Ribeiro Factors Influencing Commercial is at Ion Paper Mulberry Bark

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Understanding production and commercialization of paper mulberry

bark in Laos: Contributions from the theories of domestication,

institutional economics, and embeddedness

Ribeiro, Maria Miguel1

Stoian, Dietmar2

Vogl, Christian Reinhard3

Abstract

Use and commercialization of non-timber forest products (NTFPs) have been advocated as a means

to improve the livelihoods of forest-dependent people. However, in the absence of a thorough

understanding of the factors influencing NTFP production and commercialization related

development interventions tend not to deliver the desired results. This study compares the

predictability of three theoretical frameworks in a strive for understanding the factors driving the

supply chain of paper mulberry bark in Laos. We show that a combination of theories related to

domestication, institutional economics, and embeddedness allows for an interdisciplinary approach

that deepens our understanding of the dynamics underlying NTFP production and commercialization

and, thus, the crafting of more impactful NTFP development strategies.

Keywords: NTFP, forest products, supply chain, commercialization, Broussonetia spp., Laos

1 Corresponding author: Working Group: Knowledge Systems and Innovations, Department for Sustainable

Agricultural Systems, BOKU-University of Natural Resources and Applied Life Sciences

Mailing address: Gregor Mendel Strasse 33, A-1180 Vienna, Austria

Tel.: 004369981591250/004368110789632 | e-mail: [email protected] / [email protected] 2 Centro para la Competitividad de Ecoempresas CATIE, Apartado Postal 7170 Turrialba, Costa Rica, Tel.:

005065582225 | e-mail: [email protected]

3 Working Group: Knowledge Systems and Innovations, Department for Sustainable Agricultural Systems,

BOKU-University of Natural Resources and Applied Life Sciences

Mailing address: Gregor Mendel Strasse 33, A-1180 Vienna, Austria

mailto:[email protected]

mailto:[email protected]


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1. Introduction

Over the past two decades, non-timber forest products (NTFPs) have increasingly been recognized

as an important source of subsistence, cash income, and employment for the rural poor [7, 14, 44,

68]. Women and children, especially in the poorest households, may depend almost entirely on

forests to meet their daily subsistence needs [6, 53]. There is growing consensus that the promotion

of value-addition and easier market access for NTFPs can contribute to poverty reduction and

prevention [5, 7, 53]. However, the broad array of commercialized NTFPs and the diverse nature of

their markets have impeded a better understanding of the factors that favor, or hamper, the desired

impact of NTFP production and commercialization [46]. Despite numerous case studies on NTFPs in

general, and an increasing body of literature on NTFP supply chains in particular [e.g. 1, 34, 58, 61],

surprisingly little is known under which factor combinations, NTFP production and

commercialization can be successful. This, in turn, is reflected in a poor development of theories

related to NTFP use and commercialization. Against this backdrop, we compare the applicability of

three theoretical frameworks (domestication, institutional economics, and embeddedness) for

understanding the factors driving the supply chain of paper mulberry bark in Laos and the level of

success of the supply chain given these frameworks.

In the Lao province of Oudomxay, paper mulberry (Broussonetia Papyrifera) grows abundantly in

the upland rice fields where its bark is harvested in the winter time just before rice cultivation. Rice

production ranks highest among the farmers' priorities, but harvesting and processing paper

mulberry bark provides income generation alternatives at times when rice is not ready to be

harvested. This bark is particularly important when the rice reserves from the previous harvest are

almost exhausted and when labor is readily available. Paper mulberry bark is sold through a network

of traders working at different levels before the raw material reaches the paper manufacturer. In the

absence of processing facilities in Oudomxay, the harvested bark is shipped to Luang Prabang

further South in Laos, to Thailand or to China (Figure 1).


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Mulberry paper is famous for its resistance to tearing, while presenting a fine and attractive

appearance. In addition, commercialization of mulberry bark is favored by the following factors:

high demand and experience with local and international trade [3]; multi-purpose crop and local

knowledge on producing and processing the bark [19]; low initial investment in tree cultivation [13];

and government support [43]. Nevertheless, paper mulberry bark has failed to become a widely

cultivated NTFP, prompting the question of what explains failure or success in its

commercialization.

2. Theoretical frameworks related to commercialization of NTFPs

The theoretical framework related to domestication departs from the idea that commercialization of

an NTFP can only be sustained if the product is cultivated. According to the widely cited Homma

model [29-31] increasing demand for a given NTFP leads to more intensive extraction which, in turn,

results in increasing extraction costs as the resource base becomes overexploited; once demand for

an NTFP outstrips supply, there will be a strong incentive for its cultivation or substitution. Homma´s

model implies that market participants have full knowledge of market conditions, that no individual

participant has the power to affect the market, and that the volumes demanded do not lead to price

changes. Although these assumptions rarely occur, the model has shown some potential to predict

dynamics related to internationally traded NTFPs [45, 57]. Other authors argue that the

domestication of NTFPs allows to increase and stabilize supply and to control quality variation [2,

7]. It is also held that it helps to solve some of the problems related to extraction: seasonal

fluctuations and high perishability [5]; lack of sufficient and reliable volumes ; and limited mobility

and dispersion of resources [5, 54]. Considering the allegedly inevitable decline of extraction,

domestication is likely to occur if one or several of the following conditions are met [29]: a) high

profitability in comparison with other income generation opportunities; b) access and knowledge

about production technologies; c) shortage of natural resources; d) difficulties to relocate extraction,

e) high demand, and f) absence of cheaper substitutes.


