Capital needs in the agriculture of South Vietnam

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Title:
Capital needs in the agriculture of South Vietnam
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xi, 165 leaves : ill., maps, chart ; 28 cm.
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Long, Tran-Nhu, 1941-
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Subjects / Keywords:
Agriculture -- Economic aspects -- Vietnam   ( lcsh )
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Notes

Thesis:
Thesis--University of Florida.
Bibliography:
Includes bibliographical references (leaves 160-164).
Statement of Responsibility:
by Tran-Nhu-Long.
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Typescript.
General Note:
Vita.

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University of Florida
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Full Text












CAPITAL NEEDS


IN THE AGRICULTURE OF SOUTH VIETNAM


By

TRAN-NHU-LONG


A DISSERTATION PRESENTED TO THE GRADUATE C
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
DEGREE OF DOCTOR OF PHILOSOPHY


COUNCIL


FOR THE

















ACKNOWLEDGMENTS


The author wishes


express


his sincere


appreciation


to his


committee

Resource


chairman,

Economics


Dr. Leo Polopolus,


Department,


Chairman


for his patient


of the Food an

guidance during


course


of this


research


the preparation of


this


manuscript.


He is indebted


to Dr. H. B. Clark


for his


guidance


during


graduate


studies


and to Dr. Kenneth


R. Tefertiller,


former Chairman


of the Food


and Resource


Economics


Department.


The author


credits


Dr. M. L. Upchurch


with


the formulation


this


research


project;


his enthusiasm and


encouragement


were


great


influences.


Sincere


appreciation


is also


extended


to other


members


of his


graduate


committee,


Drs.


Geor


R. Perkins


and Jack


Vernon


their valuable


advice


ass


instance


during


the preparation


of this


dissertation.


Sincere


gratitude


is extended


to Mr. Bill


Bolton,


Dr. Arthur


Heagler,


Mr. Edwin H.


Finlayson,


Mr. Sheriar


Irani


and Miss


Carolyn


Almeter

and Donn


The

XT7t 21 --


for their

a Muntz f


author


computer


or typing


also


assistance.


Thanks


the preliminary


grateful


a .It-


are due


drafts


to fellow graduate


to Jane

the final


students


rC --T -lj -J


Richardson

copy.


Mr. Oon-Lee

r- ^ -l









Finally,


sincere


appreciation


is extended


to his


family


Nam,


for their understanding,


patience and


inspiration


throughout


the entire


graduate


program.

















TABLE OF


CONTENTS


ACKNOWLEDGMENTS


LIST


OF TABLES


viii


LIST OF FIGURES


ABSTRACT


CHAPTERS


INTRODUCTION


The Problem
Objectives


Review


of Literature


The Agricultural


Setting


METHOD


RESEARCH


PROCEDURE


Normative Model


Firm


Theory


Parametric


Programming Model


Mathematical


Linear


Programming Model


INSTITUTIONAL


SYSTEM


OF CAPITAL AND


CREDIT


SUPPLY


Agricultural
Other Credit
Agricultural


Credit


Cooperatives


Institutions


Deve


lopment


Bank


of Vietnam


The New Credit


stem


RESULTS


OF THE


LINEAR


PROGRAMMING


ANALYSIS


Shadow P
Consumer


rices
Surplus


,- -' -


.4


S


.4 A


- ~ ~ ~ ~ ~ ~ ~ -.L -~ 4I--- __ -- I tI I a .4


Page


I


/ ^ -









TABLE OF


Comparison


CONTENTS


of the Results


(Continued)


of the Standard


Model


with Mod


els Which


Constrain


Capital


Comparison of


the Results


of the Geographically


Reduced Model


SUMMARY

Summary


with Models


Which


Constrain


Capital


AND CONCLUSIONS


of Results


Concluding Remarks


APPENDIX


BIBLIOGRAPHY


BIOGRAPHICAL


SKETCH


Page
















LIST


OF TABLES


Table


Page


Land


Resources


of South


Vietnam


1968


Area and


Production


Crops,


1964


and 1968,


Average


Crop


Yield


s, 1964-68,


South


Vietnam


Livestock


and Poultry


Numbers


Regions,


1968


Balance


Sheet


Budget


Allocated


to the ADBV


for Various


Loan


Purposes


of December


Income


1970)


Statement


Analysis


of Loans


Past


Due,


December


1970


Loan


Classification According


to Use


General


Results.


Comparison


of Optimum Solution


Under


1971


and 1973


Price


Levels


National
Solution


Crop


under


Production.


1971


1973


Comparison


Price


Optimum


Levels


Facility


Requirements.


Comparison


Optimum


Solution


under


1971


1973


Price


Levels


Livestock
Solutions


and Live


under


stock


Products.


Alternative


Price


Comparison


of Optimum


Situations, South


Vietnam


General


Results.


Comparison


Optimum Solutions


Reduce


Model


with


the Standard


National Model


National


Crop


Production.


of the Reduced Model


with


Comparison
he Standard


of Optimum


National


Solutions


Model









LIST OF TABLES


(Continued)


Table


Page


General Results.


Comparison


of Optimum Solutions


the Standard


National Model


with Models


Which


Constrain


Capital


4.10


National
Solutions


Crop


Production.
the Standard


Comparison


National


of Optimum


Model


with Models


Which


Constrain


Capital


4.11


Facility


tions


Requirement.


the Standard


Comparison


National Model


of Optimum


with Models


Solu-
Which


Constrain


Capital


4.12


Livestock and


Optimum


Live


Solutions


stock


Products.


the Standard


Comparison of
National Model


with


Models


Which


Constrain


Capital


4.13


General


Results.


Comparison


of Optimum Solutions


the Reduced


Model


with


els Which


Constrain


Capital


4.14


National
Solutions


Crop


Production


of the Reduced


Comparison


Model


with


of Optimum


Models


Which


Constrain


Capital


4.15


Facility


Requirement


Comparison


of Optimum


Solutions
Constrain


of the Reduced


Model


with Models


Which


Capital


4.16


Livestock and


Livestock


Products.


Comparison


Optimum


Solutions


the Reduced


Model


with Models


Which


Constrain


Capital
















LIST


OF FIGURES


Figure


Production-Marketing Regions
Distribution Model for South


Used


in Production-


Vietnam


Rice


Areas


of Production


Agricultural


Development


Bank


Organization


Chart


Page
















Abstract
of the Universi


of Dissertation


Florida


for the Degree


Presented


in Partial


of Doctor


to the Graduate
Fulfillment of t
of Philosophy


Council


he Requirements


CAPITAL


NEEDS


IN THE AGRICULTURE OF


SOUTH VIETNAM


Tran-Nhu-Long


March,


Chairman:


1976


Dr. Leo Polopolus


Major


Department:


Food


Resource


Economics


This


study


examined


the effects


of capital


constraints


on the


development


of Vietnam's


agricultural


sector.


Improvement


of agri-


cultural


production


and incomes


is closely


tied


to the


increased


of capital.


productive


agricultural


The major


capacity


income.


objective


of Vietnam


A linear


of this


study


s agriculture


programming model


to investigate


so as to maximize


was


developed


national


which


encompassed


production


distribution


capacity,


facilities.


consumption,


Optimum capital


marketing, and production

investment was generated


in connection with


the standard


national


model,


as well


as models


the six


regions


of the Delta,


East,


Lower


Coast,


Central


Coast,


North


Coast


Highlands,


plus


a geographically


reduced model


which


included


only


the Delta


region and


one half


of East


region.


Capital


constraints


of 50% and


10% of optimum


capital


were


imposed.


Comparisons


of these


use









as capital


is reduced.


A shift


from high-yielding


rice


to non-floating


rice


occurs


as a result


of capital


reductions.


Nevertheless,


the agri-


culture


of Vietnam


still


continues


to center


around


rice


production.


Corn


is relatively


sensitive


to reductions


of capital.


Sorghum,


however,


,is insensitive


as capital


investments


are reduced


considerably


below


optimum levels.


Soybeans


come


into


the reduced


model


and its 50% of


capital c

vestments


onstraint


are


solution.


reduced.


Peanut


Sugarcane


production


production


expands


disappears


as capital


in a


relatively


early


stage


of capital


reduction


in the standard


national model.


Tobacco


production


increased


slightly


as capital was reduced.


Rice,


sorghum and


rubber


come


into


solutions


and in large


quantities.


is slightly


affected


capital


reductions


in the standard


national


model.


Coconut


output


is insensitive


in the capital


constraint


solutions


of the standard


national


model,


while


it increases with


capital


reductions


of the


duced


model.


Pineapple


production


expands


as capital


is reduced.


Banana


production


is only


slightly


affected


capital


reductions


in the


stan-


dard


national


model.


Jute


is sensitive


to capital


reductions.


Duck


feathers


ducks


and chicken


eggs


seem


insensitive


to capital


reductions.


Although


feed


supplies


are


adequate,


large


scale


commercial


poultry


swine


production


appear


in the optimum


solutions,


whereas


large


scale


commercial


duck


production


does


enter


every


solution.


Commercial


beef


cattle enterprises


When

facilities


capital in

decrease.


vestments


This


come

are r


causes


into


educed,


solution.


production


production and


and distribution


gricultura


incomes


re-









income


levels.


This


does


mean


that


the capital


factor


impor-


tant


that


the historical


land


resource


base


(existing


land


plus


return


of abandoned


land)


does


provide a


basis


for much


economic


development.


In the capital


constraint


solutions of


the standard model,


historical


land


resource


base


does


permit


self-sufficiency


production


of both


rice


livestock.


In the reduced model,


however,


the solutions


involving


capital


constraints


still


permit


self-sufficiency


in the


production


of both


rice


and livestock,


except


beef


production,


because


the Delta


region


is extremely productive.


productive


poten-


tial


of the historical


land


resource


base


for Vietnam


generally


could


increased


through measures


to improve water


control


irrigation,


plus


reduction in


the effects


of salt


water


intrusion.


These


developments


require


large


expenditures


of public


development


capital.


In order


for Vietnam's


agriculture


to become


the vehicle


that


stimulates


economic


growth,


ways must


be found


to economically


increase


agricultural


tion


output,


in Vietnam,


income


increases


efficiency.


in production and


Given


incomes


present


are


closely


situa-


tied


to increased


uses of


capital.

















CHAPTER I
INTRODUCTION


The Problem


Productivity


relative availability


of various


resources are


elements


in an analysis


of optimum


resource


allocation.


Capital


a scarce


resource.


Therefore,


capital


is generated


as a requirement


for each


of the situations


examined.


For development


planning


purposes,


this


procedure


serves


a useful


purpose,


since


capital


represents


major


external


input


required


for agricultural


development.


Capital


investment

South


in this

Vietnem


study

faces


is for production and distribute

two major problems with respect


facilities.


to primary


commodities:


a production-distribution


problem and


an export


problem.


If the "Green


rice


Revolution"


to be achieved,


made


an ever


possible


expanding


improved


investment


new


strains


in flood


control,


irrigation


other


infrastructure


facilities,


as well


as in fertilizers


insecticides


will


be required.


Moreover,


the bumper


crops,


if and


when


produced,


cannot


adequately


be distributed


unless


road


ware-


housing


facilities


are greatly


expanded


and improved.


Shortage


of the


necessary


capital


has been


one of the key


problems


of agriculture


Vietnam.


Indeed,


capital


is usually


hard


to accumulate


on a small


farm


a e a A -U *


I


I 1


*-


I *










agriculture


include


irrigation


pumps,


fertilizers,


insecticides


spraying machines


tractors.


Agriculture


is an integral


part


of the


economy


of Vietnam.


About


two million


families


live


on small


scale


farms with small


rice


fields


'about


two hectares


or less.


The majority


of farmers


are


poor,


and they


traditional


farming methods with members


of the family


employed


laborers.


Their


income


is just


enough


their


daily


living.


It is


extremely


difficult, if


not


impossible, for


them


to build


up capital


serves.


Also,


the family way


of life


still


prevails


in the countryside


very


few rural


families


are willing


to change


their


lifestyle


because


of risks


of price


changes


or crop


failure.


South


are needed


Vietnam

to aid


remains


a food


development


deficit

such su


country.


rpluses


Agricultural


seem. unattainable


surpluses

e at the


present


time.


Capital


is a major


obstacle


to increased


agricultural


production.


Credit,


however,


been


expanding


for several


reasons.


There


a lack of


government


funds


to provide


subsidized


farm


credit,


as well


as private


capital


for farm


credit.


Farmers


have


an aversion


to risk,


lack


adequate


information,


are


generally


fearful


government


pro-


grams.


Other


factors


contributing


a shortage


of agricultural


credit


include


the following:


been absorbed


amounts


the agricultural


of external


credit


systems,


funds


high


have


interest


recently


rates


in the informal


credit market,


and the high


credit


propensity


new


agricultural


technology


use


re-


;









often


charged


on agricultural


loans,


it is unclear whether


rates


interest


closer


to the marginal


efficiency


of capital


would


still


result


excess


demand.


It has


been


usually


held


that


private


individuals,


money


lenders,


merchants


provide


a large


part of


total


rural


credit


ain less


developed areas.


In India,


for example,


studies


have


shown


that


less


than


percent


of total


rural


credit


is furnished


the formal


credit


system.


In Thailand


only


five


percent


of the agricultural


credit


reported


coming


from institutional


lenders.


amount


of noninstitutional


credit


in the rural


areas


of Vietnam


sizeable.


If there


a large


segment


of economically


justified


demand


for agricultural


credit,


the noninstitutional


money markets


parently


lack of


have


a sizeable


exploited


informal


the opportunity.


credit


One could


system indicate a


ask,


"Does


deficiency


in ef-


fective


demand?"


High


interest


rates


in the informal


credit market


also


have


been


cited


as indicating


a credit


shortage.


That


demand


pressures


face


a small


pool


of loanable


funds


embodied


a highly inelastic


supply


schedule.


It is therefore


concluded


that


competition


for these


funds


has driven


interest


rates


and resulted


in monopoly profit


owners


of loanable


funds.


