Income diversification and poverty in the Northern Uplands of Vietnam

Nicholas Minot, Michael Epprecht, Tran Thi Tram Anh, Le Quang Trung
research report

In many ways, Vietnam is in an enviable position among developing countries. Since the mid-1990s, it has enjoyed macro-economic stability and sustained high rates of economic growth. According to the Vietnam Living Standards Surveys, the incidence of poverty fell from 58 percent in1993 to 37 percent in 1998 (Joint Working Group, 2000). Vietnam has benefited from trade liberalization and the rapid growth of the region, but was able to avoid the worst effects of the 1997-98 Asian financial crisis. From a situation of chronic rice shortages in the 1980s, it has transformed itself into one of the three largest rice exporters in the world. Similarly, it has dramatically expanded exports of coffee, seafood, and fruits and vegetables. At the same time, Vietnam faces serious development challenges. In spite of the rapid pace of economic growth, Vietnam remains among the 30 poorest countries in the world1. Furthermore, there is concern that the process of market liberalization, while unleashing the economic potential of the country, may also have exacerbated the disparities between urban and rural areas, between north and south, and between delta regions and upland regions. Poverty and under-employment are particularly serious problems in the rural Northern Upland region. According to a recent study, the ten poorest provinces of Vietnam are in this region, with poverty rates ranging from 55 to 78 percent (Minot and Baulch, 2002). In addition to the high incidence of poverty, this region is characterized by: • Rugged upland terrain • Poor infrastructure • A large ethnic minority population• Low population density and low levels of urbanization• Importance of the agricultural sector. Although economic growth will not necessarily solve all the problems of the Northern Uplands, there is little doubt that sustained and widespread growth in household incomes is a necessary component of any successful development strategy for the region. Income growth in an agricultural economy can come from various sources. First, we can distinguish between growth in crop income, non-crop agricultural income (livestock, fisheries, andforestry), and non-agricultural income. Given that semi-subsistence farmers often focus on the production of staple food crops, the switch to non-crop activities is often referred to as income diversification. The growth in crop income can be further broken down into five components.• Area expansion. This may be the result of clearing new lands, rehabilitating degraded land, or reducing fallow periods. • Increasing cropping intensity. The number of harvests per year can be increased by adopting varieties or crops with shorter growing cycles or by improving water control on the off-season. • Yield increases. Higher yields, defined as the output per sown area, are associated with improved seed, greater or more effective use of modern inputs, improved water control, and/or better cultivation methods. • Higher agricultural prices. These may be caused by market liberalization, improved transport infrastructure, or better coordination between farmers and buyers. • Crop diversification. Even if prices, cropping yields, intensity, and area remain constant, farmers can increase their income by reallocating land from low-value crops (typically staple food crops) to higher-value crops (typically commercial crops). All of these factors probably play some role in the growth of rural income, but the relative importance of each factor varies across households depending on agro-ecological conditions, market access, and household characteristics. The importance of each factor changes over time as well. Rising population density is causing the importance of area expansion to decline and that of yield improvement to increase. In addition, rising domestic income is leading to changes in the diet, which, combined with international trade, contribute to crop diversification away from food production toward commercial crop production. In spite of the importance of these trends, there is little information on the contribution of each factor to the growth of rural incomes in Vietnam. A premise of this study is that income diversification is an important avenue for income growth among rural households. A corollary is that poverty reduction depends on the ability of small farmers to participate in the general process of crop diversification and the shift toward non-farm activities. Thus, it is important to more fully understand the patterns of diversification and non-farm activities in the Northern Upland region, the constraints that prevent farmers from adopting these strategies to raise their incomes, and the options available to the government and international organizations for relieving these constraints.