Drivers of commercialisation in agriculture in Vietnam Andy McKay and Chiara Cazzuffi

Drivers of commercialisation in agriculture in Vietnam

Andy McKay and Chiara CazzuffiUniversity of Sussex, UK

Paper in progress as part of a DANIDA/BSPS project with CIEM and UoC

Joint with Luu Duc Khai and Lien Huong Do

Introduction♦ Part of in depth analysis of VARHS data, follow up to

descriptive report which looks only briefly to the issue of commercialisation.

♦ Aim is to understand what factors influence market participation behaviour, with respect to:

(a) the decision to grow cash crops: coffee, tea, cocoa, cashew nuts, sugar cane, pepper, rubber.

(b) the decision to sell rice: surplus (temporary or permanent); or to meet immediate expenditure needs

♦ Many actors involved, but we focus on household end of commercialisation process;

♦ Focus on crop cultivation only.

Introduction (ctd.)

♦ Focus so far on cross sections 2006 & 2008; only preliminary insights from panel

♦ Analysis without sample weights in order to have a larger sample

♦ Focus on role of land titling, credit access, training & extension, group membership, rural infrastructure, socio-economic characteristics

♦ In context of sharp food price increases

♦ Very preliminary results to invite comments and develop understanding

2002 2003 2004 2005 2006 2007 2008 20090

10

20

30

40

50

60

70

Coffee Rice

World market price for coffee and rice, 2002-2009, US cents/kg

VARHS 2006 and 2008 89% of sampled households (hh) are engaged in

agriculture in 2006; 91% in 2008. Of these, 19% produce cash crops (CC) in 2006; 21% in

2008. Majority also grow rice. 75% of hh doing agriculture produce rice in 2006; 88% in

2008. Of these, 37% sell rice in 2006; 48% in 2008. Within the panel, there is a net movement of people into

rice production and sales, while there is little change in cash cropping.

Hh that produce cash crops and hh that sell rice are better off than their counterparts than don't in terms of food expenditure per capita

Outline- Cash crops

- province profile of cash cropping

- characteristics of cultivating households

- econometric analysis (cross sections)

- mobility within the panel

- Rice sales

- characteristics of hh that sell

- summary of econometric results (cross sections)

- mobility within the panel

- Conclusions

Cash cropping 2006 & 2008

Province HH doing agriculture Cash cropping hh % Main2006 2008 2006 2008 2006 2008

Ha Tay 495 405 9 3 2.11 0.74 TeaLao Cai 90 280 9 7 10.71 2.5 TeaPhu Tho 321 275 71 59 24.48 21.45 TeaLai Chau 116 296 12 10 10.53 3.38 TeaDien Bien 112 295 0 0 0 0Nghe An 196 146 32 19 20.92 13.01 Sugar caneQuang Nam 297 246 6 3 2.4 1.22 PepperKhan Hoa 78 41 7 11 16.28 26.83 Sugar caneDak Lak 143 316 88 230 71.54 72.78 CoffeeDak Nong 108 274 78 203 78.79 74.09 CoffeeLam Dång 69 61 51 55 87.93 90.16 CoffeeLong An 299 179 4 3 1.97 1.68 Sugar cane

Total 2324 2814 367 603 18.79 21.43

Characteristics – cross sectionsGrowing cash crops

2006 2008

Yes No Yes No

Mean total income 27204.33 22006.87 49942.2 30792.9Mean income from agriculture 16768.91 7008.77 34862.46 12860.35

Total cultivated land area 16468.37 9752.86 18813.62 9682.29% of irrigated land 0.61 0.62 0.6 0.48% of land with crop restrictions 0.59 0.52 0.5 0.31

Prop of hh with a red book 0.9 0.91 0.81 0.78

Total value of inputs 11088.9 4416.23 44301.06 12674.49Cost of cultivation per unit of land 0.74 0.7 2.73 1.92Proportion of hh hiring labour 0.42 0.32 0.64 0.38Prop of hh using chemical fertiliser 0.98 0.96 0.97 0.86Proportion of hh using pesticides 0.93 0.94 0.94 0.94Cost of hired labour 1440.83 411.25 2692.12 515.2Cost of chemical fertiliser 5609.28 1629.39 12604.98 2642.83Cost of pesticides 917.34 765.32 1467.69 974.22

