Resilient and Low Carbon Agriculture in Lao PDR Priorities for a Green Transition . Agriculture and Food Global Practice 30 June 2023 . . . © 2023 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Cover Photo: World Bank © Chitlatda Keomuongchanh Attribution All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Acknowledgements This report was produced with financial support from the Climate Investment Funds (CIF) by a team led by Nkulumo Zinyengere (Agriculture Economist, World Bank) and Chitlatda Keomuongchanh (Agriculture Economist, World Bank) and comprised of Binh Thang Cao (Senior Agriculture Specialist, World Bank), Maurice Andres Rawlins (Senior Environmental Specialist, World Bank), and Mio Takada (Senior Agriculture Economist, World Bank). Technical inputs for the report were contributed by a research team comprising: Aline Mosnier (Scientific Director, FABLE Consortium), Clara Douzal (Economist, FABLE Consortium), Charlotte Chemarin (Analyst, FABLE Consortium), Hideki Kanamaru (Lead Technical Unit, FAO), Riccardo Soldan (Climate Risks and Data Specialist, FAO), Arianna Gialletti (Climate Risks and Value Chains Specialist, FAO), Giacomo Branca (Associate Professor, Agriculture and Natural Resource Economics, Tuscia University), Chiara Perelli (Ecosystems and Production Systems Economist, Tuscia University), Piya Wongpit (Senior Researcher, National University of Laos) and Thiphavong Boupha (Independent Researcher). The team is grateful to Alex Lotsch (Senior Climate Change Specialist, World Bank), Armine Juergenliemk (Senior Agriculture Specialist, World Bank), and Hardwick Tchale (Senior Agriculture Economist, World Bank), who served as peer reviewers. The report also benefited from valuable contributions by Arturo Bolondi (Consultant, World Bank), Vidaovanh Phounvixay (Financial Sector Specialist, World Bank), Zhuo Cheng (Senior Climate Finance Specialist, World Bank), Phillipe Floch (Independent consultant), Konesawang Nghardsaysone (Economist, World Bank), and Valens Mwumvaneza (Senior Agriculture Specialist, World Bank). The team also received valuable inputs and guidance from Dr. Phommy Inthichack, (Deputy Director General of Department of Planning and Finance, Ministry of Agriculture and Forestry), and Dr. Saphangthong Thatheva (Deputy Director General of Department of Agricultural Land Allocation and Management, Ministry of Agriculture and Forestry). The study was undertaken under the guidance of Dina Umali-Deininger (Practice Manger, Agriculture and Food Global Practice for the East Asia and Pacific, World Bank). The team would like to thank Mariam Sherman (Country Director for Myanmar, Cambodia, and the Lao PDR, World Bank), and Alexander Kremer (Country Manager, Lao PDR, World Bank) for their guidance and support. Finally, the team would like to express its sincere thanks to the technical departments under MAF - National Agriculture, Forestry and Research Institute (NAFRI), Department of Planning and Cooperation (DOPC), Department of Agricultural Land Allocation and Management (DaLAM), Department of Agriculture (DOA), Department of Livestock and Fisheries (DLF), Department of Irrigation (DOI), Department of Forestry (DOF); and technical department under the Ministry of Natural Resources and Environment (MONRE) - Department of Climate Change (DCC), Department of Environment (DOE), Department of Planning and Finance (DOPF); and the National University of Laos (NUOL) for sharing information and advice during the study consultations. The team would also like to sincerely thank the Development Partners, including the Asian Development Bank (ADB), the Food and Agriculture Organization (FAO), the International Fund for Agriculture Development (IFAD), the United Nations Development Programme (UNDP), the Alliance of Biodiversity International and CIAT, the Global Green Growth Institute (GGGI), and GIZ, and SNV Netherlands Development Organization for their advice and inputs to the study during the preparation. i Acronyms and Abbreviations ADB Asian Development Bank ADS Agriculture Development Strategy AEZ Agro-Ecological Zoning AFOLU Agriculture, Forests, and Other Land Use APB Agriculture Promotion Bank AWD Alternate Wetting and Dying BAU Business-as-Usual Bio-CF Biocarbon Fund CAWA Climate Adaptation in Wetland Areas in the Lao PDR Project CC Climate Change CCKP Climate Change Knowledge Portal CIAT The International Center for Tropical Agriculture CMIP Coupled Model Intercomparison Project CO2 Carbon Dioxide CORDEX-CORE Coordinated Regional Climate Downscaling Experiment - Coordinated Output for Regional Evaluation CRED Climate Resilient Extension Development CSA Climate Smart Agriculture DaLAM Department of Agricultural Land Allocation and Management DCC Department of Climate Change DEPC Department of Environment and Pollution Control DLF Department of Livestock and Fisheries DMC Direct Seeding Mulch-Based Cropping DMH Department of Meteorology and Hydrology DOA Department of Agriculture DOE Department of Environment DOF Department of Forestry DOPC Department of Planning and Cooperation DPF Department of Planning and Finance EPR Lao Emissions Reduction Program ER Emissions Reductions ESLRP Enhancing Systematic Land Registration Project EU European Union EUDR EU Regulation on Deforestation-Free Products FAO Food and Agriculture Organization of the United Nations FAOSTAT Food and Agriculture Organization Corporate Statistical Database FABLE Food, Agriculture, Biodiversity, Land Use, and Energy FCIP Forest Carbon Partnership Facility FSC Forest Stewardship Council GAP Good Agriculture Practice GDP Gross Domestic Product GEF Global Environmental Facility ii GFLL Governance Forests Landscapes and Livelihoods GHG Greenhouse Gas GGGI Global Green Growth Institute GIZ German Agency for International Cooperation GSAF Green and Sustainable Agriculture Framework ha Hectare I-GFSS Implementation of Governance Forest Landscapes and Livelihoods IFAD International Fund for Agriculture Development IPCC Intergovernmental Panel on Climate Change IREP Institute of Renewable Energy Promotion ISIMIP Inter Sectoral Impact Model Intercomparison Project ktCO2e Kilotonnes of Carbon Dioxide Equivalent LACP Lao Agriculture Competitiveness Project LaCSA Laos Climate Service for Agriculture Lao PDR Lao People's Democratic Republic LLL Lao Landscapes and Livelihoods Project LRIMS Land Resources Information Management System LT-LDES Long-Term Low Emission Development Strategy LURAS Lao Upland Rural Advisory Service MAF Ministry of Agriculture and Forestry MNB Molasses Nutrients Blocks MDER Minimum Daily Energy Requirement MIF Microfinance Institutions MONRE Ministry of Natural Resources and Environment MRV Monitoring, Reporting and Verification MtCO2e Million Tonnes of Carbon Dioxide Equivalent NAFRI National Agriculture, Forestry and Research Institute NBB Nayobay Bank NDC Nationally Determined Contribution NDMC National Disaster Management Committee NGGS National Green Growth Strategy NPL Non-Performing Loans NSEDP National Socio-Economic Development Plan OA Organic Agriculture O&M Operation and Maintenance PIP Public Investment Plan PPP Public Private Partnership RAI Responsible Agriculture Investment RCP Representative Concentration Pathway REDD+ Reducing Emissions from Deforestation and Forest Degradation SAMIS Strengthening Agro-climatic Monitoring and Information System Project SCU Savings and Credits Unions SCALE Scaling Climate Action by Lowering Emissions SDC Swiss Agency for Development and Cooperation iii SNV Netherlands Development Organization SMEs Small and Medium Enterprises SOC Soil Organic Carbon SPS Sanitary and Phytosanitary SRI System of Rice Intensification SRIWMP Sustainable rural infrastructure and watershed Management Project TCAF Transformative Carbon Asset Facility UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change VNSAT Vietnam Sustainable Agricultural Transformation WCS Wildlife Conservation Society WUAs Water User Associations WUGs Water User Groups iv Table of Contents Acknowledgements .................................................................................................................................. i Acronyms and Abbreviations ................................................................................................................... ii Table of Contents .................................................................................................................................... v List of Tables .......................................................................................................................................... vi List of Figures ......................................................................................................................................... vi List of Boxes ...........................................................................................................................................vii Executive Summary ............................................................................................................................... viii Chapter 1: Current Trends in Lao Agriculture and Necessity of a Green Transition ................................... 1 Chapter 2: Coping with Climate Risk through Green and Resilient Improved Technologies..................... 19 Chapter 3: Designing the Green Transition towards Low-Carbon Sustainable Agriculture....................... 37 Chapter 4: Enabling the Transition ......................................................................................................... 45 Chapter 5: Recommendations for a Green Transition in Agriculture....................................................... 54 Annexes ................................................................................................................................................ 60 Annex 1: Key national policies, plans and projects for a green transition................................................ 60 Annex 2: The FABLE model assumptions ................................................................................................ 64 Annex 3: Economic analysis ................................................................................................................... 69 v List of Tables Table 1: Lao PDR agriculture productivity relative to other countries in the region .................................. 2 Table 2.Key National Target to be achieved by 2025 for the Forestry and Agriculture Sector ................... 8 Table 3. Main targets concerning Green Agriculture in Laos, ................................................................. 14 Table 4. Public investment plan for agriculture sector in Laos (million) .................................................. 16 Table 5. Projections of average temperature change (°C) for different seasons (3-monthly time slices), time horizons and emissions pathways, showing the median estimates of the full CCKP model ensemble and the 10th and 90th percentiles in brackets. ...................................................................................... 20 Table 6. Climate hazards identified based on the CCKP ensemble, the results of SAMIS(see Box 2), IPCC Interactive Atlas and CORDEX-CORE models. ......................................................................................... 20 Table 7. Climate vulnerability of livestock systems in the lower Mekong................................................ 26 Table 8. Projected changes in crops yields for RCP 6.0 with different climate and crop models from the ISIMIP model ensemble ......................................................................................................................... 30 Table 9. Comparison of productive performance of local and crossbred of cattle in Laos ....................... 32 Table 10. Green and resilient improved technologies feasible and scalable in Laos (Source: Authors) .... 36 Table 11. Overview of the mitigation options and adoption rates included in pathways ........................ 41 Table 12. Overview of the BAU and Greener pathways .......................................................................... 44 Table 13. Results of physical and economic outputs (BAU, BAU with CC, and CSA scenarios) ................. 46 Table 14. Production costs (BAU, BAU with CC, and CSA scenarios)........................................................ 46 Table 15. Results of farm economic performance (BAU, BAU with CC, and CSA scenarios) ..................... 47 Table 16 Unit costs and benefits of the green transition in crop and livestock production ..................... 48 Table 17. Examples of climate finance funds and facilities ..................................................................... 49 Table 18. Summary of Recommendations (Urgency: M-Medium; S-Short-term; L-Long-term)................ 59 List of Figures Figure 1. Changes in contribution of the agriculture to the economy in Laos............................................ 1 Figure 2. Selected cash crop planted area and production in Laos............................................................ 2 Figure 3. Number of livestock in Laos, 2012-2021 (000 heads) ................................................................. 3 Figure 4. Main agricultural and livestock export products, Laos ($000) .................................................... 4 Figure 5. Number of hectares under coffee cultivation by province ......................................................... 6 Figure 6. Historical share of GHG emissions from Agriculture, Forestry, and Other Land Use (AFOLU) to total AFOLU emissions and removals by source in 2014 ........................................................................... 9 Figure 7. Natural hazard events and people affected in Laos.................................................................. 13 Figure 8. Commercial bank credit in Laos .............................................................................................. 18 Figure 9. Lao provinces with (a) highest percentage of crop cover, (b) highest population, (c) lowest adaptive capacity index. ........................................................................................................................ 22 Figure 10. Projected changes I maximum potential yield for various crops (Maize, Cassava, Robusta Coffee, Banana, and Rice under RCP2.6 scenarios and rainfed conditions simulated under the SAMIS project using pyAEZ. Red areas indicate a reduction in potential while light green indicate areas with a projected increase in potential yield relative to baseline. [Dark green is protected forest area] ............. 24 vi Figure 11. Projected business as usual scenarios for (a) food consumption per food group and Minimum Dietary Energy Requirement (MDER) (b) export quantities for major crops, (c) production levels for the main crops and (d) production levels for the main livestock products (BAU) .......................................... 38 Figure 12. Land use over time ................................................................................................................ 39 Figure 13 (a) Evolution of Agriculture, Forestry, and Other Land Use (AFOLU) GHG emissions under business as usual (BAU) (b) Crop blue water footprint evolution............................................................ 40 Figure 14. Cumulated avoided GHG emissions in the BAU with mitigation options compared to the BAU without mitigation options .................................................................................................................... 42 Figure 15. Crop and livestock commodities, average productivity with/without mitigation options ....... 43 Figure 16 (a) Cumulated avoided GHG emissions in the greener pathway compared to the BAU with mitigation options (b) Evolution of Agriculture, Forestry, and Other Land Use (AFOLU) GHG emissions under the Greener pathway (c) production levels for the main livestock products (Greener) ................. 44 List of Boxes Box 1 The unsustainable path of cassava production in the Lao PDR ........................................................ 7 Box 2 SAMIS modelling approach .......................................................................................................... 21 Box 3. System of Rice Intensification (SRI).............................................................................................. 28 Box 4. FABLE modelling approach .......................................................................................................... 37 Box 5. Economic modeling..................................................................................................................... 45 Box 6 . Carbon Payments Support for AWD in Vietnam – TCAF .............................................................. 50 vii Executive Summary The objective of this report is to fill knowledge gaps and lay a foundation for a green transition of the Lao agriculture sector through identifying technology options and enabling environments required to transform to more productive, resilient, and low-carbon agriculture. The report uses a combination of literature review and modelling to generate analytical evidence and identify key climate-smart agriculture (CSA) technologies to boost productivity, mitigate and adapt to climate hazards, and achieve valuable greenhouse gas (GHG) mitigation Co-Benefits. It also details the costs and benefits of adoption of green technologies, and explores financing options, institutional and policy actions, and incentives needed to drive the transition. Below is a summary of the report. Current trends in Lao agriculture necessitate a green transition. Laos’ agriculture plays an important role in the country’s economy and contributed to GDP and employment at levels above the regional East Asia average of 11.5% for GDP and 25% for employment between 2015-2019. Also, the sector is a leading contributor to rising farm incomes and poverty reduction in the country, providing employment and livelihoods for 94% of poor households, most of who rely solely on agricultural income. Amid a shift to more commercial production, and the tendency to grow more cash crops for export, rice production for domestic consumption still dominates Lao agriculture. Livestock production is mainly smallholder-driven and is steadily increasing. Laos’ agricultural sector challenges include vulnerability to climate hazards, deforestation, biodiversity loss and soil degradation, insufficient irrigation systems, low crop and livestock productivity, and low inputs use. Climate hazards have been known to result in losses in farmer livelihoods and average annual damage in the magnitude of about $159 million. Unsustainable crop expansion (e.g., cassava) is a source of land degradation and natural capital depletion. Shifting cultivation is the main form of land opening for agriculture production, practiced by 70% of farmers and resulting in deforestation, environmental degradation, and increased greenhouse gas (GHG) emissions. 85.6 percent of national GHG emissions come from Agriculture, Forestry, and Other Land Use (AFOLU). Since the early 2000s, forest conversion to farmland has been the dominant source of GHG emissions accounting for about 61% of AFOLU emissions. There is need for the transition of the agriculture sector onto a more productive, resilient, low carbon and sustainable path. National policies, strategies, and plans, such as the Agriculture Development Strategy (ADS) to 2025 and Vision to 2030, the 9th Five Year National Socio-Economic Development Plan 2021-2025 (NSEDP), the National Green Growth Strategy (NGGS), and the Green and Sustainable Agriculture Framework (GSAF) to 2030, were developed to integrate climate resilience and low carbon and sustainable agriculture in national activities. In its Nationally Determined Contribution (NDC) to the UNFCCC the country has set an ambitious target to reduce its GHG emissions in 2030 by 60% compared to the Business as usual (BAU) scenario. The short-term adaptation target in agriculture for the year 2025 is to mainstream climate change adaptation in sectoral strategies and action plans. Long-term adaptation objectives are to promote climate resilience in farming systems and agriculture infrastructure and promote appropriate technologies for climate change adaptation. While several ministries are active in promoting climate resilience, public sector investment in low-carbon technology is still extremely low. Investments in climate-smart and green agriculture come primarily from the international development community and focus more on climate change adaptation and resilience. viii Private sector does not actively engage smallholder farmers and a more conducive environment is needed to boost investments. Government has limited fiscal space to support investment in climate smart technologies, and the adoption readiness of technologies and practices in the country is limited as demonstrated by low adoption of good agriculture practice (GAP). Lao agriculture is already vulnerable to climate hazards, which will be exacerbated by climate change. Laos is highly exposed to flooding, including riverine and flash flooding. The south is more affected than the north, which has remained more stable in terms of rainfall or with only slight increases. The country has already observed temperature and precipitation increases and climate change will lead to chronically heat stressed farming environments, increased rainfall intensities with augmented incidence of extreme river flows and associated flooding risks. Changes in the spatial distribution of precipitation and a relative increase in the number of dry days are projected in the future (2030s and 2050s). Southern provinces, with higher population density, and where most rainfed cropland is located are the most exposed to future climate risks. Climate change is projected to lower agricultural productivity and affect value addition. Heavy rains, heat stress, typhoons and flooding will affect rice production, but growing rice will still be possible in most parts of the country. Projected warmer temperatures and delays in the onset of the rainy seasons are expected to decrease maize yields. Cassava, a climate-resilient crop due to its stable performance under low soil fertility and water availability, will be moderately impacted by climate change. Extreme weather events will have detrimental effects on coffee production resulting in low and unstable yields and low-quality coffee beans. Banana production will be negatively affected by climate change, but suitability could increase in central and northern provinces. Increasing temperatures will have detrimental effects on livestock through heat stress, diseases, and pastures loss. Agricultural value chains are exposed to climate hazards particularly through weak post-harvest storage and processing infrastructure. Traditional post-harvest handling methods like sun drying of rice will increase exposure to extreme weather events and can lead to grain quality degradation. Climate change will entail that bananas quickly ripen under elevated temperatures, causing quality and shelf-life reduction. High temperatures and relative humidity will cause mold and mycotoxin spread during coffee storage, while heavy rainfall and flooding events will cause the rewetting of dried coffee beans. The oxidative deterioration of cassava in the post-harvest phase cause changes in the root color and could be worsened by increases in the relative humidity conditions. Extreme heavy rainfall and flooding will also cause road infrastructure damage, with negative impact on farmers’ market access. Agriculture will continue to be an important contributor to GHG emissions and environmental change. Under the business-as-usual pathway, based on current policies and the continuation of current production trends, internal and external demand for crop and livestock products can drive a production increase of 65% by 2050. As a response, the increase in agricultural production will lead to significant land use changes: cropland area may increase by 26%, driven by expansion in the production of cassava, coffee, vegetables, and maize, at the expense of the forest area. Agriculture sector GHG emissions will continue growing until 2050, primarily driven by livestock expansion and expansion of cash crop production. Annual ix crop blue water consumptive use will increase 1.4 times. Net GHG emissions from the AFOLU sector will however decrease assuming that positive actions on forest protection and regeneration are undertaken. Adopting climate-resilient technologies and practices is an opportunity to improve farming efficiency and productivity, raise farmer incomes, adapt to climate change, and lower the sector’s GHG emissions and other environmental impacts. The report identifies feasible and scalable climate smart technologies for Laos (table ES1). The adoption of climate smart technologies (5 were tested in this study) can decrease GHG emissions from the AFOLU sector by -108.5 Mt CO2e in 2050 compared to the BAU scenario. It is estimated that 65% of the avoided emissions will come from reduced deforestation (land use change-LUC), driven by the implementation of climate smart technologies. Applying climate smart technologies will also generate productivity gains. By 2050 rice productivity can be 13% higher, maize productivity 20% higher, cassava productivity 13% higher, coffee productivity 3% higher, and vegetables 34% higher. The application of climate smart technologies and practices will thus have triple win benefits (enhanced resilience, mitigation, and physical/economic productivity). In addition, evidence from this study shows that adopting climate smart technologies is more profitable than the continued application of conventional farming methods (table ES1). Net margins can be 3-121% higher for crops, 126% higher for livestock relative to conventional agriculture practice. Interventions at the post-harvest stage could lead to increase in net income of farmers by 30–50%. Table ES1: Green and resilient improved technologies feasible and scalable in Laos, and their estimated productivity, adaptation, mitigation, and economic benefit. Improved Climate-smart cropland Sustainable Climate-resilient Climate-smart Weather-informed technology production in rainfed intensification in livestock production interventions at post- agricultural advisory areas irrigated areas harvest stages services Crops Cassava; coffee; maize; Paddy Cattle Cassava; coffee; Cassava; coffee; maize vegetables maize; vegetables; vegetables; paddy paddy Description of Intercropping & crop Improved water Breed improvement Artificial drying using Flooding monitoring and the improved rotation, cover- management; SRI; (crossbreeding); flatbed dryers; large- control systems. technology cropping, organic cultivar change; Improved feeding scale solar greenhouse Training agricultural fertilization & mulching, alternate wetting quality (e.g. MNB) dryer; small-scale local extension services and use of climate resilient and drying (AWD); storage, processing, farmers varieties, and Climate-proofed solar dryers, and Weather-informed agroforestry, Integrated irrigation system grading facilities; agricultural advisory land/soil management and water hermetic storage- services, early warning (e.g. minimum tillage reservoirs. metal silos, steel net systems for extreme and direct seeding), and wire mesh storage weather events, and organic fertilization, bins; improved crop crop insurance schemes. crop residue storage bags; management Adaptation Resilience to pests and Reduced drought Resilience of fodder Resilience of storage Resilience to weather- benefits diseases; impacts on production and and transportation to related pests and Reduced soil erosion; hydrology, and grazing pastures to drought and floods; diseases: Reduced death of yield losses; droughts, floods: Reduced risk of Reduced risk of fungi, young seedlings from Lower heavy Climate-proofed mycotoxin growth, mold contamination drought; rainfall, flooding, pastures against fungi, mold during storage and Resilience to soil storms, impacts on heavy rainfall and contamination, and processing due to high erosion, and nutrient soil erosion; floods; pest attacks; temperatures and leaching; Reduced damage Resilience to extreme Reduced risk of quick relative humidity; Resilience to heavy to agricultural land temperatures; fruit ripening; Reduced soil erosion and rainfall events and and water Resilience to weather- Reduced quality and nutrient leaching; increasing resources; related diseases. shelf-life, grain losses, Reduced death of young temperatures; Reduced damage from heavy rainfall seedlings from drought to irrigation events. x Resilience to drought network and events and increasing and floods. infrastructure. temperatures. Mitigation Emission abatement Emission Emission abatement Reduction in emissions N/A potential due to the avoided abatement through through reduced through reduced food (emissions cropland expansion - avoided CH4 enteric fermentation: loss and waste reduction 246 tCO2e/ha of emissions: -470kgCO2e per MNB relative to avoided deforestation 1 -0.9 of tCH4/ha in per cattle 4 conventional) irrigated areas, -1.2 Agroecological tCH4/ha in rainfed Crossbreeding may practices also increase areas 2 lead to higher carbon sequestration Emission emissions factors per and decrease emissions abatement due to cattle (higher manure from synthetic fertilizer avoided rice land quantity, higher feed use. expansion -246 requirements) tCO2e/ha of avoided deforestation 3 Physical Corn: + 20% kg/ha Paddy rice: +13% + 80% tons of Reduced post-harvest N/A productivity Coffee: + 3% kg/ha kg/ha beef/TLU losses by 3-7% (Yield increase Cassava: +13% kg/ha +18% liters of compared with relative to Vegetables: + 34% milk/head traditional practices. conventional) kg/ha Reduction of 120.000 tons of rice losses per year Economic Gross margin: Gross margin: Gross margin: Increased net income N/A productivity Corn: + 21% $/ha +14% $/ha +105% $/ha by 30–50% compared (income Coffee: +121% $/ha with traditional increase Cassava: +14% $/ha Net margin: Net margin: practices relative to Vegetables: +34% $/ha +9% $/ha +126% $/ha conventional) Net margin: Corn: +64% $/ha Coffee: +96% $/ha Cassava: +3% $/ha Vegetables: +54% $/ha There are barriers to the adoption and implementation of climate smart technologies. Despite the productivity and climate benefits, the adoption of resilient and low carbon technology and climate-smart practices in Laos is partly limited by the following barriers: i. low farmers’ access to agricultural inputs such as fertilizers and improved seeds and suboptimal performance and failure of irrigation schemes, restricting the implementation of CSA practices; ii. weak knowledge and capacity for commercial livestock rearing, limiting the potential of improved livestock management; iii. inadequate production and market infrastructure, impeding development of and access to domestic and regional agricultural markets, thus reducing income opportunities and incentives to invest in new practices or diversify production; iv. mismatch between policy makers, local administrators, and farmers about the perceived value of forest land, which can continue to impede actions to reduce forest encroachments and land degradation; 1 FABLE approach from FAO data. 2 Footnote 152 3 Footnote 152 4 Windsor, PA., Hill, J. (2022). Provision of High-Quality Molasses Blocks to Improve Productivity and Address Greenhouse Gas Emissions from Smallholder Cattle and Buffalo: Studies from Lao PDR. Animals. 