TRNG I HC M TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB4 PHAN BA NGOC PHUONG FACTORS AFFECTING INPUTS PROCUREMENT IN DEBT OF RICE FARMERS IN AN GIANG PROVINCE MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART-TIME) Tutor’s Name: Dr. NGUYEN MINH HA Ho Chi Minh City (2011) i MBAVB4 – FINAL PROJECT - 2011 DECLARATION I hereby declare that this thesis is my original work and it has not been submitted anywhere for any degree or qualification. I also certify that, to the best of my knowledge, any help received in preparing this thesis, and all used sources have been acknowledged. HCM City, February 1 st , 2012 PHAN BA NGOC PHUONG ii MBAVB4 – FINAL PROJECT - 2011 ACKNOWLEDGEMENT I would like to express deeply my appreciation and many thanks to the following individuals and organizations helped me to finish this thesis. Doctor Nguyen Minh Ha, the academic tutor who has spent much time to give me his guides, comments, assistance in this research. All lecturers and staff in Vietnam-Belgium master program which are helpful program for me to achieve the knowledge and the method of studying with international standard. All my classmates, particularly “Group Six - G6” had encouragement, cooperation, and assistance during my studying and doing the research. All my colleagues, especially Mr. Phan Quoc Hung, Mr. Nguyen Thanh Qui (Allied Developing Corporation), Mr. Nguyen Binh, and Mr. Nguyen Pho Hung (An Giang Plant Protection JSC) supported and consulted aspects related to rice growing as well as rice farmers. All collaborators, who have been working for Vietnam Farmers’ Union in Tinh Bien district, An Giang province helped me to interview rice farmers. All of my family members have encouraged and sympathized with me during the study period as well as completing this thesis. iv MBAVB4 – FINAL PROJECT - 2011 ABSTRACT Vietnam is a developing country which is contributed mainly by agricultural production and is the second largest exporter of rice in the world, and mostly quantity comes from Mekong River Delta, called the rice bowl of Vietnam. Mekong River Delta not only has three main conditions: “vantage of circumstances - vantage of the location - human vantage”, but also gets lots of interest of government in investing and developing for success in agriculture. In reality, the truth is that most of rice farmers are poor, even abject poverty. They are always in debt when purchase of inputs with powerlessness. Why and what happens? That’s why this study is executed. This paper is not ambitious to find out neither all of the reasons nor the solutions to improve the rice farmer’s life in Mekong River Delta, but it tries to figure out key factors driving them to procure farm inputs in debt or on credit. Therefore, this study dealt with the reason why almost rice farmer in Mekong River Delta has to procure farm inputs in debt. Accordingly, questionnaires, interviews and observation are used to reach the results of this study. After collection and analysis of data by using SPSS version 11.5, the interpretation revealed precise results that satisfied the curiosity of the researcher. It was discovered that the lack of capital for rice production and the cost of inputs are key elements to impact positively on rice farmers who procure inputs in debt. It was also found that householder’s rice growing experience, rice selling price, residential area, and value of the property effect negatively on inputs procurement in debt of rice farmers. In addition, household size, farm size, and interest of purchase of inputs in debt affected positively rice farmers when they purchase inputs on credit. And, at the end, some recommendations and conclusion have been made to finalize the research. v MBAVB4 – FINAL PROJECT - 2011 TABLE OF CONTENT DECLARATION i ACKNOWLEDGEMENT ii TUTOR’S COMMENT iii ABSTRACT iv TABLE OF CONTENT v CHAPTER ONE: INTRODUCTION 1 1.1 Rationale of the study 1 1.2 Research objectives 2 1.3 Research questions 2 1.4 Research methodology 2 1.5 Scope and limitations 3 1.6 Structure of the study 3 CHAPTER TWO: LITERATURE REVIEW 5 2.1 Definitions 5 2.2 Theories of household’s debt 6 2.2.1 Theories of poverty 6 2.2.2 Reasons for households purchase goods in debt or on credit 10 2.2.3 Consequences of the indebtedness 11 2.3 Reviewing previous studies 14 2.4 Hypotheses of rice farmers procure inputs in debt 22 2.5 Overview of Vietnamese household and rice farmers 23 CHAPTER THREE: RESEARCH METHODS 28 3.1 Research procedure and design 28 3.1.1 Research procedure 28 3.1.2 Research design 29 3.2 Data collection 30 3.3 Analytical tool 30 3.4 Data analysis process 31 3.5 Suggested research model 31 CHAPTER FOUR: EMPIRICAL RESULTS 37 4.1 Descriptive analysis 37 4.1.1 Householder’s age, gender and number of members in household 38 4.1.2 Householder’s education and experience in rice growing 38 4.1.3 Rice productivity and selling price 39 4.1.4 Cost of rice production 40 4.1.5 Cost of living 40 vi MBAVB4 – FINAL PROJECT - 2011 4.2 Correlation analysis. 