Tóm tắt Luận án The impacts of fluctuations of inputs price on the economic efficiency of tea production of farmer housedolds in Thai Nguyen province

1 DEPARTMENT OF EDUCATION AND TRAINING THAI NGUYEN UNIVERSITY NGUYEN THI PHUONG HAO THE IMPACTS OF FLUCTUATIONS OF INPUTS PRICE ON THE ECONOMIC EFFICIENCY OF TEA PRODUCTION OF FARMER HOUSEDOLDS IN THAI NGUYEN PROVINCE Speciality: Agricultural Economics Code No.: 62.62.01.15 Ph.D THESIS SUMMARY OF AGRICULTURE THAI NGUYEN, 2014 2 The study was done at: COLLEGE OF ECONOMICS & BUSINESS ADMINISTRATION, THAI NGUYEN UNIVERSITY Scientific supervisors: 1. Doan Quang Thieu PhD. 2. Assoc. Prof. Nguyen Dinh Long PhD. The peer review 1: ..................................... The peer review 2: ..................................... The peer review 3: ..................................... The thesis is prevented to the Council held in Thai Nguyen University at the , , 2014 Desertation can be found at: - National Library - Learning Resource Center, Thai Nguyen University - Library of College of Economics & Business Administration 3 PREAMBLE 1. The necessity of the subject The economic efficiency of tea in Thai Nguyen has given farmers and the province economic benefits. However, in recent years, the input market of tea production has fluctuated, which is detrimental to farmers. Prices of inputs such as fertilizers, plant protection chemicals, stimulants, labor, fuel ... has been continuously increasing, causing difficulties to a majority of farmers and adversely affecting their tea production efficiency. In this context, facing general difficulties of tea sector of Thai Nguyen and of tea farmers in the province, it is very necessary and practical to conduct a study which assesses the impact of price fluctuations of inputs on production, results and efficiency of tea farmer households, therefore introducing practicable solutions to improve the efficiency of tea production. From the above reason, the author has chosen the subject “The impacts of fluctuations of inputs price on the economic efficiency of tea production of households in Thai Nguyen province” as a doctoral dissertation. 2. The research purposes The purpose of the thesis rearch is to propose a number of measures to advise the government and farmers to behave properly to improve the efficiency of tea production in Thai Nguyen, after analyzing the influence of price fluctuations of inputs on efficiency of tea production of households in the province. 3. Object and scope of the thesis research * Object: The main researching objects of the thesis research are economic efficiency in tea production of farmer households, the impact of increasing price of inputs on economic efficiency in tea production of farmers, the influence of inputs on productivity and technical efficiency in tea production of farmers in Thai Nguyen province. * Scope: Of content, the research limits on the economic efficiency in tea production of farmers before and after increasing price of inputs; the influence of increasing price of inputs on economic efficiency in tea 4 production of farmers; analysis the impact of various types of inputs on the technical efficiency in production of farmers in Thai Nguyen; the impact of rising costs on economic efficiency in tea production of farmers. Of space, the research limits on Thai Nguyen province. Of time, the research uses secondary data collected from 200 to 2012. Primary data was collected through direct interviews with households in 2008, and 2012. 4. The layout of the thesis Besides the introduction and conclusion, the thesis consists of 04 chapters: Chapter 1: The rationale for the impact of increasing price of inputs on economic efficiency in tea production of farmer households. Chapter 2: Research methodology. Chapter 3: Impact of increasing price of inputs on economic efficiency in tea production of farmer households in Thai Nguyen province. Chapter 4: Major solutions to improve economic efficiency in tea production of farmer households in Thai Nguyen province. Chapter 1. THE RATIONALE FOR THE IMPACT OF INCREASING PRICE OF INPUTS ON ECONOMIC EFFICIENCY IN TEA PRODUCTION OF HOUSEHOLDS 1.1 Rationale for the price, price fluctuations and economic efficiency in tea production of households 1.1.1 Specification and economic characteristics of tea plant According to Willson, K.C (1992 ), the scientific name for tea plant is Cmaellia sinesis whose leaves and buds are used to produce tea .There are many factors influencing tea production such as natural conditions ( soil , climate), technical ones( breed, irrigating water, fertilizer, planting density, hewing, picking tea . .. ), economic ones (prices ... ). 1.1.2 Farm household’s economy There are many different notions of farm household and farm household’s economy. Refering to documents, the dissertation presents the concept of farm households and farm 5 household’economy. Farm household is a household that is considered as an economic unit having land, means of production, productive capital owned by the household and mainly using family labor for production in agriculture. The household members are entitled to the income and all decisions are based on the general idea of adult members of the household. Farm household’s economy is kind of economy in which production activitities are based mainly on family labor and its purpose is to meet the demand of the household (not to manufacture goods for sale) . However, it should be noted here that the households can also produce for exchange but at a limited level. 