External Shocks, Producer Risk, and Adjustment in Smallholder Livestock Production: The case of HPAI in Viet Nam David Roland-Holst, UC Berkeley with Joachim Otte and Michael Epprecht, FAO Inception Workshop on Research Activities on Avian Influenza and Other Transboundary Animal Diseases in South-East Asia Bangkok, Thailand, January 21-22, 2008

Motivation HPAI control programs can threaten the economic viability of smallholder poultry producers. As long as extensive poverty exists in the region, backyard chicken will remain a fixture of the landscape. The question for policy makers is, will these chickens be merely an emblem of poverty, or a catalyst for poverty reduction. Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 2

Livestock: The Economic Perspective More income from natural resources through: Access to common land resources Utilization of ‘waste land’ not suitable for crops Utilization of crop by-products Increase in output of crop production More income from family labour through: Better use of heterogeneous labour resources Balance seasonal labour demand for crop farming Use of labour for processing of primary products (value added capture) Release labour for more productive purposes (draught animals) Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 3

Rural Income Sources in Viet Nam Average: USD750/household/year Poverty line: app USD650/hh/year Source: PPLPI 2005 Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 4

Livestock Ownership in Viet Nam % Households owning livestock Urban Rural Source: VLSS Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 5

Livestock Ownership in Viet Nam Herd / Flock Composition Urban Rural Source: VLSS Numbers Pigs and poultry dominate (>90% of income producing livestock). Chickens are widely held, but less marketed than pigs. Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 6

Rural Livestock Income Regional heterogeneity in livestock income North-South decline in the share of livestock-derived income in total income Dominance of pig-derived income in all regions, but less so in poorest regions Cattle relatively important in Central Highlands and South Central Coast Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 7

Poultry Sector Composition Flocks by Size Class Poultry by Flock Size Class >118 million birds 7.9 million flocks Flock size class Flock size class birds birds Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 8

Poultry Income by Poverty Status Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 9

Market Access - a Basic Policy Challenge: How to Help the Poor? Market access is the gateway out of long tern poverty for most of the world’s poor. The poultry-dependent are more likely to be poor, and poultry income thus offers a strong catalyst for poverty reduction. How then can we best facilitate improvements in this source of income? Answer: Promote self-directed poverty alleviation though improved market access. Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 10

Where are the poor? Poverty Incidence Poverty Density The majority of Viet Nam’s poor are well within reach of markets, and diversification toward livestock and other marketable agriculture can facilitate their exit from poverty. Generally, these are also more likely to be “median poor,” those with the at least the minimal productive assets needed for household enterprise development. Source: IFPRI Source: IFPRI Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 11

Poverty and Related Variables Favorable Unfavorable Poverty is very highly correlated with market distance and adverse terms of trade (output/input price ratios). Farmers are in the ice business – the value of their output (and their bargaining power) declines sharply with distance. Poverty Specialization Mkt. Distance Ag TOT Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 12

HPAI as an External Shock In Vietnam and elsewhere in SE Asia, smallholder poultry production has been disrupted by the advent of HPAI. Current risk reduction strategies have direct costs and adverse incentive effects that undermine the livelihood benefits of poultry. Rather than being seen as contributors to a global commons of disease prevention, smallholders are seen as part of the problem. Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 13

Coping Strategies for Smallholders Exogenous Compensation partial (20% of value of culled bird) late (several months delay is not uncommon) none for revenue foregone Restocking assistance delayed inappropriate Product certification, traceability, and other quality incentives Endogenous Gains through price increases of substitute products Intensification of other farming activities (e.g. pig production) Engagement in ‘new’ farming activities (e.g. fruit) ‘Release’ family labor for off-farm employment or migration Draw in savings and social networks Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 14

Disease Risk versus Product Quality Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 15

Improving Farm Balance Sheets Three ways: Increase output – traditional (Green Revolution) productivity policy, extension services, etc. Reduce costs – local varieties are already low cost Increase prices – quality improvement Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 16

Household Income from Poultry Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 17

Conclusions Livestock plays a complex role in the rural economy, but it can be an important catalyst for smallholder poverty reduction In emerging economies like Viet Nam, an essential way to promote rural livelihoods is by improving the terms of urban market access for small farmers. A multi-level approach to (rural) development and self-directed poverty reduction may be desirable, e.g. Macro – infrastructure investment and good governance ‘Median’ poor – livestock development targeted at households above a critical level of resource and financial capacity, focusing on extension services, standards, and product quality certification Poorest – labor market facilitation Controlling Avian Flu and Protecting People’s Livelihoods | Mekong Region 18