40 4.2.1 Multi co-linearity test 40 4.2.2 Autocorrelation test 41 4.3 Empirical results 42 4.4 Summary 49 CHAPTER FIVE: CONCLUTION AND RECOMMENDATIONS 50 5.1 Conclusion 50 5.2 Recommendations 51 5.3 Limitations 54 REFERENCES 56 APPENDIX 64 Appendix 1: Correlations 64 Appendix 2: Scatter Chart of Independent Variables 65 Appendix 3: Questionnaire 72 Appendix 4: List of respondents 79 vii MBAVB4 – FINAL PROJECT - 2011 LIST OF TABLES Table 2.1: Rice seasons in the Mekong River Delta 25 Table 4.1 Result of descriptive statistics 37 Table 4.2 Number of members in household 38 Table 4.3 Descriptive Statistics of Rice Productivity and Selling Price 09-10 39 Table 4.4 Durbin Watson 42 Table 4.5 Result of multiple regression analyses 42 viii MBAVB4 – FINAL PROJECT - 2011 LIST OF FIGURES Figure 2.1: Conceptual Map of Theories of the Causes of Poverty 8 Figure 2.2: Vietnam’s rice yield for period of 2006 – 2010 24 Figure 2.3: Vietnam’s rice export output and value for period of 06-10 24 Figure 2.4: Map of Mekong River Delta 26 Figure 2.5: Map of An Giang Province 27 Figure 3.1: Proposed research model 32 ix MBAVB4 – FINAL PROJECT - 2011 LIST OF ABBREVIATIONS AND ACRONYMS GDP : Gross Domestic Product IT : Input Trader IMF : International Monetary Fund IPM : Integrated Pest Management MRD : Mekong River Delta SPSS : Statistical Package for the Social Sciences WB : World Bank 1 MBAVB4 – FINAL PROJECT - 2011 CHAPTER ONE INTRODUCTION 1.1 Rationale of the study Vietnam is one of the largest countries in exporting agriculture products in the world, especially rice with the quality and value achieved 6.88 million tons and 3.23 billion USD in the year of 2010, it is the second largest exporter in the world. Ninety percentage of rice exported quantity comes from Mekong River Delta (MRD), and food per capita in this zone accounting for 2.3 times in compared with the whole country. At present, population in MRD is about 20 million people and 60% of these are farmers. However, the farmer’s life in this region is too low with 900USD of GDP per capita against 1,200USD nationwide. Poor households which have income lower 4.8 million VND per year, in Mekong River Delta are 12.60%, higher than Red River Delta (8.3%) and South East (2.3%) regions (General Statistic Office of Vietnam, 2010). The poverty always makes them in debt, debt for daily living and especially for inputs procurement. It is a vicious circle of farmers between poverty and indebtedness. This is also true for the researcher’s observation with over 10 years experience for companies in plant protection distribution. Nowadays with many progress of scientific techniques in agricultural sector, particularly in rice production for Vietnamese farmers, it can be seen that there are many new varieties with advantages of high yield, disease prevention, and fallen against strong winds, etc. In addition, there are many kinds of fertilizers, pesticides, growing stimulation substances that are helpful for farmers to prevent diseases and to improve rice productivity. Moreover, the elements of weather and soil conditions in the MRD are quite favorable for paddy cultivation as comparison to Central and Northern areas of Vietnam. So why is the rice farmer still poor and falling into indebtedness chronically? According to Vo Tong Xuan (Thesaigontimes, 2011), the farmer, particularly the rice farmer has to pay high price of inputs and spend too much for cultivation that increase cost of goods while rice selling price is not directly proportional. In the other hand, the rice farmer has to procure inputs in debt with usurious interest rate and therefore they have to sell rice immediately after harvest at [...]