UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM- NETHERLANDS ·- .A IN DEVELOPMENT ECONOMICS TECHNICAL EFFICIENCY OF VIETNAM RICE FARMS A STOCHASTIC FRONTIER PRODUCTION APPROACH By NGUYEN THANH DONG TRINH NGUYEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS Ho Chi Minh, December 2011 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS TECHNICAL EFFICIENCY OF VIETNAM RICE FARMS A STOCHASTIC FRONTIER PRODUCTION APPROACH A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN THANH DONG TRINH NGUYEN Academic Supervisors DR. NGUYEN TRONG HOAI DR. PHAM LE THONG Ho Chi Minh, December 2011 TIEU LUAN MOI download : skknchat@gmail.com CERTIFICATION "I certificate that the substance of the thesis has not already been submitted for any degree and is not currently submitted for any other degree. I certify that to the best of my knowledge and help received in preparing the thesis and all sources used have been acknowledged in the thesis." Signature Nguyen Thanh Dong Trinh Nguyen Date: TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEDGMENTS Firstly, I would like to say thank you to Dr.
Nguyen Trong Hoai and Dr. Pham Le Thong - my academic supervisors, for their devoted recommendation. Without their precious advice and instruction, I could not complete this thesis. By the way, I am very proud to attend this program.
Every teacher sets an example of hard working for me and other students to follow. And I will never forget the support from all employees of the program. Their enthusiastic and friendly attitude makes me feel comfortable to study and research. Moreover, I received the enormous and continue encouragement from my closed friends and my family, especially my mother.
Their loves have given me more strength and belief to overcome difficulties during the studying. I am very grateful for everything that all of you gave me. How can I pay your debt of gratitude! Nguyen Thanh Dong Trinh Nguyen ii TIEU LUAN MOI download : skknchat@gmail.com ABSTRACT The research investigates the technical efficiency level and determinants of rice production in Vietnam. The analysis employs the Vietnam Household Living Standard Survey 2008 data set and stochastic production frontier approach.
The mean technical efficiency level is 80%. Credit approach, land policy, and experience are not significant elements of technical efficiency models while the irrigation, promotion program, education and gender of household head are significant ones. Key words: technical efficiency, rice production, stochastic production frontier. 111 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENT CERTIFICATION.
iii TABLE OF CONTENT. iv LIST OF FIGURES. vi LIST OF TABLES. vi LIST OF ABBREVIATION.
vii CHAPTER I INTRODUCTION .3 Research Questions and Hypotheses. 6 CHAPTER II LITERATURE REVIEW ON TECHNICAL EFFICIENCY AND CONCEPTUAL FRAMEWORK .3 Stochastic Production Frontier .2 Approaches to Measure Technical Efficiency .1 Data Envelopment Analysis .2 Stochastic Frontier Analysis .3 Stochastic Frontier Analysis Framework .1 Stochastic Frontier Model. 25 CHAPTER III RESEARCH METHODOLOGY FOR TECHNICAL EFFICIENCY AT THE FAMRS LEVEL.2 Models Specification and Variables Definition. 31 IV TIEU LUAN MOI download : skknchat@gmail.1 Stochastic Frontier Production Function.
38 CHAPTER IV RESULTS AND DISCUSSION .1 Results of Data Analysis .1 Stochastic Frontier Production Function .1 Discussion on Determinants of Stochastic Frontier Production Function .2 Discussion on Determinants of Technical Efficiency. 54 CHAPTER V CONCLUSION AND RECOMMENDATION .3 Research limitation and further studies. 69 v TIEU LUAN MOI download : skknchat@gmail.com LIST OF FIGURES Figure 2.3: The Stochastic Frontier Production Function .1: Distribution of Technical Efficiency. 56 LIST OF TABLES Table 2.1: Summary of Empirical Studies .1 : Definition of Variables in Stochastic Frontier Production Function32 Table 3.2: Definition of Variables in Technical Efficiency Model.1: Statistical Summary of Variables in Frontier Model .2: Maximum Likelihood Estimation of Stochastic Frontier Production Function .3: Statistical Summary ofVariables in Efficiency Model .4: OLS -Robust Model of Technical Efficiency Determinants .5: Statistical Summary of Technical Efficiency Level .6: Distribution of Technical Efficiency.
55 vi TIEU LUAN MOI download : skknchat@gmail.com LIST OF ABBREVIATION COLS Corrected Ordinary Least Squares DEA Data Envelopment Analysis FAOSTAT Food and Agriculture Organization of the United Nations- Statistics Division GDP Gross Domestic Production GOY government of Vietnam GSO General Statistics Office of Vietnam IPCC International Panel of Climate Change MLE Maximum Likelihood Estimation MOLS Modified Ordinary Least Squares OLS Ordinary Least Squares SBV State Bank of Vietnam TE Technical Efficiency USDA US Department of Agriculture VHLSS Vietnam Household Living Standard Survey VND Unit Currency of Vietnam- Vietnam Dong vii TIEU LUAN MOI download : skknchat@gmail.com CHAPTER I INTRODUCTION 1.1 Problem Statements Agriculture is an important sector in Vietnam economy. Agriculture accounts for • I8.2% of the country's gross domestic product in 2009. In 2008, agricultural export accounts for I2.3% of total export value of the country. In 2009, the proportion of labor force in agriculture, forestry and fishery sector is 62.
Rural population proportion was around 7I% (FAOSTAT, 20IO) and rural labor force made up 58.5 %of the total labor force (GSO, 20I 0). Rice is one of the most important crops in agricultural production with the highest cultivating area of food production. Rice production is ranked at the fifth in the world. Rice yield contributes 90% food production, and is related to 80% labor force of Vietnam.