12(23):3319. doi:10.3390/ani12233319 xi v. weak financial management skills and business orientation of the smallholders, which limit their reliability as borrowers; vi. insufficient public resources invested in research and development, which reduce opportunities for demonstration of new technologies, and the potential of the extension services to successfully disseminate the necessary knowledge for developing CSA systems. In addition, even if the adoption of climate-smart technologies is more profitable than the continued application of conventional methods, on-farm implementation costs exist, including higher costs of labor and inputs (e.g., improved seeds, fertilizers), establishment and maintenance costs (e.g. to plant trees under agro-forestry systems). Supplementary (off-farm) costs of the transitioning to climate smart technologies include (public) costs to generate and disseminate knowledge and for capacity building. Such investments – comprising infrastructure and equipment, knowledge material and training of extension staff, monitoring and evaluation – represent a critical cost that the government will have to bear. There are however societal benefits, at the farm and landscape scale, which include reduced GHG emissions and enhanced carbon storage in soils and biomass (mitigation), enhanced soil fertility, water storage, agricultural ecosystem resilience, resource-use efficiency. Such benefits, if appropriately monetized, could represent a source of financial resources and reduce the costs of transition. There is a critical shortage of finance for green technology in the country as the public purse is heavily burdened by other development priorities, and private sector players consider agriculture a risky area of investment. Therefore, there is need to take advantage of all available opportunities to finance the transition towards resilient and low carbon agriculture in Laos. This includes taking advantage of the a growing international climate finance landscape, repurposing available public resources towards more impactful and multi-purpose climate-smart interventions, improving access to finance for smallholder farmers and SMEs through de-risking the sector to make it more attractive to private players, supporting the development of green financial products and services, and taking advantage of the policy framework for sustainable agriculture finance in Laos and the nascent green finance and sustainable finance market in the country. This report recommends the following actions to prepare the country for a resilient and low carbon transition over the next decade. Table ES2 Summary of Recommendations (Urgency: M-Medium; S-Short-term; L-Long-term) Recommendation Urgency Responsible Investments in climate-smart technologies 1 Expand irrigation services and ensure sustainability through a return-on- M DOI investment focused approach and tracking economic performance. 2 Establish a program for variety improvement and multiplication for select M DOA strategic crops like rice, through leveraging partnerships. 3 Expand the roll out of GAP building on lessons from on-going and past projects S DAEC/DOA/NAFRI 4 Establish a program on sustainable livestock commercialization focused on L DLF animal health and nutrition. Institutional strengthening xii 5 Repurpose public funding towards R&D through outcome-oriented allocations of M DOPC/NAFRI/ MOF research grants. 6 Reform the extension services to support more pluralistic services including M DAEC/NAFRI/DOA private sector and NGOs. 7 Introduce a program for improving the operation and sustainability of irrigation S DOI schemes through strengthening cohesion and capacities of WUAs, and WUGs. 8 Build the capacity of MAF on climate finance access through local, regional, and S DOPC international learning exchanges to raise awareness and build experience. 9 Develop an MRV system for tracking impacts of climate smart technologies on M MAF/MONRE GHG emissions and other key agricultural indicators. Policy and regulation 10 Develop marketing procedures and product standards for climate-friendly/green M MAF/MOIC and safe products for select value chains to meet demand from local and export markets like China and EU. 11 Apply a dual approach of empowering local administrators to enforce forest M DaLAM/DOF/MAF protection and land use regulations and incentives to farmers for sustainable land DLM/MONRE management. 12 Improve land use monitoring to track forest encroachment by completing the M DaLAM/DOF Forest and Land Use Zoning (FLUZ) exercise. DLM/MONRE Finance and incentives 13 De-risk commercial lending to farmers through organizing farmers and investing S MAF/MOF in farmer financial literacy. 14 Pilot a cooperative program with commercial lenders for financial services for S MAF smallholder farmers, including technical assistance on developing and implementing tailored financial products which suit farmer’s needs. 15 Establish a framework for implementing agriculture insurance products for M MAF/NDRC/MOF farmers based on international and regional good practice. 16 Provide incentives to private sector to support technology transfer and to agro- L MAF/MOIC business to enter sustainable business partnerships with farmers. xiii Chapter 1: Current Trends in Lao Agriculture and Necessity of a Green Transition 1.1 Agriculture sector trends Laos’ agriculture sector has been undergoing structural change but is still an important contributor to the GDP growth and employment. The agriculture sector grew by 3% per year over the last decade, while the overall economy grew by 7-8%. Its contribution to GDP declined from 30% to 13% during the 2010- 2021 period (Figure 1) and its contribution to employment declined from 70% to 64% during the 2010- 2019 period. Despite such changes, agriculture plays an important role in the country’s economy. The contribution to GDP and employment between 2015-2019 was above the regional average of 11.5% and 25% respectively5. Figure 1. Changes in contribution of the agriculture to the economy in Laos 160,000 30 140,000 25 Taxes on products and Import 120,000 duties 20 Services 100,000 80,000 15 Industry 60,000 10 Agriculture 40,000 5 Agriculture as a share of GDP 20,000 (%) - Second axis 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Value of GDP (billion kip) and share of agriculture sector in GDP in Laos (%) Source: Bank of the Lao PDR (2021). The agriculture sector has been a leading contributor to rising farm incomes and poverty reduction. Agriculture provides employment and livelihoods for 94% of poor households, most of who rely solely on agricultural income6. Poverty in the country declined from 24.6% to 18.3% during the 2013-2019 period, driven by a rise in farm incomes and average crop sales. 7 Amid a shift to more commercial production, and the tendency to grow more cash crops, rice production for domestic consumption still dominates Lao agriculture. Since the 1990s, efforts have been made to move the sector from production for self-consumption to market-orientation with a focus on cash crops. Rice, the staple crop, is grown on about 1 million ha (72% of the country’s agricultural land) and 62% of farming households are involved in rice production. Rice productivity however has been stable over the 5 Bank of the Lao PDR (2021). Annual Report 2012-2021. www.bol.gov.la/en/annualreports 6 Lao Statistic Bureau (2021). The 3rd Lao Census of Agriculture 2019/2020. Ministry of Planning and Investment, Vientiane, Laos 7 World Bank (2020). Lao People’s Democratic Republic Poverty Assessment 2020: Catching Up and Falling Behind. World Bank, Washington, DC. http://hdl.handle.net/10986/34528 1 past years. Its production averages 3.8 million tons per year 8, 96% of which is consumed domestically. The remainder is mainly exported in the region, with Vietnam and China accounting for about 9% and 73% of the total milled rice export volume in 2020 9 respectively. Although rice productivity is high in Laos (about 4.1 t/ha), it is still lower than in neighboring countries like Vietnam and China, indicating potential for higher productivity (Table 1). Table 1: Lao agriculture productivity relative to other countries in the region Country Average crop productivity, 2017-2021 (Kg/ha) Livestock stock, 2021 (n. heads) Rice Maize Cassava Coffee Cattle Pig Laos 4,106 5,661 32,800 96 2,258,176 4,468,192 China 7,030 6,228 16,000 152 60,522,044 454,807,281 Thailand 2,983 4,464 21,200 32 4,627,914 7,743,876 Vietnam 4,792 4,792 19,400 135 6,365,300 23,533,400 Source: FAOSTAT. Cassava production has been increasing in recent years. Figure 2 shows that maize has been quickly replaced by cassava in terms of area (production), decreasing from 212,105 ha (1,096,235 tons) in 2011 to 137,287 ha (703,953 tons) in 2021. Farmers have adjusted cropping patterns in response to market demand for raw cassava for bio-ethanol production in China, Thailand, and Vietnam and domestic demand for flour. Cassava has become a major source of income for smallholder farmers, who benefited from relatively high farm gate prices, with a net annual income of about 30 million kip ($1,695) per ha10. Cassava yields in Laos are much higher than among regional neighbors (Table 1). Figure 2. Selected cash crop planted area and production in Laos 300,000 4,000,000 3,000,000 200,000 2,000,000 100,000 1,000,000 - - 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Maize planting area (ha) Cassava planting area (ha) Vegetable planting area (ha) Bean planting area (ha) Maize production (t) Cassava production (t) Vegetable production (t) Bean production (t) Sources: Ministry of Agriculture and Forestry (MAF), 2012-2022 8 FAO (2022). Rapid Assessment on the Impact of the 2022 Financial Crisis on Food Security and Livelihoods in Laos 9 IRRI (2021). Draft Lao Rice Export Promotion Strategy, Ministry of Agriculture and Forestry and Ministry of Industry and Commerce, Laos 10 Such amount has essentially doubled in dollar value in the past two years, driven by the boom in regional demand. However, other factors may have contributed to this, e.g. the ongoing Ukraine war and the global shortage of biofuel and animal feed precursors previously exported from Ukraine, might have pushed up the cassava price so steeply. However, there are not studies available on this and further investigation is required. 2 Smallholder livestock production is steadily increasing. The number of households rearing livestock increased by 36% between 2012 and 2022, and livestock population increased by 29% (Figure 3). However, absolute herd numbers are lower than other countries in the region (Table 1). During 2015-2020, livestock production for domestic consumption amounted to 210,800 tons of meat; 38,600 tons of eggs; 123,000 tons of farmed fish; and 64,000 tons of wild fish and various aquatic animals 11. Cattle rearing plays an important role in small family farms. Despite government efforts to develop commercial-scale livestock farms 12, smallholders own 98% of the cattle heads on the country, and consider cattle a major capital reserve. Figure 3. Number of livestock in Laos, 2012-2021 (000 heads) 5,000 4,000 3,000 2,000 1,000 - 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Buffalo Cattle Pig Goat and sheep Source: MAF (2022) Agriculture sector exports are growing and represent more than one-fifth of Laos exports. The estimated agriculture sector growth of 2.3% in 2021 was driven by expanded production and exports of cassava, banana, rubber, and coffee 13, offsetting a contraction in other commodities like fruits, maize, and live animal exports (Figure 4). The export growth of these four main agricultural products accounted for about 72% of total agricultural exports in 2021, due to growing demand in Thailand, China, Vietnam, and South Korea. Of the $900 million of agricultural products exported in 2021, over 80% were exported to China. The Lao government aims to increase the production of cash crops as part of its commercialization agenda. Coffee, vegetables, and bananas are important commercial crops in the country. Coffee production has significantly increased in the last 20 years, particularly in northern and southern provinces. Coffee is one of the top five export earners in the country, contributing about 1.1% of the total export value or $64.3 million in 2019 14. In 2020, the European Union (EU) alone imported €29 million worth of coffee and tea from Laos. 15 The government aims to increase coffee production to 1 million tons by 2025 to take advantage of the promising opportunity for Laos coffee from the growing global demand for high- grade specialty and “sustainable” coffee. However, yields of coffee are lower than China and Vietnam 11 Ministry of Agriculture and Forestry (2021). Agricultural Development Strategy to 2025 and Vision to 2030 (Revised) DRAFT 2021. 12 Napasirth, P. and Napasirth, V. (2018). Current situation and prospects for beef production in Lao People’s Democratic Republic — A review. Asian-Australas J Anim Sci; 31(7): 961–967. 13 World Bank (2022). Developing the Agribusiness Potential in the Laos-China Railway Corridor – Opportunities and Challenges 14 Phimmavong, S., Tek, N.M, Rodney, J.K, Chanhsamone, P., and Boonthavy, D. (2023) Impact of the coronavirus pandemic on financial returns of smallholder coffee plantations in Lao PDR. Agroforestry Systems 97, no. 4 (2023): 533-548. 15 International trade center (2021). Story: Lao farmers reaching for global organic coffee markets, 20 June 2021. https://intracen.org/news-and-events/news/story-lao-farmers-reaching-for-global-organic-coffee-markets 3 (Table 1), and exporters and processers are unable to source volumes of sustainable coffee to meet market demand. Figure 4. Main agricultural and livestock export products, Laos ($ thousand) Source: Authors’ elaboration on FAOSTAT data The major destinations for Laos’ agricultural exports are regional neighbors, China, Thailand and Vietnam, and the EU is a major global trading partner. Most agriculture exports reach the regional market. China, Thailand, and Vietnam account for more than 90% of such exports and demand an increasing quantity of agricultural products. in 2020 alone, export towards those countries increased by 37% (China), 51% (Thailand), and above 100% (Vietnam) 16. The EU is Laos' fourth largest trading partner (in 2020, agricultural products accounted for 8% of total exports to the EU) 17. 1.2. Pressures towards a resilient, low carbon and green transition Agriculture expansion, deforestation, soil degradation, and greenhouse gas emissions Agriculture production expansion and commercialization have raised household incomes, but have contributed to deforestation, biodiversity loss and soil degradation. The total harvested area in Laos increased by 124% between 1990-2020. Cash crop plantations increased from 17,700 to 320,000 ha between 1992-2006 18. Thousands of acres of forest have been cleared under contract farming schemes and planted with annual or perennial crops (maize, cassava, sugarcane, rubber, coffee). Shifting cultivation is the main form of land opening for agriculture production, accounting for 33% of land use over the past 30 years 19 and practiced by 70% of farmers. Such practice results in deforestation and 16 World Bank (2022). Developing the Agribusiness Potential in the Laos-China Railway Corridor: Opportunities and Challenges. Lao PDR 17 Thipphavong, V. Vanhnalat, B. Vidavong, C and Bodshisane, S. (2022). The Export Potential of Laos Agri-Food to the EU Market. Food Security Policy Research, Capacity, and Influence (PRCI) 18 Keoka, K., Bouahom, B., Hett, C. and Harari, N., (no date). Policies, strategies, processes, and frameworks for scaling up sustainable land management in Lao PDR. NAFRI Policy Brief. 19 Chen, S., Olofsson, P., Saphangthong, T., and Woodcock, C. (2023). Monitoring shifting cultivation in Laos with Landsat time series. Remote Sensing of Environment 288 (2023) 113507, ScienceDirect – www.elsevier.com/locate/rse 4 environmental degradation20. Many fields, previously recovered under fallow, have increasingly been converted to crop production. The repeated harvesting of monoculture crops on cleared land has also degraded soils, through accelerated erosion, especially in the mountainous regions. Laos has lost over 4 million hectares of forest cover, equivalent to a 21% decrease in tree cover since 2000 21. Between 2015-2019, deforestation in the Production Forest Areas of three provinces alone (Champasak, Khammuane, Oudomxay) caused the loss of over 10,000 ha of natural forest 22. In addition to the expansion of agriculture, the clearing of forest land for hydropower projects, mining sites, and other infrastructure development, urbanization, resettlement, and illegal logging are other main drivers of deforestation. However, cash crop production, especially cassava still ranks first among the causes of deforestation in many provinces 23. An increasing number of farmers is cultivating cassava in the central and southern region and opening virgin land (Figure 5). The area used to produce cassava has increased more than 5-fold over the past two decades. The average cassava yield in Laos is higher than other countries in the region, averaging about 33 tons/ha 24, because farmers tend to grow cassava on virgin soils more than what happens in other countries. The provinces of Xayaburi (34 tons/ha), Bolikhamxay (31 tons/ha), and Champassak (60 tons/ha) show the highest productivity 25. Farmers who engage in cassava farming have limited resources and make a minimal investment in farm inputs to improve soil quality. Cassava production is causing soil degradation and soil nutrient depletion26. This forces farmers to regularly search for new land to maintain high yields, thereby leading to forest encroachment. Forest encroachment and environmental damage is more severe for cassava farmers in upland areas with abundant virgin land (Box 1). There has been a growth in land use for coffee plantations accompanied by negative environmental impacts. Coffee plantation have grown on the Bolaven Plateau, in southern Laos (Champassak, Attapeu, and Sekong provinces), and the northern upland in Luang Prabang and Phongsaly (Figure 5) up to the current area of 90,000 ha, largely owned by smallholders (the average area grown being 1–2 ha per farm 27). Smallholding coffee production is inefficient, product quality is poor, and yields are lower than those recorded in competitor countries at regional (like Vietnam) or international level. Rapid coffee plantation expansion has been based on unsustainable farming practices, especially natural forest clearing and monocropping 28. This is a concern given that Laos aims to enter the specialty and sustainable coffee 20 Doi, T., Totsu, K. and Higashi, S. (2013). Nature and Our Future: The Mekong Basin and Japan. A Missui & Co., Ltd. Environment Fund support project. Mekong Watch - http://www.mekongwatch.org/platform/bp/english.pdf 21 Global Forest Watch – Dashboards for Laos - https://www.globalforestwatch.org/ 22 Daviau, Steeve. (2022). Study on Forest Encroachment on Production Forest Areas (PFAs) under SUFORD-SU (2015-2019) – Drivers and Response. Lao PDR 23Daviau, Steeve. (2022). Study on Forest Encroachment on Production Forest Areas (PFAs) under SUFORD-SU (2015-2019) – Drivers and Response. Lao PDR 24 Souvannavong, P. (2021). Value Chain Analysis of Cassava in Lao PDR. Australasian Agribusiness Perspectives 2021, Volume 24, Paper 13, ISSN:2209-6612 25 “Lao PDR – ACIAR Cassava Value Chain and Livelihood Program,” accessed March 9, 2023, https://research.aciar.gov.au/cassavavaluechains/lao-pdr/index.html. 26 Chua Fung, M., Youbee, L., Oudthachit, S., Khanthavong, P., Veneklaas, EJ., Malik, I. (2020). Potassium Fertilization is Required to Sustain Cassava Yield and Soil Fertility. Agronomy 2020, 10, 1103; doi:10.3390/agronomy10081103 (www.mdpi.com/journal/agronomy). Howeler, R.H. (2014). Sustainable Soil and Crop Management of Cassava in Asia. In A Reference Manual; International Center for Tropical Agriculture (CIAT): Colombia 27Footnote 10 28Footnote 10. 5 market, yet there are increasingly stricter sustainability standards of key markets like the EU, which demands deforestation-free commodity value chains. Figure 5. Number of hectares under coffee cultivation by province Cassava Coffee Source: Authors, based on SAMIS project 6 Box 1 The unsustainable path of cassava production in Laos 1. Inadequate knowledge and access to advanced technologies, high-yielding varieties, and improved agronomy is limiting cassava yields. There is minimal research and development on how to effectively manage pests, diseases, varietal choices, and farming practices. Coupled with few incentives for farmers to adopt good management practices, cassava production is being practiced with unsustainable methods like monocropping. 2. Cassava is grown in unsuitable areas and systems, leading to soils’ over-mining and constant search 29 of more virgin land 30. This has negative consequences in terms of long-term soil erosion, land degradation, and deforestation. Without inputs, a deforested plot can give maximum three harvests, after which new land is to be found. However, the land left behind is often converted to rubber, which then provides a longer-term income, but requires higher upfront capital investment and is rarely suitable for smallholders. This is pushing the forest encroachment frontier forward. 3. The export of fresh cassava roots, without value addition, is an important risk source. Given the increasing competition from neighboring countries, this could determine progressively declining returns to farmers and force them to expand further into virgin lands to compensate the losses through an increase in the quantity produced. Issues Impacts Reference Knowledge of appropriate agronomic practices Limiting potential yield and leads to land , , 31 32 33 (e.g. soil/land management) degradation Varietal choice and knowledge of cassava main Limiting potential yield and decreasing pests and diseases and their transmission , 34 35 quality mode Low mechanization Increase in manual labor 36 37 Low market access Monocropping Decrease in cassava yields 38 Source: Authors Land availability for agriculture use in Laos is in competition with forest land. The master plan for national land allocates 4.5 million hectares (19% of total land) to agriculture and 16.5 million hectares (70% of total) to forest land. Agricultural land comprises 2 million hectares (44%) for rice production, 1 million hectare (22%) for cash crops, 0.8 million hectares (18%) for fruit trees, and 0.7 million hectares (16%) for grazing land 39. The 2019 forestry law foresees government incentives and control mechanism 30 Soukkhamthat, T. and Wong, G.Y (2016). Technical Efficiency Analysis of Small-Scale Cassava Farming in Lao PDR. ResearchGate, DOI:10.37801/ajad2016.13.1.2 - https://www.researchgate.net/publication/311614622 31 FAO (2022). Exploring Cassava Futures: Building Cassava Climate Resilient Pathways in Lao PDR. CC2809EN/1/11.22, CC BY- NC-SA 3.0 IGO license - https://www.fao.org/3/cc2809en/cc2809en.pdf 32 Footnote 25 33 FAO (2022). Exploring Cassava Futures: Building Cassava Climate Resilient Pathways in Lao PDR. CC2809EN/1/11.22, CC BY- NC-SA 3.0 IGO license - https://www.fao.org/3/cc2809en/cc2809en.pdf 34 FAO (2022). Exploring Cassava Futures: Building Cassava Climate Resilient Pathways in Lao PDR. CC2809EN/1/11.22, CC BY- NC-SA 3.0 IGO license - https://www.fao.org/3/cc2809en/cc2809en.pdf 35 Souvannavong.P, (2021). Value Chain Analysis of Cassava in Lao PDR, Australasian Agribusiness Perspectives 24, no. 13. 36 Footnote 25 37 Footnote 25 38 Footnote 25 39 MAF (2021). Draft Agricultural Land Management and Development Strategy to 2040. Ministry of Agriculture and Forestry. Vientiane. 7 to protect forest land. However, as indicated above, agricultural land is not managed sustainably and often encroaches forest land. Yet, there is no clear protection and mitigation in place at local level against deforestation from cash crop expansion. The often-conflicting key targets for forestry and agriculture are reported in Table 2. Table 2.Key National Target to be achieved by 2025 for the Forestry and Agriculture Sector Key targets to be achieved by 2025 for the Key targets to be achieved by 2025 for the forestry sector agriculture sector Forests and forest lands cover 70% by 2030 Paddy rice production 900,000-950,000 ha or 3.5-4 million tons/year Upgrade 5 preserved forest to 5 national Food crop production (261,710 ha) parks - Tubers 11,678 ha by 2025 or 134, tons/year - Conservation forest (NPA, National - Sweet corn 29,080 ha or 223,720 tons/year Park, World Heritage) 4.7 million ha - Vegetables 188,200 ha or 1,462,000 tons/year - Fruits 32,752 ha or 307,900 tons/year - Protection forest 8.2 million ha Commercial crops (410,706 ha) and livestock/fish - Production forest 3.1 million ha - Coffee 96,094 ha or 175,500 tons/year - Rehabilitate forest 1.8 million ha - Maize 138,716 ha or 636,900 tons/year - Plantation 501,000 ha - Cassava 108,460 ha or 636,900 tons/year - Sugarcane 32,872 ha or 1.6 million tons/year - Banana 24,830 ha or 735,580 tons/year - Tea 14,000 tons/year - Watermelon 8,036 ha or 150,140 tons/year - Legumes (soybeans, green beans, peanuts, red beans) 28,206 ha or 74,750 tons/year - Sweet potato 6,364 ha or 131,220 tons - 250,000 Cattle for export to China or 50,000 cows/year Source: MAF (2021). The 9 Five-Year Agriculture, Forestry, and Rural Development Plan 2021-2025 th Since the early 2000s, forest conversion to farmland has been the dominant source of greenhouse gas emissions (GHGs). The country was a net carbon sink (-104.6 MtCO2e) in 1990 and became a net emitter (+41.8 MtCO2e) in 2000. In 2014 national emissions amounted at 36.8 MtCO2e, of which: 85.6% were from Agriculture, Forestry, and Other Land Use (AFOLU); 10.1% from energy; 3.1% from Industrial Processes and Product Use (IPPU); and 1.2% from other industries (waste management). Within the AFOLU sector sources of emissions included: forest conversion to farmland (19.3 MtCO2e or 61% of total AFOLU emissions); livestock through enteric fermentation and manure (3.97 MtCO2e or 13% of AFOLU emissions); nitrous oxide (N2O) from soil management (5.5%); methane (CH4) from biomass burning (3%). Rice production contributed approximately 1.15 MtCO2e (3%) as N2O and CH4 emissions. Removals from forests amounted at 12.6 MtCO2e (Figure 6). Although growing, per capita GHG emissions for Laos (5.5 ton per capita) are lower that the world average of 6.5 ton per capita40. 40World Resources Institute (2022). Climate Watch Historical GHG Emissions. (GWP-100 AR4). https://www.climatewatchdata.org/ghg-emissions 8 Figure 6. Historical share of GHG emissions from Agriculture, Forestry, and Other Land Use (AFOLU) to total AFOLU emissions and removals by source in 2014 Source: Adapted from First Biennial Update Report of Lao PDR to the UNFCCC, 2020. Water access, management, and use Water access is a limiting factor to agriculture expansion. The country’s vast water resources are primarily consumed by agriculture (93%) 41. Water is generally available and usually sufficiently abundant for a monsoon rice crop in the wet season, with supplementary irrigation practiced during dry spells or critical stages of crop growth. However, Laos lacks sufficient irrigation, especially for dry season cropping. Only 333,400 ha (15% of agricultural land) are equipped with irrigation42. Existing irrigation infrastructure is old and unfit to provide required levels of water services 43. Irrigation system design in the country focuses on meeting crop water requirements for rice production. These schemes are ill-suited to meet the irrigation service standards required for a more diversified cropping strategy. Ageing infrastructure partly completed irrigation schemes, delipidated canals and diversions, and inadequate operation of infrastructure result in significant water losses and inefficiencies. In addition, floods repeatedly cause extensive damage to irrigation infrastructure, especially in southern and central regions. This is an important as it relates to the ongoing changes in the Mekong mainstream; the reduced wet season flows; the redistribution of water-dry season flows because of substantial increases in basin storage for hydropower energy development; and the shifts in floods and extreme events due to climate change. With damaged and inefficient infrastructure, and low margins from rice production, most smallholders are unwilling or unable to pay even modest irrigation service fees (ISFs). This is particularly so in cases where timely water supply cannot be guaranteed and where irrigation service standards are low44. Consequently, some schemes are characterized by insufficient operation and maintenance capacity 41 Government of Lao PDR (2020). First Biennial Update Report of Lao PDR (BUR 1) 42 FAOSTAT data, 2020 43 Statistical information on irrigation is available at the WB’s PDNA report (2019) and in the agriculture statistic year books 2019. 44 However, in some areas, farmers show significant willingness to invest in on-farm irrigation where returns are good (i.e., for non-rice crops), e.g., substantial investments by farmers have been made in the Vientiane Plain (storage filled from groundwater; pressurized distribution/sprinkler) for higher value crops that serve the local market). 9 especially of the water user groups (WUGs) and high operating costs with consequent unreliable water supply for agriculture production. In many lowland schemes, irrigation service fees are insufficient to cover the electricity costs of pumping, and many schemes have accumulated substantial debt. It has been estimated that an electricity bill from irrigation of over $150 million has not been paid45. This has led to chronic suboptimal performance and economic failures of irrigation schemes 46, resulting in the need for further investments 47. Such issues have important social transfer implications since irrigation water remains critical to allow for one annual harvest of rice for subsistence and food security. Energy access and use for agriculture production Most farmers in Laos access electricity but it is costly and often limits farm operations. In 2021, 95% of total households in Laos accessed electricity 48. The main energy resources for electricity generation include hydropower (81%), coal-fired plants (17%), renewable sources like solar and biomass (only 2%)49. The assessment of the Economic and Social Commission for Asia and the Pacific observed that agriculture consumes a small amount of energy, compared to other sectors, due to high costs and the limited capacity of farmers to afford. Farmers using gasoline and electricity to pump water always have high electricity bills50. For example, farmers in Attapeu province reported that during the dry rice season from November 2018 to 2019, when there was a natural disaster, hydroelectricity for 40 hectares of rice crops cost more than 28 million kip. For the dry season, farmers paid 600,000–700,000 kip per hectare 51. As a result, many farmers avoided working on their rice fields in the dry season. Of-grid green energy solutions like solar have not been widely adopted by farmers because of the high investment costs for establishment and maintenance 52. Access to improved technology and management Adoption of advanced machinery is improving, but adoption readiness of technology is limited by cost. The use of simple mechanization options in agriculture is increasing, albeit still in its infancy. Technology spills from across borders are leading to a rapid increase in machine technology use. Tractors are replacing buffaloes for preparing land in lowland rice. In Savannakhet and Champassak, around 75% of households use two-wheel tractors for land preparation, although 21% still use only draught animal power 53. Farmers who do not have tractors have access to rental services. However, other machinery (e.g., transplanters, drill seeders, and harvesters) is less common, having been introduced only recently and on limited areas 54. Besides, most smallholder farmers cannot afford the costs of buying or renting farming machinery. 45 Brunner, J., Carew-Reid, J., Glemet, R., McCartney, M.P. and Riddell, P., 2019. Measuring, understanding, and adapting to nexus trade-offs in the Sekong, Sesan and Srepok Transboundary River Basins. 