Micro Contracting and the Smallholder Poultry Supply Chain in Lao PDR

With a predominately rural population engaged in subsistence agriculture, the contribution of poultry to livelihoods can be instrumental in Lao PDR. However sales amongst smallholders are limited due to a variety of access barriers that deter rural producers from participating in higher value urban markets. These included, but are not limited to, transport costs, search costs, the nature of sales (often in times of emergency) and information asymmetries that reduce the likelihood of smallholders direct participation in downstream markets and supply chains.

To support evidence-based solutions to these market failures, survey work was conducted in Lao PDR through December 2009 to July 2010. Market chain questionnaires were implemented in five provinces that included detailed producer, trader, and vendor surveys. Data from questionnaires provided a supply chain audit demonstrating how the smallholder supply chain functions and indicating where failures occur.

Additionally information was collected on the role of informal contracting systems. In industrial poultry supply chains, contracting schemes have proven successful in allowing producers to link directly to vendors, increasing both the quality and value of products. However, in a smallholder system, conventional contracts are not logical given their complexities, high commitments, and rigid structures. Yet adapting a contract system to smallholder systems remains attractive because it could help reduce the inefficiencies found in the poultry supply chain. Herein lies the role of micro-contracts; types of informal agreements that allow more flexibility than a formal contract system yet allow producers to link directly to vendors. Our study concluded that micro-contracting presents a potential solution to the market failures that arise in the smallholder poultry supply chain and are worthy of further examination.