25 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 Research on World Agricultural Economy https://journals.nasspublishing.com/index.php/rwae Copyright © 2023 by the author(s). Published by NanYang Academy of Sciences Pte. Ltd. This is an open access article under the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) License. (https://creativecommons.org/licenses/by-nc/4.0/). 1. Introduction In the Lao PDR, which is primarily an agrarian so- ciety, agriculture, and forestry contribute to 30% of the country’s GDP and employ over 75% of the workforce. The Agriculture Development Strategy 2025 has identi- fied bananas as a prioritized crop for agricultural exports. In 2020, bananas hold significant importance as one of the key crops, with an estimated production of 385,000 tons. The development of commercial banana production, largely driven by Chinese investments, brings economic benefits and employment opportunities, particularly in the northern region of Lao PDR. Approximately 88% of the exported bananas were shipped to China, while the re- DOI: http://dx.doi.org/10.36956/rwae.v4i3.862 Received: 20 May 2023; Received in revised form: 25 June 2023; Accepted: 5 July 2023; Published: 14 July 2023 Citation: Wongpit, P., Inthakesone, B., Sisengnam, K., et al., 2023. Investigating the Role of the Cultivated Banana Value Chain as a Potential Source of Sustainable Income for Local Communities in Lao PDR. Research on World Agricultural Economy. 4(3), 862. http://dx.doi.org/10.36956/rwae.v4i3.862 *Corresponding Author: Piya Wongpit, Faculty of Economics and Business Management, National University of Laos, P.O.Box 7322, Vientiane, Lao PDR; Email: p.wongpit@nuol.edu.la RESEARCH ARTICLE Investigating the Role of the Cultivated Banana Value Chain as a Potential Source of Sustainable Income for Local Communities in Lao PDR Piya Wongpit* Bounmy Inthakesone Keuangkham Sisengnam Pakaiphone Syphoxay Faculty of Economics and Business Management, National University of Laos, P.O.Box 7322, Vientiane, Lao PDR Abstract: Cultivated bananas have gained attention due to the environmental and social impacts of Cavendish bananas in the northern part of Laos. This study investigated the value chain of cultivated bananas and its implications for sustainable income generation. Basic statistical analysis was used to assess the value added by cultivated bananas, while stakeholder analysis and value chain mapping were used to identify key actors and relationships. The determinant of commercialization is observed through the regression model and the impact of commercialization is investigated through the second stage regression. The study found that the banana value chain in Laos is driven by the export market. Farmers generate the highest profit, but they receive the lowest distribution of value-added. Banana commercialization can significantly increase the income of farmers, but the impact is not equal for all farmers. Bananas are a sustainable income source for households in Laos, and they have the potential to be promoted in high-value markets if the farmers create new products and improve skills of management, marketing, and finance with the support from government policies. Keywords: Cultivated banana; Value chain; Commercialization http://dx.doi.org/10.36956/rwae.v4i3.862 http://dx.doi.org/10.36956/rwae.v4i3.862 mailto:p.wongpit@nuol.edu.la https://orcid.org/0000-0001-6437-2645 26 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 maining 12% were sent to Thailand. In recent years, the demand for bananas in neighbor- ing countries has increased, leading to a rapid expansion of banana production and area in Lao PDR. One of the banana types that is being heavily invested in Lao PDR is Cavendish, which is a high-yielding variety that requires extensive use of chemical fertilizers, pesticides, and her- bicides. The use of these chemicals has had significant negative impacts on both the environment and the well- being of workers and consumers. The use of chemicals in banana production can have several negative impacts on the environment, workers, and consumers. Environmental impacts include water pol- lution, soil contamination, and ecosystem damage. Worker health impacts include respiratory problems, skin prob- lems, and cancer. Consumer health impacts are less well- understood, but there is some evidence that exposure to chemicals in bananas can cause health problems. Workers on banana plantations are often from impoverished com- munities and may have a limited understanding of safe chemical handling practices. This puts them at even great- er risk of exposure to harmful chemicals. The costs of healthcare and environmental rehabilitation may outweigh the benefits of income generation and job opportunities from banana production [1]. Due to concerns over the spread of Fusarium wilt in Cavendish banana plantations in Northern Laos, cultivat- ed banana varieties known locally as “Kuay Nam” have gained increased attention [1]. Cultivated bananas play a crucial role in the agricultural sector of Lao PDR, provid- ing food security and income generation opportunities for