Money Can Grow on Trees: Teak assets in Northern Laos

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

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

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

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

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

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

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

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

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

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

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