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Rural Development & Agriculture in Lao PDR

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Lao PDR is the most rural country in Southeast Asia, with over three quarters of the total population currently living in rural areas. Approximately 38 percent of these rural dwellers live below the poverty line, and population growth continues to be concentrated in the rural areas (80 percent of the one million population growth since 1993 is in rural areas).

Woman with her kidWhile population density is relatively low at 23 people per km², the distribution is uneven and the mountainous terrain of much of the country limits the possibility of planting crops and making a living from agriculture.

Nonetheless, a large majority of people depend on agriculture and natural resources to subsist. Two-thirds of households have no access to electricity, half have no safe water supply and half of all villages are unreachable by all-weather roads during the rainy season.

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The government is acutely aware of the need to promote rural and agricultural development; policy reform and public investments have contributed to robust agricultural sector growth of 4.7 percent annually over the past decade.

Rural FamilyGrowth has been fueled in large part by an expansion of land under cultivation and an increase in agricultural labor, this latter by almost a quarter, or 420 thousand additional agricultural workers, over the past decade. Even so, labor productivity has improved, with agricultural sector GDP (real) per agricultural laborer increasing by 18 percent over this period.

Rural poverty is still high but has has been steadily reduced since the early 1990s. The proportion of the rural population that is poor fell from 52 percent to 43 percent between 1993 and 1998 and to 38 percent when most recently measured in 2003.

The recent growth of agriculture, and particularly of cash crop and livestock production, has occurred because of the following: (a) reduced internal barriers to domestic trade; (b) public investments in irrigation and roads: (c) improved bilateral relations with neighbors leading to improved cross-border trade and regional integration with the dynamic markets of Vietnam, Thailand and China; and (d) increasing levels of foreign direct investment in agricultural production in LaoPDR.

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Key Issues

Agriculture and rural development remain central to both growth and poverty reduction in Lao PDR. Rural growth will be mainly driven by the continued commercialization of agriculture, and sustained by strengthened management of the natural resource base. The key challenges to maintain high rates and good distribution of rural growth are:
  • HerbsImproving farmer productivity – this will be important both in lowland, predominantly rice production areas, and in upland, swidden systems. The evolution of diverse upland swidden systems needs to be better understood as the basis for better calibration of Government policies on swidden agriculture transformation so as to promote sustainable intensification. Uplands agriculture productivity improvement is also linked with issues of ethnicity and the particular problems faced by minorities in the upland areas and their remoteness from infrastructure and services.
  • Linking farmers to markets – progress will come through small subsistence farming systems steadily orienting towards more market-oriented production. This will benefit from further rural road development on the basis of the national strategy being finalized, risk management for upland households through adequate access to forests as a buffer, improved market information for farmers, encouragement of competition in domestic trade in farm products, and facilitation of contract farming.
  • Capturing value added opportunities – to move beyond being a producer of raw commodities, the public and private sectors need to partner to identify and address the main constraints in the rural investment climate facing agro-industry. At the same time, adequate social and environmental safeguards need to be developed and integrated with criteria for assessing commercial agriculture investments proposals.
  • Managing the natural resource base – with dynamic change coming rapidly to rural Lao PDR, growth in competition for use of natural resources is outpacing the development of management frameworks to ensure fair access and sustainable use. Legal, institutional and valuation aspects of these frameworks are receiving urgent attention for land, forests and water.
  • Strengthening public expenditure performance – higher but more efficient levels of public expenditure are needed in Lao PDR.  Improved outcomes will require, over time, integration of donor financial resources into the national budget, improvement of central authorities’ information on sub-national governments’ agricultural expenditures, adequate recurrent expenditure budgeting, control of arrears in the investment program, and greater efficiency in irrigation investment to permit resource reallocation to provision of public service provision including adaptive agricultural research and extension.

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World Bank Program

Within this array of key challenges to rural development in Lao PDR, the World Bank focus is centered around four main areas of activity: (i) management of land, forests and water – focusing on land rights administration, forest management and water resource planning including of the Mekong waters in partnership with neighboring countries; (ii) agricultural productivity improvement – through attention to core infrastructure needs in irrigation, farm access roads, and linkage with markets, mainly in lowland areas; (iii) rural livelihoods improvement – this is currently being pursued in the impact zone of the Nam Theun 2 Project, while in addition options are being explored for building on past work on uplands livelihoods; and (iv) capacity building - particularly in the context of decentralized responsibilities of sub-national governments. Development strategy work is underway with the Province of Khammouane, and is anticipated to lead to project support.

The Bank is currently providing funding for projects which target these areas:

  • Khammouane Rural Livelihoods Project (US$ 10.42 million) aims to improve access of rural villagers in Khammouane province (including those outside the NT2 mitigation area and potential beneficiaries of irrigation development along NT2 channel and downstream) to basic services provided through a more transparent, equitable and demand-driven approach. The project plans to achieve this by (i) supporting the province to adopt a more transparent and participatory procedure for public investment to improve rural livelihood and (ii) strengthening the three key departments at the province directly related to the livelihood, namely, the Department of Finance, Department of Planning and Investment and the Provincial Agriculture and Forestry Office so that these departments would be able to implement new procedures and approaches adopted by the central government. A District Development Fund would finance infrastructure and service delivery in support of poverty alleviation based on priorities identified through stakeholder consultation carried out by village representatives.
  • Agricultural Development Project (US$18.2 million) aims to reduce rural poverty by improving and increasing agricultural production in four provinces. This it will do by taking a community based approach, in designing and implementing components which directly impact the lives of the poor. It is focusing on rehabilitating existing small-scale irrigation improving access roads infrastructure, and providing potable water, along with strengthening local and community-based operations and management capacity, including through a block grant given annually to each of the participating districts for implementing small scale projects identified by the villagers themselves.
  • Land Titling Project II (US$22.5 million) which is the second phase of a long-term land titling program, with objectives to (i) improve the security of land tenure; (ii) facilitate the development of land markets; and (iii) improve government revenues from property related fees and taxes. These objectives would be achieved through formulating and approving land policy and regulatory changes, strengthening institutional capacity and project management, accelerating land titling activity in areas of high demand, developing and implementing a community-accepted land registration system, strengthening land valuation systems, and implementation of systems to lease state land.
  • Sustainable Forestry for Rural Development Project (US$16 million) which aims to improve the enabling framework for the expansion of sustainable, participatory forest management throughout the country by assisting the Government implement forest management policy reforms; by bringing the country's priority natural production forests under participatory sustainable forest management; and to improve villagers' well-being and livelihoods through benefits from sustainable forestry, community development and development of viable livelihood systems.

In addition, the World Bank participates in thematic working groups with other donors and government on such topics as irrigation, commercial agriculture development and forestry, to facilitate knowledge sharing, and to develop coordinated programs of investment support and policy development.

Avian Flu in Lao PDR

Lao rural familyLao PDR's National Avian Influenza Plan, with an estimated cost of US$14 million, is receiving support from many sources, including the The World Bank's Avian and Human Influenza Control and Preparedness Program, which will provide funding of US$4 million in the form of an IDA Grant, US$2 million from a Japanese Policy and Human Resource Development grant, and US$2 million from a multi-donor trust fund, the Avian and Human Influenza Facility.

The overall development objective of the project is to minimize the threat posted to humans and the poultry sectors by highly pathogenic avian influenza infection and other "zoonoses" (any disease and/or infection which is naturally transmissible from vertebrate animals to man) in Lao PDR, and to prepare for, control, and respond to influenza pandemics and other infectious disease emergencies in humans.

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