Agro-Industrial Processing Facilities
Agro-Industrial Processing Facilities
Business Model Description
Invest in the processing of agricultural produce into value-added products, such as starch, flour, chips, instant coffee, juice, jam, dried fruits, meat, or dairy products with access to market solutions for domestic or regional markets. Illustrative examples of enterprises working in this space are:
Yupaoyan Cassava Processing Co., Ltd. is a leading cassava processing company in Laos, established in 2015 in Luang Namtha province, produces a variety of cassava products, including cassava starch, cassava flour, cassava chips, and ethanol. The company has an annual output of 50,000 tons of cassava starch, 30,000 tons of cassava flour, 10,000 tons of cassava chips, and 5,000 liters of ethanol.
Dao coffee has been operating in Lao PDR for over 20 years. It sources coffee beans from smallholder farmers and processes them before exporting to international markets. (17)
Lao Fruits Processing Factory Co., Ltd. is a fruits processing company established in 2012 in Vientiane capital. The company produces mango juice, pineapple juice, banana chips, dried mango, and frozen fruits, an annual output of 50,000 tons of mango juice, 30,000 tons of pineapple juice, 10,000 tons of banana chips, 5,000 tons of dried mango, and 2,000 tons of frozen fruits. (38)
Expected Impact
To decrease food insecurity, create jobs, and promote social inclusion by enhancing agricultural productivity and reducing import dependence for food.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Lao PDR: Vientiane Province
- Lao PDR: Oudomxay Province
- Lao PDR: Savannakhet Province
- Lao PDR: Champasak Province
- Lao PDR: Phongsaly Province
Sector Classification
Food and Beverage
Development need
Lao PDR faces a high rate of food insecurity and malnutrition, with 11.8% of the population undernourished and 33% of children under 5 suffering from stunting. The sector is hampered by its heavy dependence on imports, including seeds, fertilizers, and pesticides. The food production system is vulnerable to climate change, which can lead to crop failures and food shortages. (1)(2)(3)
Policy priority
Lao PDR aims to improve the food and beverage sector through the National Development Plan (2018-2022), which prioritizes technical assistance for 4,000 companies and allocates at least 50% of sector investment for producer access to productive assets. The plan also aims to increase domestic food production and improve food security. (4)
Gender inequalities and marginalization issues
Despite women's 54.4% participation rate in the agriculture sector, they only own 18% of agricultural land and receive 84% of the pay compared to men, and have limited access to credit. Women in senior management positions within the sector are only 10%. Addressing these challenges could improve productivity, inclusivity and sustainability. (5)
Investment opportunities
The agriculture sector in Lao PDR contributes 16% of the national GDP. Lao PDR's investment opportunities in the sector span agricultural cold storage and logistics, and financing for input side needs. The government is seeking agricultural sector growth of 2.5% by 2025 and has conducted a major agricultural census to improve data-driven decision-making. (6)
Key bottlenecks introduction
Despite 80% of Lao's rural population being subsistence farmers, only 10% of the land is used for agriculture. Operational hurdles, including inadequate infrastructure and a lack of skilled labor, farm productivity, and produce quality, restrict agricultural expansion and increase reliance on food imports. (7)
Food and Agriculture
Development Need
In Lao PDR, the Agro-Industrial Processing sector is underdeveloped, with productivity constrained by limited access to capital and skills. The country relies heavily on imports, with 39.71% of the base of food and food products in the CPI basket being import-dependent. Investing in and enhancing the domestic agro-industrial sector can reduce such import dependence. (8)
Policy priority
Policy priority: The Lao PDR government's Country Programming Framework 2022-2026 (CPF), developed with the FAO, focuses on improving people's well-being, promoting inclusive prosperity, and enhancing environmental resilience in the food and agriculture sector. (9)
Gender inequalities and marginalization issues
Women in rural areas of Lao PDR face intersectional hardships both due to their status as indigenous people as well as their gender. Low levels of access to social development services such as health and education further exacerbate gender inequalities and marginalization as they are less likely to be qualified for employment opportunities. (10)(11)
Investment opportunities
AIP exports will increase from US$ 743 million in 2021 to 2 billion by 2025 with potential for growth in cash crops. 5 million hectares of land are suitable for cultivation in Laos, and 1.7 million hectares are currently used for plantation. Improving transport and trade infrastructure along the regional economic corridors connecting China, Thailand, and Vietnam. (12)(13)(14)(15)
Processed Foods
Pipeline Opportunity
Agro-Industrial Processing Facilities
Invest in the processing of agricultural produce into value-added products, such as starch, flour, chips, instant coffee, juice, jam, dried fruits, meat, or dairy products with access to market solutions for domestic or regional markets. Illustrative examples of enterprises working in this space are:
Yupaoyan Cassava Processing Co., Ltd. is a leading cassava processing company in Laos, established in 2015 in Luang Namtha province, produces a variety of cassava products, including cassava starch, cassava flour, cassava chips, and ethanol. The company has an annual output of 50,000 tons of cassava starch, 30,000 tons of cassava flour, 10,000 tons of cassava chips, and 5,000 liters of ethanol.