1.1.3 Economic efficiency in tea production of farm households a. The concept of economic efficiency in tea production Presently there are a lot of views on economic efficiency, but in this topic we refer to some materials and synthesize a concept: Economic efficiency in tea production of farm households is an economic category reflecting the quality of tea production process which is determined by comparing the outputs of tea production with the cost of inputs. b. Factors affecting the economic efficiency in tea production of farm households Technical factors in tea production (breed, fertilizer, farming practices); Economic conditions and organization of production (production scale , competence of the household head, policy environment) ; social factors (farming practices , ethnicity , gender); price factors (price of inputs, price of tea) ... c. Methods to assess the impact of changes in input prices to economic efficiency in tea production of farm households Qualitative Analysis : Participatory rural appraisal (PRA) is used, including in-depth interviews, group discussion method, expert meetings, method of scoring and ranking, scheduling, causal diagram (problem tree .. ). The quantitative analysis is performed by following methods: Comparing the efficiency indicators before and after the price changes. Using the CD production function to assess the impact of price on economic efficiency in the tea production. Using the frontier 6 production function to analyze the influence of inputs on productivity and technical efficiency of tea production. Using creasing regression to analyze the impact of increasing input costs on household economic efficiency. d. Improving economic performance of tea farmers In order to improve economic efficiency in production, farmers need to consider and follow the directions: Firstly, expanding the scale of production in order to enhance the results obtained, however the growth rate of output must be greater than that of input costs. Secondly, improving the results obtained with unchanged input costs. Thirdly, using inputs economically and effectivelys to reduce production costs while results are constant. 1.1.4 Price and price fluctuation in tea production a. The concept of price and types of price in tea production Prices in tea production include prices of inputs and outputs. There are many types of prices used in the market depending on the purpose and exchange relationships. In this research for the purpose of considering the effects of increasing price on production efficiency of farmers we mention the following prices: (1) Price of inputs for tea production: comprises costs of materials, services and rental price of labor. (2) Price of outputs of tea production which is the selling price of tea products. b. Price fluctuations and Cause The concept of price fluctuations is interpreted as the increase or decrease in the price of products on the market from time to time or space. In this research, price fluctuations are subject to increasing price of inputs typically between one or several production cycles that can create the risk of increasing or decreasing perfomance and production efficiency. The main causes of price fluctuations are: Currency inflation (depending on the macroeconomic policy of the government); External price fluctuations (regional and international prices); Urbanization: Increasing demand, attracting rural labours makes rural labors’cost increase; Events, factors caused reduced demand or increased supply (eg, natural disasters, avian flu , mad cow epidemi); 7 Consumer psychology (eg, fear of disease transmission products ); Monopsony situation , exclusive sales; Other causes .... c. The impact of increasing price of inputs on tea production Price fluctuation is not a new phenomenon but contains many potential instability of agricultural production. Price risk is the biggest obstacle to the development of farmers which have smal - scale production. Economic cooperation is a solution to help smallholders overcome the "shock" in price and increase production efficiency. 1.2 Practical basis of the impact of increasing price of inputs on economic efficiency in tea production of farmers 1.2.1 Price fluctuation of some key inputs in tea production Fertilizer is a key input in the production of tea. The price of fertilizer increased greatly recently which had a strong impact on the efficiency in tea production of farmers in Vietnam in general and in Thai Nguyen province in particular. 1.2.2 Lessons of farmers to cope with price fluctuations of input Lesson 1: State plays an important role in price management, price stability and farmers’support to minimize risks caused by increasing price. Lesson 2: To expand production and promote access to capital is the best solution to overcome the impact of increasing prices of labor and fertilizer in production. Lesson 3: Farmer organizations, industry organizations and industry coordination is a solution to overcome the impact of increasing price of inputs. 1.3 Overview of the study In the past few years there are many studies on tea and farmers in Thai Nguyen province, these works mainly refer to issues about resources of farmers producing tea, there has been no work which researched comprehensively and specifically the impact of price fluctuations on economic efficiency of farmers in Thai Nguyen province. Therefore, the study “The impacts of fluctuations of inputs price on the economic efficiency of tea production of households in 8 Thai Nguyen province” has practical significance, meeting practical requirements. Chapter 2. RESEARCH METHODOLOGY 2.1 Approach and analytical framework 2.1.1 Approach The study has used the participatory approach, the area approach, the economic situation of households approach, household type approach, public and private sector approach. 