23 April 2015 - 2 Brief on Rattan project Phase I : (2006-2008) Pilot Supported By IKEA Phase I : (2006-2008) Pilot Supported By IKEA Phase II: (2009-2011) Scale-Up Phase Supported By IKEA & EC Phase II: (2009-2011) Scale-Up Phase Supported By IKEA & EC Established a model of forest certification by Forest Stewardship Council (FSC) development of a rattan supply chain towards sustainability and efficiency Established a model of forest certification by Forest Stewardship Council (FSC) development of a rattan supply chain towards sustainability and efficiency set-up best practices, which were applied to the rattan supply chain established a foundation for sustainable sourcing of rattan materials, clean processing and legality of the supply chain set-up best practices, which were applied to the rattan supply chain established a foundation for sustainable sourcing of rattan materials, clean processing and legality of the supply chain Phase III: (2011-1014): Strengthening Phase Supported By IKEA & TABI (SDC) Phase III: (2011-1014): Strengthening Phase Supported By IKEA & TABI (SDC) Strengthening the existing sustainable rattan supply and production chain set-up in Lao PDR: Expansion of FSC sustainable rattan forest resource management area and engage in supplying sustainable manage 2,000 tons of raw material by 2014. Strengthening the existing sustainable rattan supply and production chain set-up in Lao PDR: Expansion of FSC sustainable rattan forest resource management area and engage in supplying sustainable manage 2,000 tons of raw material by 2014. Phase IV : (2014-2017) Strengthening and scaling up Supported By IKEA & TABI (SDC) Phase IV : (2014-2017) Strengthening and scaling up Supported By IKEA & TABI (SDC) Strengthening and scaling up responsible sourcing and production of rattan and bamboo by small-scale producers. Sustainable FSC certified rattan from Lao PDR supplies the international market with FSC products. This supports local livelihoods (2,690 HH) and contributes to conserving 25,000 ha of forest. Strengthening and scaling up responsible sourcing and production of rattan and bamboo by small-scale producers. Sustainable FSC certified rattan from Lao PDR supplies the international market with FSC products. This supports local livelihoods (2,690 HH) and contributes to conserving 25,000 ha of forest.
23 April 2015 - 3 Rattan Supply Chain Traders/retailerProcessingPre-processTrader Villager Set a model of the rattan supply chain (from forest management until selling the rattan finish product to retail).
Rattan Project Main activities related to FSC rattan production: 1. Forest management-FSC certification: - 5,727 ha of rattan forest are certified in 6 villages at Bolikhan and Khamkeut district, Bolikhamxay Prov.) -Harvesting according to forest management plan -Conserve the nature forest for long term and enrich in low density forest 2.Facilitating SME in FSC rattan processing -To be CoC certified rattan SME (Danlao and Leunilan Co.) -Contracting with PAFO, DAFO and village for harvesting and weaving -Working with villager in rattan processing to improve village incomes -Facilitate SME in contacting with buyers in side and out side country (CooP retailer, Sweden and other) -Preparing rattan design and prototypes 3. Work with many stakeholders to support FSC rattan production: policy of rattan production, harvesting, management, etc. 23 April 2015 - 4
23 April 2015 - 5 Example: Rattan FSC Easter basket Production in 2014 export ed to Switzerland
23 April 2015 - 6 Harvesting Plan and Contract Signing for 2014 Request for harvesting approved by PAFO, Bolikhamxay Small rattan : 12,000 canesBig rattan : 3,000 canes Khamkeuth district : 2,000 canesKhamkeuth district : 0 canes Bolikhan district : 10,000 canes Bolikhan district : 3,000 canes Harvesting Quota Approval Small rattan: 161,000 canesBig rattan: 145,000 canes Khamkeuth district: 70,000 canesKhamkeuth district : 45,000 canes Bolikhan district: 91,000 canesBolikhan district : 100,000 canes Actual Harvested rattan cane for 2014 Small rattan : 9,741 canesBig rattan : 2,637 canes - Khamkeuth district : 2,000 canes- Khamkeuth district : 0 canes - Bolikhan district : 7,741 canes- Bolikhan district : 2,637 canes Diff.: - 2,259 canes at Bolikhan Diff.: - 363 canes at Bolikhan
23 April 2015 - 7 Reason: -High Tax and fee for natural resource and replanting at province and district level, -Many fee be paid at the district level (see next slide on the actual expenses for FSC rattan Eastern basket production) -Limited market demand/opportunity for FSC certified rattan product - only available now in Europe. Rattan SME could not buy full amount of the approved quota, just bough FSC rattan cane for FSC rattan Easter basket production only. The actual request for harvesting was lower than approved quota