Dao coffee has been operating in Lao PDR for over 20 years. It sources coffee beans from smallholder farmers and processes them before exporting to international markets. (17)
Lao Fruits Processing Factory Co., Ltd. is a fruits processing company established in 2012 in Vientiane capital. The company produces mango juice, pineapple juice, banana chips, dried mango, and frozen fruits, an annual output of 50,000 tons of mango juice, 30,000 tons of pineapple juice, 10,000 tons of banana chips, 5,000 tons of dried mango, and 2,000 tons of frozen fruits. (38)
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
15% - 20%
Laos AIP sector CAGR: 15-30% over 5 years, indicating significant medium-term growth.
Laos' agro-industrial processing sector is estimated to be around $1.5 billion in 2022, representing ~10% of the total value of Laos' agricultural output. The industry has the potential to grow
According to the FAO, total output of sugarcane is expexted to increase from ~3.4 m tons (USD~447m) in 2019, to 2 m tones (USD600 m) by 2025 approximately 70% of sugarcane produce in Laos is processed. The remaining 30% is typically either consumed fresh by local farmers and their families or used as animal feed.(28)
The total output of starchy root products is expected to increase from ~1.5 m tons (USD~850 m) in 2019, to 3.5 m tons (USD~875 m) by 2025. Industry experts estimated that only 50% of these products are being processed and added value.(23)
Indicative Return
10% - 15%
10% - 15%
15% - 20%
Lao agro-industrial processing promises high returns: Cassava exports could generate $214M annually with a 15-20% IRR with similar IRRs expected in livestock and tea industries. Government and global investments focus on enhancing this sector's growth.
Investment Timeframe
Medium Term (5–10 years)
Laos Agro-Industrial Processing sector growth needs medium-term investment timeframe for full-scale operations and market integration, backed by viable IRRs and infrastructure to support such as the Laos-China Railway project.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Capital - CapEx Intensive
Market - Volatile
Impact Case
Sustainable Development Need
11.8 % of the population is undernourished and 33% of children in Lao PDR under the age of 5 suffer from stunting.
High rates of poverty in rural areas.
Gender & Marginalisation
Investment in agro-industrial processing in Lao PDR will generate quality job opportunities for women, thereby addressing the issue of low participation of women in the agro-industrial workforce due to gender roles and stereotypes
The employment opportunities provided by the agro-industrial sector will tackle the challenges faced by rural women and ethnic minorities who are marginalized due to their location and limited access to adequate infrastructure, services, and education
Expected Development Outcome
AIP will increase the availability of preserved food, reducing food insecurity in rural areas.
Enhance value addition and food security by investing in modern agro-industrial processing facilities, benefiting both farmers through better prices and consumers through access to higher quality products.
Gender & Marginalisation
Agro-industrial processing can empower women by creating job opportunities in areas traditionally dominated by men
Investment in AIP will improve the livelihood of farmers in rural areas through increased market linkages and employment opportunities
Primary SDGs addressed
1.2.1 Proportion of population living below the national poverty line, by sex and age
In Lao PDR, 23.2% of the population lived below the national poverty line in 2017, with higher rates in rural areas and among ethnic minorities
No Poverty By 2030, the government of Lao PDR aims to reduce the national poverty rate to less than 10% from 18.6% in 2020
2.1.2 Prevalence of moderate or severe food insecurity in the population, based on the Food Insecurity Experience Scale (FIES)
2.2.1 Prevalence of stunting (height for age <-2 standard deviation from the median of the World Health Organization (WHO) Child Growth Standards) among children under 5 years of age
2.2.2 Prevalence of malnutrition (weight for height >+2 or <-2 standard deviation from the median of the WHO Child Growth Standards) among children under 5 years of age, by type (wasting and overweight)
In 2020, 22.5% of the Lao population experienced moderate or severe food insecurity, with higher rates in rural areas
The proportion of stunting among under-five children has decreased from 44.2% in 2012 (LSIS 1) to 33% in 2017 (LSIS 2), 32.7% in 2019 and 32.3% in 2020
The proportion of underweight children under five years of age has decreased from 26.6% in 2012 (LSIS 1) to 21.1% in 2017 (LSIS 2), 20.8% in 2019, and in 2020 it is expected to decrease to 20.3%
Lao PDR targets significant agricultural growth: Rice to 3.5-4M tonnes, coffee at 175K tonnes, feed corn up 22.9% to 636.9K tonnes, cassava at 3.6M tonnes, sugarcane up 34.3% to 1.6M tonnes, bananas up 1.9% to 753.5K tonnes, plus sweet potatoes, tea, and beans.