Another


aspect


of this


question


is that


relatively


high


rates


of interest


be justified


on loans


in the informal


credit


market.


bulk of


these


loans


are


small,


short


term,


unsecured,


mostly


for consumption,


and lenders'


administrative costs


are therefore


high.


It may well


be also


that


current


noninstitutional


credit


are


was










be of little


or no


value


in determining


the marginal


productivity


capital


used


agricultural


inputs.


Credit


shortage


one


of the major


bottlenecks


causing


land


and labor productivity


in traditional


agriculture.


only


does


.current


shortage


of production


credit


exist,


the future


transforma-


tion


of less-developed agriculture


will


also


require major


credit


fusions.


Concessional


lending arrangements


for farm credit


are


justified


because


farmers


have


been


exploited


lenders who


charge


exorbitant


rates


of interests,


most


traditional


farmers


need special


inducements


highly productive


inputs


for which


credit


necessary,


and low


interest


rates


are


further


justified


as an income


transfer mechanism


and/or


to offset


fiscal


or pricing policy


that


adversely


affects


farmers.


There


is little


savings


capacity


in rural areas


and marginal


pro-


pensities


save


are


low.


Almost


all funds


for credit,


therefore,


must


come


from outside


the agricultural


sector.


Several


important


conclusions


follow


from


these


observations:


little


investment


takes


place


on farms


in traditional


agricul-


ture;


most


investment


that


does take


place must


be financed


credit


provided


from sources


outside


of agriculture


mobilization


of capital


from


the agricultural


sector must


largely


done


on an


involuntary


basis;


In short,


to obtain


capital


capital


is a major


for Vietnamese


obstacle


to agricultural


agriculture


and how to


development.


allocate


- ... -


a -


use


.


-t-


_I___ __


____ __~_










Objectives


objectives


of this


study


are as follows:


To examine


the productive


capacity


of South


Vietnam's


agricul-


ture


so as to maximize


national


agricultural


income.


Tailor


a linear


programming


model


to the particular


conditions


and problems


existing


in South


Vietnam


using


the 1973


prices


of inputs


commodities.


Specify


resources


and define


production


relationships


among


resources,


enterprises,


regions,


which


also


explicitly


reflect


processing,


marketing,


transportation,


and consumption


phenomena


relationships.


To recalculate


optimum solutions


with


assumed


constraints


capital


for the complete


model


(including


the six regions


of the Delta,


East,


Coast


Central


Coast,


North


Coast


and Highlands)


for the


reduced


model


(only


Delta


one half


East


region).


Capital


con-


straints


of 50


percent


and 10


percent


of optimum capital


from


these


optimum solutions


are imposed.


A comparison


of the optimum solutions


the complete


and reduced models


is made.


Review of


Literature


The literature


review


is divided


into


two parts:


internal


capital


formation


, income,


and growth,


and 2)


external


capital


related


Internal


to credit


Capital


institutions.


Formation


-U rn1 ~1* S


S


A---. -


I


FI .


r fr^


1 "









Langham


[24]


used a


dynamic


linear programming model


to determine


farm growth


potential


in British Honduras.


The model


maximizes


present


value


net returns


over


three-year planning horizon.


returns


as used


in the model


mean


returns


to labor


capital


above


production and


living


expenses.


Returns,


therefore,


actually


accumulations


of liquid


capital


assets.


A classic


study


of capital


formation


in agriculture


by Tostlebe


covers


the 1870-1950


period.


This


study


concluded


that major


amounts


of farm


capital


come


from


public


land


grants


and savings


from


gross


income


of farmers.


A relatively minor


part came


from credit


institutions.


capital


structure


farms,


on the


average,


showed


certain


Moreover


likenesses


, comparison


differences


of the regional


as indicated


data


can


the regional


show in


data.


a rough way what


would


be involved


in the


capital


formation per


farm if


some


region


that


hitherto


special


ized


in field


crops


such as


cotton


or wheat


were


to change


its major


interest


to dairyin


or livestock


feeding


type


of farming has


changed


far 1


ess


than


the techniques,


changes


in the latter


have


been


especially


influential


determinants


the use of


capital


in farming.


In general


percentages


give


impression


that


real


estate


has become


somewhat


ess


important,


machinery


power


somewhat


more


important,


in the whole


of physical


farm


capital.


appears


largely


migration


that


it is the growth


the improvements

of farm workers t


in the farm


o the cities


of machinery,


tractor


that


influenced


and by


perhaps


the substantial


s one of the main


reasons


are










Kuznets


formation and


a companion


financing


study


in the American


to Tostlebe'


economy.


examined


He suggested


capital


that


main determination


of capital


formation


to be found


in factors af-


fec ting


the savings


process


rather


than


exclusively


in the demand


capital

levels


funds.


trends


He argued


the need


in the proportion


for theoretical


of capital


work


formation


to explain


to national


product be

formation

Plaxi

strategies


cause


his research


to national


used


in Great


product


ynamic

Plains


showed

over


linear pr

farming.


a decreasing proportion


the 1869-1955


*ogramming


of capital


period.


to study management


His optimum program


called


the borrowing


of less


capital


than


maximum amount


of funds


avail-


able.


It is significant


to note


that


since


borrowed


capital


substi-


tutes


for owned


capital


at a linear


rate,


the discount


rate


for borrowed


capital


is less


than


that


for owned


capital


the market


rate


interest


51].


Curnutt and


Ferber


a study


of financial


stock-flow rela-


tionships


among


Central


Illinois


farmers,


found


that


both


assets


debts


are widely


dispersed.


In terms


of dollar value,


most


farmers' assets

buildings. The


farmers were


were

most


receipts


in the operated


important


from


sources


the sale


farm


, principally


of funds


crops


in land


for Central


livestock and


Illinois


increases


in indebtedness.


Most


funds


for financial


transactions were


used


meet


expenses


off debts,


although


sizeable


amounts


also


went


back


into


the farm.










rate.of


growth


than an


objective


of maximizing net


return.


This


occurred


because maximum net


re turns


resulted


from


renting


land


only.


Although


the average


cost


of buying


land


(interest


payments


over


the 30-year


planning

terest p


horizon)


lus


is less


principal


than


payments)


renting,


are


the total


higher.


capital


Therefore,


outlays


buying


(in-


land


resulted


in slower


rates


of growth


and lower


total net


returns.


Linear


programming


techniques


in a


polyperiod


framework were


used


in this


study


to depict


the growth


of the farm firm.


Perkins


Witt


concluded


that


capital


formation may


take


quite


different


forms


depending on


stage


of agricultural


development.


When agriculture


is characterized


by unused


resources,


scarce


capital,


and surplus


labor,


a major part


of capital


formation


occurs


in the form


of nonpurchased


capital


produced


with


surplus


labor.


In a


second


stage


of development when


there


exists


little


slack


in unused


natural


labor


resources,


social


overhead


capital


investments


became


relatively


more


important.


In a


third


stage


of development


characterized


American agriculture,


expected


capital


formation would


occur


concurrently


as a substitute


for labor,


resource


development,


for infrastruc-


ture


and social


overhead.


Johnson

formation.


[20]

First,


described


farm


four


capital


factors

formation


affecting


takes


agricultural


place


capital


rapidly when farmers


in a


position


to gain


from


reinvesting


part


of their


income


and when


they


have


the responsibility


for the investment


decision


concerning


farm


production.


Second,


rapid


capital


formation


occurs when


the public makes


are










when


the transfer


to voluntary


of capital


processes,


from farm


including


to the non-farm sector


transfers


in the form of


is left


inherited,


monetary


capital,


as well


as training


received


farm children who


migrate


to non-farm


occupations.


Fourth,


lagging


farm capital


forma-


tion


can


be stimulated


with


favorable


price


programs


credit


assis-


tance


to individual


farmers.


Baker


Hopkin


suggested


a model


for farm


capitalization


which


related


growth


the farm


firm to


rate


return


on assets,


financial


leverage,


and the farm


family


consumption


function.


They


postulate


that


the incentive


for a farmer


to invest


in his farm,


borrow for


investment,


or to


save


from consumption stems


directly


from


rate


return


can obtain in


his business.


Similarly,


Adams


and Singh


focused


on the firm-household


decision-making


process


being vital


for explaining


rural


capital


formation.


Tinnermeier


also


reminds


us that


for small


farmer


credit


programs


to be


success


ful,


new technology


must


be profitable


for the small


farmer.


Johnson and


Quance


explain agricultural


capital


formation


in an


economic


framework


substitution


of capital


inputs


for labor


and land


response


to rising wage


rates


and rising


land


values,


plus


response


on the


part


of farmers


to expected


marginal


value


produc-


tivities


(MVP'


for capital


inves tment


that were


excess


of acquisi-


tion


costs.


Their


study


concluded


that


overcommitment


of capital


agriculture


resulted


because


ex post


MVP'


were


lower


than


ex ante MVP's.


Melichar


[29],


in the study


of demand and


supply


of farm


capital,










relative


in favor


to labor,


of labor.


while


Also,


a wage


it was


subsidy


found


changes


that


relative


as capital


factor


costs


costs


relative


to labor


costs


decline,


firms


substitute


in favor


of capital.


substitution


effect


against


labor


a lowering of


capital


costs


must


be compensated


an expansion


of total


industry


output


total


employment


to increase.


studied


the intersectoral


capital


flows


in the economic


development


Taiwan


for the period


1895-1960.


was


determined


that


traditional


peasant


agriculture


prevalent


in Asia


can


increase


output


and productivity


a sufficiently


rapid


rate


so that


generate


surplus


or savings


to be transferred


for investment


to the


modern


industrial


sector.


basic


agricultural


investment


should


be accompanied


technological


improvement.


An appropriate


invest-


ment


scheme with


large


labor


input


and less


input


of capital


goods


should


be selected


and a capital


transfer mechanism should


be estab-


lished.


Pasour,


McPherson,


and Toussaint


investigated


the effects


on farm


production and


income


of varying


resource


situations


in the


Northern


Piedmont,


North


Carolina


area


terms


of land,


labor,


capital.


Plaxico


mization,


and Goodwin


compared


[37],


specified


working


incomes


in the


on fine


area of

textured


resource mini-


soils


Southwestern


Louisiana,


Oklahoma,


parts


the Delta


of North


region


Carolina.


of Arkansas,


Strickland


Mississippi


Tyner


can


L


~~


*.J









so that


minimizing


the capital


requirement


and minimizing


land


require-


ment


gave


almost


identical


solutions.


It was


also


assumed


that


feed


required


for livestock


production


would be


produced


on the farm.


Relying


on these


basic


assumptions,


land


requirements were


used


as indicators.


Nelson


[31],


in the study


of the financial


aspects


of growth


of the


farm


firm


in the West,


showed


that


greater use


of credit may well


contribute


to growth


of the farm


firm.


An increase


in land


values


creases


the credit


base


thereby


contributing


to growth


of the firm;


also


retards


growth


increasing


amount


of credit


needed


for growth


and by


increase


reducing


in land


rate


values


return


not


on capital


matched


in business,


inflation


assuming


in commodity


prices.


Moreover,


depreciation


reserves


provide


a substantial


amount


of capital


for use


in the farm


business.


A firm


growth model


developed


Odell


L. Walker


and James


R. Martin


dealt


with


finance,


managerial


capacity,


imperfect


knowledge,


time,


what


be called,


the metabolism of


the farm.


was


determined


that


costs


are important


not only


in affecting


practice


and enterprise


choice,


capital


in determining


use activities


capital


and withdrawals


withdrawals


must


and flows.


be identified


Moreover,


temporally


tied


to cash


flow


borrowed


capital


limits.


Certain


problems


adapting


linear


programming


techniques


to the firm


growth


framework and


simulation


were


covered.


Walker and


Martin [48]demonstrated


that


application


of several


decision models


to agricultural


problems


can result


in recommendations










In a


study by


Lorensen


on capital


productivity


management


performance


in small


farm agriculture


in Southern


Brazil,


marginal


value


productivities


estimated


for operating expense


capital,


working


asset


capital,


their


respective


components, were


found


to have


a positive


net marginal


value product


for all farm size


groups.


marginal


returns


aggregate


farm working


capital


slightly


exceeded


marginal


costs


all size


groups.


Among


individual


components,


unmechanized


equipment


found


to be a


profitable


item


for all


farm


size


groups.


Mechanized


equipment


returns


a negative


for the other


marginal


two size


product


groups.


for small


summary,


farms


results


positive


of the study


demonstrate


that


additional


land


resources


are not


necessarily


the ini-


tial


prerequisite


studied.


Rather,


to increasing

the increased


agricultural


use


production


of operating expense


on the farms

and working


asset


capital,


together with


better


managerial


performance,


could


signifi-


cantly


stimulate


agricultural


production.


In the small


farm agriculture


in Southern


sion


Brazil,


at the intensive


to stimulate


greatest


margin


agricultural


returns


of production.


production


should


are to be realized


Therefore,


first


from


programs


encourage


expan-

designed


the efficient


use of additional


high


return


capital


inputs


on existing


farm


units.


In the study


in Syrian agriculture,


Zarka


on product,


the estimated


exponents


capital,


and productivity


of labor


capital


the agricultural


production


function


are roughly


equal


to the 1963


rela-


tive


shares


of labor


capital


in S


yrian agriculture.


This


equality


lends


credence


to the hypothesis


that


factor markets


in Syrian agricul-


was










Pittman


[35],


a study


of capital


budgeting


to evaluate


selected


investment


alternatives


in the processing of


Southern


U.S.


vegetables,


showed


that


under


conditions


of capital


rationing


the number


and quality


of investments


was


small,


selected were


the firm often


was


severely


forced


limited.


to select


When


the capital


smaller


less


budget


produc-


tive


sets


of activities


an inability


to finance


the larger


project.


High


interest


rates


also


tended


to severely


restrict


invest-


ment


selection


even


in instances


of unlimited


capital


availability.


In the study


of firm


growth


simulation as


a farm management


credit


evaluation


device,


the information


generated


the model


should


the farm manager


in choosing


the land


acquisition method,


production


plan,


financial


arrangements,


equity


level,


and consumption


level


which


will


provide


the desired


rate


of firm


growth


16].