2.1.2 Analytical Framework 2.2 Research Methodology * Subject: Thai Nguyen province is chosen as the subject of the thesis. * Data collection: - Secondary Data Collection: Through books, articles, published materials, documents available ... - Primary Data collection: household survey method comprises the following steps: selecting the survey; selecting households; determining the number of households surveyed; surveying households. * Synthetic Methods: The study uses synthetic tools: Excel, EViews, Frontier. * Methods of analysis: Qualitative Methods: Using PRA analysis tools, tree matter, priority rank. Quantitative Methods: descriptive statistical method, comparative method, disaggregated approach, modeling methods: Using Cobb - Douglas production function for analysis of price factors affecting economic efficiency in tea production of farmers. Applying frontier function to analyze the impact of inputs on productivity and technical efficiency of households. Using creased regression analysis to analyze the impact of increase in the cost of inputs on economic efficiency of households. 9 Chapter 3. EFFECTS OF INCREASING PRICE OF INPUTS ON ECONOMIC EFFICIENCY IN TEA PRODUCTION OF FARMERS IN THAI NGUYEN PROVINCE 3.1. Natural and socioeconomic features of Thai Nguyen province Based on natural features, Thai Nguyen has the potential to develop tea plant. The province has the 2nd largest tea area in the country (18 605 ha), 9 districts and cities produce tea. Thanks to the blessed soil, water, climate, it suits tea very much. Therefore, raw fresh tea in Thai Nguyen has very high quality. Beside, tea producers in Thai Nguyen have sophisticated care, harvesting and processing techniques which have created the characteristic of Thai Nguyen tea, 100 % of the products are green tea products, high-grade green tea, mainly for domestic consumption and exports. 3.2. Price fluctuations of inputs in tea production 3.2.1 Limiting period of price fluctuations of inputs tea production in recent years to conduct research Research chooses the landmark of 2007 which was before price fluctuation, in which prices of inputs had not fluctuated much. Research chooses 2011 which was after price fluctuation, in which prices of inputs increased and became stable, interest rate was fixed, inflation was slight and weather did not change much. 3.3.2. Fluctuations in the price of some key inputs in tea production In recent years, inputs such as fertilizer, plant protection chemicals, fuel, labor ... fluctuated greatly. Causes contributing to the increase in price of inputs in tea production in recent years are: fluctuation in world market prices, urbanization, monetary inflation, consequence of macroeconomic policies, monopoly of agricultural services, profiteering and others ... 3.3 Assessing the impact of fluctuation in price of input on economic efficiency in tea production of farmers in Thai Nguyen province 3.3.1. The situation of tea production of researched households - Types of households: Tea production of households seemed to increase after price fluctuation. Prices of inputs in the production of 10 tea grew which made the price of tea products increase, thus tea production of households are reflected through norms of production value’s, added value’s and mixed income’s increase after fluctuations in price of inputs . Value of tea production of specialized households increased more greatly than non-specialized households. After fluctuations in price of inputs, specialized households got the value of tea production of 52 577 ngd, non-specialized got 40 441. Considering mixed income, specializing households still had higher growth rate than non- specialized ones. Comparing the tiem after price fluctuations with the time before price fluctuations, the growth rate of mixed income of specialized households was 72%, of non-specialized ones was only 61%. - Level of income: Production value of wealthy households at the time before price fluctuations of inputs was 1.69 times greater than average households and 3.87 times greater than poor ones. Mixed income of wealthy households is 1.44 times higher than the average household and 4.05 times greater than the poor ones. After price fluctuation, the gap between wealthy households and average and poor ones is widening. The production value of wealthy households is 2.2244 times and 5.18 times higher than that of average household and of poor household, respectively. Mixed income of wealthy households is 2,03 times and 5.45 times higher than that of the average household and of the poor one. After price fluctuations, wealthy households’production value increased from 32604 ngd to 76864 ngd, income increased from 21921 ngd to 42088 ngd. Indicators of tea production of poor households increased but less than wealthier households, production value increased from 8422 ngd to 14830 ngd.. Mixed income of poor households increased from 5411 ngd to 7718 ngd. The average household’s production value and mixed income also increased after price fluctuations. 