46 ADB (2018). Agriculture, natural resources, and rural development sector assessment, strategy, and roadmap 47 Inthakesone, B., and Syphoxay, P. (2021). Public Investment on Irrigation and Poverty Alleviation in Rural Laos. Journal of Risk and Financial Management 14: 352. https://doi.org/10.3390/jrfm14080352 48 Lao Statistic Bureau (2021). Lao Statistical Information Service website https://laosis.lsb.gov.la/tblInfo/TblInfoList.do?rootId=2101000&menuId=2101101&lang=en&keyword=&searchType=undefined 49 Ministry of Energy and Mines. Vientiane Time, August 17, 2022, www.vientianetimes.org.la/freeContent/FreeConten158_Govtto.php 50 Vientiane Time, June 20, 2019 - https://www.vientianetimes.org.la/sub-new/Development/Development_Solar.php 51 The Economic and Social Commission for Asia and the Pacific (2021). Energy Transition Pathways for the 2030 Agenda: SDG 7 Roadmap for Lao PDR 52 Hartung. H and Pluschke.L (2018). The benefits and risks of solar powered irrigation – a global overview. FAO 53 Newby, J., Manivong, V., and Cramb, R., (2020). Economic Constraints to the Intensifcation of Rainfed Lowland Rice in Laos. 54 Manivong, V., and Cramb, R. (2020). From subsistence to commercial rice production in Laos, Chapter Open Access in the White Gold: The commercialization of rice farming in the Lower Mekong Basin. https://link.springer.com/chapter/10.1007/978- 981-15-0998-8_5 10 Smallholder farmers’ use of improved seeds has led to an increase in rice and cassava productivity, however, adoption rate of improved varieties in cassava production has been relatively low. The adoption of improved varieties has been the most important factor in achieving significant productivity gains in crop production since the 1990s, especially for rice and cassava. In 1990, 95% of all lowland rice was grown on traditional low-yielding varieties. By the early 2000s, 70-80% of the lowland rice growing areas were covered by improved rice varieties. High yielding varieties have led to increases in rice yields from 2 t/ha in 1990 to 4.2 t/ha in 2017 55 and in cassava yields from 13.7 t/ha to 32.7 t/ha over the period 1996 to 2016. However, many cassava farmers cannot benefit from such productivity gains because of their limited adoption of the improved varieties56. Adoption of improved cassava varieties in the country is one of the lowest in East Asia (about 43% of cassava planted is represented by local varieties 57) and the improved high yielding varieties are mostly obtained from other countries in the region (Thailand, Vietnam, and China), and are not easily accessible to farmers58. Despite widespread efforts to promote Good Agriculture Practices (GAPs) and Organic Agriculture (OA), adoption of GAPs has been low. The MAF (2015) Agriculture Development Strategy 2025 and Vision 2030 plan aim to achieve organic certification on a total cultivated area of around 34,377 ha by the year 2025. This goal was revised to 15,000 ha for OA and 10,000 ha for GAPs by 2030. Data available show that by the year 2021, 13,082 ha have been certified under OA and 103 ha under GAPs. The slow progress on the adoption of GAPs is due to the lack of technical capacity and awareness of the producers, and limited access to the use of agricultural inputs such as fertilizers. Laos’ agriculture is characterized by the lowest synthetic fertilizers and agrochemicals use in Southeast Asia (0.03 kg/ha over the 2010–15 period) and a significant use of organic fertilizers. This is considered an opportunity to raise profitability in the growing organic food production and market 59. However, farmers require approximately 2 million tons of fertilizer annually, but the country only produces 30% of that amount 60. The most common practice is applying organic fertilizer, such as rice husk and animal manure, with limited quantities of chemical fertilizers. Local companies produce and sell organic fertilizer from composted animal manure and rice straw but at a relatively high price. Crop residue burning remains a common practice, contributing to pollution and greenhouse gas emissions (GHGs). It is common practice that paddy rice is harvested by cutting the plant close to the gearheads and leaving most of the straw in the field for grazing animals. Towards the end of the dry season, fields and the remaining crop residue are burned to add ash to the soil, destroy weeds and control pests and pathogens in crops. Crop residue burning is an important source of air pollution contributing to air quality degradation and greenhouse gas emissions. It is also a risky practice for forest fires 61. However, 55 Manivong, V., & Cramb, R. (2020). From subsistence to commercial rice production in Laos. White gold: The commercialisation of rice farming in the lower Mekong Basin, 103-119. 56 Maung.A and Howeler.R (2022). Current situation and future prospects of cassava in Lao PDR. https://www.researchgate.net/publication/363852231_CURRENT_SITUATION_AND_FUTURE_PROSPECTS_OF_CASSAVA_IN_LA O_PDR 57 Ricardo Labarta1, Tesfamicheal Wossen and Dung Phuong Le The Adoption of Improved Cassava Varieties in South and Southeast Asia. The 9th ASAE International Conference: Transformation in agricultural and food economy in Asia 11-13 January 2017 Bangkok, Thailand 58 In 2023 the CGIAR has started piloting in Laos a manual to increase cassava productivity. https://alliancebioversityciat.org/publications-data?search_api_fulltext=Lao%20PDR&f%5B0%5D=year%3A2023 59 World Bank (2021). Northern Lao PDR Regional Economic Corridor and Connectivity Project. Project Information Document. 60 The Laotian time (2022). Laos to produce more fertilizer and animal feed amid supply chain turmoil 61 Wildfires spread from residue burning have been increasing but there is no detailed study of the magnitude of the environmental damage, or health damage. After the fires, most area is likely to be converted to cassava (e.g. in eastern Savannakhet, Khammouane and Bolikhamxay). There is the need to further investigate this encroachment. 11 farmers favor such practice due to its perceived benefits, including savings in the costs, and labor needed for straw management. Enhanced crop residue management e.g., through mulch and compost, is not much practiced. Unsustainable livestock production Most smallholders practice traditional animal husbandry techniques, with little or no investments in improved livestock rearing, or commercialization. Livestock productivity in Laos is strongly constrained by natural forage quantity and quality. Animals are grazed freely on roadsides and meagre grassland. Studies show that the quantity and quality of natural pasture in Laos is low, and that local grass species are of low nutritional value. 62 Livestock is grazed freely in paddy rice fields after harvesting since rice straw is the most abundant feed resource for ruminants. However, rice straw is low in protein, so it cannot support nutrient requirements for the increased performance of ruminants. 63 There is little room for boosting livestock productivity with prevailing practices. While there are many known techniques to improve livestock productivity, such as treating rice straw with urea or alkaline, molasses nutrient blocks, silage production, and forage production, they have not been implemented much in the country. Sociocultural norms related to livestock ownership, particularly for large ruminants, limit the potential for commercialization since animals are mostly kept as a store of value. Climate hazards Laos faces extremely high exposure to floods and severe storms, with important economic implications. The country is highly exposed to flooding including riverine and flash flooding, which also brings with it associated issues like landslides64. The south is more affected than the north, which has remained more stable in terms of rainfall or with only slight increases. Since the mid-1960s, the country has experienced about 25 significant flood events, ranging in magnitude 65. On average, floods and storms affect about 200,000 people per year with injuries and deaths 66. Average annual damage from flooding amounts at about US$159 million67. Over the last decades, floods affected more than 9 million people, with annual expected economic losses ranging 2.8- 3.6% of GDP 68. As an example, extreme flooding affected over 350,000 people in 2013, and the most recent major flood event in 2018 affected over 600,000 people, with 64 deaths and the destruction of farms and microenterprises along with disruptions to social services69. The six most flood-affected provinces are Attapeu, Champassak, Khammuane, Savannakhet, Vientiane, and Bolikhamxay 70. Severe storms are also associated with high economic impacts. Typhoon Bebinca in 2018 resulted in an estimated total damage of approximately $371 million, or about 2.1% of the country’s GDP, affected about 1 million people (Figure 7), and more than 100,000 ha of rice. 62 Napasirth, P., and Napasirth, V. (2018). Current situation and future prospects for beef production in Lao People’s Democratic Republic — A review. Asian-Australas J Anim Sci; 31(7): 961–967. 63Footnote 56. 64 The World Bank Group and the Asia Development Bank (2021). Climate Risk Country Profile: Lao PDR 65 Center for Excellence in Disaster Management (2017). Lao PDR Disaster Management Reference Handbook 2017 - Lao People’s Democratic Republic (the) | ReliefWeb,” May 25, 2018, https://reliefweb.int/report/lao-peoples-democratic- republic/lao-pdr-disaster-management-reference-handbook-2017. 66 Government of Lao PDR (2022). Second National Communication to the UNFCCC. . 67 Government of Lao PDR (2021). National Strategy on Climate Change of the Lao PDR Vision to the Year 2050, Strategy and Programs of Actions to the Year 2030. 68 Government of Lao PDR (2018). Post-Disaster Needs Assessment (PDNA): 2018 Floods Lao PDR.; 2018. 69 “Recovery and Resilience in Lao PDR,” Text/HTML, World Bank, accessed March 3, 2023, https://www.worldbank.org/en/news/feature/2019/04/09/recovery-and-resilience-in-lao-pdr. 70 Sutton, William R.; Srivastava, Jitendra P.; Rosegrant, Mark W.; Koo, Jawoo; and Robertson, Ricky. 2019. Striking a balance: Managing El Niño and La Niña in Lao PDR’s agriculture. Washington, DC: World Bank. http://hdl.handle.net/10986/31520 12 Figure 7. Natural hazard events and people affected in Laos Source: World Bank (2021). Climate Risk Country Profile for Lao PDR The country is also susceptible to droughts, although at a much lower risk than floods and storms. It faces an annual median probability of severe meteorological drought of around 4% 71. Drought exposure varies according to region. The least affected parts of the country are the highlands along the border to Vietnam. The central and southern parts of the country, particularly Attapeu, Saravane, Champasak, Khammuane, and Savannakhet provinces, experience the highest level of climate stress from droughts. In 1988–1989, severe droughts associated with El Niño caused about US$40 million loss in agricultural production, with national production declining by about a third. The droughts affected around 1 million people (8). Approximately 188,000 households are at risk of food insecurity due to droughts. 72 1.3 Policies, investments, and finance for a green transition in agriculture Laos is committed to further promoting investments in low-carbon sectors to achieve the 2030 goals for Sustainable Development and the objectives of the Paris Agreement. National policies, strategies, and plans, such as the Agriculture Development Strategy (ADS) to 2025 and Vision to 2030, the 9th Five Year National Socio-Economic Development Plan 2021-2025 (NSEDP), and the National Green Growth Strategy (NGGS) 2018-2030, were developed to integrate climate resilience and low carbon initiatives in national activities. The Green and Sustainable Agriculture Framework (GSAF) to 2030, which was developed in 2021 provides guidance in selecting priorities and strategic directions for the development of programs and activities in green and sustainable agricultural production. It is seen as key to operationalizing the National Green Growth Strategy and the Agriculture Development Strategy, through facilitating the formulation and implementation of coherent policy, programs, and investments in green and sustainable agriculture. However, clear action/investment plans for the operationalization of green and sustainable agriculture have not been developed. Annex 1a provides more information on the key policies and strategies for green and sustainable agriculture in Laos. Laos’ Nationally Determined Contribution (NDC) to the UNFCCC indicates the targets for achieving emissions reductions in the energy and AFOLU sectors and the adaptation objectives. The country has an ambitious target to reduce its GHG emissions in 2030 by 60% compared to the Business as usual (BAU) 71 WBG Climate Change Knowledge Portal (2019). Interactive Climate Indicator Dashboard. URL: https://climatedata. worldbank.org/CRMePortal/web/water/land-use-/-watershed-management?country=LAO&period=2080-2099. 72 Ministry of Natural Resources and Environment (2016). National Biodiversity Strategy and Action Plan for Lao PDR 2016-2025. 13 scenario 73. This will require concerted effort across all key emitting sectors including agriculture, forest, and other land uses (AFOLU), and energy. To address the gap in dry season electricity shortage, the government has vowed to diversify energy sources by emphasizing more investment in the renewable energy (from solar, wind, and biomass sources), together with the promotion of energy efficiency. A conditional target in the agriculture sector is the development of 50,000 hectares of improved water management practices in lowland rice cultivation, to reduce annual emissions by 0.13 MtCO2e between 2020 and 2030. For adaptation, the short-term target in agriculture for the year 2025 is to mainstream climate change adaptation in sectoral strategies and action plans. Long-term adaptation objectives are to promote climate resilience in farming systems and agriculture infrastructure and promote appropriate technologies for climate change adaptation, including nature-based and circular economy solutions. Some progress has been made towards advancing national targets for resilient and climate-smart agriculture in Laos, but more is still needed to implement actions and accurately track progress in forests and agriculture. On forestry, official data indicates that Laos has made advances towards meeting the targets to increase forest cover and reduce deforestation and forest degradation. For instance, records show that 62% of the target 70% forest covered territory has been achieved. However, methods and approaches to tracking progress may need to be improved to arrive at more accurate estimates of progress. For agriculture, areas under organic agriculture have increase substantially, while progress on GAP coverage has been very limited (see section 1.2 for explanation). There is also little progress made in meeting other agriculture related targets or limited information on progress as summarized in Table 3. Several ministries are active in implementing climate resilience toward low-carbon outcomes but are poorly coordinated and lack information on climate smart agriculture. Under the ministry of agriculture and forestry (MAF), various technical departments promote low-carbon agriculture transition technologies. However, the different departments of MAF have several challenges, which include a lack of information and databases to track investments in and impacts of resilient and low carbon agriculture (see Annex 1b). Under ministry of natural resources and environment (MONRE), the Department of Climate Change (DCC), the Department of Meteorology and Hydrology (DMH), and the Department of Environment and Pollution Control (DEPC) mainly support the implementation of climate actions. However, coordination and information sharing among these technical departments and ministries are not yet systematic. Table 3. Main targets concerning Green Agriculture in Laos74, 75 Resilient and sustainable agriculture targets Achievements and remarks in Laos Global Targets Reducing emissions below 70 tons of CO2e per In 2020, emissions reached 83.3 tons of CO2e per $millions of $millions of GDP by 2030 GDP (Green Growth strategy). Reducing emissions below 0.6 tons of CO2e per In 2014, emissions reached 5.5 tons of CO2e per capita (BUR capita per year by 2025 and 1.2 tons of CO2e per 2020, World Bank population data). capita per year by 2030 Targets concerning forestry 73 The Government of Lao PDR (2021). Nationally Determined Contributions (NDC). Available online at https://unfccc.int/sites/default/files/NDC/2022- 06/NDC%202020%20of%20Lao%20PDR%20%28English%29%2C%2009%20April%202021%20%281%29.pdf, accessed on 27 April 2023 74 MAF (2015). Agriculture Development Strategy 2025 and Vision 2030 75 The Government of Lao PDR (2021). First Nationally Determined Contribution (Updated Submission) 14 Covering 70% of the territory by forests by According to official data, in 2020, 62% of the territory was 2020 (16.58 million ha) 76 (postpone to 2030). covered by forest. However, most of the area falling in the ‘forest’ Also: category includes rubber trees which have replaced natural • 4,7 million ha of conservation forest forests because of the encroachment pattern of deforestation • 8,2 million ha of protection forest driven by crop expansion But, even accounting for rubber, 62% • 3,1 million ha of production forest forest cover is probably an overestimation77. Planting 500,000 ha of forests by 2020 78 Between 2016 and 2020, 555,000 ha were planted. Restoring of degraded forest area of 2,500,000 463,618 ha were restored by 2015. Forest restoration has ha by 2030 79 different strategies based on three forest categories: production, protection, and conservation forests. The main strategy for restoration of degraded production forests seems to be the establishment of tree plantations for commercial timber production. Eucalyptus is the common species80. However, the logging ban on natural timber ongoing since 2013 reduced options for investing in forest restoration through establishment of tree plantations81. Reaching 50% of the protection and Reduction of illegal forest logging through law enforcement conservation forests well-prevented and enhancement. The logging and export bans (2013 and 2015) managed by 203082 contributed to a slowdown in illegal logging for a few years. However, recent data show growing wood export into Vietnam 83. Targets concerning agriculture Challenges to implement resilient and low carbon agriculture include poor coordination with other key ministries, low capacity of technical staff and institutions, lack of data and information, poor knowledge, and limited incentives for farmers, also due to the lack of funding Promoting conservation agriculture, integrated Launched a series of programs agriculture, and climate smart agriculture Reducing of slash and burnt agricultural practices by 15% by 2030 Adopting better livestock feeding and manure Launched a series of programs management practices Restoring degraded soils Establishing 50,000 hectares of adjusted water management practices in lowland rice 76 The Government of Laos (2021). Nationally Determined Contribution 2021 - https://unfccc.int/sites/default/files/NDC/2022- 06/NDC%202020%20of%20Lao%20PDR%20%28English%29%2C%2009%20April%202021%20%281%29.pdf ; National Assembly Resolution No. 098/NA on the National Land Allocation Plan with version to 2030. 77 It is worth to notice here that the Lao Landscapes and Livelihoods (LLL) Project (https://projects.worldbank.org/en/projects- operations/project-detail/P170559) is conducting a Forest and Land use Zoning exercise to independently assess the actual good forest cover within the designated state forestlands. The results are expected in 2024. 78 Government of Lao PDR (2020). First Biennial Update Report of Lao PDR (BUR 1). It is still unclear if the 500,000 ha refers to the old target (achieved) or to a new 500,000 in addition to it to reach a total of 1M ha by 2030 (personal communication). 79 MAF (2021). Draft Revised Agriculture Development Strategy to 2025 and Vision to 2030 80 There are 600,000ha currently set aside for commercial tree plantations. However, such area has not been demarcated and the concession process is lengthy and unclear. It is estimated that 10% of such area is currently under plantation arrangements (personal communication). 81 The LLL project is conducting a survey on the restoration potential with the analysis of Permanent Sample Plots (PSPs). This analysis is expected to be completed in 2023 (personal communication). 82 Footnote 73 83 Illegal logging seems to have re-started, possibly caused by the economic crisis. Renovated sawmills in Savannakhet (near the Vietnamese border) can be observed and reports from district officers corroborate that despite the logging and export bans on natural wood, harvesting has re-commenced (personal communication). 15 cultivation to reduce emissions by 128 kt CO2e per year 84 Area under organic agriculture (ha), 15,000ha 13,082 ha certified for organic agriculture by 2030 85 Area under good agricultural practices (ha), 103ha certified for GAP 10,000ha by 2030 86 Irrigated area (ha), 916,366ha by 203087 Total harvested irrigated crop area (full control irrigation) in 2020 amounting at 439,000 ha (FAOSTAT data) Source: Authors Public sector investment in resilient and low-carbon technology is still very low and investments largely go to irrigation development. The government does not have the budget necessary to support agriculture related activities. On average, the agriculture sector receives around LAK 40 billion (or $4.9 million) per year from the government budget. This ends up being used mainly for irrigation maintenance and improvement (Table 4) 88, especially when severe natural disasters occur. The public budget leaves little to no room for public goods like research and development, demonstration of new technologies, and extension services, which are all vital for the implementation of resilient and low carbon technologies. Although limited, the government provides some subsidies such as small grants integrated into the activities of development projects, subsidized loans, and capacity building as part of the extension services to support resilient agriculture. The Ministry of Finance and the Bank of Laos are also developing a mechanism and policy to promote green financing scheme for small and medium enterprises. Table 4. Public investment plan for agriculture sector in Laos (million) 2019 2020 2021 Total PIP in agriculture sector 43,647 kip 47,625 kip 37,236 kip ($5.35) ($5.80) ($4.57) PIP for infrastructure construction and improvement 29,786 kip 7,099 kip 25,393 kip ($3.65) ($0.86) ($3.15) PIP for technical enhancement 11,861 kip 1,236 kip 11,343 kip ($1.45) ($0.15) ($1.39) Source: Authors. Note: $1= 8,150 kip (in 2019 and in 2020), 8,200 kip (in 2021) The government has made other efforts to support the agriculture sector through providing subsidized loans, guarantees, or interest rate subsidies for farmers. A fund for small and medium enterprises (SME), including those operating in the agriculture (crop and livestock) sector, was established in 2010 and funded by the Government but is limited in scale 89. It foresees a lending rate of 3% per year for enterprises operating in four priority sectors, including agriculture 90. The government has established a Credit Guarantee Facility (CGF), as an instrument to help increase access to finance for businesses that do not have enough collateral and provide more incentive for banks to consider providing credit to risky sector like agriculture as well. The government is also a shareholder of the only two commercial banks operating in the farming sector (Agriculture Promotion Bank (APB) and Nayobay Bank (NBB)), with APB as the most critical financial provider for the agriculture sector. Approximately 80% of its loan portfolio is directly to 84 The Government of Lao PDR (2021). Nationally Determined Contribution 2021 https://unfccc.int/sites/default/files/NDC/2022-06/NDC 2020 of Lao PDR (English), 09 April 2021 (1).pdf 85 Footnote 73 86Footnote 73 87 Footnote 73 88 MPI (2019, 2020, 2021). Public Investment Plan for Agriculture Sector for 2019-2021 89 DOSMEP (2023). SMEs Fund. Retrieved from https://dosmep.org/sme-fund-2/sme-fund/. 90 There has not been any replicate of such SME Fund dedicated to the agricultural sector. 16 farmers and 20% to Micro, Small and Medium size Enterprises (MSMEs)91. Nevertheless, it has been plagued by a high level of Non-Performing Loans (NPL), due to the ‘one-size-fits-all’ financial products and is not used by farmers to finance inputs for annual crops because of the annual to monthly repayments it prefers to lower transaction costs. The private sector should play an important role in financing green technology in the country but does not actively engage smallholder farmers. The Ease of Doing Business report ranks the country at 154 of 190 countries in 2020 92 indicating unconducive environment for private investments. Commercial bank credit in 2021 was US$8,958 million, of which only 7.6% was allocated to the agriculture sector (Figure 8). Only 14% of smallholder farmers have access to traditional banking credit 93, and only 2% receive loans from the 73 microfinance institutions operating in the country 94 (Figure 8). Lending to small scale agro- processors by commercial banks is also limited. The reluctance of commercial banks to extend credit to the agriculture sector stems from various factors, including: (i) the inherent risk associated with agricultural activities, including unpredictable weather conditions, vulnerability to pests and diseases, and fluctuating market prices and the ability of borrowers in the sector to generate consistent income and repay loans95; (ii) farmers keep inadequate financial records limiting the possibility to assess their creditworthiness; (iii) insufficient collateral options for smallholders, mostly due to lack of land titles for farm activities (only 11% of farmland possess a land title that can be used as collateral) and the absence of other forms of collateral 96. On the other hand, where farmers have access to commercial bank lending, credit access procedures are too complex for the farmers and loans are ill-adapted to the farmers’ needs. With a limited national budget and private sector financing, Laos is highly dependent on the international development community to finance climate action in agriculture. The role of multilateral and bilateral development organizations in climate action is outsized, yet also tending to be lop-sided in favor of adaptation action and less on climate mitigation or reduction of the environmental externalities caused by agriculture. Annex 1c shows some recent projects in green and sustainable agriculture in Laos. The country will need to maximize all forms of financing possible to drive more action in resilient and low carbon agriculture. 91 The loan products include subsidized loan, group loan and individual loan. The interest rates for short-term (term ≤1 year) is 9-10.5%, e.g., chicken raising, for medium-term is 9.3-11.3% for medium-term (1< term ≤3 years), e.g., livestock and for long- term (3< term ≤5 years) is 10-12%. Group loan is a group of farmers who set up a group to produce agricultural product with equally responsibility over the loan on voluntary basis to borrow from APB. The member of the group includes 3 to 5 borrowers with 1 head of group designated to manage repayments; loan size capped at 30 million kip. No formal collateral required, simply a group guarantee. Individual loans have average loan size is 30 million kip. ‘Golden land title’ required as collateral. Loan size capped at 70% of land value. 92 World Bank, May 2019, https://archive.doingbusiness.org/en/rankings 93 MAF (2020). Agriculture census 2019/2020. 94 Bank of the Lao PDR website https://www.bol.gov.la/en/Money_and_Banking 95 Wongpit, P., & Sisapangthong, V. (2022). Willingness to pay of rice farmers in Lao PDR on agriculture insurance. Thammasat Review of Economic and Social Policy, 8(1), 49-66. 96 Wongpit, P., Inthakesone, B., Sisengnam, K., Insisiengmai, S., Bounphakaisone, S. (2018). Farmers access to credit. Building and Evidence Base for Policy Fomulation in the Agriculture and Rural Development Sector in Lao PDR, National Agriculture and Forestry Research Institute. 17 Figure 8. Commercial bank credit in Laos (million $) 10,000.00 5,000.00 - 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Industry and Handicraft Construction Materials and Technical Supplies Agriculture Commerce Transportation Services Other Sector Source: Bank of the Lao PDR (2023). Annual Report2012-2021 97 97 Bank of Lao PDR (2023). Annual Report 2012-2021 of Bank of the Lao PDR (www.bol.gov.la/en/annualreports) 18 Chapter 2: Coping with Climate Risk through Green and Resilient Improved Technologies 2.1 Climate risks and vulnerabilities Future climate hazards Climate change will lead to chronically heat stressed farming environments. Laos has already observed temperature increases, with most areas experiencing an increase in maximum and minimum temperatures of 1.2 °C since 1850. Climate models98project an increase of up to 2°C in the 2050s and 4.1°C by the 2090s compared to the 1986–2005 baseline, under the highest emissions pathway (RCP8.5). This reduces to 1.2°C in the 2050s under the lowest emissions pathway (RCP2.6). These translates into a projected country mean annual temperature of 28 °C (±1 °C) in 2100 under RCP8.5 compared to 24.5 °C (±1 °C) under RCP2.6. The highest increase in temperatures is projected to occur during the hottest months of April and May. The increase in temperature will also lead to an increase in the number of days with maximum temperature above 35°C (moving from approximately 40 days to 50–110 days by the end of the century and depending on the emissions pathway and climate model). Intense rainfall events will increase in frequency while global warming will increase the incidence of extreme river flows and associated flooding risks. Laos has already experienced precipitation increases in some parts of the country, particularly in southern provinces. Most ensemble models also suggest that future climates will have increased annual precipitation rates. Uncertainty in precipitation trends remains high, as reflected in a wide range of model estimates. However, a comparison of multiple modelling projects shows that there is reasonable confidence that the country will experience an increase in heavy rainfall events in the future (Table 5). Studies show that East Asia would face an increased frequency of occurrence of extreme river flow caused by global warming (what would historically have been a 1 in 100- year flow, could easily become a 1 in 50-year or 1 in a 25-year event in the region 99). The country could experience changes in the spatial distribution of precipitation. Certain areas will receive more rain while others receive less. For example, northern provinces are expected to receive less rain (< 1500 mm cumulative annual mean) compared to 1990-1999 baseline by 2050. Additionally, climate model projections indicate that the country could see a relative increase in the number of dry days. The potential shifts in timing of monsoon will also present important challenges to farming. Early monsoon arrival can cause flood damage while late monsoon arrival can lead to water stress. Uncertain timing and changes in rainfall patterns also highlight the need for improved water management and irrigation services in the country. Although some models indicate a reduction in total rainfall in Laos, the probability of future average decrease in rainfall is low (Table 6). 98 The World Bank Group and the Asian Development Bank (2021). Climate Change Country Profile: Lao PDR https://climateknowledgeportal.worldbank.org/sites/default/files/2021-06/15505-Lao%20PDR%20Country%20Profile-WEB.pdf 99 Homero, P. et al., (2018). Global Implications of 1.5 °C and 2 °C Warmer Worlds on Extreme River Flows, Environmental Research Letters 13, no. 9 (August 2018): 094003, https://doi.org/10.1088/1748-9326/aad985. 19 Table 5. Projections of average temperature change (°C) for different seasons (3-monthly time slices), time horizons and emissions pathways, showing the median estimates of the full CCKP model ensemble and the 10th and 90th percentiles in brackets. Source: The World Bank Group and The Asian Development Bank (2021). Table 6. Climate hazards identified based on the CCKP ensemble 100, the results of SAMIS101(Box 3. System of Rice Intensification (SRI)), IPCC Interactive Atlas102 and CORDEX-CORE 103 models. Hazard Source Agreement Confidence Impact CCKP-CMIP5 High Increase in Increase in mean SAMIS (No information) evapotranspiration which temperature CMIP6 High High must be met by an increase CORDEX-CORE High in water supply Increase in number of CCKP-CMIP5 (No information) Suppression of ovary days with maximum SAMIS (No information) fertilization and grain filling temperature above 35 CMIP6 High High process ℃ CORDEX-CORE High Reduction in CCKP-CMIP5 (No information) precipitation SAMIS Medium Reduction in yield, crop Low CMIP6 Low failure CORDEX-CORE Low CCKP Medium Increase in heavy SAMIS (No information) Anoxia, damage to seeds rainfall events CMIP6 Medium Medium and seedlings, soil erosion CORDEX-CORE High CCKP-CMIP5 Medium Increase in number of SAMIS (No information) Yield reduction, increase dry days CMIP6 (No information) Medium demand for irrigation CORDEX-CORE High Source: Authors. Model agreement has been calculated qualitatively based on the suggested results of CCKP, SAMIS, CMIP6 GCM, and CORDEX-CORE climate models. 