External
to Credit


Capital


as Related


Institutions


One effort


to stud


the effects


of national


monetary


credit


policies


on agricultural


investment


and production


was


made


Doll


[131.


His empirical


analysis


of the 1950'


concluded


that


easing


monetary


conditions,


e.g., increasing


money


supply,


would


not be beneficial


to agriculture.


Contrary


to Doll


s results,


Gramm and


Nash


found


that


agri-


cultural


incomes


and investments


have


been


responsive


to changes


in the


money


supply


in the


same


manner


as nonfarm


incomes


and investments.










modern


inputs.


Furthermore,


it was


concluded


that


mere


adoption


of the


of fertilizer,


although


correlated with


the use of


other modern


puts,


cannot


be taken


as an indication of


program success.


Adopters


did not


generally


show


greater


increases


in farm


income


than


non-adopters.


Improvements


in physical


productivity


and farm


incomes were slight.


In the study


Larson,


Stauber,


and Burt


on economic


analysis


of farm


firm


growth


in North


Central


Montana,


the analysis


indicated


that


the expansionary


alternative,


purchase


of 320


acres


of cropland


and associated machinery,


equipment,


and buildings,


was


optimal


regard-


less


of the initial


debt


capacity


level


of the winter wheat


farm,


given no


credit


restrictions


on the firm'


ability


to borrow.


This


decision


rule


indicated


that


operator


should


a "plunger--go


broke"


hope


the expected


outcome will


improve


over


the planning


period


without


initial


reinvestable

the need for


the firm


capacity


funds


borrowed


going


increased,


improved.


funds


bankrupt.


the firm


increase


enhanced


As the initial

s ability to s


in investable


the firm


debt


ave


decreased


or obtain


funds


s ability


reduced

accumu-


late


capital


in the form


net worth


and reduced


the probability


bankruptcy.


results


indicate


that


the firm's


survival


ability,


defined


as one minus


the probability


of bankruptcy


is dependent


on the


firm


s initial


capacity


and debt


situation,


cost


of the investments


terms


of price


paid


for land,


the decision alternative


interest


paid


for borrowed


funds,


and the level


of consumption and


other


expending.


Increases


in the consumption


expenditure


and interest


paid


for borrowed


use


-- w --










Nisbet


described


the rural


credit market


in Chile


as con-


sisting


an institutional market


an informal


credit market.


The well-to-do


farmers


were


served


the banks


in the institutional


market while


poor


farmers


utilized


the informal


, higher


cost,


credit


market.


Baker,


Hopkin,


Brinegar


suggest


financial


intermediation


can be viewed


as buying


funds


with


one


set of maturities


selling


funds


with


another


set of maturities.


They


also


have argued


for the


use of models


to describe


the functioning


financial


markets.


More


recently,


Barry


Hopkin


have


suggested


a resource


allocation model

intermediaries.


to examine

Their model


the behavioral

is basically


properties of

a multi-period


financial

LP approach


including


attention


to liability


management


options,


asset


management


options,


constraints.


A study


Swackhamer


Doll


examined


the distribution


of bank


credit


flows


in relation


to the


economic


and institutional


environment.


Their


data


suggested


considerable


immobility


in bank


credit


flows


in rural


areas


both


regions


through


time.


They


also


identified


considerable


inflexibility


in interest


rates.


Swackhamer


and Doll noted


that


participation


loans


increased


a factor


seven


in the decade


before


1966.


They


viewed


this


as an attempt


banks


to adjust


keep


pace


with,


the increasing


financial


requirements


of agriculture.


potential


they


for meeting


question


future


whether


agricultural


the participation


credit


loan


needs.


w


v










return


on capital


in agriculture


suggested


easy


capital


availability.


He concluded


that


financial


intermediaries


have


performed


their


roles


reasonably well


Sloan


agreed


that


existing


financial


intermediaries


have


per-


formed


reasonably well.


At the


same


time,


he pointed


to imperfections


in financial markets.


He cited


as examples


the relative


inflexibility


in the price


of agricultural


credit


compared


with


price


of credit


in other


sectors


of the


economy


and a significant


disparity


in interest


rates


on agricultural


loans


among


geographical


areas.


Further,


sug-


gested


that


the rapid


increase


in the proportion


of credit


held


noninstitutional


lenders


be symptomatic


of shortcomings


in the


money


markets.


He also


stated


that


legal


restrictions


often


interfere


with


the free


flow


of capital


resources.


Brake


suggested


that


the market


for rural


savers


also


have


inadequac


ies.


many


rural


areas


the alternatives


savers


are extremely


limited and


often


provide


only


relatively


low returns.


The quality


of information and


access


to investment


information


more


limited


in rural


areas


than


in urban


areas.


In the study


Sansom


on the economics


of insurgency


in the


MeKong Delta


of Vietnam,


compact


discussion


of the


village


credit


structure


emphasized


the importance


of unorganized


money markets


peasant


producers


but also


the impact


of government-sponsored


credit.


Sansom


concludes


that


the credit market


was


relatively


open


and that


interest


rates,


although


high,


were


probably not


a reflection


of credit-


are










association


of Chinese


origin


found


with


various modifications


through-


out Southeast


Asia.


His analysis


of the changing


rice market


illustrates


freeing


a market


can


improve


income


distribution.


Qamar


tried


to analyze


some


comparative


legal-institutional


aspects


of agricultural


credit


systems


in selected


countries,


particularly


Pakistan. The

of agricultural


dissertation


credit


ends with


institutions


concrete


proposals


in Pakistan.


crop


for th

loan


renovation


scheme


supervised


credit


is also


set forth whereby


the bank and


the cooperative


societies


act in


unison.


Crop


insurance


and effective


price


support


also


recommended.


finally,


a continuous


land


reform program


viewed


as a concomitant


to agricultural


credit


for which


the role


of the


the lawyer


is stressed.


Rao [39]


studies


the economics


of agricultural


credit-use


Southern Brazil.


was


concluded


that


credit


needs


of traditional


farms


are


limited


transformation


of agriculture


requires


consider-


able


amounts


of credit.


general


finding


of this


analysis


was


that


the degree


of underinvestment


in operating


expenses


was


higher


on small


farms while


the level


of credit


use


was


lower.


was,


therefore


con-


eluded


that


there


were


profitable


investment


opportunities


on small


farms


these


firms were


facing


external


rationing.


Results


of the study


of Early


demonstrates


that


agri-business


firms


in Brazil


have


need


for additional


credit


in order


to provide


proved


service


to the farmer


clientele,


that


they


are


a major


source


of credit


to farmers,


that


they


have


access


sources


of financing


are










In the study


of Kim


on the


structure


and functioning of


rural


credit


in Korea,


the growing needs


of rural


credit


can be financed


by mobilization


of internal


farm savings,


strengthening


of cooperative


financing


programs,


diversion


of capital


from


other


uses


sources,


government


programs and


foreign


capital.


Adams


examined


agricultural


credit


in Latin America.


An eval-


nation


of a supervised


credit


program


in Colombia


further


suggests


that


a number


of small


farmers


can


profitably


absorb more


credit.


Several


recent


studies


in India also


strongly


suggest


that


credit


requirements


dramatically


increase when new


technology


is used


Additional


fertilizer purchases,


changes


in irrigation systems,


more


employed


labor


associated


four-fold


increase


with


use


in cash


new


costs.


seed


varieties may


Again


a review of


require a


various


two-


studies


of interest


rates


charged


in the informal


credit markets


in rural


Latin America


strongly


suggests


that


interest


rates


at best


are weak


indicators


of production


credit


shortage.


It may


be that


the importance


of extremely


high


rates


of interest


in the informal


credit


markets


Latin America


has been


greatly


overstated.


In another work


on rural


financial markets


, Hayenga


analyzed


the effects

of the rural


of rural ba

community.


ink mergers


a result


on the servi


ces


offered


of bank mergers,


to citizens


customers


access


a wider variety


of services


from


the bank.


services


were


offered


by merged


banks


that


were


not offered


independent


banks.


Both


the market


for loans


and the market


for savings


became more


osely


[22],










Barla


studied


cooperative


agricultural


credit


institutions


India.


It was


empirically


shown


that


the marginal


value


product


(MVP)


of purchased


inputs was


very much


higher


than


that


of the farm grown


inputs.


Conversely,


the MVP


of labor was


close


to zero or negative.


Cross


section


analysis


revealed


that


unless -technological


improvements


are introduced,


an increased


supply


of credit may


imply


a wasteful


of capital


on small


farms


(having


less


than


2.5 hectares).


On the other


hand,


under


the existing


state


of technology,


availability


more


credit


will


help medium


sized


farms


(having


2.51


to 6.00


hectares)


optimize


use of capital.


whereas


credit


Thus,


technology


is relatively more


critical


a constraint

1 on medium


on small


size


farms,


farms.


Nehman


studied


small


farmer


credit


usage


in a depressed


com-


munity


of Sao Paulo,


Brazil.


was


shown


that


informal


lenders


domi-


nated


the small


loan


business,


serving


both


small


medium sized


farmers.


The primary


advantage


of dealing with


small


lenders


was


that


money was


available


on request.


was


shown


that


small


bank


loans


were


costly


both


to the banks


to the farmers.


Informal


lenders were


highly


competitive


in price


on small


sized


loans,


even


though


the formal


interest


rate


was


one-half


to one-fourth


as high


as the informal


rate.


Based


on this


analysis


was


shown


that


small


farmers


not have


significant


opportunities


to increase


their


use of profitable


agricul-


tural


inputs.


The opportunities


that


did exist


were


primarily


on lar


farms


and farms


that


already were


participants


in the subsidized


credit


program.


use









a shortage


of working


capital.


This


arises


from a


lack


of collateral


S against


which


to borrow,


and lack of


a willingness


use


available


credit


owing


to income


uncertainty.


On unirrigated


small


farms


uncertainty


the main


constraint


because


inadequate


assets


and funds


to finance


con-


sumption make

of high-income


working


farmers

crop c


capital prevents


unable


to sustain


combinations.


small


thelarge


Analysis


farms


income


indicates


from growing


that


fluctuations


shortage


high-income


crop


sugarcane.


study


concludes


that


expanding


cooperative


credit


avail-


ability would


increase


fertilizer


use and


encourage


a shift


to higher


income


crops


(new varieties


sugarcane)


on irrigated


small


farms.


Greater


flexibility


of loan


repayment


would


make


small


farmers more


willing


use available


credit.


Bhargava


examined


the effect


of publicly


supported


credit


programs


on economic


growth


of small


farmers


in India.


Available


infor-


mat ion


for India


indicates


that


small


farms


have,


stayed


out of the reach


of the publicly


supported


credit. programs


continue


to depend


on high


cos t


informal


lenders.


failure


of the publicly


supported


credit


programs


to reach


the small


farmers


and displace


their


dependence


on high


cost


informal


lenders


not been


researched.


has been suggested


standing


that


of the financial


the failure


behavior


be due


and financial


to incomplete


environment


under-


of the


small


farmer.


was found


that


financial management


played


a key


role


in small


farm


firm'


economic


growth.


n 'S 1 *


a m)










fishery production.


A large


share


of the remaining


20 percent


worked


in industries


concerned with marketing


processing,


transporting


agricultural


products,


or with


producing


and distributing


goods


services


used


in agricultural


production.


Agricultural


products


accounted


over


percent


of all


exports.


There


is relatively


little


indus-


trial


development


and what


there


is depends


heavily


upon


agricultural


raw materials.


South


Vietnam has


few mineral


resources.


purpose


of this


study


South


Vietnam


is defined


to include


following


regions:


Delta,


East,


Lower


Coast,


Central


Coast,


North


Coast,


Highlands.


Wide


differences


among


these


regions


in climate,


soil


s. and


topography


influence


current


land


use and


future


production


potentials


(Figure


Climate


Most


of the farming areas


have


yearly average


temperatures


75F


or higher


Frost


does


occur


in traditional


or potential


farming areas.


North


Coast


most


plateaus


of the Highlands


have


winter


temperatures


averaging


around


68F


while


the higher


plateaus


and mountain


valleys


have


annual


temperatures


of between


70F.


These


cool


winter


temperatures


permit


production


some


cool


weather


vegetables


other


crops,


are


believed


to adversely


affect


yields


especially


in the North


Coast.


Rainfall


is the primary


climatic


factor


limiting


crop


production.


The monsoons


bring


excessive


rainfall


during


to 6 months


of the


year,














DEMARCA TION LIN


a-,


Northern Coastal


THUA
TNIEN


Nang


QUANG


NAM


UANG


)UANG
NGAt


KONTUM


PLEIKU


Central Coastal


ui Nefnn


Highlands


DAR LAC


Eastern


CUANG


ueC


KHAN


HOA


Nha Trang


m Ranh


PHUOC-


LONG


THU


AM DONG


Lower


Coastal


ANM


TUY


ung Tau


DAO
PHU' QUI
(mlN G1eA


Delta


XurCm


I a


&









the lower


Delta area


to less


than


60 inches


in the


upper


East


area)


from


about


mid-May


through mid-November.


Rainfall


in the Highlands


also


tends


to follow the


pattern


of the


summer monsoon,


although


it usually


begins


and ends


about


a month


earlier


than


in the Delta


and East


regions.


mountains


have


some modifying effect


in specific


areas within


the Highlands


rainfall


rainfall,


tends


for example,


to diminish


averages


in amount


about


from North


92 inches


to South.


at Pleiku,


May-October


inches at


Banmethout,


52 inches


at Dalat.


The Fall


monsoon


dominates


the cli-


mate


most


of the coastal


regions.


It normally


occurs


from late August


to mid-January


brings


rainfall


ranging in


average


from about


inches


at Hue


to less


than


50 inches


at Nha


Trang.


Rainfall


in some


areas


of the Highland


and Coastal


regions


is obviously


influenced


both


the Summer


and Winter monsoons.


Other


climatic


factors


affecting


Vietnamese


agriculture are


high


humidity,


overcast


conditions


during


the rainy


season,


relatively


short


length,


occurrence


of typhoons


in the


northern


areas.


