Determinants of global competitiveness of the coffee industry in Lao PDR

This study aimed to identify the determinants of global competitiveness of the coffee industry in Lao PDR. Results of t-test of means indicated that the average RCA [Revealed Comparative Advantage] value of Lao PDR coffee improved between the pre-AFTA-ASEAN and during the AFTA-ASEAN periods. The country also registered a greater RCA value of coffee than Thailand. Multiple regression analysis showed that domestic production and consumption of coffee were the significant determinants of export competitiveness of Lao PDR coffee. Domestic production was positively related to export competitiveness while domestic consumption was negatively related to export competitiveness of coffee. Domestic resource cost (DRC*) and resource cost ratio (RCR*) estimates revealed that Lao PDR has a competitive advantage in producing coffee. Results of the sensitively analysis showed that DRC* was sensitive to changes in the cost of electricity, border price and quantity of the coffee purchased. For quality competitiveness, coffee exporters in Lao PDR have followed the local standards set by Lao PDR Federation of Chambers of Commerce and Industry (LFCCI), which are less strict as compared to the International Coffee Organization (ICO) standards. The problems encountered by the coffee industry in Lao PDR included: 1) high cost of chemical fertilizer used in coffee farming; 2) low yield of coffee; 3) prevalence of antiquated or cold coffee mills; 4) stiff competition with major coffee exporters in the international markets; and 5) local coffee standards are not in harmony with the ICO standards. Based on the results of the study and the problems encountered by the coffee industry, the following policy reforms are recommended: 1) promotion of the use of organic fertilizer and adoption of the integrated pest management (IPM); 2) provision of training on proper methods of storing coffee; 3) investment on modern coffee mills; 4) strengthen linkages among coffee farmers, wholesalers and exporters; and 5) harmonization of the local coffee standards with the ICO standards.