Summary of Doctoral dissertation Economics: Economic and environmental efficiency of intensive shrimp farming in the coastal transforming areas of the Mekong delta

Estimating the economic and environmental efficiency as well as the factors affecting these efficiency indexes for the shrimp farming in coastal transforming areas. From which, policy makers can select the feasible models and appropriate solutions to improve economic efficiency and to minimize environmental pollution for coastal farmers.

MINISTRY OF EDUCATION AND TRAINING

CAN THO UNIVERSITY

SUMMARY OF DOCTORAL DISSERTATION

Major: Agricultural economics

Code: 9620115

NGUYEN THUY TRANG

ECONOMIC AND ENVIRONMENTAL EFFICIENCY OF INTENSIVE SHRIMP FARMING IN THE COASTAL TRANSFORMING AREAS OF THE MEKONG DELTA

Can Tho, 2020

The research has been finished at Can Tho University, Can

Tho City, Vietnam

Supervisors

- The main instructor: Assoc Prof Dr Huynh Viet Khai

- Secondary instructor: Dr Tran Minh Hai

The dissertation will be defended at the council of the school level at:……… On:…………hour…… date……month…… year………

Discussant 1:

Discussant 2:

Citing of this dissertation is available at following the libraries:

- Learning Resource Center-Can Tho University, Can Tho City

- Vietnam National Library, HCM City

LIST OF PUBLISHED PAPERS RELATED TO THE

DISSERTATION

1 Nguyen Thuy Trang, Huynh Viet Khai, Vo Hong Tu, Tran

Minh Hai, 2019 Theoretical and empirical frameworks for measuring environmental efficiency in agricultural production:

A case study of shrimp farming in transforming areas of Kien Giang province Journal of Science Ho Chi Minh City Open

University, 14 (1/2019), Pp 115-125

2 Nguyen Thuy Trang, Huynh Viet Khai, Vo Hong Tu, 2018

Economic efficiency of shrimp farming in the coastal areas of Soc Trang province Can Tho University Journal of Science, 07

(54), Pp 146-154

3 Nguyen Thuy Trang, Huynh Viet Khai, Vo Hong Tu,

Mitsuyasu YABE, 2018, The determinants behind changes of farming systems and adaptation to salinity intrusion in the coastal regions of Mekong Delta Journal of Faculty of

Agriculture, Kyushu University, 63, Pages 417-422

4 Nguyen Thuy Trang, Huynh Viet Khai, Vo Hong Tu, Nguyen

Bich Hong, 2018 Environmental efficiency of transformed farming systems: a case study of change from sugarcane to shrimp in the Vietnamese Mekong Delta Forestry Research and

Engineering: International Journal, 02, Pages 54-60

LIST OF CONTENTS

LIST OF TABLE iv

LIST OF FIGURE v

CHAPTER 1: INTRODUCTION 1

1.1 RATIONALE OF THE DISSERTATION 1

1.2 OBJECTIVES 3

1.2.1 General objectives 3

1.2.2 Specific objectives 3

1.3 RESEARCH QUESTIONS 4

1.4 RESEARCH SUBJECTS 4

1.5 SCOPE OF THE STUDY 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 REVIEW OF NEW TECHNOLOGY ACCEPTANCE MODEL AND FARMING TRANSFORMATION 5