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The theoretical framework related to institutional economics considers that NTFP

commercialization is governed not only by the dynamics of supply and demand but also by: a) the

security provided by institutions (e.g. laws and practices related to land tenure), b) information

asymmetries and c) horizontal coordination (e.g. existence of farmers‟ organization). Related

concepts are derived from transaction cost economics according to which the assumption of perfect

information and zero transaction costs cannot be uphold and, hence, individuals cannot always be

expected to aim for maximising individual outcomes and to show competitive and opportunistic

behaviour towards other members of given supply chains [e.g. 5, 39, 40, 64]. These authors argue

that there is more than market forces affecting stakeholders´ decisions in the commercialization of

NTFPs as related markets are not perfect. Rather, the policies affect prices and incentives to innovate

[64] and there is no full access to market information [39, 40]. Secure land tenure over the long term,

affects decisions of forest dwellers in relation to the commercialization of NTFPs as, for example, it

provides incentives for responsible use and conservation [7, 11]. By their very nature, forest dwellers

live in remote areas with poor access to information and formal education, limiting their ability to

base their decisions on sound knowledge. Information asymmetries are therefore a common

phenomenon among the stakeholders of NTFP supply chains. The lack of information on prices,

quality requirements, technology, and consumer demands by NTFP producers limits the

commercialization of NTFPs [39, 40, 61] and impedes more equitable power relations and benefit

distribution along the supply chain [33]. Farmers‟ organization for production and marketing is

considered an option for increasing productivity though cultivation or intensified management of the

NTFP resource [8]. Providing adequate incentives, such as stimuli for group rather than individual

outcomes, helps to increase overall production and quality [16]. In addition, farmers‟ organization

can lead to reduced production and transaction costs, as well as higher bargaining power.

According to the theoretical framework related to embeddedness, inspired by the works of

Granovetter [24] and Uzzi [65], success in trade networks depends on trust relationships, information

exchange, and joint problem-solving. Granovetter [25] argues that such relationships can result in


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savings for stakeholders who pursue economic goals through non-economic institutions such as

kinship or friendship. Though not developed for understanding the commercialization of NTFPs, this

framework allows to assess the importance of long-term relationships between farmers and

businesspersons, as shown by te Velde, Rushton, Schreckenberg, Marshall, Edouard, Newton &

Arancibia [61]. Similarly, Belcher [5] argues that formal or informal market contracts and long-term

personal relationships are more important to understand changes in NTFP supply chains than typical

market parameters such as prices and volumes traded. For example, traders may be godparents to the

children of their suppliers and similar kinship-based social networks may determine the access to the

resource base [57, 61]. On the other hand, mistrust arising from product alteration is a phenomenon

that adversely affects the commercialization of NTFPs [e.g. 17, 52]. Trust, in turn, can be measured

by how often an extra-effort is voluntarily given and reciprocated [65]. The benefits and costs of trust

in commercial relationships are difficult to quantify as trust promotes the exchange of information

that is difficult to price, e.g. specific information about quality premiums and market trends.

Exchange of information in the cocoa supply chain (Bolivia) and Maguey (Mexico) are facilitated,

respectively, by long-term and kinship relationships [61]. There is evidence from the garment

industry that close ties among business partners can support the development of solutions for shared

problems in a fast and satisfactory fashion for all concerned [65]. In the forest sector, commercial

relationships are likely to follow a similar pattern in that the remoteness of forest areas and the

relative isolation of market participants promote social relationships involving trust, cooperation, and

vertical power relationships.

3. Methodology

The principal objective was to understand the factors driving the commercialization of paper

mulberry bark in Laos, with emphasis on stakeholder perceptions and the extent to which three

theoretical frameworks (domestication, institutional economics, and embeddedness) help to explain


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the different factors at play. The complexity of the research question and the lack of reliable

information about the supply chain of paper mulberry bark, contributed to the selection of case study

as research design [70]. During the early stages of the project (March to September 2005), key

informants (n=32) were interviewed, including local governmental officials, small trading

companies, and forestry experts for exploring the relevance of the research question. The two

principal data sets were collected between March 2006 and June 2007 from semi-structured

interviews applied to chain stakeholders (n=47) as well as stakeholder workshops (n=124) in the

provinces of Oudomxay and Luang Prabang (Figure 1).