local communities. Traditionally, banana plants grew naturally in backyards or small farms for household con- sumption and animal husbandry. However, in recent years, there has been a growing interest in commercializing Kuay Nam bananas due to their high yields and resistance to pests and diseases. There has been limited research on the potential of the cultivated banana value chain to provide sustainable income for local communities. To address this gap, this study focuses on investigating the role of the cultivated banana value chain in supporting sustainable income for communities in the provinces of Houaphan, Vientiane, Sa- vannakhet, and Salavan. Several studies have been conducted to analyze value chains in the Lao PDR. For instance, Wongpit and Sisa- phanthong [2] examined the value chain of organic vegeta- bles in Vientiane Capital and found limited value addition and processing due to small market size, lack of knowl- edge, and low consumer awareness. In another study, Small-scale Agro-Enterprise Development in the upland [3] analyzed the cultivated banana value chain in the Poukoud district, Xieng Khuang Province, identifying challenges such as insufficient inputs and equipment for farmers. However, with access to funding, farmers were able to in- crease production and sales, highlighting the significance of middlemen in connecting farmers to the market. The commercialization of agricultural products is a priority policy of the Lao government. Farmers are be- ing encouraged to change from traditional production methods to more commercial practices, such as expanding production and processing their products. The government is providing support to farmers in this transition, such as providing access to credit and training on commercial production techniques. The commercialization of agricul- ture is expected to benefit both farmers and the economy. Farmers will be able to increase their incomes, and the economy will benefit from increased exports. The impact of agricultural commercialization on liveli- hoods and food access in the Lao PDR has been analyzed by Wright [4]. The study highlights policy-driven shifts from traditional to intensive agriculture and increased demand for agricultural products from neighboring coun- tries. These developments have expanded markets and facilitated smallholder access to markets through im- proved road infrastructure. Goletti [5], Bouahom et al. [6] and Setboonsarng et al. [7] have discussed commercial crop production, there has been a lack of comprehensive examination and quantification of the determinants and implications of agricultural commercialization in the Lao PDR, particularly for crops like cultivated bananas. This paper aims to describe and analyze the value chain of cultivated bananas in domestic and foreign markets, filling the gap in existing research. To analyze the effects of commercialization on local incomes, this study focuses on the cultivated banana value chains, examining their organization, key actors involved, value added throughout the process, and potential opportunities. 2. Material and Methods The methodology employed in this study involved the use of value-chain analysis to examine the cultivated ba- nana industry in four provinces. The value chain analysis includes stakeholder analysis, value chain mapping, and value-added. The objective of value chain analysis is to break down the chain into its individual components to gain a better understanding of its structure and functioning [8]. A preliminary value-chain framework was developed based on existing studies, reports, and consultations with researchers. Stakeholders were then invited to participate in a focused group discussion where the draft value chain was presented and explained. Valuable input and sugges- 27 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 tions from the participants were incorporated, leading to the revision of the value chain and the identification of key bottlenecks. The determinants of commercialization were analyzed through a regression model. There are many discussions about what agriculture commercialization is and how to measure commercialization. Govereh et al. [9] suggest that agriculture commercialization is the proportion of sold products to total production and commercialization can be measured along a continuum from zero (total subsistence- oriented production) to unity (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below: Commercialization = Sale value Production value (1) The agricultural product in this paper refers to culti- vated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting com- panies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows: (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below:  =     (1) The agricultural product in this paper refers to cultivated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting companies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows:  = 0 + 1 + 2 + 3 + 4 + 5 + 6 +  (2) Household income,  , is a function of instrumented agricultural commercialization (�), labor, capital, and land; a vector of household characteristics (); and a government policy variable, .  = 1 + 1� + 2 + 3 + 4 + 5 + 62 + 73 + 84 +  (3) The definition and measurement of variables in Equations (2) and (3) are explained in Table 1. Table 1. Definition and measurement of the variables. (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below:  =     (1) The agricultural product in this paper refers to cultivated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting companies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows:  = 0 + 1 + 2 + 3 + 4 + 5 + 6 +  (2) Household income,  , is a function of instrumented agricultural commercialization (�), labor, capital, and land; a vector of household characteristics (); and a government policy variable, .  = 1 + 1� + 2 + 3 + 4 + 5 + 62 + 73 + 84 +  (3) The definition and measurement of variables in Equations (2) and (3) are explained in Table 1. Table 1. Definition and measurement of the variables. (2) Household income, Ii, is a function of instrumented ag- ricultural commercialization ( (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below:  =     (1) The agricultural product in this paper refers to cultivated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting companies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows:  = 0 + 1 + 2 + 3 + 4 + 5 + 6 +  (2) Household income,  , is a function of instrumented agricultural commercialization (�), labor, capital, and land; a vector of household characteristics (); and a government policy variable, .  = 1 + 1� + 2 + 3 + 4 + 5 + 62 + 73 + 84 +  (3) The definition and measurement of variables in Equations (2) and (3) are explained in Table 1. Table 1. Definition and measurement of the variables. ), labor, capital, and land; a vector of household characteristics (Hi); and a govern- ment policy variable, Pi. (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below:  =     (1) The agricultural product in this paper refers to cultivated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting companies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows:  = 0 + 1 + 2 + 3 + 4 + 5 + 6 +  (2) Household income,  , is a function of instrumented agricultural commercialization (�), labor, capital, and land; a vector of household characteristics (); and a government policy variable, .  = 1 + 1� + 2 + 3 + 4 + 5 + 62 + 73 + 84 +  (3) The definition and measurement of variables in Equations (2) and (3) are explained in Table 1. Table 1. Definition and measurement of the variables. (100% production is sold). The measurement of the commercialization of agricultural pre is expressed as the equation below:  =     (1) The agricultural product in this paper refers to cultivated bananas. The sale value is the value of cultivated bananas that farmers sell to middlemen or exporting companies. Production value is the value of cultivated banana production by farmers. The equation model to identify the determinants of banana commercialization is as follows:  = 0 + 1 + 2 + 3 + 4 + 5 + 6 +  (2) Household income,  , is a function of instrumented agricultural commercialization (�), labor, capital, and land; a vector of household characteristics (); and a government policy variable, .  = 1 + 1� + 2 + 3 + 4 + 5 + 62 + 73 + 84 +  (3) The definition and measurement of variables in Equations (2) and (3) are explained in Table 1. Table 1. Definition and measurement of the variables. (3) The definition and measurement of variables in Equa- tions (2) and (3) are explained in Table 1. Data for the study were collected through a household survey conducted in four provinces: Houaphan, Vientiane, Savannakhet, and Salavan. Banana production has in- creased significantly in recent years, particularly in Vien- tiane Province, Salavan Province, and Savannakhet Prov- ince. In Xanakham district, Vientiane Province, which is located in the central part of Laos, most of the bananas are sold to Vientiane Capital or exported to Thailand. Some of the bananas are also processed into banana crisps and so- lar-dried bananas. Salavan Province is in the southern part of Lao PDR where most of the bananas are exported to Thailand. Some bananas are also used to produce whiskey or processed into banana fiber for handicrafts. However, the demand for these products is low. In Houaphan Prov- ince, which is in the northern part of Laos and shares a border with Vietnam, the commercialization of cultivated bananas is at an early stage. The main obstacles to the ex- pansion of banana production are the lack of a market, the high costs of materials and transportation, and the limited availability of land. In Savannakhet Province, bananas Table 1. Definition and measurement of the variables. Variable Definition Measurement C Commercialization ratio The ratio of the value of the banana sale to the total production value where rank from 0 to 100 Gen Gender Gender of the head of the household where 1 is male and 2 is female Age Age Age of head of household Edu Education Year of education of the head of household Exp Experience Year of experience in the banana plantation Mem Member of household Number of members in the household Dm