Rice market liberalization and poverty in Viet Nam

The main objective of this report is to examine the new set of food policy issues facing Viet Nam as a result of its transformation into a major rice exporter and its transition toward a market economy. In particular, the report aims to shed some light on two key issues:

• What would be the effect on income and poverty of further liberalization of rice markets in Viet Nam?
• What lessons can other countries learn from market liberalization in Viet Nam?

Market liberalization has had a positive effect on economic growth, agricultural production, and the rice sector. Survey data reveal that 93 to 95 percent of the poor live in rural areas, and rural incomes appear to have risen with the reforms.In spite of these gains, poverty rates are still high, and the benefits of liberaliza-tion have probably not been distributed equally among regions and between urban and rural areas.

Policy implications include:

• export liberalization would raise the price of rice and hurt the urban poor and rice-deficit households. At the same time, the gains to the rural sector, particularly farmers in the delta regions, outweigh these effects, resulting in a slight reduction in overall poverty and an increase in household and national income
• converting the export quota into an export tax could achieve the distributional goals of the quota while improving transparency and generating government revenue for targeted antipoverty programs
• the gains from rice export liberalization depend heavily on the elasticity of demand for Vietnamese rice exports on world markets. This implies that the government could use more accurate estimates of the export demand elasticity for rice in its policymaking process and should use international fora to lobby for trade liberalization in rice markets, particularly among importing countries
• the aggregate effects on income and poverty of removing restrictions on internal trade are as important as the liberalization of external trade
• future growth in the rice sector depends on exports, and export expansion depends on the development of an effective marketing system able to meet the changing needs of domestic and international markets at low cost, achieving this requires the full participation of the private sector

Lessons for other countries from the Viet Nam experience are as follows:

• relatively equal distribution of land assets is a key ingredient for the poverty-reducing effect of market reform
• the potential offered by market reform cannot be translated into actual growth unless other material and institutional conditions are in place
• an export-oriented strategy can be consistent with food security and with smallholder production.
• regional and distributional dimensions need to be taken into consideration in the analysis of policy reform in order that reforms are recieve national support