Selection of interviewees and workshop participants, as well as related participatory methods, were

based on a methodology for supply chain analysis developed by CIAT [38, 51]. To allow for

variation as regards the perception of factors influencing the supply chain of paper mulberry bark, six

stakeholder groups were identified according to their functions in the chain from bark collection in

the Laos uplands to manufacturing pulp and paper in Thailand: farmers; district traders; Lao

exporters; Thai manufacturers; public extensionists, and consultants. Actors belonging to the same

“functional group” are likely to be affected by the same factors and may therefore have similar

perceptions of what works well in the chain and what may require change. Stakeholder interviews

followed methodological procedures as described by Ribeiro [50] based on the work of Ozesmi &

Ozesmi [48] and Fairweather, Hunt, Rosin, Campbell, Benge & Watts [20]. Two-thirds of the

selected chain stakeholders participated both in the interviews and in the three workshops in which

all functional groups, with exception of manufacturers, were represented.

4. Results and discussion

1. Explanatory power of the domestication model

4 In nine of the workshops only farmers participated. The objective was to obtain feedback from farmers about their

perspectives of the meetings with all the other stakeholder groups. This was done to monitor and, if possible

attenuate, influences of interest by more powerful stakeholders.


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The domestication model is a point of departure for understanding the factors influencing the

commercialization of this NTFP. According to the model, high market demand for the bark will lead

to domestication to sustain commercialization. In our analysis we identified 10 factors related to the

domestication model in the paper mulberry case (Table 1). It is shown that domestication of mulberry

bark has not gained momentum as six of the factors underlying the model are absent in our case. The

categories of factors found to be hindering domestication included: i. Low profitability in

comparison with other income-generating opportunities; ii. Poor access to and knowledge about

production processes; iii. Presence of substitutes of the bark; iv. Low degree of habitat specificity

allowing for easy geographic relocation of extraction.

Profitability in comparison with other income-generating opportunities

Domestication of NTFPs occurs if considered profitable in comparison with other income-generating

activities. However, our results show that income derived from paper mulberry bark tends to be

inferior to alternative income-generating opportunities, thereby discouraging its cultivation. An

exception is Luang Prabang, where, bark prices rise as market access increases. As a result farmers

have been cultivating and processing paper mulberry bark since 2000 [3, 21]. Farmers in Oudomxay

confirmed that if local prices (2000-2500 Lak/kg) were to match those paid in Luang Prabang (3000

– 3700 Lak/kg) they would also plant mulberry bark. Lower prices like those paid in the Sayabury

province (2500 Lak/kg) only lead to cultivation when alternative income-generating opportunities

are absent [28]. These results underline that the collectors/farmers carefully weigh the opportunity

costs of bark cultivation. Domestication of this NTFP is an option only for those whose opportunity

costs are low, either in the absence of alternative income sources or in the presence of high bark

prices due to proximity to the final market.

Access and knowledge about production processes

A prerequisite of domestication is farmers‟ ability to cultivate NTFPs. This ability rises as farmers

gain knowledge about and access to new production processes [e.g. 26, 66]. In our study, lack of


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knowledge among collectors and farmers was one of the principal reasons for poor bark quality, both

in terms of extraction from the wild and cultivation. The government is well aware of the need for

technical assistance for quality enhancement, reflected in specific support to both extensionists and

farmers [22].

Existence of substitutes

Exporters in Oudomxay have not been able to meet increased demand for bark. According to

manufacturers in Luang Prabang, demand for bark and pulp in Japan far outstrips supply. Other

studies underline growing demand for paper mulberry bark in different markets [12, 60, 62].

Interestingly, unmet demand has not translated into higher prices for mulberry bark in Laos.

According to Homma [29], one possible explanation is the existence of industrial or natural

substitutes that would reduce the demand for the NTFP extracted from the wild or cultivated. As

substitutes saturate the market, there would be disincentives for extracting or cultivating a given

NTFP, though substitutes are likely not to eliminate completely the demand for the extracted product

[29]. In this case, there is evidence that other fibers are mixed with mulberry bark fibers to varying

degrees. These fibers are cheaper and more readily available. For example, a manufacturer

commented to be using 50% of paper mulberry with 50% of Kheua salea5, at approximately half the

price of mulberry bark. However, the existence of substitutes does not explain the cultivation of

mulberry bark in Sayabury and Luang Prabang provinces . Still paper mulberry bark is in demand as

for internationally known specialty papers there are highly standardized production processes (e.g.,

Kajinoki paper in Japan) limiting mixing of cheaper artificial or natural fibers with paper mulberry

bark .

