Report No: ACS4325 . Socialist Republic of Vietnam Support for Agricultural Restructuring THE FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS IN NORTHERN AND SOUTHERN VIETNAM . January 2013 . EASVS EAST ASIA AND PACIFIC . . . Standard Disclaimer: . This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. . Copyright Statement: . The material in this publication is copyrighted. 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THE FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS IN NORTHERN AND SOUTHERN VIETNAM Summary of Methodology and Main Results John Keyser*, Steven Jaffee**, and Tuan Do Anh Nguyen*** *Consultant; **World Bank; ***Center for Agricultural Policy January 2013 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table of Contents Table of Contents................................................................................................................... i Abbreviations and Acronyms..................................................................................................ii Exchange Rate ......................................................................................................................ii Weights and Measures ..........................................................................................................ii Local Area Equivalents ..........................................................................................................ii Map of Vietnam ..................................................................................................................... iii I. Introduction .................................................................................................................. 4 II. Methodology and Assumptions .................................................................................. 4 A. Analysis of Farm Enterprises .................................................................................. 6 B. The Policy Analysis Matrix (PAM) ........................................................................... 6 C. Main Assumptions................................................................................................. 11 III. Base Analysis ............................................................................................................. 20 A. Export Rice in An Giang ........................................................................................ 21 B. Domestic Rice and Rice Alternatives in Northern Vietnam .................................... 25 IV. Sensitivity Analysis ................................................................................................... 27 A. Sensitivity to Yield ................................................................................................. 27 B. Sensitivity to Price................................................................................................. 29 C. Sensitivity to Fertilizer Costs ................................................................................. 30 D. Sensitivity to Labor Costs...................................................................................... 31 V. Conclusions ............................................................................................................... 33 Main References ................................................................................................................. 35 Appendix 1: Detailed Assumptions Appendix 2: Full Set of Indicators i VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Abbreviations and Acronyms CAP Center for Agriculture Policy (of IPSARD) CTU Can Tho University DARD Department of Agriculture and Rural Development DRC Domestic Resource Cost Ratio EPC Effective Protection Coefficient GSO General Statistics Office of Vietnam IPSARD Institute of Policy and Strategy for Agricultural and Rural Development MKD Mekong Delta NPC Nominal Protection Coefficient PAM Policy Analysis Matrix RRD Red River Delta S-A Summer-autumn season W-S Winter-spring season Exchange Rate Local currency = Vietnamese Dong (VND) USD 1.00 = VND 20,860 VND 100,000 = USD 4.79 Unless noted, local currency values all expressed in thousands of dong (VND ‘000) Weights and Measures 1 hectare (ha) = 2.471 acres 1 kilogram (kg) = 2.204 pounds (lbs) 1,000 kilograms (kgs) = 1 metric ton (ton) 1 kilometer (km) = 0.62 miles Local Area Equivalents An Giang (southern Vietnam) 1 cong = 1,000m2 (0.1 ha) 1 ha = 10 cong Nam Dhin and Phu Tho (northern Vietnam) 1 sao = 360m2 (0.036ha) 1 ha = 27.8 sao ii VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Map of Vietnam iii VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS I. INTRODUCTION 1. One area of weakness in current agricultural policy work in Vietnam is the lack of a clear understanding of both the private profitability of farmers for different crop activities and the social profitability of such activities. Agricultural performance is thus gauged in physical terms (i.e. yields and the volume of aggregate output) rather than in financial or economic terms. This has hampered efforts to compare and contrast the impacts and effectiveness of alternative policy and program measures. Comparative metrics for different crops and farm management systems have been lacking. 2. As a step towards improved sector planning, this paper utilizes the Policy Analysis Matrix (PAM) to analyze various farm management systems for rice, maize, and cassava in different parts of Vietnam. Tradeoffs are involved in all production decisions and the PAM provides a systematic way of comparing the private and underlying social costs and returns from different agriculture enterprises together with the effects of government policy. A spreadsheet template was custom-built for the PAM analysis that produces various financial and economic indicators relevant to government policymakers, farmers, private business people, development planners, and other agriculture sector stakeholders in Vietnam. Main objectives 3. The main objectives of this working paper are to: (i) Describe the PAM methodology and how to interpret key financial and economic indicators; (ii) Document the underlying assumptions used for the analysis; and (iii) Provide a summary and brief interpretation of the main quantitative results and outcome of selected sensitivity tests. 4. Towards these ends, the working paper is presented in five sections. Following the current introduction, Section II describes the methodology and main assumptions used for the analysis. Section III then presents the main quantitative results for different kinds of rice grown for export in An Giang Province in the Mekong Delta of Southern Vietnam and for domestic rice and alternative stock feed crops grown in Northern Vietnam. Section IV then presents the results of various sensitivity tests that looked at the impact of changes in crop yields, commodity prices, fertilizer costs, and labor costs. The discussion concludes in Section V with a summary of key findings and policy recommendations. II. METHODOLOGY AND ASSUMPTIONS 5. This section of the paper descries the methodology and underlying assumptions used for the analysis of Vietnam’s agricultural comparative advantage. As shown in 6. Table 1, the analysis covers different kinds of domestic and export rice as well as cassava and maize grown for stock feed in selected parts of Vietnam during the Winter-Spring and Summer-Autumn seasons. These crops were the foci of this analysis due to (i) increased concerns about the (low) profitability of traditional rice cultivation and the policy options available 4 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS to address this situation, and (ii) the rising trend in Vietnamese animal feed and feed ingredient imports and questions regarding the scope for import substitutes.1 7. In Table 1 below, the terms traditional and improved refer to high and low-input management practices respectively. Presently, rice production in Vietnam is characterized by very high levels of input use including apparently excessive amounts of seed, fertilizer, pesticides, herbicides, and irrigation as part of a previous yield maximizing strategy. Government is now in the process of recommending farmers to improve their production by adopting the so-called “three reductions� (reduced seed, fertilizer, and chemicals) in order to save on costs and produce higher yield with better crop husbandry.2 Table 1: List of Enterprises Analyzed Season Location Winter-Spring Summer-Autumn Traditional Improved Traditional Improved Southern Vietnam 1. Ordinary Rice (for export) Small farm An Giang X X X X Medium farm An Giang X X X X Large farm (outgrower) An Giang n/a X n/a X 2. Jasmine Rice (for export) Small farm An Giang X X n/a n/a Medium farm An Giang X X n/a n/a Large farm (outgrower) An Giang n/a X n/a n/a Northern Vietnam (all micro farms) 3. Domestic Rice Standard quality Nam Dinh X X X X Better quality Nam Dinh X X X X 4. Maize (for animal feed) - manual and tractor cultivation Ordinary hybrid Phu Tho X n/a n/a n/a VN4 Hybrid (new hybrid) Phu Tho X n/a n/a n/a 5. Cassava (for animal feed) Ordinary variety Phu Tho n/a n/a X n/a KM94 Hybrid (high starch) Phu Tho n/a n/a X n/a Note: For maize, analyzed ordinary and improved hybrid with manual land prep and hypothetical tractor prep. For rice, improved management refers to farmers participating in the "three reductions" program (i.e. reduced seed, fertilizer, and chemicals) 8. For maize and cassava grown in northern Vietnam, the analysis covers the traditional (high-input) management level only since improved (reduced) production systems are not yet being promoted for these commodities. Instead, the analysis of these alternatives crops for rice is based around different varieties of planting material including ordinary (traditional) hybrids and improved hybrids (specifically VN4 for maize and KM94 for cassava). For maize, which is generally grown on a very small scale with manual cultivation, the analysis further includes a hypothetical model based on (larger-scale) tractor cultivation to illustrate the potential costs and benefits of promoting this system as an alternative to rice. Once a basic set of spreadsheet 1 In 2012, Vietnam’s rice exports were valued at some $3.2 billion, while its imports of animal feed and feed ingredients exceeded $4 billion. 2 With traditional practices, farmers plant “too much� seed to the point where individual plants crowd themselves out and/or apply “too much� fertilizer to the point where the plants grow to excessive heights and become top-heavy resulting in a large share of “fallen rice� and reduced harvest. 5 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS models covering different crops and farm systems has been prepared, it is relatively easy to make minor changes to the models and test the impact of different input and output assumptions. A. Analysis of Farm Enterprises 9. The quantitative analysis began with a data collection exercise carried out in August 2012 together with CAP/IPSARD. The primary objective at this stage of the project was to prepare a set of indicative enterprise budgets that reflect the total costs of current farm practices and recommended technologies to the best extent possible. Many of the crop models used previously for policy analysis in Vietnam have excluded detailed estimates of family and hired labor costs, capital investment requirements, and state subsidies including the cost of maintaining primary and secondary irrigation canals, crop research and extension programs, and energy subsidies on fuel and electricity used during the production, processing, and marketing of agriculture commodities and crop inputs. 10. Data collection involved discussions with a wide range of agricultural sector stakeholders in An Giang, Nam Dinh, and Phu Tho Provinces including individual smallholder farmers, crop research and extension authorities, irrigation authorities, private traders, outgrower companies, plant protection companies, large and small scale milling companies, stock feed manufacturers, and others with a detailed knowledge of current agriculture conditions. Various research reports and official documents were also consulted including GSO agriculture statistics, reports by the Department for Agriculture and Rural Development (DARD) in each province comparing current and recommended farm practices, university research reports on input use, farm yields, crop prices, and farmer incomes, among others. 11. Based on these consultations, indicative enterprise budgets were prepared covering a range of current and recommended management practices with variations by farm size, level of input use, and season (see 12. Table 1). This approach is intended to allow the relative costs and profits from different management systems to be compared on as equal terms as possible from the financial and economic perspectives. At present, for example, rice farmers are being advised to scale back on their use of seed, fertilizer, and pesticides in order to save on costs and produce higher yields. According to agriculture administrators, previous farmer recommendations went too far in applying high input use to the point where yields and farmer profits have actually been compromised by using too many inputs. By preparing crop models based on traditional (high input) and improved (reduced input) management practices including the financial costs paid by individual farmers and economic costs paid by the wider society, it is possible to compare the advantages and disadvantages of the recommended system from a variety of perspectives. Similarly, by preparing crop models for ordinary and specialty export rice, domestic rice, and alternative stock feed crops by region and farm size, it is possible to compare the financial and economic tradeoffs of each competing enterprise and gain a better understanding of which systems policymakers may wish to support. B. The Policy Analysis Matrix (PAM) 13. Based on the indicative production models for different crop and farm management systems, the next step of the analysis was to construct a set of policy analysis matrices (PAMs). As shown in Table 2, the PAM is a product of two accounting identities. The first defines profitability as the difference between revenues and costs; the second measures the effects of 6 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS government interventions or divergences (market failures) as the difference between observed parameters and parameters that would exist if the divergences were removed. By filling in the elements of the PAM for each activity, it is possible to measure the extent of policy effects as well as the inherent economic efficiency or comparative advantage of the production system. Other information regarding input costs, farmer profitability and financial rates of return can also be generated through this approach to agricultural analysis.3 Table 2: The Policy Analysis Matrix (PAM) Tradable Domestic Revenues Input Costs Factor Costs Profits Private A B C D Prices Social E F G H Prices Policy Effects I J K L (transfers) Where: D = A - B -C I=A–E H=E-F-G J=B-F L=I-J-K=D-H K=C-G And: Domestic Resource Cost (DRC) = G / (E – F) Nominal Protection Coefficient (NPC) = (A / E) Effective Protection Coefficient (EPC) = (A - B) / (E - F) 14. The PAM is based on a familiar equation: Profit = Revenue – Cost [1] 15. The PAM as presented in Table 2 has four columns. The first is for revenue, the second and third are for costs, and the fourth is for profitability. Each PAM contains two cost columns, one for tradable inputs and the other for domestic factors. It distinguishes between tradable inputs and domestic resources because exchange rate policies affect the former and because certain measures of efficiency require the distinction. Intermediate inputs – including fertilizer, pesticides, purchased seeds, electricity, transportation services, and fuel – are divided into their tradable-input and domestic factor components. Revenue is measured with reference to an import or export parity price, which is the amount of money a country either saves or earns from the production system being analyzed. 16. The PAM has three rows. The first two rows represent different versions of equation [1] with the first row evaluated using the actual (market) prices or “financial prices� encountered by the production system and the row below it evaluated at economic or social prices. The effects of government policy (or market failure) are measured in the third row, for which each entry is simply the difference between its value in the first row and second row. 3 This section draws extensively from the PAM methodology described by Monke and Pearson, The Policy Analysis Matrix for Agricultural Development , Cornell University Press, Ithaca (1989). 7 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Private Profitability (D) 17. The data entered in the first row of Table 2 measure a production system’s private profitability. The term private refers to observed revenues and costs reflecting actual market prices received or paid by farmers, traders, and processors in the agricultural system. These private or actual market prices thus incorporate all underlying economic costs and valuations plus the effects of all policies and market failures. In Table 1, private profits (D) are the difference between revenues (A) and costs (B + C); and all four entries in the top row are measured in observed prices. 