Soils


soils


of South


Vietnam are


highly


diverse with


respect


origin,


physical


properties,


native


fertility,


response


to techni-


cal inputs.


soil


profile


is relatively


deep


in most


areas


of the


nation.


Vietnam could


grow many


kinds


of fruit


trees


industrial


plants


such


as rubber


trees,


coffee,


tea;


alluvial


soil


in the Delta


is also


appropriate


for different


varieties


of rice


secondary


crops.










The major


soil


types


found


in South


Vietnam are


as follows:


Soil


Type


Region


Area


(1000


Hectares)


Red soils


Acid


alluvial


soil


throughout t
Dongthapmuoi


country


2,000


and Rachgia


Less acid alluvial


soils


Dongthapmuoi


1,056


Saline


alluvial


soils


Organic


Camau,
Uminh


soils


Rungsat


Gray


soils


Eastern South


Highlands


1,890


Complex mountainous


soils


Alluvial
Waste and


throughout


country


soils


other


6,200
2,348
2,605


TOTAL


17,328


Topography


The alluvial


areas


of Vietnam are


low-lying and


flat.


Elevation


most


of the Mekong


Delta


ranges


from one


to three meters.


slight


change


in elevation results


in sluggish


flow in


streams


crossing


Delta


rainy


during


season.


the dry


These


season and


conditions


is conducive


facilitate


to flooding


capturing rain


during


water


paddy production


make


disposal


excess


water


difficult.


Poor


drainage would


pose


a serious


problem in


the production


of secondary


crops


during


the rainy


season


in much


of the


area.


Plane


topography


characterizes


a large


proportion


of the


terrace


areas.


Terrace


soils


normally


occur


adj acent


to alluvial


areas


These


areas


range


from


flat


to undulating


Consequently


land


in these


areas


varies


from


depressional


land


which


lends


itself


to paddy production









The upland


areas


vary


from relatively


flat


to mountainous .


There


are several


plateaus


numerous


valleys


within


the upland


region


that


contain


relatively


large


areas


of flat


to gently


rolling land.


Steep


hills


and mountains


occupy


a large


proportion


area,


even


extending


to the South


China


Sea along much


of the


coast


line


to form


the pockets


or plains


that make


the Coast


region.


Land


South


Vietnam has


a total


land


area


of 17.3 million


hectares,


about


hectare


capital.


However,


only


2.8 million


hec tares


are cultivated.


Table


Land


Resources


of South


Vietnam,


1968


Land Use Hectares

Thousand

Cultivated land 2,808
Forest land 5,949
Grassland, waste and other 8,571

Total 17,328


Source:


Agricultural
Ministry of


Economics a
Agriculture,


nd Statistics


Service,


Saigon.


Nearly


million


hectares


are classified


as forest


land


but little


information


is available


concerning


kinds,


quality,


quantity


timber


growth


on this


land.


Approximately


8.6 million


hectares


classified


as grassland,


waste,


or other


land.


Much


of this


land


are










South

Southeast


Vietnam has


Asia


less


countries.


cultivat

Hectares


land


per capital


per capital


than most


of cultivated


crop


other

area


(cadastral)


were


as follows


in 1962:


South


Vietnam


Burma
Thailand
Cambodia
Laos


Land under

tolerate high


cultivation


levels


could


of acidity


be increased


or salinity


gro


on soils


wing crops

not now in


that

crop


use.


Also,


it would


be possible


to greatly


expand


hectarage


crops


grown if water


control


improvements


were


carried


out to permit


increased multiple


cropping


on land


now under


cultivation.


However,


this would


require


large


investments


in irrigation,


drainage,


and flood


control.


Total


'area of


crops


grown


in 1964


was


nearly


3.1 million hectares


compared with


the 2.8 million


hectares


of cadastral


crop


area,


indicating


that


nearly


300 thousand


hectares


were


double


cropped


(Table


1.2).


appears


that


only


275 to 300 thousand hectares


are irrigated.


The total


area of


crops


grown


was


a record


high


in 1964,


about


275,000


hectares


more


than


in 1968


according


to official


statistics.


Land


crops


is located


mainly


in the Delta and


East


areas


of the


country.


Delta accounted


for more


than


60 percent


South


Vietnam


total


crop


area


and more


than


percent


of the rice area


in 1964.


Rice


cupied


over


percent


of the cropland


in the Delta.


Delta also


accounted


for the major portion


area


planted


to pineapples,


a crop


oc-









Table


Area
Crop


and Production o
Yields, 1964-68,


Crops,


South


1964


and 1968,


and Average


Vietnam


Area


Production


Crop


1964


1968


1964


1968


Average
Yield per
Hectare
1964-1968


------Hectares------


-Metric


Tons---------


Annual


Crops


Rice
Corn
Sweet Potatoes
Manioc
Peanuts
Soybeans
Mungo beans
Pineapple
Vegetables
Watermelons


,800
,000
,000
,000
,000
,050
,510
,000
,770
,400
,710
,425
,275
.760


Sugarcane
Fiber crops
Tobacco


Other


2,39
2
3
3
2

2

1

1


1
5
10
3
1,05


,030
,000
,000
,600
,500
,000
,000
,000
,650
,440
.190


,275


7,620


Total


2,820,700


2,602,


Permanent


Crops


Rubber
Tea
Coffee
Coconuts
Fruit Trees
Bananas
Miscellaneous


tree


134,
9,
11,
41,
34,
18.


crops


Total


105,
7,
10,
29,
34,
17.


1,765


256,140


205,130


GRAND


TOTAL


3,076,840


2,807,385


aIncluding


Kapok,


a tree


crop.


_ _










Delta also


accounted


for more


than


three-fifths


of the


area


in bananas


and other


tree


fruits.


The Delta normally


supplies much


of the rice


consumed


in other


parts


of South


Vietnam.


This


region accounted


for 75


percent


of the


rice produced


but for only


percent


of the population of


country


in 1968.


Rice


accounted


for about


percent


of the land


in cultivated


crops


in areas


outside


the Delta.


Land


in secondary


crops was


higher


in these areas,


probably


because


of availability


of lighter


terrace and


upland


soils which


are not well


suited


for growing


rice


better


adapted


for other


crops,


e.g.,


peanuts.


It is likely


that


climatic


factors


North


such as


also


Coast,


affected


for example,


peanuts


the distribution


is subject


potatoes


sweet


some


to typhoons.


accounted


secondary


crops.


Low growing


for a larger


crops


proportion


cropland


in this


area


than


in other


areas.


Rubber,


and coffee


occupied


more


than


percent


of the land


crops


in the East


area


and in the Highlands.


These


areas


counted


for most


of the land


devoted


to these


crops.


Production was


primarily


on upland


soils.


Animal


Husbandry


Swine


and poultry


are


found


throughout


country,


but they


most


numerous


in rice


growing


areas.


The Delta,


for example,


accounted


for 60 percent


of the total


number


of pDi


U O .Ub


poultry in


1968


(Table


1.3).


ac-


are


L









Table


Livestock


Poultry Numbers


Regions,


1968


Kinds


Delta


Livestock


Western


Eastern


Coastal
Regions


Highland


Total


Poultry


Part


Part


-------------------- Thousands ---------------------


Buffaloes


Cattle


Horses


Swine


,023


3,553


Goats


Sheep


Chickens


Ducks


12,472


11,929


3,192

1,705


3,955

1,488


20,500

15,149


Source:


Agricu
nomics


tura 7


Stati


sties


Statistics


Yearb


ook,


1968.


Agricultural


Eco-


Service.










Most-


livestock and


poultry


production is


on farms


that


also


produce


rice


other


crops.


There


has been


a rapid


growth


in large-scale


specialized


swine,

ally a


broiler,


.round


Saigon,


egg producing

since 1968.


farms


based


But these


on imported


farms


still


feeds,


especi-


account


small


share


of total


livestock


production.


South


Vietnam


s imports


of milled


rice


have


averaged


over


600,000


metric


tons


annually


in the last


three


years,


about


one-fourth


of the


total


quantity used


for food.


Self-sufficiency


could


be achieved


before


1980,


especially


a larger


share


of the paddy produced


is milled and


used


for food.


Little


is known


about


disposition


of rice


paddy,


the share


used


to feed


and poultry


probably


increased


in the


last


bran


years


and broken


because


normally


of high


used


prices


for feed,


for animal


and larger


products,


supplies


scarcity


of low


quality


rice


associated


with


adoption of high


yielding varieties.


Prices


that


farmers


receive


for the new varieties


are


often


only


one-


half


of those


received


for traditional


varieties.


Much


of hogs,


emphasis


poultry,


and poultry


has been


eggs

have


farms


placed


in the last


been


on expanding


few years.


highly profitable


commercial


production


Large-scale


some


commercial


instances,


these


farms


have


been made


possible


low-cost


feed,


breeding


stock,


veterinary


products,


other


capital inputs,


technical


assis-


tance.


Efforts


now


are being made


to expand


domestic


production


corn


and grain


sorghum.


Little


is known


about


yield


potentials


of feed


grains


on new


land


that


might


be brought


under


cultivation


but yields


__~___










Labor


labor


force


dependent


upon agriculture


employment


crease


percent


1980


from natural


population


growth.


Many


people


have moved


to urban


centers


be reluctant


to return


to rural


areas.


Large


numbers


probably will


seek


jobs


as 'hired


farm workers.


There


a large


potential


for employing many workers


to improve


land


water


resources


infrastructure,


but ways


of financing employment


on projects


for these


purposes will need


to be developed.


During

farm work,


the five

the farmer


hot

may


months

look


of the dry


season when


for supplementary


there


labor


is little


a larger


village


center.


Generally,


his activities


are confined


to fishing,


mendin


repairing


the dikes


and houses and


similar work,


until


start


of the


rainy


season and


new


crop


planting


begins.


Each


farm


family


does


most


of its


own


work


(unpaid


family


labor).


In traditional


farming


areas,


larger


farms


hire


labor


crop


production.


Types


of Farms


Farming


in South


Vietnam


has consisted


two almost


unrelated


segments.


two segments


have


competed


hardly


at all


for land


only


a small


degree


for other


resources.


universe,


involving


less


than


5,000


farms


includes


producers


of industrial


crops,


primarily


rubber,


tea,


and coffee.


Most


of the


production


comes


from a


large


plantations,


highly


commercial










swine


enterprises


and also


grow


small


hectarages of


a wide


variety


of other


crops.


Farms


in provinces included


Agriculture averaged


.34 hectares


in South


Vietnam


in si


s 1960


Average


Census


farm size


is larger


in the


Delta and


East


regions


than


in the Coastal


region.


About


half


of the farms


in all


areas


outside


the Delta


were


less


than


one-half hectare


in si


In the Delta about


one-third


farms were


over


two hectares


only


a small


proportion


in other


areas


were


this


large.


bulk


of the larger


farms


in the


Delta


were


located


in provinces


with


serious


salt


intrusion


or flooding problems.


Thirteen


percent


of the farms


in the flood


rice


provinces,


example


had more


than


five


hectares


and the


average


of farms


in these


provinces was


33 hectares.


Although


some


areas


have


been


influenced


by migration


of farm


people


to urban


areas,


the total


number


of farms


probably


not changed


much


since


1960.


Rice


is the main


crop


grown


on nearly


all small


farms


in the Delta,


East


Coastal


regions,


most


farms


also


grow


some


fruit


, vegetables,


and other


crops,


especially


for home


consumption.


Farm Technology


Production methods


on small


farms


in South


Vietnam are


typical


those


throughout


Southeast


Asia.


Rice


land


is plowed,


harrowed,


puddled


sing wat


buffalo


or cattle


as a power


source.


Seed


--w


u


_


e.


w










hectare.


Methods


involving


high


labor


inputs


tend


to be carried


over


from


rice


to other


crops.


cultural


practices


followed


in growing


rice


vary


among areas


depending


upon


topography


rainfall,


drainage,


soils,


other


factors.


The Delta


region


classified


into


three areas


according


to planting


and cultivation


rice,


which


practices


floating


subject


single


(Figure


to annual


transplant


1.2)


flooding,


rice,


In the West


double


Subregion


floating varieties


transplant


of the Delta,


of rice


are


grown.


In this


area


the fields


are flat


have


no dikes


the floodwaters


have


free


access


to the land.


Farmers


plow


their


land


time


from


February


to May


depending


on the time


the early


rains.


At the begin-


ning of


the rainy


season,


the rice


is broad


cast


over


the plowed


fields


The floating varieties


rice


have


very


rapid


growth


characteristics


that


enable


them


to cope with


water


depth


where


ordinary varieties


can-


not survive.


These


low-yielding


vari


eties


generally


have


poor market


quality


low yield


be due to the fact


that


farmers


fertilizer


The single


transplant


method


of cultivation


generally


used


in the Coastal


Subregion


where


planting must


be postponed


until


salts


accumulated


during


season are


leached


the soil


rainwater


where


water


is stagnant


early


in the growing


season.


Weeding


and maintenance


of water


levels


in rice


fields


are the


most


important


operations


between


transplanting and


harvesting.


In the


Central


Subregion


of the Delta,


the fields


are so rich


in organic


matter


nitrogen


that


farmers


double


transplant


rice


seedlings


to reduce


use


w


w












DEMARCATION UN


Northern Coastal


a Nang


OUA


QUA


KONT9UM


Simple transplanting area


Floating rice area


Double transplanting area


PLEIKU


Highlands


DARLAC


Eastern


QUANG


oUC


Nna rrang


Cam Ranh


PHUOC,


LONG


LAM OONG
ti


Lower Coastal


PAO O
PHU QUOC
(IlNM QGANC


-~ -,,
H"U~w~, -=~LIeAtk:; C)
014. H~fl
~-*J Al11,
r --U' -
I ______ -- IN -


Delta


d.
FAAI 1C A


Central Coastal


ui Nhon


vung iau


JrlaW










recent


years


small


two-wheel


tractors


and the conventional


four-


wheel


farm


tractors


have


been


used


in increasing numbers.


was


esti-


mated


that


there


were more


than a


thousand


of the two-wheel


tractors


each


of the four


crops


regions


in early


1970.


