12.1 Introduction
Agricultural input and output markets, as well as rural financial markets, play a key
role in the commercialization of smallholder agriculture. With improved access to
credit sources and to agricultural input and output markets, smallholders’ transaction costs can be reduced, leaving them in a better position to participate in the
market and realize gains from specialization in those agricultural enterprises for
which they have a comparative advantage, while relying on the market for the
acquisition of other agricultural produce, including food and non-food goods and
services. Over the past few decades, this transformation from subsistence to commercial agriculture has been rapid in the mountainous areas of Thailand and
Vietnam, as well as elsewhere. Increased commercialization, with related gains
in agricultural productivity, has led to a substantial increase in incomes and a
corresponding decline in poverty rates.
On the other hand, the increased commercialization of smallholder agriculture
can have adverse effects; for example, highly specialized farm households are by
definition more dependent on the market than subsistence-oriented households,
exposing them to fluctuations in market prices, while more subsistence-oriented
households are less affected. Furthermore, economies of scale and scope, plus
market risk, dictate that farmers with small farms are somewhat disadvantaged,
simply because the transactions costs incurred by market participation are fixed to a
significant extent. For example, obtaining a small as opposed to a large loan may
carry the same transaction costs in terms of the loan application and repayment
processes. In addition, risk preferences differ between socio-economic strata; for
example, our analysis found that poor individuals and women are more risk averse
than others, and this may inhibit specialization and investments and is often
associated with a low demand for credit. Government intervention can help reduce
the constraints placed upon poor households in terms of participating in markets,
such as redistributive and targeted social policies in the areas of education, infrastructure, health, nutrition, credit and land tenure.
It is beyond the scope of this chapter to empirically explore the determinants
of the commercialization of agriculture and its impact on poverty; so instead, we
will present and discuss some empirical evidence on topics that remain hotly
debated regarding commercialization and poverty. In Sect. 12.2, we investigate
how smallholder farmers in northern Vietnam have been affected by the recent
food price volatility with respect to their income and consumption levels, while in
Sect. 12.3 we quantify the level of market integration among those farm households
belonging to the Karen ethnic group in northern Thailand, and assess the effects of
market integration on gross farm output and net farm income levels. In Sect. 12.4,
we show that risk preferences and discount rates have had an impact upon household
credit demand and credit access in northern Vietnam, then in Sect. 12.5 analyze
poverty dynamics in the same area between 2007 and 2010, and assess the targeting
performance of the poverty reduction and social assistance policies introduced.
Section 12.6 concludes with policy implications and recommendations.
464
M. Zeller et al.
Agricultural input and output markets, as well as rural financial markets, play a key
role in the commercialization of smallholder agriculture. With improved access to
credit sources and to agricultural input and output markets, smallholders’ transaction costs can be reduced, leaving them in a better position to participate in the
market and realize gains from specialization in those agricultural enterprises for
which they have a comparative advantage, while relying on the market for the
acquisition of other agricultural produce, including food and non-food goods and
services. Over the past few decades, this transformation from subsistence to commercial agriculture has been rapid in the mountainous areas of Thailand and
Vietnam, as well as elsewhere. Increased commercialization, with related gains
in agricultural productivity, has led to a substantial increase in incomes and a
corresponding decline in poverty rates.
On the other hand, the increased commercialization of smallholder agriculture
can have adverse effects; for example, highly specialized farm households are by
definition more dependent on the market than subsistence-oriented households,
exposing them to fluctuations in market prices, while more subsistence-oriented
households are less affected. Furthermore, economies of scale and scope, plus
market risk, dictate that farmers with small farms are somewhat disadvantaged,
simply because the transactions costs incurred by market participation are fixed to a
significant extent. For example, obtaining a small as opposed to a large loan may
carry the same transaction costs in terms of the loan application and repayment
processes. In addition, risk preferences differ between socio-economic strata; for
example, our analysis found that poor individuals and women are more risk averse
than others, and this may inhibit specialization and investments and is often
associated with a low demand for credit. Government intervention can help reduce
the constraints placed upon poor households in terms of participating in markets,
such as redistributive and targeted social policies in the areas of education, infrastructure, health, nutrition, credit and land tenure.
It is beyond the scope of this chapter to empirically explore the determinants
of the commercialization of agriculture and its impact on poverty; so instead, we
will present and discuss some empirical evidence on topics that remain hotly
debated regarding commercialization and poverty. In Sect. 12.2, we investigate
how smallholder farmers in northern Vietnam have been affected by the recent
food price volatility with respect to their income and consumption levels, while in
Sect. 12.3 we quantify the level of market integration among those farm households
belonging to the Karen ethnic group in northern Thailand, and assess the effects of
market integration on gross farm output and net farm income levels. In Sect. 12.4,
we show that risk preferences and discount rates have had an impact upon household
credit demand and credit access in northern Vietnam, then in Sect. 12.5 analyze
poverty dynamics in the same area between 2007 and 2010, and assess the targeting
performance of the poverty reduction and social assistance policies introduced.
Section 12.6 concludes with policy implications and recommendations.
464
M. Zeller et al.