When economic objectives are set for the agricultural development in a land-poor and labour-abundant country, they normally face three distinctly different problems: First is food security, then rising income gaps between sectors and regions, and finally the potential reduction agriculture’s comparative advantage (Otsuka 2013). Otsuka (2013 and 2015) shows that affluent Asian economies and emerging Asian economies are about to face a loss in the comparative advantage of agriculture. The reason for this loss is the existence of labour-intensive smallholder agriculture in the midst of high and rising wages.
Like other East Asian countries, Vietnam is a land-poor and labour-abundant country. The success of the ‘equity-oriented” first land reforms in the late 1980s and early 1990s has brought about significant changes in agricultural development (Marsh et al. 2006). However, the “equity-oriented” land reforms also resulted in the small-scale and fragmented farms, which is perceived to be the cause of present agricultural inefficiency (Hung et al. 2007; Kompas et al. 2012). The balance between equity and efficiency, between the ‘rice first’ policy and household welfare has resulted in three main issues in Vietnam’s agricultural development in recent years.
Firstly, Vietnam maintains its “rice first” policy to ensure food self-sufficiency strategy. However, rice farmers with small landholdings have had to diversify their livelihoods because of low income from rice production. The government discourages rice growers to convert paddy land, and this enables Vietnam to maintain its capacity of food security and rice exports. This rice policy is in conflict with the desire of small farm households to diversify their output found in the relevant literature. Robison and Barry (1987) find that when farms are small and fragmented, households tend to be more diversified to stabilize their returns and reduce uncertainties. Similarly, Chavas and Di Falco (2012) show that small-scale farms tend to diversify to stabilize their returns for different crops. McPherson (2012) concludes that rice policy in Vietnam is inefficient and ineffective. The current policy of food self-sufficiency based on the control over land use is inefficient because land and other resources are locked into low-value uses. It is also ineffective because food insecurity, particularly as malnutrition approach, still exists for rice farmers.
Secondly, there is a conflict of objectives between food security policy and policy that promotes rural structural transformation, which requires the development of nonfarm
employment. The government maintains food security by encouraging agricultural production. However, increasing investments in local industries and manufacturing growth also encourages the development of the rural nonfarm economy and migration to urban areas and other sectors (Wiggins 2014; Haggblade et al. 2007). In Vietnam, rural structural transformation has been taking place since 1988. As a result, the labour movement into nonfarm sectors may reduce agricultural production. Although the relationship between the movement of labour into nonfarm activities and agricultural production is complex, the expansion of rural nonfarm economies and the increase in migration may concern policy makers in ensuring long-term food security in Vietnam in light of labour-intensive cultivation.
Finally, while agriculture’s contribution to the economy reduced from 46.3 per cent in 1988 to less than 19 per cent in 2007, the share of labour employed in Vietnam’s agricultural sector in 2007, declined from 73 per cent in 1990, and still stands at more than 50 per cent. Small-scale and highly fragmented landholdings depend on labour- intensive cultivation. Vietnam seems to follow the pattern of East Asian countries in its agricultural transformation, which has potentially resulted in a growing backlog of workers who will eventually need to exit the agricultural sector (Headey et al. 2010). The government’s administrative land allocation was the main reason for the presence of land fragmentation in Vietnam’s agriculture (Ravallion and van de Walle 2008). However, as noted earlier, increasing trends of hired labour and rural wages as a result of demographical changes and wage growth in the manufacturing sector may reduce the comparative advantage of agriculture. As a result, Vietnam may transform its economic development policy from squeezing agriculture to supporting it. Farm households in rural Vietnam are likely to depend on highly protected and subsidized agriculture in the future. Therefore, the question of strategies of the development of smallholder agriculture in the presence of new conditions remains unanswered. Whether or not, and to which extent, the reduction of land fragmentation impacts on agricultural production and the shift of smallholder agriculture toward less labour- intensive farming remains questionable.
In order to solve the above-mentioned issues, the government of Vietnam can draw lessons from other countries in designing future agricultural development strategies. Scott (2009) argues that the primary benefits of land allocation in the late 1980s have been exploited. The country needs new sources of land reforms that boost agricultural
productivity and encourage less labour-intensive farming. Farm mechanization through land consolidation and concentration should be strengthened to increase food production at a reduced cost. In addition, Vietnam should change its approach of food security e.g. from rice self-sufficiency to farmer’s incomes. Crop diversification is one solution increasing household income and ensuring food security. As the same time, Vietnam needs to strengthen agricultural mechanisation to facilitate labour transfer to off-farm employment, where it can better cope with rising real wages during the industrialisation process. It can apply labour saving innovations in agriculture. This can be achieved by substituting machines for labour inputs, or agricultural technical change (Hayami and Rutan 1985). Moreover, it helps to save more labour time for other activities. Finally, small farms are coping with increasing cost stress. Thus, input - supporting policies should be maintained to keep incentives for agricultural production and encourage farmers to stay in agriculture.
3.7 Concluding remarks
Over the past three decades, economic development of Vietnam has been characterised by a successful structural transformation from a predominantly agricultural and low- income economy to a middle-income and more structurally diversified one. Within this changing development process, agriculture has played a vital role to accommodate changes to the economy. During the first stage of agricultural reform (1986-1999), agriculture was liberalised from a central planning mechanism to a market economy. Three sets of policy blocks - decollectivization, price reforms and integration into the world market - were identified as factors contributing to Vietnam’s economic development. The equity-oriented land reforms played a central role in this period. However, after 1999, agricultural growth declined. The growth rates of agricultural land and labour inputs decreased, especially in the 2000s. During this period, those institutional reforms related to land use rights were consolidated. In addition, rural structural changes took place rapidly with the development of the rural nonfarm economy and increasing migration to urban areas and other sectors. Although there has been a declining trend in agricultural growth in recent years, the Vietnamese economy is still squeezing its agricultural sector to support the development of other sectors by obtaining foreign exchange from exports, labour, land and other resources.
This chapter covers three sets of building blocks including food security or the “rice first” policy, the rural nonfarm economy, and land reforms. By developing arguments
from Otsuka (2013), it evaluates whether Vietnamese agriculture is likely to replicate problems that the East Asian countries experienced in agricultural development. Vietnam has retained a small-scale household based agriculture, in spite of the miracle in economic development.
The descriptive findings in this chapter show that despite significant reforms during the three past decades, restructuring Vietnam’s smallholder agriculture is still one of major challenges facing policy makers. Vietnam’s agricultural transformation appears to follow the path of East Asian economies. The analytical framework presented in Chapter 2 shows that Vietnam should implement land reforms by promoting the pattern of mechanization in agriculture. This is an innovation in light of rising rural wages and largely part-time farming. By saving farm labour inputs for other economic activities, household incomes can improve. In addition, the diversification in agricultural production and livelihoods also raises the income of small-scale farmers. Rice land designation policy should be changed in favour of crop diversification. These strategies ensure more efficient development paths for Vietnam and avoid failures in maintaining the comparative advantage of agriculture.
However, there has been no study discussing these issues systematically in Vietnam.21 This thesis is the first attempt to contribute to the discussion on the effect of participation in the rural nonfarm economy and part-time farming on household production choices, the role of land reforms on labour allocation and economic diversity, crop diversification, and responses of family labour to increasing cost stress. It examines appropriate agricultural development strategies and policy reforms for smallholder agriculture in Vietnam. Further reforms and policy efforts are required to ensure the agricultural restructuring in current rural structural transformation period. These issues are discussed in the next chapters.