18. Because the PAM looks Box 1: Financial Indicators at an entire production system in which revenue is valued with Financial costs and profits are measured at the farm level in reference to an international per hectare terms as follows: parity price, private profits (D) do not necessarily equal the Total Revenue The models assume that farmers sell their entire yield. Total income that accrues to individual revenue is thus determined by multiplying total yield (kg/ha) farmers. Limited access to by the farm gate price (VND/kg). markets, lack of knowledge about world prices, and profit Production costs margins taken by traders and Variable costs (excluding family labor): These costs vary by intermediary processor all mean crop and management system and include all items that that farmers are rarely paid must be paid for by the farmer each season including seed, import or export parity at the fertilizer, agri-chemicals, irrigation fees, tractor and/or farm gate. combine hire, and hired labor. Capital recovery costs: These costs measure the fixed cost 19. Since agricultural or depreciation of all tools and equipment used to grow the production revolves around crop with a useful life spread over more than one crop cycle. farm-level decision making, Total costs = variable costs + capital recovery costs several additional measures of financial profits and production Farmer profits costs are provided for each Gross margin = total revenue – variable costs activity (see Box 1). These measures of farmer profitability Net profit = total revenue – total costs are important because it is possible for an agricultural Farm labor The approximate number of 6-hour workdays provided by activity to be an efficient user of family members and hired workers has been estimated for domestic resources, but each crop model. In turn, these estimates are used to unprofitable, or too expensive, calculate: from the farmer’s private perspective. Gross profit per day family labor Net profit per day total labor Social Profitability (H) Rates of return 20. As shown in Table 2, the The financial rates of return to a farmer’s variable and total second row of the PAM uses expenditure are given by the following ratios. Enterprises social prices. Among the with a high ratio provide a better rate of return than those differences with financial prices, with a low ratio. social prices include the cost of Gross margin / variable cots all subsidies paid by government Net profit / total costs since these are a cost to the 8 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS economy. Similarly, social prices exclude the cost of taxes paid by farmers and other participants in the production chain since these represent a transfer from one sector to another. Social valuations therefore measure comparative advantage or efficiency in the agricultural commodity system. Efficient outcomes are achieved when an economy’s resources are used in activities that create the highest levels of output and income. Social profits (H) are an efficiency measure because outputs (E) and inputs (F + G) are revalued in prices that reflect scarcity values or social opportunity costs. Social profits, like private profits, are the difference between revenues and costs, all measured in social prices: H = (E - F - G). 21. For outputs (E) and inputs (F) that are traded internationally, the appropriate social valuations are given by world prices. These are cif import prices for goods or services that are imported or fob export prices for exportables. World prices represent the government’s choice to permit consumers and producers to import, export, or to produce goods or services domestically. The social value of additional domestic output is thus the foreign exchange saved by reducing imports or earned by expanding exports. Policy Effects (I, J, K, and L) 22. The second identity of the PAM concerns the differences between private and social valuations of revenues, costs, and profits. For each entry in the matrix – measured vertically – any divergence between the observed financial (actual market) price and the estimated economic (social efficiency) price must be explained by the effects of policy or by the existence of market failures. This follows directly from the definition of social prices. Social prices correct for the effects of distorting policies – policies that lead to an inefficient use of resources. These policies may be introduced because decision makers are willing to accept some inefficiencies (and thus lower total income) in order to promote non-efficiency objectives such as the redistribution of income or the improvement of domestic food security. 23. Only government policy or market imperfections can cause a divergence between private and social prices. Unless the government enacts a protection policy, for example, each importable output and input will be available at its cif import price, which in turn becomes the domestic price so that A will equal E and B will be the same as F in Table 2. Consequently, any difference between A and E or between B and F is caused by some combination of trade restrictions, price control, tax/subsidy, or exchange rate policies. If A exceeds E, either domestic consumers are forced to pay higher than world prices or the government treasury is directly subsidizing production, causing an output transfer (I) equal to (A – E). Similarly, if B is greater than F, tradable inputs are taxed resulting in an input transfer (J) of (B – F). For domestic factors, the transfer (K) amounts to (C – G). 24. The net effects caused by policy and market failures (L in the matrix) is the difference between effects on outputs (I) and on costs (J and K), thus L = (I – J – K). The net effect can also be found by a comparison of private and social profits. By definition, these measures of net effects must be identical in the double-entry matrix: L = (I – J – K) = (D – H). 25. Table 3 summarizes and defines the policy effect measurements generated by the PAM. The full set of PAM indicators from the analysis is given in Appendix 2. 9 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table 3: Policy Effect Measurements Indicator Formula Description Net effect L = D – H; or L = I – J - K Net effects of government policies Output effect I=A–E Effects generated by domestic price/border price differences Tradable input cost effect J=B–F Effects generated by domestic price/border price differences Domestic factor cost effect K=C–G Effects generated by actual price/shadow price differences Comparison of Agricultural Activities Producing Different Outputs 26. The entries in the PAM allow comparison among agricultural activities that produce identical outputs. If interest focuses solely on a comparison of one jasmine rice operation with another, for example, the matrix entries provide all the information necessary for the analyst. Comparisons can be drawn readily by construction of PAM entries for two or more different systems that produce the same quality of rice. 27. Comparisons between different types of rice and other crops, however, are another matter. To permit the comparisons of systems that produce different outputs, some common numeraire must be generated. One such technique uses ratios in which both the numerator and the denominator of the ratio are PAM entries defined in domestic currency units per physical unit of the commodity. Domestic Resource Cost Ratio (DRC) 28. Social profits (H) measure efficiency or comparative advantage. When systems producing different outputs are compared for relative efficiency, the Domestic Resource Cost Ratio (DRC) defined as G/(E - F), serves as a proxy measure for social profits. By elementary algebra it follows that the ratio equals 1 if social profitability (H) is 0, is greater than 1 if H is negative, and is less than on if, and only if, H is positive. Minimizing the DRC is therefore equivalent to maximizing social profits and, the lower the DRC, the greater the system’s comparative advantage. In cross-commodity comparisons, DRC ratios replace social profit measures as indicators of relative degrees of efficiency. 29. Efficient activities can be defined equivalently as those for which social profitability is positive or for which the DRC is less than one. Similarly, if the DRC is greater than one, this shows that the production system consumes more domestic resources than the revenue it produces is therefore not socially efficient. Nominal Protection Coefficient (NPC) 30. The Nominal Protection Coefficient (NPC) is a ratio that contrasts observed (private) revenue at import parity with a comparable world (social) price. This ratio therefore indicates the impact of policy (and of any market failures not corrected by efficient policy) that causes a divergence between the two prices. The NPC on tradable outputs, defined as (A/E), indicates the degree of output transfer. If the NPC is greater than one, policies are increasing the market price above the world price, thus providing a positive incentive to the producer. An NPC less than one, on the other hand, indicates a negative incentive (or disincentive) to the producer. 10 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Effective Protection Coefficient (EPC) 31. The Effective Protection Coefficient (EPC) is another indicator of incentives and is the ratio of value added in private prices (A-B) to value added in world prices (E-F). Thus EPC = (A- B)/(E-F). This coefficient measures the net policy effect resulting from product market-output and tradable-input policies and therefore a more complete measure of policy effects than the NPC. C. Main Assumptions 32. The main assumptions and specific procedures applied to this analysis of selected crops in Vietnamese agriculture are described below. Current prices 33. Unless noted, the analysis is based on current prices, subsidies, and tax policies that prevailed at the time of data collection in August 2012. In order to convert foreign currencies to their Vietnamese dong (VND) equivalent, a financial exchange rate of USD 1.00 = VND 20,860 was used. The dong is free of restrictions for current payments and it was further assumed that the financial and economic exchange rates are equivalent.4 Location 34. The analysis of export-oriented rice in southern Vietnam is based on production in An Giang Province in the Mekong Delta (MKD), which is a major rice growing area and regarded as one of the best locations for producing rice in Vietnam. The decision to focus on An Giang therefore means that the base analysis of export rice should be interpreted as a “best case scenario� for Vietnam. To illustrate the efficiency of rice production in other, less well-endowed rice areas, a limited range of sensitivity tests was carried out for other MKD locations. 35. In northern Vietnam, the analysis of rice grown for domestic consumers is based on production in Nam Dinh in the Red River Delta (RRD). Along with adjacent provinces, Nam Dinh is one of the major rice growing areas in northern Vietnam and a leading supplier of rice to consumers in Hanoi and other northern cities. Production of maize and cassava, on the other hand, are based on data collected in Phu Tho in the northern midlands where the crops are used for home consumption, to supply domestic stock feed manufacturers, and for export to China. Maize and cassava are also grown in Nam Dinh, but mainly for home consumption and on a much smaller scale than in Phu Tho. 4 According to the IMF’s latest Article IV Report (July 2012), the macroeconomic balance approach indicates a current account norm of -2 percent of GDP, which implies a small undervaluation of 0.4 to 0.9 percent. The external stability and the equilibrium exchange rate approaches, on the other hand, suggest a modest overvaluation of the dong. In PAM analysis, if the exchange rate were over-valued (or under- valued) by any given percent, this would result in the same percent increase (or decrease), in the DRC, NPC, and EPC scores respectively. For example, if the dong were over-valued by 7 percent (i.e. VND 22,302 in economic terms per USD instead of VND 20,860 per USD), the DRC for jasmine rice grown with improved management on a medium-size MKD farm in the winter-spring season would increase from0.40 to 0.43 (i.e. from 0.40639 to 0.43484) while the NPC would go from 1.01 to 1.08 (i.e. from 1.0125 to 1.08338) and the EPC would go from 1.01 to 1.09 (i.e. from 1.0144 to 1.08541). 11 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Farm sizes 36. The quantitative analysis of northern and southern agriculture also covers a range of different farm sizes as shown below.  Southern Vietnam (An Giang) o Small-scale = 0.75ha family farm (7.5 cong) o Medium-scale = 1.5ha family farm (15 cong) o Large-scale = 5.0ha group-managed farm with outgrower support (50 cong)  Northern Vietnam (Nam Dinh and Phu Tho) o Micro-scale = 0.17ha family farm (5 sao) 37. Different yield, price, and capital recovery cost assumptions apply to the analysis of each farm sector depending on the technologies and market linkages available to each type of producer. Whereas the analysis of small-, medium-, and micro-scale farms is based on production by individual farm households, the analysis large-scale rice in southern Vietnam is based on group management of a consolidated (5ha) plot with technical and material support from an outgrower company able to negotiate forward contracts with international buyers. 38. Large-scale rice production has recently attracted considerable interest as a strategy for achieving better economies of scale and increased mechanization at the farm level. In practice, most large-scale rice systems currently operated in Vietnam are organized by private marketing companies. Under these systems, participating farmers pool their land into a consolidated (large-scale) field in exchange for extension support and a pre-negotiated price from the marketing company. Because of forward negotiations with international buyers, these companies usually pay higher prices to farmers who, in turn, produce more yield per hectare as a result of the timely delivery of inputs and extension support provided by the company. While large-scale systems offer many apparent advantages, the opportunities for outgrower production are limited by the number of export firms (and by the milling capacity of each firm) interested and able to provide this package of support. In cases where farmers are not linked to an outgrower company, DARD officials in An Giang report that it has been very difficult to persuade farmers to organize themselves in groups merely for the supposed benefits of improved economies of scale.5 Capital recovery costs 39. For each category of farmer, fixed depreciation on all tools and other equipment with a useful life spread over more than one crop cycle has been estimated using the so-called capital recovery cost method. This cost is the payment per cycle that will repay the cost of each fixed 5 The ‘large field model’ was officially introduced in Can Tho in the spring of 2011 and was the subject of a supportive resolution by the National Assembly in November 2011. For the 2011-12 WS crop, some 19,000 hectares were planted under this model, including examples in twelve of the thirteen Mekong Delta provinces. An Giang province accounted for about one-fourth of that total. The government would like to see a very substantial replication of the ‘large field model’ and to promote in these schemes Vietnam Good Agriculture Practices (VIETGAP) and other sustainability standards. 12 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS investment over its full useful life and provide an economic rate of return on the investment.6 This approach has the advantage over the simple division of an input’s value by its useful life as it accounts for the fact that if the farmer did not purchase the input, the money could have been invested in some other on- or off-farm activity. 40. As shown Table 4 below, micro- and small-scale farmers bear relatively higher capital recovery costs per crop cycle than medium- and large-scale farmers do. The fixed costs are especially high for very small micro-farms in northern Vietnam where very poor economies of scale mean the estimated capital recovery costs for one cycle of domestic rice are almost VND 2.9 million per hectare or equal to roughly 15% of total production costs for improved (reduced input) domestic rice. For the large-scale rice model in southern Vietnam, it is assumed that the group owns a row seeder. Full details of the capital recovery cost calculations are given in Appendix 1. Table 4: Summary of Capital Recovery Cost Assumptions Replacement Value VND '000 Total % Composite Farm Types of tools owned (VND'000) per ha conversion size forex Per farm Per Ha per cycle factor An Giang (ordinary and jasmine rice) Various hand tools, Small 0.75 sprayer, rat traps, grain 14,384 19,178 677 27% 1.01 bags, motorbike. Similar items but in Medium 1.5ha greater quantity to cover 14,995 9,997 436 26% 1.01 larger area Similar to medium but Large 5ha over 5ha with group- 70,700 14,140 638 27% 1.01 owned row seeder Northern Vietnam (micro farms, various crops) Shared Various hand tools, 5 sao implements sprayer, rat traps, grain 13,629 80,173 2,297 28% 0.99 (0.17ha) (all crops) bags, motorbike. Rice only 5 sao Sickle, small boat 440 2,588 597 5% 1.06 tools (0.17ha) Maize only 2 sao Knives (to cut maize) 165 2,292 729 10% 1.02 tools (0.07ha) Seasons 41. Due to varying agro-ecological and hydrological conditions, wide differences exist in the productivity of rice cultivation in different growing seasons. In southern Vietnam, the most productive season is the winter–spring (W-S) season, for which average yields can approach 6.5 tons/hectare. In recent years, the W-S crop has accounted for just under 50% of the annual paddy production of the MKD and is the primary source of rice sold as exports. The second most important season for rice in the MKD is the summer-autumn (S-A) season. This season is frequently impacted by extended periods of flood inundation resulting in lower average yields of 6 Annual cost per hectare = purchase price of implement * per hectare share of use * capital recovery factor. CRF = (((1+i)^n)*i)/((1+i)^n-1) where i = real interest on savings and n = number of years in the implements useful life. For a full description of this methodology, see Monke and Pearson (1989). 