3.3.2 Economic efficiency in tea production of researched households * By types of household: Table 3.16 shows the efficiency of using captial of two groups changes differently, overall efficiency of the two groups decreased after price fluctuations. On average, before price fluctuation, cost of 2.654 thousand dong resulted in production 11 value of 3,747 thousand dong and mixed income of 2,654 thousand dong. After fluctuation, costt of 1 thousand dong resulted in production value of 2,749 thousand dong and mixed income of 1,624 thousand dong. Labour efficiency of household also decreased after price fluctuation. On average, before price fluctuation, labour cost of 1 thousand dong resulted in production value of 3,158 thousand dong and mixed income of 2,232 thousand. Labor cost increased which reduced labor efficiency. After fluctuation, labour cost of 1 thousand dong resulted in production value of 2,757 thousand dong and mixed income of 1,522 thousand dong. Table 3.14. Economic efficiency in tea production of different types of household (on average) Indicator unit Type of production Average Specialized household Non- specialized household Before fluctuation 1. GO/DT Ngđ/rod 2,991 3,67 3,289 2. MI/ DT Ngđ/rod 2,162 2,53 2,323 3. GO/IC Turn 3,792 3,690 3,747 4. MI/IC Turn 2,741 2,544 2,654 5. GO/LĐ Turn 2,920 3,462 3,158 6. MI/LĐ Turn 2,111 2,387 2,232 After fluctuation 1. GO/DT Ngđ/rod 6,047 7,382 6,634 2. MI/ DT Ngđ/rod 3,719 4,097 3,885 3. GO/IC Turn 2,941 2,506 2,749 4. MI/IC Turn 1,808 1,391 1,624 5. GO/LĐ Turn 2,564 2,617 2,587 6. MI/LĐ Turn 1,577 1,453 1,522 Source: Summary of household survey data in 2012 * By income There are also significant disparities in efficiency between wealthy households with average and poor ones. GO, VA, MI of wealthy households tend to increase more greatly, therefore production efficiency was higher than that of poor households. 12 Average households have the highest efficiency. Considering the impact of price fluctuations, the efficiency in using land of households increased. But efficiency in using capital and labor decreased. Table 3.15. Efficiency in tea production of households by income (average/household) Indicator Unit Wealthy household Average household Poor household Average Before fluctuation 1. GO/DT Ngđ/rod 3,385 3,018 2,955 3,103 2. MI/ DT Ngđ/rod 2,276 2,380 1,898 2,220 3. GO/IC Turn 3,351 5,371 2,978 4,159 4. MI/IC Turn 2,253 4,236 1,914 3,053 6. GO/LĐ Turn 3,448 3,275 1,985 2,975 6. MI/LĐ Turn 2,318 2,583 1,276 2,155 After fluctuation 1. GO/DT Ngđ/rod 7,980 5,415 5,203 6,075 2. MI/ DT Ngđ/rod 4,370 3,251 2,708 3,417 3. GO/IC Turn 2,508 2,785 2,294 2,574 4. MI/IC Turn 1,373 1,672 1,194 1,459 6. GO/LĐ Turn 3,111 2,309 1,404 2,289 6. MI/LĐ Turn 1,704 1,386 0,731 1,298 Source: Summary of household survey data in 2012 Before price fluctuation, cost of 1 thousand dong resulted in mixed income of 2,253 thousand dong in wealthy household, of 4,236 thousand dong in average household and 1,914 thousand dong in poor household. After price fluctuation, cost of 1 thousand dong resulted in mixed income of 1,373 thousand dong in wealthy household, of 1,672 thousand dong in average household and 1,184 thousand dong in poor. Labour efficiency of poor household after 13 price fluctuation was very low. This proved that increasing price of labor greatly affected poor household. 3.3.3 Analysis of the impact of increasing price of inputs on efficiency in tea production of farmers 3.3.3.1 Analysis of price factors affecting economic efficiency in tea production of household The thesis used Cobb - Douglas production function to analyze the impact of increasing price on economic efficiency of production of tea farmers. Price factors affecting economic efficiency in tea production of farmers include: selling price of tea bud’s products, price of inputs (fertilizer, pesticide, fuel, labor), household type, education level of household head, gender of household head and production technology of household. * Analysis of prices affecting MI /rod Production function: 4.D4γ3.D3γ2.D2γ1.D1α5 5 α4 4 α3 3 α2 2 α1 1 αi yi .ePPPPPAPY  Using EViews software to estimate the results obtained: Y = 35,547. 195.0 5 -0.023 4 -0.048 3 -0.095 2 -0.323 1 0.219 y PPPPPP  D40.189 - 0.015D3 - 0.007D2-0.273D1e  Coefficient αi is (+) positive, suggesting that the selling price of tea increased which made mixed income/rod increased. Specifically, when other factors unchange, if the price of tea increased by 1 %, mixed income/rod would increase by 0.219 %, meaning that when product prices increase by 1 thousand dong, mixed income/rod increases by 0.731 thousands dong. Coefficients α1, α2, α3, α4, α5 are (-) negative, suggesting that when price of inputs (fertilizer, pesticide, fuel, herbicide, outsourced labor) increases, mixed income / rod decreased. Specifically, the biggest deciding factor to economic efficiency in the production of tea of household is the price of fertilizer. When fertilizer price increased by 1 %, mixed income of households/rod fell by 0.322 %. Provided that other factors are constant, the price of fertilizer increased by 1 thousand dong then mixed income/rod decreased by 4.404 thousand. In case fertilizer prices increased so greatly, households must invest fertilizer according to technincal 14 instructions as well as fertilizer limit for tea plants with the lowest cost to achieve the highest economic efficiency. Cost of outsourced labor had a major influence on mixed income/rod of household. When outsourced labor cost increased by 1 %, mixed income/rod decreased by 0.195 %. When price of pesticides increased by 1 % , mixed income of households/rod fell by 0.095 % , meaning that when price of pesticides increases by 1 thousand dong, mixed income of household decreases by 1.572 thousand. Effect of pesticides is to limit pest, stimulating tea and higher tea production. However, pesticides and drugs should be used moderately and appropriately to ensure the quality of tea and save costs. The dummy variable for the type of tea growers showed non- specialized households have lower mixed income / rod than specialized ones by 0,273%. This is because specialized households know how to invest in tea production more reasonably than non- specialized ones. Dummy variable for manufacturing technology shows households applying innovative machine have lower mixed income / rod than non-specialized ones by 0.189 %. The reason is that households applying innovative machine invest more on fuel for production whose price increases causing their cost increase and reducing their mixed income/rod. - Analysis of price factors affecting the efficiency costs (MI/IC) Estimation resulted in results: Y= 20,794. 