Geographic relocation of extraction

5 The khamu name in Luang Prabang for the plant. Not identified species.


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According to Homma [29], overexploitation of an NTFP in a given location may lead to relocating

its extraction. However, geographic relocation is costly as new areas and alternative suppliers need to

be identified. In addition, the cost of relocation may not be compensated for if a given NTFP is easy

to cultivate and reaches maturity faster than in its natural habitat. These conditions apply to paper

mulberry bark which is easy to propagate and, as a pioneer species, adapts readily to different

habitats exhibiting high growth rates (harvestable after one year) [3]. Given the ease of cultivation,

one would expect relocation to be a second best option upon exhaustion of the wild population, as

compared to cultivation. We did not find clear evidence as to whether exhaustion of the natural

resource base leads to relocation or cultivation of paper mulberry bark in Laos, still in those areas

where cultivation set in after wild stocks were depleted, production technologies were readily

available and market prices tended to be more stable favoring commercialization.

Limitations of the domestication model

This model shows how domestication enables commercialization of paper mulberry. However, this

model cannot explain why prices continue low at collector level if there is high demand for the bark.

The existence of substitutes is not sufficient to explain as there is a high unsatisfied demand and the

trend for manufacturers to cultivate of paper mulberry tree themselves [59]. Furthermore, reliable

market information about quality requirements is difficult to expose and available information about

methods and technologies to improve quality is contradictory, e.g. boiling technique is required for

bark shipped to Thailand, but one Japanese company standards claims that this practice reduces the

quality of the bark.

2. Explanatory power of the institutions model

Given the limitations of the domestication model to fully explain the observed phenomena in the

production and commercialization of paper mulberry bark, this section assesses the additional

explanatory power of the institutions model. The institutions model helped identify 12 factors

relevant for understanding the paper mulberry bark case, which were found to be hindering the


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commercialization of paper mulberry bark (Table 2). The categories of factors were: i. poor

institutional performance (formal and informal); ii. existence of information asymmetries, and iii.

lack of horizontal coordination.

Institutions

Laws, rules and regulations imposed by the State are considered institutions. The role of these formal

institutions is to reduce uncertainty by establishing the „rules of the game‟ for human interaction

[47]. Since uncertainty relates to many dimensions of human interaction, formal institutions may

prove to be counteproductive in one of these dimensions – human exchange. We found several

institutions hampering commercialization: low land security, poor enforcement of laws and contracts,

and poor knowledge on and transparency of laws. One of the major sources of insecure land rights

as regards the extraction and cultivation of NTFPs are recent policies to increase foreign investment

in agriculture through provision of land concessions. These are granted by local governments to

private companies, with the aim to increase foreign investment in Laos [49, 55]. The concessions

compete with existing rights to access NTFP resources. Several farmers mentioned that the land they

planted with paper mulberry (Broussonetia papyrifera (L) Vent) and sapan (Boehmerica malabarica

wedd.) had been slashed by a multinational company to plant rubber trees. In this case the land was

granted as concession without previous assessments and negotiations with the villagers. Land

insecurity induced by related policies results in losses for farmers that invested in cultivation of

paper mulberry and sapan, both trees that are harvested for their bark. Land allocation and

resettlement aim at increased productivity of Lao agriculture but they imply unintended effects on

local livelihoods [18]. Displaced people, for example, may end up in areas where fertile land is in

short supply. According to a farmer living in Mang village newcomers are given land of lower

fertility as all fertile land has already been occupied. In another study, the poorest groups were found

to posses land far from the village [37]. On a similar line, Neumann & Hirsh [45] found that policies

which result in movement of people, activities of multinationals companies and conservation policies


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can alter ownership claims and the regulations of forest use. Under those circumstances, NTFP

collectors and farmers are likely to be the losers in related power struggles.

The lack of law enforcement also affects the commercialization of paper mulberry bark. The forest

law, for example, stipulates taxes and quotas for NTFP trading but lacking enforcement provides an

incentive to illicit practices and undermines effective control of harvesting. Similarly, contracts are

not seen by Laotian traders and farmers as legally binding. This perception also affects cross-border

trade into Thailand, as reflected in inception of shipments of paper mulberry bark from Laos. Thai

traders know that Lao exporters can do little about recovering their investments once the shipment

has entered into Thailand. Ex-post renegotiation of the contractual terms is reported as common

practice among Thai traders to take advantage of their power position in the chain. Though all the

quality requirements as demanded by the Thai buyers may have been complied with by Lao

exporters, the former may penalize the latter by applying discounts of 10% or more due to alleged

quality problems. In case of disagreement, either side usually refrains from recurring to formal

litigation processes as these are considered ineffective. Given that trade in paper mulberry bark

involves non-specialists (i.e. people trading any kind of agricultural or forest product), safeguarding

agreements are the exception rather than the rule. Only manufacturers that have upfront investments

in assets and production costs, are required to safeguard exchange and to ensure on-time delivery of

paper mulberry bark. This is one of the reasons why some manufacturers in Laos and Thailand are

planning to move beyond the raw material stage to vertically integrate the supply chain by

purchasing land and secure farm labor.

