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Agrarian transition in Viet Nam

III. Agrarian impact

Agricultural reforms changed the economic life of farming households in Viet Nam. New property relations were crucial in this regard, but equally important was the liberalization of the markets for inputs, outputs, labour, and credit. Assessing the impact of these measures requires making assumptions about the behaviour of Vietnamese farmers. Scott (1976) had postulated that peasants in Viet Nam were dictated by a subsistence ethic in which risk aversion was more important than profit maximization. This explained why they persisted in using traditional seeds and methods of cultivation: although suboptimal, such behaviour was perfectly rational from the angle of survival. The same ethic also explained the resort to collective forms of behaviour since mutual assistance could be expected from kinship groups and the village rich. Villages set aside communal land to provide for the village poor as further risk insurance.

Fforde (1990), influenced by Scott, also argued that (north) Vietnamese farmers were collective-oriented. Uncertainties of life at the subsistence level are enhanced by uncertainties arising from arbitrary changes in state policies and volatilities introduced by the shortage economy of central planning. Farmers value collective arrangements as an insurance against such uncertainty. However this search for collective-based insurance does not preclude a search for private gain. Hence it was that cooperative members tried to maximize their individual welfare by increasing their private output and that in the crisis around 1980 there was no pressure for full decollectivization. The cooperatives were seen to be fulfilling useful functions, such as providing improved seeds and fertilizer, looking after the irrigation systems, and organizing education, healthcare, and care for the elderly.

The colonial period, according to Scott (1976), had intensified peasants' risks and reduced their natural protection. Taxes, rents and interest having to be paid in cash exposed the peasants to market volatility. Colonialism also consolidated the power of the landlord class because of the increasing commercialization of agriculture, legal protection provided by the colonial State, and population growth that increased the supply of cheap labour and the pressure on land. The landlords' strengthened position came at the expense of the peasants. The colonial State was bureaucratic and centralized and needed a stable revenue which could be easily adjusted to take account of weather-induced fluctuations (Scott, 1976).

Scott's interpretation of Vietnamese agriculture has not gone unchallenged. Popkin (1979) based on evidence from Viet Nam itself showed that Vietnamese farming households have always been maximizing units, albeit under difficult circumstances. He rejected the claim that Vietnamese peasants primarily aim at securing subsistence, but rather argued that village organizations only exist on the basis of expectation of personal gain. Even subsistence-level farmers will engage in innovation if they can appropriate the resulting gains. Popkin quotes from the essay "The peasant question (1937-38)" by Vo Nguyen Giap and Truong Chinh, two senior leaders of the CPVN in support of this (in Popkin, 1979, p. 252):

Peasants also have the mentality of private ownership. They are suspicious of talk of collective work. Most of them do not like the idea of contributing money for common goals. Traditional peasant organizations are all characterized by individual profit for each member of the group. We have yet to see peasants spontaneously organize societies which have a common usefulness.

This interpretation seems to relate more easily to agricultural reality in Viet Nam. During the collective period households almost invariably exceeded the 5 per cent norm for home gardens (Fforde, 1990, p. 116), and productivity on private land was substantially higher than on the collective land. Collective assets too were often neglected, e.g. draft animals were malnourished and suffered excessively from disease and early death. The output response following upon the reforms also confirms a profit-seeking peasantry. It would thus appear that the commitment of Vietnamese farmers to collective production was not as strong as some have suggested and that even during the collective period they tried to operate as profit-seeking units. The reforms clearly expanded the opportunity for such behaviour.

As shown above, the process of reform was gradual -- and hesitant. For example after the introduction of the contract system in 1981 and its success in increasing agricultural output, attempts were made to recollectivize production and price increases for rice in 1981-82 were followed by years in which real prices declined. This gradual and hesitating nature of the reform process causes difficulties in assessing its impact as there is no sharp "before/after" boundary. Clearly, the most radical reforms occurred in 1988 and 1989, but the preceding years had seen significant institutional changes that made the sharp response to the 1988-89 reforms possible (Fforde and de Vylder, 1996).