In 20 I 0, domestic rice production of whole country was about 40 million tons from 7,500 thousands hectares of cultivated area with average yield of over 5 tons/ha (GSO, 20IO). Vietnam annual per capita of rice consumption is very high, I69 kg/person/year (Laillou et. al, 20 I 0), producing about I ,59 I calorie intake - 60% in 2007 (Timmer, 20 I 0). Rice has been a Vietnam's principal agricultural export and a great source of foreign exchange.
Value of exported rice accounts about 20% of agricultural and forestry products. Vietnam has exported rice to I20 countries and its share in global market is about 20%, ranked at the second in the world (USDA, 20 I I). In 20 I 0, Vietnam has exported 6.88 million tons of rice worth US$3. In comparison with the year 2009, the quantity was increased I5.4 percent and the value was increased 21.
TIEU LUAN MOI download : skknchat@gmail.com Being a tropical subequatorial country, Vietnam has favorable natural conditions for rice cultivation. Farmers can sow, plant, cultivate and harvest three crops per year. The country has two even and flat deltas irrigated by interlaced system rivers broadly with alluvial water flows. Humid climate associated with rainfall in all year round are favorable for rice cropping.
Moreover, Vietnam was one of cradles of wet rice growing with long tradition. Vietnamese farmers have to deal with many difficulties. Land for rice cultivation increased from 6 million ha in 1990 to 7.6 million ha in 2000. Then it has been narrowed down gradually to 7.4 million ha in 2009 (GSO, 2010).3 thousands hectares of agricultural land was retrieved for other purposes each year.
In the last 5 years, total agricultural area retrieved in the whole country was 154,000 hectares.6% land of rice cultivation. This trend will be continued because of increasing land demand for urbanization and other purposes. By 2020, the rice land area shall be kept at 3. It means that land for rice growing will be reduced nearly a half of existing area, while as predicted by GSO (20 10), total population of Vietnam in 2020 will be between 94 million and 98 million, increases by 10% -14% compared with the year 2009.
National food security will be a priority issue, and ability of export will be reconsidered again. On the other hand, farm land is highly fragmented and separated as a result of history. Average land size belonged to each household is about 1 hectares to 4 hectares. In the past, government delivered land for households with egalitarianism in area and kind of land.
Land tenure is short (50 years for perennial plants and 20 years for annual crops). Annual cropping allocated agricultural land for under the Land Law 1993 will expire in 2013. It raises high concern of security of agricultural land tenure for farmers. Farmers are facing challenges of climate change causing higher sea level, deeper and lasting flood, more intrusion of salty water on the land.
Unpredictable weather 2 TIEU LUAN MOI download : skknchat@gmail.com induces droughts, floods and frost and increases the risks of epidemic diseases. Climate changes reduced 1.5% GDP of Vietnam, and agriculture is the most suffered sector. Vietnam has 3,260 km of coast along the east side from the North to the South. Mekong River Delta and Red River Delta are two agricultural areas most severely affected by climate changes and sea level rise.
These are two main rice cultivating regions with 70% output of the whole country (GSO, 201 0). Incomes of farmers of these regions largely come from rice production. And rice production of these regions secures for national food and supplies remarkable grain for international market. The one-meter rise of sea level will affect 12% area and 10% population of Vietnam, submerge 5,000 km 2 of Red River Delta and 15,000 - 20,000 km2 of Mekong River Delta, corresponding to 300,000- 500,000 hectares of Red River Delta and 1.5-2 million hectares of Mekong River Delta and thousands hectares of Central Coastal Region.
Rice yield can be reduced by 10% for each of 1°C increase in global temperature. In higher temperature condition, demand of water for cultivation is higher and current irrigation system will be overloaded (IPCC, 2007). Water in agriculture is mostly used for irrigating rice farm. About 66,000 million m3 is annually used for rice production, accounts for 82% total amount of water used national wide (KBR, 2009).
It is estimated that, in 2020 agriculture still needs a large proportion ofwater, about 72% (KBR, 2009). Water is one of most important inputs for farming, especially rice production. But irrigation system in Vietnam needs to be developed more completely. In addition, capital for production is one of the troubles for farmers.
Farmers have many difficulties when accessing formal credit. Many peasants have not high value assets to serve as collateral to commercial banks, and they can only borrow 20 million VND for each hectare of land. Proportion of credit for agriculture and rural areas in total credit is rather low, 22. Commercial banks are less interested in agricultural sector, because this sector involves with high risk and low 3 TIEU LUAN MOI download : skknchat@gmail.
Another reason is that commercial banks can not be able to cover rural areas, monitor and retrieve loan. In addition, administrative costs of lending in this area are higher. So a large number of farmers are borrowing from informal credit funds at higher interest rate. Farmers also concern about the increasing costs of production and inputs such as fertilizer, pesticide, insecticide and fuel.
Annual fertilizer production of Vietnam is about one million of tons, and consumption amounts above 2.5 million of tons for the period from 2004-2007 (FAOSTAT, 2009). Vietnamese farmers are heavily dependent on imported fertilizer, the imported volume accounts for over 40% domestic demand. In 20 I 0 aggregate supply of domestic fertilizer was 2.59 millions of tons. Meanwhile aggregate demand was 7.7 millions of tons each year.
It is estimated that, annual expenditure on imported fertilizers is about I.2 billion of VND, with total quantity of over 3 million tons (GSO, 20 I 0). Other problem is the increased migration of farm labor to cities to earn higher incomes in industry sector. It reduces not only the quantity but young, strong and educated labor force of rural sector. There was a considerable decrease in rural population in total from 8I %-I988 to 70.
Besides, a major portion of farmers have not attended in any education level.