100 https://climateknowledgeportal.worldbank.org/ 101 FAO. Strengthening Agro-climatic Monitoring and Information System (SAMIS). https://www.fao.org/in- action/samis/overview/en/ 102 https://interactive-atlas.ipcc.ch/ 103 https://cordex.org/experiment-guidelines/cordex-core/ 20 Box 2 SAMIS modelling approach Results from the “Strengthening Agro-climatic Monitoring and Information Systems (SAMIS) to improve adaptation to climate change and food security in LAO PDR” project were used to inform the analysis presented on climate change impacts. SAMIS was developed to increase decision-making and planning capacity for the agricultural sector at national and decentralized levels in Laos. It provides downscaled climate projections for Laos and the results of pyAEZ (python version of the FAO Agro-ecological Zoning tool) which simulates maximum obtainable crop yield based on climate, plant, and soil characteristics. The crop results are available for Maize, Cassava, Robusta Coffee, Banana, and Rice under RCP 2.6 and RCP 8.5 scenarios. The results of SAMIS are available online (https://lrims-dalam.net/). Yield levels are grouped into 5 classes (from very low to very high) that equally divide the range between maximum and minimum simulated potential yields for each crop. Projected changes (increase or decrease) in yield classes are calculated as difference in yield levels between present (2010-2019) and future periods up to 2099. The climate projections and subsequent crop simulations carry inherent uncertainties which are due to an incomplete understanding of Earth's system and its interactions with crops; natural variability in climate; the limitations of climate and biophysical models to numerically represent the reality; biases; and emissions of greenhouse gases in the next decades. Here, the results are presented for the ensemble of simulations. Source: Authors Vulnerability and adaptive capacity The southern provinces are the most exposed to future climate risks. Most cropland is rainfed and is in the southern provinces (Champassak, Saravane, and Savannakhet), with higher population density ( Figure 9). Such areas show high climate exposure both for agriculture systems and human capital. Model projections under the SAMIS project 104 also show a possible decease in precipitation in these provinces, particularly in Savannakhet. Most provinces have limited capacity to adapt to climate hazards. Out of the 17 provinces in Laos, Houaphan, and Savannakhet are the two provinces with medium to high adaptive capacity. Champassak, Xekong, Saravane, Vientiane Capital and Oudomxay follow with a low to medium capacity ( Figure 9). The other ten provinces have low capacity to adapt to climate change, due to extreme poverty rates, poor connectivity, and limited access to agricultural services like irrigation, extension, and financial services. This indicates that most of the country has fragile adaptive capacities in the face of growing climate hazards. With low adaptive capacity, climate hazard risks could significantly impact agriculture. The low level of adaptive capacity in the country, particularly in the northern and southern provinces makes the agriculture sector particularly vulnerable to climate-related risks. For instance, an increase in mean and maximum temperatures will intensify evapotranspiration, and if an increase in water supply does not meet this evaporative demand, substantial agricultural losses will occur. Other climate hazards will also impact agriculture (see Table 6). 104Strengthening Agro-climatic Monitoring and Information System (SAMIS). https://www.fao.org/in- action/samis/overview/en/ 21 Figure 9. Lao provinces with (a) highest percentage of crop cover, (b) highest population, (c) lowest adaptive capacity index. a. b. c. Source: SAMIS project (2022). Climate change impact on crops Projected warmer temperatures and delays in the onset of the rainy seasons are expected to decrease maize yields, especially for areas along the border with Thailand (Figure 10a). Extreme weather events will be the primary cause of negative impact on maize productivity 105 especially in the provinces bordering Thailand where maximum temperatures can surpass 30℃ and will likely exceed the thresholds for optimal maize production. Simulated future crop yields show that agricultural inputs are a major constraint on achieving high productivity106. Medium-maturing varieties appear to perform better under climate change. The northeastern provinces will experience only limited negative impacts of climate change or will even benefit from modest improvement in maize production. Increasing temperatures will decrease the occurrence of below-optimal temperatures for maize production in those regions. Cassava, a climate-resilient crop due to its stable performance under low soil fertility and water availability107, will be moderately impacted by climate change. Figure 10b shows that the negative effect of climate change is less severe for cassava relative to other crops. A decrease in potential yield of cassava can be seen mostly in the central and northern provinces of the country, especially in the 2050s. The negative impacts of climate change will come from dry spells, heavy rainfall and flooding which will enhance weather-related pests and diseases, including the cassava witches’ broom disease and the cassava mosaic Disease 108. Projections also show that early maturing varieties of cassava will retain higher potential yields in the future than late maturing ones, particularly in southern provinces. If nutrient 105 GIZ (2013). Climate Proofing of the Rice and Maize Value Chain in Sayabouri, Laos, https://asean-crn.org/climate-proofing- of-the-%E2%80%A8rice-and-maize-value-chain%E2%80%A8-in-sayabouri-laos/. 106 Footnote 93 107 Assefa B. Amelework et al., (2021). Adoption and Promotion of Resilient Crops for Climate Risk Mitigation and Import Substitution: A Case Analysis of Cassava for South African Agriculture,” Frontiers in Sustainable Food Systems https://www.frontiersin.org/articles/10.3389/fsufs.2021.617783. 108 Souvannavong, P. (2021). Value Chain Analysis of Cassava in Lao PDR. Australasian Agribusiness Perspectives 2021, Volume 24, Paper 13 ISSN: 2209-6612 Postgraduate student, Centre for Global Food and Resources, University of Adelaide 22 applications are not improved, cassava production will impact soil erosion, soil fertility, and land degradation 109, with negative effects on cassava yields. Extreme weather events will have detrimental effects on coffee production resulting in low and unstable yields and low-quality coffee beans. High rainfall and temperature increase will have a severe impact on coffee production. Projected increasing temperatures and changes in rainfall patterns are expected to impact the suitability of both Robusta and Arabica coffee production areas. Maximum potential yield of Robusta varieties is projected to particularly increase in central areas, while northern and southern provinces are projected to experience a decrease (Figure 10c). Robusta varieties have higher yield potential than Arabica ones 110. Studies conducted in Vietnam’s Central Highlands show that lower than average rainfall during the late growing season can increase the risk of below-average coffee bean size by 80%, whereas high rainfall and minimum temperatures above 22 °C during harvest period can increase by 75% the risk of above-average coffee bean defects. High rainfall and temperatures increase pests and disease spread (e.g. coffee berry borer, mealybugs, mold spread), causing mold and damaged beans at flowering, growing and harvest stages111. Banana production will be negatively affected by climate change through increased erosion and incidence of diseases. Banana yields will decline mostly in Savannakhet province, Vientiane capital, Vientiane province, Champassak and Khammuane provinces 112 (Figure 10d). Negative impacts are likely to emerge from heavy rainfall, floods, and droughts, which could increase erosion and incidences of diseases (e.g. banana bunchy top virus), which are already affecting the crop in Vientiane province 113. Banana production can grow as an effect of climate change in provinces where current production is marginal. Suitability of banana production could change from marginal and moderate to high in Xieng Khuang province, and from marginal to moderate in Bolikhamxay and Oudomxay provinces, driven by the benefits of warming temperatures. 109FAO and International Automatic Energy (2018). Cassava Production Guidelines for Food Security and Adaptation to Climate Change in Asia and Africa. https://www-pub.iaea.org/MTCD/Publications/PDF/TE1840_web.pdf 110 “News | Strengthening Agro-Climatic Monitoring and Information System (SAMIS) | Organización de Las Naciones Unidas Para La Alimentación y La Agricultura.” 111 Jarrod Kath et al., (2021). Temperature and Rainfall Impacts on Robusta Coffee Bean Characteristics, Climate Risk Management 32 (January 1, 2021): 100281, https://doi.org/10.1016/j.crm.2021.100281. 112 FAO (2022). Exploring banana futures: Building banana sustainable and climate resilient pathways in Lao People’s Democratic Republic. Available online at https://www.fao.org/3/cc2849en/cc2849en.pdf, accessed on 26 April 2023. 113 Khonesavanh Chittarath et al., (2022). Presence and Distribution of Banana Bunchy Top Virus in Laos,” Australasian Plant Disease Notes 17, no. 1 (November 9, 2022): 36, https://doi.org/10.1007/s13314-022-00482-y. 23 Figure 10. Projected changes I maximum potential yield for various crops (maize, cassava, Robusta coffee, banana, and rice under RCP2.6 scenarios and rainfed conditions simulated under the SAMIS project using pyAEZ. Red areas indicate a reduction in potential while light green indicate areas with a projected increase in potential yield relative to baseline. [Dark green is protected forest area] a. Projected changes in potential yield of medium-maturing varieties of Maize for 2031-2040 (left), and 2051-2060 (right) b. Projected changes in potential yield of early-maturing varieties of Cassava for 2031-2040 (left), and 2051-2060 (right), relative to 2010-2019 c. Projected changes in potential yield of Robusta coffee varieties for 2031-2040 (left), and 2051-2060 (right), relative to 2010-2019 d. Projected changes in potential yield of medium-maturing varieties of banana for 2031-2040 (left), and 2051-2060 (right), relative to 2010-2019 24 e. Projected changes in potential yield of late- maturing varieties of rice for 2031-2040 (left), and 2051-2060 (right), relative to 2010-2019 Source: SAMIS project (2022) Heavy rains, heat stress, typhoons and flooding will affect rice production, but growing rice will still be possible in many parts of the country. Lowland rice production is more susceptible to flooding than upland rice. The most severe impacts of climate change on rice will be in the Bolikhamxay, Khammuane, Champassak, and Attapeu provinces. Heat stress from daily maximum temperatures above 35°C will adversely affect wet-season rice by limiting rice flower pollination, increasing evapotranspiration, decreasing water availability during the dry season, and reducing soil productivity during droughts 114. The choice of rice varieties and optimal agricultural management strategies can have a substantial effect on moderating the negative impact of climate change on wet-season rice production 115. Late-maturing varieties have the highest yield potential, particularly with high level of agricultural inputs use, and are projected to retain high yield potential in southern and northern provinces of the country (Figure 10e). Climate change impact on livestock Increasing temperatures will have detrimental effects on livestock through heat stress, diseases, and pastures loss. Most livestock species show a medium-high vulnerability to climate change. Table 7 summarizes the levels of risk from extreme temperatures for all livestock systems in the country, and their capacity to adapt. Heat stress could reduce productivity. Small commercial poultry production is particularly vulnerable to excessive temperatures in the Lower Mekong Valley as the optimal temperature ranges between 18-21°C and above 21°C animals experience a voluntary reduction in feed intake and growth rates. Rising temperature increases the likelihood of disease outbreaks through changing pathogen viability, vector population, and disease spread. It will kill animals and result in a substantial economic loss. Frequent and extended dry periods and droughts will affect fodder production and pastures, which will result in low-quality and insufficient feed for a sector which is already experiencing feed shortage. Heavy rains will cause rivers to overflow and flood many areas, destroying animal shelters and pasture, and killing livestock. 114“Derisking Delta-Oriented Value Chains in Cambodia, Vietnam and Myanmar.” 115“News | Strengthening Agro-Climatic Monitoring and Information System (SAMIS) | Organización de Las Naciones Unidas Para La Alimentación y La Agricultura.” 25 Table 7. Climate vulnerability of livestock systems in the lower Mekong 116 Livestock system Extreme high temperature impacts Adaptive capacity Vulnerability Smallholder cattle/ buffalo Low Low Medium Dairy/ large commercial Very high High High Small commercial pig High Medium High Smallholder low-input pig Low Low Medium Small commercial chicken Very high Low Very high Scavenging chicken Low Low Medium Field-running layer duck Very low Low Low Source: USAID (2013). Climate change impact on agricultural value chains Agricultural value chains are exposed to climate hazards particularly through weak post-harvest storage and processing infrastructure. Weak access to milling facilities and use of traditional methods for paddy rice processing such as sun drying increases rice exposure to extreme weather events and can lead to grain quality degradation 117,118. In Southeast Asia, temperatures between 25-30°C, combined with high water activity and relative humidity between 88-95% constitute an enabling environment of mycotoxin growth in rice bran 119. Grain is frequently stored in inappropriate units, such as wood-based storage units, leading to losses due to the spread of fungi, mold contamination, and pest attacks, which contribute to 10% of grain losses during the dry season, and 7% losses during the wet season. Without appropriate storage and processing facilities, future climate change will entail that bananas quickly ripen under elevated temperatures, causing quality and shelf-life reduction. High temperatures and relative humidity are the primary cause of mold and mycotoxin spread during coffee storage. Heavy rainfall and flooding events cause the rewetting of dried coffee beans. The oxidative deterioration of cassava in the post- harvest phase cause changes in the root color, particularly where there are cuts and bruises. This is worsened by relative humidity conditions of 65-80%. The process of drying fresh cassava roots into chips causes a weight loss of 53-57%, which varies depending on the moisture and starch content of each variety. The roots are sliced and placed to be sun-dried for 3-5 days, leaving them to be exposed to weather-related hazards such as extreme rainfall events, high relative humidity, hot temperatures, and direct sunlight. Extreme heavy rainfall and flooding are the principal cause of road infrastructure damage, with negative impact on market access. The occurrence of extreme weather events can hinder access to post-harvest facilities and markets, especially where roads are not climate proofed. Farmers often leave their produce in storage for prolonged periods, which increases the risk of fungal and pest attacks. The weak road 116 Jeremy Carew-Reid et al., (2023). USAID Mekong ARCC Climate Change Impact and Adaptation Study: Summary, https://doi.org/10.13140/RG.2.2.34024.37120. 117 Fukai. S and Mitchell. J, (2019). Final Report Mechanization and Value Adding for Diversification of Lowland Cropping Systems in Lao PDR and Cambodia. Publication code: CSE2012-007. Australian Center for International Agricultural Research 118 World Bank (2018). Commercialization of Rice and Vegetable Value Chains in Lao PDR: Status and Prospects. © World Bank 119 Siri-anusornsak et al., (2022). The Occurrence and Co-Occurrence of Regulated, Emerging, and Masked Mycotoxins in Rice Bran and Maize from Southeast Asia. Toxins (Basel). 2022 Aug 19;14(8):567. doi: 10.3390/toxins14080567. PMID: 36006229; PMCID: PMC9412313. https://pubmed.ncbi.nlm.nih.gov/36006229/ 26 network and the remoteness of farming areas reduces the presence of market off takers in the areas of production, which increases transportation costs and disrupts traders’ mobility under heavy rains. Furthermore, at farm gate farmers sell their produce to small-scale collectors and market intermediaries without much flexibility to set adequate prices, with negative effects in terms of price profitability. 2.2 Technologies and practices for climate-resilient agriculture Without urgent action, climate change will continue to place the Lao agriculture sector at risk. Adopting green and climate-resilient technologies and practices is an opportunity to improve farming efficiency and agriculture productivity, while adapting to climate change, and lowering the sector’s GHG emissions and other environmental impacts. We discuss technologies which are feasible and scalable for Lao agriculture, based on evidence from trials, pilots, and projects implemented in the country and the region (these are summarized in Table 10). Climate resilient, improved crop varieties Laos should promote climate-resilient and improved crop varieties, which can address emerging climate change effects in different provinces. Improved varieties can address abiotic stresses such as drought and heat (drought resistant), flooding (water stress tolerant), and changing growing season timing (early maturing), and pests associated with changes in weather or climate patterns (disease and pest resistance). The country has a long-standing successful breeding program for rice dating back to the 90s. The breeding emphasized resistance to pests and diseases, and drought suitability in the central and southern provinces, creating seventeen varieties by the year 2006, and has recently focused on developing resilient varieties for specific environments120. They will be very important in the future as climate change will evolve differently across the country, demanding a shift in seed varieties. For instance, paddy rice production will require high yielding submergence tolerant varieties in the south of the country given projections of moderate-to-high risk of extreme rainfall events. Farmers involved in a participatory consultation on variety selections chose the TDK1-Sub1 (glutinous) and IR64-Sub1 (non-glutinous, early maturing) varieties as the most drought- and submergence-tolerant varieties in the lowland areas. For cassava, the government will need to surmount the current high use of local landraces (43%) and expand access to improved varieties, such as high yielding, flood tolerant, disease-resistant, and early maturing varieties, especially in the south. However, the country does not have a research and breeding agenda for cassava as established for other crops like rice. System of rice intensification (SRI) SRI is based on cultivating rice based on four fundamental principles that address plant, soil, and water management. These include the early establishment of healthy plants, low plant density, soil enrichment and the sparing application of water (Box 3). SRI provides benefits of vigorous root development and plant growth under low input practices like wetting and drying cycles during the first 50 days after transplanting. For successful implementation of SRI, the use of organic fertilizers should be integrated with training on pest and weed management since organic fertilization could enhance the proliferation of weeds and pests. 120Mullen, J., Malcolm, B., and Farquarson, B., (2019). Impact Assessment of ACIAR-supported Research in Lowland Rice Systems in Lao PDR. ACIAR Impact Assessment Series No. 97. Canberra: Australian Centre for International Agricultural Research. 5 FROM SUBSISTENCE TO COMMERCIAL RICE PRODUCTION IN LAOS 27 Box 3. System of Rice Intensification (SRI) 121 SRI was pioneered in the mid-1980s originating from unusual practices in farmers’ fields in Madagascar. The main practices of SRI are: 1. Early transplanting of young seedlings (less than 15 days old, preferably 8–12 days), contrary to the conventional practice of transplanting 20–60-day-old seedlings. 2. Transplanting one or two seedlings per hill, in contrast to a bundle (4–5) of seedlings per hill. 3. Wide spacing (more than 20 × 20 cm, in contrast to narrow (10–15 cm) or random spacing. 4. Alternate wetting and drying (AWD) to maintain moist, aerobic soil conditions, in contrast to continuous flooding from transplanting to maturity. Proponents of SRI often advocate using compost or manure instead of chemical fertilizers to enrich soils with organic matter. SRI is often considered a pro-poor rice management practice despite its complex, knowledge-intensive nature. It has been disseminated among low-and medium-income farmers in developing countries. The four core SRI principles described above are typically recognized as a package, as they are believed to have synergistic effects. However, actual practices can vary among farmers across places as SRI can be adapted to each specific locality and has been continuously evolving based on participatory on-farm trials. System of Rice Intensification (SRI) has been promoted in the Lower Mekong River Basin between 2007- 2018. Farmers reported higher yields and profits from paddy grown with SRI 122, A total of 2,134 Lao farmers in nine districts covering three provinces (Vientiane, Khammuane, and Savannakhet), who adopted SRI reported paddy yield increases between 27-35%, with respect to current yields of about 4.2 t/ha, obtaining 5-6 t/ha 123. Economic studies in other countries have shown significant profit increases (44%) for farmers practicing SRI 124. Such technology is suitable for poor Lao farmers because it can achieve yield gains without increasing external inputs demands. It favors organic manure over chemical fertilizers, which is consistent with the low chemical fertilizer application level in the country. Rice emissions primarily come from the anaerobic breakdown of organic matter in wetland rice. Methane (CH4) emissions from rice cultivation can be limited with adjusted water management. Alternate Wetting and Drying (AWD) practices can help to manage water use, while decreasing GHG emission contributions of rice production. The water management component of SRI can contribute to the national goal of improving water management practices in lowland rice cultivation (target area is 50,000 hectares), which aims to reduce emissions by 128 ktCO2e annually between 2020- 125. Research shows that SRI practices increase yield in Laos on average by 39% while reducing tCO2e/ha GHG emissions by 33% in irrigated rice cropland and 44% in rainfed rice cropland. 126 Rice productivity can also be increased by shifting to a rice 121 Takahashi, K. (2022). A UFO? Assessment of System of Rice Intensification from the Agricultural Economics Perspective. In Agricultural Development in Asia and Africa: Essays in Honor of Keijiro Otsuka (pp. 87-97). Singapore: Springer Nature Singapore. 122 Sustaining and Enhancing the Momentum for Innovation and Learning around the System of Rice Intensification (SRI) in the Lower Mekong River Basin (SRI-LMB), http://www.sri-lmb.ait.asia/ 123 http://sri.ciifad.cornell.edu/countries/laos/index.html 124 Takahashi, K., (2022). A UFO? Assessment of System of Rice Intensification from the Agricultural Economics Perspective. In Agricultural Development in Asia and Africa: Essays in Honor of Keijiro Otsuka (pp. 87-97). Singapore: Springer Nature Singapore. 125 Government of the Lao PDR (2021). Nationally Determined Contribution 2021 126 Mishra. A, Ketelaar. JW, Uphoff. N, Whitten. M. (2021). Food security and climate-smart agriculture in the lower Mekong basin of Southeast Asia: evaluating impacts of system of rice intensification with special reference to rainfed agriculture. International Journal of Agricultural Sustainability.;19(2):152-174. doi:10.1080/14735903.2020.1866852 28 variety with higher drought tolerance. It was estimated to increase yield by 7% on average in Laos 127. However, overall, adoption has been poor in Laos. SRI tends to initially be labor intensive, which is a disincentive for some farmers. Also, investments are required to upgrade systems to a standard that would allow for such practices. Further investigation can help to establish identify investments required to upgrade current irrigation systems to be more compatible with SRI. Agroecological practices Agroecology approaches to farm management can improve agricultural land productivity, and limit encroachment of cropland into forests. One of the major challenges of the agriculture sector in Laos is continued encroachment into natural areas like forestland, driven primarily by rapid expansion of cassava and coffee on rapidly deteriorating soils, conditions which are likely to be worsened by climate change. This is of particular concern in the uplands. Agroecology provides options for farmers to increase productivity and resilience through sustainable production systems more in harmony with nature. It enhances biological interactions and synergies among the components of agrobiodiversity, thereby promoting key ecological processes and services. The application of different agroecological practices at farm and landscape level can enhance the function of natural ecosystems akin to ecosystem-based adaptation approaches and nature-based solutions. An example is agroforestry systems, which are known to improve food productivity while enhancing biodiversity conservation, and ecological restoration under changing climate conditions 128. Agro-ecological practices are also important for other crops where potential yields in Laos have not yet been achieved due to decreasing soil organic carbon (SOC) from poor soil management (like coffee, and maize). Poor soil management practices, such as crop residue removal and deep tillage, can lead to a 70% reduction in SOC 129. In such a situation, organic manure application as an agroecological approach can be promoted to sustain the health of soils and ecosystems. Sustainable intensification through creating conditions for soil protection, soil fertility restoration, and diversification (both of crops and practices) is the principal action to achieve agroecological outcomes in Lao agriculture. This is particularly important given that current monocropping practices for cassava, coffee, and maize are over-mining and degrading soils, reducing cropland biodiversity, and promoting continued expansion of agriculture on new lands. Since climate change will add more pressure through more dry days, intense rain events and soil erosion, three main approaches can address these challenges. (i) Agroforestry – will replace land clearing and monocropping, while reducing heat stress, maintaining soil fertility, soil-water balance, and contributing to diversification of production. (ii) Cultivar selection – will ensure that farmers use the most locally suited, climate adapted high yielding varieties to maximize their yields, under climate change pressures. (iii) Direct seeding mulch-based cropping (DMC) - Intercropping, cover cropping, crop rotation, and organic mulching - will tackle soil erosion, soil degradation and nutrient leaching exacerbated by heavy rainfall and flooding events, and evapotranspiration from drought. Applying this diversified agronomic package in Laos will reduce farmers’ application of fertilizers, build resilience to climate change by reducing water use, erosion, and nutrient loss, boost net incomes and reduce GHG emissions. The diversified agronomic package DMC (rotating crops, intercropping, cover 127 Inthapanya, P. (2015) New High Yielding Promising Glutinous Rice Line TDK37-B-9-1-3-B. The Lao Journal of Agriculture and Forestry. 128 Paudela, D., K.R. Tiwaria, R.M. Bajracharyab, N. Rautb, and B.K. Sitaulac, (2017): Agroforestry system: An opportunity for carbon sequestration and climate change adaptation in the Mid-Hills of Nepal. Octa J. Environ. Res., 5, 10 pp. 129 L. K. Mann, “Changes in Soil Carbon Storage After Cultivation,” Soil Science 142, No. 5 (November 1986): 279. 29 crops, organic manure application), cultivar mixtures, and agroforestry is suitable for sustainable production in the context of climate change. This has potential benefits for cassava production, known for severely depleting soil nutrients and necessitating the regular opening of virgin land. If cassava production is not accompanied by integrated soil management (including nutrient management), cassava production will exacerbate climate change impacts on soil erosion, soil fertility, and land degradation130. Over the past decades many agroecological options have been tested successfully in Laos to support sustainable intensification of upland agriculture. For example, diversified cropping systems based on agroecological principles have proved effective in restoring degraded soils and improving agricultural productivity while limiting the use of external chemical inputs 131. Practices such as intercropping, and agroforestry using shade trees in coffee to reduce increasing temperatures and drought impacts on ripening of cherries, pest and disease attacks, and evapotranspiration have been successfully tested. Organic mulching using pruned branches and coffee leaves during drier than average conditions have been shown to increase yields by 7% and economic benefits by 10% through improved soil moisture, nutrient application, and reduced weeds, compared to coffee farmers not adopting such practice 132. In central provinces, Persea kurzii trees have been grown on rice and banana fields generating raised financial income for farmers 133. Intercropping with fast-growing crops such as pumpkin or Leguminosae such as Leucaena (which acts as a nitrogen-fixing plant) and followed by lemon grass, contributed to reducing soil erosion and nutrient leaching under heavy rainfall and flooding events 134. Climate-proofed irrigation systems Irrigation can effectively reduce exposure and vulnerability of crops to climate change by reducing dependence on rainfall for meeting crop water demand. As shown in Table 8, irrigation can help crops to cope with heat and water stress caused by climate change, reduce climate variability, and contribute to climate adaptation 135. Maize, rice, and cassava yield losses from climate change under irrigated conditions are at least half of those under rainfed conditions (irrigation can moderate the negative impacts of climate change by a factor of 2.5 for rice, 2.2 for maize, and 1.9 for cassava). Table 8. Projected changes in crops yields for RCP 6.0 with different climate and crop models from the ISIMIP model ensemble Average change Minimum Maximum Irrigated Maize -5% -9% -1% Rainfed Maize -11% -49%, +3% Irrigated Rice -6% -13% +14% Rainfed Rice -16% -30% +14% Irrigated Cassava -10% -17% +11% 130 “TE1840_web. Pdf,” accessed April 14, 2023, https://www-pub.iaea.org/MTCD/Publications/PDF/TE1840_web.pdf. 131 ASEAN Technical Working Group on Agricultural Research and Development (ATWGARD) and Internationale Zusammenarbeit (GIZ) GmbH (2015). Promotion of climate resilience in rice and maize in Lao PDR. https://snrd- asia.org/download/forest_and_climate_change_for-cc/Lao-Report.pdf 132 Byrareddy et al., “Coping with Drought.” 133 Alex van der Meer Simo, Peter Kanowski, and Keith Barney (2020). The Role of Agroforestry in Swidden Transitions: A Case Study in the Context of Customary Land Tenure in Central Lao PDR, Agroforestry Systems 94, no. 5 (October 1, 2020): 1929–44, https://doi.org/10.1007/s10457-020-00515-4. 134 “Cambodia National Study: Promotion of Climate Resilience in Rice and Cassava,” ASEAN-CRN (blog), November 2, 2015, https://asean-crn.org/cambodia-national-study-promotion-of-climate-resilience-in-rice-and-cassava/. 135 Lorenzo Rosa (2022). Adapting Agriculture to Climate Change via Sustainable Irrigation: Biophysical Potentials and Feedbacks, Environmental Research Letters 17, no. 6 (June 2022): 063008, https://doi.org/10.1088/1748-9326/ac7408. 