Agricultural Growth, Market Participation and Poverty Reduction in Vietnam (1992-1998)

This paper highlights a dilemma and a paradox: a dilemma in that the increase in food prices triggered by the liberalisation of agricultural markets may have favoured the rural poor as farm producers, but possibly harmed them as consumers; a paradox in that the deep trends in poverty reduction documented earlier in the chapter took place at the same as the rural poor experienced a large increase in food prices. I explore the welfare consequences of the large increase in food prices experienced by Vietnamese households between 1992 and 1998. By doing so, I make use of, and find limitations in, first-order welfare analytical tools that approximate the welfare impact of price changes by the net production status of households. Instead, I find a substantial disconnect between net production status and welfare changes. To disentangle the ambiguous results obtained from first-order welfare impact methods, I then explore the relationship between rice self-sufficiency and welfare using non-parametric tools. Two possible motives are then discussed in theory to explain the changes in market participation and rice self-sufficiency observed during a period when rice prices increased and continued to fluctuate substantially: (i) changes in transaction costs brought about by the lifting of trade barriers during the 1990s, and (ii) food security concerns and the desire to self- insure against consumption price risks. Nevertheless, despite the strong trends in agricultural growth and rural poverty reduction, and despite the existence of favourable initial conditions, the sheer multiplicity of effects at play makes it difficult to causally determine the precise mechanisms through which (agricultural) growth translated itself into poverty reduction.