Policy reforms for smallholder agriculture: an analysis using household data for Vietnam

Abstract

During Vietnam’s thirty years of economic growth since 1986, government policies have been central in raising rice production and export. However, the relevance of the ‘rice first’ policy and the place of smallholder agriculture have recently been questionedin the discussion on Vietnam’s agricultural development strategy. The objective of this thesis is to contribute to designing appropriate agricultural development strategies for Vietnam, based on empirical analysis at the farm household level. The thesis begins by reviewing theories and literature on the agricultural transformation. This reviewassists in the development of the analytical framework and research issues for the thesis. The next chapter provides an overview of agricultural reforms and structural transformation in Vietnam since 1986. The core of the thesis is contained in the next three chapters. Chapter 4 examines the merit of crop diversification in rural Vietnam. Chapter 5 investigates the effect of nonfarm participation on household production choices. Chapter 6 studiesthe effect that land reforms directed towards land consolidation have on labour allocation and promoting the economic diversity of farm households. The final chapter discusses policy implications. The findings indicate that economies of scale are evident in Vietnam’s multiple crop production. Output complementarity is found to exist between rice and other annual crops. Also, substantial technical inefficiency exists in diversified farms. Enhancing education, particularly for women, and further land reforms are the main technical efficiency shifters. Results also show that in a multiple crop environment, households with smallholder production respond to cost stress by lowering family labour use. In addition, in the short run, labour movement into nonfarm activities reduces rice production in the north of Vietnam. In contrast, in the south, labour participation in nonfarm activities has induced rice farmers tomaintain rice production by hiring more labour during periods of peak labour demand, and by investing in more capital to facilitate less labour-intensive farming. While agriculture in the north is losing its comparative advantage, the stability of rice production at the national leveliswelcome news for policy makers in that it suggests that food production can be maintained,despite the rapid structural change in rural areas. Finally, land reforms that lead to less labour-intensive farming, along with the development of credit and insurance markets in rural areas, are important in raising agricultural productivityand the promotion of economic structural transformation. In general, in light of increasing rural wages and structural change, Vietnam’s agricultural transformation replicates the early East Asian experience, characterisedby the dominance of smallholder agriculture.There has so far been no definitive policy resolution of the optimal structure of Vietnam’s smallholder agriculture. The balance between efficiency and equity, between lowering production costs and raising prices, is a challenge for policy makers. The findings suggest policies for maintaining the comparative advantage of agriculture. The government should relax the ‘rice first’ policy to improve household welfare. In addition, land reforms responding to less labour-intensive farming, and the development of the nonfarm economy, should play a central role in restructuring smallholder agriculture.