Supply Chain Analysis for Rural Sanitation Products and Services in Lao pdr



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The Consumer


A separate study examines consumer sanitation behaviour in detail, particularly for households in rural and remote poor villages. In this Section, some evidence from the supply chain actors regarding consumer demand is presented.
    1. Market growth


The sanitation market appears to have grown over recent years. All focus groups reported that there has been an increase in latrine construction. Participants believe this has been driven by:

  • increasing incomes;

  • population growth;

  • more households emulating others;

  • migration to low lands, plus less forest for OD;

  • better roads;

  • improved health knowledge; and

  • government support.

Many, although not a majority, of supply chain actors report increased sales of latrine products. Around 44% of material suppliers are selling more latrine pans than 3 years ago (change in pan sales for the rest are not known). Many of these are in Xansay (Attapeu), Khamkeut and Viengthong (Borikhamxay), and Atsaphone (Savannakhet) – 14 of the 16 material suppliers interviewed in these districts reported increased pan sales. Ten suppliers in Sing and Long (Luangnamtha) and Phaoudom and Meung (Bokeo) report increased pan sales. Furthermore, about 12% are selling pans at a slightly higher (average 4%) price.24

Similarly, 40% of concrete producers report selling more concrete rings than they were 3 years ago. Most of these are in Sing (Luangnamtha), Khamkeut (Borikhamxay), and Xonnabuly, Atsaphone and Nong (Savannakhet). More than one-quarter are charging slightly higher prices (around 5%) than 1 year ago.

One-third of masons report that they are building more latrines now than 3 years ago. These are mostly in Long, Samoi, Sanxay, Khamkeut, Nong, and Vienthong. Around 45% of masons are charging higher fees than a year ago (typically 10% higher, but some are charging 20% or 30% more)25.

    1. Actors’ views of consumers


As discussed above, most actors in the supply chain regard a relatively expensive model as the typical latrine. Hence the consumers they are most accustomed to dealing with are unlikely to be poor.

Masons appear to be better informed than material suppliers and concrete producers about end consumers’ latrine requirements. This is consistent with their position in the chain. However, nearly all material suppliers report that they have at least some sales direct to households. Despite this, material suppliers often are ignorant of latrine options and consumers’ tastes (although 29% report that customers seek their advice on required materials).

Masons typically report that 60% to 70% of the latrines they build are part of the construction of a new house (hence the consumer they are used to dealing with is reasonably affluent). Around half of masons state that they advise households on latrine options. Similarly, 43% of material suppliers believe that households are advised by masons on their purchase. But many masons (87%) believe their customers are already knowledgeable about different latrine options available.26

Masons believe that cost and accessibility of materials are the most important factors determining household decisions of latrine type and design. Material suppliers and concrete producers think access to materials is a less important factor, but this might be because they are more likely to be in central towns where materials are more accessible. Some masons interviewed were in districts with few or no material suppliers (such as Xaychamphone and Ta-Oy).

Supply chain actors believe that health is the most important reason why households build a latrine (75% of material suppliers, 76% of concrete producers and 77% of mason cite this as one of the main reasons households obtain a latrine). Actors also said that convenience/comfort is a factor (69% of material suppliers, 81% of concrete producers and 73% of masons). This is the opposite of poor households’ views, with over 85% of households stating that convenience and comfort are the main benefits of owning a latrine and around 45% of latrine owners stating that health/hygiene was a benefit (WSP - Sanitation Consumer Behavior Study).

For a number of masons, around 30% of the latrines they build are for a Government or NGO project. One mason reported that 70% of the latrines he builds are for such projects.27 The role of Government and NGO programs in the supply chain is discussed in detail in Section 8.


  1. Market structure, environment and reach

    1. Competition and margins


Overall, there appears to be reasonable competition through the supply chain in most areas. That is, concentrated market power is likely not pushing up the price of latrines.
      1. Competition between actors


The extent of market competition in the supply chain varies from district to district. More remote and poorer areas might have only one construction material supplier — sometimes because the size of the market can support only one. In Borikhamxay for example, Khamkeut district has over 20 material suppliers but Xaychamphone has only one. However, in a number of border districts there is competition from material suppliers in Thailand and Viet Nam. Individual customers will buy directly from Thailand or Viet Nam rather than the local supplier. Hence the extent of competition is determined not only by the number of local suppliers.

Overall, there appears to be more competition among material suppliers than concrete producers and masons (Figure 17). One-third of material suppliers reported facing no competition, compared with more than half of concrete producers and masons.