13 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS only 4.7 tons/hectare in recent years. A third crop is sometimes grown during autumn-winter, but now accounts for less than 10% of the annual MKD output and is not covered by the analysis. 42. There is generally less difference in yield between the W-S and S-A seasons in northern Vietnam. Still, growing conditions are often very cold at the start of the W-S season leading farmers to use more seed because of poor germination. Each of the households interviewed for this study reported 10-15kg per sao higher yields (i.e. 278kg/ha) in the W-S season compared with S-A. In terms of price, farmers and traders in Nam Dinh reported that the S-A rice typically sells for 15-20% more per kg compared with (higher yielding) W-S rice, making the S-A rice more profitable overall. Crop yields 43. Yield assumptions used in the base analysis for each crop and category of producer are drawn from a variety of data sources including information reported by the GSO, farmers, crop extension officers, outgrower companies, and DARD reports on results of efforts to promote improved (lower- input) rice production. These assumptions are summarized below. For each management variation, specific adjustments were made to account for the typical differences reported by crop experts between different size farmers, different seasons, and growing locations. In the case of large-scale rice, for example, it was assumed that contracted growers achieve around 400kg dry paddy per hectare higher yield than independent medium scale farmers due to the benefits of outgrower support and private extension advice. For jasmine rice, it was likewise assumed that yields are 5% higher compared with ordinary W-S export rice in the MKD due to most farmers using new seed. Table 5: Yield Assumptions, base analysis (tons/ha) Winter-Spring Summer-Autumn Traditional Improved Traditional Improved An Giang Ordinary rice (export) Small farm 6.08 6.30 4.68 4.91 Medium farm 6.75 7.00 5.20 5.45 Large farm (outgrower) n/a 7.40 n/a 5.75 Jasmine rice Small farm 6.38 6.62 n/a n/a Medium farm 7.09 7.35 n/a n/a Large farm (outgrower) n/a 7.77 n/a n/a Nam Dinh, Phu Tho (mocro farms) Domestic rice Standard quality 4.73 5.20 4.45 4.89 Better quality 4.17 4.59 3.89 4.28 Feed maize Normal hybrid 4.4 n/a n/a n/a New variety (VN4) 5.5 n/a n/a n/a Cassava (fresh tubers) Traditio\nal variety n/a n/a 19.00 n/a New variety (KM94) n/a n/a 30.00 n/a Sources: Own estimates derived from expert interviews and various reports including Can Tho University, 2010; An Giang Plant Protection Company, 2012; An Giang Department of Agriculture and Rural Development, 2009 and 2012; Nam Dinh Department of Agriculture and Rural Development, 2012; and World Bank, 2012. 14 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS 44. Because actual rice yields can vary greatly depending on location, farmer skill, seed type, annual growing conditions, and many other factors, a variety of sensitivity tests were carried out to show the effects of reduced yield on farmer profitability and economic efficiency. In reading the base analysis, it should be kept in mind that An Giang is one of the very best locations for growing rice in Vietnam and that farmers in other major rice growing areas in the MKD such as Kien Giang, Long An, and Soc Tran regularly receive 10-25% less yield on a per hectare basis. Sensitivity results indicative of these other locations are presented in Section IV. Labor requirements 45. For each productive unit variation, the estimated number of days of family and hired labor required per hectare was estimated as shown in Table 6 and Table 7 below. All farmers use family and hired labor yet in different proportions depending on the availability of family workers, time available to complete sensitive tasks, access to laborsaving machinery, and availability of alternative on- and off-farm employment opportunities. The estimates used here considered each of these factors including the level of mechanization and type of tools owned by each category of farmer. They are based on a variety of data sources including first-hand farmer interviews and previous large-scale surveys of farm labor requirements by Can Tho University and the Cuu Long Rice Research Institute. Table 6: Labor Assumptions for Rice (days/ha) Ordinary Rice Jasmine rice Winter-Spring Summer Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total An Giang Small farm (3 cong = 0.3 ha) Traditional (high input) 31 29 60 27 32 59 35 39 74 Improved (reduced input) 24 31 55 23 31 54 27 41 68 Medium farm (1.5 ha) Traditional (high input) 21 19 40 17 22 39 29 30 59 Improved (reduced input) 21 23 44 19 25 44 26 35 61 Large farm/outgrower (5 ha) Improved (reduced input) 24 25 49 20 27 47 30 36 66 Nam Dinh Micro farm (5 sao = 0.17ha) Traditional (high input) 38 120 158 32 121 153 n/a n/a n/a Improved (reduced input) 33 114 147 30 112 142 n/a n/a n/a Table 7: Labor Assumptions for Rice Alternatives (days/ha) Hired Family Total Maize (manual) Standard hybrid 24 141 165 VN4 hybrid 24 146 170 Maize (tractor) Standard hybrid 3 30 33 VN4 hybrid 3 30 33 Cassava Traditional variety 10 175 185 KM94 hybrid 15 204 219 46. In reviewing these tables, it will be noted that the labor requirements for northern crops (Nam Dinh micro-farm rice, maize, and cassava) are much higher compared with An Giang. In 15 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS the case of rice and maize, this is because northern farmers generally start their crop in a nursery and then transplant individual seedlings to the field after about a month. This procedure is very time consuming on a per hectare basis so represents a large cost to Vietnam even though nursery operations can still be regarded as acceptable for individual households because of the very small farm sizes. Farmers in the MKD, on the other hand, normally sow directly in the field so enjoy considerable labor savings. Likewise, northern farmers typically harvest rice (and other crops) by hand whereas medium-scale farmers in the south are increasingly using hired combine harvesters (as a result of rising labor costs and periodic labor shortages). 47. With regard to land preparation, over 98% of rice farmers in northern and southern Vietnam were said to use a hired tractor. Even though many fields are very small, especially in the north, manual preparation with hand hoes or animal traction was said to be extremely rare for rice. In the case of northern maize and cassava, on the other hand, a very different situation was reported whereby most farmers were said to use manual cultivation thereby contributing to the high labor estimates for these crops. The model for tractor-based maize in northern Vietnam is a hypothetical model and, in this case, the labor estimates are based on savings from tasks that can be mechanized including land cultivation, planting, and harvesting. Rather than transplant maize seedlings as farmers do for rice, the tractor model assumes that seeds are planted directly in the field, thereby contributing to labor savings. 48. Other than the factors noted already it was further assumed that proportionately more time is required for the same activities in the north (weeding, crop scouting, etc) because of the poor economies of scale associated with very small farm sizes in northern Vietnam. Given an average farm size of just five sao, for example, each hectare of farmland in the north is managed by 5-6 households. Moreover, each household’s total holding is typically composed of 2-5 different plots that are no more than one or two sao each and are often 20-30 minutes apart by motorbike. Full details of the labor requirement assumptions are given in Appendix 1 where the totals for each crop and management variation are broken down by individual task. Costs of labor 49. In the crop budgets, the financial charges for hired labor are based on the rates reported by key informants met during data collection. Specifically, these rates are VND 80,000 (USD 3.84) per 6-hour day in the Mekong Delta and VND 100,000 (USD 4.79) per 6-hour day in northern Vietnam. Family labor is not counted as a financial cost since farmers do not pay for this with an expenditure of cash. 50. For the economic analysis, on the other hand, the value of family labor must be counted. At this level, the approach taken was to value the opportunity cost of family labor at 60% of the hired labor rate since farmers generally do not have the opportunity to sell their labor every day of the year. Given the fast pace of economic growth in Vietnam, a limited range of sensitivity tests were carried out to show how the financial and economic competitiveness of rice and rice alternatives would stand up to an escalation in wage rates. Producer prices 51. Producer price assumptions are based on reports from individual farmers, traders, milling companies, outgrower managers, and other key informants met during data collection. To reflect key differences that exist between the marketing arrangements of different categories of farmer, it was assumed that small-scale farmers in southern Vietnam sell to a private trader 16 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS whereas medium-scale growers sell to a cooperative. For the large-scale rice model, farmers were assumed to deliver dry paddy rice to the outgrower company’s mill where they sell at prices some 20-30% higher than typically occurs via intermediaries in the growing areas. Details of these financial assumptions are show in Table 8 below. Table 8: Producer Price Assumptions (VND per kg) Product Selling Winter- Summer- Form Point Spring Autumn An Giang Ordinary rice (export) Small Dry paddy Farm area (trader) 4,500 3,890 Medium-scale Dry paddy Farm area (co-op) 4,700 4,090 Large-scale (outgrower) Dry paddy Factory gate 5,650 5,040 Jasmine rice Smalll Dry paddy Farm area (trader) 5,900 n/a Medium Dry paddy Farm area (co-op) 6,000 n/a Large-scale (outgrower) Dry paddy Factory gate 6,400 n/a Northern Vietnam (all micro) Domestic rice Standard quality Dry paddy Farm area (trader) 5,300 6,300 Better quality Dry paddy Farm area (trader) 6,800 7,800 Feed maize Traditional hybrid Shelled grain Farm area (trader) 6,000 n/a New hybrid (VN4) Shelled grain Farm area (trader) 6,000 n/a Cassava Traditional variety Fresh tuber Farm area (trader) n/a 1,750 New variety (KM94) * Fresh tuber Farm area (trader) n/a 2,013 * KM94 Cassava not yet being marketed, assume 15% higher price due to increased starch content. Parity prices 52. As described, the policy analysis matrix requires agricultural outputs to be valued at their international parity price worked back to an equivalent product form at the farm gate.7 Full details of these international price assumptions and the ratios used to convert milled rice to dry paddy equivalent at the farm gate are given in Appendix 1. 53. For the large-scale outgrower models in MKD, a somewhat higher fob price was assumed for ordinary and jasmine rice than with small- and medium-scale rice due to the company negotiating forward contracts with international buyers. A somewhat more favorable outturn ratio from dry paddy was also assumed for outgrower rice due to the use of a single variety improved seed and extension support provided by the company. To test the impact of this assumption on the efficiency analysis of large-scale rice, a limited range of sensitivity tests were conducted using the standard fob price and milling outturn assumptions used for other rice models (see discussion of the main results below). 54. For rice grown as an import substitute in northern Vietnam, the international parity calculations are based on the cost of bringing low-grade domestic rice from the Mekong Delta by boat to northern Vietnam to supply consumers in Hanoi. Vietnam imports very little ordinary rice for domestic consumers and this approach was considered the best way to measure the efficiency of northern production since surplus rice in the south could be used to feed northern 7 Dry paddy rice, shelled maize, fresh cassava tubers, etc. 17 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS consumers.8 Since this rice is still a domestic product, no import duty was charged as part of the import parity calculations. 55. For the analysis of maize and cassava in northern Vietnam, the approach taken to calculate import parity prices was to work the factory gate price quoted by large stock feed manufacturers back to the farm gate. For maize, this was the imported cif price for foreign grain less transport and handling costs from the factory to farm area. For cassava, the import parity price was likewise determined by taking the price paid for sliced dry cassava at the factory less transport to the farm area, less slicing costs, and finally by converting this value to fresh cassava equivalent which is the product sold by most farmers. Estimation of economic conversion factors and foreign exchange proportions 56. Because the PAM requires the use of economic prices and separation of total costs according to their foreign exchange proportion, a special spreadsheet template was constructed for estimating these percentages. By entering data on economic transfers including rate of value added tax, import duty, and domestic subsidies as well as the assumed profit margins and domestic mark-ups taken by distribution agents, the template will calculate the foreign exchange content and economic conversion factors needed for PAM analysis. See Appendix 1 for details. Irrigation 57. Bearing in mind that the technical specifications and costs of operating Vietnam’s irrigation system varies greatly from province to province depending on local terrain, elevation, and source of water supply, the Department of Agriculture and Rural Development (DARD) in each province is generally responsible for maintaining the irrigation network at the primary supply and secondary distribution levels with individual farmers and farmer cooperatives taking over responsibility for delivery of water to the actual farm fields at the tertiary level. Whereas the financial costs paid by farmers for irrigation water are therefore easy to identify, the total economic costs including the costs of maintaining national reservoirs, pumping stations, distribution canals, canal locks, and other essential parts of total infrastructure are difficult to determine. The situation is further complicated by the fact that irrigation water can be used for many purposes including irrigation of crops with different water requirements, aquaculture, and even for salt production. 58. Given these complexities, the approach taken for this study was to divide the total annual irrigation budget attributable to crops reported by the DARD offices in An Giang and Nam Dinh provinces by the number of hectares irrigated to derive the government’s share of total irrigation costs. For the improved (reduced input) rice models, the government’s share of total economic costs in each province was reduced by 10% to account for the savings on irrigation. Full details of these calculations are given in Appendix 1. Irrigation costs only apply to rice since maize and cassava are grown as rain fed crops in Vietnam. 8 Vietnam does import a considerable amount of unmilled paddy from Cambodia, with this either entering the domestic market in Southern Vietnam or becoming part of the Mekong Delta’s rice exports. For the northern region, rice imports are primarily in the form of sticky rice from Laos used in the production of confectionery products. 18 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Agriculture extension, crop research, and outgrower overheads 59. Similar to the approach for irrigation, the economic cost of government extension services and crop research were estimated by dividing the total extension budget for each province by the total number of hectares planted in that province. For improved (reduced rice) models, a further economic charge was applied to account for the costs of promoting the new methods. For large-scale rice, the costs of private extension services were estimated from information provided to the research team plus 20% overheads to account for other costs associated with organizing an outgrower program. Details of these assumptions are also given in Appendix 1. Energy costs (fuel, transportation, electricity) 60. The conversion factors and foreign exchange proportions for fuel and electricity were derived with reference to a study of Vietnam’s energy sector by UNDP.9 Bearing in mind that the exact composition of energy costs in Vietnam is masked by a wide array of subsidies including transfer payments to loss-making state owned enterprises, a number of simplifying assumptions were made to reflect the approximate overall subsidy and foreign exchange components of fuel and electricity. Details of these assumptions are given in Appendix 1 and may be summarized as follows:  Electricity (used by rice mills, irrigation pumps, etc) o 75% domestic costs; 25% foreign costs (based on various sources of supply) o 25% overall subsidy (based on UNDP comparison of current tariffs and tariffs that would be needed for the sector to be financially sustainable)  Fuel (used for all types of transportation, tractor operations, combine harvesting, etc) o 90% domestic costs; 10% foreign costs (based on Vietnam being a net fuel exporter but with imported costs for machinery, refining technology, etc) o 20% overall subsidy (based on UNDP estimate of 12% subsidy at the pump plus 8% subsidy to cover revenue losses by state owned enterprises). 