There is no transparent legal framework for NTFPs in Laos. Legislation is not consistently applied

for all provinces, and provinces and districts have different taxes for the same NTFP. In theory,

quotas are granted to exporters upon their request, implying the payment of quota, various other

taxes, and service charges according to the relevant regulations of the forestry, commerce and

finance authorities. In practice, however, exporters claim not to have sufficient knowledge of this


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policy. Stakeholders also held that legal transparency is hampered by unclear processes at district

level as regards the bidding for and the distribution of NTFP extraction areas.

Private norms, standards, rules, codes of conduct, and the like, are considered informal institutions.

Informal institutions can have both positive and negative impacts on commercialization by

respectively decreasing or increasing the costs of market involvement. Although fast changing to a

livelihood based on the commercialization of agriculture, the tradition of self-sufficiency in rice

production and the prioritization of this livelihood strategy over other options can be a barrier to start

cultivation of mulberry bark and other cash crops. Also local rules to control exploitation of natural

resources are often absent as they were not necessary in the past since the use of NTFPs was limited

to the quantities necessary for the household consumption [27]. The farm structure affected the

uptake of new livelihood options. Traditionally Khamu Ethnic group keep animals and crops in the

same land. This caused problems as some farmers lost their gardens of paper mulberry tree because

the plants were eaten by domestic animals. In all three villages there were also developed

enforcement rules.

Information asymmetries

Especially in developing countries, information asymmetries affect adversely the commercialization

of agricultural products [16]. Insufficient communication between stakeholders of the supply chain

has frequently been mentioned as a barrier to establish strategic market relationships [15]. Our case

shows that there is poor knowledge on quality requirements and prices, particularly among chain

stakeholders in Laos. More equitable access to market information is hampered by deficiencies in the

communications infrastructure and, most importantly, by the power arising from to information

asymmetries among market participants. As a result, there are pronounced price fluctuations bearing

the opportunity for more knowledgeable chain stakeholders to take undue advantage of less

knowledgeable business partners. This is particularly true for Thai stakeholders who buy when prices

are low and sell when they are high [12]. Information asymmetries may thus become a source of


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additional income for certain chain stakeholders, though by its very nature this source of income is

unstable and may not be viable on the long term.

Horizontal coordination

Farmer´s marketing group is an institutional arrangement which facilitates dialogue regarding

resource management, cost reduction in terms of transport, transaction and processing and increased

bargaining power of farmers. They are considered an important means to improve commercialization

of paper mulberry bark, especially among the following functional groups: district traders,

consultants and public extensionists. The general impression is that farmers‟ groups are always

positive and necessary [12, 69]. Nonetheless, farmers in Laos showed little optimism in relation to

formation of such groups due to widespread mistrust originating from former experiences of failure

of similar groups. Moreover, farmers‟ groups induced from the outside tend not to achieve their

goals, in particular when the new structure does not match the local capabilities, knowledge, or

technical skills of the group. In Oudomxay, for example, bamboo shoots were commercialized

successfully after careful interventions by project staff that aimed at strengthening the marketing

group through confidence building and the development of sense of ownership, in addition to the

provision of market information [42].

Limitations of the institutions model

The institutions model permits to deepen our understanding of paper mulberry bark

commercialization by underlining the importance of institutions, information asymmetries among

chain stakeholders, and the importance of farmers' marketing groups. It helps us to see that legal

contract enforcement is non-existent in Laos. In light of the absence of state intervention in

Oudomxay side-selling is a common phenomenon, with farmers selling the product to other traders

outside of existing trade agreements. In fact, the institutional framework of paper mulberry bark is so

weak that, according to the model, there would not be a good reason for its commercialization in


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Laos. However, the very existence of bark trade prompts the question which other factors may be in

place that help to explain the existing commercialization of this NTFP. The embeddedness model

presented in the next section sheds light on this question.

3. Explanatory power of the embeddedness model

Although the political-legal institutional framework is far being conducive to production and

commercialization of paper mulberry bark, the fact remains that this NTFP has frequently been

exchanged with success. This can be explained by the availability of embedded services in the supply

chain. For example, exporters provide credit to district and village traders, and both manufacturers

and exporters provide technical assistance and training on production technologies, along with

information about quality standards and machinery for cleaning the bark. This prompts the question

how supply chain actors ensure compliance with agreements and the necessary cooperation despite

the absence of legal enforcement by state institutions. Several authors hold that given the limitations

of the legal system in developing countries it is trust and social capital that play a crucial role for

reducing risk and facilitating exchange [4, 9, 41]. Through the lenses of the embeddedness model

seven factors influencing commercialization of the bark were identified (Table 3). Four of these

factors were hindering commercialization as they were related to: i. Low trust levels between supply

chain participants; ii. Lack of opportunities for join-problem solving; and iii. Low exchange of

customer-specific information.

Trust

Trust was seen by stakeholders of paper mulberry bark supply chain as a mediator in businesses

partnerships. If there is trust, key entrepreneurs provide embedded services in the form of credit,

information and training about production technologies [61]. Stakeholders positively related trust to

the existence of contracts and their enforcement. However, contracts in Laos are rarely written [36].

