Impoverishing Laos: The Asian Development Bank and Industrial Tree Plantations

Background

A disastrous and monumental failure. The US$11.2-million Industrial Tree Plantations Project (ITPP) not only destroyed precious forest but also pushed affected communities deeper into poverty. By its own reckoning, the Asian Development Bank (ADB) rated the loan project “unsuccessful” and its performance as “unsatisfactory”.1 It cited the following reasons for the failure: poor site selection; poor planting stock quality; inadequate skills among Department of Forestry (DOF) staff; subsidized credit prone to abuse; inadequate and ill-timed expert inputs; and insufficient supervision of the ADB.

The first phase began in 1994 and was completed in 2003. The controversial project primarily espoused industrial forestry, eucalyptus planting in particular, and initially targeted more than 9,000 hectares of rural villages in Laos. Later on, the ADB financially supported the BGA Lao Plantations Forestry Ltd, a New Zealand majority-owned private company to develop eucalyptus plantations on 50,000 hectares of land in Khammouane and Bholimkasay provinces in Central Laos. The Lao government handed over the plantations land to BGA rent-free for 50 years in exchange for a share in the project. Moreover, the company paid only 5 per cent income tax on its operations because under Lao Forestry Law plantations are exempt from tax. In February 2005, shortly after taking part in an ADB-supported Private Sector Consultation Workshop in Vientiane, the Japanese pulp and paper giant Oji Paper bought the BGA concession.

These monoculture plantations, some of which destroyed and subsequently replaced land and forests important to the livelihoods of the local communities, failed. Consequently, ITPP created and increased poverty among the affected villages. Loan funds went missing and the Bank began investigating allegations of corruption.2 To downplay the adverse social and environmental impacts of the project, the ADB released a publicity article3 in 2002 claiming that the tree plantations protect the natural forest, that local villagers are involved in decision making, and that the project develops a promising new sector in the Lao economy. Nothing could be farther from the truth.

In 2003, the Bank started planning phase II of the project (after a 2001-approved Project Preparatory Technical Assistance). Aside from failing to get the inputs of local residents, the ADB also withheld relevant information from Civil Society Organizations (CSOs) and Non- Governmental Organizations (NGOs) monitoring the project. It also failed to encourage an open public discussion or debate on the possible social and environmental impacts of the projects.

Despite glaring failures and violations, which have been validated by the ADB’s Operations Evaluations Department (OED), the Bank still approved a new six-year Forest Plantations Development Project. According to OED, the ITPP failed due to (1) increased poverty, (2) corruption, (3) weak monitoring, (4) poor environmental practices, and (5) loss of access to land by affected villagers. That it approved the new project immediately after the release of the OED’s critical report and while investigations of corruption in the ITPP are ongoing stunned many observers inside and outside Laos.

The Bank has contended that the new project is needed because its predecessor proved that efficient forest plantations of all sizes are financially viable, and the existing Lao institutions have inadequate capacity to provide effective support to the emerging sector. Its long-term goal is to develop the plantations subsector to accelerate economic development and poverty reduction. It will give US$7-million loan and a US$3-million grant towards the project costs of US$15.35 million. It will set up a Lao Plantations Authority (LPA) and establish about 9,500 hectares of “small livelihood plantations.” (In a 2004 ADB-supported Private Sector Consultation Workshop in Vientiane, a Principal Project Economist at the Bank described LPA as “a one-stop window for private investment in plantations”. The same person added that the ADB views Laos as the pulp producer for the region and projects 500,000 hectares of industrial tree plantations in the country by 2015.)

Concerned CSOs and NGOs, meanwhile, have expressed fears that the new project would repeat the mistakes of ITPP and that the new project would further facilitate private foreign plantations companies to take over more land and forest while further impoverishing local communities.

Project Impacts

Throughout its involvement in promoting industrial plantations in Laos, the ADB has consistently ignored the importance of forests and common lands to rural Lao communities. Its entire plantations initiative has been formulated on a false premise —that there are large areas of unused or underused ‘degraded’ forests and that replacing these with industrial plantations would be an improvement. However, ADB’s own reports reveal that many villagers have refuted ADB’s assertions, saying that they have no degraded lands.4 Thus, they have been provided with tree plantations that they do not want.