9 UNDP, 2012. 19 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS III. BASE ANALYSIS 61. This section of the paper presents the main results of the analysis using the base assumptions described above. The full set of economic and financial indicators resulting from the analysis is presented in Appendix 2. 62. Until recently, many of the investment decisions and agricultural policies in Vietnam have been made with little consideration of factors other than output maximization. Although the analysis undertaken here only covers a limited range of crop alternatives and cannot point to optimal investment strategies for individual farmers or companies, it is hoped that the discussion illustrates the benefits of a systematic approach to agriculture sector analysis that considers the strengths and limitations of different crops and crop systems from a variety of perspectives. Having developed the spreadsheet template and prepared all other assumptions required for PAM analysis, it would be straightforward for local institutions to expand the analysis to cover a much broader range of crops as part of their future research and policy support for government. Policy transfers 63. First, Table 9 below summarizes the PAM indicators for policy transfers. As described in the methodology section, when the NPC or EPC is greater than one this indicates that domestic policies are increasing the market price above the world price thus providing a positive incentive to the producer. NPCs measure the ratio of foreign revenue in social and economic terms whereas EPCs measure the ratio of domestic value added (foreign revenue minus imported costs) in financial and economic terms. Table 9: NPC and EPC Results NPCs EPCs Winter-Spring Summer-Autumn Winter-Spring Summer-Autumn Trad. Improved Trad. Improved Trad. Improved Trad. Improved An Giang (export rice) Ordinary rice Small farm 1.018 1.018 1.019 1.019 1.024 1.023 1.027 1.025 Medium farm 1.018 1.018 1.019 1.019 1.023 1.022 1.026 1.025 Large farm (outgrower) n/a 1.016 n/a 1.016 n/a 1.020 n/a 1.022 Jasmine rice Small farm 1.013 1.013 n/a n/a 1.015 1.015 n/a n/a Medium farm 1.013 1.013 n/a n/a 1.015 1.014 n/a n/a Large farm (outgrower) n/a 1.012 n/a n/a n/a 1.014 n/a n/a Nam Dhin (domestic rice) Standard quality Micro farm 1.002 1.002 1.002 1.002 1.003 1.006 1.004 1.007 Better quality Micro farm 1.002 1.002 1.002 1.002 1.003 1.007 1.005 1.007 NPCs EPCs Maize Manual cultivation Ordinary hybrid 1.001 1.001 VN4 hybrid 1.001 1.002 Tractor (hypothetical) Ordinary hybrid 1.001 1.003 VN4 hybrid 1.001 1.003 Cassava Ordinary variety 1.003 1.236 KM94 (high yield, high starch) 1.002 1.175 20 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS 64. Although there are many subsidies in Vietnam that benefit farmers in direct and indirect ways including subsidized electricity and fuel, state-run irrigation networks up to the tertiary level, and crop research and extension programs to name but a few, the NPCs and EPCs above show surprisingly little net transfer in favor of farmers. In part, this is because several inputs are subject to import duty and/or domestic VAT that offset the benefits of the subsidy. As a result, the net transfer effects measured by the NPCs and EPCs suggest only 1-3% total subsidy at the farm level. With respect to the EPCs for cassava, these indicate a much higher element of subsidy because of farmers using manure from their own animals that has an obvious economic value but does not incur a financial cost. 65. In interpreting the NPC and EPC results, it should also be kept in mind that these PAM indicators measure revenue with reference to a commodity’s international parity price including the costs of milling and delivery up to the export (or import) location. Because farmers are rarely (if ever) paid import or export parity at the farm gate, these coefficients do not measure the actual subsidy that occurs at the farm level. Taking the example of ordinary winter-spring rice grown on a medium size farm in An Giang (with traditional management technology) the farmer’s financial cost for seed, chemicals and fertilizer (i.e. all variable costs excluding family and hired labor) works out to an estimated VND 18.9 million (USD 906) per hectare, against VND 19.7 million (USD 944) per hectare in economic terms. In these terms, the subsidy on farm-level costs works out to around 4.2% so is roughly twice as high compared with the NPC and EPC results above. If differences between the economic and financial costs of family and hired labor were taken into account, the total “subsidy� would be even higher at around 8.5% of the actual financial cost paid by farmers. 66. Given these discrepancies, a good area for future analysis would be to isolate policy transfers that occur at the farm level from those that occur at later value chain stages (milling, distribution, etc). This approach would allow policymakers to assess the cost of farm-level subsidies for Vietnam and impact of these subsidies on farmer profitability. A. Export Rice in An Giang Small farm rice 67. The average plantings of the nearly 1.6 million rice-growing households in the Mekong Delta are just under 1.2 hectares per family. The average paddy growing area in An Giang is slightly above this, yet there are a considerable number of growers—perhaps 35-40% who cultivate 0.75 hectares or less. Our ‘small-scale’ rice farm model refers to such farmers. Among the Mekong Delta provinces, An Giang now ranks second (behind Kien Giang) is annual paddy production, yet it has been associated with a range of technical and institutional innovations. It is one of five or six provinces that have accounted for the bulk of the Mekong Delta’s expanded rice production over the past two decades and is one of the leading sources of the region’s expanding rice exports. For the Mekong Delta as a whole, in recent years some 70% of rice production has gone for exports. In all likelihood, a similar if not somewhat larger share of the production in An Giang has been channeled abroad. Selected indicators from the analysis of small-farm rice operations in An Giang are summarized in Table 10 below. 21 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table 10: Selected Indicators, Small Farm Rice, An Giang VND '000 per Hectare Gross Net Gross Net profit profit Margin / Profit / DRC Variable Total Gross Net per day per day Variable Total costs Costs Margin Profit family total Costs Costs labor labor Ordinary export rice (SA) Traditional 1.06 15,845 16,522 2,360 1,684 74 29 0.15 0.10 Reduced input 0.79 12,765 13,442 6,315 5,639 204 104 0.49 0.42 Ordinary export rice (WS) Traditional 0.98 21,100 21,777 6,238 5,561 215 93 0.30 0.26 Reduced input 0.73 16,900 17,577 11,450 10,773 369 207 0.68 0.61 Jasmine rice (WS) Traditional 0.63 22,580 23,257 15,055 14,378 386 194 0.67 0.62 Reduced input 0.48 17,836 18,513 21,193 20,516 517 302 1.19 1.11 68. A number of important findings stand out from these data as follows:  With current, high-input methods, the DRC for ordinary, small farm rice is near or above one showing that this system is barely efficient. Farmer profits are also very low at just VND 5.6 million (USD 267) per hectare in the optimal winter-spring season and only VND 1.7 million (USD 81) per hectare in the summer-autumn season. Given that the small farm model is based on each household cultivating only 7.5 cong the actual net profits per farm family are just 75% of these per hectare totals and work out to a total annual net profit of just VND 5.4 million (USD 261) per household per year from two rice crops. Outside An Giang or in other locations where farmers achieve lower yields than assumed for the base analysis, the results would be even less attractive than illustrated here.  With improved (reduced input) management, the results for ordinary small-scale rice improve significantly but are still only marginally attractive in terms of total farmer income. As shown in the table above, the DRCs improve from 0.98 for 0.73 in the WS season and from 1.06 to 0.79 in the SA season as a result of adopting the reduced input recommendations. Total net profits also improve significantly and work out to an estimated VND 12.3 million (USD 590) per year from 7.5 cong of WS and SA rice total production. At this level, however, net profits are still only equal to just 46.8% of Vietnam’s per capita gross income suggesting that investments in small-scale rice are unlikely to be a very good strategy for poverty reduction even with recommended technologies.10  Jasmine rice is shown to be significantly more profitable and socially efficient with both traditional (high input) and improved (reduced input) management than ordinary rice indicating that a move towards higher-value, specialty varieties would be a good strategy for more and more growers. Although Vietnam is a major rice exporter, the quality of its rice is generally low and typically sells at a 10-15% discount to ordinary rice exported by Thailand. Until recent years, production of Jasmine and other aromatic rice varieties in the Mekong Delta was very small. However, with Thai rice policies resulting in steep price increases, an opportunity for Vietnam to capture a greater share of the 10 2011 GNI per capita, Atlas method (current US$) = USD 1,260 (World Bank data). 22 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS international market for aromatics has opened up and several companies have responded effectively.11 Despite somewhat higher production costs for jasmine rice, the analysis shows that efforts to target higher-value markets for better quality rice and for specialty rice would likely be very rewarding in financial and economic terms. Medium and large farm rice 69. The base results for medium- and large-scale rice in An Giang are summarized in the next table below. Key points that stand out from these data include:  Compared with small-farm rice in An Giang, the results for medium- and large-scale farms are considerably more attractive from both the economic and financial perspectives. Whereas the DRCs for ordinary export rice were near or above one with traditional management on small-scale farms (indicating that production is socially inefficient even in one of Vietnam’s best rice growing areas), the DRCs for medium- and large-farms are each below one. The DRCs for reduced input production on large and small farms are, in fact, reasonably attractive at a range of just 0.57 to 0.64 indicating that Vietnam enjoys a moderately strong comparative advantage in export rice if farmers adopt the recommended improvements. Similar to the results for small farm rice, the financial profits and rates of return also improve significantly from adopting reduced input practices.  The results also show that large-farm production can be substantially more profitable for farmers organized into outgrower programs compared with independent, medium-scale production. Although the DRCs for large-farm rice are only moderately more attractive than the ones for medium-farm rice, the estimated net profits for outgrower rice are around 50% higher. Large-farm rice also appears to provide significantly better returns to labor and variable and total costs. 11 In 2012, Vietnam’s Jasmine rice exports were estimated at 584,000 tons, up from only 248,000 tons in 2010 (Data from Vietnam Food Association). 23 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table 11: Selected Indicators, Medium and Large Farm Rice, An Giang VND '000 per Hectare Gross Net Gross Net profit profit Margin / Profit / DRC Variable Total Gross Net per day per day Variable Total costs Costs Margin Profit family total Costs Costs labor labor Ordinary export rice (SA) Medium farm Traditional 0.83 15,025 15,461 6,243 5,807 284 149 0.42 0.38 Reduced input 0.64 12,265 12,701 10,026 9,590 401 218 0.82 0.76 Large farm Reduced input 0.59 13,014 13,652 15,966 15,328 591 326 1.23 1.12 Ordinary export rice (WS) Medium farm Traditional 0.77 20,100 20,536 11,625 11,189 612 280 0.58 0.54 Reduced input 0.60 16,461 16,897 16,439 16,003 715 364 1.00 0.95 Large farm Reduced input 0.57 17,894 18,532 23,916 23,278 957 475 1.34 1.26 Jasmine rice (WS) Medium farm Traditional 0.52 21,900 22,336 20,625 20,189 688 342 0.94 0.90 Reduced input 0.41 17,556 17,992 26,544 26,108 758 428 1.51 1.45 Large farm Reduced input 0.39 18,445 19,083 31,283 30,645 869 464 1.70 1.61  While the benefits of large-farm rice appear significant, it must also be kept in mind that the opportunities to promote this type of production are limited by the capacity and interest of export companies to organize farmers into outgrower groups. As described in the methodology section, the large-farm analysis is based on higher parity prices because of the export company being able to negotiate forward contracts and having greater control over quality. It would therefore be unrealistic to assume this model can be replicated for all of Vietnam.  If large-farm rice were analyzed using the same parity prices as medium-farm rice, the DRC for ordinary WS export rice would increase from 0.57 to 0.66 while farmer net profits would fall from VND 23.2 million (USD 1,112) per hectare to VND 18.8 million (USD 901) per hectare. While large-farm production would therefore remain somewhat more profitable compared with medium-scale ordinary WS rice, the efficiency score is actually higher indicating that improved economies of scale are not the main benefit of large-farm rice compared with the ability of export firms to control quality and negotiate better prices through forward contracting.  With respect to jasmine rice, the results are again significantly more attractive compared with ordinary WS rice from the social efficiency and private profitability points of view. Together with the very good results for small farm jasmine rice, these findings underscore the potential benefit for Vietnam of moving toward the production of higher quality, aromatic varieties. Although the production costs (and skill requirements) are also higher for jasmine and may be an obstacle to some farmers, the estimated gross and net profits, as well as the returns to labor and all other production costs, are more attractive compared with ordinary rice. 24 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS B. Domestic Rice and Rice Alternatives in Northern Vietnam 70. Results from the analysis of import substitute rice and rice alternatives grown in northern Vietnam are summarized in Table 12. As shown, the analysis covers two types of domestic rice including a “standard� and “better quality� variety. Better quality rice was reported to attract a 23- 28% price premium at the farm gate. Table 12: Selected Indicators, Rice and Alternative Crops in Northern Vietnam VND '000 per Hectare Gross Net Gross Net profit profit Margin / Profit / DRC Variable Total Gross Net per day per day Variable Total costs Costs Margin Profit family total Costs Costs labor labor Import substitute rice (SA) Standard quality Traditional 1.18 15,424 18,317 12,599 9,705 104 63 0.82 0.53 Reduced input 1.02 15,277 18,171 15,547 12,653 139 89 1.02 0.70 Better quality Traditional 1.39 16,096 18,990 14,261 11,367 118 74 0.89 0.60 Reduced input 1.08 13,831 16,725 19,563 16,669 175 117 1.41 1.00 Import substitute rice (WS) Standard quality Traditional 1.31 20,238 23,132 4,810 1,916 40 12 0.24 0.08 Reduced input 0.97 16,276 19,170 11,277 8,383 99 57 0.69 0.44 Better quality Traditional 1.53 20,697 23,591 7,659 4,765 64 30 0.37 0.20 Reduced input 1.11 16,666 19,560 14,526 11,632 127 79 0.87 0.59 Import substitute maize Manual cultivation Ordinary hybrid 0.64 11,133 14,159 15,555 12,529 110 76 1.40 0.88 VN4 hybrid 0.52 11,237 14,263 21,763 18,737 149 110 1.94 1.31 Tractor cultivation (hypothetical) Ordinary hybrid 0.48 11,378 14,404 15,310 12,284 510 372 1.35 0.85 VN4 hybrid 0.38 11,482 14,508 21,518 18,492 717 560 1.87 1.27 Import substitute cassava Ordinary variety 0.89 14,561 16,858 18,689 16,392 121 99 1.28 0.97 KM94 (high starch) 0.72 30,863 33,159 29,512 27,216 160 137 0.96 0.82 71. Unlike the MKD where the WS season is more favorable than SA, the situation in northern Vietnam is reversed and the SA season is most favorable. Although rainfall patterns for rice are better in the north during the spring resulting in better yields for WS rice than SA, the very cold temperatures at the start of the winter season result in poor germination and farmers having to spend more money on seed. Farmers also reported using up to 50% more fertilizer in the WS season to encourage plant growth during the cold weather. Several other important findings stand out from the analysis as follows:  Most DRCs for northern rice are near or above one indicating that production of rice as an import substitute in Nam Dinh is socially inefficient. Since 1995, only Thai Bhin and Hung Yen have achieved higher average yields than Nam Dhin in the Red River Delta while other provinces (ie. Vinh Phuc and Quang Ninh) have achieved less than 80% as 25 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS much yield per hectare. In the Northern Midlands, the average yield for all provinces is only 67% of the yield in Nam Dinh. The poor results for one of the best rice growing areas in Vietnam therefore provide a bleak picture for the social efficiency of using scarce land for substitute rice production. In other words, while rice is grown for household subsistence purposes in many northern households, if markets functioned better, it would be more efficient to move surplus rice production from the south to the north and utilize more farmland in the north for alternative crops (or livestock raising).  