Study on production efficiency and agricultural risk management the case of major crops in northern vietnam

STUDY ON PRODUCTION EFFICIENCY AND AGRICULTURAL RISK MANAGEMENT: THE CASE OF MAJOR CROPS IN NORTHERN VIETNAM HO VAN BAC 2018 Graduate School of Bioresource and Bioenvironmental Sciences Department of Agricultural and Resource Economics Laboratory of Agricultural and Farm Management STUDY ON PRODUCTION EFFICIENCY AND AGRICULTURAL RISK MANAGEMENT: THE CASE OF MAJOR CROPS IN NORTHERN VIETNAM HO VAN BAC FUKUOKA, JAPAN 2018 STUDY ON PRODUCTION EFFICIENCY AND AGRICULTURAL RISK MANAGEMENT: THE CASE OF MAJOR CROPS IN NORTHERN VIETNAM By HO VAN BAC A Dissertation Submitted to Kyushu University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY in Agricultural and Resource Economics Supervised by Professor Teruaki NANSEKI, Ph.D Assistant Professor Yosuke CHOMEI, Ph.D Dissertation Committee: Professor Teruaki NANSEKI, Ph.D Professor Koshi MAEDA, Ph.D Professor Mitsuyasu YABE, Ph.D KYUSHU UNIVERSITY 2018 SUMMARY OF DISSERTATION Vietnam has a favorable natural condition for agricultural production, with a large agricultural land accounting for 82.4% total natural area The sector has contributed significantly to the economy in terms of employment (48%), GDP share (18.1%), and food security Especially, agricultural production is essential income source for people living in rural area and the poor in the region with 75% and 90% respectively However, the sector has been facing many challenges such as low productivity and quality, scattered and small scale production, food safety etc Besides, the sector also is very sensitive and vulnerable to various kinds of risks Improving production efficiency and risk management could be seen as feasible measures contributing to the improvement of income for local people in the context of limited production land expansion and inefficient used resources In Vietnam there have been several studies on production efficiencies of main crops such as rice, vegetable, tea etc However, understanding the risk sources and combination of efficiency and production risk are still limited Moreover, there is not any comparison study on productive efficiency of farmers using propensity score matching approach to control the selection bias Besides, the adoption of eco-friendly production practices such as VietGAP, organic methods are expected to increase household income and reduce concerns from food unsafety But the study on evaluating impact of VietGAP adoption on farmer’s livelihood in Vietnam is rare Thus, the objectives of the study are to: (1) explore the production efficiency of rice and tea farmers and factors affecting inefficient levels; (2) investigate the economics of adoption, source of risks facing by farmers and also understand their management response to the risks The study was conducted in northern Vietnam where agricultural production plays an important role in household’s income sources Tea and rice are two of major crops of the region and selected fort this study because of their representative and dominant importance While rice crop is mainly produced to serve household’s demand or selfsufficiency, tea plantation is grown as a commercial crop and provide cash income for other daily demands of households At first location was purposely selected based on representative characteristics for rice and tea production areas, then rice and tea sampled farmers were randomly chosen from that province Total 120 rice farmers and 326 tea farmers were used to analyze in the study To achieve the purpose of the research, we applied several models to fit with specific objectives Stochastic frontier approach (SFA) was used to analyze production and profit i efficiency of farmers, while principal component analysis (PCA) and multiple linear regression were applied to determine the sources of risk and farmers’ response to the risks Farmers’ decision to adopt new practice was analyzed using probit regression model The findings of the study were derived from analyzing cross-sectional data of rice farmers and tea farmers collected in study area The findings of chapter and 3, analyzing productive efficiency of rice and tea production, indicate that there are still potential rooms for improving efficiency with given