National assembly approved target: 32% by 2025
National Assembly approved target: 20% by 2025
9.2.2 Manufacturing employment as a proportion of total employment
Manufacturing accounts for 9% of the employment
Secondary SDGs addressed
Directly impacted stakeholders
Gender inequality and/or marginalization
People
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
AIP facilities require significant amounts of water for processing and cleaning, straining local water resources.
AIP can generate emissions of greenhouse gases, particulate matter, and volatile organic compounds, contributing to air pollution and its associated health and environmental impacts.
May aggravate environmental pollution and health risks associated with using pesticides, fertilizers, and other chemicals in agro-industrial processing.
Traditional practices of relying on substance farming for livelihood will impacted as increased demand for agro-industrial processing leads to less land available for subsistence farming.
Impact Risks
There could be a potential overreliance on AIP and market dependence and concentration of power and market dominance.
Technological Issues: Failure to maintain, update or adopt new processing technologies can reduce efficiency and quality, affecting the expected impact.
Economic Downturn: Reduced demand for processed goods due to economic decline could adversely affect the initiative, leading to financial instability.
Regulatory Changes: Changes in governmental policies or regulations might affect operational procedures, impacting the overall performance and expected outcomes.
Lack of inclusive policies could result in gender-based discrimination or marginalization, affecting workforce diversity and potentially decreasing productivity and innovation.
Impact Classification
What
Promote agro-industrial processing to enhance the quality of domestic produce and facilitate local producers to benefit from access to improved market linkages.
Who
Domestic agro-industrial processors benefit from the knowledge spillover from FDI investors; domestic consumers benefit from improved availability of quality local products.
Risk
Workplace accidents, injuries due to manual labor, and inadequate safety training are key operational risks in agro-processing.
Contribution
1.7 million people (23%) now live on less than USD 1.25 a day. The IOA can generate jobs in rural areas, thus reducing poverty.
How Much
2.3 million people suffer from moderate or severe food insecurity. The IOA can contribute towards reducing such food insecurity by decreasing food waste and lower food scarcity.
Impact Thesis
To decrease food insecurity, create jobs, and promote social inclusion by enhancing agricultural productivity and reducing import dependence for food.
Enabling Environment
Policy Environment
Lao PDR's Ninth National Socio-Economic Development Plan (NSEDP 2021-2025): Outcome 2: Improved quality of human resources to meet development, research capacity, science and technology needs, and create value-added production and services.
Lao PDR's Industrial Development Policy 2016-2025: The policy encourages the formation of consumer cooperatives which could assist agriculture’s ‘sixth industrialisation’ by providing a solid distribution channel for high-quality local products to health/environment-conscious consumers.
Lao PDR's Agriculture Development Strategy to 2025: The strategy promotes the coordination between the Agriculture and Forestry Sector and relevant sectors, aiming at improving and developing production chain related to processing and marketing in a comprehensive system.
Financial Environment
The Lao government provide access to low-interest loans or loan guarantees for AIP businesses, Laos is eligible for funding from international organizations such as the World Bank and the Asian Development Bank, which can be used to support AIP projects
The government provides reduced corporate income tax rates for companies that invest in designated sectors or regions and an exemption from import duties on specific machinery and equipment used in production.
The 9th NSEDP policy clause on infrastructure support and capacity-building initiatives could help mitigate the bottleneck issues in agro-industrial processing by indirectly incentivizing businesses in this sector
Regulatory Environment
Lao PDR Food Law (2004) prohibits using artificial sweeteners, preservatives, cochineal, and adulterated colourants in the production and processing of food in amounts that exceed standards defined by laws and regulations, which directly affects the IOA's focus on quality control.
Lao PDR Labor Law (2013) emphasizes promoting occupational freedom and hiring marginalized groups; Employment in rural areas, daily labor, contractors, temporary workers, and trainees, including those in the agro-industrial processing sector.
Article 24 mandates using clean technology in production and business operations, including agro-industrial processing, to minimize environmental impacts.
Marketplace Participants
Private Sector
Companies such as Dao-Heuang Group, Lao Brewery Company Ltd., and Yupaoyan Cassava Processing Co., Ltd. Lao Fruits Processing Factory Co., Ltd. Lao Dairy Farm and Processing Center, Xaoban, Sinouk Coffee.
Government
Ministry of Agriculture and Forestry, Ministry of Industry and Commerce, Ministry of Planning and Investment, Ministry of Natural Resources and Environment.
Multilaterals
Asian Development Bank, World Bank, Food and Agriculture Organization, International Fund for Agriculture Development.
Non-Profit
Oxfam, SNV Netherlands Development Organisation
Public-Private Partnership
One District One Product initiative in Lao PDR is working with smallholder farmers and promoting value-addition practices to their primary agricultural outputs.
Target Locations
Lao PDR: Vientiane Province
Lao PDR: Oudomxay Province
Lao PDR: Savannakhet Province
Lao PDR: Champasak Province
Lao PDR: Phongsaly Province
References
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