of specialization in one commercial farming activity – such as maize in the case of
north western Vietnam – may constitute a relatively risky livelihood strategy. Since
poorer farmers tend to be more risk averse (Moscardi and de Janvry 1977; Morduch
1995), they may prefer to maintain a more diverse portfolio of income generating
activities. However, the effectiveness of diversification in reducing overall income
risk depends on the covariance between the different income sources, that is, the
lower the covariance, the lower the overall level of risk (Ellis 1998; Dercon 1996;
Walker and Jodha 1986; Markowitz 1959). Strategies for diversifying incomegenerating activities can be confined to agricultural self-employment, or they can
include (presumably less covariant) off-farm and non-farm activities, comprising
an engagement in small businesses – both agriculture and non-agriculture related –
and off-farm employment, both inside and outside the agricultural sector.
To measure the degree of cash income diversification, we use the Simpson Index
of Diversity (SID; Simpson 1949) which takes into account both the number of
income sources and the balance among them. The value of SID falls within the
interval [0. . .1] if there is only one source of cash income, SID is zero. As the
number of sources increases – and their contribution to overall income is equalized –
SID approaches 1. The SID has been frequently applied to measure the diversification of farming systems in terms of the area allocated to different crops (Joshi et al.
2004) and different income sources (Minot et al. 2006).
Table 5.6 lists the on-farm and off-farm sources of cash income of the study
sample households, differentiating those households situated above and below the
official national rural poverty line of VND 300,000 per person per month. Moreover, the Simpson indices of cash income and cropping diversity are shown. With
an overall cash income share from farming of approximately 83 %, households in
Yen Chau were found to be highly dependent on their own agricultural production.
Also, with an overall share of 65 % of total household cash income (and 78 % of
cash income from farming), maize was found to be by far the most important source
of cash earnings. Furthermore, the levels of differentiation by wealth status reveal
that at 75 %, the poor obtained a particularly large share of their cash earnings from
maize,
15 while this share was significantly lower in non-poor households, at 62 %
on average.
Regarding other sources of agricultural cash income, livestock was the second
most important, and at a 9.8 % contribution to total household cash income for
households above the poverty line, was 66 % larger than for those households
below (5.9 %). The table further shows that both wealth groups allocated around
12 % of their cultivable area to rice, but that this crop contributed only minimally to
households’ cash income (even less so in poor households), indicating that it was
grown mostly for consumption purposes.
With respect to the contribution of off-farm activities to household cash income,
Table 5.6 shows that there was a notable difference between wealth groups regarding the income derived from wage labor, for while in poor households agricultural
wage income made a considerable contribution, at 7.3 % on average, this
15 The extension of analyses to total income.
196
C. Saint-Macary et al.
north western Vietnam – may constitute a relatively risky livelihood strategy. Since
poorer farmers tend to be more risk averse (Moscardi and de Janvry 1977; Morduch
1995), they may prefer to maintain a more diverse portfolio of income generating
activities. However, the effectiveness of diversification in reducing overall income
risk depends on the covariance between the different income sources, that is, the
lower the covariance, the lower the overall level of risk (Ellis 1998; Dercon 1996;
Walker and Jodha 1986; Markowitz 1959). Strategies for diversifying incomegenerating activities can be confined to agricultural self-employment, or they can
include (presumably less covariant) off-farm and non-farm activities, comprising
an engagement in small businesses – both agriculture and non-agriculture related –
and off-farm employment, both inside and outside the agricultural sector.
To measure the degree of cash income diversification, we use the Simpson Index
of Diversity (SID; Simpson 1949) which takes into account both the number of
income sources and the balance among them. The value of SID falls within the
interval [0. . .1] if there is only one source of cash income, SID is zero. As the
number of sources increases – and their contribution to overall income is equalized –
SID approaches 1. The SID has been frequently applied to measure the diversification of farming systems in terms of the area allocated to different crops (Joshi et al.
2004) and different income sources (Minot et al. 2006).
Table 5.6 lists the on-farm and off-farm sources of cash income of the study
sample households, differentiating those households situated above and below the
official national rural poverty line of VND 300,000 per person per month. Moreover, the Simpson indices of cash income and cropping diversity are shown. With
an overall cash income share from farming of approximately 83 %, households in
Yen Chau were found to be highly dependent on their own agricultural production.
Also, with an overall share of 65 % of total household cash income (and 78 % of
cash income from farming), maize was found to be by far the most important source
of cash earnings. Furthermore, the levels of differentiation by wealth status reveal
that at 75 %, the poor obtained a particularly large share of their cash earnings from
maize,
15 while this share was significantly lower in non-poor households, at 62 %
on average.
Regarding other sources of agricultural cash income, livestock was the second
most important, and at a 9.8 % contribution to total household cash income for
households above the poverty line, was 66 % larger than for those households
below (5.9 %). The table further shows that both wealth groups allocated around
12 % of their cultivable area to rice, but that this crop contributed only minimally to
households’ cash income (even less so in poor households), indicating that it was
grown mostly for consumption purposes.
With respect to the contribution of off-farm activities to household cash income,
Table 5.6 shows that there was a notable difference between wealth groups regarding the income derived from wage labor, for while in poor households agricultural
wage income made a considerable contribution, at 7.3 % on average, this
15 The extension of analyses to total income.
196
C. Saint-Macary et al.