Instead, oral contracts are agreed upon which are socially binding: “If there is trust, there’s no need for

formal contracts” (Manufacturer 2P2, June 2006). Trust thus emerges as the sine qua non to enforce exchange


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agreements. This supports the embeddedness model, according to which in the absence of pro-market

institutions firms have to rely on trust in their business relationships [24]. Nonetheless, some traders

complained that Lao farmers do not perceive a problem in selling their harvest to trader Y, although they had

received credit and production inputs in advance from trader X. Other traders, though, did not confirm this

type of problems. They build trust with farmers by spending most of the time during the harvesting season in

the villages or making frequent visits. In case of non-compliance with verbal agreements they impose

collective sanctions or threaten to cease making business with the counterpart [35]. There are costs related to

building and maintaining trust, district traders, for example, to prevent other traders from buying their produce

incur high transportation costs as they visit the villages frequently. An important aspect related to trust

building is kinship, as suggested by the embeddedness model. In the paper mulberry bark case, manufacturers

typically provide credit only to family members who become responsible for collecting the bark and paying

back the credit (Manufacturer 2P22, May 2007). Beyond kinship, compliance with contract is ensured by “just

trad[ing] with the traders that you know” (Exporter 2P20, June 2007). This, however, is not always possible

as there is a steady influx of both new collectors/farmers and traders who become involved in the supply

chain. This compromises the overall level of trust and, hence, the commercialization of paper mulberry bark,

as stated by some workshop participants.

The explanation given by the embeddedness model to the underdevelopment of this chain relates to the lack of

depth and breadth of trust relationships that, in the absence of a pro-market institutional framework, would

allow for contractual trust or the provision of information through specific networks. Manufacturers in Laos

report the lack of a network able to coordinate actions and react to price wars imposed by powerful bark

buyers in Thailand and, consequently, seek for vertical integration in a move to expand their control of the

supply chain. This contrasts with the findings of Biggs & Messerschmidt [10] in Nepal's Lokta paper industry,

where most companies were embedded in a dense network of trust relationships with its subsidiaries and

downstream chain actors, with little advantages for wealthier chain actors to adopt a strategy of vertical

integration.

The absence of a perfect market, the lack of a trust-based business network and to the lack of institutions

capable of securing transactions (see institutions model) in the Lao paper mulberry bark sector results in a


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long and fragmented supply chain focused primarily on passing on the raw material from one link of the chain

to another, rather than creating opportunities for value addition.

Joint problem-solving

Previous studies on supply chains paid attention to individual problem-solving rather than the interaction

among different supply chain actors [32, 56, 63]. In contrast, our case study points several problems that could

be addressed through joint problem-solving. For example, to raise overall bark quality requires more

interaction and coordination among supply chain actors to ensure price incentives for farmers who deliver

bark that meets the required standards related to age and post-harvest treatment (boiling). This would not only

ensure bark quality according to buyers' needs (and saving on labor costs to clean fibers), but also reduce the

usage of chemicals, water and energy in paper production. Finally, professionalism and on-time delivery are

considered important business factors that require more coordination among chain stakeholders, in particular

those oriented towards export markets.

Information exchange

Poor quality of NTPF is associated with lacking specifications of related market requirements [5, 54]. In the

case of paper mulberry bark, too, there are no institutional arrangements that allow for grading different bark

qualities. It is common practice to develop quality grades and standards for commodities [33], while certain

niche products may lack such grades or standards. In their absence, there is no guidance to market participants

as regards quality requirements of the market [67]. The lack of knowledge on quality criteria creates confusion

among the chain actors and hampers trust building among them and, consequently, compliance with quality

requirements. This is reflected in the words of a Thai manufacturer:”I am not sure that if I just call Lao

traders and make an order of grade A, I would get what I expect to get… standards are not transparent… I

need to go there and talk directly with them…” (Importer and Manufacturer 2P23, June 2006). Thai

manufacturers see quality standards for paper mulberry bark with suspicion, call it a “business secret” and

refuse to even talk about it. As a matter of fact, the secretive handling of quality standards among a few chain

actors functions as an effective barrier to entry for newcomers [23, 67]. Manufacturers of mulberry paper and

handicrafts in Thailand work in a highly competitive, volatile and fairly small market segment where they face


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competition from similar products manufactured by Chinese and Vietnamese companies. In their pursuit of

accessing or expanding these market segments by offering superior mulberry paper products, manufacturers

are faced with high research costs. As knowledge about market requirements and ways of how best to meet

them becomes accessible to current and potential market participants, niche products can be easily reproduced

by competitors who invested little in the research process. To address the problem of free riding stakeholders

establish long-term relationships and invest in direct communication of quality standards to suppliers. For

example, a manufacturer in Laos reported his interest in establishing close-cooperation with 10 villages

(providing training, controlling age of harvest and introducing boiling). A manufacturer in Thailand, on the

other hand, explained that quality standards related to the bark depend on the end product (type of paper or

handicraft to be produced). Thus, in the case of paper mulberry bark, the information about quality

requirements is customer-specific.