757.0 5 0.140 4 0.084 - 3 -0.080 2 -0.064 1 0.016 y PPPPPP  D40.081 - D30.030 - D20.026 0.069D1e  The biggest determining factor to their cost effectiveness is the price of outsourced labor. When the price of outsourced labor increases by 1%, the MI / IC of household decreases by 0.757 %. When fertilizer prices increases by 1 %, the MI / IC 0.064 % of households decreased . As fuel price rises by 1 %, mixed income of households / cost decreased by 0,084 %. Pesticide price increased by 1 % then the MI / IC decreased by 0.080 %. The dummy variable for the type of tea growers shows that non-specialized households’ MI / IC is 0.273% lower than specialized ones. 15 3.3.3.2 Analysis of the influence of inputs on productivity and technical efficiency in the production of tea of households The thesis use the limited production function to analyze the impact of various types of inputs on productivity and technical efficiency in tea production. Effectiveness of using production costs and technical efficiency of farmers are reflected in the results estimated from Cobb - Douglas production function (OLS - Average function and MLE - Frontier function). Table 3.18. The results estimated from the limited production function Variable OLS (Average function) MLE (Frontier function) Coefficient t- test Coefficient t- test Coefficient of freedom 3,814 5,315 3,816 6,762 The amount of urea 0,059 1,591ns 0,042 1,415 Phosphorus 0,083 1,562ns 0,074 1,353 Amount of potassium 0,0103 6,363 0,0104 9,230 Amount of NPK 0,043 3,182 0,045 5,579 Pesticide 0,028 2,181 0,029 2,806 Amount of manure 0,057 3,843 0,057 3,872 Amount of working day 0,064 2,682 0,065 2,706 Sigma-square: 0.149766 Gamma: 0.850231 Sigma-square: 0.129173 Gamma: 0.870826 Note: ns: No statistically significant The estimated results in Table 3.20 show inputs such as potash, NPK fertilizer, pesticides, manure and care help increase the productivity of farmers producing tea in Thai Nguyen. Ptassium being increased by 1 % would make tea leaves yield increase by 0.01 %. That is, potassium being increased by 1kg / rod would cause yield increase by 0.69 kg/rod. Similarly, NPK being increased by 1% would cause tea yield increase from 0.043 % to 0.045 %, meaning that potassium being increased by 1kg / rod would cause yield increase by 1.76 kg/rod. Manure being increased by 1 % would make tea yield increase by 0.057%, that is manure being increased by 1kg/rod would casue tea 16 yield increase by 1.8 kg /rod. Likewise, working days being increased by 1 % would make tea yield increase by 0.064 - 0.065 %. Coefficient of nitrogen and phosphate fertilizer are not statistically significant, which may be explained that investment of these factors was so high that their impact on tea yield was low and unclear. Table 3.1. The effect of tea production techniques surveyed households Level of technical efficiency Number of households Ratio (%) < 60 % 0 0 60 – 70 % 42 11,69 70 – 80 % 71 26,79 80 – 90 % 105 39,62 90 – 95 % 36 17,35 95- 100 % 11 4,55 Average technical efficiency 80,68 % Source: Result from running the Frontier function From the results estimating the model, the technical efficiency of farmers in Thai Nguyen is determined. Table 3:21 shows that the average technical efficiency of tea producers in Thai Nguyen reached 80.68 % compared with the potential yield which can be achieved in normal farming conditions. Thus, Thai Nguyen province is still likely to increase the yield more tea if inputs like potash NPK, manure and labor are invested more along with improving cultivation techniques of farmers. In short, models show that inputs like NPK, potassium, manure, pesticides, labor play an important role enhancing productivity and technical efficiency in tea production of farmers in the province. 3.3.3.3 Effect of cost fluctuation on economic efficiency To assess the impact of fluctuations in costs on the economic efficiency of households, the thesis used the creased regression models to analyze. Regression takes the form: E (Yt) = a1 + a2.Xt + a3.(Xt - Xt0).Dt + Vt Where: Yt is mixed income (MI ) of households ; Xt is the intermediate costs of households in 2011; 17 Xt0 the intermediate costs of households in 2007; Results of regression analysis obtained regression of the form: Xt Yt = 18 547 + 2,504 - 1,045.(Xt - Xt0 ) Dt Comparing effectiveness of using capital before and after fluctuations shows that the coefficient a3 = -1.045 < 0 indicating effectiveness of using capital after fluctuation was lower than that before fluctuation by -1.045 units . Chart 3.5. Effectiveness of using costs before and after price fluctuation - Before fluctuation (D = 0): MI = 18 547 + 2,504 IC Thus, before fluctuations, every extra 1 thousan dong of capital will increase the effectiveness of investment by 2.504 thousand dong of mixed income. - After fluctuation (D = 1): MI = 24109.535 + 1.009 IC Thus, after fluctuation, every extra 1thousand dong of cost will increase the effectiveness of investment income by 1.009 thousand of mixed income. 