inputs and technology through the use of better practice production methods or more efficient decision In details, technical efficiency based on the SFA analysis with average score of 88 percent indicates that rice farmers could improve their technical efficiency for about 12 percent with given inputs and technology by improving farmer’s resource use efficiency The result also revealed that reducing technical inefficiency of rice farmers could be done by enhancing educational levels, and land consolidation While tea farmers have the potential of increasing their profit efficiency for about 25 percent Further analysis indicated that investing active irrigation system, joining cooperatives/production groups and good extension service are major factors for improving the tea farmers’ profit efficiency Notably, comparison the profit efficiency between two groups revealed that “safe” tea production practice (VietGAP) could achieve higher efficiency than conventional tea production practice Chapter and determine factors underlying the probability of tea farmer’s decision to adopt the new production practice and economic effect of VietGAP tea production on households’ income In order to achieve the purpose, we analyzed two groups of sample, namely adoption and conventional one The finding shows that farmers with better or more advantageous production features are more likely to adopt new production practice Positive incentives affecting both conversion decision and more farmland allocation of tea farmers include number of household members, tea farm size, ratio of tea income over total household income, access technical information on new production practice from extension agencies and using labor-saving machinery in tea production Furthermore, with the aim of estimating the casual effect of VietGAP adoption on farmers’ livelihood in Vietnam, PSM was employed The result indicates that farmers adopting VietGAP tea production received economic benefits with higher income in comparison with conventional tea farmers This also implies that VietGAP tea production should be supported for diffusion The premium ii benefit is attributed to better price and higher tea yield of farming practice under VietGAP standards Perception of farmers’ risk sources and their management response are an important part of the study And its detailed contents are presented in Chapter Descriptive statistics, PCA, and multiple linear regression were applied to determine the risk sources and also find socio-economic factors influencing the farmers’ risk perception and their management response The result of descriptive analysis indicates that there are 17 sources of risk that perceived and listed by tea farmers in the study area The analysis result indicates that price volatility, disease risk and an increase of production cost are the most serious in farmer’s perception as single risks Moreover, there are no differences existing in farmer’s risk perception between VietGAP and conventional tea farming systems Analyzing variables affecting on risk perceptions indicates that agricultural educated farmers were found to be related to lower worries and risk perception Besides that, farmers with main occupation involving in farming activities worry more about production risk, yield and quality risk For risk management response, farmers considered pest and disease prevention, production cost minimization as the most important measures to limit damages from risk sources above In short, the result of the study highlighted that there is a scope for further increasing efficiency scores of tea and rice farmers in the study area More efficient resource allocation decision or better production management skills could lead to improve productive efficiency Moreover, conversion in tea production was promoted by economic incentives and adopting VietGAP tea production practice also contributed to increase the profit efficiency and households’ income of farmers Thus, it is important that interventions and government support should aim at improving current production efficiency and expanding the conversion Lastly, agricultural production is exposed to various types of risks based on farmers’ perception In which variability of output price, disease risk and increase of production inputs