Prop of hh who borrowed something 0.76 0.66 0.57 0.41

Socio-economic characteristics

Growing cash crops2006 2008

Yes No Yes No

Prop of hh with male head 0.87 0.82 0.88 0.84Prop of hh whose head is of Kinh ethnicity 0.73 0.78 0.64 0.55Prop of hh whose head speaks Vietnamese 0.96 0.97 0.99 0.87Prop of hh heads who can read & write 0.9 0.89 0.9 0.79Prop of poor hh (MOLISA) 0.27 0.27 0.21 0.44Household size 4.84 4.69 4.97 5.05Prop of hh members of farmers union 0.57 0.52 0.57 0.51Prop of hh members of women union 0.72 0.68 0.72 0.63Prop of hh with access to extension or training 0.32 0.39 0.28 0.21

Cash crop growers compared to hh doing agriculture but not producing cash crops:

1. More likely to be in top food expenditure quintile, and more so in 2008 than in 2006

2. Mean income from agriculture is twice as high for cash cropping hh in 2006, and almost 3 times higher in 2008

3. Land area is about double for cash cropping hh in both years

4. Input cost per unit of land is much higher in 2008, and it is higher for cash cropping hh

5. More likely to hire labour, and much more so in 2008 than in 2006

6. More likely to borrow: 15% more likely in 2006, 39% more likely in 2008

7. Socio-economic characteristics of the hh head: more likely to be male, speaking Vietnamese and able to read & write, and less likely to be minority, in both years

8. More likely to have at least one hh member in farmer union and in women union, in both years

9. Results are stronger in the most dominant coffee growing provinces.

Modelling strategy

We want to understand the correlates of growing cash crops.

We look at whether some household and production characteristics have a significant association with growing cash crops.

We use a probit model with a 0-1 dependent variable, where 1 means that the hh is producing cash crops, and 0 that it is not.

At this stage we are not making assumptions about causality.

Probit model for the probability of growing cash crops – cross sections2006 2008

Coef z-stat Marginal effect Coef z-stat Marginal effect

Proportion of restricted land 0.314* (1.908) 0.050* 1.327*** (6.371) 0.243***Log of operated land area 0.397*** (5.525) 0.063*** 0.395*** (6.174) 0.072***Proportion of irrigated land area -0.085 (- 0.422) -0.013 -0.654*** (- 3.286) -0.120***Daily market in commune (yes = 1) 0.276*** (2.659) 0.044*** 0.014 (0.128) 0.003Total input cost (000 VND) 0.000* (1.696) 0.000* 0.000** (1.980) 0.000**Member of women union (yes = 1) -0.038 (- 0.341) -0.006 0.352*** (3.322) 0.060***Hh owns mean of transport (yes = 1) 0.103 (0.627) 0.016 0.418** (2.182) 0.062**Hh head is Kinh (yes = 1) 0.165 (1.165) 0.025 0.307** (2.219) 0.052**

Province fixed effects are includedObservations 1741 1769

0.461 0.590Pseudo R2

Robust z-statistics in parentheses; *** p<0.01, ** p<0.05, * p<0.1

Above showed selected results.Additional variables used include: household characteristics, access to extension services, access to credit, land titling

Main Results: strongest correlates of cash cropping

Land area: strongest message, consistent across food expenditure quintiles (FEQ) in both years

Restricted land

Inputs expenditure: consistent across FEQ in both years

Market & own transport; market consistent across FEQ

Ethnicity: minorities are less likely

Women's union

Mobility in cash cropping: panel 0608, characteristics take 2006 values

Both years Switch out Switch in Never




Total value of inputs (all crops) 10726.75 3548 3049.22 4455.1Cost of cultivation per unit of land 0.67 0.4 0.36 0.67Proportion of hh hiring labour 0.44 0.22 0.31 0.31Prop of hh using chemical fertiliser 0.99 0.96 0.97 0.96Proportion of hh using pesticides 0.95 0.98 0.91 0.94Cost of hired labour 1387.46 444.36 119.06 420.27Cost of chemical fertiliser 5610.97 1661.66 1464.25 1645.45Cost of pesticides 888.46 217.69 216.09 779.03


Total number of households 193 55 32 1379

Mobility in cash cropping: panel 0608Characteristics take 2006 values


Prop of hh with male head 0.88 0.89 0.88 0.82Prop of hh whose head is of Kinh ethnicity 0.69 0.67 0.72 0.76Prop of hh heads who can read & write 0.9 0.96 0.84 0.89Prop of poor hh (MOLISA) 0.32 0.29 0.38 0.27Household size 4.97 4.67 4.56 4.75Prop of hh members of farmers union 0.62 0.6 0.75 0.53Prop of hh members of women union 0.77 0.73 0.78 0.69Prop of hh who experienced a shock 0.63 0.56 0.69 0.4

Key points:

HH that stop compared to hh that continue: less income from agriculture, less land, less inputs expenditure;

HH that start compared to hh that never produce: more land, less irrigated land, more likely to be poor and to be member of women's union.