Distance to market Distance from farm to market in Kilometers Df Distance to farm Distance from home to farm in Kilometers lnI Natural logarithm of to income of the household Total income of a household in million Lao Kip (LAK) per year   Predicted commercial ratio Predicted commercial index derived from Equation (2) lnL Natural logarithm of labor Number of workers used to cultivate bananas lnK Natural logarithm of capital Value of capital use in the banana farm in million LAK per year lnS Natural logarithm of land Land area of the banana farm measuring in hectares P Policy Dummy variable for policy support where 1 if received support and 0 otherwise D1 Dummy variable for Houaphan 1 is Houaphan and 0 otherwise D2 Dummy variable for Vientiane 1 is Vientiane and 0 otherwise D3 Dummy variable for Savannakhet 1 is Savannakhet and 0 otherwise D4 Dummy variable for Salavan 1 is Salavan and 0 otherwise   Error term 28 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 are mainly planted in the Xepon district, near the border with Vietnam. Most of the bananas are exported to China through Vietnam. The selection of districts within each province was based on recommendations from provincial authorities ac- tively promoting agriculture commercialization. Random sampling methods were used to select households, mid- dlemen, and banana processors for interviews. The survey questionnaires covered various topics such as respondent information, revenue, production costs, market accessibil- ity, and financial access. The interviews aimed to gather the necessary information. Table 2 shows the sample size which consists of 474 households involved in banana cultivation, along with 8 middlemen and 9 banana proces- sors. Table 2. Sample size across the different categories. Provinces Farmers Middlemen Processors Houaphan 111 2 2 Vientiane 251 3 3 Savannakhet 73 2 3 Salavan 36 1 1 Total 474 8 9 Source: Authors’ survey in 2017. 3. Results 3.1 Value Chain of Cultivated Bananas Value Chain of Cultivated Banana in Huaphan In the banana value chains in Houaphan Province, four main stakeholders can be identified: farmers, processors, middlemen, and importers. Farmers are responsible for cultivating and collecting bananas from their farms and selling them to middlemen and customers at the market in Xam Nuea district. On average, farming households have a farm area of 1.3 hectares, with 0.6 hectares dedicated to banana farming. The total cost of banana production for farmers, including fixed and variable costs, amounts to approximately 2.02 million LAK per household per year. In contrast, the total income from bananas reaches around 3.06 million LAK per household, resulting in a profit of approximately 1.04 million LAK. Processors in Houaphan purchase bananas from farm- ers and use them to produce ripe banana crisps. It takes about four hours to produce ripe banana crisps from 20 bunches of bananas. Processors sell these banana crisps directly to customers at the market in Houaphan Province. The main costs incurred by processors include fixed costs for equipment and variable costs such as labor, purchasing bananas, cooking oil, and packaging materials. On aver- age, processors earn an income of 1.5 million LAK per month, while their total costs amount to 0.9 million LAK, resulting in a profit of 0.6 million LAK per month. Middlemen play a role in buying bananas from farmers and selling them to customers in the market in Xam Nuea district. Their fixed costs primarily include trucks, while their variable costs consist of expenses for gasoline, rental fees at the market, maintenance, and labor. The average total cost for middlemen is 13 million LAK per month, and their income amounts to 4 million LAK per month. Consequently, the average profit for middlemen is 9 mil- lion LAK per month. Figure 1 depicts the value chain map of cultivated ba- nanas in Houaphan Province. The percentages displayed above the arrows represent the market share of each stake- holder. Farmers utilize three distribution channels, selling 20% to middlemen, 10% to processors, and 70% directly to customers at the market in Xam Nuea district. Middle- men acquire Kuay Nam bananas from farmers, distribut- ing 75% to consumers at the market, 20% to processors, and exporting 5% to Vietnam. The quantity of processed bananas is relatively low, with processors producing ba- nana chips or grilled bananas for sale in the local market. The distribution of value-added among the stakehold- ers in each channel. Farmers achieve an average profit of approximately 753 LAK/kg, corresponding to a profit margin of 193%. Middlemen obtain profits of 1,316 LAK per bunch, representing a profit margin of 78%. Their sale price amounts to 20,000 LAK/kg or 28 packs, resulting in a profit of 3,098 LAK/kg or an 18% profit margin. Value Chain of Cultivated Banana in Vientiane Province In the value chain of bananas in Vientiane Province, there are four main stakeholders: farmers, processors, middlemen, and distributors. Farmers collect bananas from their farms and sell them, with an average farm area of 3.7 hectares per household and 2 hectares