3.3.4 General comments on the impact of increasing price of inputs on economic efficiency in tea production of households MI = 24109 + 1,009 IC MI = 18547 + 2,504 IC 18 * Comparing the growth of increasing tea production with the growth of increasing tea production cost of households Table 3.22 . Growth and cost outcomes by type of household Unit: ngd Indica -tor Before fluctuation After fluctuation Growth rate (%) Specialized household Nonspecializ ed household Specialized household Nonspecializ ed household Specialized household Nonspecializ ed household GO 25.988 12.455 52.557 25.025 102 101 VA 19.135 9.080 33.686 15.042 76 66 MI 18.789 8.587 32.324 13.889 72 62 TC 7.199 3.868 20.233 11.136 181 188 IC 6.853 3.375 17.871 9.983 161 196 (Source: Summary of household survey data in 2012) Table 3.23. Growth rate of results and and cost by income Unit: ngd Indic -ator Before fluctuation After fluctuation Growth rate (%) Weal -thy Ave- rage Poor Wea-- thy Aver age Poor Wealt -hy Aver -age Poor GO 32.6 19.3 8.4 76.9 34.6 14.8 136 79 76 VA 22.9 15.7 5.6 46.2 22.1 8.4 102 41 59 MI 21.9 15.2 5.4 42.1 20.7 7.7 92 37 43 TC 10.7 4.1 3.1 34.8 13.8 7.1 225 239 136 IC 9.7 3.6 2.8 30.6 12.4 6.5 215 246 129 (Source: Summary of household survey data in 2012) The impact of the rise in prices of inputs in the production of farmers exacerbated their costs. Along with rising costs, price of tea products also increased, production value and household’s income also increased. However, the growth rate of costs was greater than that of the results. This reduced the economic efficiency in tea production of farmers. Specifically, for non-specialized households, the growth rate of mixed income is 72 % but the growth rate of the total cost and intermediate costs were respectively 181 % and 161 %, 2 times more than the growth rate of results. Non-specialized households were affected as specialized ones. The growth rate of costs of non-specialized household were greater than that of specialized ones. In terms of income, average household and wealthy household had greater growth rate because they remain high level investment for tea 19 production. Poor households lacked the resources, therefore when price of inputs increased, they cut down on costs for production which reduce the growth rate of costs. After fluctuation, the growth rate of mixed income of wealthy and average households were 92 % and 37 %, respectively. While the growth rate of intermediate costs of wealthy and average households were 215 % and 246 %, respectively. * Evaluation of economic efficiency in tea production of household after iincreasing price of inputs Table 3.24. Comparing the efficiency in tea production of household before and after increasing price of inputs (by types of household) Indicator Specialized households Non-specialized households Absolute (times) Relative (%) Absolute (times) Relative (%) 1. GO/DT 3,056 202,2 3,712 201,1 2. VA/DT 1,674 176 1,767 166,2 3. MI/ DT 1,447 172 2,440 196,4 4. GO/IC - 851 77,6 -1,184 67,9 5. VA/IC - 907 67,5 - 1,184 56,0 6. MI/IC - 933 66 - 1,153 54,7 7. GO/LĐ - 356 87,8 - 845 75,6 8. VA/ LĐ - 506 6,5 - 951 62,3 9. MI/LĐ - 534 74,7 - 934 60,9 (Source: Summary of household survey data in 2012) 20 Table 3.25. The efficiency in tea production of household before and after increasing price of inputs (by income) Indicator Wealthy household Average household Poor household Absolute (times) Relative (%) Absolut e (times) Relative (%) Absolut e (times) Relative (%) 1. GO/DT 4.595 235,7 2.379 179,4 2.248 176,1 2. VA/DT 2.424 202,1 1.015 141,3 974 149,6 3. MI/ DT 2.094 192,0 871 136,6 810 142,7 4. GO/IC - 843 74,8 - 2.586 51,9 - 684 77,0 5. VA/IC - 843 64,1 - 2.586 40,8 -684 65,4 6. MI/IC - 880 60,9 - 2.564 39,5 - 720 62,4 7. GO/LĐ - 337 90,2 - 966 70,5 - 581 70,7 8. VA/ LĐ - 549 77,3 - 1.185 55,5 - 1.380 0,1 9. MI/LĐ - 614 73,5 - 1.197 53,7 - 1.275 0,1 (Source: Summary of household survey data in 2012) Considering the pace of development of land use indicators in table 3.24 and 3.25 shows that they are greater than 100 % reflecting the increasing efficiency after price fluctuation. In terms of cost efficiency and labor efficiency, speed the development of performance indicators are less than < 100 % indicates cost efficiency and reduced labor efficiency. In summary, through considering the results and effectiveness of tea production, the indicators reflecting the production results of household increased after fluctuation. Specifically, the production values and mixed income of households increased after fluctuation. This proves that although the price of inputs increased, farmers still obtained certain results. However, the growth rate of production values and mixed income was less than that of costs, so efficiency declined after fluctuation. When considering the effectiveness of using costs or of using capital, they both decreased after fluctuation. This proves although production increased due to increasing price, economic efficiency declined due to the fact that the growth rate of in input prices was greater than that of productivity and output price 21 (price of tea). This is detrimental to the production of farmers and disadvantagous for their agricultural practices. 