Research Findings

Viet Nam Publication Abstracts

Policy Simulation for Agricultural Diversification

Despite a decade of remarkable growth of the agricultural sector, dominated by the unprecedented success of rice, rural areas of Viet Nam are not benefitting from economic growth as much as urban areas. Moreover, rice farmers face stagnating incomes and reduced incentives in rice production. This is partly the result of lower real rice prices created by the very success in increasing productivity. It is also the result of a structural transformation of the economy whereby the demand for higher value-added foods and non-food commodities is outpacing that for staple foods.

This changing pattern of demand both in Viet Nam and in world markets suggests the need for rural income diversification as a key element of a rural development strategy. Such a strategy aims at achieving higher and more stable rural incomes, reducing rural-urban migration, and alleviating rural poverty, especially among marginal groups. Effective diversification will involve the entire rural sector and rely on the development of marketing, transportation, and export facilities. This will involve key investments in infrastructure and institutional changes to promote private sector activity.

This project sought to determine the likely impact of rural diversification in Viet Nam's rural development and which policies would be most appropriate. Industry-specific information was used for an econometric modeling exercise which considered a series of policy simulations in terms of their potential to promote agricultural diversification and contribute to production and income on nationally and regionally.

The study concluded that promoting the livestock sector is key to accelerate agricultural growth, contribute to the development of the poorest regions and exploit the potential for high-valued exports. Export promotion, in turn, requires the assurance of adequate quality and health standards. Given the current quota system, increased rice production would make rice feed cheaper, leading to more animal production and exports.

In terms of policy, the government should act to further liberalize agricultural markets. In so doing, it should pay attention to regional comparative advantage. Broad pan-territorial policies are likely to distort incentives at the regional level. Livestock policies have broad effects all over the country, while sugar and rice policies have region-specific benefits. Moreover, protecting the sugar industry is costly to society and has no clear discernable net benefits in the aggregate.

Key words: agriculture, diversification, infrastructure, institutions, livestock, policy, rural, rice, sugar, transport, Viet Nam

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last updated: April 25, 1999