30 Rained Cassava -19% -31% +4% Source: Authors The government has limited financial capacity to construct new irrigation infrastructure and should prioritize investment in climate-proofed irrigation systems, including rehabilitation of local irrigation systems and cementation of canals. Available irrigation schemes are not being utilized at capacity as they are in disrepair, especially in the central and southern provinces where floods repeatedly caused extensive infrastructural damages. In the uplands, only 50% of the cropland area available during the wet season is irrigated during the dry season, whereas, in the lowlands, the area irrigated during the dry season amounts at 68% of the cropland available during the wet season. As such, climate proofing irrigation systems is critical. Climate-proofing of irrigation systems has been applied successfully in the region (e.g. in Vietnam and Philippines136). It helps to ensure that climate risks are reduced to acceptable levels through long-lasting changes implemented during planning, design, construction, and operationalization of the irrigation system 137. Overall, given the projected changes in rainfall patterns with highest impacts on smallholder farmers, to ensure uptake of integrated water resource management and climate-proofed small-scale irrigation systems, small-scale local approaches such as drainage systems, small-scale ponds, and rainwater harvesting tanks for water capture, diversion, levelling, and control should also be considered, using bottom-up approaches originating from farmers’ initiatives at the local level funded by local institutions 138. Lining of canals is recommended for higher-level public government interventions. Climate proofed irrigation systems should be accompanied by functioning and cohesive water user groups (WUGs) and associations (WUAs). The government should expand irrigation access and climate- proof irrigation systems to improve water supply efficiency. The irrigation infrastructure must be effectively managed to avoid its under-utilization and improve water use efficiency, to increase resilience 139 . Strong and well-functioning WUGs and WUAs are indispensable for effective operation of irrigation systems, yet they do not function well in the country. Climate resilient commercialization through intensification of livestock production Livestock-focused strategies of commercialization through breeding and supplementary feeding can be an effective way of addressing climate risks to livestock. Commercialization of livestock, through focused intensification of production based on improved feeding, and breed management practices can be an effective way to increase meat production, and farmer incomes, while building resilience of livestock production systems and reducing emissions. Adoption of livestock intensification practices at smallholder farmer scales (improved breeds under more intensive systems where feed and veterinary services are provided) will provide higher and more consistent returns than communal free-range production, which is dominant in Laos (98% of livestock production), while generating fewer greenhouse gases. Such interventions need to be integrated with the climate-proofing of livestock houses to ensure animals’ resilience to extreme heat and drought events, for example by improving the location, distance from 136 GIZ (2015). Promotion of Climate Resilience in Rice and Maize Lao PDR National Study. Jakarta 137 ADB (2012). Guidelines for climate proofing investment in agriculture, rural development, and food security. ADB: Philippines. Available online at https://www.adb.org/sites/default/files/institutional-document/33720/files/guidelines-climate- proofing-investment.pdf, accessed on 26 April 2023. 138 Lefroy, R., Collet, L., and Grovermann, G. (2010), Study on Potential Impacts of Climate Change on Land Use in the Lao PDR. (International Center for Tropical Agriculture (Centro Internacional de Agricultura Tropical - CIAT). 139 Gonsalves, J., Carandang, A., Verallo III, J.R., Barbon W.J. (2022). Asian Mega-Deltas (AMD): Derisking delta-oriented value chains in Cambodia, Vietnam, and Myanmar. Scoping Study on Key Production Systems/Value Chains. Silang (Cavite), Philippines: International Institute of Rural Reconstruction (IIRR). 31 flood-prone areas, spaces, light, insulation, and ventilation, use of shade trees 140 using dry straw bedding during cold weather 141 and keeping the animals in dry and high places during flooding periods through raised platforms. Furthermore, the construction of wells to supply water for herders and drinking water of animals would be essential. Mixing local cattle breeds with more productive breeds can increase the productivity and commercial value of local livestock. Smallholder cattle raising in Laos is dominated by native breeds i.e., yellow Asian cattle 142 which are attractive to smallholders because their protein requirements are less than those of the exotic breeds, and are adapted to local conditions, making them easier and cheaper to raise. However, they are less productive than exotic breeds143 (Table 9). Cattle breeding should aim to raise productivity, enhance heat stress tolerance, and disease resistance, as these are the primary future changes that livestock producers will have to contend with. Finally, animals in healthy body conditions and with good immunity are more adaptable to environmental stresses such as heat stress conditions. This can be achieved through health-disease management practices for animal husbandry, feed, and sanitation, including regular vaccination of animals, and vector control. Table 9. Comparison of productive performance of local and crossbred of cattle in Laos Source: Khothsavang et al. 2022 144 Farmers will need improved access to supplemental feed and nutrients. Large ruminant livestock in Laos are often malnourished, due to poor quantity and quality of pastures and crop residues used as feed. Future climate change will place even more pressure on already meagre pastures. Intensification of livestock through providing concentrated feed will alleviate the pressures of climate change by significantly increasing productivity and reducing grazing pressure. Farmers can process agricultural waste to provide high quality feed by adding chemicals like urea. They can also make use of feed blocks with urea and molasses, which have been reported to improve digestion, increase milk yield, and maintain good body condition, while reducing GHG emissions when used as supplement 145. Studies have shown 140 Cosmas Ogbu et al., (2013). Body Temperature and Haematological Indices of Boars Exposed to Direct Solar Radiation, Journal of Biology, Agriculture and Healthcare 3: 72–79. 141 Khounsy, S., Nampanya, S., Inthavong, P. et al. (2012). Significant mortality of large ruminants due to hypothermia in northern and central Lao PDR. Trop Anim Health Prod 44, 835–842. https://doi.org/10.1007/s11250-011-9975-1 142 Phomvisay, A., Souvannavong, P., and Ouanesamone, P. (no date). Assessment of cattle trade development in Lao PDR: study on potential impacts of trade liberalization under AFTA on cattle trade and its implication for the cattle development policy in Lao PDR. 143 Xayalath, S., Mujitaba, MA., Ortega, ADSV., Rátky, J. (2021). A review on the trend of livestock breeds in Laos. Acta agrar Debr. (1):227-237. doi:10.34101/actaagrar/1/9047 144 Khothsavang, B., Kounnavongsa, B. (2002). Experiment on improving the quality of local cattle by crossbreeding with Red Brahman bull. Journal of national agriculture and forestry institute. 145 Windsor, P.A. and Hill, J. (2022). Provision of High-Quality Molasses Blocks to Improve Productivity and Address Greenhouse Gas Emissions from Smallholder Cattle and Buffalo: Studies from Lao PDR. Animals, 12(23), p.3319. 32 that providing high-quality feed additives like molasses blocks to smallholder cattle and buffalo in Laos can achieve productivity gains of +2.3% per block consumed. Including greenhouse gas reducing agents achieves a reduction of greenhouse gases of 470 kg CO2e 146,147 . These technologies are already marginally practiced in Laos and have been tested for efficacy. In addition to rice straw, cassava pulp, present many opportunities given the expected growth in cassava production in the country. Wet brewers' grains are also a nutritious and affordable option for livestock farmers148. Effort will be required to increase access to supplementary nutrients, lower costs, train farmers to prepare feed and to address cultural practices like burning rice straw to clear fields for upcoming seasons. Finally, it is fundamental to ensure that fodder is appropriately stored during periods of shortage that may occur during the dry months 149 through common climate-proofed feed storage facilities to ensure optimal temperature and relative humidity conditions. Digitally enabled weather advisory and early warning systems The timely delivery of relevant and accurate climate and weather information is critical for ensuring effective risk management and address long-term adaptation in Laos. Managing climate and weather variability is fundamental to a long-term strategy for adapting agriculture to climate change. Hydro- and agro-met services are indispensable for achieving resilience in agriculture. Agro-weather advisories will enable farmers to better manage production risks, helping farmers make informed decisions on what, when, where, and how to produce. Weather advisory and extension services have been used to inform land preparation, method of planting, water management and pest and weed management in Laos. Under a World Bank project, advisories are provided both for lowland and upland, rainfed and irrigated dry season rice based on forecasted wetter or drier than average conditions 150. Three technologies were tested through a climate- smart agriculture project in Khammuane province in 2014, including a participatory weather monitoring system providing data at different rice growing stages and advisory on crop calendars adapted to changing weather conditions 151. It is fundamental that weather-informed agricultural advisory services are effectively delivered to the last-mile through tailored information and communication tools as well as translated into clear and effective information for farmers’ action. These include weather-informed cropping calendars (e.g. information on the onset and offset of the rainy season, information on water availability), early warning systems for extreme weather events (e.g. drought and flooding, storms, and typhoons), and crop insurance schemes (e.g. state seed replacement after drought and flooding impacts). Weather-informed agricultural advisory on land preparation, method of cultivation, nutrition, water, weed, and pest 146 Windsor, PA., Nampanya, S., Olmo, L., Khounsy, S., Phengsavanh, P., Bush, RD. (2021). Provision of urea–molasses blocks to improve smallholder cattle weight gain during the late dry season in tropical developing countries: studies from Lao PDR. Anim Prod Sci. 61(5):503. doi:10.1071/AN20517 147 Windsor, PA., Hill, J. (2022). Provision of High-Quality Molasses Blocks to Improve Productivity and Address Greenhouse Gas Emissions from Smallholder Cattle and Buffalo: Studies from Lao PDR. Animals. 12(23):3319. doi:10.3390/ani12233319 148 Napasirth, P. and Napasrth, V. (2018). Current situation and future prospects for beef production in Lao PDR – A review. Asian-Australasian Journal of Animal Sciences (AJAS); 31(7): 961-967. https://doi.org/10.5713/ajas.18.0206 149 Nampanya, S. et al., (2013). Progressing Smallholder Large-Ruminant Productivity to Reduce Rural Poverty and Address Food Security in Upland Northern Lao PDR, Animal Production Science 54, no. 7 (October 22, 2013): 899–907, https://doi.org/10.1071/AN13180. 150 FAO (2021). Weather Dependent Climate Smart Recommendations. CB5888EN/1/09.21. https://www.fao.org/3/cb5888en/cb5888en.pdf 151 “Climate Smart Agriculture - Lao PDR | SNV,” accessed April 13, 2023, https://snv.org/project/climate-smart-agriculture-lao- pdr. 33 management is provided by FAO based on wetter or drier than average conditions 152 Furthermore, longer- term climate services such as climate risk assessment and climate change adaptation strategies should be integrated into value chain actors’ business plans to strengthen the climate resilience of the entire agrifood value chain. Weather advisories can be improved by using digital technologies. About 85% of farmers follow the climate forecasts and have often changed their farming practices based on weather advisories, such as adopting more inventive fertilizers, insect control methods, switched crop types and irrigation approaches. User satisfaction for available weather advisories and early warning is low153. Digitally enabled weather advisory services like the Lao Climate Service for Agriculture (LaCSA), a climate service mobile application developed by the Ministry of Agriculture and Forestry in collaboration with the Ministry of Natural Resource and Environment, and FAO, have shown encouraging results. LaCSA provides agro-meteorological information to farmers in a compact and timely way, including weather forecasts, pest and disease bulletins, flood warnings, and drought information. The application has now reached over 110,000 farmers throughout the country. This demonstrates how digital technologies can be leveraged to effectively boost the coverage of extension information 154 and to scale e-extension services. Climate resilient post-harvest processing and distribution To achieve commercialization and raise farmer incomes, major commodity value chains need to be climate proofed. Agriculture development is increasingly oriented towards commercial value chains and export market. A robust approach to managing climate risks along agricultural commodities’ value chains, including storage, processing and distribution is vital to advance the growth of agribusiness and commercial agriculture under climate change. The improvement of post-harvest storage and processing facilities could incentivize the diversification of cultivated and processed crops, as well as diversification of by-products and incomes to increase resilience to climate- and market-based shocks 155. Evidence from Laos and the region shows that climate-proofed processing can enhance the resilience of the value chain by reducing food losses along the commodity value chain and reduce GHG emissions using renewable energy such as solar power and bioenergy. For rice, projects in Laos show that artificial drying for example through solar dryers can increase rice grain quality and marketing opportunities for farmers156. Rice drying using flatbed dryers instead of sun drying, can result in head rice yield of about 50% compared to less than 40% with sun-drying, which is common practice 157. For example, through flatbed dryers and hermetic storage, farmers in Myanmar reduced post-harvest losses by 3-4% and increased net incomes by 30–50%, without increasing GHG emissions158. Solar bubble dryers may be more suited for subsistence farming, due to their low farmer capacities, whereas flatbed dryers can be used for commercially oriented small and medium producers for domestic markets, and recirculating batch 152 FAO (2021). Weather Dependent Climate Smart Recommendations. 153 World Bank (2023). LAO PDR Southeast Asia Disaster Risk Management Project. Available online at https://projects.worldbank.org/en/projects-operations/project-detail/P160930, accessed on 26 April 2023. 154 https://www.fao.org/in-action/samis/resources/news/detail/zh/c/1480342/ 155 GIZ (2015). Promotion of Climate Resilience in Rice and Maize Lao PDR National Study. Jakarta 156 Nguyen-Van-Hung et al., (2019). Best Practices for Paddy Drying: Case Studies in Vietnam, Cambodia, Philippines, and Myanmar, Plant Production Science 22, no. 1: 107–18, https://doi.org/10.1080/1343943X.2018.1543547. 157 Fukai.S and Mitchell.J, (2019). Final Report Mechanization and Value Adding for Diversification of Lowland Cropping Systems in Lao PDR and Cambodia. Publication code: CSE2012-007. Australian Center for International Agricultural Research 158 Gummert, M., Nguyen-Van-Hung, Cabardo, C. et al. (2020). Assessment of post-harvest losses and carbon footprint in intensive lowland rice production in Myanmar. Sci Rep 10, 19797. https://doi.org/10.1038/s41598-020-76639-5” 34 columnar dryers for exportation markets-oriented producers 159. Large-scale solar greenhouse dryers developed and tested in Laos for banana and coffee drying are more effective than sun drying in terms of moisture content reduction, protection from insects, animals, and rainfall, and enhanced product quality. These can be promoted under sharing practices among farmer groups. For cassava, interventions should focus on reducing post-harvest losses from rapid product oxidative deterioration, through improved storage via fungicides, wrapping fresh cassava or freezing (which can be costly), or supporting farmers to rapidly process into by-products (animal feed, starch, and dried chips). Ultimately, climate-proofing the rural transportation networks will reduce post-harvest food losses and costs for farmers and value chain actors and open farmers up to larger and more profitable markets. Climate-sensitive and inclusive marketing mechanisms should be promoted to strengthen farmers’ linkages with international traders and domestic markets and enhance the resilience of the distribution stage of the value chain. Investments could support the climate-proofing of road construction and improvements 160. This in turn can increase access to the farm fields, improve commercial opportunities, and reduce the cost of transporting grains and perishables from the farm gate, combined with increased access to small and climate-proofed trucks to improve access to unpaved roads. This will strengthen the enabling environment and incentives for profitable climate resilient coffee production and marketing in Laos through the implementation of weather-informed product quality and safety standards for exportation (e.g. through temperature and relative humidity controls), with a focus on young farmers and their involvement in post-harvest activities, including processing, roasting, storage, and marketing 161. While climate smart technologies and practices are critical it is essential to recognize that successful adoption hinges on an enabling policy environment and capacities of various stakeholders including farmers, government, research institutions, and private sector. Key considerations to support technology adoption should include; (i) policy alignment across interacting sectors i.e. agriculture, environment, energy, water, and land-use, (ii) collaborative research efforts to develop and adapt innovative technologies and practices, (iii) capacity building for key institutions like the extension service, (iv) effective coordination among diverse governmental entities, NGOs, private sector and international organizations, and (v) access to sustainable sources of finance. Chapters 4 and 5 address some of the above key enablers to the adoption of technologies in Laos in detail. 159 Nguyen-Van-Hung et al., (2019). Best Practices for Paddy Drying: Case Studies in Vietnam, Cambodia, Philippines, and Myanmar, Plant Production Science 22, no. 1: 107–18. 160 Guéneau et al., (2022). Understanding Commercial Relationships and Contract Farming in the Maize Sector in Houaphanh Province, Lao PDR.CIRAD. Lao PDR 161 FAO (2022). Exploring Coffee Futures: Building Coffee Climate Resilient Pathways in Lao People’s Democratic Republic. CC2807EN/1/11.22. Lao PDR 35 Table 10. Green and resilient improved technologies feasible and scalable in Laos (Source: Authors) Improved Climate-smart cropland Sustainable Climate-resilient livestock Climate-smart Weather-informed technology production in rainfed areas intensification in production interventions at post- agricultural advisory services irrigated areas harvest stages Crops Cassava; coffee; maize; Paddy Cattle Cassava; coffee; maize; Cassava; coffee; maize vegetables vegetables; paddy vegetables; paddy Description of the Intercropping & crop Improved water Breed improvement Artificial drying using Flooding monitoring and improved rotation, cover-cropping, management; SRI; (crossbreeding); Improved flatbed dryers; large-scale control systems; technology organic fertilization & cultivar change; feeding quality (e.g. MNB) solar greenhouse dryer; Training agricultural mulching, use of climate alternate wetting and small-scale local storage, extension services and resilient varieties, and drying (AWD); Climate- processing, solar dryers, farmers agroforestry, Integrated proofed irrigation and grading facilities; Weather-informed land/soil management (e.g. system and water hermetic storage-metal agricultural advisory services, minimum tillage and direct reservoirs. silos, steel net and wire early warning systems for seeding), organic mesh storage bins; extreme weather events, and fertilization, crop residue improved crop storage crop insurance schemes. management bags; Adaptation Resilience to pests and Reduced drought Resilience of fodder Resilience of storage and Resilience to weather-related benefits diseases; impacts on hydrology, production and grazing transportation to drought pests and diseases: Reduced soil erosion; and yield losses; pastures to droughts, and floods; Reduced risk of fungi, mold Reduced death of young Lower heavy rainfall, floods: Reduced risk of mycotoxin contamination during storage seedlings from drought; flooding, storms, Climate-proofed pastures growth, fungi, mold and processing due to high Resilience to soil erosion, impacts on soil against heavy rainfall and contamination, and pest temperatures and relative and nutrient leaching; erosion; Reduced floods; attacks; humidity; Resilience to heavy rainfall damage to agricultural Resilience to extreme Reduced risk of quick fruit Reduced soil erosion and events and increasing land and water temperatures; ripening; nutrient leaching; temperatures; resources; Resilience to weather- Reduced quality and shelf- Reduced death of young Resilience to drought and Reduced damage to related diseases. life, grain losses, from seedlings from drought floods; irrigation network and heavy rainfall events and events. infrastructure. increasing temperatures. Mitigation Emission abatement due to Emission abatement Emission abatement NA N/A potential the avoided cropland through avoided CH4 through reduced enteric (emissions expansion -246 tCO2e/ha of emissions: fermentation: -470kgCO2e reduction relative avoided deforestation 162 -0.9 of tCH4/ha in per MNB per cattle 165 to conventional) irrigated areas, -1.2 Agroecological practices tCH4/ha in rainfed Crossbreeding may lead also increase carbon areas 163 to higher emissions sequestration and decrease Emission abatement factors per cattle (higher emissions from synthetic due to avoided rice manure quantity, higher fertilizer use. land expansion -246 feed requirements) tCO2eq/ha of avoided deforestation 164 Physical Corn: + 20% kg/ha Paddy rice: + 13% + 80% tons of beef/TLU Reduced post-harvest N/A productivity Coffee: + 3% kg/ha kg/ha +18% liters of milk/head losses by 3-7% compared (Yield increase Cassava: +13% kg/ha with traditional practices relative to Vegetables: + 34% kg/ha conventional) reduction of 120.000 tons of rice losses per year Economic Gross margin: Gross margin: Gross margin: Increased the net income N/A productivity Corn: + 21% $/ha +14% $/ha +105% $/ha by 30–50% compared with (income increase Coffee: +121% $/ha traditional practices relative to Cassava: +14% $/ha Net margin: Net margin: conventional) Vegetable: +34% $/ha +9% $/ha +126% $/ha Net margin: Corn: +64% $/ha Coffee: +96% $/ha Cassava: +3% $/ha Vegetables: +54% $/ha 162 FABLE approach from FAO data. 163 FABLE approach from FAO data 164 FABLE approach from FAO data 165 Windsor, PA., Hill, J. (2022). Provision of High-Quality Molasses Blocks to Improve Productivity and Address Greenhouse Gas Emissions from Smallholder Cattle and Buffalo: Studies from Lao PDR. Animals. 12(23):3319. doi:10.3390/ani12233319 36 Chapter 3: Designing the Green Transition towards Low-Carbon Sustainable Agriculture 3.1 Future risks of carbon emissions This section investigates possible trends for the Lao agriculture and land-use sector to transition towards more sustainability using the FABLE model 166(Box 4). We model pathways from 2020 to 2050 based on historical FAO data from 2000 to 2020 and look at their implications in terms of production levels, GHG emissions, and biodiversity losses. Detailed assumptions used to model business as usual (BAU) and green pathways can be found in Annex 2. Box 4. FABLE modelling approach The FABLE model is a free and publicly available Excel accounting tool used to study the potential evolution of food and land-use systems over the period 2000-2050. It focuses on agriculture as the main driver of land-use change and tests the impact of different policies and changes in the drivers of these systems through a combination of many scenarios. It includes 76 raw and processed agricultural products from the crop and livestock sectors and relies extensively on the FAOSTAT (2020) database for input data. For every 5-year time step over the period 2000-2050, the model computes the level of agricultural activity, land use change, food consumption, trade, greenhouse gas (GHG) emissions, water use, and biodiversity conservation according to selected scenarios. Users can replace data from global databases with national or subnational data. The structure of the model is shown below. More information can be found at https://fableconsortium.org/tools/fablecalculators/. For this paper, the FABLE Calculator has been tailored to the national context by improving the data and aligning scenarios with the country context. FAO data was compared, when possible, with national data furnished by local consultants or National Agriculture and Forestry Research Institute (NAFRI). Assumptions and results about the BAU and Greener pathways were presented to stakeholders during an in-person consultation workshop in Vientiane, Laos, on March 24, 2023. A one-day workshop was organized by the World Bank, gathering around 35 representatives from different government agencies, academia, international agencies, and development partners. Assumptions were then revised following stakeholders’ comments and are detailed in the table below. Detailed assumptions used in FABLE modelling can be found in Annex 2. Source: Authors 166 https://pure.iiasa.ac.at/id/eprint/16934/ 37 The Business as usual (BAU) pathway Under business as usual, internal, and external demand for crop and livestock products will drive a production increase of 65% by 2050 (Figure 11). On one side, the average daily total kcal intake per person will increase 7% above the Minimum Daily Energy Requirement (MDER) in 2020 to 17% above the MDER in 2050 (Figure 11a). This gain in total kcal consumption will happen through an increase in consumption of vegetable oils, eggs, milk, sugar, and pulses. On the other hand, over the same 2020-2050 period, export quantities may increase by about 3% for rice, up to 2.3 times for cassava, and 3 times for banana, coffee, vegetables, and maize (Figure 11b). Total exports are expected to grow from 22% to 33% of total production during the same period (Figure 11b). Such increases in both domestic and foreign demand will drive a surge by 65% of agricultural production, from 11.2 to 18.5 Mt in 2020-2050. Rice production is projected to increase by 24%, coffee, cassava, and beef production by 100%, and banana production by 90% (Figure 11c, d). Figure 11. Projected business as usual scenarios for (a) food consumption per food group and Minimum Dietary Energy Requirement (MDER) (b) export quantities for major crops, (c) production levels for the main crops and (d) production levels for the main livestock products (BAU) a b c d Source: Authors An increase in agricultural production will lead to significant land use changes. Cropland area in Laos may increase by 26% over 2020-2050 (Figure 12), driven by expansion in the production of cassava, coffee, vegetables, and maize, at the expense of the forest area. Projections show that forest area planted before 2000 ("mature" forest) will decline by 1 Mha between 2020-2050 even if forest area will increase (+ 0.6 Mha) thanks to afforestation of non-productive non-forest land (+ 1.65 Mha between 2015-2035). 38 Depending on the type of afforestation made, this could also potentially increase the area where natural processes predominate 167. Figure 12. Land use over time Source: Authors An important concern is that the pasture area in the country has limited room for expansion, although livestock herds are rapidly increasing. The FABLE calculator projects that the ruminants’ herd in the country doubles between 2020-2050. Based on historical trends, pasture area will remain stable, and yields will have to raise from 2.2 to 6.4 t/ha in 2020-2050 (+187%) to provide enough feed for the growing ruminant stock. Net GHG emissions from the AFOLU sector will continue decreasing through positive actions on forest protection and regeneration. According to NDC pathways, between 2000 and 2020, total GHG emissions decreased by 34% compared to the baseline scenario 168 through increased afforestation and reduced deforestation and forest degradation. Thanks to the policy goal to increase forest cover to 70% of national territory by 2020, postponed to 2030, emissions from deforestation will continue to decrease and carbon sequestration will increase from -2 MtCO2e per year in 2015 (starting date of afforestation) to -8.3 MtCO2e per year in 2030 and onwards (Figure 13a). It will largely contribute towards meeting the net zero emission target set for the year 2050. Agriculture sector GHG emissions will continue growing until 2050, primarily driven by livestock expansion and expansion of cash crop production (Figure 13). Emissions from livestock (manure management and enteric fermentation) will almost double and will constitute 67% of agriculture 167 LNPP refers to land where there is a low human disturbance and/or ecologically relatively intact vegetation, providing space and habitat for biodiversity to thrive. 168 The Government of Lao PDR (2021). Nationally Determined Contributions (NDC). Available online at https://unfccc.int/sites/default/files/NDC/2022- 06/NDC%202020%20of%20Lao%20PDR%20%28English%29%2C%2009%20April%202021%20%281%29.pdf, accessed on 27 April 2023. 39 emissions as the ruminant herd size increases between 2020-2050 (Figure 13a) to meet the higher demand for animal products. Enteric fermentation will become the largest source of emissions in agriculture (6.7 MtCO2e per year in 2050). CH4 emissions from rice cultivation will increase by 28% due to the higher demand for rice for food, feed, and export. Emissions from fertilizer use will increase by 66% to boost crop productivity between 2020-2050. Emissions from deforestation from cropland expansion will remain positive throughout the period. Farms are illegally expanding in the areas of national parks and protected forests, burning, and clearing large areas to make room for cassava and other cash crops 169. GHG emissions from forest land conversion to cassava fields in Champassak and Khammuane, banana fields in Khammuane, and maize fields in Oudomxay is already evident. These practices reduce lands where natural processes predominate and thus threaten biodiversity. They can also jeopardize the national objective to achieve 70% of forest cover, even though accomplishing this target has become even more critical. Annual crop blue water consumptive use will increase 1.4 times between 2020-2050 (Figure 13b). Agriculture sector’s blue water footprint will increase from 711 mm3/year in 2020 to 1,007 mm3/year in 2050 driven by crop production expansion. While rice production will account for 48% of crop blue water consumptive use for agriculture by 2050 (down from 55% in 2020), there will be an increased demand for water from other expanding crops. Given that the agriculture sector draws over 90% of the country’s water and the threats to water in a changing climate, current water use rates will not suffice in the future. The Lao agriculture sector must manage its blue water footprint while supplying growing demand. Figure 13 (a) Evolution of Agriculture, Forestry, and Other Land Use (AFOLU) GHG emissions under business as usual (BAU) (b) Crop blue water footprint evolution a b Source: Authors 169The Star News (2023). Cassava export boom leading to deforestation and poor air in Laos. Available online at https://www.thestar.com.my/aseanplus/aseanplus-news/2023/03/26/cassava-export-boom-leading-to-deforestation-and- poor-air-in-laos, accessed on 27 April, 2023. 