Limitations of the embeddedness model

The embeddedness models helps shedding light at the importance of trust in embedded technical and financial

services provided from downstream actors to stakeholders upstream the chain. However, several of the factors

perceived as being critical to improve production and commercialization of paper mulberry bark were not

directly associated with the interrelations between buyers and suppliers. For example, the model cannot

explain critical factors such as cultivation and the role of price premiums to stimulate quality production.

5. Conclusions

None of the three theoretical models alone helps to explain our empirical findings. However, all three models

are useful to identify and understand the key factors driving production and commercialization of paper

mulberry bark in Laos (Table 4Table 4). By exploring the relation between domestication and

commercialization, the domestication model allowed us to understand why farmers in Oudomxay were not

cultivating the bark. Six out of a total of ten factors leading to domestication, as predicted by the model were

absent in Oudomxay, namely factors related to higher profitability compared to alternative income generating

activities, access to knowledge about production technologies, impossibility of geographic relocation and

absence of substitutes. These results suggest that shortage of natural resources and high demand for the


18

product are necessary but not sufficient conditions to induce domestication in Oudomxay. At the same time,

the domestication model does not explain how increasingly high demand by manufacturers in both Laos and

Thailand does not result in higher prices which, in turn, would increase the return on the investment related to

bark cultivation. The institutions model explains that high demand does not result in higher prices because

access and distribution to information on market requirements and prices is heterogeneous. It would be

expected that in a country that only recently opened up to international trade appropriate institutions for

commercialization are yet to be developed. Indeed, we found that existing institutions such as state and

customary laws related to the commercial exchange, contract and law enforcement and land tenure were

impeding rather than promoting trade of paper mulberry bark.

The institutions model, by pointing at the importance of the costs incurred to obtain market information, also

helped to explain information asymmetries related to quality standards and requirements between Lao and

Thai entrepreneurs. Geographic distance, language barriers, and poor communications and transportation

infrastructure are likely to increase the cost of obtaining such information. However, these factors alone are

not sufficient to explain the lack of transparent quality standards in the supply chain of paper mulberry bark. It

is here where the embeddedness model helps to understand that smooth information flow as regards quality

standards in niche products such as mulberry paper requires a specific type of information sharing, such as

customized exchanges. The model explains the nature of such exchange agreements or, in their absence, the

pursuit of vertical integration strategies by manufacturers. The latter result directly from the lack of trust

relationships, without a thorough analysis of the pros and cons of hierarchical vis-à-vis collaborative

structures in the chain. In fact it is widespread distrust resulting from negative experiences that impedes

mutually beneficial relationships between upstream and downstream chain actors, as well as higher value-

adding. Unlike the institutions model which links contract enforcement to state institutions, the embeddedness

model points at the degree of trust and good interpersonal relationships among chain stakeholders as key

determinant for contract enforcement. In the case of paper mulberry bark, trust based on collaborative quality

improvements can hardly arise when quality standards are considered “a business secret” in Thailand.

Monopolization of information related to quality requirements permits Thai traders to establish effective

barriers to entry. The drawback of a restrictive information policy is higher likelihood of miscommunication,

an unclear price structure (especially regarding the price-quality ratio) and low levels of trust. Given the


19

unclear price structure, there is no incentive for suppliers to make long-term investments in the establishment

of plantations or the acquisition of new equipment to boil the bark in the village.

The three models were derived from as many bodies of scientific knowledge related to different disciplines.

The domestication model, for example, is backed-up by neoclassic economics, the institutions model by New

Institutional Economics and political science theories, while the embeddedness model is grounded in a

sociological view of human exchange relationships. Our analysis of the paper mulberry bark case in Laos

reinforces the need for combining economic, political and social theories to better understand complex data

sets and real-life situations. It shows that each of the theories alone cannot explain the full complexity of the

system. We are convinced that future research on NTFP supply chains will benefit from the combination of

different theories. If the focus of a given study is on the dynamic interactions of market participants, the three

theories drawn upon here are likely to prove a fruitful combination. When also addressing interactions with

the environment, it will be necessary to consider further theories, for example those relating to landscape

ecology and territorial management.

Acknowledgements

The authors gratefully acknowledge W. Zwirner who has read and commented on this paper. We also

acknowledge nonmonetary assistance given by OCISP/IFAD project, CIAT-Asia and local provincial

governments of Oudomxay and Luang Prabang during field research. The study was supported by the

Austrian Finance Ministry.