One blatant example occurred in Ban Nao Nua in Xiabouli district in the mid-1990s. Some 100 hectares of dry dipterocarp forest were destroyed to make way for the eucalyptus plantations. Villagers observed that the forest resources could no longer be found in such plantations. But instead of addressing their collective concerns, the non-Lao speaking ADB consultants even attempted to convince them that the plantations would not cause soil fertility problems and that a further 100 hectares should be planted with eucalyptus trees. The villagers refused and they have not planted any eucalyptus on common lands since then.5

Likewise, instead of acknowledging the reality of current land use by affected Lao villagers, the Bank has continued to pander to the needs of multinational corporations engaged in the pulp and plantations industry. Forests managed as commons by communities have been replaced with privately-owned industrial tree farms. These have resulted in the further marginalization of the poor and disadvantaged sectors that previously relied on these resources for livelihoods.

For example, wild mushrooms have traditionally been one of the most important sources of cash income for villagers in Ban Palay. The best areas for collecting mushrooms are in the dry dipterocarp forests that have been converted into eucalyptus plantations. Affected communities have substantially lost this critical source of livelihood.6

During the project preparation for the new forest management project, Bank consultants reported that farmers in six appraised rural villages did not include tree plantations in their livelihood improvement priorities.7 This has confirmed findings from an earlier 2001 ADB Participatory Poverty Assessment wherein most villagers called for development to center on what they know most—swidden fields, livestock and forest.

ADB Safeguard Policy Violations

Environment Policy

The ADB has kept reiterating that tree plantations projects do not pose adverse environmental consequences as they are all established on degraded lands and not on natural forest areas. However, a 1995 report by consulting firm Jaakko Poyry revealed that plantations were to be established on “unstocked forest land.”

In 2001, the sub-district leader of Xiang Khai in Xiabouli district told independent researchers that eucalyptus plantations are causing forest, soil and water resource degradation.

The Bank has also denied that herbicides have been used to control weeds in the plantations. What has been applied according to the ADB was a biodegradable product called ‘glyhosate’ which in actuality is a herbicide. Glyphosphate herbicides ensure that nothing grows in the plantation except trees. Villagers’ knowledge and uses of the wide range of plants that grow in the forest have been destroyed as their forests were converted to monoculture.

A 2003 project preparatory document for the Bank’s new project revealed that plantation establishment was not consistent with environmental care. Among the many environmental problems identified by the report were the conversion of “healthy forest” into tree plantations; the failure to retain protection strips of forest around streams, lakes, ponds and rice paddies; harvesting or removal of valuable nesting or fruit-bearing trees, and the destruction of significant trees/plants for non-timber products use by villagers.

Recently, some eyewitnesses and observers have noted that “degraded forest” in the eyes of the ADB and the Lao government means healthy, recovering forest with wide utility value to villagers and biodiverse in flora and fauna. They added that villagers do not consider eucalyptus plantations as reforestation and that they deem them vastly different to the forest that they know.

Social

Primarily, the ITPP failed to improve the socioeconomic conditions of the intended beneficiaries, as people were driven further into poverty by having to repay loans that financed failed plantations. As part of the project, the Lao state-run Agricultural Promotion Bank loaned some US$7 million to farmers, individuals and companies to set up plantations that became unproductive or yielded low produce. The OED report said thousands of inexperienced farmers and individuals were misled by prospects of unattainable gains leaving them with onerous debts, with no prospect of repaying their loans.

This may have been a direct result of the lack of meaningful consultations with affected villagers in the project decision making process. They did not have the power or sufficient information about the impacts of eucalyptus plantations to bargain with plantation companies. Thus, many of them have lost their lands and forest to eucalyptus plantations.

