Food Security and the Poor: Regional Effects of Rice Export Policy on

Household Welfare in Vietnam!Tom Kompas

Australian National University Pham Van Ha

Academy of Finance, Hanoi Hoa Thi Minh Nguyen

Centre for Analysis and Forecasting, Vietnam Academy of Social Sciences and

Australian National University Tuong Nhu Che

Australian National University Bui Trinh

General Statistics Office, Hanoi !Thanks to the World Bank and AusAID for funding and support.

.

Share of Paddy Production and Rice Processing Industries in Regional GDP (percentage)

& Regional Paddy Production (million ton)

Note: all regions except the Northwest and Central Highlands ‘export’ rice, although the Mekong Delta is by far the largest international exporter. More than 50% of the rice output is produced by the MKD and more than 90% of internationally exported rice comes from the MKD.

!"!!!!

!5.00!!

!10.00!!

!15.00!!

!20.00!!

!25.00!!

0!

2!

4!

6!

8!

10!

12!

14!

Red!River!Delta! North!East! North!West! North!Central!Coast!

South!Central!Coast!

Central!Highlands!

South!East! Mekong!River!Delta!

Percen

tage!of!R

egional!G

DP! M

illion!Ton!

Regional!GDP!Share!of!Paddy! Regional!GDP!Share!of!Processed!Rice! Paddy!producJon!

Regional!CGE!Model!and!Household!Data!SimulaJon!

‘Bottom-up’ Regional CGE Model

•  Basic Structure: ORANI format (essentially 8 ORANI models combined and integrated at the regional level), characterised by:

•  28 separate Commodities and Industries over 8 Regions •  Sectors: Households (urban and rural), Government,

Investors and Foreign (exports and imports) •  Occupation types (skilled and unskilled) •  Taxes (excise, VAT, duties) •  Margins (wholesale and retail charges, transportation)

Household Data Simulation •  Data: VHLSS 2006, sample survey of 9,189 households. •  Changes in prices affect both household consumption and production:

•  Consumer surplus (second order approximation):

•  Producer surplus (second order approximation):

•  Net Benefit Ratio: ratio of Net Benefit to Household Expenditures

2

1 2 2 1 1 1 1 11 1

0.5( )( ) 0.5d d

d d d d d d d ddd d

p pCS q q p p q p q pp p

ε⎡ ⎤Δ Δ≅ − + − = − − ⎢ ⎥⎣ ⎦

2

1 1 1 11 1

0.5s s

s s s sss s

p pPS q p q pp p

ε ⎡ ⎤Δ Δ≅ + ⎢ ⎥⎣ ⎦

( )1

Ni i

i

PS CSNBR

Y=

+=∑

Policy Scenarios •  Overall price shock: An increase in export demand that leads to a roughly 30+% increase in

rice export prices. •  Policy Scenarios:

(1) Free Trade: ‘Free’ trade in Vietnam (2) Trade with Export Limits or Quota on Rice Exports (Quota)

•  Exports no larger than exports in the previous period, or increase in exports is 0%: Assumption of fully integrated rice market

•  Actual policy: Partial ban on new export contracts on March 28th 2008 until end of May 2008.

(3) Trade with Export Limits and 15% Producer Tax (Quota Monopolist) •  Same as Quota but with fragmented rice market – rice can not move freely from

surplus regions to the ones in shortage. •  Simulated as the effect of a duopoly (Vina Food I & II) choosing to have super

normal profits (4) Trade with Export Tariff of 5% (Tariff)

•  Free trade but with a tariff: Partially limits exports with tariff revenue.

Change in Regional Domestic Rice Prices by Scenario (percentage change) (1) Free trade (2) Quota (3) Quota and

Producer Tax (4) Tariff

RedRiverDel 27.64 -7.32 12.32 21.58

NorthEast 23.94 -4.70 13.62 18.06

NorthWest 26.10 -4.02 13.68 20.93

NorthCentral 26.16 -4.45 13.57 20.21

SouthCentral 24.52 -4.14 13.84 18.64

CentHighLand 26.78 -5.15 12.70 21.69

Southeast 32.02 -18.27 6.49 25.75

MekongDelta 34.24 -16.8 6.41 27.97

The Effect of a Rice Price Increase on the CPI by Scenario, Urban and Rural (percentage change)

Free trade Quota Quota and Producer Tax

Tariff

Urban Rural Urban Rural Urban Rural Urban Rural

RedRiverDel 3.14 5.48 -0.87 -1.66 0.92 1.79 2.49 4.34

NorthEast 3.27 5.39 -0.96 -1.64 1.05 1.95 2.54 4.2

NorthWest 4.58 7.83 -1.5 -2.71 1.34 2.43 3.69 6.31

NorthCentral 3.29 5.19 -0.84 -1.43 0.96 1.69 2.6 4.1

SouthCentral 2.22 3.9 -0.36 -0.66 0.85 1.76 1.72 3.00

CentHighLand 3.61 6.42 -1.4 -2.65 0.77 1.46 2.94 5.24

Southeast 2.16 4.44 -0.93 -2.2 0.37 0.83 1.75 3.59

MekongDelta 4.17 6.78 -1.29 -2.58 0.56 1.05 3.44 5.57

The Effect of a Rice Price Increase on Regional Wages by Scenario (percentage change)