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Index of f igures


23

Figure 1: Map of Laos with indications of the major producer provinces of paper mulberry bark

Index of tables

Table 1: Factors derived from the domestication model that are relevant for the domestication of paper mulberry

bark in the Lao supply chain

Categories stimulating

domestication

Factors observed in the paper mulberry bark case

In

favor

Against

Profitability in

comparison with other

income-generating

opportunities

Current prices do not stimulate cultivation √

Processing paper mulberry bark tends to be more labor

demanding than other farm´s income-generating

activities

√


24

Taxes charged on cultivated NTFPs are only a fraction of

those charge on NTFPs harvested from the wild

√

Access to and

knowledge about

production processes

There is a need for improved knowledge about

production processes and related technical assistance.

√

Access to new technologies and tools (e.g. processing

equipment) for cleaning the bark

√

Shortage of extractive

resources

In villages with more intense bark trade there is a lack of

wild paper mulberry trees

√

High demand for the

NTFP

Exporters report unsatisfied demand for bark √

Increasing demand of paper, thus further stimulating

demand for mulberry bark

√

Absence of substitutes

Cheaper fibers exist that can be mixed with mulberry

bark in paper production

√

Difficult geographic

relocation

Low degree of habitat specificity (mulberry is a pioneer

species that easily adapts to new habitats) facilitates

geographic relocation

√


25

Table 2: Factors derived from the institutions model that are relevant for the commercialization of paper

mulberry bark in the Lao supply chain

Categories affecting

commercialization


In

favor

Against

Institutions

Recent changes in land tenure policy have led to scarcity

of land available for paper mulberry bark extraction or

cultivation, with adverse effects on bark supply

√

There is weak enforcement of legal requirements related

to tax regimes, quota fulfillment and related

documentation, stimulating illicit trade and discouraging

control of extraction from common pool resources

√

The process of bidding for and distribution of extraction

areas among district traders is unclear

√

The State does not ensure contract enforcement which

discourages contract farming

√

Animals and crops share the same land. This caused

problems to some farmers that lost their paper mulberry

gardens because they were eaten by domestic animals

√

The tradition of self-sufficiency in rice production is

perceived by farmers as a barrier to start cultivation of

mulberry bark and other cash crops

√

Information

asymmetries

Lao State is perceived as not responding to claims on

support for farmers‟ marketing groups (intransparency and

unclear responsibilities of government agencies)

√

No agreement on quality standards, the information held

by stakeholders regarding quality standards varies

√


26

Little sharing of market information, leaving farmers,

district traders and Lao exporters vulnerable to

unexpected price fluctuations and discouraging long-term

investments in domestication and processing technologies

(local production of paper)

√

Knowledge about market contacts is not sufficient, as

exporters and paper manufacturers in Laos would like to

reach other more rewarding markets for bark, pulp and

mulberry paper they realize the limitations to build a list

of foreign clients

√

Horizontal

coordination

Few farmers´ marketing groups exist that help improve

bark quality, ensure steady supply, and increase the

bargaining power of farmers

√

District traders tend to compete for bark, rather than

coordinating their activities for improved overall outcome

√


27

Table 3: Factors derived from the embeddedness model that are relevant for the commercialization of paper

mulberry bark in the Lao supply chain

Categories affecting

commercialization


In

favor

Against

Trust

Distrust was often reported among chain actors √

Manufacturers in Thailand report product adulteration

(blending with materials other than bark) in Lao bark

√

Preference for trade with known traders and with close

relatives.

√

Oral contracts are enforced through relations of trust and

kinship

√

Joint problem-

solving

Subcontracting paper and handicrafts production requires

more coordination to ensure on-time delivery.

√

High bark quality requires collectors and farmers to boil it

at village-level, which in turn requires smooth information flow

between the different chain links. The lack of joint problem-solving

leads to low quality of the bark as a result Thai manufacturers have

to pay higher costs of water, energy, chemicals to bleach the paper

and extra-pay labor to select fibers after bleaching

√

Information

exchange

Mutually beneficial business relationships are hampered by

a general lack of communication between buyers and suppliers. As

quality requirements are not standardized and this is partly due to

the nature of customized exchanges existent in niche products

supply chain lack of direct contact and communication between

business partners affect negatively commercialization of the bark

√


28

Table 4: Principal factors favoring (+) or hampering (-) commercialization of NTFPs in Laos, according to the

three theoretical frameworks considered

Domestication Institutions Embeddedness

Low profitability in

comparison to other income

generating opportunities (-)

Low knowledge on and

access to production

technologies (-)

Shortage of natural resources

(+)

Few barriers to relocate

extraction (-)

High demand

Absence of cheaper

substitutes provide a

framework for

domestication of NTFP

Insecure land tenure (-)

Information asymmetries

(quality requirements, price

trends) (-)

Low degree of farmers´

organization (-)

Distrust among exchange

partners (-)

Little exchange of

customized information

among business partners

(e.g. quality requirements,

production technologies) (-)

Little communication and

few opportunities for joint

problem-solving (-)

Ribeiro Factors Influencing Commercial is at Ion Paper Mulberry Bark

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