Figure 17: Proportion of actors reporting no competitors in latrine products/services

Two construction material suppliers in Phaoudom stated that they have an agreement with competitors (presumably each other). They say that they have agreed to sell products at the same price. This is consistent with that found by Willets (2013), where a supplier in Phaoudom stated that “[T]hese three to four shops… we all know each other… and sell at the same price. We have a close relationship”. However, there is not strong evidence that this agreement is significantly affecting prices: the margin on latrine pans, for example, in Phaoudom (24%) is slightly lower than in Meung and Long districts.28 Margins are discussed in more detail below.

Another two material suppliers (one in Meung and one in Xonnabuly) have a close relationship with another material supplier (in Meung the competitor is owned by relatives).

Many material suppliers are aware of the prices charged by their competitors (and these prices are typically the same). Nine material suppliers of the 45 who do face competition did not think it was a concern.

Around 27% of concrete producers stated that they knew the prices of their competitors. Many locations have only one concrete producer (such as Samoi in Salavan province and Kaleum and Dakcheung in Sekong province). Xaychamphone has no concrete producers, but obtains concrete products from adjacent districts. It is not unusual for a town to have more material suppliers than concrete producers.

Those masons who have competitors on average report having about 10 competitors. However, some have only 2 or 3 (in Lamarm, Sekong for example), while others report as many as 20 (Houay Xai, Salavan, Kamkhert, Nong, Atsaphone, Xonnabuly, Xaychamphone). Some areas appear to have a number of Vietnamese masons. Masons in Lamarm, for example, reported competition with labor from Vietnam.29 However, many rural villages have no masons. The WSP - Sanitation Consumer Behavior Study found that 46% of non-latrine owners said their village has skilled masons who can build a latrine30. Some masons may travel far to build a latrine (typically 30–40km, but often much further). They are accustomed to living in the location in which they are working for the duration of the construction project.31

Masons are not well organized and acted as freelance then competed between themselves in terms of price and labor cost.” – FGD in Sekong

      1. Competition among upstream suppliers


Actors were asked about competition among their upstream suppliers. Only 19% of material suppliers and 17% of concrete producers state that their upstream suppliers compete with each other. Similarly, 15% to 21% of material suppliers report multiple upstream sources for a number of their products (Figure 18). However, this might reflect the importance of established relationships with upstream suppliers rather than a lack of competition per se.32 As discussed above, a number of districts have multiple sources of materials (from within Lao plus Thailand, Viet Nam and China). For example, Ta-Oy district in Salavan obtains cement from Salavan and from Viet Nam.

Construction material suppliers


Thirteen building material suppliers (21% of those answering the question) reported having two or more suppliers of latrine pans.33 These are in the districts of Houay Xai (Bokeo), Long (Luangnamtha), Salavan (Salavan), Lamarm (Sekong), Sanamxay (Attapeu), Khamkeut, Vienthong and Adsaphone (Borikhamxay), and Nong (Savannakhet).

It tends to be the same shops that have multiple suppliers for various products. That is, if a shop has two or three suppliers for pans, they are also likely to have multiple suppliers for cement or PVC pipes (and in many cases it will be the same suppliers).



Figure 18: Construction material shops reporting more than one main upstream supplier (n=68)

New Thai suppliers try to build relationships with Houay Xai wholesalers, marketing their products and services (but not sanitation products). Hence there appears to be at least a reasonable level of competition at the top of the Lao supply chain. One large Houay Xai wholesaler said that Thai companies would invite them to attend promotions in Thailand.


Concrete producers


Six concrete producers (17%) say that their suppliers compete with each other to win their business. These are in Sing, Khamkeut, Xonnabuly, Atsaphone, Salavan. Most concrete producers report multiple suppliers of cement (an average of 3.3 cement suppliers), but significantly fewer suppliers of sand and gravel (1.3 and 1.4). Two concrete producers in Vienthong said there was only one potential supplier of cement (but a third producer there said there were three). The concrete producer interviewed in Kaleum said that he had only one potential supply of cement. Producers in Lamarm and Sanamxay reported 4 or more potential cement suppliers. Only Nong and Salavan districts appear to have multiple potential sources of sand and gravel (although producers in some districts did not answer this question).34 Very few producers reported the number of potential suppliers of moulds (three said there was 1 supplier and one said there are 2 suppliers).