Rice production and sales

Cross sections:

Share of hh growing rice increases from 75% in 2006 to 82% in 2008.

Share of hh growing and selling increases from 37% in 2006 to 48% in 2008.

Proportion of quantity sold (conditional on selling) is unchanged between 2006 and 2008;

Panel:

92% of panel hh produce rice both years.

Of these, 35% sell some rice in both years.

18% of rice producers start selling in 2008. 14% of rice producers stop selling in 2008.

Rice production and sale, 2006 & 2008

Share of hh growing rice Share of hh selling rice Prop of qt sold0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

20062008

Rice sales by food expenditure quintiles

Bottom FEQ most likely to grow rice in both years; decline in % of rice growers in top quintile in 2008.

Share of households growing & selling rice is relatively constant across quintiles in 2006.

Richer households sell a higher proportion of output.

Poorest 2nd poorest Middle Second richest Richest0

0.1

0.2

0.3

0.4

0.5

0.6

2006

2008

Characteristics – cross sectionsSample: hh producing rice

Selling rice2006 2008

Yes No Yes No




Prop of hh using hybrid seeds 0.44 0.28 0.46 0.55Total value of inputs 7107.56 4521.89 23306.22 8543.9Cost of cultivation per unit of land 0.68 0.72 2.43 1.56Proportion of hh hiring labour 0.42 0.27 0.54 0.31Prop of hh using chemical fertiliser 0.96 0.97 0.92 0.84Proportion of hh using pesticides 0.95 0.93 0.97 0.93Cost of hired labour 770.72 471.81 1030.91 385.14Cost of chemical fertiliser 2638.98 2164.9 5105.99 2093.43Cost of pesticides 1331.57 367.2 1776.15 298.05


Socio-economic characteristics - cross sections; sample: hh producing rice

Selling rice2006 2008

Yes No Yes No

Prop of hh with male head 0.84 0.81 0.85 0.86Prop of hh whose head is of Kinh ethnicity 0.73 0.8 0.63 0.45Prop of hh whose head speaks Vietnamese 0.96 0.97 0.91 0.85Prop of hh heads who can read & write 0.88 0.9 0.85 0.76Prop of poor hh (MOLISA) 0.25 0.3 0.31 0.52Household size 4.83 4.63 5.04 5.16Prop of hh members of farmers union 0.52 0.54 0.53 0.52Prop of hh members of women union 0.64 0.72 0.69 0.62Prop of hh with access to extension or training 0.42 0.34 0.28 0.18

Compared to hh that produce but do not sell rice, hh that produce and

sell rice:

Have more land, more irrigated land, more inputs, and are and more likely to have borrowed.

Are less likely to be poor; more likely to have access to extension or training.

Summary of econometric results

A similar economic model to the one estimated for cash cropping was also estimated for the probability of selling rice.

The main results confirm the importance of many of the factors identified in the descriptive analysis.

Strongest correlates with the probability of selling rice:

More land, more irrigated land, more restricted land, more likely to have hired labour, more likely to be an ethnic minority, more likely to have access to extension

Land, training and hired labour consistent across FEQ

Market: consistent across FEQ in 2008.