Tax and fee for rattan cane Cost of rattan cane and tax (LAK) Cost of rattan can Cost of rattan cane Harves- ter group Village fund Tax for natural resource Forest replant. PAFO DAFO District Gov. Office Total cost/cane Notes FSC Rattan cane at Bolikhan district There are some fee: Document, Tax, VAT calculation, and others Big cane with 5 m length Ø 35mm10,000 700 300 2,000 1,000 150 20014,350 Small rattan cane with 5 m length1,000 100 800 200 100 2,400 FSC Rattan cane from Khamkeut Small rattan cane with 5m length 1,000 100 200 100 1,500 23 April 2015 - 8 Note: - Tax and fee for rattan cane from Khamkeuth district is 300 LAK per a small rattan cane with 5 meter length, it was approved by Provincial Governor - Other tax and fee (VAT and Profit tax) are calculated base on the following fix cost of rattan cane (big cane=6,000 LAK and small can 1,500 LAK)
Actual expense for rattan harvesting and taxation in 2014 Expenses descriptionTotal amount in LAK Note 1.Expenses on harvesting of rattan cane by community = 25,791,400 kip / 12,378 canes 25,791,400Villagers 2.Fee for village fund 1,747,800Village Fee Village Group Fund 2,779,400Village 3.Contract registration fee in Finance Dept. 620,000Province 4.Re-plantation of forest 5,200,000Province 5.Natural Resources Tax - Deposit 20% at Provincial Property Office 2,880,000Province 6.Natural resources moving tax, Khamkeuth Dist., 428,000District 7.Natural Resources tax, Khamkeuth Dist., 430,000District 8.Harvesting Support Fee, Bolikhan Dist., 1,450,000District 23 April 2015 - 9
Actual expense for rattan harvesting and taxation (cont.) Expenses descriptionTotal amount in LAK Note 9.Harvesting Authorization Fee, Bolikhan Dist., 1,600,000District 10.Other Fee in district level 310,000District 11.Natural Resources Tax Fee – Bolikhan District Property Office 7,590,300District 12.Harvesting tax, Bolikhan Dist., 3,071,000District 13.Moving tax of raw material 3,414,000District 14.Other service fee 60,000 Other District 15.Other management fee = 80,000 + 628,000 kip 708,000District 16.Transportation of raw material from Harvesting place to VTE = 8,000,000 Kip 8,000,000Third Party 17.Carry fee 1,000,000Third Party Total Expenditure for harvesting side 67,079,900 23 April 2015 - 10
Summary tax and fee for FSC rattan production Activity DescriptionAmount (LAK) % Taxes and Fee for VTE Capital6,182,5932.59% Taxes and Fee for Province level8,700,0003.64% Taxes and Fee for District level19,061,3007.98% Khamkeurt District (2,000 small cane)858,000 Bolikhan District (9,741 small cane & 2,637 big cane)18,203,300 Government Income33,943,89314.21% 23 April 2015 - 11
Net profit of FSC rattan basket production Revenue/Expenses descriptionTotal amount in LAK Revenue from the Sales Contract $29,868X8,000 Kip 238,944,000 1. Harvesting Expenses 67,079,900 2. Rattan canes processing at Danlao Co. 13,492,121 3. Basket Production Expenses 112,544,000 4. Transportation cost for Export 31,592,000 Total Expenses 224,708,021 Profit before tax (A)-(B) 14,235,979 Equivalent to USD 1,779.50 Estmated profit before tax 35% of net profit (USD) 622.82 Total net profit for Danlao (USD 1,156.67 23 April 2015 - 12
23 April 2015 - 13 Benefit sharing from FSC basket production
Potential and Challenge Potential: FSC bring premium price for rattan raw materials (from 600 kips to 1,000 Kips) and Thus bring Extra Incomes to communities, contribute forest conservation in long term and allow Lao rattan products to reach European market Sustainable harvesting according to the forest management plan (by village harvesting group) High benefit to villager, increasing villager income and contribute to rural povertyReduce negative impact to forest ecosystem 23 April 2015 - 14 Challenge: Low interest of SME - High tax and many fee to be paid - Low benefit compare with non FSC rattan, - Many paper work Difficult to compete with other countries (In case Vietnam and Indonesia will get FSC certification in the future) SME has low skill in communication with international buyer and difficult to access the market. SME staff and village has limited skill in rattan processing and weaving FSC product will be controlled by the international inspector High cost of CoC annual auditing
Lessons learned Areas of suggested improvement: Improved the taxation and fee for harvesting, transportation of FSC rattan cane and production. The step of tax payment should be reduced Improve the technique of Rattan processing and weaving Communication skill of SME and villager group more stronger Develop the business plan for SME and village handicraft group Set up village handicraft association and able to process the rattan cane at village level to reduce the transportation cost. 23 April 2015 - 15