Masons


Masons typically do not purchase materials for the construction of latrines (their customers do): 91.5% of masons say that their customers provide all of the materials for building a latrine. Only 4 masons (5.6%) stated that they supplied all the materials (two in Bokeo, one in Sekong and one in Borikhamxay).

However, half of masons did report that building material suppliers offer them incentives; typically discounts but sometimes credit. Thirty-four masons (nearly 48%) state that they regularly buy from certain suppliers. A similar percentage (45%) has been found for concrete producers from which masons regularly purchase what they need. Four masons (12% of the 34) stated that this was because there was only one shop to buy from.



The overwhelming majority reported being familiar with the shop owner (or in some cases related to them), receiving discounts, or getting delivery (particularly for concrete products) as the reason for using a certain supplier or a certain concrete producers.

Table 32: Relationship between masons and other supply chain actors (% of total)

Region – Province

Do you regularly go to certain concrete producers over others to purchase the materials you need?

Do you regularly go to certain retailers over others to purchase the materials you need?

No

Yes

No

Yes

Northern

73%

27%

82%

18%

Bokeo

86%

14%

86%

14%

Luangnamtha

50%

50%

75%

25%

Central

27%

73%

19%

81%

Borikhamxay

36%

64%

9%

91%

Savannakhet

20%

80%

27%

73%

Southern

71%

29%

68%

32%

Attapeu

60%

40%

60%

40%

Salavan

91%

9%

82%

18%

Sekong

62%

38%

62%

38%

Total sample

55%

45%

52%

48%


      1. Margins


Margins are higher on some products and in some areas than others (Table 332). Margins on pans, cement and steel are higher in the South. This could imply lower levels of competition there: Sekong and Attapeu do have fewer material suppliers than Salavan and have higher margins for most products.35 However, in the Central region Borikhamxay has more material suppliers than Savannakhet yet higher margins for a number of products.

Differences in margins might be explained not by the extent of competition, but by other market factors. They could reflect the cost of stores having to carry slow-moving products for longer. Furthermore, margins often incorporate transportation costs, in two ways:



  • Many suppliers offer free delivery within a certain radius, such as 15km (transport fees are discussed above); and

  • Some shops use their own transport to get goods from their upstream supplier, and this cost has to be recouped. Shops that instead receive delivery from their supplier will have the cost of this included in the wholesale price they pay (resulting in a higher wholesale cost and lower margin for a given sales price).

Table 33: Suppliers’ gross margins on selected materials (n=68)

Region – Province

Pan

Cement

Steel

Zinc

Thai pan

Lao green

Lao red

From China

from Thailand

Northern

20%

16%

9%

19%

32%

3%

39%

Bokeo

22%

17%

12%




30%

3%

45%

Luangnamtha

19%

3%




19%




7%

21%

Central

16%

10%

9%







14%

8%

Borikhamxay

31%

19%










13%

14%

Savannakhet

5%

5%

11%







14%

4%

Southern

24%

24%

25%







18%

14%

Attapeu

12%

28%

19%







11%

16%

Salavan

49%

4%

9%







26%

4%

Sekong

19%

33%

40%







26%

19%

We buy products from Vietnam because it is cheaper than from Vientiane, and can sell at the same price.”

– FGD in Borikhamxay

Zinc sheeting margins are notably highest in Bokeo, and some other products there have higher margins than in Luangnamtha. Bokeo’s higher margins are in part a result of higher margins in the district of Phaoudom (24% for pans and cement). It is not clear that this derives from the pricing agreement between two material suppliers noted earlier (two other retailers were also interviewed in the district, who are not party to the agreement, and households there can, and do, source directly from Thailand).

Furthermore, as discussed above, in some districts two or more shops might be owned by members of the same family or close relatives. Hence the presence of multiple suppliers is not always a guarantee of competition and there may be some collusion. However, many material suppliers also face some competition from businesses not in their district, with customers prepared to travel (in some cases to Thailand or Viet Nam) to acquire materials.

In general the margins in Table 33 are not unreasonable given the high costs of distribution in rural areas. Gross margins of 25% to 35% are not unusual for products successfully reaching the bottom of the pyramid (Hystra 2013).36

In the focus groups, some supply chain actors indicated that margins for latrine products and services are less than their other activities. Statements such as “The selling of products for latrine is not good business if compare with another” and “It's good business but if we compare with other products it's not good benefit” suggest that latrines might have to be even more profitable for actors to increase their focus on them.




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