The reforms had four important elements: land rights, introduction of the market mechanism, liberalization of prices, and demise of the collectives. Land rights contribute to the optimal use of land and its concentration in efficient hands (Hayami, 1994). Inefficient cultivators would have the incentive to sell or rent their land to more efficient farmers or tenants. The introduction in 1989 of the land tax based on the value of the land (rather than the value of its produce) further stimulated the efficient use of land. Secure property rights, by guaranteeing accrual of benefits to the owners, also stimulate investment in new lands and land improvement. And clear property rights facilitate the access to credit, given that formal financial institutions require a collateral for loans, and land is the best collateral available. This credit can be used to finance investment in land improvement or other innovations. Many agricultural innovations (high-yielding varieties and new crops, fertilizers, pesticides) require important cash outlays which may be feasible only with access to credit.

The gradual replacement of the command mechanism with the market created opportunities for farmers to cultivate their land freely according to their own calculations of returns. Of course, farmers differ in their commercial acumen and asset ownership. There are also ecological differences among regions, which, too, limit choices farmers can make. Thus, one could expect that the new market opportunities should cause growing differentiation among rural households and regions. The free market increases risk as the volatility of local and international markets is directly felt by the farmers. The ability and willingness of farmers to ride over such fluctuations becomes an important determinant of success. In particular, it has been argued that the south of the country is favoured in this regard. The south was never really collectivized and most land was still in the hands of the original owners at the time of the "doi moi" reforms and it was not distributed as equally as in the north. Moreover for historical reasons, entrepreneurial skills developed furthest in the south, aided to some measure by remittances received from relatives abroad. The south was thus in a better position to appropriate the new market opportunities (World Bank, 1995b). It is also likely that off-farm rural activities will increase, both in response to the freedom to investment and the demand generated by higher rural incomes.

On the negative side the collapse of central planning will create gaps in social resources since the collectives used to finance village schools and health centres. As the resources available to the collectives declined, these social services suffered (World Bank, 1995b). Education and healthcare are now dependent on private contributions which the poor cannot afford. It may thus be expected that participation in education and healthcare in rural areas may decline.

This section will look at trends in aggregate agricultural output after reunification. Table 3 presents the data. Total gross output (measured in thousands of tons) is the product of area sown (SA, measured in thousands of hectares) and yield (tons per hectare). The sown area in its turn is determined by the area of cultivated land (CA) and the intensity index (measured as SA/CA) which reflects the degree of multiple cropping. Thus:

GO = SA * yield

or

GO = CA * intensity index * yield

Table 3. Agricultural growth and its sources

14408 3162.72106

1982	25 441		8 389		3.03	118
1983	26 714		8 282		3.23	126
1984	28 929		8 498		3.40	133
1985	28 143		8 557		3.29	128		6 942		1.23
1986	28 221		8 606		3.28	128
1987	27 998		8 642		3.24	126		6 950		1.24
1988	30 290		8 883		3.41	133
1989	32 212		8 978		3.59	140
1990	32 389		9 040		3.58	139		6 993		1.29
1991	33 771		9 410		3.59	140		7 008		1.34
1992	36 392		9 752		3.73	145		7 294		1.34
1993	37 819		9 980		3.79	148		7 348		1.36
1994	40 519		10 173		3.98	155		7 367		1.38
1995	44 508		10 497		4.24	165		7 358		1.43
Source: Viet Nam Statistical Yearbook, various years.

Data on cultivated land are incomplete for earlier years. It would appear that there was stability between 1976 and 1990, but a slow increase after 1990. A north/south distinction reigned. In the north, cultivated area declined continuously as there were increasing conflicting claims on the scarce land for residential and non-agricultural uses, while in the south the opposite held. The reforms of 1981 were not sufficient in and of themselves to encourage investment in new lands because of the still prevalent insecurity of tenure. The 1988 reforms corrected for this and led to an increase in cultivated area in the south, from 4.1 million hectares (1987) to 4.8 million (1995). For the country as a whole the increase was from 6.9 million hectares to 7.6 million hectares, showing that in the north, where the pressure on land is stronger, particularly in the Red River Delta, no investment occurred in new lands.

While the cultivated area has been stable over the years, the sown area has expanded rapidly (from 7 million hectares in 1976 to 10.5 million hectares in 1995) although unevenly: at 3.4 per cent yearly between 1976 and 1981; not at all 1981-87, and 2.5 per cent yearly since 1987. The growth in the first period is related to the attempt to strengthen the cooperatives which led to considerable investment in irrigation. After 1981 the activities of the cooperatives gradually declined but individual farming households lacking secure tenure had little incentive to invest in land improvement. The 1988 reforms corrected this.