40 3.2 Pathways to low-carbon agriculture Mitigation and productivity impact of climate-smart technology options Adoption of climate-smart technology interventions should reduce the growing emissions from the agriculture sector, while providing climate change adaptation benefits and sustaining productivity. In this section, we use the FABLE modeling approach to examine the impact on GHG emissions and productivity of a sub-set of the green and resilient improved technologies shown in Table 11, and selected based on what was already existing in Laos and mentioned in official policy documents. The list of assumptions made can be found in Annex 2. Expert knowledge is used to generate reasonable scenarios to test. These although these scenarios differ from those from the LT-LEDS recommendation (see Annex 2), they provide some insights into possible pathways for low carbon agriculture and the impacts they can have. While this section focuses mainly on GHG emissions, land use change and productivity, we underscore that all interventions for a low carbon agriculture should also aim to achieve synergy across productivity, adaptation/resilience, and ecosystem health wherever possible for a more holistic approach to agriculture. Table 11. Overview of the mitigation options and adoption rates included in pathways Cross-breeding – gradually reaching 30% of the cattle herd by 2050 Cattle production Improving feed quality with additives like molasses nutrients blocks (MNB) – gradually providing 40% of the cattle herd (including 15% of hybrid cattle) with MNB by 2050 Cultivar change – gradually applied to 40% of the rice harvested area by 2050 Rice cultivation System of rice intensification – gradually adopted in 20% of the rice harvested area by 2050 An agro-ecology package anchored in integrated soil management and diversification with Cropland DMC (crop rotation, cover-cropping, intercropping, organic mulching), cultivar-mixing, and expansion agroforestry, applied to four major crops (cassava, coffee, corn, and vegetables) – gradual implementation in 50% of the harvested areas by 2050 Source: Authors. For more details, see Annex 2 Applying the combination of climate smart technologies will decrease GHG emissions from the AFOLU sector. It is estimated that 65% of the avoided emissions come from reduced deforestation, driven by the implementation of the five CSA technologies summarized in Table 11. The total cropland expansion is 289,000 hectares smaller than in the BAU scenario, thanks to productivity gains, thus saving the same amount of forest through avoided deforestation. It is also estimated that 22% of the avoided emissions come from the livestock sector due to the cattle herd decrease caused by enhanced productivity from sustainable livestock intensification practices (breeding, improved feeding). The remaining reduction in GHG emissions will come from improved rice cultivation (e.g. through SRI). Implementing climate smart technologies will have different impacts on total GHG emissions from agriculture depending on the scale of application. By running realistic and sufficiently ambitious mitigation scenarios for rice, livestock, and other crops, all climate smart technologies and practices will have different impacts on GHG emissions. As shown in Figure 14, implementing SRI on only 20% of the lowland rice fields can account for 38% of the total GHG emissions reduction from agriculture through avoided CH4 emissions and rice cropland expansion from intensification. Climate resilient cultivars can 41 also sustain productivity. Implementing agroecology practices on 50% of the planted areas for cassava, corn, coffee, and vegetables can account for 30% of total GHG emission reductions due to avoided cropland expansion. Crossbreeding 30% of the local cattle herd can account for 21% of total GHG mitigation by reducing enteric fermentation. Switching rice cultivars in 40% of the planted area and giving one molasses block to 40% of the cattle herd can account for 10% and 1% of the GHG emissions reduction. Cross-breeding and improved feed for cattle could be effective for reducing livestock emissions as in Laos most GHG emissions come from cattle and buffalo (referred to from here on as ‘cattle’). Monogastric animals (poultry and pork) and small ruminants (sheep and goats) have a small carbon footprint due to their low emissions intensity for the monogastric and small herd size for the small ruminants (see section 5 on the intensification of livestock production). Figure 14. Cumulated avoided GHG emissions in the BAU with mitigation options compared to the BAU without mitigation options a b Note: Panel (b) indicates the mitigation potential from each mitigation option combined with the BAU pathway as compared to the BAU scenario (i.e., without mitigation options). Source: Authors Applying climate smart technologies can provide productivity gains while reducing future GHG emissions ( Figure 15). Crossbreeding 30% of the herd and giving a molasses nutrient block to 40% of the herd leads to an 18% increase in global cattle productivity (Figure 15a). Under these mitigation conditions, total cattle stock can be reduced by 15% and still meet beef demand in 2050 compared to the BAU scenario. By 2050, thanks to the adoption of climate smart technologies in a portion of the harvested area and with respect to BAU: overall rice productivity can be 13% higher, maize productivity 20% higher, cassava productivity 13% higher, coffee productivity 3% higher, and vegetables 34% higher (Figure 15b,c,d,e,f). The application of climate smart technologies and practices will have triple win benefits (enhanced resilience, mitigation, and productivity). It allows to reconcile the double objective of the Lao government to improve efficiency and productivity of agriculture while maintaining a high level of biodiversity and conservation forest areas. 42 Figure 15. Crop and livestock commodities, average productivity with/without mitigation options a Cattle b. Rice c. Cassava d. Corn e. Coffee f. Vegetables Source: Authors Complementary levers for a low-carbon agriculture Laos can also implement ambitious efforts to reduce GHG emissions beyond agriculture production. Such interventions can focus on the demand side of the agri-food system and land use regulations and be implemented in addition to the climate smart agriculture technologies. The FABLE approach is used here also to model two such improvements for efficacy relative to the BAU pathway (called the Greener pathway) : i) a transition to a diet closer to the EAT-Lancet 170 recommendations for a healthy and sustainable diet adapted to Laos consumption patterns; and 2) a progressive ban on deforestation leading to zero deforestation in 2050; as summarized in Table 12. 170 https://eatforum.org/content/uploads/2019/07/EAT-Lancet_Commission_Summary_Report.pdf 43 Table 12. Overview of the BAU and Greener pathways Business-As-Usual (BAU) Greener Based on the continuation Based on the continuation Drivers of historical trends and current of historical trends and additional policies sustainable targets Diet Kcal/person/day (++) Kcal/person/day (+) Major crops (+) Major crops (+) Productivity Livestock (+) Livestock (+) Afforestation Forest Afforestation Progressive ban on deforestation Exports (++) Exports (++) Trade Imports (+) Imports (+) Climate Yields (-) Yields (-) Climate smart agriculture (++) Source: Authors. For more details on the BAU and Greener pathways’ assumptions, see Annex 2. Implementing a greener diet and a progressive ban on deforestation, in addition to climate smart agriculture practices, will decrease GHG emissions from the AFOLU sector by –98.81 Mt CO2e more over the period 2025-2050. This result is driven firstly by avoided deforestation (Figure 16a). Cropland expansion will progressively take place in other non-productive lands rather than in forest areas, saving 265,000 hectares of forest from deforestation. Converting a hectare of other lands into cropland emits 95% less than deforesting a hectare of forest areas since carbon content is much lower in other lands. Emissions from the livestock sector will also decrease sharply (Figure 16a). A greener diet would reduce domestic demand for ruminant products by 24% in 2050 as beef consumption per capita will be lower than in the BAU, determining a ruminants’ herd decrease by 30%. The combination of a climate smart agriculture strategy, dietary changes and regulated deforestation will lead to 2.64 MtCO2e net GHG emissions from the AFOLU sector in 2050 (Figure 16b), compared to 10.97 MtCO2e under the BAU. Figure 16 (a) Cumulated avoided GHG emissions in the greener pathway compared to the BAU with mitigation options (b) Evolution of Agriculture, Forestry, and Other Land Use (AFOLU) GHG emissions under the greener pathway (c) production levels for the main livestock products (Greener) a b Source: Authors 44 Chapter 4: Enabling the Transition 4.1 The cost and benefits of transitioning to climate smart technologies Climate smart technologies must demonstrate economic feasibility, resilience, mitigation, and productivity, to be attractive to farmers. This section shows the financial viability underlying the adoption of priority CSA technologies across key agricultural commodities. The approach applied is summarized in Annex 3. The financial analysis developed here is based on crop and livestock budget models which simulate the implementation of conventional/BAU and CSA practices. It estimates financial performance indicators (gross margins, net margins and returns per labor workday) that are instrumental in assessing the impact of climate-smart technologies on the economic results of targeted farms (Box 5). Box 5. Economic modeling Economic modeling is based on crop and livestock financial models. Crop models are built for one hectare of land. They simulate annual budgets considering quantities of all inputs and outputs, their unit costs and prices, and their profitability. Livestock financial models simulate the dynamics of an average herd, accounting for the costs associated with breeding activities (i.e., feed, vaccines, and pasture) and the benefits from the sale of animal products (i.e., live animals, meat, milk). Total revenues are computed by multiplying the quantity of agricultural products obtained (i.e., crop, meat, and milk output) by the corresponding farm-gate price. Operating costs comprise expenses for the purchase of seeds, chemical and organic fertilizer, pesticides, herbicides, plastic bags, plastic batch, sacks, fuel, irrigation services, and electricity for pumping water, feeding, animal husbandry and health care services. Labor is valued in the models using as a proxy the market rural wage (50,000 kip /person- day), no matter if the laborer is a family member or an external labor. In both crop and livestock financial models, the following financial performance indicators are assessed: gross margin, net margin, and returns to family labor. Gross margin is computed as difference between revenue and operating costs. It coincides with the cash flow. Net margin is computed by subtracting the family labor costs from the gross margin. Returns to family labor are computed as the ratio between the gross margin and the cost of family labor. The difference between annual net margin in the ‘BAU’ versus ‘CSA’ scenarios represents the net incremental financial benefits of switching from conventional to climate-smart agricultural systems. Source: Authors Evidence shows that adopting climate smart technologies is more profitable than the continued application of conventional methods (represented by the BAU scenario171). There is a wide literature showing that climate-smart technologies improve agricultural productivity and farm income on a sustainable basis172. For instance, livestock sector results show that the increase in milk productivity is 18% higher under “CSA” scenario, due to the gradual introduction of crossbred species (i.e., Red Braham) as well as the use of feed supplements (Table 13). As a result, the adoption of climate-smart practices in cattle breeding can lead to higher revenues (Table 13) lower costs and higher gross and net margins (Table 14 and Table 15). However, there are important costs that can become barriers to the adoption of technologies by farmers. In most cases, the cost of agricultural inputs such as improved seeds, fertilizer, and other inputs are lower under conventional farming than with the adoption of climate smart technologies. The higher 171 The hypotheses made for the BAU scenario considered in this financial analysis are in line with those made in the FABLE modeling above. More details are provided in the methodological section (Annex 2.2). 172 Adegbeye et al. (2019). Sustainable agriculture options for production, nutritional mitigation of greenhouse gasses and pollution, and nutrient recycling in emerging and transitional nations-An overview. J. Clean. Prod. 118, 319. https://doi.org/10.1016/j.jclepro.2019.118319; 45 costs of agricultural inputs are because of improved seeds, fertilizers, and chemicals. Many climate-smart technologies require adequate chemical levels to have beneficial effects on crop yields173. In addition, some technology options require establishment costs and yearly maintenance costs, such as establishing trees under agro-forestry systems. These may become critical barriers to adoption. The labor cost is higher for farmers when they apply climate smart technologies, demonstrating a greater need for investments in labor (See Table 14). Climate smart technologies will come with higher labor costs for some specific agricultural activities like transplanting/seedling under the SRI method. Labor costs are an important determinant of whether households will adopt a technology since it represents a major component of total production costs. Although most smallholder farmers rely on family labor only, the overall labor requirements for the adoption of climate smart technologies are such that this may be a barrier to the adoption of some technologies. This may be particularly so for larger farming enterprises that rely on external labor. Table 13. Results of physical and economic outputs (BAU, BAU with CC, and CSA scenarios) Output Yields Revenues summary BAU with BAU BAU with CC CSA BAU CSA Crops CC kg/ha kg/ha kg/ha $ $ $ Rice 2,681 2,602 2,940 1,003 974 1,100 Maize 8,847 8,808 10,569 1,085 1,081 1,127 Cassava 33,724 29,559 33,401 1,655 1,451 1,639 Vegetable 9,411 9,964 13,352 2,887 3,057 4,096 Coffee 2,252 2,442 2,564 2,764 2,996 3,146 BAU with BAU BAU with CC CSA BAU CSA CC Livestock liters/hea meat/hea liters/hea meat/hea liters/hea meat/hea $ $ $ d d d d d d Cattle 355 175 429 175 419 315 2,881 2,980 4,848 Source: Authors. Note: $1= 8,150 kip (in 2019 and in 2020). Table 14. Production costs (BAU, BAU with CC, and CSA scenarios) Cost summary Input cost $ Labor cost $ BAU BAU with CC CSA BAU BAU with CC CSA Rice 91 91 92 498 498 591 Maize 146 146 166 337 337 448 Crops Cassava 61 61 61 1,043 1,043 1,221 Vegetable 150 150 211 1,294 1,294 1,399 Coffee 515 515 650 1,294 1,294 1,601 Livestock Cattle 1,746 1,746 1,896 172 172 172 Source: Authors. $1= 8,150 kip (in 2019 and in 2020). Despite high production costs, the net margins gained by adopting climate-smart technologies are consistently higher across all commodities than for conventional farming (Table 15). Favorable net 173Heeb, L., Jenner, E., Cock, M.J.W. (2019). Climate-smart pest management: building resilience of farms and landscapes to changing pest threats. Journal of Pest Science 92:951-969 46 margins suggest that farming households in Laos will have the capacity to cover the costs of adopting climate smart technologies. Overall, household incomes will increase because of the adoption of transition technologies. The increase is much higher under maize, vegetable, and coffee production, with net margins nearly double or more. Table 15. Results of farm economic performance (BAU, BAU with CC, and CSA scenarios) Gross Margin $ Net Margin $ Economic performance BAU BAU with CC CSA BAU BAU with CC CSA Rice 908 878 1,004 409 379 413 Maize 935 930 1,127 598 593 679 Crops Cassava 1,590 1,385 1,574 547 342 353 Vegetable 2,733 2,903 3,881 1,439 1,609 2,482 Coffee 2,246 2,479 2,494 952 1,185 893 Livestock Cattle 964 1,233 2,952 792 1,062 2,780 Source: Authors. $1= LAK 8,150 kip (in 2019 and in 2020). Additional costs to support CSA technology adoption will have to be incurred by the government. Off- farm (public) costs include investments in knowledge dissemination and capacity building (public good) (Table 16). Such investments represent a critical cross-cutting element focusing on introducing, strengthening, and maintaining knowledge of farmers, institutions, and local organizations in developing CSA systems. Using trainings, farmer field schools, field visits, and demonstrations, they provide various adaptation and mitigation practices to farmers to build their capacity to reduce the impact and cope with climate change. Off-farm transition costs are related to infrastructures, personnel (salary and equipment), transport and allowances, materials and generation of extension content, training of extension staff, administrative costs, and costs of monitoring and evaluation. Societal benefits (off-farm) of climate-smart crop production may be higher than farmers’ direct benefits (on-farm) (Table 16). Although farmers stand to benefit economically from the adoption of climate smart technologies, the adoption of the climate smart technologies will also generate carbon sequestration, biodiversity conservation, and other public goods that accrue to society. Results show that the public benefits can be far higher than on-farm benefits by a factor of 2-4 for most agricultural commodities. These ecosystem services could be an additional source of income to famers if they are valued and farmers are compensated for them. Annex 3 provides more on costs and benefits. 47 Table 16 Unit costs and benefits of the green transition in crop and livestock production On-farm transition Off-farm transition costs On-farm benefits. Off-farm benefits Crops costs ($/ha) ($/ha) ($/ha) ($/ha) Rice 93 171 127 842 Maize 130 171 216 750 Cassava 178 171 189 750 Vegetable 166 171 1,039 750 Coffee 442 171 150 750 Cattle 1,166 171 187 523 Source: Authors CSA can generate additional environmental benefits, at the farm and landscape scale, in the form of enhanced soil fertility, water storage, agricultural ecosystem resilience, resource-use efficiency, residue valorization and recycling, and enhanced carbon storage in soils and biomass 174. Crop rotation and intercropping boost soil fertility, increase soil moisture, and raise micro-fauna and soil carbon content 175; minimal soil disturbance (minimum/zero tillage) reduces soil erosion, organic substance oxidation, and fertility loss; residues management and mulching lift water infiltration and protect soil from sealing and crusting caused by rainfall 176; improved soil and water management practices (i.e. tied ridging and planting pits) retain surface runoff, diminish water and soil erosion, and harvest and store rainwater 177. Further indirect economic and social Co-Benefits comprise increased commercial opportunities associated with higher crop yields of cash crops for export and an augmented number of jobs driven by the expansion of labor-demanding CSA practices 178. 4.2 Entry points for financing the transition to climate smart agriculture Laos will need to maximize all forms of financing possible to drive more action in resilient and low carbon agriculture. This should include domestic government spending supporting climate goals, bi- laterals/multilateral agencies (such as multilateral development bank balance sheet investments with climate benefits), multilateral climate funds (like the Global Environment Facility), commercial banks, and micro-finance institutions (MFIs), agro-business, household and community funds, and carbon markets (revenues from selling carbon emission offsets). In a context of growing climate risks, and agriculture being a risky area for investments, there are some existing options for de-risking the agriculture sector. At macro-level, the government has contingent 174 Lipper L., McCarthy N., Zilberman D., Asfaw S., Branca G. (Eds.), Climate Smart Agriculture: Building Resilience to Climate Change, Springer, New York (2018), 10.1007/978-3-319-61194-5_22 175 Thierfelder C., Cheesman S., Rusinamhodzi L. (2013). Benefits and challenges of crop rotations in maize-based conservation agriculture (CA) cropping systems of southern Africa. International Journal of Agricultural Sustainability, 11(2), 108-124. 176 Branca G., Perelli C. (2020). ‘Clearing the air’: common drivers of climate-smart smallholder food production in Eastern and Southern Africa. Journal of Cleaner Production, 270, 121900 177 Wiyo K.A., Kasomekera Z.M., Feyen J. (2000). Effect of tied-ridging on soil water status of a maize crop under Malawi conditions. Agricultural Water Management, 45(2), 101-125 178 Dinesh D., Frid-Nielsen S., Norman J., Mutamba M., Loboguerrero Rodriguez A.M., Campbell B.M. (2015). Is Climate-Smart Agriculture effective? A review of selected cases. CCAFS Working Paper 48 liabilities (whether implicit or explicit) for losses to the agriculture sector from disasters and climate shocks. It can transfer its liabilities to the private sector through insurance or other types of risk transfer instruments. For example, this was done through the Southeast Asia Disaster Risk Insurance Facility (SEADRIF), which is a regional platform aimed at building financial resilience against climate shocks and disaster in ASEAN. Payouts through SEADRIF can already be disbursed to poor and vulnerable farmers that suffer losses. Smallholder farmers are willing to pay for agriculture insurance, especially if they have experienced climate disaster related losses before. Studies show that that rice farmers are willing to pay premiums equivalent to 17% of the indemnity, which is consistent with neighboring countries’ insurance policies 179; and that most farmers did not face challenges with rice market prices, but the lack of a mechanism to reduce or prevent losses from disasters was a major concern for farmers 180. Farmers who have been impacted by disasters are more willing to pay for insurance than those who have not been affected. Given the regular climate disasters, and projected future climate extremes, there is an opportunity to introduce agriculture insurance in Laos. The country, through the National Disaster Risk Financing strategy (DRF), has put agriculture insurance as one priority and the National Disaster Management Committee (NDMC) is already exploring the possibility of establishing a national insurance scheme. The country can take advantage of a growing international climate finance architecture to improve access to finance for smallholder farmers and SMEs in the agriculture sector. Opportunities exist to take advantage of upfront and result based climate finance as summarized in Table 17. For example, in Vietnam, results-based financing (Transformative Carbon Asset Facility - TCAF) is being used following the successful Vietnam Sustainable Agricultural Transformation (VNSAT) project, which applied alternative wetting and drying (AWD) to rice production with positive outcomes including for GHG emission reductions (Box 6). Laos could aim to pilot projects like VNSAT to demonstrate the potential for carbon asset creation in agriculture and attract climate finance. Table 17. Examples of climate finance funds and facilities Upfront climate finance Results based finance 1 Adaptation Fund 1 Transformative Carbon Asset Facility (TCAF) 2 Global Environmental Facility 2 Forest Carbon Partnership Facility (FCPF) 3 Green Climate Find 3 Biocarbon Fund (Bio-CF) 4 Special Climate Change Fund 4 Bio-CF Initiative for Sustainable Forest Landscape 5 Least Developed Countries Fund 5 Scaling Climate Action by Lowering Emissions (SCALE) 6 Pilot Program for Climate Resilience 7 Climate Investment Funds 179 Wongpit, P. and Sisapangthong, V., (2022). Willingness to pay of rice farmers in Lao PDR on agriculture insurance. Thammasat Review of Economic and Social Policy, 8(1), pp.49-66. 180 Wongpit, P., & Sisapangthong, V. (2022). Willingness to pay of rice farmers in Lao PDR on agriculture insurance. Thammasat Review of Economic and Social Policy, 8(1), 49-66. 49 Box 6 . Carbon Payments Support for AWD in Vietnam – TCAF The Vietnam Sustainable Agricultural Transformation Project (VNSAT), an IDA-funded project supported over 240,000 rice farmers in implementing AWD and One Must Do, Five Reductions (1M5R) over 163,418 hectares. Rice farmers reduced input levels (i.e., pesticide and fertilizer applications, water uses, and post-harvest losses) by 20-30%, increased rice productivity by 3-4%, raised the sale price by 5-10%, and boosted net profits by 28%, mainly due to reduced production costs. The project reduced GHG emissions by nearly 1.5 milliontCO2e. Following the successful VNSAT project, the World Bank through the Transformative Carbon Asset Facility (TCAF) has proposed a program to incentivize Vietnam in transforming to 1 million ha into high quality and low carbon rice development by adding result-based climate and carbon finance support. The program is under preparation. The program will: 1. Promote domestic enabling environment for low-carbon rice sector transformation 2. strengthening institutions and building capacities needed 3. facilitate private sector and other stakeholders’ participation in low-carbon rice transformation. 4. support the generating of high quality/high market value carbon emission credits (ERCs) from low carbon rice transformation. Source: Authors There is a nascent local green and sustainability finance market. The results of a survey from Asian Development Bank (ADB) on the green bond market in the Laos indicated that: (i) 60% of institutional investors were actively exploring potential investment opportunities in such markets; (ii) 40% of respondents highlighted renewable energy and sustainable agriculture as the most promising sectors for Laos to develop its domestic sustainable bond market. However, narrow awareness and resources regarding green bonds, lack of policy guidance from regulators, and insufficient resources to develop and launch new green bond products will however need to be addressed. A Green, Social, and Sustainability Bond Development Ministerial Committee was established in 2023 to foster the growth of climate-friendly investments by facilitating the issuance of green bonds and expanding financing opportunities 181. In addition, the Bank of the Lao PDR plans to: (i) design criteria for green loans (with priority on agriculture sector); (ii) identify green finance needs and develop green, social, and sustainability bonds; (iv) prepare guidelines for green bond issuance and establish laws and regulations to support the market; (v) design incentive policies and encourage listed companies to issue green bonds; (vi) raise awareness in the capital market, and educate banks about the benefits of green finance, encouraging their participation in sustainable investments; (vii) create a comprehensive framework for identifying and categorizing sustainable activities and investment through the ASEAN green taxonomy. The Bank of the Lao PDR and the International Finance Corporation signed an agreement on technical assistance to develop a market 181In March 2023, the Lao Securities Commission Office (LSCO) organized a meeting involving key ministries to discuss and brainstorm ideas regarding green finance. The meeting assessed the progress of green development initiatives within each ministry and explored possibilities for collaboration and further advancements. Furthermore, LSCO is actively studying ASEAN standards and principles related to green, social, and sustainability bond issuance. The objective is to incorporate these standards into LSCO's regulatory framework, aligning it with regional best practices. This step will facilitate the issuance of green bonds and enable the creation of incentive policies for the private sector, encouraging their participation in the green bond market and supporting sustainable investment projects. 50 for green finance. 182. These efforts point to a nascent sustainability market that could play an important role in financing resilient and low carbon agriculture. The National Green Growth Strategy of the Lao PDR (2030) provides for green investment and finance. The NGGS proposes several actions to promote green investment and green finance for sustainable development. These include the development of green financial products and services, strengthening the capacity of financial institutions and regulators, and mobilizing domestic and foreign resources for green growth. This policy framework for sustainable agriculture finance is being strengthened through several initiatives to develop green finance and sustainable investments, focusing on taxonomy development, awareness-raising, and a supportive regulatory environment for capital market growth. Digital technology has potential to unleash private-sector investment and enhance access to financial services. Empirical evidence shows tangible and positive impact of ICTs on agriculture. Commercial banks in Laos allocate significant resources toward the development of mobile banking, QR code payment systems, ATMs, and other financial technologies to bolster their service offerings. Although the reach of digital technology remains restricted primarily to urban areas, while individuals in rural areas face limited access to banking and financial services, there is vast potential for the leverage of digital technology to expand financial access. As of 2021, 65 percent of the population are mobile phone users183 and 43 percent of the population has access to the internet compared to 70 percent in the east Asia region 184. Cost of internet is higher than countries in the region, with monthly costs double that of neighboring Thailand 185. Rural communities in isolated mountainous terrain experience little to no access to broadband. Improving access to affordable internet services will unlock vast opportunities for digital financial services for Lao farmers. 4.3 Addressing barriers to the transition Helping farmers defray initial and maintenance costs of implementing climate-smart technologies will be key to address high costs of adoption of climate smart technologies. Despite the productivity and climate benefits, the adoption of climate-smart technology and practices can be costly. Farmers adopting climate-smart technologies incur higher costs of labor and inputs (see section 4.1). Some options require establishment costs (e.g. to plant trees under agro-forestry systems) and higher yearly maintenance costs. Helping farmers defray these initial and maintenance costs of implementing climate-smart technologies for instance through incentive payments for the public benefits they provide (e.g. GHG reduction, and ecosystems services) could help to improve adoption and persistent application of technologies. Improving access to agricultural inputs such as fertilizers and improved seeds will help overcome a major barrier to adoption. Access to enough and affordable organic and inorganic fertilizer is a barrier to the adoption of the climate resilient technologies, such as GAP, and soil fertility management measures. Fertilizer is not supplied in the quantity needed to satisfy its demand and has a high price which farmers often cannot afford. Similarly, limited availability and high cost of improved seed varieties (e.g. drought and submergence tolerant, early maturing) reduces opportunity for technology adoption. Stimulating greater private investment in the multiplication and delivery of climate resilient seed and developing marketing arrangements to reach poor segments of the rural population, are critical for addressing such a barrier. 182 Bank of Lao PDR. (2023). A new Partnership between the Bank of Lao PDR. 183 World Bank Data 184 CSIS, 2022. Digitalizing Laos Improving Government Transparency, the Business Environment, and Human Capital. 185 CSIS, 2022. Digitalizing Laos Improving Government Transparency, the Business Environment, and Human Capital. 