Prior studies mainly focused on technical efficiency in rice production in Vietnam. Dao and Lewis (2013) found that the mean of technical efficiency for rice-based multiple crop farms in four provinces in northern Vietnam was 0.83. In this chapter, the mean technical efficiency is 0.813, which implies that the average farm households could, in principle, reduce further 18.7 per cent of inputs to produce given crops or increase outputs by 18.7 per cent at given inputs (Table 4.7). This also indicates that an opportunity may exist to expand crop outputs without using more inputs, or with the application of improved production technology. As can be seen in Figure 4.4, there is a wide range of production inefficiency of farm households ranging from 21 per cent to 96 per cent in multiple-crop farming. The mean technical efficiency of multiple crop farming is higher than other estimates of studies focusing only on rice. Kompas et al. (2012) and Vu (2012) estimate the mean technical efficiency to be 0.77 and 0.78 respectively. This finding indicates that technical efficiency is higher in crop diversity than single rice production.
Figure 4.4 Distribution of technical efficiency indices
Source: Calculated from VHLSS 2006. 0.00 10.00 20.00 30.00 40.00 50.00 60.00 Up to 0.6 0.60<0.71 0.71<0.81 0.81<0.91 0.91<1.0 %
Table 4.7 Technical efficiency in annual crop production in Vietnam, VHLSS 2006
Variables Percentage of households (%)
Efficiency level (%) Up to 60 61-70 71-80 81-90 More than 90
Mean efficiency level Standard deviation Minimum Maximum Number of observations 5.69 7.92 25.79 50.10 10.51 0.813 0.101 0.219 0.961 1970
Source: Calculated from VHLSS 2006.
As regards the determinants of technical inefficiency in multiple crops farming, Table 4.8 provides the effects of farm characteristics on technical inefficiency. Education plays a vital role in reducing technical inefficiency, particularly the education of women. The level of impact on the reduction of technical inefficiency of female education is two times higher than that of male education. This also reflects the role of women in improving technical efficiency and farm production. In light of more opportunities in off-farm jobs and men’s migration to cities, women in rural areas have become a key labour force (GSO 2009a). This result is consistent with the finding of Rahman (2010), who emphasizes the role of women in Bangladesh agriculture. The significant role of education in reducing technical inefficiency in Vietnam is also studied by Kompas et al. (2012). Also, household size at working ages significantly improves technical efficiency. Households who diversify their crops have small and fragmented landholdings. As a result, the application of mechanization in farming activities is hindered. Mafoua-Koukebe et al. (1996) indicate that when production is labour intensive, farms tend to be more diversified. A larger supply of family labour of working age, thus, reduces technical inefficiency in crop production.
The effect of land fragmentation on agricultural efficiency is captured in the technical inefficiency model. The number of plots is used instead of the Simpson index.47 This
result is consistent with the conclusions of previous studies (Hung et al. 2007; Kompas
47The coefficient of the Simpson index is not statistically significant even though it shows a positive sign.
et al. 2012). It means that the reduction of land fragmentation improve technical efficiency. One of the interesting findings here is the effect of land use right certificates on technical efficiency. If farms have titled land, there are more incentives to invest and provide a source of collateral for loans. The empirical result shows that farm households with a higher (and proper) ratio of land and holding land use right certificates, are more efficient. This result is the same as the recent findings of Kompas et al. (2012) and Vu (2012).
Table 4.8 Technical inefficiency model
Parameters Coefficients t value
Age of the household head η1 0.001
(0.005)
0.20
Mean education of working age men η2 -0.07***
(0.026)
-2.67
Mean education of working age women η3 -0.141***
(0.025)
-5.42 Household members, from 15 to 60 years old η4 0.398***
(0.06)
6.63
Dependency ratio (per cent) η5 0.643**
(0.289) 2.22 Days of illness η6 0.001 (0.001) 0.51 Number of plots η7 0.021* (0.011) 1.96
Hours of nonfarm wages η8 -0.0002***
(0.0004)
-4.19 Ratio of land with land use right certificates η9 -0.203*
(0.122) -1.66 Constant η0 -3.107*** (0.432) -7.20 Number of observations 1970
Notes: ∗, ∗∗, ∗∗∗ indicates that the corresponding coefficients are significant at the 10%, 5%, and 1% levels, respectively; Standard errors are in parentheses.