(1) Free trade (2) Quota (3) Quota and Producer Tax

(4) Tariff

RedRiverDel 4.93 -1.06 0.99 3.91

NorthEast 4.74 -1.26 1.17 3.68

NorthWest 6.5 -1.9 1.59 5.25

NorthCentral 5.12 -1.09 1.1 4.05

SouthCentral 3.17 -0.43 0.95 2.44

CentHighLand 4.5 -1.6 0.82 3.68

Southeast 2.31 -0.91 0.36 1.87

MekongDelta 8.37 -1.33 0.75 6.91

The Effect of a Rice Price Increase on Regional Employment by Scenario (percentage change)

(1) Free Trade (2) Quota (3) Quota and Producer Tax

(4) Tariff

Skilled Unskilled Skilled Unskilled Skilled Unskilled Skilled Unskilled

RedRiverDel -0.75 1.44 0.63 0.58 -0.83 -0.93 -0.61 1.17

NorthEast -0.92 0.31 0.41 0.34 -0.88 -1.05 -0.76 0.22

NorthWest -1.91 -0.84 1.06 1.13 -1.06 -1.19 -1.54 -0.66

NorthCentral -0.45 1.06 0.4 0.4 -0.73 -0.86 -0.38 0.85

SouthCentral -0.69 0.33 0.22 0.19 -0.76 -0.8 -0.54 0.26

CentHighLand -1.8 -1.53 1.04 1.2 -0.67 -0.74 -1.47 -1.25

Southeast -1.5 -1.31 0.99 1.02 -0.36 -0.37 -1.21 -1.05

MekongDelta 2.16 5.17 1.56 1.73 -0.34 -0.28 1.84 4.34

The Effect of a Rice Price Increase on Regional GDP by Scenario (percentage change)

(1) Free trade (2) Quota (3) Quota and Producer Tax

(4) Tariff

RedRiverDel 0.05 0.41 -0.62 0.06

NorthEast -0.25 0.26 -0.72 -0.22

NorthWest -0.91 0.78 -0.89 -0.72

NorthCentral 0.12 0.29 -0.59 0.1

SouthCentral -0.25 0.15 -0.56 -0.18

CentHighLand -1.3 0.82 -0.54 -1.06

Southeast -0.88 0.6 -0.22 -0.66

MekongDelta 2.17 1.07 -0.18 1.96

Note: The Northwest and Central highlands ‘export’ zero rice.

VHLSS!Household!Data!!

Household Consumption of Rice

0

20

40

60

80Ric

e sha

re (%

)

6 8 10 12lnexpc

95% CI

Urban

Rural

Notes: Rice share is the household share of rice in its expenditure. The two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution.

Household Rice Production and Net Sellers

Note: Two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution.

Rice Production and Net Sellers: Northwest versus South East

NW

SE

0

.2

.4

.6

.8

1

Estim

ated p

robab

ility

6 7 8 9 10 11lnexpc

Rice ProducingRice Selling

Notes: Two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution. Kernel = epanechnikov, degree = 0, bandwidths =0.29 and 0.29 for NW; 0.35 and 0.35 for SE.

Rice production and Net Sellers: MRD versus RRD

RRD

MRD

0

.2

.4

.6

.8

1

7 8 9 10 11lnexpc

Rice ProducingRice Selling

Notes: Two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution. Kernel = epanechnikov, degree = 0, bandwidths = 0.31 and 0.31 for RRD; 0.42 and 0.42 for MRD.

SimulaJon!Results!

Change in rural household welfare

-5

0

5

10

15Ch

ange

in ho

useh

old w

elfare

(%)

6 7 8 9 10 11lnexpc

Free Trade

Quota

Quota Monopolist

Notes: Two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution. Free Trade and Quota intersects at the 2nd percentile of the lnpcexp distribution.

Change in urban household welfare

-3

-2

-1

0

1

2Ch

ange

in ho

useh

old we

lfare

(%)

7 8 9 10 11 12lnexpc

Free Trade

Quota

Quota Monopolist

Notes: Two solid vertical lines are at the 20th and 80th percentiles of the lnpcexp distribution. Free Trade intersects with Quota at 4th and 99.95th percentiles. It intersects with Quota Monopolist at 99.9th percentile.

Change in rural household welfare with free trade: Mekong River Delta versus Red River Delta

RRD

MRD

-10

-5

0

5

10

15

Cha

nge

in ru

ral h

ouse

hold

wel

fare

(%)

7 8 9 10 11lnexpc

Notes: For rural households, MRD and RRD intersects at the 5th percentile of the lnpcexp distribution.

RRD

MRD

0

5

10

15

Ch

an

ge

in u

rba

n h

ou

seh

old

we

lfare

(%

)

7 8 9 10 11 12lnexpc

Change in rural household welfare with free trade: Northwest versus South East

SE

NW

-10

0

10

20

30

Cha

nge

in ru

ral h

ouse

hold

wel

fare

(%)

6 7 8 9 10 11lnexpc

SE

NW

-2

-1

0

1

2

Cha

nge

in u

rban

hou

seho

ld w

elfa

re (%

)

7 8 9 10 11 12lnexpc

Closing Remarks •  Alternative rice export policies have relatively small impact on

regional GDP, but large and differential regional impacts in this model. In general, policies other than increased trade (of some sort) greatly impact the Mekong River Delta region most in terms of lost profitability.

•  Micro-simulation shows that the Vietnam Rice Export Ban in 2008 in the context of fragmented rice market negatively affects all regions and (almost) all household categories

•  Free Trade Policy turns out preferred and the most pro-poor policy for Vietnam in terms of the net benefit (as the sum of consumer and producer surplus) and the net benefit ratio as the ratio of net benefit to household expenditure

Thanks for your comments and questions!

Tom Kompas tom.kompas@anu.edu.au

!hNp://www.crawford.anu.edu.au/staff/tkompas.php!