Supply Chain Analysis for Rural Sanitation Products and Services in Lao pdr
The labor availability constraint
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- The complete latrine
- Direct subsidies
- Appendix 1: Selected Sanitation Data from Lao Social Indicator Survey
The labor availability constraintNo action is recommended to address the problem of labor availability. This problem is not exclusively a sanitation issue and there is little that can be done in terms of the sanitation supply chain. For example, training workers to improve skills may make them more employable elsewhere, so the local sanitation chain does not reap the benefits of the training. If actors in the chain were able to pay higher wages this could help them attract more, and better-quality, labor. Higher relative wages may result if their businesses grow sufficiently. In the mean time, the appeal to workers of higher wages in the cities and in Thailand is going to remain a problem. However, building capacity at scale may eventually offset the risk of mobility and benefit other areas. According to WSP – Consumer Behaviour Research, approximately 25% of rural non latrine owners agreed with the statement “I am not willing to pay for a latrine because we are moving again soon” showing that labor mobility and the search for better employment opportunities affects not only in the supply side (lack of skilled stakeholders) but also the demand side (lack of willingness to build a latrine). The complete latrineReducing latrine costs can be difficult. Costs are dominated by material costs and transport. Bundling may be one way to lower the cost of a latrine. This reduces transaction costs for households. It reduces the fragmentation of the supply chain by providing a single-priced final latrine product, rather than a collection of materials. When combined with a cheaper latrine design (provided it is a design that is still appealing to consumers), this model can provide a product that satisfies more of the potential market. This model sometimes involves sales agents (such as PSI/WSP in Lao and sanitation marketing projects in Cambodia). However, while a review of a bundling pilot model in Cambodia found a 7.7 percentage point increase in sanitation coverage (with households purchasing 10,621 unsubsidised latrines from private businesses63), enterprises were only selling to ‘early adopters’. Because the potential market for the businesses was limited to these early adopters, the project’s geographic scope was increased to help the businesses grow, resulting in ‘wide but shallow’ market penetration (WSP 2012c). The latrine being marketed was designed by the project and cost US$35 (excluding superstructure and labor) and could be bought from a single business. Local businesses were trained to produce and sell it.64 A review of the project concluded that there was a need for more effective sales and marketing as well as complementary finance options for households (WSP 2012c). Note also that working with the wrong actors can severely limit project effectiveness: “Some 1,700 small providers, including masons and sanitarians, were accredited and encouraged to use the “WC-ku sehat” (“My Latrine is Hygienic”) logo in their marketing materials. Newly trained masons introduced innovative and affordable products to market. This approach did not achieve the expected results. For example, of 1,700 people trained, more than 97 percent were reported to be either inactive or utilizing their improved skills in other sectors or areas. The selection process for trainees was one factor in this disappointing outcome. Another factor was that few trainees had the ideal mix of dynamism, ambition, people skills, and technical capacity. Another factor was that local masons—who were less educated and less mobile, yet were the first persons contacted by consumers seeking information about sanitation products and services—were not included among trainees (the selection criteria specified higher levels of formal education and training). During implementation, it was recognized that relying on training masons did not adequately address all supply needs. A business aggregator mechanism was needed to connect household demand, material suppliers, and service providers. These findings informed the subsequent design of the entrepreneur training and one-stop shop model.” (WSP 2012d). Reinventing supply chain businesses such that latrines become their primary (or only) activity may address some of the identified problems. However, the main problem is not the businesses themselves. Changes to businesses (such as changing their product offering to include a complete latrine, or changing their sales approach to include marketing or sales agents) may achieve incremental improvements in the supply chain, but some major issues will not be resolved. For example, delivery of latrines to some areas will still be difficult and expensive. It is unlikely private businesses are using materials wastefully. How can businesses do better with a product (latrines) that is a slow-moving consumer durable (i.e. low-frequency, lumpy sales) in an environment with high transport costs? There is no simple solution. Change will take time. Letting businesses grow organically – in response to demand-side initiatives – may not deliver large immediate results, but will be more sustainable and will involve much lower per-latrine government and DP program costs.
Direct subsidiesMarket-only approaches do have their limitations, such as the Cambodian program discussed above. Similarly, in Vietnam a recent study of a sanitation marketing approach showed that there was a lower rate of uptake during a pilot project of poor households as compared with non-poor and the report noted that a financing strategy for the poor was missing (Sijbesma et al 2010). One way to increase the size of the market is to directly subsidize latrines. However, subsidies generally create distortions and lead to outcomes that are not sustainable. They do not result in viable private sector supply or lasting demand. Households tend to expect or wait for subsidized provision of latrines. WSP (2013) found that “[r]espondents in all sites cited ‘never offered a toilet’ as a reason for not having one.” Artificially increasing demand temporarily is not consistent with the guiding principles discussed above. This is recognized by government (as noted above) and some DPs: “Overall, we want to encourage local suppliers to benefit from the business CLTS may generate. We are trying to support market-based supply of materials to villages; … we want to avoid handling cash or playing the “middleman” for these material purchases. We want to encourage village committees to negotiate directly with suppliers. Village committees will be responsible for all payments and final selection of suppliers” (Plan International 2011). However, improved sanitation involves positive spillovers (“externalities”), which provide some justification for financial support. Further, the poorest households are unlikely to be able to afford a latrine without support. Any form of financial support should not disrupt that link between supplier and consumer. Hence systems involving vouchers for consumers to purchase a latrine from the private sector may be attractive. Vouchers can be an effective mechanism for transferring subsidies via the demand side to ultimately support the supply-side of the market, allowing beneficiaries to select service providers based on price and preference, rather than being dependent on program driven decisions. They may help develop sustainable local supply chains that strive to achieve efficiency in the market. Appendix 1: Selected Sanitation Data from Lao Social Indicator Survey
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