are perceived as the most serious risks To reduce risks for farmers, stabilizing market price of output and production inputs, preventing disease risk with technical education programs that government should support for farmers would be meaningful Keywords Production efficiency, stochastic frontier, principle component analysis, risk source, management response, major crops, Vietnam ACKNOWLEDGEMENTS I would like to thank all persons who have contributed to the successful completion of my PhD study at Kyushu University, Fukuoka, Japan First and foremost, I would like to express my deepest gratitude and much respect to my academic supervisor, Prof Dr Teruaki NANSEKI, who has directly guided my study, provided valuable suggestions, insightful feedback and constructive comments for me to end up with a coherent dissertation I really appreciate his constant support, both academic and social aspects I understand that the study would not have come to successful completion without his kind support My special thanks also go to Assistant Professor Dr Yosuke CHOMEI for providing helpful advices and comments to this study My great appreciation goes to other professors, Prof YABE and Prof MAEDA, for taking part of the dissertation committee and kindly revise the content of my thesis Without their kind support and encouragements from the dissertation committee, it will be difficult to pursue and complete the study program for Doctoral degree I am deeply indebted to the Ministry of Education, Science, Culture, and Sports of Japan (MEXT scholarship) for the great opportunity and providing financial support for my studies in Japan My special thanks are given to Kyushu University staffs for providing research facilities upon which the successful completion of this dissertation have critically depended I am grateful to Thai Nguyen University of Agriculture and Forestry and my colleagues in Vietnam, who always support and encourage me during my study period in Japan I wish to extend my appreciation to the households and staffs at Department of Agricultural and Rural Development from Thai Nguyen province, Vietnam on their hospitality and kind collaboration helped me doing field survey successfully Without their assistance and cooperation in providing precious information, the study would not have been possible I would like to thank all friends in Kyushu University, and special thanks for colleagues in the Laboratory of Agricultural and Farm Management for their sharing of knowledge, skills and helping during my study period Last but not least, special appreciation is given to my wife PHAM THI THANH HUYEN for her constant supporting, encouraging, kind understanding and together taking care of our son HO GIA BAO during my study period I am very grateful to my lovely parents and all relatives for always understanding and encouraging me during the time for doing the research Finally, I wish to thanks everyone who has helped and encouraged me to strive for academic excellence HO VAN BAC Fukuoka, September 2018 Table of Contents SUMMARY OF DISSERTATION i ACKNOWLEDGEMENTS iv LIST OF FIGURES ix LIST OF TABLES x ABBREVIATION xi CHAPTER INTRODUCTION 1.1 Background information 1.1.1 Agricultural sector 1.1.2 Major yearly-planted crops 1.1.3 Major perennial plants 1.2 Production efficiency, risk and VietGAP adoption in Vietnam 1.2.1 Production efficiency 1.2.2 Linkage between agricultural risk and efficiency 1.2.3 The situation of VietGAP adoption 10 1.3 Problem statement 11 1.4 Research objective 13 1.5 Organization and structure of the dissertation 13 1.6 Selection of study area 15 CHAPTER PRODUCTIVE EFFICIENCY OF RICE FARMERS AND ITS DETERMINANTS 17 2.1 Introduction 17 2.2 Methodology 18 2.2.1 Overview of efficiency 18 2.2.2 Techniques of efficiency measurement 19 2.2.3 Analytical framework 21 2.2.4 Data collection 22 2.3 Results and discussion 23 2.3.1 Descriptive statistics of variables 23 2.3.2 Estimation of stochastic frontier production function 24 2.3.3 Input elasticity and its responsiveness to rice yield 25 2.3.4 Frequency distribution of technical efficiency 26 2.3.5 Analysis of determinants of technical inefficiency 27 2.3.6 Estimation of potential rice yield 29 2.4 Conclusions and recommendations 29 CHAPTER 3: PROFIT EFFICIENCY OF TEA FARMERS