There were


believed


to be


more


than a


thousand


four-wheel


tractors


in the Delta


with


lesser numbers


in the other

and the small


areas. T

tractors


hese


tractors


are also


used


are used


for plowing and


for puddling.


They


harrowing


are usually


owned


the large


farmers


who work


their


own


land


and do


custom land


preparations


for others.


larger


tractors


are particularly


adapted


to this


kind


of utilization


in the large


unlevied


fields


in the floating


rice


area


of the Delta.


Rice


varieties


are generally


those


that


have


proved


adapted


local


conditions.


They


deliver


about


the maximum


yield


that


pected with a


level


inputs.


In the late


1960's,


however,


improved


rice


varieties


(IR-5


IR-8)


were


introduced.


These


varieties


have


great


capacity


output


response


to fertilizer under


proper


growing


conditions.


goal


Rapid


adoption


comprehensive


of these


programs


were


varieties


implemented


farmers


became


encourage


a major


their


pro-


duction.


Improved


varieties


were


planted


more


than


200,000


hectares


during


the 1969-1970


growing


season,


with an average


yield


4.7 metric


tons


hectare.


Recent


price-cost


relationships,


involving


a highly


flated


rice


price


low prices


for fertilizer


and pesticides


under


import


programs,


have


created


an ideal


economic


environment


for adoption


can


ex-










cropped


in the Coastal


region


but only


about


percent


was


double


cropped


in the Delta.


reason


for the wide disparity


extent


double


cropping on


irrigated


land


between


the Delta


and the lowlands


is not


soon


known.


seasons


be that


differences


this was


pressure


related


to differences


of population on


land


in mon-


between


areas.


It is possible


that


some


of the irrigation


counted


the Delta was


in the form of


supplementary water


added


to the single


crop


produced


in the rainy


season.

















CHAPTER


METHOD


RESEARCH


PROCEDURE


Agriculture,


the major


sector


of South


Vietnam,


contains most


the labor


force


households


much


of the nation


s capital.


national


welfare


to be increased materially,


important


income


creases


are


needed


for farm


families.


resources


of agriculture


contribute


significantly


to economic


development.


In South


Vietnam


farm


inputs


as represented


capital


and unpaid


family


labor


are the


major


farm


resources.


Most


allocative


problems


arise


because


spatial


distribution


agriculture


is wide;


the number


of firms


in the farm


sector


greatly


exceeds


those


in industry;


extreme


capital


limitations


of farmers


intensify


the allocative


problem.


Linear


programming


represents


decision


framework


for the attainment


of maximization


net income


under


a particular


environment


represented


technology,


prices


their


distribution,


capital


resource


limitations.


Linear


programming


a computational


method


to determine


the best


plan


or course


of action,


when


there


are many


alternatives


for the plan,


a specific


or numerical


objective


exists


for it,


and the means


sources


available


for attaining


are limited.


These


conditions


pre-


vail


widely


and typically


in agriculture.


The individual


farm always


re-










machine


capacity,


other


physical


resources.


More


specifically,


linear


programming


is the analysis


of problems


in which a


linear


function


to be maximized


(minimized)


when


those


variables


are


subject


number


of constraints


in the form of


linear


inequalities.


condi-


tions


and assumptions of


linear


programming


have


been


listed


Agrawal


and Heady


as linearity


of the objective


function,


divisibility,


addi-


tivity,


and finiteness


resources


activities,


nonnegativity


the decision


variables,


proportionality


of activity


levels


resources


single-valued


expectations


Normative Model


Linear


answers


programming


to problems.


is mainly


In contrast


a procedure f

to normative,


:or providing normative


the term positive


used in economics

exist. By normati


be taken


to describe

ve we refer


an individual,


analyses

to the c


which


ourse


business unit,


explain

of action


area,


phenomena


which


or other


as they


ought


economic


sector


when


the end or objective


restraints


surrounding


takes


the action


a particular


form and


or choice are


the conditions


a particular


form.


Oury


others


have


discussed


advantages


disadvantages


norma-


tive models


such as


linear


programming


positivistic


models


such as


least


squares


for economic


planning and


analysis


C192.


choice


models


clear-cut


definitely


depends


on the nature


of the data


objectives


of the research.









with


the variable


Increased


volume


resources


at hand


of production


in order


lowers


unit


to maximize


costs of


farm income.


production.


To measure


return


for farm


business,


net income


is the difference


between


receipts


of production.


expenses.


farm


income


Farm income


is the


is the


source


return


payments


to all


to the


factors


farmer's


labor,


management,


land,


and capital.


On the national


level,


net agricultural


income


is given


an ag-


gregation


is defined


net farm


as gross


incomes.


agricultural


In this


income,


study,


net agricultural


including


value


income


of rice


consumed


on farms,


less


production


costs


and processing,


marketing,


transportation


costs.


income


= gross


farm


product


- production


cost


- (processing


cost


+ transportation cost


+ marketing


cost


+ rice


consumption


on farm


South


Vietnam


is defined


to include


the following


regions--


Delta,


Easter,


Lower


Coast,


Central


Coast;


North


Coast


Highland.


subscripts


for regions,


crops


livestock and


inputs


are as follows:


Six regions:


= 1,


Crops


Livestock:


= 1,


Inputs:


= 1,


= price


of j


crop


livestock


production


of i


region.


crop


livestock


production


quantity


of i


region.


Crops:


banana,


rice,


coconut,


coffee,


corn,


cotton,


jute,


kenaf,


.. ,









Livestock:


beef,


pork,


chicken,


ducks.


Cij


= quantity
i region.


of consumption


of j


crop


of farm


Pijk
Xijk


= K input


cost


= quantity


of j


k input


crop


of j


in i


crop


region.


in i


region.


Inputs:


capital,


land,


labor,


spray


, pump,


fertilizer,


fuel,


endrin,


malathion,


sevin,


DDT,


methyl


malathion,


lime,


poultry


feed,


poultry protein


supplement,


concentrate


feed,


hog protein


supplement,


tractor,


cattle,


buffalo.


= processing


cost


of j


crop


in i


region.


= processing


quantity


of j


crop -in


region.


= transportation


cost


of j


crop


in i


region.


= transportation


quantity


of j


crop


in i


region.


= marketing cost


of j


crop


in i


region.


= marketing


income


quantity

(PY.Y.


of j


crop


+ P .C..)
13 ij


iril


region.


k ijk ij k


+ P QP
ij'ij


t


+ M13 1Q


Parametric


Programming


Model


This


dissertation


focuses


on capital


needs


in agriculture


in South


Vietnam.


It seeks


to determine


the particular


combination


resources


that will


be employed


and evaluations will


be made


regarding particular


capital


constraints.


Therefore,


this


study


is similar


to parametric


programming


to maximize


national


agricultural


income.


Variants


of linear










to normative


problems


in planning or


choice.


Given


this


end,


parametric


programming


indicates


pattern


resource


allocation,


the nature


investment


which will maximize


profit


or rate


of return and/or maximum


income,


and the selection among


strategies which


will


minimize


favorable


outcome


from


the vagaries


of weather


or the market.


For low-


income


or other


rate


farmers


inputs

return


with


little


can more


capital,


nearly


on investment


the goal


for investment


be the maximum net


(e.g.


the maximum net


income

income


in fertilizer


or maximum

or maximum


return


unit


of capital),


rather


than maximum return


unit


of land.


Productive


terms


capacity


of the quantity


of South


mix of


Vietnam's


agricultural


agriculture was


commodities


examined


needed


maximize


national


agricultural


income.


A linear


programming model


tailored


to the particular


conditions


and problems existing


in South


Vietnam.


Production


relationships


are


among


resources


, enterprises,


regions.


programming model


also


explicitly


reflects


processing,


marketing,


transportation,


and consumption


phenomena


relationships.


study


addresses


questions


relating


to the impact


on Vietnam'


agri-


cultural


economy


of the changing


capital


factor within


the historical


resource


situation.


historical


land


resource


base


is defined


include


existing


land,


plus


land


previously


abandoned.


It does


not at-


tempt


to project


into


the future


on the basis


of trends


of production


patterns.


would


Rather,


be the expect


the analysis

ed effect of


is in the


specified


context

changes?


of "what

Since


if?"-what

the analysis


employs


an optimizing


technique,


since


linear


programming


implies


change,


un-


was









A supply response analysis


normally


is concerned


with


production


relationships.


An agricultural supply


response or production


capacity


analysis


usually


stops


at the farm gate;


marketing


systems


price


relationships


are


taken as


given.


However,


conditions


in Vietnam dic-


tated


special


formal


consideration


of distribution and


price


phe-


nomena


in conjunction


with


price


relationships.


Therefore,


it was


necessary


to expand


the scope of


the study;


this


segment


the analysis


might


properly


be identified as


a production-distribution analysis.


Also,


a transportation


submodel


is included


for moving commodities


between


areas


at appropriate


costs.


A marketing-processing


submodel


is also


included


for marketing,


necessary processing,


and transferring


each


commodity,


at approximate


costs,


either


directly


to consumption,


to export,


or to the transportation


system for movement


to consumption


or export


region can


in another


region.


be satisfied


Consumption


production


requirements


within


the region,


a given


transporting


production


from another


region,


or by


importing


into


country.


Supply


response


estimates


developed


for individual


farms


or land


resource

provide


situations

the most ef


fecti


aggregate

ve basis


to regional


for full


and national


levels


economic development


planning.


Development


use


of the supply


response


estimates


involve


several


steps.


Since


production


possibilities


for various


enterprises


vary


from area


area


because e


of differences


in soil


type,


climate,


topo-


graphy


and other


features,


relatively uniform production


regions


situations


must


be delineated.


For each


production region,


measures










resource


situation,


taking


into


account


the supplementary


or competitive


nature


of each


enterprise


and availability


resources.


Also,


several


steps


are


involved


in setting


and interpreting


a linear programming


model.


production


possibilities,


income,


criterion


equations,


with


some modifications,


form


core


of the simplex method


used


solving


linear


programming problems.


First,


a feasible


program


is selected.


A feasible


program


one


consistent with


the given


resources.


next


step


to compute


income


under


the initial


feasible


plan


by using


the net


income


equation.


Then


the criterion


equation


is applied


to find


the increase


or decrease


some


activity


affects


income.


the simplex procedure,


a whole


set of activities


representing a


feasible


plan


is compared


to another


set,


rather


than


comparing a


single


activity


against


another


activity.


income-increasing activity


is increased


and again


the change


in income


is found.


The entire


procedure


peated


until


the criterion


equation


indicates


that


the optimum has


been


reached.


The most


efficient


effective


methods


of organizing


the above


steps


into


a formal


planning


technique


is through


use of


a linear


programming analysis.

determination of the


However,


commodity mix


more

for th


complex model

e resource si


would


tuation


permit

for regions


as well as


the nation


as a whole.


Simultaneously,


regional


outputs


could


be determined


use in estimating market


facility requirements.


National


outputs,


likewise


incomes,


could


foreign


be generated.


exchange


impacts,


Capital,


labor,


and capital


management,


requirements


foreign


re-










Total


income


is defined


to include


farm


income


consumers'


surplus.


total


figure


represents


the level


agricultural


income


(gross


agricultural


income,


including


the value


rice


consumed


on farms,


less


production


costs and


processing marketing,


transpor-


station margins)


that would


be associated


with


each


solution if


farm products were


in a


deficit


supply position,


i.e.,


gross


com-


modity values would


be based


on import


price


levels.


farm income


figure


represents


the actual


net agricultural


income


associated with


the particular


solution.


It reflects


the actual


level


(export


or in-


port)


of price


for each


commodity,


based


on whether


it is in


a deficit


or surplus


supply


position


in the solution.


difference


between


total and


farm


income


is called


consumers'


surplus.


represents


monetary


advantage


accruing


consumers


from lower


prices


on those


commodities with


production


excess


of domestic


consumption


require-


ments,


i.e.


, consumption


expenditures


for commodities


being


exported


reduced


amounts


Reflecting


the difference


between


their


import


export


ices


[10].


Mathematical


Linear


Programming Model


Programming


problems


are


concerned with


the efficient


use


of allo-


cation


limited


resources


to meet


desired


objectives.


A linear


pro-


gramming problem differs


from


the general


variety


in that


a mathematical


model


or description of


the problem can


be stated,


using


relationships


which


are called


"straight


line"


or linear.


are










The maximization


of the objective


function


is subject


to certain


linear


constraints.


maximize

subject


= c'y

Ay


In the matrix


form:


where


c is


a vector


of prices


or other weights


for the objective


function,


a vector


of activities


or commodities


to produce,


A is a matrix of


input-output


coefficients,


B is


a vector


resource


or other


constraints,


= c'y is the objective


function.


= Kt


amount


resource


available,


aijk


= the
S1i


amount


n the ith


resource
region.


k used


to produce


one unit


of product


Maximum income,


as described


in this


study,


can be transformed


into


a standard


linear


programming


form.


Maximum income


(P.Y..
13 i3j


+ P .C..)
ij 1i


k ijkXijk


+ PP QP
ijij


m
+ M..Q..)


subject


to the linear


structural


constraints.


i
allY
11 1


1i
J1 J


i i
a Y + a Y




alYl + a2Y2
iKi 12K2

for the ith region


- - - +


and the non-negativity co


i Y
aJ2J


ia
" ^K'J


nstraints:


t
+ T Qj
ir ij


+ a21Y
















CHAPTER


INSTITUTIONAL


SYSTEM OF


CAPITAL AND


CREDIT


SUPPLY


Agricultural


Credit


and Cooperatives


The National Agricultural


Credit


office


(NACO)


was


officially


created


by presidential


decree


in April


1957


Its initial


capital


con-


sisted


assets


transferred


from already


existing agricultural


credit


agencies.


Prior


to the establishment


of the National Agriculture


Credit


office,


lack


there


was


trained


duplication of


personnel,


effort,


generally


scattered a

ineffective


administration,


services.


newly


formed


credit


office


was


capitalized


at 850 million


piasters,


which


330 million


piasters were


provided


the national


budget


and the


remainder


ization


allocated


been


from


increased


United


to 895


States


million


aid funds.


piasters.


