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Title: Low farm incomes and the rental market for croplandin Vietnam.
Authors: Huy, Hoang Trieu
Keywords: Land rights
Transaction costs
Land rental market
Việt Nam
Abstract: Farm incomes in rural Vietnam are tightly constrained by very small farm sizes, highly fragmented land holdings and cost inefficiency. Despite a very successful land registration programme, the rental market for cropland is considered to be inefficient in many parts of rural Vietnam. Given stringent limits on the area of farmland that individuals may own, imperfections in the rental market prevent farmers from consolidating land parcels, growing their farm enterprises, adopting new technology and increasing both their incomes and those of non-farming rural households. The overarching objective of this study is to examine the efficiency and equity impacts of the cropland rental market in rural Vietnam and the efficiency of the rental market itself. A conceptual framework was drawn from the literature to link policies, tenure security, transaction costs, cropland rental markets and agricultural productivity. A theoretical model was proposed to explain rural household participation in the cropland rental market subject to transaction costs, and testable hypotheses were drawn from this theoretical framework. For empirical analysis, a stochastic frontier model was employed to explain the performance of farming households in rural Vietnam and to examine the effect of cropland rental market participation on this performance. A generalised ordered logit model with shifting thresholds accounting for the effects of transaction costs associated with market participation was specified and estimated using pooled data from the Vietnam Household Living Standards Surveys of 2004 and 2008. No previous studies had attempted to measure and test for asymmetric transaction costs in a land rental market. In the context of Vietnam, this study is also the first to measure responses in cropland rental markets since the 2003 Land Law was passed. Some key findings, conclusions and recommendations emerged. First, it was found that the efficiency of the rental market had improved over the study period and rental transactions were creating an emerging commercial farmer class. The survey data showed a trend of increasing participation in the rental market by rural households to adjust their farm sizes, although the level of market participation and the scale of transactions varied across regions. It was concluded that Vietnam’s land reforms over the previous twenty years had done much to strengthen tenure security and it was recommended that the government should step up its efforts to complete the land registration programme. Second, it was confirmed that voluntary rental market transactions had promoted farming efficiency in Vietnam. The results of a stochastic frontier analysis showed that lessees were consolidating and extending their farming operations, and were more technically efficient than lessors. They also showed that crop production could increase by 15 per cent with existing technologies. Third, the study found clear benefits for both lessors and lessees. It was concluded that there was merit in Vietnam’s cautious approach to a land sale market and that a more efficient rental market could contribute significantly to crop production. Fourth, it was found that the rental market, and hence its efficiency and equity benefits, was constrained by high unit transaction costs. Importantly, the results highlight sources of transaction costs that affect lessors and lessees differently, and signal the relative importance of their impacts. Registration of land rights and the application of zoning regulations affect lessors and lessees differently, but their impacts on land use efficiency are unambiguous. These are important sources of transaction costs and it was recommended that, in addition to completing the land registration programme, the government should consider relaxing restrictions on the use of wetlands to grow crops other than rice. Ethnic diversity is also an important source of transaction costs, and more so for lessors than for lessees. However, from a policy perspective, there may be little that the government can do in the short-term to address the issues embedded in ethnic diversity - an area that requires more research. Physical infrastructure is a significant but relatively less important source of transaction costs. It was found that the provision of all-weather roads in communes encourages participation equally on both sides of the market, whereas access to telephones and a local radio station promote only the supply side of the market. It was recommended that public resources should be allocated to commune roads ahead of telephone services and local radio stations, which are also more likely to attract private investors.
Appears in Collections:Agriculture and rural development

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