Farmer profits are also shown to be much lower in Nam Dinh than in An Giang. Given that that most households in the north cultivate only around 5 sao (0.18 to ha) the total annual profits from one cycle of standard SA and WS rice work out to just VND 2.09 million (USD 100) per household with traditional management and 3.79 million (USD 181) per household with improved management. Obviously, such low levels of income cannot sustain a household and such households need to rely on other farm (i.e. different crop and livestock activities) and non-farm sources of income.  Better quality rice is shown to provide more profit than standard quality rice, but still generates very little income given the very small farm sizes in northern Vietnam. Moreover, all DRCs for better quality rice are greater than one indicating the crop is socially inefficient. In other provinces that are less well suited to rice than Nam Dinh, the financial and economic results for better quality rice would be even worse than shown.  Compared with rice, the results for import substitute maize and cassava are all much more attractive from the private and social perspectives. Unlike rice, all of the DRCs for these alternative crops are below one indicating that production is socially efficient. Moreover, with the exception of high-starch (KM94) cassava, the production costs are shown to be significantly less than for rice making these crops more affordable for poor households to grow. The estimated profits, returns to labor, and returns to total costs are also significantly better for these alternatives to rice. Thus far, Vietnam has given top priority to rice production with large parts of the country given to this activity on an almost exclusive (mono-crop) basis. While many factors need to be considered in planning a transition away from rice, the data provide strong reason to believe that other crops could be a better choice for individual farmers and the country as a whole as part of a gradual diversification strategy. This needs to be examined on an area-by-area basis, and take into account soil types, weather patterns, drainage conditions, etc.  The analysis also shows that new technologies for maize and cassava can be especially attractive. With maize, for example, the VN4 hybrid costs nearly the same to grow as ordinary hybrid maize, but is associated with a much lower DRC and significantly more profit for the producer. A switch to tractor-based cultivation on larger plots (perhaps along the lines of large-scale rice in MKD) could also be a good strategy where the conditions are suitable. Although the estimated gross and net profits from tractor maize are slightly lower compared with manual cultivation, the DRC scores and daily returns to labor are much better when the crop is grown on a large plot using mechanical cultivation. With respect to cassava, the KM94 (high starch) variety costs around twice as much for farmers to produce due to greater requirements for fertilizer, but is also twice as profitable so is likely to be a good choice for families that only have a limited area available to cultivate. 26 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS IV. SENSITIVITY ANALYSIS 72. Having presented the main results using all base assumptions, this part of the paper presents the results for four categories of sensitivity analysis that looked at the impact of reductions in yield, reductions in price, higher fertilizer costs, and higher wage rates. The sensitivity analysis only covers selected enterprise variations since the effects of different yield and price assumptions will be similar for each model. A. Sensitivity to Yield 73. One of the most important variables in the analysis is crop yield. Not only can the actual yields on individual farms vary greatly from the levels assumed for this analysis, but many parts of the country are less well suited to rice production than An Giang and Nam Dinh which were selected for the base analysis. Since 1995, for example, Can Tho Province has only achieved about 90% as much yield compared with An Giang while other provinces such as Kien Giang, Long An, and Soc Trang have each achieved less than 80% as much yield on an average annual basis. In northern Vietnam, Thai Binh has produced around 7% more yield per hectare compared with Nam Dinh since 1995, but many other provinces including Ha Nam, Ninh Binh, and Hai Phong have only achieved 90% as much yield while provinces such as Quang Ninh and Vinh Phuc have only produced 80% as much yield per hectare as Nam Dinh.12 74. To illustrate the impact of yield on the economic and financial results, a range of sensitivity tests for selected enterprise variations were carried out in which the base yields were reduced by 10% and 20%. For the export rice, a 10% yield reduction would be indicative of the current situation in Can Tho while a 20% is indicative of the situation in Kien Giang, Long An, and Soc Trang. In the north, a 10% reduction is indicative of the current situation in Ha Nam, Nin Binh and Hai Phong while the 20% reduction is indicative of the situation in Quang Ninh and Vinh Phuc. 75. The DRC scores for selected rice variations using different yield assumptions are set out below. As shown, the efficiency of rice growing drops off quickly with only a 10% reduction in yield. With 20% reduction in yield, the DRCs for ordinary (WS) export rice are all above one indicating that production is socially inefficient. In northern Vietnam, the DRCs for the most favorable SA season were already above using the base assumptions and become very unattractive when yields are less than assumed. 12 Analysis of GSO data. 27 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table 13: Sensitivity of DRC to lower Yield Traditional Improved Base 10% less 20% less Base 10% less 20% less Ordinary export rice (WS) Small farm 0.98 1.14 1.36 0.73 0.84 0.98 Medium farm 0.77 0.89 1.05 0.60 0.68 0.79 Large farm n/a n/a n/a 0.57 0.64 0.74 Jasmine rice (WS) Small farm 0.63 0.72 0.84 0.48 0.55 0.63 Medium farm 0.52 0.59 0.68 0.41 0.46 0.53 Large farm n/a n/a n/a 0.39 0.44 0.50 Northern domestic rice (SA) Micro farm - standard 1.18 1.34 1.56 1.02 1.16 1.33 76. In terms of development strategy, these sensitivity results further underscore the importance for Vietnam of transitioning from traditional (high input) production to reduced input management. Even with a 20% reduction in yield, all of the scores for export rice remain below one indicating that production is still socially efficient (albeit only marginally so on small farms). The results also underscore the benefit of promoting new, higher-value export varieties like jasmine. For this crop, the sensitivity analysis still shows Vietnam would enjoy a reasonably strong of comparative advantage even with a 20% yield reduction. 77. The next table looks at the impact of reduced yield on a farmer’s financial profits and shows that even a small loss of yield can have a significant impact on income. Given that many areas outside of An Giang already produce 10-20% less yield, these findings are a serious challenge for any strategy for livelihood improvements based on rice production. Improved (reduced input) methods are more profitable than traditional management (and less risky for farmers because of lower cost), but are still highly sensitive to reduced yield with profits falling by around 15-25% from just a 10% loss of yield. Table 14: Sensitivity of Net Profit to lower Yield (VND ‘000 per ha) Traditional Improved Base 10% less 20% less Base 10% less 20% less Ordinary export rice (WS) Small farm 5,561 2,827 93 10,773 7,938 5,103 Medium farm 11,625 8,017 4,844 16,003 12,713 9,423 Large farm n/a n/a n/a 23,278 19,158 15,038 Jasmine rice (WS) Small farm 14,378 10,615 6,851 20,516 16,613 12,710 Medium farm 20,189 15,937 11,684 26,108 21,698 17,288 Large farm n/a n/a n/a 30,645 25,736 20,828 Northern domestic rice (SA) Micro farm - standard 9,705 6,903 4,101 12,653 9,571 6,488 28 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS B. Sensitivity to Price 78. The second sensitivity test was to consider the effects of a 20% reduction in world prices for rice. Despite some above normal international grain prices in recent years, this price reduction scenario is completely possible for rice in light of the current build up of very large rice stocks by the Thai government under its price guarantee scheme. The commercial release of such stocks could well result in a sharp drop in international prices for ordinary white rice, perhaps leading to a drop in Vietnamese prices from some $400-425 per ton to the low to mid- 300s per ton.13 Because output prices are not specifically subsidized, it was further assumed the drop in world price would also results in a 20% reduction in the farm gate price received by growers. The results of the sensitivity test for price are summarized in Table 15 below. 79. These data show that:  Farmer financial profits and economic DRC scores are both very sensitive to price. As shown, many of the DRCs increase significantly and become higher than one with just a 20% fall in world price. The impact of lower prices is especially bad for small farm systems and for all categories of producer using traditional (high input) management.  In terms of farmer income, small farmer net profits fall by 72% to 216% with traditional management and by 53% to 68% with improved management. On medium farms, profits drop by 57% to 73% with traditional management and by 41% to 47% with improved management. On farms under the large field model, the estimated net profits fall by 36% to 47% with jasmine experiencing the greatest reduction. In the north, the estimated net profits for micro farms fall by 41% and 49% with improved and traditional management respectively. 13 In March 2013, the built up rice stocks in Thailand were estimated at 17.1 million tons. This was a stock level approximately double its size from a year earlier (e.g. 8.8 million tons) (Source: Thai Rice Exporters Association). 29 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Table 15: Sensitivity to Price (20% lower export parity and farm gate) Base Analysis 20% lower Output Prices VND '000 per Ha VND '000 per day VND '000 per VND '000 per day DRC Gross Net Gross per Net per DRC Gross Net Gross per Net per Margin Profit day family day total Margin Profit day family day total Ordinary export rice (WS) Small farm Traditional 0.98 6,238 5,561 215 93 1.41 770 93 27 2 Reduced input 0.73 11,450 10,773 369 207 1.01 5,780 5,103 186 98 Medium farm Traditional 0.77 11,625 11,189 612 280 1.08 5,280 4,844 278 121 Reduced input 0.60 16,439 16,003 715 364 0.81 9,860 9,424 429 214 Large farm Reduced input 0.57 23,916 23,278 957 475 0.77 15,554 14,916 622 304 Ordinary export rice (SA) Small farm Traditional 1.06 2,360 1,684 74 29 1.50 (1,281) (1,957) (40) (33) Reduced input 0.79 6,315 5,639 204 104 1.08 2,499 1,823 81 34 Medium farm Traditional 0.83 6,243 5,807 284 149 1.15 1,989 1,553 90 40 Reduced input 0.64 10,026 9,590 401 218 0.86 5,567 5,131 223 117 Large farm Reduced input 0.59 15,966 15,328 591 326 0.79 10,170 9,532 377 203 Jasmine rice (WS) Small farm Traditional 0.63 15,055 14,378 386 194 0.98 4,660 3,984 119 54 Reduced input 0.48 21,193 20,516 517 302 0.72 10,413 9,737 254 143 Medium farm Traditional 0.52 20,625 20,189 688 342 0.79 8,880 8,444 296 143 Reduced input 0.41 26,544 26,108 758 428 0.60 14,364 13,928 410 228 Large farm Reduced input 0.39 31,283 30,645 869 464 0.58 17,610 16,972 489 257 Northern domestic rice (SA) - standard Traditional 1.18 12,599 9,705 104 63 1.57 7,884 4,990 65 33 Reduced input 1.02 15,547 12,653 139 89 1.34 10,361 7,467 93 53 C. Sensitivity to Fertilizer Costs 80. The next sensitivity test was to look at the impact of a 50% increase in fertilizer prices. Just before the onset of the global financial crisis in 2008, for example, world fertilizer prices increased by as much as 108%. Although this proved to be a temporary blip with prices returning to near normal levels the following year, future price shocks could happen again particularly as global energy prices continue to rise. 81. Results of the fertilizer sensitivity test are shown in Table 16. Some key findings that stand out from this analysis include:  Variable costs increase by 12-16% (VND 2.2 to 7.2 million per hectare) with the least effect felt by large-scale outgrower farmers and the greatest effect felt by independent, medium-scale farmers.  Farmer net profits in An Giang decrease by 29-58% with traditional high-input management and by 9-31% with improved, reduced-input management. Large-scale farmers again do the best with just a 9% drop in net profits for ordinary rice and 24% 30 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS drop for jasmine rice. In all cases, the profits from jasmine rice are more sensitive to higher fertilizer prices because of the higher input requirements for this crop.  Farmer net profits decrease by 9% to 58% with high input farmers experiencing the small-scale farmers experiencing the worst effects.  Switching to reduced input technology naturally provides farmers a degree of protection from the risk of higher fertilizer prices because of using less of this input. With traditional (high input) management, for example, fertilizer accounts for 28-30% of a farmer’s variable costs but only 22-25% of variable costs with reduced input management. Table 16: Sensitivity to Fertilizer Costs (50% increase) Base Analysis 50% higher fertilizer prices VND '000 per Ha VND '000 per day VND '000 per Ha VND '000 per day DRC Variable Net Gross per Net per DRC Variable Net Gross per Net per Costs Profit day family day total Costs Profit day family day total Ordinary export rice (WS) Small farm Traditional 0.98 21,100 5,561 215 93 1.19 24,325 2,336 104 39 Reduced input 0.73 16,900 10,773 369 207 0.85 19,480 8,193 286 158 Medium farm Traditional 0.77 20,100 11,189 612 280 0.92 23,325 7,964 442 199 Reduced input 0.60 16,461 16,003 715 364 0.70 19,040 13,424 603 305 Large farm Reduced input 0.57 17,894 23,278 957 475 0.62 20,094 21,078 869 430 Jasmine rice (WS) Small farm Traditional 0.63 22,580 14,378 386 194 0.83 25,805 7,569 211 102 Reduced input 0.48 17,836 20,516 517 302 0.62 20,416 14,219 363 209 Medium farm Traditional 0.52 21,900 20,189 688 342 0.68 25,125 12,914 445 219 Reduced input 0.41 17,556 26,108 758 428 0.52 20,136 19,328 565 317 Large farm Reduced input 0.39 18,445 30,645 869 464 0.50 20,963 23,390 667 354 Northern domestic rice (SA) - standard Traditional 1.18 15,424 9,705 104 63 1.32 17,785 7,344 85 48 Reduced input 1.02 15,277 12,653 139 89 1.02 15,277 12,653 139 89 D. Sensitivity to Labor Costs 82. The last category of sensitivity test was to look at the impact of a 50% rise in wage rates. In recent years there has been a run-up in labor costs, especially in the Mekong Delta, as fewer young people want to work in the rice sector and as alternative jobs have become available in the service and manufacturing sectors. A similar run-up in labor costs has been experienced in other locations for commercial agriculture, including for the coffee harvests in the Central Highlands region. The results for the simulated labor cost increase are summarized in Table 17. 