3.3.5 Assessment of farmers about the elements needed to improve economic efficiency in terms of input price volatility Needs of different households are different due to the disparity in resources of household and are evaluated as follows: Level of importance: Demand for loans was considered as very important by up to 59 % of households, as important by 24 % and as not very important by only 3 % of respondents. This is because most farmers lack capital for tea production, a number of households wanted to invest in manufacturing technology and increase planted area. Beside, the demand of for extending the training was considered as very important by 61 % of respondents (Table 2.23) and as not very important by no one. This suggests that the majority of farmers had little chance of participating in training to improve tea production. Level of unimportance: The criteria of applying new variaties to production was considered as very important by only 8 % chose and as not very important by 49 % of respondents, this is due to the fact that the transition from the midlands varieties to new varieties encountered many difficulties in the application of technical measures and capital. Chapter 4. MEASURES TO ENHANCE ECONOMIC EFFICIENCY IN TEA PRODUCTION OF FARMERS IN THAI NGUYEN PROVINCE IN CASE OF INCREASING INPUT PRICES 4.1. Base of measures to improve the economic efficiency in tea production of farmers in Thai Nguyen province in case of increasing input prices 4.1.1 Policy to develop and plan tea production in Thai Nguyen in the coming time * Developing tea production on the basis of bringing the strengths of each region and local into play. * Developing tea along with industrialization, modernization of the country and industrialization, modernization of the rural area. 22 * Developing tea production in the comprehensive and sustainable agricultural development. * Developing tea production on the condition that our country joined the WTO. * Developing tea production being oriented farm economy. * Strengthening management, especially promoting the brand of Thai Nguyen tea. * The result of the planning and development of tea production in Thai Nguyen and its task. 4.1.2 Demand for tea and tea products’ price Domestic demand: According to the Vietnam Tea Association (Vitas), domestic tea consumption tends to increase recently. At present, the demand for tea of the country's population accounts for about 30 % of the total tea production of the country, with an average increase of 3 to 5% per year. Demand is growing up which is a good sign for the decision to increase productivity and output of farmers in Thai Nguyen. Besides, the domestic tea consumption of green tea is mainly processed manually, the price is relatively stable. There have been special and premium kinds of tea, however the volume has not meet the market demand. Trends in international and domestic price fluctuations: The international tea prices by month started to increase from the end of November, 2010 and peaked in January, 2011, at about 368.1 U.S. cents / kg but decreased from February, 2012. Overall, tea supply increased but demand had increased at a higher rate, therefore prices tended to increase. 4.1.3 Forecast price trends in tea production inputs To see the price fluctuation of inputs of tea production in the coming time, the thesis applies the model predicting the trend of linear functions and AR function. * The model predicted the trend of linear function: Yt = a0 + vt + a1.t The parameters a0, a1 are estimated in normal equations. Forecasting function takes the form: Yt = 3860.37 + 583.73. T * Forecast model AR (1): Yt = a0 + a1 Yt - 1 + Ut 23 According to Annex 02 the correlation coefficient r = 0.9337. As the observed value t depends only on the value of previous observations and autocorrelation function, r = a1. According to Annex 02 we have r = a1 = 0.9337. Coefficient a0 = 5436.63. AR function (1) takes the form: Yt = 5436.63 + 0.9337 Yt - 1 + Ut Thus, in the next few years, the average price of output in the province still has an upward trend. 4.1.4 The concept of enhancing economic efficiency of production of tea farmers in Thai Nguyen province in terms of input prices Fluctuations in input prices of tea production is an objective trend. Increasing price of inputs has a negative impact on the efficiency of production of farmers, which may be limited by economic, organizational and technical measures. To limit the impact of rising input costs and enhance efficiency in tea production of farmers, it is necessary to combine solutions that influence both the input and output of tea production, in which the former plays a particularly important role. Since this is the main source for increased economic efficiency in tea production, we should offset input costs in the context of increasing price currently. Improving the efficiency in tea production of farmers in case of increasing price of inputs requires basic and long-term solutions. To reduce the impact of increasing price of input on tea production effectively and improve efficiency of farmers, it is critical to combine the promotion of the role of the state management agencies and role of farmers, in which the role of farmers is particularly important. 4.1.5. Orientation of the enhancement of economic efficiency in tea production of farmers in Thai Nguyen province in case of increasing price of inputs Developing tea production oriented concentration with a high degree of specialization, improving commodity production in tea production. 