dedicated to banana farming. The average total cost of banana produc- tion is 3 million LAK per household per year, while the total income from bananas amounts to 13.7 million LAK per household, resulting in a profit of approximately 10.7 million LAK per household. Processors in Vientiane produce various banana prod- ucts, with the knowledge and techniques transferred from JICA. The production process for banana crisp takes 8 hours with 3 workers, using around 400 bunches of ba- nanas to produce 220 kg of banana crisp. Solar-dried ba- nana production requires 4 man-days and 300 bunches of 29 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 bananas to produce 125 kg. Processors sell their products to retailers in Vientiane Capital and occasionally export to retailers in Thailand, generating an average monthly rev- enue of 8 million LAK and a profit of approximately 2.5 million LAK. Middlemen purchase bananas from farmers and sell them to customers at the market in Vientiane Capital. Their main fixed costs include trucks, and variable costs consist of gasoline, rental fees, maintenance, and labor costs. The average monthly income and cost for middle- men are 27 million LAK and 20 million LAK, respec- tively, resulting in an average profit of 7 million LAK per month. Distributors, a Lao-China joint company, are respon- sible for collecting, packing, and exporting bananas to distribution centers in China. The bananas are then dis- tributed to markets, retail shops, or department stores in China. Occasionally, Thai importers buy bananas directly from the farm when there is a supply shortage in Thailand. The demand for processed bananas from retail shops and markets in Thailand is irregular. Figure 2 shows that approximately 50% of bananas are sold in the domestic market, primarily at the market in Vientiane Capital. Processors purchase 10% of bananas from farmers for their production. For export, around 15% of bananas are sold to the distributor and exported to China, while 5% are exported to Thailand. Processors sell 80% of their total product to retailers, 15% to domes- tic customers, and 5% to Thai importers. Middlemen sell 90% of the bananas to retailers at the market and 10% to customers in Vientiane Capital. The average profit for farmers selling bananas in Lao PDR is approximately 153 LAK/kg, resulting in a profit margin of around 16%. Middlemen, who act as interme- diaries, make an average profit of 3,000 LAK/kg, equat- ing to a profit margin of approximately 23%. Processors in the industry produce four flavors of banana crisps and solar-dried bananas, with an average profit margin of around 77%. Retailers purchase processed bananas from processors, pack them into small packages, and sell them in retail shops, achieving a profit margin of approximately 50%. Additionally, retailers also sell unprocessed bananas, gaining an approximate profit margin of 67%. A Chinese-Lao company operates as a distributor, sup- plying bananas to a distribution center in Guangxi Prov- ince. Due to privacy concerns, the specific cost and sale price of bananas is not known. However, the distributor obtains an estimated profit margin of approximately 20- 30%. It is important to note that the value-added distribu- tions may vary depending on the market channels utilized. Figure 1. Mapping of value-chain of cultivated banana in Houaphan Province. Figure 2. Mapping of value-chain in Vientiane Province. 30 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 Value Chain of Cultivated Bananas in Savan- nakhet The value chain in Savannakhet Province comprises four key stakeholders: farmers, processors, distributors, and retailers. Farmers play a crucial role in collecting bananas from their farms and selling their products. On average, each household has a farm area of 3.26 hectares, with an average of 2.25 hectares dedicated to banana cultivation. The average total cost of banana production per household per year is 5 million LAK, while the total income from bananas amounts to 7.7 million LAK per household. This results in an approximate profit of 2.7 million LAK per household. Processors in the province are engaged in producing various banana products, including banana crisps, solar- dried bananas, and dried flattened bananas, which is a unique product in Savannakhet Province. The production process for dried flattened bananas takes two days and requires two workers. On average, processors generate a monthly revenue of 8.4 million LAK, with an average cost of 5 million LAK, resulting in an approximate profit of 3.4 million LAK per household per month. Distributors, in this case, are Vietnamese companies that purchase bananas from farmers in the Xepon district. They transport the bananas to the Danang seaport in Viet- nam and subsequently ship them to China (See Figure 3). The average profit for farmers is 334 LAK/kg or 32% of the profit margin. For middlemen, the average profit per kg is 542 LAKs or 31% profit margin. Processors have many products from cultivated bananas and those are ripe banana crisp, raw banana crisp, butter banana crisp, and dried flattened