1965


its capital-


The major


policies


of NACO were


to grant


small


loans


to farmers without


collateral


extend


credit


to cooperatives.


Agricultural


cooperatives


existed


during


the colonial


period,


since


they were


primarily


for the


purpose


of facilitating


export


agricultural


products,


they were


of little


benefit


to the Vietnamese


farmer.


Regulations


established


in 1954


governing


cooperatives


imposed


such


complex


procedures


that


no effective


leadership


or organization









In 1959


the committee


for Cooperation and


Agricultural


Credit was


created


presidential


decree


to coordinate


provide


general


direction


in the


area


of farm credit


cooperatives without


undue


interference


in the internal


affairs


of local


organizations.


In June


1960


there


were


,reported


to be 266 cooperatives


with a


total


membership


of 96,810


a paid-in


capital


of 27,660,807


piasters.


There were


40 rice


coopera-


tives,


80 farm cooperatives


livestock


cooperatives,


of other


76 fishery


types,


forestry


cooperatives,


cooperatives,


57 handicraft


coopera-


tives,


consumer


cooperatives,


others.


The Commissariat


abolished


in 1965


the Directorate


of Cooperatives which


succeeded


it reported


333 local


cooperatives with


130,154


members


and 6


unions


of cooperatives


consisting


of 154 local


cooperatives


farmers


asso-


citations.


Farmers


' associations


(Hiep-Hoi


Nong-Dan)


were


also


authorized


presidential


decree


in 1958


were


, in part,


designed


to supplement


cooperative

Nationalist


organization

technicians


Established


of the Joint


with


Commissi


the assistance

on for Rural


of Chinese


Reconstruction


from


Taiwan,


the associations were


organized


on village,


district,


pro-


vincial


and national


levels.


In 1965


membership


was


reported


to be


284,130


persons.


National


Agricultural


Credit


office


has been


established


government


serve


credit


needs which


the private


banks


have


been


reluctant


or unable


to meet.


National Agricultural


Credit


office


created


as an autonomous


public


institution.


It took


over


assets


was









agency,


40 provincial


agencies,


17 interdistrict


agencies


34 agencies


at the district


level.


The National Agricultural


Credit


office


is capital-


ized at


from United


895 million


States


piasters,


aid funds,


of which


628 million


the remainder


from


plasters were


national


allocated


budget.


The National Agricultural


Credit


office


grants


small


loans


to farmers.


Short-term loans


for annual


crop


production are


from


to 18 months,


medium-term


loans


from


18 months


to 5


years


long-term


loans


from


to 15


years


for capital


invested


cooperatives,


plantation


owners


well-established


farmers.


Interest


rates


charged


are


percent


per month


for short-term loans,


percent


per year


for medium-term loans


percent


are


per year


charged


for long-term loans.


percent


per year,


Legally


and farmers


established


associations


cooperatives


at district


level


are charged


percent.


the end of December


1964


the National


Agricultural


Credit


office


loans


had totaled


4,976.6


million


piasters,


of which


4,235.7


million


been


short-term loans


to farmers.


rubber planters,


a project


also


controlled


the National Agricultural


Credit


office


terminated


in 1961,


amounted


to 315.8


million


piasters


loaned


to 26 Vietnamese


10 French


planters.


In June


1964


the Pacification


Fund


was


created


within


the National


Agricultural


Credit


office with


a capital


of 300 million


piasters


granted


from

suppo


the National

rt animal hu


budget.


sbandry,


Loans


under


this


fisheries,


program were


use


intended


of fertilizer.


December


1964,


92 million


piasters were withdrawn


from


this


fund


establish a


special


fund


exclusively


for the relief


of flood


victims









program,


farmers


and fisherman were


specially


stated


to be eligible


loans


also


bore


no interest.


At the end of 1964,


Pacification


Fund


loans


amounted


to 117.1


million


piasters.


Other


Credit


Institutions


There are


23 commercial


banks


in Vietnam,


10 local and


13 foreign.


Generally


speaking,


the commercial


banks


are interested


only


in loans


to plantations.


They prefer


to concentrate


their


activities


in the


urban


centers


and have


been


reluctant


to extend


their


services


into


rural


areas.


They


have


not provided


funds


for producer


organizations


such


as cooperatives


and other


associations.


Thus,


the commercial


banks


have


done


only


a very


limited


of providing


agricultural


credit.


Dealers


and merchants


have


provided


a large


part


of the credit


used


Vietnamese


has consisted


farmers


of loans


and fisherman.


in kind


and usually


many


carry


cases


a very


this


high


credit


interest


rate.


Credit


extended


dealers


and merchants


is highly


personalized


and involves


an absolute


minimum


of formalities.


In the legal


sense,


the loans


are largely


unsecured.


Relatives,


friends,


and neighbors


also


provide


agricultural


credit.


These


personal


loans


are usually


for small


amounts


for short


term


in the


aggregate


they


are


important.


Studies


indicate


that


over


half


of the loans


from


this


source


are interest


free.


Such


loans will


undoubtedly


continue


to be important


but will


decline


in importance


the agriculture


of South


Vietnam


becomes


more


commercialized.









replaced


them with


a greatly


expanded


system of


pawnshops


of its


own.


The major


source of


credit


terms


of number


of borrowers,


how-


ever,


remains


the private moneylenders.


People


continue


to turn


the moneylender,


notwithstanding


often


usurious


charges,


both


because


without


he is


the red


a familiar


tape


figure and


connected


because


with


his services


government


can be had


institutions.


Mutual aid


societies


are also


some


importance.


The most


com-


mon


type


is the Giap,


a term once


applied


an administrative


subdi-


vision of


the village


now


signifying an association


of men


women who


have


banded


together


for financial


self-help.


organiza-


tion's


funds


and other


assets


come


from


the contributions


bequests


of its members.


In addition


to its insurance


and benevolent


functions,


the giap


a vehicle


for ceremonial


and social


activity.


Another


"cooperation"


type


of association,


or "mutual


the ho ("Family"


association"),


is often


and,


formed


extension,


by women


combines


of ho.


speculation


ho hieu,


with mutual


or filial


assistance.


piety


There


associations,


are


are


various


somewhat


types


like


burial


insurance


societies


in the United


States.


Other


ho help


peasant with


the purchase


of seed and


agricultural


implements.


Another


form of


mutual


society


is the bang of


the Chinese


community.


A charitable


and mutual


aid association


for its established


members,


the bang


also


provides


the newly


arrived


Chinese


with


food and


shelter until


he finds


employment,


lends


him money an


gives


him advice.









Agricultural


Development


Bank


of Vietnam


government


has long


been


conscious


of the need


for additional


rural


credit


facilities,


so in 1957


it founded


the National Agricultural


Credit


Organization


(NACO).


But NACO


suffered


from inadequate


capital,


traditional


banking methods,


and a lack


of trained


personnel.


terminated


(ADBV)


was


in April


formed the


1967.


The Agricultural


following month


with an


Development


initial


Bank of Vietnam


capitalization of


200 million


piasters.


The ADBV


was


assigned


the two-fold


task


pro-


moting agricultural


development


and financing


farm


rehabilitation.


recognized


that


the exigencies


of war would


require


unusual


flexibil-


in loan


policies


and operating methods,


flexibility


NACO


not had.


Organization


The Agricultural


Development


Bank of


Vietnam


(ADBV)


was


established


in 196 7


with a


capital


of VN $200,000,000


totally


subscribed


government.


It assumed


assets


and liabilities


of the National


Agri-


cultural


Credit


Office


(NACO),


a predecessor


credit


agency which


no longer


exists.


The ADBV


charter


provides


for lending


operations


in the fields


of agriculture,


forestry,


fisheries,


and agriculturally


related


business


enterprises.


The ADBV


is administered


a Board


of Directors


composed


Chairman


and six


members.


The Minister


of Agriculture


(Land


Reform,


Agriculture


and Fishery


development)


is the Chairman


of the Board.


was


was













































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there


one office


in each


province


but there


are two provinces with


two branches


in each


two with


none at


all.


Twenty-five


branches


carry


out normal


banking


practices


(i.e.,


savings


time


deposits)


in addition


to lending


operations.


sub-branches


have


lower


loan


*approval


limits


otherwise


operate


in the


same manner.


eight


sub-branches,


located


in less


secure areas,


carry


out lending


operations


not accept


deposits.


When


ADBV


issuing


generally


loans


enlists


for the production of

the services of the Mi


swine,


nistry


poultry

of Land


and rice,

Reform,


Agriculture


Fishery


Development


(MLRAFD)


technical


staff.


In line


with


this


practice,


expatriate


fisheries


experts


employed


under


a pro-


ject


financed


the Asian


Development


Bank are


located


in the MLRAFD.


Source


of Funds


Financial


Position


Apart


from


the utilization


of its


own capital,


reserves


and savings


deposits,


the ADBV


conducts


its activities


with


special


program


funds


provided


the GVN


directly,


US/GVN


counterpart


funds


and a


West


German


loan


to the GVN.


Additionally,


it has


been


assigned


responsibility


the execution


of the Fisheries


Development


Project


for which


a loan


US $2.5


million


equivalent


has just


been


made


available


the Asian


Development


Bank.


summarized


balance


sheets


in Table


3.1 show,


broad


source,


the funds


employed


the last


four


years.


The ADBV has no


rediscount


facilities


with


the Central


Bank.


Special


program


funds


made


available


to the ADBV have


been


split









Table 3.1


Balance Sheet, Agricultural Development Bank of Vietnam (ADBV)


Item 1967 1968 1969 1970


'000-------------------


------------_-----__ -VN


Assets


Cash on hand and due
from treasury and
local banks
Due from National Bank
Checks and notes re-


903,791
356.890


453,848
12,892


684,829


1,082,350


263,539


ceivable


21,161


85,406


17,146


2,810


Land reform bonds
Unreimbursed expense
fertilizer program


73,167


58,957


67.855


Loans (less:


provision


for bad debts)


Other
NACO's


assets
assets


1,732,458
178,640


2,449,633
332,444


3,705,122
597,708


,392,985
809.525


(less:


depreciation)


268,378


162,174


131,595


150.579


Fixed


assets


(less:


depreciation)


33,515


41.442


106,650


169,905


3,501,203


Liabilities


Demand deposits
Checks outstanding


Reserves for


54,346


taxes


Reserves for employee
pension fund
Deposits for special


program
Savings,


s expense
term and


special deposits
Special program funds
NACO's liabilities
Other liabilities


1,361,450


15,094
1,167,733
492,976
113,195


Equity


Capital stock
Capital surplus and


special


200,000


reserve


Reserve for modern-


zation


28,358


3,611,288



182,782
45,374
-4,148

23,472

69,757

104,623
2,080,273
418,379
304,043


200,000

30,000

60,358


5,351,748



290,761
213,259
4,148

34,201

70,327

218,100
3,555,952
410,231
151,426


200,000

73,532

96,105


7,939,657



255,015
225,490
4,148

43,941

76,891

357,415
5,867,013
159,464
366,910


200,000

166,726

40,417


---




























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loans


from various


government


Ministries.


counterpart


funds


have


been limited


the conditions of


individual


project


agreements


which


often


require


Different


repayment


interest


rates


of funds


apply


after


to different


a specified


funds and


period


of time.


interchange


between


.funds


unused


balances


have not


been


permitted.


restrictions


imposed


on the ADBV by


these


varied arrangements


led to the establish-


ment


in late


1969


of a joint


GVN/USAID


Credit


Committee


to review


funding


programs


of this


future ADBV


committee were


credit


that:


requirements.


main


the 18 service


recommendations


special


purpose


funds


be consolidated


into


one


fund;


all GVN


counterpart


funds


contributed


to the ADBV


as untied


working


capital;


the ADBV be


allowed


to accept


the deposits


of only


deposits


farmers


rom all

and fi


sources


sherman;


instead

and (d)


of being

the ADBV


limited

should


develop


a discount


rediscount


procedure with


the Central


Bank.


These


recommendations


have


been


adopted


were


into


effect


in 1971.


Total


deposits


of the ADBV


are


compared


with


total


assets.


year


ending


December


1970,


total


demand


and time


deposits


amounted


to above


VN $600 million


as against


total


assets


of VN


billion


(Table


3.1).


This


reflects


several


factors:


the high


rate


of inflation,


the inability


of the ADBV


to compete


for deposits


from


industrial


commercial


enterprises


and the 3.5


percent


annum


ceilin


on interest


rates


payable


to depositors


which


existed


until


October


1970.


Rates


now


stand


at 10


percent


for savings


and from 11


percent


to 20


percent


for time


deposit


from one month


one year


duration.


It is expected










net profits


of the ADBV have


increased


from


VN $34


million


1969


to VN $176


million


in 1970


(Table


3.3)


as a


result


of its adminis-


tration


an expanded


amount


special


program


funds


(Table


3.1).


Loan


repayments,


considering


both


the war


nature


some


the special


delinquencies


programs


undertaken,


are excluded


from


are


reasonably


good


the calculations.


if NACO's


In this


case,


outstanding


repay-


ments


stand


at 87.2


percent


of the total


loans


due with


8.11


percent


overdue


12 months


or less


(Table


3.4).


ADBV Lending


Programs


Apart


from


the ADBV'


own Bank


Credit


Program,


there


are


11 other


active

finance


lending


programs


special


currently


program


funds.


being i

These


implemented


are the West


the ADBV


German


Loan


Program,


the Agri-Business


Credit


Program,


the Swine


and Poultr


Devel-


opment


Program,


the Farm


Organization Development


Program,


the Farm


Mechanization


Program,


the Fishery


Production


Program,


new


Borrower


Program,


the Land


Reform


Support


Program,


the Rural


Reconstruction


Credit


Program,


the Rice


Production


Program,


and the Supervised


Credit


Program.


remaining


programs


specified


in Table


no longer


operate.