83. Similar to the other sensitivity tests, these data show that the continued economic and financial profitability of rice could be significantly undermined by higher wage rates. Although most DRCs remain below one, the analysis shows that the competitiveness of jasmine rice is especially vulnerable to higher wage rates with the DRCs increasing by around 24-26% from the 31 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS increase in labor cost. Labor accounts for a lower share of total costs for ordinary rice and in this case, the DRCs only increase by 4-10% because of the higher wage rate. 84. In terms of farmer profits, jasmine rice is again shown to be the most vulnerable to an increase in wage rates with farmer net profits falling by 19-33% compared to just a 2-18% for ordinary rice. In northern Vietnam, net profits fall by 15% at the higher wage level with traditional management and by 11% with improved management. Table 17: Sensitivity to Labor Costs (50% increase in wage rate) Base Analysis 50% Higher Labor Costs VND '000 per Ha VND '000 per day VND '000 per Ha VND '000 per day DRC Variable Net Gross per Net per DRC Variable Net Gross per Net per Costs Profit day family day total Costs Profit day family day total Ordinary export rice (WS) Small farm Traditional 0.98 21,100 5,561 215 93 1.08 22,100 4,561 181 76 Reduced input 0.73 16,900 10,773 369 207 0.81 17,660 10,013 345 193 Medium farm Traditional 0.77 20,100 11,189 612 280 0.82 20,700 10,589 580 265 Reduced input 0.60 16,461 16,003 715 364 0.65 17,100 15,364 687 349 Large farm Reduced input 0.57 17,894 23,278 957 475 0.59 18,274 22,898 941 467 Jasmine rice (WS) Small farm Traditional 0.63 22,580 14,378 386 194 0.80 23,740 9,634 264 130 Reduced input 0.48 17,836 20,516 517 302 0.61 18,716 15,919 405 234 Medium farm Traditional 0.52 21,900 20,189 688 342 0.64 22,820 15,219 522 258 Reduced input 0.41 17,556 26,108 758 428 0.51 18,396 21,068 614 345 Large farm Reduced input 0.39 18,445 30,645 869 464 0.49 19,383 24,970 711 378 Northern domestic rice (SA) - standard Traditional 1.18 15,424 9,705 104 63 1.44 16,924 8,205 92 54 Reduced input 1.02 15,277 12,653 139 89 1.24 16,677 11,253 126 79 32 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS V. CONCLUSIONS The findings from this analysis are supportive of the growing anecdotal and survey evidence regarding the low profitability of rice production in important growing areas, especially when farmers apply the traditional high inputs production practices. What is surprising is that such production, at least on the very small scale that commonly occurs in both the north and the south, may well be socially inefficient. That is, when taking into account some additional costs not directly borne by farmers, the social costs of this production may well exceed its value. This calculation was made WITHOUT taking into account the adverse environmental impacts of intensive rice cultivation in some areas—including the adverse effects of fertilizer and chemical run-off on fish populations and the quality of drinking water. Taking into account (adverse) environmental impacts would further skew the pattern. At least from the An Giang models, there appear to be financial and economic benefits from growing rice on a somewhat larger scale—i.e. the so-called ’medium’ farms and the clusters of farmers on somewhat larger plots. And, there appear to be strong benefits—for farmers and for society—of shifts to improved, lower input production models and, where market opportunities exist, toward specialty rice varieties such as aromatic ones whose commercial value is higher. These findings suggest potentially high returns on public programs or public-private partnerships in the MKD that would:  Support some consolidation of landholdings and rice cultivation systems;  Facilitate farmer adoption of lower input/sustainable rice production models  Facilitate farmer adoption of specialty rice variety production under contract with downstream buyers; and  Facilitate crop rotations and mixed farming models, especially among smaller farmers and those producing rice under less than optimal growing conditions (and in certain seasons).14 The results from the work undertaken in selected northern provinces are suggestive rather than conclusive. Yet, the findings from Nam Dinh and Phu Tho suggest that rice production there is not socially efficient, in contrast with the situation for maize and cassava. The latter two crops— grown for feed—are also more profitable for farmers, especially when they adopt improved varieties. The analysis points to the need for more comparative analysis of the social efficiency and farmer profitability of rice vs. alternative food and feed crops, although there is a strong hypothesis that the latter will be superior when compared with rice grown under traditional practices. Such comparisons are also needed in the Mekong Delta and other regions. There is a need to examine more broadly both the technical feasibility and economic/financial implications of potential shifts from paddy to alternative crops, in certain seasons. As a result of long-term gains in productivity and crop intensification, Vietnam now enjoys a very large surplus in rice production—with exports now amounting to nearly one-third of production. With urbanization, income growth, and other factors, Vietnam’s per capita and aggregate rice consumption has now begun to fall. Recent analysis suggests that this will continue for much of 14 These recommendations are consistent with those provided in an earlier study (World Bank 2012) which called for distinguishing between ‘core’ and ‘secondary’ rice -growing areas within the Mekong Delta and applying different sets of strategies and public interventions to realize sectoral objectives and promote improved farmer welfare. 33 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS the next two decades before consumption levels off at a level some 10-15% below current national consumption. Under any realistic scenarios—including projected climate change impacts—Vietnam should remain in a very large rice surplus situation (of between 5 and 10 million tons per annum) for the foreseeable future. This favorable situation provides the country with potentially large room for maneuver to facilitate more flexible agricultural systems and to place more weight on considerations of economic efficiency, farmer welfare, and environmental impact in agricultural land use planning and decisions about public investment and support services in agriculture. While past agricultural strategy gave predominant weight to rice production in lowland and delta areas and dedicated most irrigation and technical support to paddy production, the changing domestic consumption trends and the evolving economics of production of rice and alternative crops should drive a more diverse set of strategies—dependent upon local agro-ecological and socio-economic circumstances. Specialized rice production will likely remain the norm in some (favorable growing) areas, yet more diversified crop, livestock, and aquaculture patterns will be favored elsewhere. Together with more detailed analyses of changing consumption and food expenditure patterns, the types of analysis included in this paper—yet applied to a broader range of crop/animal enterprises—should prove beneficial for strategy and policy (re-) development. 34 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Main References An Giang Plant Protection Company (2012). The Founding Context of the FF Force and the Develpoment Process of the “Large Model Field�, An Giang Plant Protection Company (AGPPC), Long Xuyen. An Giang DARD (2012). Report on 1 Must 5 Reductions Program on 2011-12 Winter-Spring Season, Department of Agriculture and Rural Development (DARD) of An Giang Province, Long Xuyen. ________ (2012b). Review of the Agricultural and Rural Development Activities in 2011 and Production Plan for 2012, Department of Agriculture and Rural Development (DARD) of An Giang Province, Long Xuyen. Can Tho University (2010). Food Security Policy in the Mekong Delta (Draft Report), Le Canh Dung (team leader), Can Tho University, Mekong Delta Development Research Institute, Can Tho. Cuulong Rice Research Institute (2012). Mekong Delta Rice Value Chain Efficiency, Socio- Economy Study Group, Cuulong Rice Research Institute, Can Tho. Monke, Eric and Pearson Scott (1989), The Policy Analysis Matrix for Agricultural Development, Cornell University Press, Ithaca. Nam Dinh DARD (2012). Report on Implementing the “3 Reductions 3 Increases� Model and SRI Techniques in High Quality Rice Production, Department of Agriculture and Rural Development (DARD) of Nam Dinh Province,Nam Dinh. UNDP (2012). Fossil Fuel Fiscal Policies and Greenhouse Gas Emissions in Viet Nam, Subsidies and taxes in Viet Nam’s Energy Sector, and their Effects on Economic Development and Income Distribution in the Context of Responding to Climate Change , United Nations Development Program (UNDP), Hanoi. World Bank (2012). Vietnam Rice, Farmers and Rural Development: From Successful Growth to Sustainable Prosperity, The World Bank, Hanoi. 35 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Appendix 1 Detailed Assumptions VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS LABOR ASSUMPTIONS, An Giang (Days per ha) SMALL-SCALE FARMERS For small farms, each task takes proportionately longer since done by different households. An Giang: Small-scale, traditional (machine plow, broadcast seed, combine harvest) ORDINARY RICE JASMINE RICE Winter-Spring Summer-Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 2 1 3 * Planting (broadcast) 4 2 6 4 2 6 5 1 6 Thinning (select strong plants) 3 2 5 3 2 5 5 4 9 Weeding 5 3 8 5 3 8 5 3 8 Fertilizer and chemical app 11 2 13 7 2 9 12 6 18 Scouting, crop management 2 10 12 2 9 11 2 13 15 Harvesting (machine, incl lift fallen rice) 4 1 5 4 1 5 4 1 5 Drying 0 8 8 0 12 12 0 10 10 Total 31 29 60 27 32 59 35 39 74 An Giang: Small-scale, improved (reduced input, machine plow, row seeder, combine harvest) ORDINARY RICE JASMINE RICE Winter-Spring Summer-Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 2 1 3 Planting (row seeder) 2 1 3 2 1 3 2 1 3 Thinning (select strong plants) 2 1 3 2 1 3 3 2 5 Weeding 6 2 8 6 2 8 6 4 10 Fertilizer and chemical app 7 2 9 7 2 9 9 4 13 Scouting, crop management 2 15 17 2 15 17 2 18 20 Harvesting (machine, incl lift fallen rice) 3 1 4 2 1 3 3 1 4 Drying 0 8 8 0 8 8 0 10 10 Total 24 31 55 23 31 54 27 41 68 One extra day for management/scouting than medium size farm due to greater care. MEDIUM-SCALE FARMERS An Giang: Medium-scale, traditional (machine plow, broadcast seed, combine harvest) ORDINARY RICE JASMINE RICE Winter-Spring Summer-Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 2 1 3 Planting (broadcast) 3 1 4 3 1 4 3 1 4 Thinning (select strong plants) 2 1 3 2 1 3 6 3 9 Weeding 2 1 3 2 1 3 5 3 8 Fertilizer and chemical app 8 3 11 5 2 7 9 6 15 Scouting, crop management 0 3 3 0 3 3 0 5 5 Harvesting (machine, incl lift fallen rice) 4 1 5 3 1 4 4 1 5 Drying 0 8 8 0 12 12 0 10 10 Total 21 19 40 17 22 39 29 30 59 An Giang: Medium-scale, improved (reduced input, machine plow, row seeder, combine harvest) ORDINARY RICE JASMINE RICE Winter-Spring Summer-Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 2 1 3 Planting (row seeder) 1 1 2 1 1 2 1 1 2 Thinning (select strong plants) 6 5 11 7 4 11 8 6 14 Weeding 3 1 4 3 1 4 5 3 8 Fertilizer and chemical app 6 1 7 3 1 4 7 4 11 Scouting, crop management 0 4 4 0 4 4 0 9 9 Harvesting (machine, incl lift fallen rice) 3 1 4 3 1 4 3 1 4 Drying 0 9 9 0 12 12 0 10 10 Total 21 23 44 19 25 44 26 35 61 LARGE-SCALE FARMERS (OUTGROWER) An Giang: Large-scale, improved (reduced input, machine plow, row seeder, combine harvest) ORDINARY RICE JASMINE RICE Winter-Spring Summer-Autumn Winter-Spring Hired Family Total Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 2 1 3 Planting (row seeder) 1 1 2 1 1 2 1 1 2 Thinning (select strong plants) 10 3 13 9 2 11 12 4 16 Weeding 4 1 5 4 1 5 6 3 9 Fertilizer and chemical app 4 1 5 2 1 3 6 3 9 Scouting, crop management 0 8 8 0 8 8 0 12 12 Harvesting (machine, incl lift fallen rice) 3 1 4 2 1 3 3 1 4 Drying 0 9 9 0 12 12 0 11 11 Total 24 25 49 20 27 47 30 36 66 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS LABOR ASSUMPTIONS, Northern Crops (Days per ha) NORTHERN RICE Nam Dinh: Micro-farm, traditional (machine plow, nursery, hand harvest) ALL TYPES OF RICE Winter-Spring (Dec-May) Summer-Autumn (June-Oct) Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 Nuresery prep and water 0 11 11 0 11 11 Transplant 10 30 40 10 30 40 Weeding 0 10 10 0 8 8 Fertilizer and chemical app 0 18 18 0 16 16 Scouting, crop management 0 8 8 0 10 10 Hand harvest 26 30 56 20 30 50 Drying/market 0 12 12 0 15 15 Total 38 120 158 32 121 153 Nam Dinh: Micro-farm, improved - reduced input (machine plow, nursery, hand harvest) ALL TYPES OF RICE Winter-Spring (Dec-May) Summer-Autumn (June-Oct) Hired Family Total Hired Family Total Land prep (machine) 2 1 3 2 1 3 Nuresery prep and water 0 11 11 0 11 11 Transplant 8 25 33 8 25 33 Weeding 0 10 10 0 8 8 Fertilizer and chemical app 0 10 10 0 8 8 Scouting, crop management 0 10 10 0 12 12 Hand harvest 23 35 58 20 32 52 Drying/market 0 12 12 0 15 15 Total 33 114 147 30 112 142 NORTHERN MAIZE Phu Tho: Micro-farm, normal hybrid (hand plow, nursery, hand harvest) MAIZE Normal Hybrid VN4 Hybrid Hired Family Total Hired Family Total Land prep (manual) - about 5 days/sao 9 61 70 9 61 70 Nuresery prep and water 0 5 5 0 5 5 Transplant 5 20 25 5 20 25 Weeding 5 15 20 5 15 20 Fertilizer and chemical app 0 8 8 0 8 8 Scouting, crop management 0 5 5 0 5 5 Hand harvest & shell 5 25 30 5 30 35 Pack and market 0 2 2 0 2 2 Total 24 141 165 24 146 170 NORTHERN CASSAVA Phu Tho: Micro-farm, normal hybrid (hand plow, nursery, hand harvest) CASSAVA Local Variety KM94 Hybrid (high starch) Hired Family Total Hired Family Total Land prep (manual) - about 5 days/sao 0 70 70 0 70 70 Planting 0 14 14 0 14 14 Fertilizer and chemical app 0 5 5 0 9 9 1st weeding 0 7 7 0 7 7 2nd weeding 0 4 4 0 4 4 Harvest and transport to house 10 55 65 15 80 95 Dry, slice, pack, market 0 20 20 0 20 20 Total 10 175 185 15 204 219 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS DERIVATION OF CAPITAL RECOVERY COSTS (VND/ha) Notes: 1) Capital recovery factor or CRF = (((1+i)^n)*i)/((1+i)^n-1) where i = real interest on savings; n = number of cycles in the implement's useful life. Cost per cycle = value new * CRF * share of total use. 2) Commercial banks currently paying between 10-11% on 1 year fixed deposits with annual inflation at 8-9%, giving a 2% real return on savings from bank deposits. Because of GDP growth in Vietnam (about 6% pa), assume farmers could do better than to put their savings into a bank account. For these reasons, assume real interest on savings for CRF calculations = 3%. Real Interest on Savings = 3% 3) For grain bags, assume all farmers own 130 bags per ha (6.5 tons grain) - adjusted units per farm based on area cultivated so no further adjustment needed for farm area (always = 1) An Giang, Small Farm (7.5 cong = 0.75ha) Tools primarily used for rice (90%), small share (10%) allocated to vegetable garden around house with further adjustments for motorbike, bicycle/cart, other selected inputs. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Hoe 2 3.60 75.0 4 7.19 150.0 0.75 9.59 200.0 10% 20.0 0.269 90% 2.32 48.4 1.03 2.39 49.9 Shovel 2 5.75 120.0 10 11.51 240.0 0.75 15.34 320.0 10% 32.0 0.117 90% 1.62 33.8 1.03 1.67 34.8 Fork 1 5.99 125.0 8 5.99 125.0 0.75 7.99 166.7 10% 16.7 0.142 90% 1.02 21.4 1.03 1.06 22.0 Sickle 2 1.20 25.0 3 2.40 50.0 0.75 3.20 66.7 10% 6.7 0.354 100% 1.13 23.6 1.03 1.16 24.3 Bicycle/cart 1 23.97 500.0 10 23.97 500.0 0.75 31.96 666.7 10% 66.7 0.117 50% 1.87 39.1 1.03 1.93 40.2 Sprayer 1 33.56 700.0 25 33.56 700.0 0.75 44.74 933.3 20% 186.7 0.057 100% 2.57 53.6 0.98 2.52 52.5 Rat traps 15 0.58 12.0 3 8.63 180.0 0.75 11.51 240.0 5% 12.0 0.354 90% 3.66 76.4 1.00 3.66 76.4 Small boat (north only) 0 21.57 450.0 8 0.00 - 0.75 0.00 - 5% - 0.151 100% 0.00 - 1.13 0.00 - Motorbike 1 575.26 12,000.0 14 575.26 12,000.0 0.75 767.02 16,000.0 30% 4,800.0 0.089 20% 13.58 283.3 0.98 13.31 277.6 Grain bags (50kg) 98 0.22 4.5 6 21.03 438.8 0.75 28.04 585.0 10% 58.5 0.185 90% 4.66 97.2 1.07 4.99 104.0 Totals 689.54 14,383.8 919.38 19,178.3 27% 5,199.2 32.44 676.6 1.01 32.68 681.7 Total capital recovery per cycle per ha (VND '000) 676.6 Total % forex 27% Composite conversion factor 1.0075 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS An Giang, Medium Farm (1.5ha) Tools primarily used for rice (90%), small share (10%) allocated to vegetable garden around house with further adjustments for motorbike, bicycle/cart, other selected inputs. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Hoe 3 3.60 75.0 4 10.79 225.0 1.50 7.19 150.0 10% 15.0 0.269 95% 1.84 38.3 1.03 1.89 39.5 Shovel 3 5.75 120.0 10 17.26 360.0 1.50 11.51 240.0 10% 24.0 0.117 95% 1.28 26.7 1.03 1.32 27.5 Fork 2 5.99 125.0 8 11.98 250.0 1.50 7.99 166.7 10% 16.7 0.142 95% 1.08 22.6 1.03 1.11 23.2 Sickle 3 1.20 25.0 3 3.60 75.0 1.50 2.40 50.0 10% 5.0 0.354 100% 0.85 17.7 1.03 0.87 18.2 Bicycle/cart 1 23.97 500.0 10 23.97 500.0 1.50 15.98 333.3 10% 33.3 0.117 50% 0.94 19.5 1.03 0.96 20.1 Sprayer 1 33.56 700.0 25 33.56 700.0 1.50 22.37 466.7 20% 93.3 0.057 100% 1.28 26.8 0.98 1.26 26.3 Rat traps 25 0.58 12.0 3 14.38 300.0 1.50 9.59 200.0 5% 10.0 0.354 100% 3.39 70.7 1.00 3.39 70.7 Small boat (north only) 0 21.57 450.0 8 0.00 - 1.50 0.00 - 5% - 0.151 100% 0.00 - 1.13 0.00 - Motorbike 1 575.26 12,000.0 14 575.26 12,000.0 1.50 383.51 8,000.0 30% 2,400.0 0.089 20% 6.79 141.6 0.98 6.65 138.8 Grain bags (50kg) 130 0.22 4.5 6 28.04 585.0 1.50 18.70 390.0 10% 39.0 0.185 100% 3.45 72.0 1.07 3.69 77.0 Totals 718.84 14,995.0 479.23 9,996.7 26% 2,636.3 20.90 436.0 1.01 21.16 441.4 Total capital recovery per cycle per ha (VND '000) 436.0 Total % forex 26% Composite conversion factor 1.01 Mekong Delta, Large Farm (5ha) Tools for 5ha total production owend by multiple households; assume one sprayer and row seeder shared between households; share of total use as above for medium farm. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Hoe 10 3.60 75.0 3 35.95 750.0 5.00 7.19 150.0 10% 15.0 0.354 95% 2.42 50.4 1.03 2.49 51.9 Shovel 10 5.75 120.0 8 57.53 1,200.0 5.00 11.51 240.0 10% 24.0 0.142 95% 1.56 32.5 1.03 1.60 33.5 Fork 7 5.99 125.0 6 41.95 875.0 5.00 8.39 175.0 10% 17.5 0.185 95% 1.47 30.7 1.03 1.52 31.6 Sickle 10 1.20 25.0 3 11.98 250.0 5.00 2.40 50.0 10% 5.0 0.354 100% 0.85 17.7 1.03 0.87 18.2 Bicycle/cart 3 23.97 500.0 8 71.91 1,500.0 5.00 14.38 300.0 10% 30.0 0.142 50% 1.02 21.4 1.03 1.06 22.0 Sprayer 1 33.56 700.0 20 33.56 700.0 5.00 6.71 140.0 20% 28.0 0.067 100% 0.45 9.4 0.98 0.44 9.2 Rat traps 100 0.58 12.0 2 57.53 1,200.0 5.00 11.51 240.0 5% 12.0 0.523 100% 6.01 125.4 1.00 6.01 125.4 Small boat (north only) 0 21.57 450.0 5 0.00 - 5.00 0.00 - 5% - 0.218 100% 0.00 - 1.13 0.00 - Motorbike 5 575.26 12,000.0 14 2876.32 60,000.0 5.00 575.26 12,000.0 30% 3,600.0 0.089 20% 10.19 212.5 0.98 9.98 208.2 Grain bags (50kg) 650 0.22 4.5 6 140.22 2,925.0 5.00 28.04 585.0 10% 58.5 0.185 100% 5.18 108.0 1.07 5.54 115.5 Row seeder 1 62.32 1,300.0 10 62.32 1,300.0 5.00 12.46 260.0 10% 26.0 0.117 100% 1.46 30.5 1.06 1.55 32.3 Totals 3389.26 70,700.0 677.85 14,140.0 27% 3,816.0 30.60 638.4 1.01 31.06 647.9 Total capital recovery per cycle per ha (VND '000) 638.4 Total % forex 27% Composite conversion factor 1.01 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Northern Region, Micro Farm (5 sao = 0.17ha) - ALL CROPS Tools primarily used for rice, small share allocated to vegetable garden around house. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Hoe 1 2.64 55.0 3 2.64 55.0 0.17 15.51 323.5 10% 32.4 0.354 100% 5.48 114.4 1.02 5.59 116.7 Shovel 1 5.75 120.0 8 5.75 120.0 0.17 33.84 705.9 10% 70.6 0.142 100% 4.82 100.6 1.02 4.92 102.6 Fork 1 5.75 120.0 6 5.75 120.0 0.17 33.84 705.9 10% 70.6 0.185 100% 6.25 130.3 1.02 6.37 132.9 Bicycle/cart 1 23.97 500.0 8 23.97 500.0 0.17 141.00 2,941.2 10% 294.1 0.142 50% 10.04 209.5 0.97 9.74 203.2 Sprayer 1 33.56 700.0 20 33.56 700.0 0.17 197.39 4,117.6 20% 823.5 0.067 100% 13.27 276.8 1.01 13.40 279.5 Rat traps 5 0.34 7.0 2 1.68 35.0 0.17 9.87 205.9 5% 10.3 0.523 100% 5.16 107.6 1.00 5.16 107.6 Motorbike 1 575.26 12,000.0 14 575.26 12,000.0 0.17 3383.90 70,588.2 30% 21,176.5 0.089 20% 59.91 1,249.8 0.98 58.71 1,224.8 Grain bags (50kg) 22 0.22 4.5 6 4.77 99.5 0.17 28.04 585.0 10% 58.5 0.185 100% 5.18 108.0 1.07 5.54 115.5 Totals 653.38 13,629.5 3843.40 80,173.2 28% 22,536.4 110.11 2,296.9 0.99 109.44 2,282.8 Total capital recovery per cycle per ha (VND '000) 2,296.9 Total % forex 28% Composite conversion factor 0.99 Norhtern Region, Micro Farm (5 sao = 0.17ha) - RICE ONLY TOOLS Tools primarily used for rice, small share allocated to vegetable garden around house. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Sickle 2 0.96 20.0 3 1.92 40.0 0.17 11.28 235.3 10% 23.5 0.354 100% 3.99 83.2 1.02 4.07 84.8 Small boat 1 19.18 400.0 5 19.18 400.0 0.17 112.80 2,352.9 5% 117.6 0.218 100% 24.63 513.8 1.07 26.35 549.7 Totals 21.09 440.0 124.08 2,588.2 5% 141.2 28.62 597.0 1.06 30.42 634.6 Total capital recovery per cycle per ha (VND '000) 597.0 Total % forex 5% Composite conversion factor 1.06 Northern Region, Micro Farm (2 sao = 0.072ha) - MAIZE ONLY TOOLS Tools primarily used for rice, small share allocated to vegetable garden around house. Units Useful Farm Foreign Share Per Ha Capital Recovery Per Ha Capital Recovery per Unit Cost (new) Life Total Cost per Farm Area Total cost per Ha % Costs of per cycle (financial) Conv per cycle (economic) Implement Farm USD VND '000 (cycles) USD VND '000 (ha) USD VND '000 Forex VND '000 CRF Use USD VND '000 Factor USD VND '000 Knives (cut maize) 3 2.64 55.0 3 7.91 165.0 0.07 109.86 2,291.7 10% 229.2 0.354 90% 34.95 729.2 1.02 35.65 743.7 Totals 7.91 165.0 109.86 2,291.7 10% 229.2 34.95 729.2 1.02 35.65 743.7 Total capital recovery per cycle per ha (VND '000) 729.2 Total % forex 10% Composite conversion factor 1.02 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS PARITY PRICE ASSUMPTIONS AN GIANG (Export) 1st Grade (export) 2nd Grade (export/domestic) Rice Bran 5% broken, color graded 20-25% broken, semi-graded (for animal feed) USD/ton VND/kg Location Losses Outturn USD/ton VND/kg Location Losses Outturn USD/ton VND/kg Location Losses Outturn Winter-Spring Ordinary rice (export) Small 420 8,761 fob intl. port 0.50% 50.0% 330 6,884 ex factory 0.25% 14.0% 250 5,215 ex factory 0.20% 11.0% Medium-scale 420 8,761 fob intl. port 0.50% 50.0% 330 6,884 ex factory 0.25% 14.0% 250 5,215 ex factory 0.20% 11.0% Large-scale (outgrower) 460 9,596 fob intl. port 0.40% 51.0% 340 7,092 ex factory 0.20% 15.0% 250 5,215 ex factory 0.20% 11.0% Jasmine rice Smalll 620 12,933 fob intl. port 0.5% 48.0% 380 7,927 ex factory 0.25% 15.0% 250 5,215 ex factory 0.20% 11.0% Medium 620 12,933 fob intl. port 0.5% 48.0% 380 7,927 ex factory 0.25% 15.0% 250 5,215 ex factory 0.20% 11.0% Large-scale (outgrower) 640 13,350 fob intl. port 0.4% 49.0% 384 8,010 ex factory 0.20% 16.0% 250 5,215 ex factory 0.20% 11.0% Summer-Autumn Ordinary rice (export) Small 409.5 8,542 fob intl. port 0.50% 50% 321.75 6,712 ex factory 0.25% 14.0% 250 5,215 ex factory 0.20% 11.0% Medium-scale 409.5 8,542 fob intl. port 0.50% 50% 321.75 6,712 ex factory 0.25% 14.0% 250 5,215 ex factory 0.20% 11.0% Large-scale (outgrower) 448.5 9,356 fob intl. port 0.40% 51% 331.5 6,915 ex factory 0.20% 15.0% 250 5,215 ex factory 0.20% 11.0% NORTHERN RICE (Domestic Use) 3rd Grade (domestic market) 4th Grade (domestic market) Rice Bran 15-20% broken, un-graded +25% broken, un-graded (for animal feed) USD/ton VND/kg Location Losses Outturn USD/ton VND/kg Location Losses Outturn USD/ton VND/kg Location Outturn Losses Winter-Spring Domestic rice (import sub) Standard quality 396.0 8,261 fob MKD 0.25% 65.0% 313.50 6,540 fob MKD 0.25% 2.0% 250 5,215 ex factory 0.20% 11.0% Better quality 405.9 8,467 fob MKD 0.25% 65.0% 321.34 6,703 fob MKD 0.25% 2.0% 250 5,215 ex factory 0.20% 11.0% Summer-Autumn Domestic rice (import sub) Standard quality 386.1 8,054 fob MKD 0.25% 65.0% 305.66 6,376 fob MKD 0.25% 2.0% 250 5,215 ex factory 0.20% 11.0% Better quality 395.8 8,255 fob MKD 0.25% 65.0% 313.30 6,536 fob MKD 0.25% 2.0% 250 5,215 ex factory 0.20% 11.0% OTHER CROPS USD/ton VND/kg Location Maize (for animal feed) Ordinary hybrid 345.2 7,200 cif factory gate New variety (VN4) 345.2 7,200 cif factory gate Cassava Traditional variety (animal feed) 225.3 4,700 cif factory gate New variety (KM94) - high starch 259.1 5,405 cif factory gate NOTES: KM94 is a new variety for bio-fuel but not yet in production, for indicative purpose assume 15% higher value than ordinary. Traditional cassava = 20% starch KM94 cassava = 28-30% starch VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS DERIVATION OF% FOREX AND CONVERSION FACTOR ASSUMPTIONS FOR PAM ANALYSIS Notes: (1) For transport and distribution, domestic subsidy based on fuel assumptions (20%) (2) For rice seed, assume transport/distribution subsidy (20%) plus additional 5% to account for support to breeding stations. (3) Apply MFN duty rates (can be 0% if from ASEAN Member State) Price Composition (%) Economic Transfers Net Transfer (% of retail) Conv Input Domestic Imported Domestic Import Domestic Total Remarks Factor Profit Costs Costs VAT Subsidy Duty VAT Subsidy Duty Transfer 100% - - - - 1.00 Row to make sure formulas work 100% - - - - 1.00 Seed 100% - - - - 1.00 Rice, ordinary (south) 15% 75% 10% 5% 25% 0% 4.76 (15.00) - (10.24) 1.10 Domestic, imported share for distribution, fert and chem Rice, jasmine (south) 15% 75% 10% 5% 25% 0% 4.76 (15.00) - (10.24) 1.10 For now, same as ordinary (extra row in case new info on jasmine) Rice - normal (north) 15% 40% 45% 5% 25% 0% 4.76 (8.00) - (3.24) 1.03 Imported, domestic share for tansport and distribution Rice - better (north) 15% 20% 65% 5% 25% 0% 4.76 (4.00) - 0.76 0.99 Imported, domestic share for tansport and distribution Maize, hybrid 15% 75% 10% 5% 20% 0% 4.76 (12.50) - (7.74) 1.08 Domestic, imported share for distribution, fert and chem Fertilizers 100% - - - - 1.00 Nitrogen (N) 20% 70% 10% 5% 20% 0% 4.76 (11.67) - (6.90) 1.07 Domestic, imported share for electricity/fuel at local plant Phosphorus (P) 20% 15% 65% 5% 20% 0% 4.76 (2.50) - 2.26 0.98 Imported, domestic share for transport and distribution Potassium (K) 20% 15% 65% 5% 20% 6% 4.76 (2.50) 3.68 5.94 0.94 " " NPK blends 20% 30% 50% 5% 20% 0% 4.76 (5.00) - (0.24) 1.00 Domestic share for blending, transport and distribution Urea (N) 20% 70% 10% 5% 20% 0% 4.76 (11.67) - (6.90) 1.07 Domestic, imported share for electricity/fuel at local plant DAP 20% 15% 65% 5% 20% 0% 4.76 (2.50) - 2.26 0.98 Imported, domestic share for transport and distribution Rice composite (MKD) 39% 1.01 Composite N, DAP, K (see fertilizer page for details) Agrichemicals 100% - - - - 1.00 Pesticides 20% 15% 65% 5% 20% 3% 4.76 (2.50) 1.89 4.16 0.96 100% imported, domestic costs for transport & distribution Fungicides 20% 15% 65% 5% 20% 3% 4.76 (2.50) 1.89 4.16 0.96 " " Herbicides 20% 15% 65% 5% 20% 0% 4.76 (2.50) - 2.26 0.98 " " 100% - - - - 1.00 Grain bags 20% 70% 10% 5% 20% 0% 4.76 (11.67) - (6.90) 1.07 100% - - - - 1.00 Hand tools 20% 70% 10% 10% 20% 9.09 (11.67) - (2.58) 1.03 High share of domestic costs so lower cf on transport Sprayers 20% 60% 20% 10% 20% 20% 9.09 (10.00) 3.33 2.42 0.98 Tractor services 20% 80% - - - - 1.00 Tractor services based on cf for fuel? Bicycle 20% 70% 10% 10% 20% 9.09 (11.67) - (2.58) 1.03 Rat traps 10% 85% 5% 0% 0% - - - - 1.00 Made in farm area Boat 15% 80% 5% 0% 20% - (13.33) - (13.33) 1.13 Made in farm area Boat motor 20% 60% 20% 10% 20% 9.09 (10.00) - (0.91) 1.01 Row seeder 20% 70% 10% 5% 20% 5% 4.76 (11.67) 0.48 (6.43) 1.06 Rice transplanter 20% 10% 70% 10% 20% 0% 9.09 (1.67) - 7.42 0.93 Imported from Korea 100% - - - - 1.00 Fuel (tractor op) 10% - - - - 1.20 See diesel/petrol page Motorbike 20% 50% 30% 5% 10% 7.5% 4.76 (4.55) 2.09 2.31 0.98 100% - - - - 1.00 100% - - - - 1.00 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS IRRIGATION ASSUMPTIONS (An Giang) For all systems, assume 3% forex to account for imported pumps, fuel, dredging equipment, etc. An Giang 1) Data reported during field visits Farmer 1 (co-op) 180,000 per cong Farmer 2 (independent) 45kg paddy per cong 4,450 per kg 200,250 per cong AG-PPC Farmers 30kg paddy per cong 5,650 per kg 197,750 per cong An Giang DARD reports provincial cost = VND 164 billion to cover 640,000 ha per year after double cropping 164,000,000,000 Provincial budget (VND) 640,000 Ha 256,250 VND/ha (2 cycles) 128,125 VND/ha (1 cycle) 2) Assumptions for PAM analysis (costs per ha) Small farm (pay private operator) - WS 2,000,000 Farmer's share (VND 200,000 per cong) 128,125 Government's share (traditional) - fixed for all seasons 2,128,125 Total economic cost (traditional) 1.064 Conv factor (traditional) - WS 115,313 Government's share with reductions (assume 10% less cost) 2,115,313 Total economic cost (reduced model) 1.058 Conv factor (improved) - WS Small farm - SA 1,000,000 Farmer's share (50% of WS) 128,125 Government's share (traditional) - fixed for all seasons 1,128,125 Total economic cost (traditional) 1.128 Conv factor (traditional) - SA 115,313 Government's share with reductions (assume 10% less cost) 1,115,313 Total economic cost (reduced model) 1.115 Conv factor (improved) - SA Medium (co-op member) - WS 1,800,000 Farmer's share (VND 180,000 per cong) 128,125 Government's share 1,928,125 Total economic cost 1.071 Conv factor (traditional) - WS 115,313 Government's share with reductions (assume 10% less cost) 1,915,313 Total economic cost (reduced model) 1.064 Conv factor (improved) - WS Medium farm - SA 900,000 Farmer's share (50% of WS) 128,125 Government's share 1,028,125 Total economic cost (traditional) 1.142 Conv factor (traditional) - SA 115,313 Government's share with reductions (assume 10% less cost) 1,015,313 Total economic cost (reduced model) 1.128 Conv factor (improved) - SA Large-Scale (company/outgrower service) - WS 1,977,500 Farmer's share (VND 197,750 per cong) 128,125 Government's share 2,105,625 Total economic cost 1.065 Conv factor 115,313 Government's share with reductions (assume 10% less cost) 2,092,813 Total economic cost (reduced model) 1.058 Conv factor (traditional) Large farm - SA 988,750 Farmer's share (50% of WS) 128,125 Government's share 1,116,875 Total economic cost (traditional) 1.130 Conv factor (traditional) - SA 115,313 Government's share with reductions (assume 10% less cost) 1,104,063 Total economic cost (reduced model) 1.117 Conv factor (improved) - SA VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS IRRIGATION ASSUMPTIONS (Nam Dinh) Assume 3% forex to account for imported pumps, fuel, dredging equipment, etc. Nam Dhin 1) Financial charges paid to co-op VND/sao VND/ha In-field irrigation 11,000 305,800 Water pumping 10,000 278,000 Fortifying canals/drainage 12,000 333,600 Agriculture promotion fund 12,000 333,600 Total financial cost 45,000 1,251,000 2) Cost of provincial irrigation department Total budget 190,000,000,000 % to crops (rice, etc) 73.4% Budget for crops (ex salt/aquaculture) 139,460,000,000 Rice - spring ha 80,135 Rice - winter ha 82,336 Relay crops/other irrigated ha 40,618 Total approx hectares planted/irrigated per year 203,089 Cost to Govt per ha planted 686,695 Farmer's financial cost (amount paid to co-op) 1,251,000 Government's share 686,695 Total economic cost 1,937,695 Conv factor (traditional) - WS 1.549 Government's share with reductions (assume 10% less cost) 618,025 Total economic cost (reduced model) 1,869,025 Conv factor (improved) - WS 1.494 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS ELECTRICITY SUPPLY, % forex and conversion factors Used for rice milling, pump operation, etc. 1. Percent Forex Origins of electric supply in Vietnam Of which… Overall breakdown Total Domestic Imported Domestic Imported Hydropower 25% 100% 25% 0% Coal 17% 50% 50% 9% 9% Gas turbine 47% 100% 47% 0% Diesel and oil 3% 80% 20% 2% 1% Imports 5% 100% 0% 5% Other 3% 50% 50% 2% 2% Total 100% 84% 16% Source: UNDP, 2012. Modified breakdown for PAM analysis based on imported costs of domestic production Of which… Overall breakdown Total Domestic Imported Domestic Imported Hydropower 25% 90% 10% 23% 3% Coal 17% 45% 55% 8% 9% Gas turbine 47% 90% 10% 42% 5% Diesel and oil 3% 70% 30% 2% 1% Imports 5% 100% 0% 5% Other 3% 30% 70% 1% 2% Total 100% 75% 25% Based on above, assume 25% overall forex share for electricity 2. Economic conversion factor UNDP 2012 reports…. The average tariff for electricity in Vietnam is USD 0.07 per kWh. The price will need to rise by USD 0.08 to 0.09 per kWh to allow the sector to operate on a financilly sustainable basis (i.e. USD 0.15 to 0.16 per kWh). This is equal to a 114-128% subsidy on the overall cost of supplying electricity Based on the above, assume 1.25 econoimc conversion factor for electricity costs. VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS EXTENSION AND RESEARCH ASSUMPTIONS GENERAL FARMER EXTENSION (public sector) An Giang Ha VND Total budget (VND) 9,800,000,000 Total hectares ag land 279,300 35,088 Total hectares paddy (incl. multi crops) 586,000 16,724 Total hectares all crops (incl multi crops) 640,000 15,313 Nam Dinh Ha VND Total budget (VND) 3,920,000,000 Total hectares ag land 93,600 41,880 Total hectares paddy (incl. multi crops) 160,000 24,500 Total hectares all crops (incl multi crops) 171,583 22,846 CROP RESEARCH AND PROMOTION OF NEW METHODS (public sector) Analysis based on data from Nam Dhin (treat as indicative for all locations and all crops) NOTES: Nam Dhin Extn Dept only location that provided detailed data. Reported VND 200m total spending on crop research (survey of farm conditions, crop planning, field trials, etc) and VND 2,600m on promotion of new methods including free inputs to selected (demonstration) farmers. On this basis, charge per ha share of research to all crop models (traditional and improved) and per ha share of promotion budget to improved models only (i.e. adopting farmers). In practice, only a very few farmers actually get free (demonstration) inputs. The PAM therefore charges these as a financial cost to the farmer - with the overall per ha share of promotion charged as an economic cost in improved models only. Actual spending on research and promotion can vary greatly by province and crop and this approach only aims to account for these costs in very broad terms. CROP RESEARCH - per ha share charged to all crop models Ha VND Total budget 200,000,000 Total hectares ag land 93,600 2,137 Total hectares paddy (incl. multi crops) 160,000 1,250 Total hectares all crops (incl multi crops) 171,583 1,166 PROMOTION OF NEW METHODS (per ha share charged to improved models only) Farmers who participate in program get inputs at heavy subsidy. Since few farmers actually participate, the PAM models charge the Ha VND Total budget 2,600,000,000 Total hectares ag land 93,600 27,778 Total hectares paddy (incl. multi crops) 160,000 16,250 Total hectares all crops (incl multi crops) 171,583 15,153 OUTGROWER PROGRAMS (private sector) For large scale rice and other crops grown with outgrower support from a private company (contract farming), additional costs apply. PRIVATE EXTENSION Private extension worker (per month) 4,250,000 Private extension worker (per 4-month crop cycle) 17,000,000 Each private extension covers 50ha Per hectare cost for complete 4-month crop cycle 340,000 VND per ha OUTGROWER OVERHEADS Estimate other program costs at 20% of private extension 68,000 VND per ha VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS DIESEL AND PETROL, % forex and conversion factors 1. Percent Forex UNDP 2012 reports that Vietnam is currently a net exporter of refined petroleum products (but likely to import 1/3 by 2025). For PAM analysis, assume for some imported costs of refining, distribution, etc. Based on above, assume 10% overall forex share for fuel (near to medium-term estimate). 