banana. The processor makes an aver- age profit of 16,000 LAK/kg or 114% profit margin. The retailers who buy and sell banana products as a vendor make an average profit of 1,000 LAK/pack or a 33% profit margin. Finally, distributors who are the final actor make 500 LAK average profits per kg or 20% profit margin. Value-chain in Salavan Province The value chain in Salavan Province involves six key stakeholders, namely middlemen, farmers, retailers, and exporters. Middlemen play a significant role in the value chain by purchasing bananas from farmers in both Savan- nakhet and Salavan Province. They then sell the bananas to retailers in Savannakhet and Salavan Province. Addi- tionally, middlemen occasionally export products to Thai- land. On average, middlemen generate a monthly revenue of 17 million LAK, with a cost of 11 million LAK, result- ing in a profit of approximately 6 million LAK per month. Farmers are responsible for collecting bananas from their farms and selling their products to middlemen and retailers in Salavan and Champasack Province. Each household, on average, possesses a farm area of 6.2 hec- tares, with an average of 1.9 hectares allocated for banana cultivation. The average total cost of banana production per household per month is 4 million LAK. However, the total income from bananas amounts to 0.8 million LAK per household per month, resulting in a profit of approxi- mately 3.2 million LAK per household per month (See Figure 4). Farmers in Salavan Province make an average profit of 1,040 LAK/kg or 84% profit margin. Middlemen who col- lect bananas from farmers make an average profit of 1,009 LAK/kg which creates a 50% profit margin. In Salavan, there are two main types of banana processors, solar-dried banana, and butter banana. Processors make an average profit of 7,050 LAK/kg or a 34% profit margin. In addition, retailers in Salavan make a profit of 1,200 LAK/kg and create a 67% profit margin. Finally, distributors make a profit of 1,700 LAK/kg or a 94% profit margin. Overall, distributors make up the high- Figure 3. Mapping of value-chain in Savannakhet Province. 31 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 est percentage of profit margin. 3.2 Impact of Cultivated Bananas on Household Income This section presents the regression results of factors affecting commercialization and the impact of commer- cialization on income. The summary statistics indicate that there are no outliers in the sample (See Table 3). The correlation matrix shows that there is no multicollinearity issue among the independent variables. The model of factors affecting banana commercializa- tion shows a very low goodness of fit 0.1049; however, the F-statistic is 11.457 > F-test is 2.78 which means the model is valid. Gender (Gen), the age of the head of household (Age), education (Edu) and distance to the farm (Df) did not play any role in banana commercialization (Table 4). The distance to the market (Dm), experience (Exp) and the number of family members (Mem) positive- ly and significantly influenced banana commercialization. The second stage least squares model was used to examine the impact of commercialization on household incomes. The model shows acceptable goodness of fit. Gen and Edu are statistically significant at the 5% level.   shows statistically significant at a 1% level. lnK and lnS land area are statistically significant at 0.1% level. How- ever, Age, Exp and P are statistically insignificant. To en- sure the validity of the analysis, various tests including an endogeneity test, instrument test, and over-identification restriction have been conducted. The results confirm the validity of the instrument variable used in the analysis. Figure 4. Mapping of value-chain in Salavan Province. Table 3. Summary of statistics. Variable Obs Mean Std. Dev. Min Max Commercial 475 0.82 0.10 0.2 0.95 Gender 475 1.24 0.43 1 2 Age 475 42.74 11.04 17 98 Education 475 9.13 2.19 5 16 Experience 475 11.13 7.77 1 40 Policy 475 0.35 0.48 0 1 Labor 475 3.78 2.20 1 25 Cultivated labor 475 2.88 1.30 1 11 Land 475 1.47 2.05 0 24 Capital 475 12,600,000 21,800,000 271,550 53,000,000 Income 475 28,900,000 45,600,000 1,000,000 200,000,000 Market access 475 0.69 0.46 0 1 32 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 Table 4. Regression results. Variable C lnI Gen 0.002 –0.161* (0.21) (–2.18) Age 4.76E-05 –0.004 (0.10) (–1.84) Edu –0.002 0.029* (–0.83) (2.10) Dm 0.001*** (5.53) Exp 0.001* –0.004 (2.10) (–0.86) Df 0.003 (1.42) Mem 0.009** (2.91) lnK 0.259*** (6.65) lnL –0.114 (–1.52) lnS 0.237*** (6.20)   4.259** (2.80) P 0.124 (1.85) D2 0.564*** (3.95) D3 0.372*** (3.42) D4 –0.016 (–0.12) Cons 0.697*** 9.257*** (13.90) (6.91) R2 0.1049 0.5607 N 475 475 Note: t statistics in parentheses. * < 0.05, ** p < 0.01, *** p < 0.001. 