan from village funds. In terms of benefitting from their trees, this is one alternative to hasty harvesting and sale to middlemen. In other cases, people sell their trees as round logs to a trader in the provincial capital, Huay Xai, for quick cash. As Fabian explains, “Villagers could be getting so much more from their trees if they applied very basic management practices.”

We were encouraged to hear that so many villagers were able to put aside at least a small amount of land for teak plantations, but there is significant room to add value to teak at the village level. Proper spacing and pruning of trees would improve the quality of the timber, and allow farmers to ask for higher prices from their buyers. And incorporating  schemes that incentivize harvesting trees when they have reached  peak  value, rather than when an emergency cash need arises, would also increase the benefits flowing to the village farmers.

At one site we found a clever solution: on a small plantation there were two trees with prominent Xs carved into the bark. As it was explained to us, these were trees that had been traded in a kind of informal loan between two relatives in the village: one villager lent money to his relative to pay for medical treatment, and the relative marked off trees to be harvested later to return the loan.

This story is interesting because the exchange between the two villagers was similar to the process of buying a commodity in the futures market. In exchange for the immediate loan, the lender essentially bought the two trees. Those trees have been left to continue growing, and the farmer is not allowed to cut them before they reach maturity. When they are harvested, the profits will go to the lender.

When villagers sell their trees in Huay Xai, the middlemen skim most of the profit, with the villager typically seeing on a small portion of the gains. If villagers instead let their trees mature, they could see a much greater profit as teak trees gain value exponentially year by year. Keeping trees standing to maturity is challenging, but also ensures better profits for villagers.

Trees are valuable. They are commodities, with tangible present and future benefits. Communities must be empowered to manage these assets – both according to best-practice forestry methods and as fungible financial assets. In Huaythongtai, we saw villagers were acutely aware of the value of their trees. ForInfo is listening to the voices of these villagers, and is focusing on how to leverage existing village knowledge with improved technical skills to keep more of the trees’ value with villagers themselves.

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6 Comments

  1. Hopefully the villagers can resist pressure to cut down their their trees too soon. Immature teak is not nearly as valuable as the oil-rich mature heartwood. I’m not surprised to hear that the middle men are profiting the most.

    Reply
  2. Thank you for this insightful post!
    Unfortunately, I am a bit puzzled what to think about the situation in Northern Laos, and other places alike. On the one hand, the villagers increase their standard of living and security significantly by cutting the jungle and establishing teak and rubber tree plantations. On the other hand, it is really sad to see that hundreds of square kilometers of jungle are being cut very fast. This puts even more burden on our planet by increasing the amount of carbon dioxide going into the atmosphere. In short, we need those jungles too.
    I was wondering what are the best way to both empower the villagers, enable countries like Laos to embark on higher convergence rates in terms of their economic development, but to protect the jungles at the same time. I would love to hear back from you.

    Reply
    • Glad to hear you enjoyed reading this post! As you’ve pointed out, the situation is indeed a complicated one. However, the two issues that you present (lifting communities out of poverty and the need to protect forest ecosystems) are not inherently in opposition. Many forest-dependent communities are able to manage their forests in sustainable and economically viable ways. Unfortunately there is no single “best way” to simultaneously accomplish the objectives you mention, but by working with individual communities to enhance their capacities – in this case regarding sustainable natural resource management – it is possible to devise appropriate plans for different circumstances. Of course there are many challenges that arise along the way, and it is necessary to be flexible and adapt to changing situations.

      I would invite you to see our website for more specific information. You may find this page to be a useful starting place, as it discusses RECOFTC projects that are carrying out activities in Lao PDR: http://www.recoftc.org/site/RECOFTC-in-Laos

      Reply
  3. Tony Zola

     /  August 30, 2012

    Thank you for putting this story on the Internet. It provides very valuable lessons for people who are designing the next generation of forest investment programs.

    Reply
    • You’re very welcome, Tony! We wish you the best in your endeavors designing forest investment programs. Please visit our website at http://www.recoftc.org for other resources that might be of interest to you.

      Reply
  1. REDD in the news: 12-18 March 2012 | redd-monitor.org

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