The second and third elements explaining agricultural growth are the intensity index (SA/CA) and yield. The former, which reflects the intensity of land use, stood at 1.13 in 1978 but increased to 1.19 in 1980. Between 1980 and 1988 intensification slowed down but picked up again after 1988 due to double and triple cropping (the index stood at 1.43 in 1995). As for yields, there was a decline between 1976 and 1978 and then a recovery but by 1980 yields were still only at their 1976 level. The 1981 reforms provided a more vigorous impulse. Setting the gross output per sown hectare for all crops at 100 in 1976, the index stood at 106 in 1981, 128 in 1985, 133 in 1988, and 165 in 1995.

The aggregated view of agricultural growth presented above depicts the main dimensions of the transition in agriculture and its effects. In the late 1970s the intensification of collectivization was reflected in an increase in expenditure on irrigation, in the intensity of cultivation, and in sown area. But efficiency remained low and yields and total output stagnated. The reforms of 1981 gave the households responsibility as well as incentives. Correspondingly, the reduced responsibility and resources of the cooperatives translated into a fall in irrigation investment, and sown area too failed to increase. Households lacking clear property rights desisted from investing in new land or in land improvement. But households could cultivate their plots intensively and efficiently without any cash outlays and this led to a sharp increase in yields and total output. Apart from a stagnation around 1986-87, both the cultivated area and the sown area continued to increase. The improved land use rights gave farming households the incentive to invest in new lands and in irrigation and other forms of land improvement. Yields increased rapidly as a result. Increased use of modern seeds and purchased inputs, such as fertilizers, contributed to this.

Further insights into the sources of agricultural growth in recent years can be obtained from a production function (see Kawagoe et al., 1985). A log-linear Cobb-Douglas function has been used here in which output is attributed to land, labour, livestock, fertilizer and machines. Other studies have estimated such functions for a cross-section of countries (see, for example, Kawagoe et al., 1985; Lau and Yotopoulos, 1989; Carter and Bin Zhang, 1994). Factor shares derived from these studies have been used to estimate the production function for Viet Nam. This approach enables a disaggregation of the contribution of different inputs to output. A more detailed presentation is given in Appendix I with the main results reported here by four periods (table 4).

Table 4. Accounting for agricultural growth, 1976-95

In the first period attempts to strengthen the collectives were reflected in high expenditure on irrigation and machinery. But the inefficiency of the system resulted in declining productivity. With the reforms of 1981 investment in irrigation and machines declined and so did their contribution to growth. The greater autonomy and incentives given to the farming households resulted in an increase in fertilizer input, reflecting the more intensive cultivation of land. Factor productivity improved considerably. Macroeconomic instability of the mid-1980s resulted in a sharp decline in purchased inputs (fertilizer and machines), but efficiency continued to improve. The more radical reforms of 1988-89 led to equally more radical changes in agricultural production. Agricultural growth was mainly determined by the increase in purchased inputs. Table 4 suggests that the shift of responsibility to households in the 1980s resulted in a sharp jump in the efficiency of production, but this jump was simply a one-off catching up; once efficient production was established, further output growth required increased inputs.

There is some evidence of overusage of inputs. Tran thi Dung (1997) shows, based on an analysis of pesticides among a sample of Mekong Delta farmers, that, given the production elasticity of pesticide inputs and given the existing market price for outputs and inputs, farmers applied too much pesticides (1). Thai Thanh Son (1997) using the same sample and methodology arrived at a similar conclusion about nitrogen fertilizer. Such inefficient use of inputs is one reason for stagnating factor productivity.

The increased use of purchased inputs was made possible by a sharp rise in the availability of rural credit, to which the newly created Viet Nam Bank for Agriculture (VBA) contributed importantly. Other financial institutions include the Bank for the Poor, the People Credit Funds and a number of rural joint stock banks. The Bank for the Poor was established in 1996. Until now, the bank's activities have been administered through VBA branches. Its growth has been slow as it faces difficulties in mobilizing funds. People Credit Funds started in 1993 and has grown rapidly since. By the end of 1996 there were close to 900 such funds and 16 rural joint stock banks (World Bank, 1997, p. 49). Both of these depend for their funds on borrowing from the VBA and the State Bank of Viet Nam (Cao Duy Dong, 1997).