4. Discussions The value chain of cultivated bananas in four provinces has been significantly driven by the export market. Farm- ers generate the highest profit, but they receive the lowest distribution of value-added. They face several challenges, including disease and pests that lead to lower yields, limited financial knowledge among farmers for effective management of household income and expenses, and in- sufficient local market capacity to absorb the banana sup- ply. Cultivated bananas provide a nutritious food source, particularly in areas with limited nutritional options. As organic bananas, there are opportunities to promote them in high-value markets driven by global health concerns. Processors have the highest value-added potential in the banana value chain. They produce a variety of prod- ucts from cultivated bananas, such as banana chips, dried bananas, and cakes. The local market has limited pro- cessed banana products, creating an opportunity to intro- duce new products. Processed banana products typically yield higher profit margins than raw bananas. However, processors face some challenges, such as a lack of mar- keting knowledge, limited product innovation and limited access to funds. Distributors mainly export raw bananas to Vietnam, Thailand, and China, as demand for bananas has increased in recent years. However, transportation from farms to markets involves multiple inspections, and export proce- dures require various documents from government offices, resulting in high costs and administrative burdens. The implementation of the dry port in 2021 has further in- creased the cost and complexity of exporting. The result of regression suggests that determinants of banana commercialization in Lao PDR include the dis- tance from farm to market, experience, and number of household members. A study found that the coefficient of distance from farm to market (Dm) was positive and significant at the 0.1% level, which means that the farther the distance from farm to market, the higher the rate of commercialization. This is because land rent diminishes from the outward center city to offset both lower revenue and higher operating costs [10]. In Laos, most banana farms are located far from the city (market) where the price of land is low. For example, most bananas in Salavan Prov- ince are sold in Champasack Province and exported to Thailand. In the same direction, most bananas produced in Vientiane Province are sold to Vientiane Capital. Household experience and size are positively associ- ated with the commercialization of bananas. The coeffi- cient of household experience was positive and significant at the 5% level, indicating that an increase in one year of experience leads to a higher commercialization ratio. This suggests that households with more experience in banana cultivation and marketing are more likely to sell a greater quantity of bananas. The coefficient of household size was 33 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 also positive and significant at the 1% level, suggesting that larger household size is associated with a higher com- mercialization ratio. This may be because larger house- holds have more labor available to help with banana culti- vation and marketing, or because they have more financial resources to invest in banana production. Banana commercialization can increase the income of farmers, but the impact is not equal for all farmers. A second-stage regression analysis found that gender, edu- cation, commercialization, capital, and land are the key factors that impact the income of farmers. The coefficient of gender was found to be negatively significant at the 5% level, indicating that households led by females had lower average incomes compared to households led by males. This could be attributed to factors such as divorce or wid- owhood, which may lead female-headed households to work harder to earn sufficient income. Furthermore, the coefficient of education was posi- tively significant at the 5% level, suggesting that higher levels of education were associated with higher household incomes. This finding aligns with previous studies such as Chialue et al. [11], Xangsaysane et al. [12] and Ha et al. [13] that have highlighted the role of education in providing access to information, knowledge, and techniques for in- creasing income. The coefficient of predicted commercialization was found to be positive and significant at the 0.1% level, indicating that a 1% increase in banana commercializa- tion resulted in an 8% increase in household income. Bananas were identified as the primary income source for households, and their sustainable income potential was supported by factors such as low production costs, high demand from neighboring countries, and environmentally friendly cultivation practices. The main variables in the income function, including capital and land, demonstrated positive and significant coefficients at the 0.1% level, con- sistent with production theory. In contrast, the coefficient of labor was not statistically significant. This can be attributed to the fact that labor is primarily intensive during the plantation phase rather than cultivation. On average, two individuals working for three hours are sufficient to harvest one hectare of bananas. The coefficient of the policy variable, indicating gov- ernment support for farmers, was not significant, suggest- ing that there was no discernible impact of government policies on household income. Most farmers did not receive support from the government of Laos, although some support was provided by organizations such as Japan International Cooperation Agency and The Agro- biodiversity Initiative. Additionally, the coefficients of the dummy variables D2 and D3 were positive and significant at the 1% level, indicating that average household incomes in Vientiane and Savannakhet Provinces were higher than those in Houaphan Province. However, the coefficient of D4 was not significant, suggesting that the average income of households in Salavan Province did not differ significantly from that of households in Houaphan Province. 