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.

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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.

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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

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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.

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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.

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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

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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