2.2 REVIEW ABOUT ECONOMIC EFFICIENCY 6

2.3 REVIEW ABOUT ENVIRONMENTAL EFFICIENCY 7

2.4 REVIEWS OF FACTORS AFFECTING EFFICIENCY 9

CHAPTER 3: THEORY AND RESEARCH METHODOLOGY 10

3.1 THEORETICAL CONCEPTS 10

3.1.1 Intensive farming 10

3.1.2 Factors affecting changes in farming systems 10

3.1.3 Economic efficiency and measurement methods 11

3.1.4 Environmental efficiency and measurement method 11

3.2 RESEARCH METHODOLOGY 12

3.2.1 Theoretical framework 12

3.2.2 Selection of study sites 13

3.2.3 Analytical methods 13

CHAPTER 4: RESULT AND DISCUSSION 15

4.1 STATUS OF CHANGES IN FARMING SYSTEMS TO SHRIMP 15

4.1.1 Status of changes in farming systems 15

4.1.2 Factors affecting changes in farming systems to shrimp 16

4.2 ECONOMIC AND ENVIRONMENTAL EFFICIENCY OF TRANSFORMED INTENSIVE SHRIMP FARMING 17

4.2.1 Economic efficiency of intensive shrimp farming 17

4.2.1.1 Estimation of economic efficiency 17

4.2.1.2 Factors affecting economic efficiency 21

4.2.2 Environmental efficiency of intensive shrimp farming 22 4.2.2.1 Estimation of environmental efficiency 22

4.2.2.2 Factors affecting environmental efficiency 26

4.3 IMPLICATIONS FOR IMPROVING ECONOMIC AND ENVIRONMENTAL EFFICIENCY 28

4.3.1 Solutions for shrimp farmers 28

4.3.2 Solutions from local authorities 28

CHAPTER 5: CONCLUSION 29

LIST OF TABLE

Table 4.1: Logit results of factors affecting changes in farming

systems 16

Table 4.2: Estimated results of translog variable cost frontier 18

Table 4.3: Economic efficiency of intensive shrimp farming 19

Table 4.4: Estimated results of translog production frontier 23

Table 4.5: Output-oriented technical efficiency 24

Table 4.6: Environmental efficiency of intensive shrimp 25

Table 4.7: Tobit results of factors affecting environmental efficiency 26

LIST OF FIGURE

Figure 3.1: Theoretical framework of the study 12 Figure 4.1: Trends in changes of farming systems in Soc Trang and Kien Giang 15 Figure 4.2: Observed and possible minimum cost in Soc Trang 20 Figure 4.3: Observed and possible minimum cost in Kien Giang 21

CHAPTER 1: INTRODUCTION 1.1 RATIONALE OF THE DISSERTATION

Climate change has been happening more and more seriously such

as weather variability and salinity intrusion (Carew-Reid, 2008;

Nhan et al., 2011; Wassmann et al., 2004) The climate change

together with market instability, low selling prices while rising input prices have caused changes of farming activities as an inevitable

phenomenon to adapt (Binh et al., 2009; Clayton, 2003)

The Mekong Delta (MD) is considered as the core region for agricultural production and aquaculture, contributing more than 90% of rice exports and more than 70% of fishery stocks (GSO, 2013) Recently, many farmers in the Mekong Delta’s coastal areas have shifted their production activities to intensive shrimp farming, especially white-legged shrimp According to the report of the Institute of Fisheries Economics and Planning (2015) and the Ministry of Agriculture and Rural Development (2019), the total area of brackish shrimp farming in the Mekong Delta in 2018 reached 679,152 ha with an average growth rate of 2.1%/year from 2005-2018 Of which white-legged shrimp farming area increased more than 17 times during the period of 2008-2018, namely from 4,747 hectares in 2008 to 78,392 hectares in 2018 The province having the highest growth rate of white-legged shrimp area is Soc Trang with an average growth rate of up to 116.83%/year; while the remaining provinces having the medium growth rates such as Kien Giang 36.24%/year and Bac Lieu 13.47%/year

However, the process of agricultural transformation requires high investment and good preparation of production techniques as well as the market outlets, so the risk of the conversion process is quite high

(Le Anh Tuan et al , 2014; World Bank, 2016) According to the

World Bank (2016), shrimp farming is one of the production activities that have a significant impact on the water environment

and generate high greenhouse gas emissions due to the excessive use of inputs Therefore, it is necessary to measure economic and environmental efficiency with a scientific approach for intensive shrimp farming in coastal transforming areas

In terms of economic efficiency, so far many studies have been conducted by using the profit or cost frontier function to measure efficiency In particular, some case studies using the profit function

include Pham Le Thong et al (2011); Nguyen Van Tien and Pham

Le Thong (2014); Pham Le Thong and Nguyen Thi Phuong (2015); Nguyen Minh Hieu (2014) Some other studies using cost frontier include Ferrier and Lovell (1990); Worthington (2000); Rosko

(2001); Coelli, et al (2005); Tu & Trang (2015) However, the

above-mentioned studies only considered economic efficiency as the profit/cost frontier function by a two-step approach and did not investigate the causes of transformation as well as the inefficient use

of the inputs towards cost minimization by one-step model In addition, these studies using Cobb-Doughlas and DEA (Data Envelopment Analysis) methods make it impossibly to separate the noise effects apart from inefficiency effects and to investigate the causes of inefficiency In addition, many studies show that farmers

do not use input resources effectively, so it is necessary to consider the ability to reduce production costs (Dung & Dung, 1999;

Kompas, 2004; Khai & Yabe, 2011; Hoang Linh, 2012; Kompas et al., 2012)