51 The suboptimal performance and failure of irrigation schemes in Laos needs to be addressed as it restricts implementation of some climate-smart technologies. Many climate-smart technologies such as SRI and AWD and practices require well-functioning irrigation systems. Implementation of the SRI principles of production in the dry season in the irrigated environment under Lao conditions is restricted by the poor water reticulation systems (both delivery and drainage) that prevail in most irrigation schemes. Even with good reticulation systems, there is further difficulty in implementing the system in a scheme because of the necessity of synchronized cropping activities of all farmers to achieve the desired patterns of water delivery and drainage 186. Therefore, proper functioning and well capacitated local water user groups and associations (WUGs and WUAs) who can satisfactorily management the operations and maintenance costs of the water infrastructure and the associated fees, will be needed to take advantage of climate-smart practices in irrigated systems even after investing in climate proofing of irrigation systems. Knowledge and capacity of farmers to implement climate smart technologies needs to be strengthened. For instance, farmers will need knowledge on commercial livestock rearing to ensure climate-resilient and low carbon livestock production. Most of the climate-proofed and low-carbon livestock rearing techniques have not been adopted in the traditional smallholder sector (e.g. improved location and sheltering of livestock, preparation of supplementary feed, fodder production, breeding, etc.) due to lack of knowledge and investment resources. This applies to most other climate-smart technologies. The country will need an ambitious awareness and capacity building program to ensure farmers are prepared to implement new technologies like commercial livestock production in a smallholder farmer dominated livestock sector. This will entail extension and advisory services that cater to the specific needs and demands for climate smart technologies and practices. Research and development, demonstration of new technologies, and agriculture extension services are vital for the implementation of climate smart technologies. The absence of appropriate technology packages developed for the specific agro-ecological zones reduces the opportunities to implement climate-smart technologies. For example, research is needed to develop high yielding, flood tolerant, disease-resistant, and early maturing crop varieties. Certain techniques associated with climate-smart technologies can be incompatible with traditional practices (e.g. burning crop residues) that farmers are accustomed with. Farmers are conservative adopters of technology, and need capacity building, extension, and advisory services to make climate-smart technology adoption more effective and to minimize risks. Therefore, there is need to enhance extension services’ capacities for knowledge transfer. However, there is limited fiscal space in the Laos government to support R&D and extension. Improving access to markets will drive changes in production patterns and incentivize adoption of new technology and practices. Inadequate production and market infrastructure constraints development of and access to domestic and regional agricultural markets, which reduces income opportunities and incentives to invest in new practices or diversify production. For instance, minimizing distances to paved roads reduces transportation costs for both inputs and outputs, connecting farmers to markets and providing incentives to adopt improved practices or diversify production. In addition to hard market infrastructure, improved business skills, timely information about market prices, or the possibility to coordinate and aggregate produce, for instance through farmer associations or producer groups, will enhance farmers’ market access, and improve chances of adoption of new technologies. 186 Schiller, J.M., (2004). System of Rice Intensification – SRI - suitability for lowland rice production in the Lao PDR. Consultant’s report, Food and Agricultural Organization (FAO), Lao PDR, March. 52 Commercial banks and MFIs can take more into account the specificities of the farming sector to bridge the financing challenges for smallholder farmers and develop more suitable financial products. Financial products should consider the conditions and calendar of production of different farming activities (e.g. by applying different interest rates for different products) and better deal with farming risks (e.g. by introducing some flexibility in the payback period for credit/loans if disease outbreaks or extreme climatic event disrupted production). They can take advantage of community financial institutions to reduce the transaction costs of time-intensive follow-up of loans, which can be handled by local institutions. This approach may be further supported by on-farm technical support services delivered through farmer organizations and NGOs to help reduce risks. Improving security of land tenure and other formalized land use rights will encourage invest in land improvement and in sustainable production systems. Secure land tenure is critical to the sustainability of land use and climate-smart technology implementation. If land tenure cannot be protected effectively, farmers and commercial investors will be unwilling to invest, or even give up entirely long-term investments on farmland. Currently, 70% of the country is designated as forestland, inside which there is no clear legal pathway to recognize land tenure. There is no national provision for transfer of land use rights inside forestlands. Local people do not formally have land use certificates or any title to back their land claims. Consequently, communities are increasingly vulnerable to the economic push for cash crop, which requires more land and to the action of relatively less responsible companies which have a comparative advantage in investing in an unclear business environment. Improving tenure rights, transparency, and security would substantially improve prospects for sustainable and responsible land management, and adoption of climate-smart technologies, limit land disputes and improve grievance resolution. Strengthening smallholder farmers’ financial management skills and business orientation, will improve their reliability as borrowers and improve the flow of finance. Farmers’ lack of financial management skills such as absence of trading and production records, credit history, lack of collateral, small turnover means that financial institutions believe them to be too risky and too costly to serve as customers. These lending procedures for farmers need to be simplified, farmers need to be helped to prepare the required financial documents, and to pull together as cohesive groups to increase their attractiveness to lenders. 53 Chapter 5: Recommendations for a Green Transition in Agriculture The transition to resilient and low carbon (green) agriculture is a desired objective for Laos as expressed in several national policies ranging the Agriculture Development Strategy (ADS) to 2025 and Vision to 2030, the 9th Five Year National Socio-Economic Development Plan 2021-2025 (NSEDP), the National Green Growth Strategy (NGGS), and the Green and Sustainable Agriculture Framework (GSAF) to 2030. The country will need to ensure that climate smart technologies are taken up by farmers with the goal to boost productivity, drive commercialization, and higher incomes of farmers, while building resilience to climate hazards and promoting low carbon agriculture. This will require government and partners to put in place suitable policies, make targeted investments in high impact areas, provide the right incentives, and build institutional capacities to implement. A set of recommendations on key actions over the next 10 years to support the transition to resilient and low carbon agriculture in Laos based on analysis presented in this report are presented here and summarized in Table 18. Investments in climate-smart technologies Re-orient irrigation investments from a focus on infrastructure repairs to enhancing return on investment and sustainability. The country needs to expand irrigation coverage to ensure that more farmers have access to water all-year round. However, the current investment model for irrigation schemes is unsustainable, as public resources are regularly spent on infrastructure repairs, and farmers are unable to realize profits due to high operating costs, and limited avenues for commercialization. A new investment approach anchored on ensuring returns on investments will ensure sustainability of irrigation schemes. This can include: • Encouraging production of high value marketable crops along with traditional crops to diversify incomes. • Strategically locating new irrigation investments along the economic corridor to ensure better access to markets, and higher returns for farmers. • Mainstreaming resilience elements in irrigation systems design to reduce damage from extreme weather and improve water management during the dry season e.g. through improved water harvesting and storage capacity on farms. • Improving water use efficiency and encouraging water and input saving techniques like System of Rice Intensification (SRI) and Alternate Wetting and Drying (AWD) to reduce operating costs. Ultimately government will need to track the economic performance of irrigation schemes and make future investments based on lessons about what works to support economic viability of irrigation schemes. Prepare a breeding and improved seed multiplication agenda for key strategic crops. Climate resilient seeds are the bedrock of resilient future agriculture systems. The government should seek to build a strong crop cultivar improvement and seed multiplication program for strategic crops like rice to ensure timely supply of seeds, which are adapted to farmers’ local conditions. However, given budget constraints, government should leverage international research partnerships and domestic/regional private sector players to increase the supply of affordable improved climate resilient seeds for other key crops. 54 Expand the roll out of good agriculture practice (GAP) building on lessons from on-going and past projects. Lao GAP standards are a great foundation for resilient, low carbon, environmentally friendly commercial production, with potential to expand further into more stringent sustainable production systems. But the uptake of GAP has been very low. The World Bank-supported Lao agriculture commercialization project (LACP) shows that GAP adoption can be improved through support to farmers for keeping farm records, access to inputs like certified seed, and organic fertilizer, and by streamlining GAP certification by the Department of Agriculture (DOA). Through removing these barriers and other barriers and creating an enabling environment through overall improvement of knowledge and understanding, access to critical inputs and incentives, and improving the certification process (e.g. through the broader application of voluntary certification methods like participatory guaranteed systems), government can boost the uptake of GAP, and achieve the ambition for GAP to be implemented throughout the country. Establish a program on sustainable livestock commercialization primarily focused on animal health and nutrition. Current livestock production systems in Laos are predominantly subsistence, with livestock grazed on meagre pastures and low nutrition crops residue. Livestock therefore are small and fetch meagre incomes for farmers. Reforming the sector to improve performance will entail sustainable intensification and commercialization. A sustainable livestock commercialization program can begin with; (a) improved location and sheltering of livestock, (b) preparation and provision of high-quality supplementary feed, and fodder production, and (c) provision of reliable animal health services. These interventions will raise productivity, build resilience to pests and diseases, and reduce GHG emissions, while earning farmers more income. The program will need to be accompanied by awareness raising and capacity building to prepare farmers to implement new technologies and practices. Institutional strengthening Repurpose public spending to support outcome-oriented climate smart research and development. The country needs to increase its budget allocation for agriculture R&D for the development, testing and dissemination of resilient and low-carbon technologies (such as climate-resilient seed varieties, water- saving technologies, integrated soil fertility management, agro-meteorological services, and improved post-harvest technologies). However, given budget constraints, R&D budget allocation will need to be more targeted to specific outcomes that help the country achieve its sustainable and green agriculture goals. As such, R&D funding can be conditioned on specific outcomes, to concentrate the country’s R&D capacities and available resources on key topics and desired technology progress. On the other hand, government should leverage domestic, and regional private sector players by incentivizing them to carry our R&D and to facilitate the supply of key climate-smart technologies. Where partnerships are possible with the private sector, the government should seek to explore public private partnerships (PPPs) in R&D and technology transfer. Reform the extension service to support more pluralistic services that include private sector and NGOs. Although Laos has a well-established network of central, provincial and district agricultural extension units, public extension services will need to deliver more and new information and technologies, speedily and in an interdisciplinary and participatory manner. They will need to deliver more than just technical production services, but include climate services, agribusiness, and market access information. Existing extension services will be hard-pressed to manage to deliver on all these new demands, especially under budgetary constraints. The government will need to leverage other providers of extension services to 55 farmers such as NGOs and the private sector through partnerships and policies that drive pluralistic extension service in the country. Under a pluralistic extension service, private sector (agro-dealers) can be involved in service delivery to improve farmers’ business skills and facilitate market linkages, and NGOs can enhance community-based learning and technology dissemination. Implement a program for strengthening O&M of irrigation schemes. To address the disfunction of many irrigation schemes in the country, government should support water user groups (WUGs) and water user association (WUAs) to effectively manage irrigation schemes and implement operation and management (O&M). Interventions should; (a) strengthen cost-recovery in irrigation schemes, (b) provide financial management and business management training to enhance farmers’ incomes, and boost their abilities to pay operation fees, and (c) strengthen conflict resolution and grievance management, to ensure more cohesive groups. Well capacitated and cohesive WUAs and WUGs will also be key to implement climate- smart technologies and practices that require coordinated water management and use such as SRI and AWD. Build the capacity MAF on climate finance access through local, regional, and international learning exchanges to raise awareness and build experience. Access to climate finance will be an important opportunity for years to come. However, given that this is a new area, it’s critical that MAF develops internal capacities to engage meaningfully on the subject and prepare to take advantage of the growing climate finance landscape. The government should seek out countries in the region who are fore runners in accessing climate finance in the region and beyond and facilitate learning exchanges. Vietnam for instance has recently generated experiences in designing projects for low-carbon rice funded through the TCAF fund and supported by the World Bank. Furthermore, some lessons can be found in-country from the $42 million FCPF/Carbon fund emissions reduction program under REDD+. Develop an MRV system for tracking impacts of climate smart technologies on GHG emissions and other key agricultural indicators. Monitoring reporting and verification protocols for tracking the impact of climate smart technology interventions in achieving climate smart outcomes, like reduced GHG emissions, are critical for ensuring that desired outcomes are achieved. Therefore, putting in place MRV mechanisms and strengthening information and accountability systems in agriculture is critical for creating and trading in carbon assets. This will also be vital for ensuring that the agriculture sector contributes to the country’s international commitments under the NDC, since agriculture is such an important contributor to national GHG emissions, and a potential sink. An initial step will be to develop an MRV framework for agriculture, including the institutionalization mechanisms, and capacity building needs. Policy and regulation Develop marketing procedures and product standards for climate-friendly/green and safe products for select value chains to meet demand from local and export markets like China and EU. Consumers in middle income and high-income countries are increasingly showing preferences for products that meet climate, environmental and health standards. While Laos aims to tap into this growing market (for instance specialty and sustainable coffee), there is a still a lack of ability to sufficiently implementing standards, tracking, and verifying products and market produce. The country needs to improve on the development of the necessary standards and certifications, which respond to key target markets like China and the EU and improve enforcement of environmental and safety standards from the farm to market. China for instance requires a comprehensive traceability and inspection system from production to export, including close inspection of farm registration, and farm management. A key lever will be to 56 implement a digital traceability and certification system for climate-friendly/green products and food safety. Apply a dual approach of empowering local administrators to enforce forest protection and land use regulations and incentives to farmers for sustainable land management to reduce forest encroachment. The government needs to improve the enforcement of regulation for land-use and forest preservation at the local level through empowering and capacitating local administrators to reduce the rampant encroachment on forests by agriculture land expansion. However, regulation alone will not be enough as traditional practices dictate unregulated land use and forest land exploitation. However, providing incentives linked to responsible farming and adoption and maintenance of sustainable intensification approaches, which can boost farmer productivity and incomes and reduce the prevalence of monocultures, and soil nutrient mining practices, which are strong factors in forest-land encroachment by agriculture may be useful. This way the government may be able to limit agriculture land encroachment as a complement to enforcement of laws and regulations. It will be key to investigate which incentives are most appropriate and effective. Improve land use monitoring to track forest encroachment by completing the Forest and Land Use Zoning (FLUZ) exercise. The development of a strong land-use zoning monitoring system will benefit enforcement of environmental regulation and provide clarity on land use modalities at the local level, which can limit farmland encroachments into forestlands. The government should therefore complete the Forest and Land Use Zoning (FLUZ) exercise under implementation by MAF/DOF, and clearly demarcate good-forest boundaries based on satellite and ground-validated maps. Completing this zoning will provide an information base that can be used to inform broader policy dialogue on effective forest management, planned agriculture expansion, and regularize land tenure inside state forestlands. Finance and incentives De-risk commercial lending to farmers through organizing farmers and investing in farmer financial literacy. The government can de-risk commercial lending to farmers through the formation and strengthening of functional registered farmers groups capacitated to collectively orient to the market and perform joint selling and coordinated marketing of produce to create economies of scale that could be more attractive to commercial lenders. Furthermore, recognizing the relatively low financial literacy scores in rural areas 187, it is crucial to develop targeted support for the financial needs of rural populations. Efforts to enhance financial literacy should be coupled with capacity building in business development, marketing, financial management, record keeping, and promotion of other forms of collateral beside land (e.g. collectively owned equipment). Practically farmer groups can be provided with imbedded resource persons to support the strengthening of farmer groups in these diverse areas over defined periods of time. These interventions can stimulate entrepreneurship among farmers, and generate increased demand for financial services, thereby driving the growth and expansion of bank lending. Pilot a cooperative program with commercial lenders for financial services for smallholder farmers, including technical assistance on developing and implementing tailored financial products which suit farmer’s needs. Currently, commercial lenders and micro-finance institutions in Laos \have limited outreach to smallholder farmers and small agro-businesses. A significant hurdle to provision of financial services is the lack of experience in dealing with smallholder farmers and agro-businesses, and the perceived high risk of their operations. Government should establish a cooperation program with Morgan, P. & Trinh, L. Q. (2019). Fintech and Financial Literacy in the Lao PDR, ADBI Working Paper Series, No. 933. Asian 187 Development Bank Institute 57 commercial banks to pilot green financial products suitable for farmers’ conditions e.g. different interest rates for different products, introducing some flexibility in the payback period for credit/loans if disease outbreaks or extreme climatic events disrupt production, and (iii) time-intensive loan issuance that align with the timing of farming seasons. The program can focus on a select few high value agricultural commodities in high potential areas, to provide a safe demonstration case. The cooperation should include dedicated technical assistance through partnerships with experienced organization to provide training to commercial banks on farmer tailored financial product development, farmer appraisal, effective means of reducing transaction costs for loan follow-ups for instance. Support the introduction of agricultural insurance schemes under public private partnership (PPP) arrangements. The national Disaster Management Committee (NDMC) is exploring the possibility of establishing a national insurance scheme the Ministry of Agriculture and Forestry (MAF). However, while there is great interest from government in insurance products, and evidence that farmers are willing to pay for insurance, it appears that private sector players are hesitant to enter the agro-insurance space in Laos. Establishing a framework for implementing a PPP-based insurance product could be useful to better organize and test insurance products. The framework can be based on lessons from successful insurance products in the region and beyond and seek to identify lesson that are applicable to Laos, which can inform a pilot later. Provide incentives for private sector technology transfer and for agro-business to enter sustainable business partnerships with farmers. Since public budgets are very tight in Laos, public investment can be used to leverage private investment to advance climate-smart technology implementation. Incentives can focus on supporting private engagement in regional and domestic companies to increase the diffusion of technologies to fill the R&D gap in the country. The absence of a viable business model for private sector to engage millions of smallholders in mutually beneficial business enterprise is a huge lost opportunity. Government should facilitate sustainable business partnerships between agro-businesses and farmers, through blended finance instruments and guarantees. Concluding remarks and next steps Lao agriculture will have to undergo a transformation to realize the vision for green and sustainable agriculture set out in various national strategies and plans for the near term (2030s) to the longer term (2050s). Key to achievement of these goals will be a strong focus on actions that boost productivity, drive commercialization, and higher incomes of farmers, while building resilience to climate hazards and lowering the carbon and environmental footprint of the sector. Technological change, targeted investments, incentives, and mature institutional capacities will be needed. This report detailed these needs and recommended priority actions over the coming decade to address climate risks, while achieving other priority goals in the agriculture sector. While not a part of the recommendations provided here, there are several structural issues that need to be addressed to increase the success of the green agriculture transition. These include land tenure security, access to affordable internet services, and reliable energy. Finally, developing implementation/action plans for green and sustainable agriculture may help to better elaborate above recommendations into specific guidance for government actions. The action or implementation plan/s should detail how the priority activities of government over the next decade can be implemented, including investment envelops, sources of financial resources, delivery mechanisms and implementation modalities. 58 Table 18. Summary of Recommendations (Urgency: M-Medium; S-Short-term; L-Long-term) Recommendation Urgency Responsible Investments in climate-smart technologies 1 Expand irrigation services and ensure sustainability through a return-on- M DOI investment focused approach and tracking economic performance. 2 Establish a program for variety improvement and multiplication for select M DOA strategic crops like rice, through leveraging partnerships 3 Expand the roll out of GAP building on lessons from on-going and past projects S DAEC/DOA/NAFRI 4 Establish a program on sustainable livestock commercialization focused on L DLF animal health and nutrition. Institutional strengthening 5 Repurpose public funding towards R&D through outcome-oriented allocations of M DOPC/NAFRI/ MOF research grants. 6 Reform the extension services to support more pluralistic services including M DAEC/NAFRI/DOA private sector and NGOs. 7 Introduce a program for improving the operation and sustainability of irrigation S DOI schemes through strengthening cohesion and capacities of WUAs, and WUGs. 8 Build the capacity of MAF on climate finance access through local, regional, and S DOPC international learning exchanges to raise awareness and build experience. 9 Develop an MRV system for tracking impacts of climate smart technologies on M MAF/MONRE GHG emissions and other key agricultural indicators. Policy and regulation 10 Develop marketing procedures and product standards for climate-friendly/green M MAF/MOIC and safe products for select value chains to meet demand from local and export markets like China and EU. 11 Apply a dual approach of empowering local administrators to enforce forest M DaLAM/DOF/MAF; protection, and land use regulations and incentives to farmers for sustainable land DLM/MONRE management. 12 Improve land use monitoring to track forest encroachment by completing the M DaLAM/DOF; Forest and Land Use Zoning (FLUZ) exercise. DLM/MONRE Finance and incentives 13 De-risk commercial lending to farmers through providing partial guarantees, S MAF/MOF organizing farmers, and investing in farmer financial literacy. 14 Pilot a cooperative program with commercial lenders for financial services for S MAF smallholder farmers, including technical assistance on developing and implementing tailored financial products which suit farmer’s needs. 15 Establish a framework for implementing agriculture insurance products for M MAF/NDRC/MOF farmers through based on international and regional good practice. 16 Provide incentives to private sector to support technology transfer and to agro- L MAF/MOIC business to enter sustainable business partnerships with farmers. Source: Authors 59 Annexes Annex 1: Key national policies, plans and projects for a green transition a) National policies and plans Policies and Objectives CSA relevance plans Agriculture Ensuring food security, producing comparative and Continue to improve production forces and Development competitive agricultural commodities, developing production relations by establishing strong farmer Strategy to clean, safe, and sustainable agriculture and shift organization that to be able to access to credit, 2025 and gradually to the modernization of a resilient and technology and modern production equipment. Vision to the productive agriculture economy linking with rural year 2030 development contributing to the national economic basis. Laos 9th Five The Plan aims to implement the Resolution of the On Climate Change Mitigation, the Plan highlights Year NSEDP 11th Party Congress, as well as continue the (1) Continue the implementation of the NDC and 2021-2025 implementation of the National Strategy on Socio- greenhouse gas emission mechanisms such as the Economic Development 2016-2025 and Vision REDD+ project; and (2) Mainstream climate change 2030 of the Lao PDR. adaptation and community-based adaptation (CBA) into sectoral development plans to protect people from natural disasters. National To enhance capacity for integrating green growth Allocation and participatory formulation of the Green into the formulation and implementation of sector national land management and use plan as soon as Growth and local strategies and plans in each period to possible to ensure efficient, effective, and Strategy ensure achievement of long-term goals of NSEDP. sustainable use of land with is the valuable property (NGGS) of of the nation. Laos till 2030 Green and Green and sustainable agriculture (GSA) The GSAF focuses on the sub-sectors of crops, Sustainable development is a priority of the Government of livestock, fisheries, agroforestry, and non-timber Agricultural Laos as articulated in the NGGS and other policy forest products. The Framework applies to all Framework statements. The framework elaborates on the participants and stakeholders involved along the (GSAF) to policy and guides the development of green and entirety of the agricultural value chain, ranging from 2030 sustainable agriculture programmes such as the farmers to retailers, as well as policy actors, Clean Agriculture Programme, Agroforestry researchers, interest groups, and consumers within Programme. those five sub-sectors. Decree on The Decree identifies principles, regulations, and Identify mitigation measure to reduce GHG from Climate standards on management, monitoring the climate targeting changes of agriculture and forestry land Change No. change to mitigate, protect and reduce the impact use, eradicate deforestation, reforest, and re- 321/GoL from climate change aiming at safe livelihood, fertilize agricultural land. Relevant sectors must health, asset, environment and biodiversity, identify mitigation for climate change periodically infrastructure linking to regional and international to improve resilience and reduce GHG such as land practices and contributing to the NSED based on use, agriculture and forestry, water resources the sustainable and green direction National The agriculture and forestry sector must Strengthen agricultural production and processing. Agenda No. implement two plans, including strengthening Create conditions and environment conducive to 1356/MAF agricultural production, import substitution, production. Strengthen SPS and TBT to reduce reducing foreign exchange outflows, and improving import for those could be produced domestically. agricultural product processing and increasing Promote clean, safe, and green agriculture exports. production with strengthening standards such as OA and GAP. Strengthen livestock production with GAHP, GAQP. 60 b) Summary of main constraints for CSA in relevant departments Agency/Organi Main constraints for CSA zation Department of • Limited capacity of technical staff in plant quarantine, pesticide use, SPS, GAP, OA inspection and Agriculture certification. Technical expertise and information for CSA is rather limited due mainly to limited (DOA), MAF government budget support. • Since 2016, DOA has been planning to strengthen the capacity for OA and GAP inspection for at least 5 staff in each province. However, these plans have not been implemented due to financial constraints. • Weak coordination among lines technical departments under MAF. Department of • Limited detailed information on crops parameters, soil fertility, water saving, and crop quality Agricultural • Limited available information on agricultural land use planning linking to CSA technologies. Land • The government’s promotion on green and sustainable agriculture production with Management commercialization does not align with the sustainable land use planning and allocation. (DALaM), MAF • DALaM recognizes the impact of climate change on agricultural land use; however, there is no specific program to mitigate climate change impacts in the sector. National • Limited information on CSA in terms of detailed technical and market demand and information for Agriculture, specific products. Forestry and • Limited government’s budget to support the technical research on CSA technologies. Rural Research • Limited demonstration and research on CSA including the greenhouse with sprinklers and other Institute modernized facilities with clear cost benefit analysis for each technology. (NAFRI), MAF • Limited coordination between research and extension services on CSA. Department of • Lack of technical capacity to efficiently collect samples and test for animal diseases and impact of Livestock and climate change in the livestock sector. Fishery (DLF), • Limited information on GHG emissions in livestock sector. MAF Department of • Irrigation facilities and water source has not been well supplied to the right users for commercial Irrigation (DOI) production. • There is a need for policy makers to better understand and improve their awareness on better irrigation use with right regulations, and proper irrigation design • Limited coordination among lines technical departments such as DOI, DOA, NAFRI, DALaM and DAEC Department of • Limited government’s budget support to consolidate information on CSA from line technical Planning and departments. Cooperation • No specific information system and database on CSA and impact of climate change on agriculture (DOPC), MAF sector. • Limited coordination mechanism and clear strategy and action plan for CSA. 61 c) Selected projects from international development partners Project and organization Brief description Agriculture LACP implements the productive alliance approach to demonstrate that Competitiveness Project smallholder farmers can successfully increase agricultural productivity and (LACP), World Bank efficiency in response to market opportunities and demand for food safety and ($29.3 million) sustainable agriculture development along the rice, vegetable, and maize value chains. Lao Landscapes and LLL aims to promote sustainable forest management, improve protected area Livelihoods Project (LLL), management, and enhance livelihoods opportunities in 5 large landscapes, World Bank, GEF, Canada comprising 8 provinces. The LLL is financing the development and piloting of a Clean Energy and Forest FLUZ approach that aims to differentiate between existing good forest (non- Carbon Facility ($57.4 disturbed for 7 years or more) and agroforestry zones (degraded forestland that million) has been used by villagers). Once the delineation is completed, this information base can be used to inform broader policy dialogue on effective forest management, programmed agriculture and livelihoods expansion, and land tenure inside state forestlands. The project directly funds forest-smart livelihoods centered on CSA in 544 villages. Governance Forests GFLL is an Emission Reduction Program signed between Laos and the FCPF/Carbon Landscapes and fund within the framework of Reducing Emissions from Deforestation and forest Livelihoods (GFLL), World Degradation (REDD+). The carbon fund committed to purchase up to $42 million Bank, Forest Carbon in emissions reductions (ERs) from the six northern provinces. These emissions Partnership reductions are verified by an independent auditor and purchased at $5 per ton. Facility/Carbon Fund (up Revenues generated by the ERs will be re-invested in the forest villages in the to US$42 million in results- jurisdiction under a benefit sharing plan supervised by the Bank. Forest-smart based payments) livelihoods supported by the program center on CSA. Enhancing Systematic Land The ESRLP aims to enhance land tenure security and land administration service Registration Project delivery. These objectives are achieved by i) issuing one million land titles in all 18 (ESLRP), World Bank, provinces of Laos mainly in rural areas; ii) modernizing and digitalizing the land ($31.6 million) administration system; and iii) supporting land policy and legislation development. The registered land titles can be used then as collateral when applying for credit for CSA investments. At policy level, the Project is supporting the recognition of land rights of 25% of population living within state designated forestlands. Funded by GEF, the SAMIS technically aims at: 1) strengthening agroclimatic monitoring, analysis, Strengthening Agro- communication and use of data and information for decision-making in agriculture climatic Monitoring and and achieving food security. 