5. Conclusions Numerous studies have raised concerns about the sus- tainability of Cavendish banana production, citing nega- tive environmental, health, and social impacts despite increased income for farmers. This study analyzes the value chain of cultivated bananas and demonstrates that the commercialization of cultivated bananas can generate sustainable incomes for farmers. The findings reveal sig- nificant value-added for farmers, with processors earning the highest value-added but lacking marketing and finan- cial knowledge. Key factors driving commercialization include market access, family members, and experience. The study confirms that the commercialization of bananas leads to increased household income, but questions arise about the long-term sustainability of banana production, particularly given the dependence on demand from neigh- boring countries. To address these challenges and promote the sustain- able development of cultivated bananas, the following policy implications are recommended: Farmers should consider creating processed products such as banana cakes, chips, or candies during periods of excess supply or when supply exceeds demand. This approach reduces losses, enhances food security, and im- proves household nutrition. Farmers often do not keep track of their income and expenses, which makes it difficult for them to manage their money. Training in basic financial accounting would be very beneficial for households. The government can help farmers and producers by purchasing their products. For example, banana cake and candy can be used as snacks in schools, as well as during coffee breaks at meetings, seminars, and conferences. The Ministry of Industry and Commerce (MOIC) should establish exchange programs for farmers and pro- cessors, providing training and facilitating the exchange of ideas to create new products. Effective marketing strat- egies, including attractive packaging and design, can help stimulate sales of processed banana products. To facilitate distributors, it is better to reduce the num- ber of stops during transportation. This will reduce the 34 Research on World Agricultural Economy | Volume 04 | Issue 03 | September 2023 cost of transportation for distributors and reduce the risk of damage to bananas during transport. Villages should initiate activities to promote bananas, such as banana contests or award programs. This will help to raise awareness of bananas and increase demand for them. Author Contributions The first author as well as corresponding author Piya Wongpit took the lead in research design, analysis, inter- pretation as well as writing of the manuscript while co- authors Bounmy Inthakesone, Keuangkham Sisengnam, Pakaiphone Syphoxay support first author in the writing and analysis. Funding This research was funded by the Swiss Agency for De- velopment Cooperation. Acknowledgement The authors express their gratitude to the National Agriculture and Forestry Research Institute for their sup- port in facilitating coordination with relevant stakehold- ers throughout the research process. Furthermore, the authors extend their sincere appreciation to the farmers, middlemen, processors, retailers, and their networks for generously sharing valuable information that has greatly contributed to this study. Their cooperation and input have been instrumental in ensuring the success and reliability of the research findings. Data Availability The data are available upon request from the corre- sponding author. Conflict of Interest The authors disclosed that they do not have any conflict of interest. References [1] Manivong, V., Ouansamone, P., Sonethavixay, S., et al., 2016. Building an Evidence Base for Policy For- mulation in the Agriculture and Rural Development Sector in Lao PDR [Internet]. The National Agricul- ture and Forestry Research Institute. Available from: https://nardt.org/images/ACC_13/files/Building_ EvidenceBase_Policy%20Formulation_Agriculture_ Rural_Development_Sector_Lao_PDR.pdf [2] FAO., IFAD., NAFRI., 2016. Pro-Poor Policy Rec- ommendation to Combat Risks in Smallholder Or- ganic Production in the Hadxayfong District of the Lao People’s Democratic Republic, Policy Brief. Available from: https://data.opendevelopmentme- kong.net/en/library_record/pro-poor-policy-recom- mendation-to-combat-risks-in-smallholder-organ- ic-production-in-the-hadxayfong- [3] Pha Khao Lao. 2020. 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