Regarding to environmental efficiency, Pittman (1983) is probably considered to be the first to concern about environmental issues when estimating the efficiency for production activities In this study, the author considered the environmental aspect as an unexpected output from production process The author modified the estimated index from the term "translog multilateral productivity

index" proposed by Caves et al (1982) Färe et al (1989) proposed

the term enhanced hyperbolic productive efficiency measure This term considers simultaneously the difference among the maximum

equiproportional increase in desirable outputs, the maximum equiproportional decrease in undesirable outputs and the maximum equiproportional decrease in inputs However, the study measured productive efficiency using nonparametric approach (DEA), which cannot separate noise effect apart from deterministic frontier In addition, measuring undesirable output in agricultural production is

a difficult task In order to overcome the drawbacks of the previous

studies, Reinhard et al (1999) treated environmental pollution as

input surpluses (e.g., fertilizers, pesticides, energy) to estimate environmental efficiency Some case studies in Vietnam used the

approach of Reinhard et al (1999) include Vo Hong Tu (2015); Tu

et al (2015); Hong, Takahashi and Yabe (2016) However, there

has not been any research using this approach to measure environmental efficiency for shrimp farming in the MD so far From the above reasons, the dissertation was conducted to measure the economic efficiency towards the direction of minimizing the cost and to measure environmental efficiency for the intensive white-legged shrimp farming in the coastal transforming areas by employing the one-step approach

farmers

1.2.2 Specific objectives

To achieve the above general objective, the dissertation focuses on the following specific objectives:

- Assessing the transformation situation and investigating the

affecting factors of changes in farming system to intensive shrimp cultivation in the coastal area of the MD;

- Estimating economic and environmental efficiency and

factors affecting economic and environmental efficiency of intensive shrimp farming in the coastal area of the MD;

- Proposing solutions to improve economic and environmental efficiency of intensive shrimp farming in

coastal transformation areas in the MD

1.3 RESEARCH QUESTIONS

From the research context, the research questions are posed to clarify research issues as follows:

- What are the factors affecting the conversion of production

models to intensive shrimp in Soc Trang and Kien Giang provinces?

- Is the economic and environmental efficiency of the

intensive shrimp farming in coastal areas of the MD not optimal?

- What are the factors affecting the economic and

environmental efficiency of the intensive shrimp farming in

coastal areas of the MD?

1.4 RESEARCH SUBJECTS

The object of the study is to analyze the economic and environmental efficiency of the intensive shrimp farming in the

coastal transforming areas of the Mekong Delta

1.5 SCOPE OF THE STUDY

The data was collected by face-to-face interviews with 294 farmers

in Kien Giang and Soc Trang provinces in 2017 The data of shrimp farming used in the analysis include all information about the 2017 farming seasons

CHAPTER 2: LITERATURE REVIEW

2.1 REVIEW OF NEW TECHNOLOGY ACCEPTANCE MODEL AND FARMING TRANSFORMATION

Previous studies have examined a range of factors related to the adoption of new production technologies/farming techniques/ models Important factors influencing the decision to adopt a new technology are the ease of use of the technology/technique/model and its usefulness (economic value) (Davis, 1989) The case studies considering decision making in the specific context of agricultural production mainly focused on the role of farmers, farmers' attitudes, assessments and perceptions Attitudes towards risks can shape

farmers' adoption in new production models (Barreiro-Hurlé et al.,

2010) Environmental awareness and attitudes towards production models and users’ characteristics can also influence the adoption decision of agricultural production activities (Adesina and Zinnah,

1993; Negatu and Parikh, 1999; Sidibé, 2005 ; Wang et al., 2016)

Other studies have looked at external factors namely farm characteristics, policies, availability and financial characteristics

(Knowler and Bradshaw, 2007; Lee, 2005; Meijer et al., 2015; Wang et al ., 2016)

Regarding the theoretical model namely the technology characteristics-user's context model (Negatu and Parikh, 1999) argues that technology characteristics are a basic component affecting an individual people to adopt that technology The model also considered the cognitive characteristics of potential adopters as influences on adoption decisions The second theoretical model is the utility maximization (Rahm and Huffman, 1984; Sidibé, 2005) argues that farmers are more likely to apply new technologies, innovations or practices if the utility from them (technologies) is larger than older ones

2.2 REVIEW ABOUT ECONOMIC EFFICIENCY

Economic efficiency was first proposed by Farrell (1957) through the term total efficiency or overall efficiency Economic efficiency

is defined as the ability to produce a fixed output with the lowest input cost or the product of technical efficiency and allocative efficiency (Farrell, 1957; Schmidt and Lovell, 1979, 1980; Kopp, 1981; Bravo‐ Ureta and Pinheiro, 1997) According to Coelli et al (2005); Kumbhakar & Lovell (2003), economic efficiency can be cost efficiency, revenue efficiency and profit efficiency Cost-efficiency or economic efficiency shows the ability to produce a certain output at the lowest cost with the corresponding input price (Farrell, 1957; Battese, 1992; Bravo‐ Ureta and Pinheiro, 1997;