AND ITS DETERMINANTS 31 3.1 Introduction 31 3.2 Methodology and data collection 32 3.2.1 Measurement of production and profit efficiency 32 3.2.2 Impact evaluation approach 34 3.2.3 Empirical model 34 3.2.4 Propensity score matching 36 3.2.5 Description of used variables 38 2.6 Study area and data collection 39 3.3 Results and discussion 40 3.3.1 Socio-economic characteristics of tea farmers 40 3.3.2 Estimated result of profit frontier function 43 3.3.3 Factors explaining the profit efficiency of tea farmers 45 3.3.4 Distribution of profit efficiency and average treatment effect 47 3.3.5 Propensity score for VietGAP tea adoption 47 3.4 Conclusions and recommendations 50 CHAPTER VIETGAP TEA PRODUCTION AND DETERMINANTS OF FARMER’S ADOPTION 52 4.1 Introduction 52 4.2 Methodology 53 4.2.1 Model specification 53 4.2.2 Variable selection in the model 55 4.3 Results and discussion 56 4.3.1 Comparative statistics of used variables 56 4.3.2 Factors affecting conversion decision of tea farmers 57 4.3.3 Factors influencing farmers’ farmland allocation 60 4.4 Conclusions and recommendations 63 vii 6.2 Capital sources from borrowing/credits N o S o u r A m o u R T a i t m e e TS i ta m t e u purpos 6.3 Additional information of credits - Do you want to lend more amount of money? ă (1- Yes; 0- No) - Which purposes you borrow for ? ă (1- Cropping; 2- Animal raising ; 3- Bussiness; 4-Others …………………………………….) - How much you want? ……………………………………………… (mil vnd) - How you assess the current rate of interest? o ( 1- sufficient ; 0- insufficient) - What interest rate you expect ? ……………………………….(%/yr) II RESULT OF TEA PRODUCTION IN 2015 Types of tea practice: Conventional practice …………… VietGAP ………… Conventional & VietGAP …………………… Do you receive any support when converting into VietGAP tea? If yes, what are those supports? Technical training Breeding Fertilizers Fees for issuing certificates Sale contracts Others Which organisations provided those supports Authority/Gov NGO’s support Others (pls specify…………………………… …… ) 120 N o H Aa T rQ Q y eu u p 1st n d 3rd th th th Tea T P produ o r t i (3) x 7th 8… … III TOTAL COST for TEA PRODUCTION IN 2015 Type s of L a1 F M Ni P s n r t C T o ot s ce al th th 121 P N L C P H L hi O ir ca hpr m ot IV FE Do … Ho …… w2 Do you… apply technical solutions for soil and water conservation such as contour ridge, hedge grow, grass trip, stone bund … 1-yes 2-no, Please specify the technique/solution ……………………………………………………………………………………………………… Do you join any tea production club, group or cooperatives …? 1-Yes 2-No 122 If yes, please tell its name of groups 1- Farmer union; 2- Women union; 3- Cooperative; 4-Groups; 5- Others (pls, specify ……………………………) What kind of information you benefit/receive from above groups? [ ] information on plantation techniques, caring skills, and pest prevention [ ] Technique on processing skills/ preservation [ ] Information on market (price, trader/collector, input providers, credit…) [ ] Share of machinery usage [ ] Others (pls specify): ………………………………………………………………………………………………… ……… How often you join technical training courses from agencies like extension department…? 1- Monthly 2- Quarterly 3- Yearly 4- Others, pls specify: ……………………………………………… Which agencies organize those training courses? [ ] Center for agricutural extension (communal, district, provincial level) [ ] Group, club, cooperatives… [ ] Tea companies [ ] Others (pls specify): ……………………………………………………………………………………………….……… Do you join any specific training course on tea plantation? 1-yes 2-no if yes, 1- Monthly 2- Quarterly 3- Yearly 4- Others, pls specify: ……………………………………… How you know the way of planting, caring, processing tea products…? [ ] Experience [ ] Club/villages [ ] Training courses [ ] Others (pls specify): ……………………………………………………………………………………………….……… What is an average distance from home to tea field? 1-if it is less than 200m 2-if it is from 200m-500m 5-if more than 500m 123 V ADDITIONAL INFORMATION Do you receive any benefits/agricultural education (training course, advice, information …) from extension agency? 1-Yes 2-No if yes, what kinds of service you receive? ……………………… and what is that frequency? ………… times/month …………………………times/quarterly ……………… times/year …………… How you assess current agricultural extension service at the local? 