The VBA with its dense network of rural offices is responsible for the major share of rural credit. Its activities have grown rapidly. The outstanding credit of the VBA was equivalent to 9.3 per cent of agricultural GDP in 1990 and 19.9 per cent in 1995. More importantly, the share of credit going to agricultural households increased from 14 per cent in 1991 to 79 per cent in 1995; the share of loans to agricultural state enterprises declined correspondingly. Still, the VBA is not the main source of credit for the farmers. The VLSS of 1992-93 found that almost three-quarters of all rural households borrowed funds from private individuals, 22.5 per cent from government banks, and 3.3 per cent from cooperatives. Almost one-half of rural households were so indebted, with an average debt of 1.3 million dongs (VLSS, 1994, p. 241). Even with rapid growth since 1992-93 of official lending to rural households the situation could not have changed much.

Agricultural diversification

The aggregated picture described above confirms some of the hypotheses formulated earlier on the impact of agrarian reforms, but it also hides an important aspect of the dynamics of agrarian change -- the diversification of the production base -- first away from domestic to export markets and second in terms of the crop mix. Table 5 shows the first aspect. Phenomenal progress is evinced, most striking being the case of rice and coffee. Before the 1989 reforms Viet Nam was a net importer of rice, but immediately after the reforms a large export surplus appeared that kept on increasing so that Viet Nam is now one of the major suppliers of rice on the world market. Coffee turned from a minority crop in the 1980s to Viet Nam's second most important export. Exports of sea products increased eightfold between 1985 and 1995.

Table 5. Exports of main agricultural products, 1980 and 1985-95 ('000 tons)

The growth of agricultural (and sea) exports far exceeded the growth of output. In 1988 less than 1 per cent of total gross output of the crops listed in table 5 was exported, whereas by 1995 this proportion had reached 6 per cent, the absolute rise being from US$738 million in 1990 (equivalent to 9 per cent of GDP) to US$3,519 million in 1996 (15.1 per cent of GDP). The main exports are marine products (US$620 million in 1995), rice (US$549 million), coffee (US$495 million), and rubber (US$181 million). The opening up to the world markets has not been costless in terms of volatility and risk. For instance, in 1996 export earnings of coffee dropped, despite a sharp increase in volumes, as world prices declined.

As for the diversification of the production base, by 1995 the sown area under paddy had fallen to 65 per cent, from 75 per cent in 1976, and the share of paddy in total gross output to 57 per cent, from 74 per cent. The share of sown area under fruits and vegetables increased from 5 to 8 per cent and that under industrial crops from 7 to 16 per cent. The process of diversification goes beyond crops: animal husbandry and fresh water fish and shrimp cultivation too have increased rapidly. Table 6 captures these trends in terms of percentage share of different types of agricultural outputs in total agricultural GDP in 1985 and 1995 and the implied growth rates.

The production base diversified away from food to industrial crops and from cultivation to animal husbandry. At the same time fishery production was increasing much more rapidly than agriculture as such (10.5 per cent per year in the first half of the 1990s compared to 5.8 per cent for agriculture), so that, given that fisheries are a part of the rural sector, rural incomes were diversifying away from agriculture.

One other aspect of diversification is also noteworthy -- an increase in secondary cropping of paddy (table 7). In 1980 over one-half of paddy production was concentrated in the winter, whereas by 1995 this proportion had declined to under one-third, with a major expansion in both autumn and spring crops. Figures given at the bottom of table 7 confirm that quite a large part of the output increase came from increasing yields rather than land. This is of particular importance in a land-constrained and densely populated country such as Viet Nam.

Table 6. Agricultural GDP (billion dongs, 1989 terms) and its components,

and its growth rates, 1985 and 1995

Table 7. Paddy production and seasonal distribution, 1980 and 1995

The rapid growth in the sown area under industrial crops took place gradually over two decades from the mid-1970s, with one sharp dip in 1988-89 when land under paddy suddenly increased, possibly in response to the 1987 food crisis. In terms of sown area the most important industrial crops and their acreage in 1995 (in thousands of hectares) are: rubber, 278; sugar, 218; coffee, 186; coconuts, 173; soybeans, 118; tea, 67.

Rubber has been an important export since a long time. Plantations are located in the south; they were nationalized after reunification and have remained so. State investment concentrated on processing capacity rather than on opening new lands in the period 1976-80. Hence sown area increased only slowly and yields stagnated. After 1980 investment in new lands increased rapidly, but the quality of new trees being poor, yields did not improve and output growth remained slow. After the mid-1980s the household contract system prevailing elsewhere in agriculture was also introduced on rubber plantations. Moreover there was heavy investment in new trees, largely financed by credits from the CMEA countries, where most of the output was exported. Yields and output started to increase rapidly in the 1990s as new trees matured. Thus while output increased only slowly between the late 1970s and the late 1980s (from 42,000 tons to 50,000 tons), after 1989 an acceleration occurred and output reached 125,000 tons in 1994-95.