...2 prices lower than market prices in order to pay back debt Do these main factors lead rice farmer falling into indebtedness and purchase of inputs indebt spirally? Therefore, this paper would like to find out what factors affecting inputs procurement indebt of rice farmers in Mekong River Delta, especially in An Giang province 1.2 Research objectives The overall objective of the study is to find... find out main elements affecting the rice farmer in purchase of farm inputs in debt or on credit The specific objectives of this paper are following: - To identify factors causing purchase of inputs in debt and default of rice farmers - To measure factors effect to rice farmer in inputs procurement in debt - To suggest some policy implications for rice farmers to avoid getting indebtedness and default... positive impact on inputs procurement in debt H4: Farm size and asset of farmers affect positively purchase of inputs in debt H5: Natural calamities and pestilent insects influence on debt when rice farmers procure inputs H6: Consuming much farm inputs for crops affects positively purchase of inputs in debt H7: High input cost impacts positively debt when rice farmers purchase inputs MBAVB4 – FINAL PROJECT... indebtedness of the lenders (Singh and Lakhwinder, 2008) Further in Singh study, a cumbersome procedure of loan issue, which also requires time and transaction cost, discourages the borrowers in approaching to the formal financial institutions for credit Mikkel and Finn (2003), had an evidence in Long An province (a province of MRD) that no less than 99 percent of the total number of loan involved collateral in. .. Among them, MRD is a dominant of rice production with an area about 3.9 million hectares for rice cropping The MRD is the center of the rice production region of the country with interlaced irrigation system The MRD region comprises twelve provinces such as Long An, Tien Giang, Dong Thap, Ben Tre, Tra Vinh, Vinh Long, An Giang, Kien Giang, Hau Giang, Soc Trang, Bac Lieu, Ca Mau and Can Tho City This region... beginning a spiral into continually increasing indebtedness Dejene (2003), cited in Jemal (2003) argued in his study on economic importance of the informal institutions in Ethiopia that the poor households are often marginalized in the formal credit markets because of: (1) lack of collateral, which makes lending to the poor households as a risky venture; (2) transaction cost of lending and borrowing... questions Main research question of this thesis is what factors influence procurement inputs in debt of rice farmer? 1.4 Research methodology Descriptive statistics and regression methods are used to describe the basis features of the data and to analyze the factor impacting on purchase of inputs in debt of rice farmers The descriptive statistic will be used to draw a general picture of research content and... sector often has lower income than workers in the industrial or trade and service sectors because they bear many risks such as natural disasters, pestilent insects, low selling price of outputs, unstable price of inputs, etc Therefore, the probability of leading to poverty of the laborers working in agricultural sector is higher than laborers working in industry or trade and services sector Education: In. .. kinds because of poverty, they lose advantages in adopting MBAVB4 – FINAL PROJECT - 2011 15 modern farming practices This could make them paralyzing in increasing their income levels and their earnings is mostly spent for repayment and then agricultural improvement would be neglected Many smaller farmers are in near permanent indebtedness, usually to pay off debts, only to then fall into new debt in. .. circle: lack of capital for rice production, buying inputs on credits or asking a loan, then falling into debt and default Pujari (2011) indicated the main cause of the indebtedness of the farmers is their poverty The farmer has to borrow for various purposes, as he has no past saving of his own Some times, the crops fail because of the failure of seasonal reversing winds, or because of floods, etc . factors lead rice farmer falling into indebtedness and purchase of inputs indebt spirally? Therefore, this paper would like to find out what factors affecting inputs procurement indebt of rice. residential area, and value of the property effect negatively on inputs procurement in debt of rice farmers. In addition, household size, farm size, and interest of purchase of inputs in debt affected. BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB4 PHAN BA NGOC PHUONG FACTORS AFFECTING INPUTS PROCUREMENT IN DEBT OF RICE FARMERS IN AN GIANG PROVINCE