As in many least developed countries the farmers in Laos are heavily dependent on
subsistence based agriculture production for their livelihood. A key for increased welfare for
the rural population in Laos is to increase their profits of small scale farmers and generate a
higher income per capita. One possible way to increase the profits and income for smallholder
farmers may be to convert in to organic rice production for the export market, since the
international market for organic rice is growing, consumers are prepared to pay a premium
prise for organic products and conditions for organic rice production are favourable in Laos.
Organic rice farming has grown in Laos during the last decade as greater volumes of organic
rice are produced and exported. Organic rice is mainly produced by smallholders in donor
projects or by contract farmers supplying contract farming companies.
In this thesis I try to determine the causes behind this structural transformation by
incorporating evolutionary economic theory (Schumpeter, 1911; Dahmén, 1950 and
Marmefelt, 1998) which focuses on entrepreneurial innovations and creditors as the basis for
changes in the economy. By performing a Dahménian transformation analysis of the transition
from conventional- to organic rice production within the development block around rice
production in Laos, I try to determine the transformation pressure causing the transformation
to take place. Emphasis is in particular given to the role of contract farming in this process. I
investigate to what extent the contract farming firm can be regarded as a Schumpeterian
banker, a concept introduced by Marmefelt (1998), that can coordinate the development block
around rice production by providing credits to the entrepreneurs within the development block.
The analysis shows that two types of transformation pressures are likely to have caused the
farmers to convert to organic rice production. First of all it is likely that the relatively higher
price paid for organic rice (42 percent higher than conventional rice) has convinced farmers to
make the transition. This type of transformation pressure can be seen as a market pull type, as
it originates from an increased demand in the international market, which in turn increases the
relative price for the product. The analysis further shows that a production method innovation
had taken place by the introduction of new inputs, made available by the contract farming
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firm. This has led to an increased productivity which, combined with the premium price,
generated higher profits for the organic contract farmers. The production method innovation
can be seen as a market push type of transformation pressure originating from the supply side.
In this thesis I argue that it is unlikely that the transformation would have occurred without
the involvement of the contract farming firm. On their own, farmers did neither have the
means to grow the organic rice, nor the proper market channels to process and sell the organic
rice on the international market. I argue that the contract farming firm’s ability to facilitate
price signal information from the international market to farmers, provide access to the new
market thru market links, and provide credits for new inputs as well as technical assistance
essentially made the transition to organic rice possible.
However the analysis also shows that the contract farming firm had a limited ability to fulfil
its role as a coordinator in the evolvement of the organic rice production, in terms of a
Schumpeterian banker, because of limited abilities to solve bottlenecks in the value chain. The
reason for this is mainly limited financial resources to finance complementary investments in
other parts of the development block.