The sown area under sugar has fluctuated over the years, due to price fluctuations that are inherent in a product that needs to be sold and processed immediately after harvesting. Yields in Viet Nam are poor by international standards -- yields stagnated around 40 tons per hectare in the 1980s -- because cane is grown on less fertile soils and old varieties still dominate. Processing technology too is backward, with 80 per cent of the cane being crushed by small private mills using simple technology. Reforms have had little impact here. The low yields and the poor processing technology ensure that local sugar cannot compete with imported sugar. At the same time unstable prices render investment in modern sugar cane varieties and processing plants unattractive. The situation improved after 1994 with a new sugar policy aimed at self-sufficiency. Controls on sugar imports, credit for sugar-cane growing and investment in sugar mills were the means adopted for this. The result has been a rapid increase in sown area and output. Substantial foreign investment in refinery capacity has also been attracted.

The increase in coffee cultivation has been spectacular. From a minor crop in the early 1980s, it has developed into Viet Nam's second most important agricultural export, the increase translating from 9 tons in 1985 to 212 tons in 1995, with export earnings in the latter year coming close to those from rice. After reunification, coffee gardens and coffee plantations of more than 5 hectares were nationalized, but after 1981 the contract system was introduced in the south too, resulting in an increase in sown area and yields, both inside and outside state farms. The coffee price boom of 1983-86 provided further incentive to the sector.

The role of the state sector in coffee production has declined significantly. Whereas in 1980 state farms accounted for 72 per cent of total coffee output, by 1993 this proportion had fallen to 23. The collapse of CMEA bloc affected coffee exports strongly. Exports since then have depended on trading on the world market, which at that time was not favourable to the growers. In July 1989 the International Coffee Organization had freed prices and quotas on exports of members. In response exporting countries cleared their stocks and robusta prices fell, from US$3,118 in 1986 to US$1,010 in 1990 and US$680 in July 1992. (The export price of Vietnamese coffee hit bottom in July 1992 at US$580 per ton.) The price decline resulted in a cutting down of trees and a reduction in area sown, from 123 to 101 thousand hectares between 1989 and 1993. However, yields on the remaining area continued to improve, so that total output did rise. At the beginning of 1994 robusta prices recovered and by the middle of the year reached their highest level at US$3,690 and then stabilized at that level during 1995. Coffee trees became a lucrative investment and sown area expanded rapidly. Yields also increased.

Clearly coffee is the most successful industrial crop, its fortunes shaped by the reform process. The state farms were inefficient and could not maintain productivity. After the contract system shifted responsibility to the household, farm yields increased sharply. Coffee trees need to be tended regularly to maintain yields and quality, and private ownership gives better guarantee for this. Coffee in Viet Nam is predominantly an export crop, more than 90 per cent of output being exported. This implies that producers have to face the vagaries of the world market. The high prices of the mid-1980s and 1994-95 provided ample incentive for new plantings and for intensified cultivation and congruently the low prices after 1989 resulted in tree cutting.

Another type of diversification that has happened as a consequence of the liberalization of the economy and the growth of rural incomes is an increase in rural non-farm activities, although they still remain limited. Surveys suggest that around 80 per cent of rural income originates in agriculture (Nguyen Duc Minh and Bui Bich Hoa, 1995, p. 7). Most rural industries are small, as owners lack capital for expansion or access to credit. According to a 1990 survey the average number of employees in rural private enterprises was ten and annual value added US$6,000 (for rural household firms the respective figures were 3.5 and US$1,000 respectively). The small size of the local market is a factor. Firms are labour intensive, with limited access to electricity. According to a 1992 survey 52 per cent of rural industrial firms where engaged in agricultural processing and 12 per cent in repair of agricultural equipment (Nguyen Duc Minh and Bui Bich Hoa, 1996, p. 8). In a sample of Mekong Delta women, Vo Ha Thuy (1996) found that 40 per cent engaged in non-farming activities such as baking, tailoring, coffee shops and petty trade. The process of rural diversification away from agriculture is thus intensifying and the reforms can be credited for this: 59 per cent of the firms included in the 1990 sample had been established in just the two preceding years (Ronnas, 1992).

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