1-Good 2-Medium 3-Not good Reasons: ………………………………………………………………………………………………………………………… How you assess the channel of providing fertilizers or production inputs at the local ? 1-Good 2-Not good Reasons: ………………………………………………………………………………………………………………………… Do you want to hire more land for tea cultivation? 1-Yes 2-No If yes, how many hectares you want to hire ? and how much you pay for it per ha/year? Land area (ha): Renting fees (vnd/ha/year): Do you want to change the current cultivation method? 1-Yes 2-No If yes, what kinds of technique you like? ……………………………………………………………………………………… Please show any difficulty to apply that technique/method? ……………………………………………………………………… Please describe the latest damage regarding tea production (mil.vnd) 1-Yes 2-No If yes, please give more detailed N o 124 VI PERCEPTION OF RISK SOURCES IN TEA PRODUCTION OF HOUSEHOLD RISK OF PRODUCTION VARIETY OF TEA 1.1 which providers of tea variety did you buy? 1-Self-breeding 2-Other household 3-Breeding center 4- Breeding company 5-Other, pls spcify : …… 1.2 Why did you choose above provider? 1- Convience/near-by 2- Self-understanding/exp 3-Low price 4-Other, pls specify: …… ………… 1.3 what kinds of information you often use as a basis of selection of tea variety? (1-Very important; 2-Important; 3-neutral; 4-Sometimes; 5-No important) Infor 1Ranking: Ye 1: Most E matio Ti A gr N ei Ot he PEST & DISEASES 1.4 What kinds of pest/disease you often face in tea production? Pls list those pests/diseases: N Most o1 cura 125 1.5 How you discover correct diseases/pests in tea production? [ ] Experience [ ] Technical staff [ ] Training courses [ ] Other, pls specify: ………………….……………………… 1.6 How often you when you detect disease/pests in tea production ? 1Ye s Se G G G et D Ot he When discovering tea farm of neighbour exposed to diseases, how you react? 1.7 (Note: *frequency 1-always; 2-almost; 3-sometime ; 4-rarely; 5-none ) 1-Yes 2-No Se Sp Fi D Ot he How often you check disease/pest on tea farm of household? 1.8 1-Daily 2-weekly FERTILIZERS FOR TEA PRODUCTION 3-Monthly 4-Others, pls specify …………………………………….…… 126 1.9 Where you often buy fertilizers? [ ] From tea companies (tea collector) [ ] From Input providers in the local (retailers/wholesales) [ ] From production cooperative, club, group … [ ] Other, pls specify: ……………………………………………………………………………………………………………… 1.10 Why you select above fertilizer providers? [ ] Under contracts with tea companies (exchange/support fertilizer vs tea product) [ ] Late payment from input providers [ ] Good quality [ ] Convenient/near-by household, and lower price [ ] Other, pls specify ……………………………………………………………………………………………………………… 1.11 Do you know clearly about source of fertiliers which you buy for tea production? 1-Completely unknown 2-Alittle know 3-Clearly know Reasons: ………… ……………………………………………………………………………………………………………… 1.12 Do you know the way of identifying good fertilizer? 1-Completely unknown 2-Alittle know 3-Clearly know Reasons: ………… ……………………………………………………………………………………………………………… 1.13 When buying fertilizer, what kinds of information are you interested in? 1-Lower price 2-Better quality 3-Lately-paid 4-Others/ in detail: …………………………… Reason: …………………………………………………………………………………………………………………………… 1.14 Which method of payment you often use in buying fertilizers? 1-Pre-payment 2-Payment in time 3-Lately-paid 4-Paid by tea product 5-Other in details ……… 1.15 Do you have any challenge when buying fertilizers? 1-Yes 2-No If yes, pls specify names of challenge: …………………………………………………………………………………………… 127 1.16 Do you irrigate for farms actively? 1-Yes 2-no where is the water supply source from? Please specify it …………………………………………………………………………………… 1.17 Is there any variation in tea yield and quality in recent years? 1-yes 2-no What is main reason of the change? ………………………………………………………………………………………………………… IMPACTS OF PRODUCTION RISK 1.16 How following forms of production risk in TEA production affect household’s income (pls rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-highest effects) N o Q u D i Q u C a R a R a I n O t RISKS OF MARKET PRODUCTION OUTPUT 2.1 Where you get reference/information/advice for selling tea products? (select the most important/frequent method) 128 1-Market 2-Medium actors 3-Group/club 2.2 How many tea collectors you know for selling tea products? [ ] >5 [ ] Từ đến 4-Companies 5-Others in detail ………………….