2. Economic conversion factor UNDP 2012 reports…. UNDP 2012 reports the overall subsidy on the pump price of petrol is roughly 12%, excluding many non-transparent payments to cover revenue losses and other types of subsidy paid to state owned enterprises.Assume these other payments are roughly 8% of the pump price = 20% subsidy overall. Based on the above, assume 1.20 econoimc conversion factor for fuel/transport costs. VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Appendix 2 Full Set of Indicators VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS PAM Indicators SUMMARY OF RESULTS Rice yields = tons dry paddy/ha WS = winter-spring season; SA = summer-autumn season Farmer price in large-scale model is after delivery to factory, all other farmers sell at farm gate (cost of delivery included in parity price) * = variation selected for sensitivity analysis VND '000 per Hectare USD per Hectare Parity Output Tradable Domestic Net Output Tradable Domestic Net Season Location Basis Mgt Yield DRC NPC EPC Effect (I) Effect (J) Effect (K) Effect (L) Effect (I) Effect (J) Effect (K) Effect (L) Ordinary Rice, Traditional (high input) Rice (ord) Small WS An Giang Export Trad 6.08 0.98 1.02 1.024 442 32 (2,225) 2,635 21.2 1.5 (106.6) 126.3 * Rice (ord) Medium WS An Giang Export Trad 6.75 0.77 1.02 1.023 491 32 (1,745) 2,204 23.5 1.5 (83.6) 105.7 Rice (ord) Small SA An Giang Export Trad 4.68 1.06 1.02 1.027 340 (31) (2,459) 2,830 16.3 (1.5) (117.9) 135.7 Rice (ord) Medium SA An Giang Export Trad 5.20 0.83 1.02 1.026 378 (31) (1,980) 2,388 18.1 (1.5) (94.9) 114.5 Ordinary Rice, Improved (with reductions) Rice (ord) Small WS An Giang Export Imp 6.30 0.73 1.02 1.023 458 2 (2,222) 2,678 22.0 0.1 (106.5) 128.4 * Rice (ord) Medium WS An Giang Export Imp 7.00 0.60 1.02 1.022 509 2 (1,838) 2,345 24.4 0.1 (88.1) 112.4 * Rice (ord) Large WS An Giang Export Imp 7.40 0.57 1.02 1.020 527 (22) (2,777) 3,325 25.3 (1.0) (133.1) 159.4 Rice (ord) Small SA An Giang Export Imp 4.91 0.79 1.02 1.025 357 (39) (2,301) 2,696 17.1 (1.9) (110.3) 129.3 Rice (ord) Medium SA An Giang Export Imp 5.45 0.64 1.02 1.025 396 (39) (2,013) 2,448 19.0 (1.9) (96.5) 117.4 Rice (ord) Large SA An Giang Export Imp 5.75 0.59 1.02 1.022 410 (60) (2,627) 3,097 19.6 (2.9) (125.9) 148.4 Jasmine Rice, Traditional (high input) Jasmine Small WS An Giang Export Trad 6.38 0.63 1.01 1.015 463 14 (2,821) 3,270 22.2 0.7 (135.2) 156.8 * Jasmine Medium WS An Giang Export Trad 7.09 0.52 1.01 1.015 515 14 (2,377) 2,877 24.7 0.7 (113.9) 137.9 Jasmine Rice, Improved (with reductions) Jasmine Small WS An Giang Export Imp 6.62 0.48 1.01 1.015 481 (5) (2,766) 3,252 23.0 (0.3) (132.6) 155.9 * Jasmine Medium WS An Giang Export Imp 7.35 0.41 1.01 1.014 534 (5) (2,478) 3,018 25.6 (0.3) (118.8) 144.7 * Jasmine Large WS An Giang Export Imp 7.77 0.39 1.01 1.014 553 (26) (3,034) 3,613 26.5 (1.3) (145.4) 173.2 Domestic Rice, Traditional (high input) - NORTHERN - - - - Rice (std) Micro WS Nam Dinh Import Trad 4.73 1.31 1.002 1.003 58 (2) (8,569) 8,630 2.8 (0.1) (410.8) 413.7 Rice (btr) Micro WS Nam Dinh Import Trad 4.17 1.53 1.002 1.003 51 (7) (8,576) 8,634 2.4 (0.3) (411.1) 413.9 * Rice (std) Micro SA Nam Dinh Import Trad 4.45 1.18 1.002 1.004 54 (27) (8,583) 8,665 2.6 (1.3) (411.5) 415.4 Rice (btr) Micro SA Nam Dinh Import Trad 3.89 1.39 1.002 1.005 48 (29) (8,587) 8,664 2.3 (1.4) (411.7) 415.4 Domestic Rice, Improved (with reductions) - NORTHERN - - - - Rice (std) Micro WS Nam Dinh Import Imp 5.20 0.97 1.002 1.006 64 (88) (8,220) 8,371 3.0 (4.2) (394.0) 401.3 Rice (btr) Micro WS Nam Dinh Import Imp 4.59 1.11 1.002 1.007 56 (92) (8,225) 8,373 2.7 (4.4) (394.3) 401.4 * Rice (std) Micro SA Nam Dinh Import Imp 4.89 1.02 1.002 1.007 60 (92) (8,102) 8,253 2.9 (4.4) (388.4) 395.6 Rice (btr) Micro SA Nam Dinh Import Imp 4.28 1.08 1.002 1.007 52 (83) (8,055) 8,190 2.5 (4.0) (386.1) 392.6 Maize for stock feed - NORTHERN - - - - Maize (manual) Micro WS Phu Tho Import Trad 4.45 0.64 1.001 1.001 25 (25) (7,235) 7,286 1.2 (1.2) (346.9) 349.3 Maize (tractor) Micro WS Phu Tho Import Trad 4.45 0.48 1.001 1.003 25 (67) (2,283) 2,375 1.2 (3.2) (109.4) 113.9 VN4-Maize (manual) Micro WS Phu Tho Import Trad 5.50 0.52 1.001 1.002 31 (32) (7,492) 7,555 1.5 (1.5) (359.1) 362.2 VN4-Maize (tractor) Micro WS Phu Tho Import Trad 5.50 0.38 1.001 1.003 31 (74) (2,299) 2,404 1.5 (3.5) (110.2) 115.3 Cassava for stock feed - NORTHERN - - - - Cassava (ordinary) Micro SA Phu Tho Import Trad 19.00 0.89 1.003 1.236 113 (6,278) (13,875) 20,267 5.4 (301.0) (665.2) 971.6 Cassava - KM94 Micro SA Phu Tho Import Trad 30.00 0.72 1.002 1.175 179 (8,374) (17,228) 25,780 8.6 (401.4) (825.9) 1,235.9 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Financial Indicators (VND ‘000) SUMMARY OF RESULTS Rice yields = tons dry paddy/ha WS = winter-spring season; SA = summer-autumn season Farmer price in large-scale model is after delivery to factory, all other farmers sell at farm gate (cost of delivery included in parity price) * = variation selected for sensitivity analysis Farmer Farmer VND '000 per Hectare Days per Hectare VND '000 per day Parity Price Price Gross Variable Fixed Total Gross Net Hired Family Total Gross per Net per Season Location Basis Mgt Yield DRC (VND/kg) (USD/kg) Revenue Costs Costs Costs Margin Profit Labor Labor Labor day family day total Ordinary Rice, Traditional (high input) Rice (ord) Small WS An Giang Export Trad 6.08 0.98 4,500 0.22 27,338 21,100 677 21,777 6,238 5,561 31 29 60 215.1 92.7 * Rice (ord) Medium WS An Giang Export Trad 6.75 0.77 4,700 0.23 31,725 20,100 436 20,536 11,625 11,189 21 19 40 611.8 279.7 Rice (ord) Small SA An Giang Export Trad 4.68 1.06 3,890 0.19 18,205 15,845 677 16,522 2,360 1,684 27 32 59 73.8 28.5 Rice (ord) Medium SA An Giang Export Trad 5.20 0.83 4,090 0.20 21,268 15,025 436 15,461 6,243 5,807 17 22 39 283.8 148.9 Ordinary Rice, Improved (with reductions) Rice (ord) Small WS An Giang Export Imp 6.30 0.73 4,500 0.22 28,350 16,900 677 17,577 11,450 10,773 21 31 52 369.4 207.2 * Rice (ord) Medium WS An Giang Export Imp 7.00 0.60 4,700 0.23 32,900 16,461 436 16,897 16,439 16,003 21 23 44 714.7 363.7 * Rice (ord) Large WS An Giang Export Imp 7.40 0.57 5,650 0.27 41,810 17,894 638 18,532 23,916 23,278 24 25 49 956.6 475.1 Rice (ord) Small SA An Giang Export Imp 4.91 0.79 3,890 0.19 19,080 12,765 677 13,442 6,315 5,639 23 31 54 203.7 104.4 Rice (ord) Medium SA An Giang Export Imp 5.45 0.64 4,090 0.20 22,291 12,265 436 12,701 10,026 9,590 19 25 44 401.0 217.9 Rice (ord) Large SA An Giang Export Imp 5.75 0.59 5,040 0.24 28,980 13,014 638 13,652 15,966 15,328 20 27 47 591.3 326.1 Jasmine Rice, Traditional (high input) Jasmine Small WS An Giang Export Trad 6.38 0.63 5,900 0.28 37,635 22,580 677 23,257 15,055 14,378 35 39 74 386.0 194.3 * Jasmine Medium WS An Giang Export Trad 7.09 0.52 6,000 0.29 42,525 21,900 436 22,336 20,625 20,189 29 30 59 687.5 342.2 Jasmine Rice, Improved (with reductions) Jasmine Small WS An Giang Export Imp 6.62 0.48 5,900 0.28 39,029 17,836 677 18,513 21,193 20,516 27 41 68 516.9 301.7 * Jasmine Medium WS An Giang Export Imp 7.35 0.41 6,000 0.29 44,100 17,556 436 17,992 26,544 26,108 26 35 61 758.4 428.0 * Jasmine Large WS An Giang Export Imp 7.77 0.39 6,400 0.31 49,728 18,445 638 19,083 31,283 30,645 30 36 66 869.0 464.3 Domestic Rice, Traditional (high input) - NORTHERN Rice (std) Micro WS Nam Dinh Import Trad 4.73 1.31 5,300 0.25 25,048 20,238 2,894 23,132 4,810 1,916 38 120 158 40.1 12.1 Rice (btr) Micro WS Nam Dinh Import Trad 4.17 1.53 6,800 0.33 28,356 20,697 2,894 23,591 7,659 4,765 38 120 158 63.8 30.2 * Rice (std) Micro SA Nam Dinh Import Trad 4.45 1.18 6,300 0.30 28,022 15,424 2,894 18,317 12,599 9,705 32 121 153 104.1 63.4 Rice (btr) Micro SA Nam Dinh Import Trad 3.89 1.39 7,800 0.37 30,358 16,096 2,894 18,990 14,261 11,367 32 121 153 117.9 74.3 Domestic Rice, Improved (with reductions) - NORTHERN Rice (std) Micro WS Nam Dinh Import Imp 5.20 0.97 5,300 0.25 27,553 16,276 2,894 19,170 11,277 8,383 33 114 147 98.9 57.0 Rice (btr) Micro WS Nam Dinh Import Imp 4.59 1.11 6,800 0.33 31,192 16,666 2,894 19,560 14,526 11,632 33 114 147 127.4 79.1 * Rice (std) Micro SA Nam Dinh Import Imp 4.89 1.02 6,300 0.30 30,825 15,277 2,894 18,171 15,547 12,653 30 112 142 138.8 89.1 Rice (btr) Micro SA Nam Dinh Import Imp 4.28 1.08 7,800 0.37 33,393 13,831 2,894 16,725 19,563 16,669 30 112 142 174.7 117.4 Maize for stock feed - NORTHERN Maize (manual) Micro WS Phu Tho Import Trad 4.45 0.64 6,000 0.29 26,688 11,133 3,026 14,159 15,555 12,529 24 141 165 110.3 75.9 Maize (tractor) Micro WS Phu Tho Import Trad 4.45 0.48 6,000 0.29 26,688 11,378 3,026 14,404 15,310 12,284 3 30 33 510.3 372.2 VN4-Maize (manual) Micro WS Phu Tho Import Trad 5.50 0.52 6,000 0.29 33,000 11,237 3,026 14,263 21,763 18,737 24 146 170 149.1 110.2 VN4-Maize (tractor) Micro WS Phu Tho Import Trad 5.50 0.38 6,000 0.29 33,000 11,482 3,026 14,508 21,518 18,492 3 30 33 717.3 560.4 Cassava for stock feed - NORTHERN Cassava (ordinary) Micro SA Phu Tho Import Trad 19.00 0.89 1,750 0.08 33,250 14,561 2,297 16,858 18,689 16,392 10 155 165 120.6 99.3 Cassava - KM94 Micro SA Phu Tho Import Trad 30.00 0.72 2,013 0.10 60,375 30,863 2,297 33,159 29,512 27,216 15 184 199 160.4 136.8 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Financial Indicators (USD) SUMMARY OF RESULTS Rice yields = tons dry paddy/ha WS = winter-spring season; SA = summer-autumn season Farmer price in large-scale model is after delivery to factory, all other farmers sell at farm gate (cost of delivery included in parity price) * = variation selected for sensitivity analysis Farmer Farmer USD per Hectare Days per Hectare USD per day Parity Price Price Gross Variable Fixed Total Gross Net Hired Family Total Gross per Net per Season Location Basis Mgt Yield DRC (VND/kg) (USD/kg) Revenue Costs Costs Costs Margin Profit Labor Labor Labor day family day total Ordinary Rice, Traditional (high input) Rice (ord) Small WS An Giang Export Trad 6.08 0.98 4,500 0.22 1,311 1,012 32 1,044 299 267 31 29 60 10.3 4.4 * Rice (ord) Medium WS An Giang Export Trad 6.75 0.77 4,700 0.23 1,521 964 21 984 557 536 21 19 40 29.3 13.4 Rice (ord) Small SA An Giang Export Trad 4.68 1.06 3,890 0.19 873 760 32 792 113 81 27 32 59 3.5 1.4 Rice (ord) Medium SA An Giang Export Trad 5.20 0.83 4,090 0.20 1,020 720 21 741 299 278 17 22 39 13.6 7.1 Ordinary Rice, Improved (with reductions) Rice (ord) Small WS An Giang Export Imp 6.30 0.73 4,500 0.22 1,359 810 32 843 549 516 21 31 52 17.7 9.9 * Rice (ord) Medium WS An Giang Export Imp 7.00 0.60 4,700 0.23 1,577 789 21 810 788 767 21 23 44 34.3 17.4 * Rice (ord) Large WS An Giang Export Imp 7.40 0.57 5,650 0.27 2,004 858 31 888 1,147 1,116 24 25 49 45.9 22.8 Rice (ord) Small SA An Giang Export Imp 4.91 0.79 3,890 0.19 915 612 32 644 303 270 23 31 54 9.8 5.0 Rice (ord) Medium SA An Giang Export Imp 5.45 0.64 4,090 0.20 1,069 588 21 609 481 460 19 25 44 19.2 10.4 Rice (ord) Large SA An Giang Export Imp 5.75 0.59 5,040 0.24 1,389 624 31 654 765 735 20 27 47 28.3 15.6 Jasmine Rice, Traditional (high input) Jasmine Small WS An Giang Export Trad 6.38 0.63 5,900 0.28 1,804 1,082 32 1,115 722 689 35 39 74 18.5 9.3 * Jasmine Medium WS An Giang Export Trad 7.09 0.52 6,000 0.29 2,039 1,050 21 1,071 989 968 29 30 59 33.0 16.4 Jasmine Rice, Improved (with reductions) Jasmine Small WS An Giang Export Imp 6.62 0.48 5,900 0.28 1,871 855 32 887 1,016 984 27 41 68 24.8 14.5 * Jasmine Medium WS An Giang Export Imp 7.35 0.41 6,000 0.29 2,114 842 21 863 1,272 1,252 26 35 61 36.4 20.5 * Jasmine Large WS An Giang Export Imp 7.77 0.39 6,400 0.31 2,384 884 31 915 1,500 1,469 30 36 66 41.7 22.3 Domestic Rice, Traditional (high input) - NORTHERN Rice (std) Micro WS Nam Dinh Import Trad 4.73 1.31 5,300 0.25 1,201 970 139 1,109 231 92 38 120 158 1.9 0.6 Rice (btr) Micro WS Nam Dinh Import Trad 4.17 1.53 6,800 0.33 1,359 992 139 1,131 367 228 38 120 158 3.1 1.4 * Rice (std) Micro SA Nam Dinh Import Trad 4.45 1.18 6,300 0.30 1,343 739 139 878 604 465 32 121 153 5.0 3.0 Rice (btr) Micro SA Nam Dinh Import Trad 3.89 1.39 7,800 0.37 1,455 772 139 910 684 545 32 121 153 5.7 3.6 Domestic Rice, Improved (with reductions) - NORTHERN Rice (std) Micro WS Nam Dinh Import Imp 5.20 0.97 5,300 0.25 1,321 780 139 919 541 402 33 114 147 4.7 2.7 Rice (btr) Micro WS Nam Dinh Import Imp 4.59 1.11 6,800 0.33 1,495 799 139 938 696 558 33 114 147 6.1 3.8 * Rice (std) Micro SA Nam Dinh Import Imp 4.89 1.02 6,300 0.30 1,478 732 139 871 745 607 30 112 142 6.7 4.3 Rice (btr) Micro SA Nam Dinh Import Imp 4.28 1.08 7,800 0.37 1,601 663 139 802 938 799 30 112 142 8.4 5.6 Maize for stock feed - NORTHERN Maize (manual) Micro WS Phu Tho Import Trad 4.45 0.64 6,000 0.29 1,279 534 145 679 746 601 24 141 165 5.3 3.6 Maize (tractor) Micro WS Phu Tho Import Trad 4.45 0.48 6,000 0.29 1,279 545 145 691 734 589 3 30 33 24.5 17.8 VN4-Maize (manual) Micro WS Phu Tho Import Trad 5.50 0.52 6,000 0.29 1,582 539 145 684 1,043 898 24 146 170 7.1 5.3 VN4-Maize (tractor) Micro WS Phu Tho Import Trad 5.50 0.38 6,000 0.29 1,582 550 145 695 1,032 886 3 30 33 34.4 26.9 Cassava for stock feed - NORTHERN Cassava (ordinary) Micro SA Phu Tho Import Trad 19.00 0.89 1,750 0.08 1,594 698 110 808 896 786 10 155 165 5.8 4.8 Cassava - KM94 Micro SA Phu Tho Import Trad 30.00 0.72 2,013 0.10 2,894 1,480 110 1,590 1,415 1,305 15 184 199 7.7 6.6 VIETNAM WORKING PAPER FINANCIAL AND ECONOMIC COMPETITIVENESS OF RICE AND SELECTED FEED CROPS Financial Indicators, per ton of product (VND ‘000 and USD) SUMMARY OF RESULTS Rice yields = tons dry paddy/ha WS = winter-spring season; SA = summer-autumn season Farmer price in large-scale model is after delivery to factory, all other farmers sell at farm gate (cost of delivery included in parity price) * = variation selected for sensitivity analysis Farmer Farmer VND '000 per ton farm gate product USD per ton farm gate product Parity Price Price Gross Variable Fixed Total Gross Net Gross Variable Fixed Total Gross Net Season Location Basis Mgt Yield DRC (VND/kg) (USD/kg) Revenue Costs Costs Costs Margin Profit Revenue Costs Costs Costs Margin Profit Ordinary Rice, Traditional (high input) Rice (ord) Small WS An Giang Export Trad 6.08 0.98 4,500 0.22 4,500 3,473 111 3,585 1,027 915 216 167 5 172 49 44 * Rice (ord) Medium WS An Giang Export Trad 6.75 0.77 4,700 0.23 4,700 2,978 65 3,042 1,722 1,658 225 143 3 146 83 79 Rice (ord) Small SA An Giang Export Trad 4.68 1.06 3,890 0.19 3,890 3,386 145 3,530 504 360 186 162 7 169 24 17 Rice (ord) Medium SA An Giang Export Trad 5.20 0.83 4,090 0.20 4,090 2,889 84 2,973 1,201 1,117 196 139 4 143 58 54 Ordinary Rice, Improved (with reductions) Rice (ord) Small WS An Giang Export Imp 6.30 0.73 4,500 0.22 4,500 2,683 107 2,790 1,817 1,710 216 129 5 134 87 82 * Rice (ord) Medium WS An Giang Export Imp 7.00 0.60 4,700 0.23 4,700 2,352 62 2,414 2,348 2,286 225 113 3 116 113 110 * Rice (ord) Large WS An Giang Export Imp 7.40 0.57 5,650 0.27 5,650 2,418 86 2,504 3,232 3,146 271 116 4 120 155 151 Rice (ord) Small SA An Giang Export Imp 4.91 0.79 3,890 0.19 3,890 2,602 138 2,740 1,288 1,150 186 125 7 131 62 55 Rice (ord) Medium SA An Giang Export Imp 5.45 0.64 4,090 0.20 4,090 2,250 80 2,330 1,840 1,760 196 108 4 112 88 84 Rice (ord) Large SA An Giang Export Imp 5.75 0.59 5,040 0.24 5,040 2,263 111 2,374 2,777 2,666 242 109 5 114 133 128 Jasmine Rice, Traditional (high input) Jasmine Small WS An Giang Export Trad 6.38 0.63 5,900 0.28 5,900 3,540 106 3,646 2,360 2,254 283 170 5 175 113 108 * Jasmine Medium WS An Giang Export Trad 7.09 0.52 6,000 0.29 6,000 3,090 62 3,151 2,910 2,849 288 148 3 151 140 137 Jasmine Rice, Improved (with reductions) Jasmine Small WS An Giang Export Imp 6.62 0.48 5,900 0.28 5,900 2,696 102 2,799 3,204 3,101 283 129 5 134 154 149 * Jasmine Medium WS An Giang Export Imp 7.35 0.41 6,000 0.29 6,000 2,389 59 2,448 3,611 3,552 288 115 3 117 173 170 * Jasmine Large WS An Giang Export Imp 7.77 0.39 6,400 0.31 6,400 2,374 82 2,456 4,026 3,944 307 114 4 118 193 189 Domestic Rice, Traditional (high input) - NORTHERN Rice (std) Micro WS Nam Dinh Import Trad 4.73 1.31 5,300 0.25 5,300 4,282 612 4,895 1,018 405 254 205 29 235 49 19 Rice (btr) Micro WS Nam Dinh Import Trad 4.17 1.53 6,800 0.33 6,800 4,963 694 5,657 1,837 1,143 326 238 33 271 88 55 * Rice (std) Micro SA Nam Dinh Import Trad 4.45 1.18 6,300 0.30 6,300 3,468 651 4,118 2,832 2,182 302 166 31 197 136 105 Rice (btr) Micro SA Nam Dinh Import Trad 3.89 1.39 7,800 0.37 7,800 4,136 744 4,879 3,664 2,921 374 198 36 234 176 140 Domestic Rice, Improved (with reductions) - NORTHERN Rice (std) Micro WS Nam Dinh Import Imp 5.20 0.97 5,300 0.25 5,300 3,131 557 3,687 2,169 1,613 254 150 27 177 104 77 Rice (btr) Micro WS Nam Dinh Import Imp 4.59 1.11 6,800 0.33 6,800 3,633 631 4,264 3,167 2,536 326 174 30 204 152 122 * Rice (std) Micro SA Nam Dinh Import Imp 4.89 1.02 6,300 0.30 6,300 3,122 591 3,714 3,178 2,586 302 150 28 178 152 124 Rice (btr) Micro SA Nam Dinh Import Imp 4.28 1.08 7,800 0.37 7,800 3,231 676 3,907 4,569 3,893 374 155 32 187 219 187 Maize for stock feed - NORTHERN Maize (manual) Micro WS Phu Tho Import Trad 4.45 0.64 6,000 0.29 6,000 2,503 680 3,183 3,497 2,817 288 120 33 153 168 135 Maize (tractor) Micro WS Phu Tho Import Trad 4.45 0.48 6,000 0.29 6,000 2,558 680 3,238 3,442 2,762 288 123 33 155 165 132 VN4-Maize (manual) Micro WS Phu Tho Import Trad 5.50 0.52 6,000 0.29 6,000 2,043 550 2,593 3,957 3,407 288 98 26 124 190 163 VN4-Maize (tractor) Micro WS Phu Tho Import Trad 5.50 0.38 6,000 0.29 6,000 2,088 550 2,638 3,912 3,362 288 100 26 126 188 161 Cassava for stock feed - NORTHERN Cassava (ordinary) Micro SA Phu Tho Import Trad 19.00 0.89 1,750 0.08 1,750 766 121 887 984 863 84 37 6 43 47 41 Cassava - KM94 Micro SA Phu Tho Import Trad 30.00 0.72 2,013 0.10 2,013 1,029 77 1,105 984 907 96 49 4 53 47 43