NATURAL PRODUCTS INTERNATIONAL TO LEAVE LAOS BY

C O N F I D E N T I A L SECTION 01 OF 03 VIENTIANE 000415 SIPDIS DEPT FOR EAP/MLS EMERY COMMERCE FOR H.P. PHO DEPT PASS USTR FOR BISBEE E.O. 12958: DECL: 07/28/2018 TAGS: EINV ECON KIDE PREL EAGR LA SUBJECT: NATURAL PRODUCTS INTERNATIONAL TO LEAVE LAOS BY 2009 REF: A. VIENTIANE 0083 ¶B. ARCHIBALD-BESTIC EMAIL 12/18/07 ¶C. 07 VIENTIANE 00086 ¶D. 07 VIENTIANE 00138 ¶E. 07 VIENTIANE 00167 ¶F. 07 VIENTIANE 00300 Classified By: AMBASSADOR RAVIC R. HUSO. REASONS: 1.4 B AND D ¶1. (C) Summary: Natural Products International (NPI), a small American-owned company that has invested over $1.4 million since coming to Laos in 1997, and that in May secured a contract to produce all of the Corn-Soy Blend (CSB) for the World Food Program's (WFP) school feeding program in Laos, has decided to leave the country by 2009. This decision comes after years of gradually increasing government pressure on NPI and another, already disbanded American business, Friend of the Upland Farmer, and despite frequent interventions by the Embassy and members of the international community seeking a solution to the Lao Government's concerns. Two recent incidents served as a catalyst: in early June a high-ranking Bokeo provincial military officer told a NPI staff member that the police and military were "preparing to move" on NPI, and the Lao Government decided that NPI would not be permitted to move its factory from the northern province of Bokeo to Vientiane province due to security and business concerns. Despite these incidents and other issues with the provincial authorities, NPI has not yet received a formal order to end its operations and its management believes the company can liquidate its assets without excessive governmental interference. End Summary. -------------- Background on NPI -------------- ¶2. (C) Since coming to Laos in 1997, NPI has invested approximately $1.4 million in equipment, real estate, and salaries. The company is focused on improving food security in northern Laos using a market-based approach involving two focus areas. The first involves working with local subsistence farmers, helping them grow soybeans from seeds NPI sells, purchasing the harvest, processing the soy beans, and selling the products, such as animal feed, in local markets. NPI also raises chickens and assists local farmers via micro-loans to purchase NPI's chickens (layer hens) and to set up private egg farms. NPI makes money via the farmer's purchase of NPI-produced chicken feed and NPI-raised chicken. The company has been profitable in recent years, although this is at least in part attributable to the fact that the expatriate workers' salaries are paid by their church in the U.S. ¶3. (C) NPI also invested in production facilities for Corn-Soy Blend (CSB),a fortified food product that plays a key role in the World Food Program's (WFP) activities in Laos. In partnership with WFP and other NGO's, NPI now has the capacity to produce all of the CSB necessary for WFP's operations in Laos. NPI's partnership with WFP, and its support of local farmers, has served as a model for the WFP's "Purchase for Progress" program, which focuses on purchasing food aid in-country from local farmers and supporting sustainable agricultural development. NPI was feted in May during a visit to WFP headquarters in Rome and encouraged by WFP to expand into additional countries. -------------- Problems with Local and National Authorities -------------- ¶4. (C) In May the company won a contract to provide 750 tons of Corn-Soy Blend (CSB) to the World Food Program in Laos. According to outgoing General Manager Tom Love, a high ranking member of the military in Bokeo province went to the house of a local NPI staff member on June 6 to suggest that the staff member quit. The officer allegedly said the military and the police intended to "move on" NPI shortly, and that NPI was "no good." When the staffer protested that he had never seen NPI do anything illegal during his six years of employment, the military officer said the company was smarter than the staffer and could hide its VIENTIANE 00000415 002 OF 003 illegal activities. ¶5. (C) WFP Country Director Christa Raeder related that Director General (DG) for International Organization's Saleumxay Kommasith told her NPI would not be allowed to move from Bokeo to Vientiane province, a move NPI had considered because they believed the Vientiane provincial government would be easier to work with. Saleumxay also reportedly said that the Lao government now viewed NPI as a security issue and that NPI was "disturbing the local business environment" in Bokeo. -------------- Next Steps -------------- ¶6. (C) Between this conversation and the Bokeo officer's "suggestion" NPI determined the company has no future in Laos. Once