Reinhard et al., 1999; Reinhard et al., 2000; Coelli et al., 2002; Coelli et al., 2005; Khai and Yabe, 2011) Economic efficiency can

be measured by using the SFA method The approach was first proposed by Aigner, Lovell and Schmindt (1977) and Meeusen and Van Den Broeck (1977)

Measuring economic efficiency has been conducted for various agricultural production activities and is considered as the basis for assessing whether a certain production model is efficient or not In order to estimate the economic efficiency, there are normally two measurement methods (1) using the profit function or (2) using the cost function Some case studies using the profit function include

Pham Le Thong et al (2011); Nguyen Van Tien and Pham Le Thong

(2014); Pham Le Thong and Nguyen Thi Phuong (2015); Nguyen Minh Hieu (2014) Some other authors have used the cost function approach to measure economic efficiency towards the direction of cost minimization such as Ferrier and Lovell (1990); Worthington (2000); Rosko (2001)

In order to estimate the economic efficiency, recently the one-step estimation model is recommended by econometric experts instead

of the two-step estimation approach as the one-step approach can control the estimation bias (Caudill & Ford, 1993; Wang &

Schmidt, 2002; Caudill, 2003; Greene, 2005; Belotti et al., 2013; Kumbhakar et al., 2015 )

In summary, the above studies normally estimated economic efficiency via the profit or cost frontier by a two-step approach In addition, these previous studies using the Cobb-Doughlas function and the DEA method make it impossibly to separate the noise effects apart from inefficiency effects and to investigate the causes

of inefficiency Therefore, the dissertation focuses on estimating economic efficiency towards the direction of cost minimization by using one-step SFA to overcome the limitations of two-step estimation

2.3 REVIEW ABOUT ENVIRONMENTAL EFFICIENCY

Pittman (1983) is probably considered to be the first to concern about environmental issues when estimating the efficiency for production activities In this study, the author considered the environmental aspect as an unexpected output from production process The study is crucial for policy makers to control pollution under the context of undesirable–desirable outputs trade-off However, measuring undesirable output is a difficult task, especially

in agricultural production

Färe et al (1989) proposed the term enhanced hyperbolic

productive efficiency measure This term considers simultaneously the difference among the maximum equiproportional increase in desirable outputs, the maximum equiproportional decrease in undesirable outputs and the maximum equiproportional decrease in inputs However, the study measured productive efficiency using nonparametric approach, which cannot separate noise effect apart from deterministic frontier In addition, again measuring undesirable output is a difficult task, especially in agricultural production

In order to overcome the drawbacks of the previous studies and

respect the material balance principle, Reinhard et al (1999) treated

environmental pollution as input surpluses (e.g., fertilizers, pesticides, energy) to estimate environmental efficiency As the environmentally detrimental inputs such as chemical fertilizers, pesticides, fuels, have a close relationship with the unexpected output (pollution), minimizing the unexpected output can be done through minimizing the environmentally detrimental inputs

Some case studies that estimated environmental efficiency include

Vo Hong Tu (2015); Tu et al (2015) These studies presented the

method of measuring environmental efficiency for agricultural production by using SFA and the results on the environmental efficiency of ecological engineered rice production, also known as

"rice fields surrounded with flowers" in An Giang province The study defined the environmental efficiency as the ratio of possible minimum environmentally detrimental inputs (fertilizers, pesticides, fuels) to its observed amount or in other words it reflects the ability

to reduce environmentally detrimental inputs

Hong et al (2016) employed the approach of Reinhard et al (2000)

to measure environmental efficiency for 243 tea producing households in Thai Nguyen province This study considered two inputs that have a negative impact on the environment: chemical fertilizers and pesticides and other normal inputs include labor, capital, irrigation costs and other costs The research results show that the average environmental efficiency of tea growers is 76.03% and there is a large variation in environmental efficiency among

farmers Tu (2015) also uses the approach of Reinhard et al (2000);

Reinhard & Thijssen (2000) to measure the efficiency of using input resources for rice farmers in An Giang province The research results showed that the input and output-oriented technical efficiency is 91.92% and 85.39%, respectively The returns to scale

of rice farmers is decreasing The study also found that the least

efficiently used inputs were pesticide and fuel with the average efficiency indexes of 51.39% and 45.53%, respectively This inefficient use has resulted in a significant economic loss of about VND 8.2 million/ha