24 Renewing provision of inputs and fertilizer for tea production to ensure appropriate supply of inputs, reduce intermediary costs and avoid middlemen profiteering. Improving productivity and quality of tea products of farmers to increase the price of tea products and of tea exports. Improving production techniques and business management of all tea producers. Using inputs rationally and scientifically to save production costs, improve productivity of tea. Promoting the role of economic cooperation in the production and business of tea farmers... 4.2. A number of measures to improve the economic efficiency in tea production of farmers in Thai Nguyen province in case of increasing prices of inputs From the results of studies assessing the impact that increasing price of inputs has on the economic efficiency in tea production of farmers in Thai Nguyen province and the basis for determining the solutions presented in Section 4.1, author proposes the following solutions: * Solutions related to macro management include: - Complete planning for the areas of tea, improve concentration and specialization of production of tea in the province; - Development of processing industry in the province; - Actively promote the application of scientific and technological advances in production and processing of tea; - Enhanced credit support for farmers producing tea; - Increase public investment in infrastructure in the areas of tea; - Solution market input, the output of tea production; - Formation of the tea industry value chain. * Solutions for farmers include: - Upgrading of technical and business management of the tea farmers, raise awareness of households; - Expanding the area of new varieties of tea, using new materials, manufacturing processes applied science to save cost, high tea yield; 25 - Intensification of production reasonable limits apply at the top achievements in tea production; - Improve product quality and ensure hygiene and food safety practices through VIETGAP, proceed to GLOBAL GAP ... to increase the price of tea products; - Participate in the appropriate form link at all stages of the production process; - Focus marketing tea products, branding, consumer organizations network. CONCLUSION From the results of the study on fluctuations in price of inputs and economic efficiency of farmers producing tea in Thai Nguyen province, author draw some conclusions: 1. For farmers producing tea, fluctuations in price of inputs and outputs of tea products influence the cost and competitiveness of tea products, directly affecting farmers’ income, economic efficiency, decisions and business strategy. 2. Generally speaking, fluctuations in price of inputs cause the economic efficiency in tea production to decline. Comparing middle – income farmers with low-income ones, increasing price of inputs affects income and economic effeciency of poor farmers more greatly. 3. The decline in economic efficiency in tea production has consequently led to the division of investment strategies for production among different types of households. Farmers curb tea, poor households tend to reduce fertilizer and materials in order to achieve the highest marginal product and also to minimize the dependence on fertilizer market when prices go up. 4. Results when analyzing the Cobb - Douglas production function show that: selling price of bud tea products increases making mixed income of household rise, price of inputs (fertilizer, pesticide, fuel outsourced labor) increases making mixed income of household decrease. The rate of the former is greater than that of the latter, reducing the economic efficiency in tea production of farmers. 5. Results when estimating the creased regression models show that the increase of costs of tea production due to increasing costs of inputs reduces the economic efficiency in tea production of farmers. 26 6. Results when estimating the frontier function show that inputs such as chemical fertilizers, potassium, NPK fertilizer, pesticides, manure, care increase productivity of farmers producing tea in Thai Nguyen province. 7. Thai Nguyen province is still likely to increase the yield if inputs like potassium, NPK, manure and labor are invested more as well as the technical level of farmers producing tea improves. 8. The optimal investment of inputs in the production of tea of farmers to obtain the highest profit is determined. 9. The thesis points out that the increasing prices of inputs prevents the economic efficiency in tea production of farmers from improving, therefore appropriate solutions are necessary. 10. Solutions related to macroeconomic management include: Completing the plan for areas of tea, improving the level of concentration and specialization of tea producing areas in the province; Developing tea processing industry; Promoting applying scientific and technological advances in the production and processing of tea; Increasing credit support for farmers producing tea; Stabilizing input and output markets of tea production; Forming the value chain of tea branch. 11. Solutions for farmers include : Upgrading the technical and business management level of tea farmers, raising their awareness; Expanding areas of new breeds of tea, using new tools, applying process; Producing scientifically to save costs and obtain high yield; Using reasonable intensification, applying the optimal limits of inputs; Improving products’ quality and ensuring hygiene and food safety through practicing VIETGAP proceeding to GLOBAL GAP ... to increase the price of tea products ; Participating in appropriate links at all stages of the production process ; Focusing on marketing activities, establishing brand and organizing consumption network.