… [ ] 2.3 Do you sign any contract of selling tea products (companies, medium actors, collector …)? 1-Yes 2-No If yes, what is that contract (selling/exchange, …)…………………………………………………………………………………… How you comment on benefits/disadvantages of those contracts: 1-Stability 2-Instability IMPACTS OF MARKET RISK 2.4 How following forms of market risk in TEA production affect household’s income (please rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-very high effects) S T 4 P rL aC hN oC oV a RISKS OF LEGAL FRAMEWORK AND ENVIRONMENT 3.1 Are there any policy to support tea production in the area 1-Preferential rate of interest credit 2-Land, irrigation 129 3-Technical training courses 4-Information access to market 5-Others in detail : ……………………………………………………………………………….…………………………… 3.2 Do you know any standards of safe production/process/preservation? 1-Completely unknown 2-A little know 3-Clearly know Reasons: ………… ……………………………………………………………………………………………………………… 3.3 Do you know rule for environmental protection? 1-Completely unknown 2-A little know 3-Clearly know Reasons: ………… ……………………………………………………………………………………………………………… 3.4 Where you get information on rules/standards on safe production/environmental protection? 1-Newspaper/book 2- Tivi/Radio 3-Authority anouncement 4-Training course 5-Others in detailed: ……………… 3.5 Have you heard any food safety issues happened that may be effect on price of tea product? 1-yes 2-no please specify more information such as name of food, when and where happened, source of information ………………………………… IMPACTS OF LEGAL AND ENVIRONMENTAL RISK 3.6 How following forms of institute&environment risk in TEA production affect household’s income (pls rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-very high effects) N o S uE lS tL a 130 W a O t FINANCE RELATED RISK 4.1 Do you often borrow credit? 1-Yes 2-No If yes, pls tell us in details: S o u r D A TR a m e at t o re Pur F pos r ee Note: *sources: [1] Agribank [2] Social Policy Bank [3] Other banks (detailed) [4] Relatives [5] Other individuals **Purpose of loan: [1] Cropping [2] Animal husbandry [3] For other purposes ***Frequency: [1] Monthly; [2] Quarterly; [3] half year; [4] Yearly; [5] Others If not, pls specify reasons? 1-Self-sufficient 2-High rate of interest 3-Complicated procedure 4-Others …………… 4.2 What kinds of challenge you face when borrow credit from banks? 1-Complicated procedure 2-Instable rate of interest 3-Not affordable to repay 131 4-Property for ensurance 5-Other in detailed : ……………………………………………………………………………………………………………… IMPACTS OF FINANCE RISK 4.3 How following forms of financing risk in TEA production affect household’s income (pls rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-very high effects) N o I nN o C hR e Ran king 5 PEOPLE REALTED RISK How does form of people risk in TEA production affect household’s income (pls rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-very high effects) N o 4 A bH eH eL a 132 RANKING OF RISK SOURCES WHICH HAVE IMPACTS ON HOUSEHOLD’S INCOME (pls rank in order: 1-no effect; 2-not very effect; 3-neutral; 4-effect; and 5-very high effects) N o A R B iR i C R i D R i R i VII FARMER’S RISK MANAGEMENT STRATEGIES For the types of risk outlined above, please rate/rank strategies employed by household to manage these sources of risk in tea production! (Rate from 1-no effective; 2-not very effective; 3-neutral; 4-effective; and 5-very high effective) N o Type Options of of Risk Part icip R B i ec Pr s ev R a5 133 In v Di ve G ett Tr an C oll Tr yA Ripp skU su Se rel ll ate In dve RO be U se K Riee skIn cr B uy In R ve i sti s E k xc 134 ... RISK MANAGEMENT: THE CASE OF MAJOR CROPS IN NORTHERN VIETNAM HO VAN BAC FUKUOKA, JAPAN 2018 STUDY ON PRODUCTION EFFICIENCY AND AGRICULTURAL RISK MANAGEMENT: THE CASE OF MAJOR CROPS IN NORTHERN VIETNAM. .. perception of risk sources and their management response Chapter Conclusion and policy implication Figure Overall structure of the dissertation 1.6 Selection of study area Northern Vietnam, including... tea production? What is source of risks facing by farmers and how they respond to those risk sources? 1.5 Organization and structure of the dissertation The content of study consists of main objectives