2) strengthening institutional and technical capacity Information Systems to for monitoring and analysis of agricultural production systems and development Improve Adaptation to of the Land Resources Information Management System (LRIMS) and agro- Climate Change and Food ecological zoning (AEZ). Security project (SAMIS), FAO ($5.4 million) Climate Adaptation in Planning with science & local knowledge: Vulnerability assessments -interviews Wetland Areas in Lao PDR and meetings. Understanding of Climate Change impacts and risks, to enhance (CAWA), FAO capacities of communities, Local and central administrations design priorities and ($4.7 million) implement Climate Change Adaptation, Promote Disaster Management Measures in the two target wetlands. Funded by SDC, the Lao LURAS III through Climate Resilient Extension Development (CRED) is expanding Upland Rural Advisory the green extension approach to include a participatory process for improving the Service (LURAS III), resilience of rural communities engaged in commercial farming and marketing, Helvetas who are among the hardest hit by the effects of climate change. 62 ($5 million) Implementation of I-GFLL aims to reduce greenhouse gas emissions by promoting sustainable forest Governance Forest management and forested landscapes at scale in six provinces of the Lao PDR Landscapes and through implementation of the Lao Emission Reduction Program (ERP) Livelihoods (I-GFLL), GIZ ($42 million) Climate-Friendly The project supports the implementation of the government's Agriculture Agribusiness Value Chains Development Strategy to 2025 (ADS) by boosting the competitiveness of rice Sector Project, ADB value chains in Khammuane, Saravane, and Savannakhet provinces, and vegetable ($40.5 million) value chains in Vientiane Capital, Champassak, and Sekong provinces. Sustainable rural The project is intended to address issues of PRI and watershed management in infrastructure and mountainous provinces of northern Laos by using an integrated land use planning watershed Management approach that integrates efficient, sustainable and climate resilient rural Project (SRIWMP), IFAD infrastructure, and feasible watershed protection measures. For an ecosystem ($47 million) based sustainable rural development, infrastructure and the watershed must be considered simultaneously. Savannakhet Landscape A scalable model of sustainable community-led wetland management delivers Program, WCS long-term benefits through strengthened livelihoods linked to biodiversity ($1.2 million) protection, endangered species recovery, improved ecosystem services and reduced habitat degradation 63 Annex 2: The FABLE model assumptions Assumptions and sources of data Domain Assumption Source and justification The total population increases by 33% between 2015 and 2050. Source: SSP2 for total population for years 2015-2050 (UN-ESA 2017) and In 2050, the share of people that are younger than 25 years old drops UN medium estimate for population distribution by age Population to 36% compared to 63% in 2000. The older part of the population, and sex group for years 2020-2050 (United Nations, that is +50 years old, will grow to 28% in 2050 compared to 10% only in Department of Economic and Social Affairs, Population 2000. Division (2017). World Population Prospects: The 2017 Revision, DVD Edition.). Justification: SSP2 population projections are close to 2020 observations and national projections by 2050. For 2000-2020, we follow FAO trends. In 2050 we assume the following Source: FAO Food Balance Sheet for the period 2000- changes in average per capita consumption compared to 2020 FAO 2020 levels: - rice and cereals: -6% Justification: Calibrated based on observed trends - fruits and vegetables: +35% 2000-2020 from FAO Food Balance Sheet. - roots: +37% - sugar: +100% - vegetable oils: 170% - eggs: +113% - poultry meat: +34% - vegetable oil and oilseeds: +170% - milk: +100% - red meat: +74% - pork: +7% - fat from animals: +25% - pulses: +91% - fish: +4% Diets - and beverages and spices: +42%. GREENER PATHWAY Inspired by EAT Lancet diet, adapted to Laos. Reduction In 2050, we assume the following changes in average per capita in pork and red meat to reduce enteric fermentation. consumption compared to the 2050 BAU diet: Reduction in cereals to reduce CH4 emissions from rice, - cereals: -17% and to reduce the diet’s dependency on staples with - roots: +23% low dietary diversity. Reduction in sugar to avoid health - sugar: -75% issues. Lower total kilocalories per person and per day - fish: +25% to be closer to MDER. - poultry meat: +88% - eggs: +100% - red meat: -34% - pork meat: -21% - roots: +23% - pulses: +60% - fat from animals: -27% milk, vegetal oils, beverages and spices, fruits, and vegetables equal to BAU pathway For 2000-2020, we follow FAO trends. Then, we assume that Source: FAOSTAT annual crop yield over the period productivity increases at a constant growth rate equal to 25% of 2000- 2000-2020 2020 observed rate for most crops, relying on increasing fertilizer use. Crop productivity We also account for climate change effect (see below). Justification: Based on yield potential from Yields in 2020 and 2050 respectively: geographically close countries with similar climates - banana: 23.4 t/ha and 25.3 t/ha (Thailand, Indonesia, China). Over the past two - cassava: 33.7 t/ha and 29.6 t/ha decades, there have been important increases in crop - coffee: 2.25 t/ha and 2.44 t/ha productivity. Laos was catching-up neighboring - corn: 8.85 t/ha and 8.81 t/ha countries’ productivity levels. This phenomenon is - rice: 2.68 t/ha and 2.60 t/ha ending but there is still room for improvement. - vegetables: 9.41 t /ha and 9.96 t/ha 64 For 2000-2020, we follow FAO trends. Then, we assume that Source: FAOSTAT annual livestock productivity over the productivity increases at a constant growth rate equal to 200% of period 2000-2020 2000-2020 observed rate. Livestock productivity Yields in 2020 and 2050 respectively: Justification: Based on historical yield growth from - red meat from cattle: 0.026 t/TLU and 0.032 t/TLU 2000-2020 trends and current shift towards more - milk from cattle: 0.355 t/TLU and 0.429 t/TLU productive systems. The Lao government and foreign - red meat from sheep and goats: 0.045 t/TLU and 0.050 t/TLU companies are increasingly investing in the livestock - eggs from poultry: 0.833 t/TLU and 0.855 t/TLU sector to shift towards more productive systems. - chicken meat from poultry: 0.202 t/TLU and 0.207 t/TLU - pork meat from pigs: 0.094 t/TLU and 0.120 t/TLU Note: An increase in livestock productivity implies a proportional increase in feed requirement. Ruminant density is computed as the total number of ruminants Justification: According to FAOSTAT, the pasture area divided by pasture area reported by FAO. In the case of Lao, the remained stable over 2000-2010. Ruminants are held by ruminant density automatically adjusts when the herd increases to smallholders and graze in fallow cropland, communal prevent pasture expansion beyond the FAO pasture area in 2010. areas or along roads, rivers, fields, and forests (ADB, Ruminant density 2002; MAF, 2017). Consequently, we assume that the ruminant herd growth is decoupled from the evolution of pasture area. Moreover, access to land is under great pressure in Laos and pasture is not competitive with cash crops and forest plantations so pasture has no possibility to increase further (farmers have no interest in enlarging their pasture areas). Free expansion of agricultural land outside protected areas (protected Source: Land cover data from FAO, protected areas areas remain constant to 2010 level, 3.847 million hectares). from WDPA, afforestation data from Laotian National Statistical Yearbooks, MAF Statistical Year Books. We assume afforestation started in 2015 and will increase linearly Justification: We are not aware of plans to further towards 1.65 million hectares in 2030 so that the total forest area increase protected areas and/or limit agricultural land represents 70% of the territory in 2030. expansion in the future. The Lao government sets the objective to cover 70% of its territory by forest by 2030, Data for land use is based on FAOSTAT from 2000 to 2020 as well as carbon so we consider there will be more afforested areas until sequestration from land. 2030 to fulfill the objective and then no more Land use change afforestation. Note: Official Laotian statistics report a lower forest area than FAO for the period 2000-2020, thus reaching 70% of total area might imply a larger afforestation target than the one we model. It seems that there exist discrepancies between the official definition of forest cover in Laos and the FAO definition. Carbon sequestration data associated to forests is also higher in FAOSTAT data than in official Laotian sources188. GREENER PATHWAY Deforestation is a key issue in Laos. In the BAU pathway, there is no restriction on deforestation. Here, we assume that Laos progressively stops deforestation to achieve zero deforestation in 2050. Net exports: Source: FAOSTAT from 2000 until 2020 - FAO trends for 2000-2020, then no change in quantity except for Justification: Calibrated on observed 2000-2020 FAO sesame, rice, banana, corn, coffee, vegetables, and cassava trends for exports and imports. Trade - For sesame, banana, corn, vegetables, and coffee, quantities Laos is engaging more into agricultural trade with triple between 2020 and 2050 China, Vietnam, and Thailand. The government wanted - For rice, quantities are multiplied by 50 (from 2,000 tons in 2020 to double export values between 2015 and 2025 (MAF, to 100,000 tons in 2050) 2015). Climate change impacts are introduced through crop models Source: ISIMIP (Inter Sectoral Impact Model simulations on crop yields using climate projections as input. In the Intercomparison Project), impacts Climate change model, we have used estimates for climate change impacts on crop https://www.isimip.org/impactmodels/details/48/ yield with RCP 6.0, the climate model HadGEM2-es, and the crop Justification: In the absence of stronger efforts to model LPJmL and without CO2 fertilization effects. It only covers 12 reduce GHG emissions, a global mean warming increase Ministry of Agriculture and Forestry (2018). Lao PDR’s Forest Reference Emission Level and Forest Reference Level for REDD+ Results Payment 188 under the UNFCCC. Lao PDR 65 crops, cassava, field pea, groundnut, maize, millet, rapeseed, rice, soy, between 2°C and 3°C above pre-industrial temperatures sugar beet, sugarcane, sunflower, and wheat. by 2100 would be likely. No change in the share of consumption wasted (3%) and production Source: FAO Food balance sheet for post-harvest losses Losses and waste lost through post-harvest losses (on average 2%) in 2010. and (FAO. 2011. Global food losses and food waste – Extent, causes and prevention) for waste percentages for the South and Southeast Asia region Justification: We are not aware of plans that aim to limit losses and waste. Climate smart technologies For this study, the FABLE Calculator included scenarios of climate smart technologies adoption – a new development. They were selected based on the literature review from Chapter 2 in alignment with Lao policies. Bilateral in-person meeting in Vientiane with stakeholders also helped prioritize the choice of technology. Data, sources, and justifications are detailed in the table below. Data on available mitigation and adaptation options specific to Laos is still limited. We relied on local sources every time possible but also had to use more global databases, thus creating some noise in the results. Assumptions and sources of data for the climate smart technologies Domain Assumption Source and justification Mixing cattle Local cattle can be crossbred with more performant breeds Breed mixing is already a solution that the Ministry of breed such as Red Braham. Hybrid cattle body weight is 80% Agriculture is promoting to improve cattle productivity (MAF, higher on average compared to local breed. Thus, 2020)189. Interest for this practice was confirmed during the productivity (tons of beef per TLU) is also 80% higher on stakeholder engagement process of this study. average. Some Red Braham bulls have already been introduced in Laos We assume that 30% of the cattle herd will be hybrid by (Xayalath et al. (2021). 2050. Note: we assume same feed quantities and same GHG Source: Xayalath et al. (2021) 190 emission factors as the local breed since we lack complementarian data. Molasses We assume that programs are developed such that cattle Molasses nutrient blocks are already introduced in Laos Nutrient have access to one molasses nutrient block that is eaten in through trials or development programs. They seem affordable Blocks for one month before being slaughtered. The consumption of for farmers (with benefits larger than costs of the blocks cattle one block leads to: (Windsor et al. 2021) 191. - Productivity gains +2.3% - Emission abatement of 470kgCO2e Interest for this practice was confirmed during the stakeholder engagement process of this study. We assume that 40% of the cattle while have access to one molasses blocks by 2050, including 15% of hybrid cattle. Source: Windsor and Hill (2022) 192 Note: Molasses nutrient blocks increase feed digestibility and thus reduce emissions from enteric fermentation. They can also have other benefits such as delivering health interventions or boosting lactation that we do not account for. 189 Ministry of Agriculture and Forestry (2021). Agricultural Development Strategy to 2025 and Vision to 2030 (Revised) DRAFT 2021. 190 Xayalath, S., Mujitaba, MA., Ortega, ADSV., Rátky, J. (2021). A review on the trend of livestock breeds in Laos. Acta agrar Debr. ;(1):227-237. doi:10.34101/actaagrar/1/9047 191 Windsor, PA., Nampanya, S., Olmo, L., Khounsy, S., Phengsavanh, P., Bush, RD. (2021). Provision of urea–molasses blocks to improve smallholder cattle weight gain during the late dry season in tropical developing countries: studies from Lao PDR. Anim Prod Sci.;61(5):503. doi:10.1071/AN20517 192 Windsor PA, Hill J. Provision of High-Quality Molasses Blocks to Improve Productivity and Address Greenhouse Gas Emissions from Smallholder Cattle and Buffalo: Studies from Lao PDR. Animals. 2022;12(23):3319. doi:10.3390/ani12233319 66 System of The system of rice intensification is a cultivation method This practice is mentioned in the NDC list of conditional Rice that can be used on both irrigated and rainfed rice mitigation targets for 2030. Improving rice irrigation is also Intensification cultivation. Locally defined SRI practices have been considered as a key mitigation practice in the Long-Term Low- developed to be low-cost solutions for smallholder farmers. Emission Development Strategy (LT-LEDS) recommendations We assume that 20% of total harvested area shift to this report identifying Action Scenario GHG Impact Assessment. Lao specific SRI method. This leads to: - Productivity gains +39% Source: Government of Lao (2021)193 - Emission abatement: o Irrigated area: -33% o Rainfed area: -44% We assume that by 2050 20% of the rice planted area will implement this practice. Cultivar We assume that there is a shift to rice varieties with a Cultivar change is mentioned as an adaptation action by Lao change for higher tolerance for drought for lowland rainfed government (National Strategy on Climate Change by 2030 and rice ecosystems. This ecosystem corresponds to about 78% of 2050, 2021 draft) 195 the total rice harvested area in 2020194, and we model that Source: Inthapanya, 2015196 40% of the harvested area will shift to this new cultivar. The new high yielding glutinous rice variety increases yield by 7% on average. Note: We assume that cultivar change, and SRI are not applied to the same areas. Set of Agroecology is a combination of diversified practices in-field MAF identifies green agriculture, defined as a more sustainable agroecological such as intercropping, cultivar mixtures, agroforestry, cover and inclusive agri-food systems, as an opportunity to transition practices for crops, low-tillage, or crop rotations. It generally leads to towards a more sustainable and resilient agriculture system cash crops higher yields than monocultures. In particular: (Green and Sustainable Agriculture Framework for Lao PDR to - Corn: +40% [sd: -38%, +216%] 2030, 2021) 197 - Coffee: +5% [sd: -67%, +231%] The Long-Term Low-Emission Development Strategy (LT-LEDS) - Cassava: +26% [sd: -32%, +132%] recommendations report also mentioned low tillage, crop cover - Vegetables: +68% [sd: -13%, +151%] and agroforestry as key mitigation options. We assume that by 2050 50% of the planted areas for the Source: Jones et al. (2021) 198 concerned crops will implement this set of practices. Note: These estimates are global, i.e. not particular to Lao PDR. Agroecology has also benefitted on biodiversity and resilience to extreme climatic events that we do not account for. FABLE and LT-LEDS mitigation scenarios The Long-Term Low-Emission Development Strategy (LT-LEDS) report for Laos also built scenarios of adoption of key agricultural mitigation practices. The table below compares FABLE scenario under the BAU and LT-LEDS scenario. Most identified mitigation options are common to both studies. Mitigation option Target in 2050 LT-LEDS FABLE (BAU) FABLE (Greener) Manure management Head of cattle (composting, 300,000 Not covered Not covered and buffalo anaerobic digestion) Improved feed quality Head of cattle 300,000 (+3% fat 1,325,000 (one 875,000 (one or use of additives for and buffalo in feed) MNB) MNB) cattle 193 Government of Lao PDR. First Nationally Determined Contribution (Updated Submission).; 2021. 194 Ministry of Agriculture and Forestry (2020). Agricultural Statistics Yearbook 2020. Lao PDR 195 Ministry of Natural Resources and Environment, Department of Climate Change (2022). Third National Communication on Climate Change (Draft). Lao PDR 196 Inthapanya, P. (2015). New High Yielding Promising Glutinous Rice Line TDK37-B-9-1-3-B. The Lao Journal of Agriculture and Forestry. 197 Ministry of Agriculture and Forestry (2021). Green and Sustainable Agriculture Framework for Lao PDR to 2030. 198 Team, Scientific Data Curation. Metadata record for: A global database of diversified farming effects on biodiversity and yield. Published online 2021:5969 Bytes. doi: 10.6084/M9.FIGSHARE.14723913 67 Head of cattle Cross breeding cattle Not covered 990,000 655,000 and buffalo Cover-crops Hectares 200,000 Cassava: 100,000 Cassava: 100,000 No or low-tillage Coffee: 75,000 Coffee: 75,000 Hectares 200,000 Corn 80,000 Corn 80,000 agriculture practices Vegetables Vegetables 105,000 105,000 Annual to perennial Hectares 50,000 (Set of (Set of crop conversion agroecological agroecological practices) practices) Nitrogen Management through Hectares 200,000 Not covered Not covered nitrification inhibitors Adjusted water managements Hectares 100,000 250,000 (SRI) 240,000 (SRI) practices in lowland rice cultivation Shift rice cultivars Hectares Not covered 490,000 485,000 68 Annex 3: Economic analysis Crop and livestock financial models The financial analysis illustrates cost-effectiveness and financial viability of selected CSA technologies as compared to the continued business as usual (BAU) case (conventional farming). The main objective of the financial analysis is to estimate the cost-effectiveness and financial viability of CSA practices by measuring on-farm incremental net benefits underlying the transition from conventional farming to CSA. The analysis is based on crop and livestock models which simulate the implementation of conventional/BAU and CSA practices for a variety of rain-fed and irrigated crops. In the financial models, three pathways are considered: (i) “business as usual (BAU)”, which is the baseline of the analysis; (ii) “BAU with climate change (CC)”; and (iii) climate-smart agriculture (CSA). The BAU scenario refers to ‘conventional’ farming activities where farmers are not engaged in any improved climate-resilient agronomic practice, yields are below the potential, and the returns of labor are lower. Such scenario is representative of the current situation. “BAU with CC” pathway represents a future scenario where current policies are implemented, and current trends are continued. It illustrates the projected impacts of climate change (RCP 6.0) on the baseline scenario if no adaptation strategy is implemented. Finally, under the CSA scenario, farmers are hypothesized to adopt climate-resilient and low-carbon technologies to improve both environmental and financial performance. Considering one hectare of land, crop financial models simulate crop annual budgets reporting all the quantities of inputs and outputs, their unit costs and prices. Livestock financial models simulate the dynamic of a typical herd (average) estimating annual budgets that account for costs associated with breeding activities (i.e., feed, vaccines, and pasture) as well as benefits from the sale of animal products (i.e., live animals, meat, milk). Production costs include cash inputs and labor costs. Cash costs considered include costs for purchase of seeds, chemical fertilizers (NPK), organic fertilizer (manure), pesticides, herbicides, plastic bags, plastic batch, sacks, fuel, irrigation (when present) and electricity (water pumping). Livestock management costs include labor, feeding, animal husbandry and health care. Labor is valued in the models using as a proxy the market rural wage (50,000 kip /person-day) derived from the data available. Since the goal of the analysis is to consider all the input costs, labor is valued in the same way, no matter if the laborer is a family member or an external labor. In other words, the analysis looks at labor costs within overall production costs. Most smallholders, however, do not rely totally on hired labor and use family labor, without accounting for their labor costs. In both crop and livestock financial models, financial performance indicators such as gross margin, net margin and return of family labor are estimated. Gross margins (cash flow) are computed as a difference between total revenue and total operating (variable) costs. Therefore, in each crop model, both the gross and net margins are computed (where the net margin is obtained by subtracting the labor costs from the gross margin), to also consider family labor costs. Labor, overall productivity and incomes are expected to increase as an effect of the implementation of such climate- resilient practices. The difference between annual net incomes in the ‘BAU’ versus ‘CSA’ scenarios represents the net incremental financial benefits of switching from conventional to climate-smart agricultural systems. 69 Enabling investments An estimation of the financial investment costs associated with the transition to a climate-smart agricultural systems relate to the definition of extension and capacity building systems at country level. Such costs will possibly factor the effects of key policy actions and enabling investments. The structure and the economic estimate of such off- farm investments is illustrated in the following table. It considers a target of 1,660,000 households and a period of 5 years. Investment components Description Million US$ CC knowledge Climate hazards and vulnerability information for Laos compiled and 319 management integrated into an agriculture and climate risk system. Agricultural land- use planning in flood and drought-prone areas. Comprehensive national long-term information system for climate related hazards Capacity building and Agricultural officers, extension workers and farmer cooperatives in target training districts trained in climate change impacts on agricultural production and 398 socio-economic conditions, and potential community-based climate- smart adaptation options. Extension advisory services Community-based climate-smart agricultural practices and off-farm opportunities demonstrated and promoted at district level within suitable 576 agro-ecological systems. Adaptation monitoring Definition of a systematic and periodical monitoring and evaluation and evaluation system 124 Total 1,418 Total cost/ha (US$) 854 Total cost/ha/year (US$) 171 Source: Authors’ elaboration based on the project “Improving the resilience of the agriculture sector in the Lao PDR to climate change impacts” The costs and benefits of the transition For each crop and livestock species considered in the present report, the costs and benefits underlying the transition through climate-smart agricultural systems have been estimated. The results are reported here. The value of both on-farm and off-farm benefits increases gradually over time, due to a hypothetical gradual adoption rate of climate-smart agricultural practices by targeted farms (which determine a steady increase in both agricultural productivity and emissions abetment). The off-farm transition costs appear only in the first 5 years of the considered time (20 years) due to the hypothesized duration of the investment project in infrastructures and capacity building. For all crops and livestock species considered in this report, the transition to climate smart agricultural systems generates positive net incremental benefits. This means that, despite the increase in on-farm costs incurred by farmers, and the cost of investments in infrastructures and capacity building sustained by the government authorities, the adoption of resilient and climate-smart agricultural systems leads to greater financial benefits. The transition to climate-smart systems is therefore economically profitable. 70 Since the abatements of GHGs emissions here hypothesized are linked to both the adoption of climate- smart agriculture practices and the reduction of deforestation, the price of a carbon offset credit (equal to 3.05 $per tCO2e reduction) is estimated as an average of credit prices underlying agricultural and forestry project categories (respectively equal to 1.36 and 4.73 $per tCO2e) 199. Table 16 provides an estimate per hectare of costs and benefits (on-farm and off-farm) underlying the CSA transition of crop and livestock systems. Net incremental benefits of climate-smart transition in rice cultivation Costs and benefits - RICE Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 $ - 27,517 55,035 82,552 110,069 137,587 Off - farm transition costs ‘000 $ 185,678 185,678 185,678 185,678 185,678 185,678 Off - farm benefits ‘000 $ - 183,009 366,018 549,027 732,036 915,045 24,848 235,375 445,901 656,427 1,052,63 Net Incremental Benefits ‘000 $ 2 Note: Estimates based on a total number of hectares under rice cultivation equal to 1,087,010 Source: Authors Net incremental benefits of climate-smart transition in the maize cultivation Costs and benefits - MAIZE Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 $ - 5,524 11,048 16,573 22,097 27,621 Off - farm transition costs ‘000 $ 21,828 21,828 21,828 21,828 21,828 - Off - farm benefits ‘000 $ - 19,176 38,352 57,529 76,705 95,881 Net Incremental Benefits ‘000 US$ (21,828 2,872 27,572 52,273 76,973 123,502 ) Note: Estimates based on a total number of hectares under maize cultivation equal to 127,790 Source: Authors State of the Voluntary Carbon Markets 2021 https://www.forest-trends.org/publications/state-of-the-voluntary-carbon- 199 markets-2021/ 71 Net incremental benefits of climate-smart transition in the cassava cultivation Costs and benefits - CASSAVA Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 $ - 3,480 6,960 10,440 13,920 17,400 Off - farm transition costs ‘000 $ 15,759 15,759 15,759 15,759 15,759 - Off - farm benefits ‘000 $ - 13,845 27,689 41,534 55,378 69,223 Net Incremental Benefits ‘000 $ (15.759 1,565 18,890 36,214 53,538 86,622 ) Note: Estimates based on a total number of hectares under cassava cultivation equal to 92,260 Source: Authors Net incremental benefits of climate-smart transition in the cassava cultivation Costs and benefits – VEGETABLES Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 $ - 38,036 76,072 114,108 152,144 190,179 Off - farm transition costs ‘000 $ 31,259 31,259 31,259 31,259 31,259 - Off - farm benefits ‘000 $ - 27,461 54,922 82,383 109,844 137,305 Net Incremental Benefits ‘000 $ (31,259 34,238 99,735 165,231 230,728 327,484 ) Note: Estimates based on a total number of hectares under vegetables cultivation equal to 183,000 Source: Authors Net incremental benefits of climate-smart transition in the coffee cultivation Costs and benefits - COFFEE Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 $ - 2,455 4,910 7,366 9,821 12,276 Off - farm transition costs ‘000 $ 13,997 13,997 13,997 13,997 13,997 - Off - farm benefits ‘000 $ - 12,296 24,592 36,888 49,184 61,480 Net Incremental Benefits ‘000 $ 13,997 754 15,506 30,257 45,008 73,756 Note: Estimates based on a total number of hectares under coffee cultivation equal to 81,940 Source: Authors 72 Net incremental benefits of climate-smart transition in cattle rearing Costs and benefits – CATTLE Unit Y1 Y2 Y3 Y4 Y5 Y6-Y20 On - farm net benefit ‘000 US$ - 99,421 198,843 298,264 397,686 497,107 Off - farm transition costs ‘000 US$ 454,369 454,369 454,369 454,369 454,369 - Off - farm benefits ‘000 $ - 17,371 34,742 52,113 69,485 86,856 (454,36 Net Incremental Benefits ‘000 US$ (337,576) (220,784) (103,991) 12,802 583,963 9) Note: Estimates based on a total number of cattle heads equal to 2,660,000 Source: Authors 73