The ADBV


s activities


can be divided


into


own lending


program in

collateral


which


short-term and


to private


individual


long-term

s. tenant


loans are issued

farmers, farmers'


against

associations,


cooperatives,


other


legal


entities;


the administration


various


projects


suDporte


ecial


eovernment-


funding


programs


__~_


k "


-


L I- -









Table


Income


Statement,


Agricultural


Development


Bank of Vietnam


(ADBV)


Item 1967 1968 1969 1970


'000----.---------


Income


Interest


and commit


sions


bank loans


54,044


124,841


107,409


91.634


Interest
special


Other
Income


and commis


ons


program loans


charges


from


supply program


18,811
23,496
77,864


78,922
9,052


150,513
16,616
8,381


21,650


Income attributable


previous


years


8,106


Exceptional


profit


Total


Income


182,321


249,103


282,919


455,641


Expenses


Personnel


Rent


Interests


commissions


paid


87,093
10,526
6,486


Administration


Depre


116,731
8,650
10,184
6,071


ciations


Reserve
Expenses


for bad


debts


137.471


16,041
11,442
9,611
61,000


185,973
16,173
24,799
22,600
10,606
16,382


attributable


previous
Exceptional


years
loss


3,383


Total


expenses


114,270


161,024


249,214


279,415


Profits


- B)


68,051


88,079


33,705


176,226


----------------VN$

















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loans


to those


enterprises which


can provide


necessary


guarantees.


However,


in practice,


this


distinction


not preserved.


Loans


made


under


some


government


programs


have


been


issued


against


hard


collateral


charged


Foreign Aid


to the credit


Budget.


funds


Similarly,


provided


part


the GVN budget


of the-ADBV'


own


and the


capital


covered


loans


some


of the


poorest


unsecured


borrowers


because,


past,


they


have


proved


credit worthy.


Performance


not suffered


as a result;


repayment


record


of the Bank


Credit


Program


(87.50


percent)


is almost


exactly


same


as the


repayments


of all the


pro-


grams


administered


the ADBV


(87.20


percent)


(Table


3.1).


ADBV has


a special


category


of "soft"


loans


to farmers


newly


ceiving


property under


the 1956


or the 1970


land reform


laws.


Farmers


pledge


future


crops


as collateral,


receiving


cash


or equipment


kind


with which


to level


and develop


marginal


land,


hire


laborers


help


build


more


dikes


for the transition


from


one-crop


to two-crop


rice


farming,


or to buy


seed,


fertilizer,


water


pumps,


sprayers


insecticides.


These


piasters


are used


for special-project


or "soft"


loans


in which


a borrowing


farmer'


main


collateral


is the soundness


of his


idea,


competence


as a farmer,


and his willingness


to work


to repay his


debt.


In 1969


the ADBV had


these


special


production


credit


categories:


The Agricultural


Production


Credit


Fund,


designed


primarily


for the promotion of


gram
with


the ADBV


83.5


loaned


million


miracle


278.7


rice


million


strains.
piasters


Under


in 1969


this


pro-


compared


in 1968.


re-










swine


poultry


production


fund,


which


loaned


337.9


million
purchase


piasters


to almost


7,000


families


in 1969


for animal


and livestock developments.


supervised


credit


program,


which


administers


loans


farmers who


wish


to improve


their


farms


or grow


secondary


crops.
under


More


this


than


program


5,000


families


in 1969.


rece


ived


collateral


176 million p
is required,


sters


the farmer
extension


is closely


personnel


supervised


in all


steps


Vietnamese


from


land


agricultural


preparation


through


planting and


provide
sprayers


harvestin


for loans
--rather


to market in


in kind--tools


than


Some


seed


fertili


zer,


projects
insectic


ide,


cash.


pump


wish


the dry
million


program,


to irrigate


season.
piasters


which
their


Through
in 1969.


provides
fields to


this fund


water pumps


grow


secondary


190 families


to farmers who


crops in
received


The mechanization


of agriculture


and fisheries


fund,


a new


program


chase


begun


tractors


in 1969


boat


to enable


motors,


farmers


fisherman


and other mechanical


aids.


pur-


Loans


totaled


246.5


million


piasters


last


year.


Since


its inception


the ADBV has


extended


short,


medium,


long


term loans,


with


or without


collateral,


to private


individuals,


tenant


organizations,


farmer


associations


cooperatives.


government


entrusted


funds


to the ADBV


for special


programs


to help


small


farmers.


These


include


agricultural


mechanization,


poultry


raising,


miracle


rice,


rural


development


credit,


and land


reform


support


projects.


These


loans


are made according


to criteria


not usually


accepted


com-


mercial


banks--a


farmer's


good


reputation


serve


as collateral.


the bank's


own


capital,


which


includes


people's


savings


other


deposits,


is used


for loans


to agricultural


business


and commercial


farmers;


these


loans


usually


are


made


according


to traditional


banking methods.


Farmers who


need


irrigation


and other


farm equipment,


are


offered









In 1966,


28,000


loans were


granted


totaling


350 million


piasters


$2,966,000)


. In 1967,


the number


of loans


increased


almost


three-


fold


to 83,000 with


a total


value


of 1


750.0 million


piasters


million)


loaned


was


in the first

percent of th


five


e tota


months

1 1967


1968


figure,


alone, t

or 1,305


he total

million


amount

piasters


$11.


million)


No ADBV


loans


are made


in cash.


Instead


farmers


are


given


cards


which entitle


them


to certain amounts


of equipment.


A farmer


receives


rice


seeds


with


a green


card,


insecticide


with


a yellow card


erti-


lizer with a


pink


card.


This


system


guarantees


that


the loan will


applied


to rice


production


only


rate of


repayment


is rapidly


creasing;from


percent


to 98


percent


of the loans


are


now


repaid


on time.


The ADBV has


supported


poultry


raising with


two types


of loans.


a regular


commercial


"hard"


loan


where


percent


collateral


must


be produced


small


sers


as security.


without


But "soft"


collateral.


loans


These


are made


loans


are


to refugees


supervised--


specialists


training


from


planting


to marketing


goes


with


them--to


make


sure


bank'


investment


program has


been


successful


and almost


100 percent


the loans


have


been


repaid.


bank


now will


lend


widows,


something which


was


loathed


to do at the


start


of the supervised


credit


program.


There


no traditional


source


of credit


for cattle


owners;


however,


beef


producers


have


been


provided


some


credit


through


Central


Pacifica-


tion


Development


Council


set


in each


province


under


a program named









Total


loans


covering all


activities


of the Agricultural


Development


O Bank of Vietnam


since


1967


are as follows:


1967


- VN $


1.756


billion


1968


- VN $4.642


billion


1969

1970


- VN $

- VN $


4.614

6.716


billion

billion


Included


in the 1970


figure


is VN $1,012 million


Bank


Credit


Pro-


grams

this,


loans

1970


and V

income


N $5,704


million


in connection


Special


with


Special


Programs


Loans.


Programs


Reflecting


Loans was


VN $334


million


(Table


3.3),


approximating


the total


loans


between


agri-business


loans


and production


loans


split


into


two equal


amounts.


Table


contains


a more


precise


classification.


Of the loans


issued


for live-


stock


production,


virtually


none


been


for long-term


cattle


production.


Nearly


loans


issued


percent)


have


been


short-term


less


than


18 months,


on average


probably


9-12


months)


while


a few


percent)


have


been


on medium-term


(less


than


three


years


even


fewer


(three


percent)


on long-term.


Short-term


loans


are usually made


available


percent


annum


interest


while


medium-


and long-term loans


attract


an interest


rate


of 14


percent.


These


rates


have


been


in effect


since


September,


1970


(prior


to that


medium-


and long-term


rates


were


percent


percent, respectively).


These


rates


apply


to all of the


Bank's


Credit


Program


Loans


some


of the Special


Program Loans.


Other


Special


Program Loans


are issued


on soft


terms.


During


1969


the ADBV


loaned


a total


of 4,613,988,766


piasters to









Table


Loan


Classification According


to Use


1968


1969


1970


Item


Crop


Production


4,793


Livestock


Marketing


Production


Farm Products


Fishing


Other


Total


4,641 100


4,611 100


6,716 100


(Agri-Business


2,095


1,892










under


the 1956


land


reform


legislation.


1969


loans


included:


--Crop


production


loans of


3,145 million


piasters


or 68.16


percent


of total


loans;


--Animal pro

--Fisheries,


eduction,

384.6 m


661.7


million


million

piasters


piasters,


or 8


or 14.33


.36 plaster,


percent;


or 6


percent;


--Handicrafts,


127.8 million


piasters,


or 2.77


percent;


--Miscellaneous


(including


salt


forestry,


13.0 million


piasters,


or 0.27


percent).


Of the total,


zations--the


National


1,417.6


million


Federation


piasters were


of Agricultural


borrowed


Cooperatives


farm organi-

- the Cen-


tral


Farmers


Association,


the CVT Tenant


Farmers


Union,


and provincial


cooperatives.


remainder was


borrowed


directly


by individual


farmers--


89.405


farmers


in 1969


compared


with


69,662


in 1968.


increased


significant


number


achievements


of loans


in 1969.


to farmers


one


As security increases,


of the bank's


more


most


farmers


be served.


small


farmers


have


to be served


even


though


it is


difficult


appraise


their


credit


needs


such


loans


require


a lot


manpower


for supervision.


Loan


sizes


have


varied


over


a wide


range,


but in order


to maximize


the number


of loans


issued,


the ADBV has


been


forced


to specialize


lending


both


short


(term)


small


(amounts).


In 1969,


approximately


90,000


separate


loans


were


approved


and disbursed.


More


than


percent


were


amounts


under


VN $5


0,000


percent were


amounts


less


than


VN $


20,000).


Of the 90,000


loans,


about


60 percent


were


unsecured


can









Lending


Procedures


Borrowers


submit


loan applications


to the ADBV branch


offices which


are authorized


to approve


loans


up to VN $500,000


against


real


estate


or other


fixed


asset


collateral


loans


up to VN $300,000


if the


security


offered


involves movable


assets.


Loan


applications


exceeding


VN $500,000 are referred to the Saigon main office


for consideration


to the Director


General


for approval


The


Director


General


is authorized


approve


assets


loans


is limited


size


to loan


if security


sizes


involves


of VN $5


a mortgage


,000,000


of fixed


collateral


re-


lates


to movable


assets.


Loan


amounts


over


these


limits


must


be sub-


mitted


to the Board


Directors


for approval.


In an


effort


to reach a


greater number


of farm families,


the ADBV


has started


several


programs,


including:


"Master


borrower"


loans.


These


involve


an informal


group


arrangement.


or more


farmers


join


in selecting


a leader


negotiates


a loan


with


the ADBV


to purchase


equipment.


members


pool


their


funds


to meet


the down-payment


requirements.


The leader


is-responsible


equipment


rental and


repair


for loan


repayment.


Group


loans.


These


differ


from


the "master


borrower"


loans


in that


each member


of the


group


is responsible


to the ADBV


for a portion


of the total


loans.


For example,


10 fisherman


may need


two million


piasters


to modern


a fishing


boat.










Supervised


credit.


This


involves


the furnishing


of technical


and credit


assistance


to farmers


so they


can


increase


produc-


tion by i

currently


increasing

supplying


their

this


technical

service i


knowledge.


n several


The ADBV


villages where


the volume


is great


enough


to justify


the full-time assignment


a technician.


shortage


trained


personnel


is the


biggest


obstacle


to enlarging


program.


Loans


to cooperatives.


In 1970


the three


national


farm organi-


zations


received


import


loans


of 1,831.8 million


piasters


11 small


cooperatives


received


loans


totaling


67.0 million


piasters.


other


Bank


Most


small


of Vietnam will


of the money went


farm machinery.


continue


for fertilizer


The Agricultural


its program of


, tractors,


Development


establishment


new


bank


branches


and expand


agricultural


credit


to benefit


farmers


fishermen.


The ADBV


will


carry


out the following


activities:


Increase

Guide and


credit

assist


to support


agricultural


the development


production.


of private


credit


institutions.


Consolidate
personnel.


operations


the ADBV's structure
In addition, it will


of its branches


as well
seek to


and local


as its


improve
offices,


open


new


ones.


Regarding
increase


the problem
the members


personnel,


the ADBV will


credit controllers;


also,


training and


counseling


activities


will


be emphasized


for its personnel.









extended


the Bank.


High


priority will


be given


agricultural
is expected


development
to increase


programs.


steadily


This


credit


level


in the following


years.


Achieve
stepping


increasing


self-sufficiency


services
the Bank'


in working


in saving
reserves


capital


and depo


once


sits


amount


credit


same


private
Bank.


granted


time,


increase


the ADBV will


measures


to rai


suffic


study and
investment


iently


carry o
stocks


. At the


appro-


in the


In addition


to the above


tasks,


the Bank will


support


the estab-


lishment


a credit


institution


which


is oriented


towards


development


activities


provide


assistance


for private


credit


organizations


particularly


expand


the Rural


Bank


System


ensure


the establishment


20 additional


Rural


Banks


each


year.


The ADBV


will


coordinate


with


the Directorate


of Farmer


s Associations


the Directorate


of Cooper-


atives,


in' order


to guide


and assist


in the organization


of Rural


Credit


Cooperatives


conduct


a study


on the establishment


of a Cooperative


Bank.


The development


of agriculture


can be


achieved more


rapidly


Saigon


planners


agree,


if sufficient


credit


is made


available


to commercial


farmers,


agriculture,


plantation


fisheries


owners,


and manufacturers


and forestry.


But until


supporting

recently


the fields


percent


the ADBV


s customers


were


small


farmers


borrowing


less


than


50,000


piasters


each.


Since


so little


capital was left


over


for long-term


loans, two


new


credit


systems


were


established


in 1970.










New Credit


Systems


Village


Credit


Committees


The ADBV has


evolved


a new plan


for reaching villagers


and for


processing


their


loan


applications


as approved


the ADBV's


board


directors.


Thus,


the bank will


begin


calling


on elected


village


com-


mittees


for help


in processing


loan


applications.