the WFP contract is finished, expected by November, NPI will sell its assets and expects to be gone by 2009. Despite strong indications that elements within the Lao Government want to shut down the company, NPI has yet to receive either a "stop-work" order or have its investment license revoked. Tom Love believes NPI should be able to liquidate its assets without excessive interference from the GOL. NPI plans to sell its CSB production equipment to Peter Dutton, the former owner of Friend of the Upland Farmer (FuF) who has moved to Thailand and begun a new firm, the Mekong Valley Trading Company. WFP plans to source its CSB in the future from Mr. Dutton. ¶7. (C) The Lao Government's concerns about NPI appear linked with those regarding Friend of the Upland Farmer. FuF's investment license was revoked in 2007 on questionable grounds (ref B),despite extensive Embassy interventions with the GOL. NPI's interactions with the GOL began a serious decline with the January 2007 arrest of a NPI employee, Mr. Khamsone, in Oudomxay Province. Refs C, D, E, and F discuss the case in more detail and center on concerns that Mr. Khamsone's Christianity, and that of NPI's American owners, might have been a factor in the arrest. There is currently no solid information on Mr. Khamsone's whereabouts. In October 2007 NPI was informed by local custom's officials that it would no longer be allowed duty free imports of inputs such as the vitamins and micronutrients necessary for CSB production and would instead face tariffs of 100%. According to NPI this would cripple their ability to provide CSB to WFP at a competitive price and also shut down much of their other business. As an agribusiness NPI previously had not paid customs duties on agricultural inputs. The situation deteriorated further in December 2007, when the head of the Bokeo provincial agricultural office refused to sign off on NPI's proposed workplan for 2008 and instead proposed the sale of NPI to Bokeo provincial authorities. -------------- Embassy Support for NPI -------------- ¶8. (C) As NPI's problems with the Lao Government have escalated, the Embassy has intervened with the GOL as requested. NPI has often preferred simply to notify the Embassy of difficulties and seek solutions independently, often at the provincial level. The Ambassador has frequently raised NPI's difficulties with high-level contacts. At his request, the situation was placed on the agenda of the UN-organized Quarterly Donor's Meeting in April, which the Ambassador co-chaired. These interventions often appeared to ease the pressure on NPI for a short period. Prior to the most recent U.S.-Lao Comprehensive Bilateral Dialogue in January, the Embassy brokered a meeting with then MFA Director General for Europe and Americas Southam, who appeared to believe Tom Love's assertions that NPI was only involved in agriculture. Ref A notes a letter Mr. Southam showed to the Ambassador and DAS Marciel at the Dialogue which indicated the problems NPI faced with provincial authorities were being resolved. ¶9. (C) NPI has also benefited from international support, especially from the WFP. According to WFP country manager Christa Raeder, she has written numerous letters VIENTIANE 00000415 003 OF 003 and spoken often with members of the GOL about the importance of NPI to WFP's school feeding program, which feeds about 90,000 children and more than 250,000 people total in the north. WFP also recently won a USDA Food for Education grant to expand the school feeding program into southern Laos. NPI's departure from Laos will affect the expansion of the program by requiring WFP to again source CSB from abroad, as NPI is currently the only company in Laos equipped to produce CSB for human consumption. ¶10. (C) Comment: A number of factors appear to have contributed to NPI's problems. The owners are Christians in an area where the provincial government and the security services appear to equate Christianity with ethnic minorities, disloyalty and even CIA plots. NPI employs and works with many ethnic minorities in northern provinces that have seen activity by Hmong "insurgents", adding to provincial authorities' nervousness about foreigners and minorities. NPI was successful in partnering with local farmers and helping them grow high-quality soy which NPI purchased for a fair price. It is likely that local officials had previously profited from telling local farmers what to grow and requiring them to sell to buyers from abroad, including from China, below the market price, with the officials receiving kickbacks from the buyers. Whatever the reasoning, or combination of reasons, the upshot is that an American company, one celebrated by the WFP and held up as an international example, will close its Lao operations and move its assets to Thailand. HUSO