The document discusses transaction costs associated with smallholder farmers' participation in forest management schemes in Vietnam. It finds that transaction costs are higher for poorer households. This creates constraints on participation. The study examines transaction costs for different household wealth groups in a watershed in Hoa Binh province. It finds that searching, screening, negotiation and monitoring costs are highest for poorer households. To improve participation in payments for forest environmental services (PFES) schemes, the document recommends reducing transaction costs for poorer households and further research on community-based arrangements.
Transaction Costs of Smallholder Participation in Vietnam Forest Management
1. Transaction cost of smallholder farmers’
participation in forest management: Policy
implications on PFES schemes in Vietnam
3rd Mekong Forum on Water, Food and Energy
Hanoi, Vietnam
26-30 August 2013
Florence Milan, Areeya Manasboonphempool, Manfred Zeller
Water for a food-secure world
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2. Challenges in Payments for Forest
Environmental Services in Vietnam
High transaction cost
associated with centralized
management and many
contracts with small scale
service providers
Constraints on
participation due to high
transaction cost
Photo source: http://www.melville18.co.uk/accountancy.html
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3. Transaction cost in forest management
Institutions that effectively reduce transaction
costs will endure (North 1990)
Searching for
partner or group
Monitoring
the agreement
Screening potential
partner
Negotiating to reach
an agreement
Transferring
property rights
Source: http://vimeo.com/25636067
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4. Case study: Hoa Binh watershed
What are the elements of transaction costs in different forest
management schemes and how to improve scheme participation
to achieve policy objective?
20 random villages in Da Bac
District
15 household per village
1. Focus group discussions
2. Baseline survey
300 households
2. Transaction cost survey
3% attrition
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5. Forest Management
Total Planted Forest
(hectares)
14588
Average number of trees
planted per hectare
1388
9492
2028
11278
Poor
Middle
1885
Well-off
Poor
Middle
Well-off
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7. Transaction Cost
Household vs Community
Information gathering
Monitoring
Attending meetings
Decision to participate
Negotiations
Administration of
contracts
Conflict resolutions
Enforcement of
compliance
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8. Some determinants of transaction cost
Education of
household head
Interest in
intercropping
Farmers’ union
membership
Seed support
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9. Conclusions and Policy Implications
Private transaction costs are major components of PES and
are significant for uptake of PES contracts but difficult to
quantify
Transaction costs are higher for poorer households
To compensate for the higher transaction costs in poorer
households, there should be provisions for direct access to
NTFPs and cash products
Further research on comparison of transaction cost
associated with different forms of arrangements
(household, community)
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The State of Vietnam issued a decree in 2010 on the Policy for Forest Environmental Services.
Recent research has observed that there is high transaction cost involved in PES, for both the state and farmers.For the state, there is high transaction cost associated with centralized management and may contracts with small scale service providers. The organization and administration of the forest program brings along high transaction cost.For farmers, high transaction costs related to scheme entry pose significant constraint on participation.
Transaction costs are “the costs of searching for a partner (or group) with whom to exchange, screen potential partners to ascertain their trustworthiness, negotiating to reach an agreement, transferring products, monitoring the agreementSearch and screening costs arise prior to contracting, as farmers collect information on the contract, on the economic and financial consequences, the possible work load and so on.Negotiation and transfer costs are the costs of drawing the contractsMonitoring cost are ex-post to the transaction
1. To present the private transaction cost incurred by farmers who participated in reforestation/afforestation program2. To compare the level of transaction cost between individual and community-based participation. 3. Tolook at the determinants of transaction costs using socio-economic factors as explanatory variables.
Wealthier households were given more forest areas than poor households.But, forest allocated to the wealthier households planted less number of trees per hectare.This can imply a targeting problem of the forest management scheme and lack of monitoring.
High transaction cost among the poor increase the actual cost of participating in the program.