Source: calculated from VHLSS 2006.
4.6 Concluding remarks
This chapter has reported on the analysis of economies of scale, output complementarity and technical efficiency in the farming system comprising cropping activities of food and other annual cash crops in rural Vietnam. It further provides information on the responses of small-scale farm households to increasing cost stress in multi-crop production. Scale economies and output complementarity were found in multiple crop
production. The elasticity of output with respect to total inputs is 1.075, which implies that when total inputs increase by 1 per cent, total outputs of production increase by 1.075 per cent. Similarly, when total output increases by 1 per cent, total costs of production rise by only 0.93 per cent. This finding reveals that slightly increasing returns to scale are evident in Vietnamese multiple crop production. An increase in rice production reduces the marginal utilization of inputs for producing other crops. Moreover, crop combination results in cost savings in the production process. Thus, output complementarity is found between rice as subsistence production, and other crops. This finding implies the potential presence of economies of scope, which has important implications on economic performance.
Results also show that households with smallholder production substantially respond to cost stress in multiple crop environment. Family labour use and other inputs such as fertilisers, pesticides and capital are complementary, which means that farm labour use falls when the prices of these inputs increase. This finding contributes to the literature on the push factors of labour allocation in smallholder farms. Since fertilizers, pesticides and seeds account for the largest share of total production costs, policies that lead to more incentives to invest in crop faming activities should focus on the reduction of input costs. The government should spend more resources on reducing prices of fertilisers, pesticides and hiring capital for farmers. The evidence of elasticity of substitution between farm labour and fertilisers and pesticides indicates that subsidy programs on fertilisers and pesticides can have a positive effect on the probability that a household demands family labour, which can reduce the increasing trend of abandoning of agricultural production in rural Vietnam.
However, any adjustment of the cost structure also impacts on rural labour market when more farmers have worked for farm wages (Akram-Lodhi 2005). The result shows that there is substitution between family labour and hired labour. With the increasing participation in nonfarm activities by smallholders, the reliance on hired labour is more important for producers. The farm household can allocate more hours to off-farm work by hiring replacement workers on the farm. Therefore, it would be expected that a large increase in government input subsidy would have a significant impact on the flow of labour into farming activities, mainly on the reduction of demand for hired labour. Warr and Yusuf (2014) find that in Indonesia, input subsidies such as for fertiliser have a large and positive impact on unskilled wages.
Another finding is the existence of substantial technical inefficiency in multiple-crop farming, this implying that there may be opportunities to expand crop output by 18.7 per cent without resort to greater uses of inputs or improved technologies in farm production. There were seven variables which significantly affect technical inefficiency. The improvement of education, particularly for women, and the reduction of the dependency ratio both contribute to improving technical efficiency. Furthermore, land reforms directed toward the reduction of land fragmentation and improvement of proper land rights should be strengthened to improve efficiency. The policy implication of this research is that priority should be given the design of policies to promote crop diversification for small farms, which is found to improve productivity through scale economies, output complementarity and technical efficiency improvement. Although the Vietnamese government appears to give priority to rice self- sufficiency policies rather than the income of farmers, Kompas et al. (2012) conclude that the mandate to grow rice in all provinces, at least in terms of defined efficiency criteria, is not appropriate. The recent thrust of the Vietnamese government to promote diversification in the Strategy of Agriculture and Rural Development (2011-2020) is a step in a right direction. Therefore, crop diversity should be expanded to improve the income of farm households. As part of an FAO nutrition-sensitive food systems approach, crop diversification improves the nutritional health status of low-income households through the increased production of nutrient-rich foods for direct consumption and generation of the income needed to procure the amount and variety of food that families need (FAO 2012). There are some issues that need to be further developed in future research. This chapter focuses only on annual cropping activities. It would be useful to investigate the patterns of diversification involving off-farm activities. In addition, sources of economies of diversification are also ignored in this study. This issue should be further studied in the future.