Therefore, this dissertation uses the one-step method to specify production frontier function, from which to measure the environmental efficiency for the intensive shrimp farming in the coastal transforming areas

2.4 REVIEWS OF FACTORS AFFECTING EFFICIENCY

The Tobit regression model was first developed by Tobin (1958) to consider the correlation between dependent and independent variables, in which the dependent variable is censored and non-negative In the field of agricultural economics, Tobit model is used

to investigate the effects of independent variables namely economic conditions (gender of household head, educational level, participation in training .) on technical efficiency, cost efficiency and economic efficiency of agricultural production models (Thai Thanh Ha, 2009; Tu & Yabe, 2015)

socio-The Tobit regression is considered to be the second step in the efficiency studies because the results from the Tobit regression will

be an important basis for finding the gaps in efficiency levels among households, from which one can propose appropriate solutions to improve efficiency (Färe & Lovell, 1978; Bravo-Ureta & Rieger, 1991; Bravo-Ureta & Pinheiro, 1993; Bravo ‐ Ureta & Pinheiro, 1997; Khai & Yabe, 2011) Because the efficiency level is bounded

in a range or in other words, it is censored within a certain limit Thus,the estimation results from the Tobit regression will be less biased than OLS regression (Tobin, 1958; Grigorian & Manole, 2006; Tu & Trang, 2015)

CHAPTER 3: THEORY AND RESEARCH METHODOLOGY

3.1 THEORETICAL CONCEPTS

3.1.1 Intensive farming

According to Nguyen Thanh Phuong et al (2014), intensive shrimp

farming is a farming method with productivity <200 tons/ha/year, good control of farming conditions; high farming techniques and high production efficiency; tend to actively control all farming conditions (feed and water quality); and highly artificial farming system”

3.1.2 Factors affecting changes in farming systems

According to Negatu & Parikh (1999), the characteristics of technology are a fundamental component in identifying an individual adopting new technology Besides, Rahm & Huffman (1984); Sidibé (2005) argues that farmers are more likely to adopt new agricultural technologies, innovations or practices if the utility from new technology is greater than that from the old ones Combining these two theoretical models, groups of variables are often used in analyzing factors influencing new technology adoption decisions including (1) socio-demographic characteristics (age, education, experience, labor and female workers), (2) perceived risk, (3) perceived usefulness (output, price, benefit), (4) environmental awareness (pollution and biodiversity), (5) perceived ease of use (technical aspect); (6) farm characteristics (size of land and number of land plots), (7) social networks (membership in organizations) and (8) financial characteristics (awareness of external support and access to credit) (Adesina and Zinnah, 1993;

Barreiro-Hurlé et al., 2010; Davis, 1989; Negatu and Parikh, 1999; Sidibé, 2005; Wang et al., 2016) The studies on this aspect

normally use the logit regression model or generalized ordered logit model or structural equation modeling (SEM) in determining the factors that influence the decision to convert or to adopt new techniques

3.1.3 Economic efficiency and measurement methods

Economic efficiency is defined as the ability to produce a given output level at the optimal cost or regarded as the product of technical efficiency and allocative efficiency (Farrell, 1957; Kopp, 1981; Bravo ‐ Ureta & Pinheiro, 1997)

In order to estimate economic efficiency by using SFA, the study uses translog variable cost frontier by one step method to estimate parameters and economic inefficiency as a farm is assumed to achieve a static equilibrium with respect to a subset of normal inputs conditionally on observed levels of quasi-fixed inputs (Brown &

Christensen, 1980; Caves et al ., 1981) In addition, we cannot

estimate the total cost function because the price of some inputs is

not available in the market (Grisley & Gitu, 1985)

3.1.4 Environmental efficiency and measurement method

To measure environmental efficiency, there have been two main approaches: DEA and SFA As the DEA approach is non-parametric, which calculates efficiency indexes based mathematic programming Therefore, it is impossible to separate noise effects apart from deterministic frontier Thus, the dissertation measures environmental efficiency by using the SFA approach SFA approach is based on econometric model so it can overcome the drawbacks of DEA (Tu & Yabe, 2015)

Suppose a farmer uses two types of inputs, denoted by X and Z, to

produce an output, denoted by Y (Y ), where X ( ) is a

vector of normal inputs such as labor, capital, and Z ( ) are environmentally detrimental inputs such as feed, medicines and fuel Environmental efficiency is the ability to reduce environmentally detrimental inputs while other inputs and outputs are fixed Similar to economic efficiency, the dissertation also uses

a one-step approach to measuring environmental efficiency