Probit model for the probability of selling rice – cross sections2006 2008

Coef z-stat Marginal effect Coef z-stat Marginal effect

Proportion of restricted land 0.253** (2.321) 0.100** 0.287** (2.356) 0.114**Log of operated land area 0.271*** (5.277) 0.107*** 0.279*** (5.067) 0.111***Proportion of irrigated land area 0.752*** (5.089) 0.296*** 1.009*** (6.975) 0.402***Credit (borrowed smth = 1) 0.123* (1.691) 0.048* -0.014 (-0.208) -0.006Red book (red book for at least 1 plot = 1) 0.009 (0.077) 0.004 -0.003 (-0.029) -0.001Distance from all-weather road (km) 0.032*** (2.904) 0.013*** 0.000 (0.941) 0.000Road passable by car in commune 0.088 (0.900) 0.034 0.000 (0.287) 0.000Daily market in commune (yes = 1) 0.023 (0.314) 0.009 0.300*** (3.861) 0.119***Hybrid seed (1 = yes) 0.581*** (6.617) 0.228*** -0.131 (-1.551) -0.052Total input cost (000 VND) 0.000 (0.983) 0.000 0.000 (0.650) 0.000Hired labour (yes = 1) 0.296*** (3.698) 0.117*** 0.216*** (2.911) 0.086***Member of farmers union (yes = 1) -0.102 (-1.346) -0.040 0.072 (0.998) 0.029Member of women union (yes = 1) -0.042 (-0.512) -0.016 0.001 (0.020) 0.001Access to training or extension (yes = 1) 0.125* (1.736) 0.049* 0.163** (2.043) 0.065**Hh owns phone (yes = 1) -0.256*** (-2.667) -0.099*** -0.114 (-1.565) -0.046Hh owns mean of transport (yes = 1) 0.054 (0.470) 0.021 0.154 (1.257) 0.061Household size -0.029 (-1.267) -0.011 -0.003 (-0.151) -0.001Hh head is Kinh (yes = 1) -0.366*** (-2.841) -0.145*** -0.265** (-2.210) -0.105**Gender of hh head (male = 1) -0.042 (-0.453) -0.017 0.023 (0.238) 0.009Hh head speaks Vietnamese (yes = 1) -0.093 (-0.433) -0.037 -0.076 (-0.462) -0.030Hh head can read & write (yes = 1) 0.085 (0.680) 0.033 0.168 (1.376) 0.067Constant -2.896*** (- 5.707) -3.217*** (- 6.146)

Observations 1830 1677

0.223 0.156

452.6 257.5

Pseudo R2

Chi2

Robust z-statistics in parentheses; *** p<0.01, ** p<0.05, * p<0.1

Mobility in rice sales: panel 0608,characteristics take 2006 values





Total value of inputs 8406.22 2911.1 3111.25 2170.48Cost of cultivation per unit of land 0.74 0.54 0.66 0.61Proportion of hh hiring labour 0.42 0.34 0.26 0.2Prop of hh using chemical fertiliser 0.97 0.91 0.96 0.95Proportion of hh using pesticides 0.97 0.92 0.94 0.93Cost of hired labour 922.19 238.03 227.45 79.94Cost of chemical fertiliser 3032.83 1165.73 1445.72 972.8Cost of pesticides 1736.81 240.21 264.28 155.93


Number of households 547 224 287 499

Mobility in rice sales: panel 0608,characteristics take 2006 values


Prop of hh with male head 0.86 0.83 0.78 0.830.8 0.52 0.77 0.79

Prop of hh heads who can read & write 0.92 0.77 0.88 0.91Prop of poor hh (MOLISA) 0.22 0.36 0.28 0.32Household size 4.84 4.97 4.74 4.61Prop of hh members of farmers union 0.56 0.49 0.58 0.55Prop of hh members of women union 0.69 0.6 0.72 0.74Prop of hh who experienced a shock 0.41 0.41 0.4 0.45

Prop of hh whose head is of Kinh ethnicity

Key points

HH that stop compared to hh that continue: less land, less irrigated land, less inputs expenditure, borrow less;

more likely to be minority, more likely to be poor, less likely to be member of women's or farmers union.

HH that start compared to hh that never sell rice: more restricted land, more irrigated land, more inputs;

Less likely to be male-headed, less likely to be poor, more likely to be member of a farmers union.

Conclusions

Significant increase in proportion of hh growing rice and of rice sellers, perhaps as response to rice price increase over the period.

Small increase in the proportion of hh growing cash crops.

Important factors for both rice and cash crops: land size, input expenses, market infrastructure (presence of daily market in commune) and possibly access to extension/training and hh ownership of means of transport.

Important across quintiles.

Conclusions (ctd.)In predominantly cash crops regions, having a red

book for cultivated land and having access to credit are important determinants for production of cash crops.

Irrigated land, restricted land as well as land area are important determinants for rice sales.

Being a member of farmers union or women's union seems to be an important factor for starting cash crop production or rice sales.

Further workPreliminary results for comment and development

Possible areas for development:

Correlates of rice quantities sold conditional on selling

More in depth analysis of the impacts of rice price change

Panel dynamics

Land area allocated to cash crops

Consider other definitions of cash crops, e.g. fruits

Consider livelihood compositions of hh producing cash crops or selling rice

Determinants of channel of sales (e.g trader or market)

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Drivers of commercialisation in agriculture in Vietnam Andy McKay and Chiara Cazzuffi