The OED report also detailed corrupt practices such as ghost borrowers, misuse of credit funds, inflated development costs, over disbursements of loan funds, and fraudulent reports on the part of the Agricultural Promotion Bank.

Regarding the loss of land access, the Bank’s own report and evaluation make clear that there has been an ongoing fundamental difference in perception of how land is used and valued between the ADB and the Lao government versus local villagers. It underscored the use of forest along with rice production and livestock breeding as the three important sources of income of the communities. Contrary to the Bank’s assertion that the lands covered by the project were degraded, the OED report stated that these have been traditionally used by villagers for shifting cultivation.

Lessons to Learn

In March 2006, the Indian Aditya Birla Group announced that it will invest US$350 million in industrial tree plantations and a 200,000 tons-a-year dissolving pulp mill in Laos. The Lao government has leased 50,000 hectares to the Group for 75 years. The pulp mill is planned to be built seven years after the first eucalyptus trees are planted.

Oji Paper’s plantations in Laos will probably supply raw material to a massive US$1.9 billion pulp project that Oji is planning in Nantong City, in China.

These are precisely the type of projects that the ADB wants to encourage in Laos. But it is high time for the Bank to finally acknowledge the importance of forests and common lands to rural communities in Laos. To avert their further impoverishment and marginalization due to the plantations projects, the ADB must undertake several simple actions. First, conduct a comprehensive audit on the Laos Industrial Tree Plantations Project (ITPP). It has failed to do so despite its own critical internal reports. Second, immediately suspend the new Forest Plantations Development Project in Laos and arrange for a truly independent assessment of its entire plantation strategy.

Such an assessment would most likely conclude that the plantations strategy would not alleviate poverty or preserve the environment. Third, prepare reparations for Lao families and communities indebted and impoverished from the Bank’s support for industrial plantations in Laos.

(Footnotes)

1ADB. “Project Completion Report of the Loan 1295-LAO: Industrial Tree Plantation Project,” 2005.

2 ADB. “Sector Assistance Program Evaluation for the Agriculture and Natural Resources Sector in the Lao People’s Democratic Republic, SAP: LAO 2005-17, Operations Evaluation Department Asian Development Bank.” December 2005, 37.

3 Edes, Bartlet W. “Back to Trees.” ADB Review. Asian Development Bank, 2002.

4 MIDAS Agronomics, Champa Lao Consulting, Scandiaconsult Natura, and CIRAD Foret. “Tree Plantation for Livelihood Improvement Project: Final Report.” TA No. 3794-LAO, October 2003, 42-43.

5 Shoemaker, Bruce, Baird, Ian and Baird, Monsiri. “The People and Their River: The Xe Bang Fai River Basin, Lao PDR.” Watershed. Vol. 7., No. 3. March-June 2002, 40 &42.

6Ibid.

7 Lindskog, Eva and Phengkhay, Chansamone. “Livelihood Conditions Report.” Appendix I, page 143 in “Tree Plantation for Livelihood Improvement Project: Appendices - Final Report

Volume I.”

References:

Bank Information Center, et al. “Case Study: Tree Plantation for Livelihood Improvement”, NGO Asian Development Fund Briefing: ADB and Forestry., March 2004.

Lang, Chris. “Asian Development Bank Subsidizing Deforestation in Laos.” WRM Bulletin No. 43, February 2001.

Lang, Chris and Shoemaker, Bruce. “Creating Poverty in Laos: The Asian Development Bank and Industrial Tree Plantations.” World Rainforest Movement, April 2006.

Lang, Chris. “Laos: Freedom of Information, Industrial Tree Plantations and the ADB.” World Rainforest Movement Bulletin. No. 52, December 2001.

Lang, Chris. “Laos: Secret, Lies and Tree Plantations.” WRM Bulletin. No. 68, March 2003.

Welford, Richard. “Deforestation and Development in Laos.” Corporate Social Responsibility in Asia Weekly. Vol. 2, Week 13, March 2006.

“Whose Disclosure Policy?: ADB Tree Plantations Projects in Laos.” Focus on Trade. Number 88, June 2003.