Although


the ADBV


maintains


a branch


or lending


representative


in each


of the provinces,


its operations


have


been


hampered


a short-


of field


receive


personnel


approve


to supervise


supervise


loans.


If the village


the smaller


loans


committee


for ADBV,


will


be advantageous


to more


people


two ways:


and the elected


ADBV


village


will


be able


officials


will


to provide

be serving


credit

their


committees


in a meaningful


way.


Village


credit


committees


were


formed


screen


applications


loans


under


50,000


piasters


and to be responsible


for collection


them.


To date,


1,094


village


committees


have


been


organized


955 of


these


now


have members who


have


received


credit


training


from


the ADBV.


committees


are


composed


of village


officials


and respected


members


the community.


Some


2,100


villa


have


been


certified


to participate


in this


program,


which


is geared


in with


government


s Village


Self


Development


(VSD)


program.


1971


program


under


includes


development


a rural


credit


program


spur


the launching


of community


income-producing


projects.


Placing


income-producing


projects


on a loans


can


v










will


be given an


initial


fund


of 400,000


piasters,


larger villages


getting proportionately more.


these


funds may


be used


public


use


projects,


such


as the construction


a school.


the discretion


of the village


council,


to half


of these


funds


be utilized


in income-producing projects,


such as


the purchase


or con-


struction of


a rice mill.


Since all


such


income-producing projects


now


are


to be financed


on a


loan basis,


the projects must


be cleared


through


the village


s credit


committee.


Rural


Banks


The government


is encouraging


private


commercial


banks


open


rural


branches


agricultural


accept


loans.


the risks


In a move


inherent


expected


to help


in medium-term


stimulate


, low-interest


the private


sector

just g


to invest


iven


more


the go-ahea


liberally

d signal


in agriculture,


a new


system of


government


specialized


has

rural


banking.


first


such


rural


branch banks


opened


in two districts


Angiang province.


Patterned


after


the Philippines


' rural


banks


organized


assisted


with


in order


Filipino


to meet


assistance,


the needs


they


are


of small


privately


farmers who


owned


could


government-


not meet


ordinary


banking


requirements


for collateral.


Within


five


years,


there


will


probably


be 200 rural


banks


operating


throughout


South


Vietnam,


even


in the most


remote


areas.


Expenses


of this


far-reaching project


are


being


shared


equally


the Vietnamese


U.S.


governments.


objectives


of the


program


But


__


_~__1









to farmers


cultivating


fewer


than


10 hectares


(which


includes


very


great


majority),


to merchants with


capital


investments


of less


than


500,000


piasters,


to operators


of agricultural


industries


capital-


ized at


less


than


one million


piasters.


Under


system,


a rural


,bank may


be chartered


seven


to 15 "legally


qualified


people"


living


in a


community,


thus assuring management


and operation by


local


people


know


the abilities


of local


borrowers.


rural


banking


system will


fill


a long-felt


need,


since


com-


mercial


banks


in the private


sector


now


devote


only


about


one


percent


of their


loans


to agriculture,


and the government-sponsored


Agricultural


Development


Bank


does


not


have


sufficient


funds


to meet


the swelling


demand


for farm


credit.


Reforming


the credit


system


goes


hand


in hand


with


encouraging


the growing


of high-yield


rice


varieties,


for both


are


necessary


before


the average


Vietnamese


farmer


can move


from


subsistence


to commercial


farming.


Advances


made


in rice


production and


financing


can be extended


to other


agrarian


fields,


such


as vegetable


production.
















CHAPTER


RESULTS


OF THE


LINEAR PROGRAMMING ANALYSIS


overall


obj active


of this


research


to provide


guidelines


for the optimum allocation


scarce


agricultural


resources


in South


Vietnam which


will


maximize


national


and/or


regional


farm income,


well


as fulfill


national


and/or


regional


requirements


for domestic


food


consumption.


A complex linear programming model


is utilized


determine


only


the optimum allocation


of cropland


among


alternative


enterprises,


vestment


also


requirements,


such


important


foreign


development


exchange,


commodity


factors


exports


as capital


and imports,


food


processing


capital


requirements,


and optimum


livestock


and livestock


product


combinations.


This


research


builds


upon


the pioneering


work of


Bolton,


et al.


[10].


A comparison


of Bolton's


results


with


an optimum solution


representing


more


recent


(1973)


prices


is provided


(Tables


4.1,


4.2,


4.3,


4.4).


effects


of variations


4.9 to 4.16.


in capital


Hypothetically


constraints


reducing


are described


the country' S


in Tables


geographical


space


to the Delta


region


plus


one-half


of the Eastern


region


provides


some


additional


interesting results


(Tables


4.5,


4.6,


4.7,


4.8).


Shadow


Prices










that


there


one set of input


values


or shadow prices.


shadow


price


derived


from linear


programming


is the


counterpart


of the


mar-


ginal


value


product


derived


from production


economics.


Free


resources


limit


production


in the optimum


solution.


Scarce


resources,


the other


have


hand,


positive


do limit


marginal


production.


value


Only


productivities


resources

The ma


which


rginal


are s

value


carce

pro-


ductivities


are


interest


since


they


indicate


possible


gains


income


through


acquisition


scarce


resources.


Free


resources


have


zero


value


in the production


process.


Addition


or subtraction


unit


of free


resources


will


not affect


incomes.


In the 50


percent


percent


of capital


constraint


solutions


the standard


model,


the shadow prices


of capital


are


806 and


3,299


thousand


piasters,


respectively.


That


one thousand


piasters


additional


capital


were


introduced


into


the solution,


income


would


increased


806 and


3,299


thousand


piasters,


respectively.


For the


reduced model,


respectively.


shadow prices


That


of capital


one thousand


are


292 and


piasters


thousand


of additional


piasters,


capital


were


introduced


into


the solution,


income


would


be increased


thousand

piasters


piasters

if capital


if capital


is constrained


is constrained


percent


percent


stand


and 959 thousand

rd amount.


Consumer


Surplus


Consumer


surplus


is the difference


between


the prices


consumers


willing t


pay


and the market


price.


Consumer


surplus


can


be de-


one


are


___


o










consumption


being


requirements,


exported are


i.e.


reduced


consumption


expenditures


amounts reflecting the


for commodities


difference


between


their


import


export


prices


[10].


With both


the 50


percent


percent


of capital


constraints


in the Standard


National Model,


consumer


.surplus -is


reduced


5 percent


because


rice,


soybean meal,


pork are


imported


(Table


4.9).


In the


reduced


model,


consumer


surplus


increases


306 percent when


compared with


the standard


model


because


rice moves


into


export


in large


volume


(Table


4.5).


With both


capital


constraints


in the reduced model,


consumer


surplus


decreases


percent


because


smaller quantities


of rice


are


exported


(Table


4.13).


Comparison


of Optimum


Solution


Under


1971


and 1973


Price Level


Given


during


high


the 1971-73


degree


period,


of inflation which


was


deemed


existed


important


in South


to determine


Vietnam


whether


price


level


changes


any major


effect


upon


the optimum


solutions


obtained


Bolton


for 1971


data.


Tables


4.1,


4.2,


4.3,


4.4 provide


a comparison


of the linear


programming


results


for 1971


1973


data.


In the optimum solution assuming


1973


prices,


agricultural


income


(Table


increased


152.7


billion


piasters


percent)


over


solution


utilizing


1971


prices.


This


increase


in farm


income


is due


to increased


paddy production and


increased


livestock


production.


Paddy


production


increases


73,300


M.T.,


while


pork production


increased


12,500 M.T


percent),


chicken


production


8,300 M.T.


percent)


. (4










Cropland


higher price


optimum solutions


levels


regarding


of 1973


cropland


did not


materially


combinations.


affect


Generally


speaking,


there were


slight


shifts


among


different


rice


varieties


in the Delta


and Eastern


regions.


the national


model


(Table


4.1),


per-


centage


total


rice


land


of the total


crop


area


was


unchanged.


total


rice


land


increased


44,700


hectares


total


cropland


increased


approximately


44,500


hectares.


high


yielding variety


(HYV)


rice


area


increased


42,000


hectares


percent),


and the


floating


rice


area


increased


181,900


hectares


(27.7


percent),


whereas


non-floating


rice


decreased


179,100


hectares


percent)


No significant


displacement


of rice


with


the other


crops


occurred.


On the regional


basis


(Table


4.1)


cropland


production


changes


associated


with


1973


prices


occurred


primarily


in the


Delta


ion.


In the Delta


region


the non-floating


rice


area


decreased


184.300 hec-


tares


(-14


percent)


rice


area


increased


36,200


hectares


percent),


and floating


rice


increased


181,900


hectares


percent).


Bananas


cropland


increased


2,400


hectares


percent)


while


the other


crops


hectarages


the total


remained


land


unchanged.


in the Delta


region.


rice


area


Sorghum and


occupies


coconut


percent


are


other


important


crops.


In the Eastern


region,


the optimum


rice area


increased


slightly


5,200


hectares


percent);


the HYV


rice


area


accounted


for all of


I I I t~ r n t 1


1


I


F ^__ _


n f^ f "t*"


t


*










inflation


in prices


between


1971


and 1973


have


significant


effect


upon


the optimum solutions


for the Lower


Coastal,


Central


Coast,


North


Coastal,


and Highland


regions.


Production


National


crop


production


of the optimum solution


under


1973


prices


remained


unchanged


compared


with


1971


price


levels,


except


rice


banana


creased


production


73,200


changed


M.T.


slightly.


percent)


Rice


for paddy


production


fed because


(Table


of the increased


44,700


hectares


of the rice


crop,


while


banana


production


decreased


6,400 M.T.


percent).


Livestock


production


(Table


4.4)


increased.


Pork production


increased


12,500


percent)


chicken


production


increased


M.T.


8,300


M.T.


percent).


percent)


Future


beef


commercial


production


broilers


enter


increased


optimum


26,100


solu-


tion


under


1973


price


level


in the Central,


North and


Highland


regions.


Capital,


Facilities,


and Foreign


Trade


Total


new


capital


requirements


(Table


4.1)


amounted


to 67.2


billion


piasters with


1973


price


levels.


This


is 19.9


billion


piasters


or 43


percent


above


new


capital


requirements


for 1971


prices.


This


increased


amount


is due


to increased


production


facilities


because


of the increased


inflation


rate.


Three-fifths


of this


amount


represents


requirements


for production


facilities


two-fifths


for distribution


facilities.


About 68


percent


new


capital


requirements


involves









and Eastern


regions,


expenditures


sprayers


increased


percent


pumps


region,


buffalo


increased


except


percent.


in the Central


increased


percent


Cattle


Coastal


for South


and buffalo


region.


Vietnam.


increased


Imported


every


cattle


Increased


workstock


.numbers


beef


provide


products.


increased


Cattle


beef


imported


production,


for this


lead


purpose


zero


represent


imports


a one time


investment


foreign


exchange


requirement.


Additional


livestock


numbers


supply


beef


as well


as power.


Crop


power


requirements


creased


generally,


except


in the Central


Coastal


region.


facility


requirements


(Table


4.3)


are very


slightly


changed


with

and


changes

rubber o


in price


processing


levels


are


between


the major


1971

items


and 1973.

requiring


Grain

capital


storage

for new


distribution


facilities.


annual


trade


deficit


(Table


4.1)


declined


7.2 billion


piasters


(-14


percent).


The improvement


in the trade


balance

Imports


resulted

decreased


entirely


from a


7.1 billion


reduction


piasters


commodity


(-8 percent)


imports.

exports


creased


.1 billion


piasters.


Rubber


and bananas


are the


most


signifi-


cant


export


items


under


both


1971


and 1973


prices.


Domestic


coconut


meal


copra


are


available


export.


value


of commodity


exports


is 39.4


billion


piasters


while


the value


of imports


included


in this


analysis


is 83.3


billion


piasters.


Therefore,


the annual


commodity


trade


deficit


sugar


is -43.9

, wheat,


billion

flour,


plasters

refined s


with


ugar


1973


prices.


and soybean meal


are the


most


important


items


imported


in the optimum solution.


No rice










Table


General


Results.


Comparison


of Optimum


Solution


Under


1971


1973


Price


Levels


Optimum
Solution
of Bolton


Item


(1971 Prices)


Optimum
Solution
-e Standard
National Model


(1973


Percent
Change


Prices)


--------Billion Piast


Farm


Income


302.1


454.8


Consumer


s Surplus


Total


309.9


Annual


Foreign


Exchange


Commodity
Commodity


Annual
Imports
Annual


Capital


Export
Import


39.3
54.7
35.7
90.4


Inputs


39.4
46.0
37.3


Balance


Investment


(One-Time


Requirement)


Production
Distribution


21.7
25.6


41.4
25.8


Total


Foreign


Exchange


29.2


45.6


------Thousand


Metric


Tons ------


Exports


Rice
Corn
Sorghum
Soybeans
Peanuts


Peanut
Rubber


167.9


Vn -,


n -*


f^_- C _










Table


- continued


Optimum
Solution
of Bolton


Item


(1971


Price


Optimum
Solution
of Standard
National Model


(1973


Percent
Change


Prices)


------Thousand


Metric


Tons-----


Exports


(cont.)


Duck Feathers
Pork
Chicken
Duck
Chicken Eggs

Imports


16.4


Rice
Corn


Soybean Meal


39.5


Soybean


Sugar


Sugar


286.6
99.2


290.0
96.0


Jute


Flour
Wheat
Cotton


107.1
185.9


39.4
17.8


Pork


39.4
10.0


Chicken


Beef


14.4


Thousand


Hectares-----


Crops


, Non-Floating


1983
1357


1804
1399


Rice,
Corn


Floating


Sorghum
Soybeans
Peanuts
Sugarcane


656.3
88.0
349.8


67.3


87.6
349.8


67.3


fl\ 0f


~n rl










Table


- continued


Optimum
Solution


of Bolton
(1971 Prices)


Optimum
Solution
of Standard
National Model


(1973


Prices)


------Thousand Hectares-------


Crops


(cont.)


Pineapple


Bananas


Jute


11.1


11.1


Kenaf


Delta


Crops


e, Non-Floating


1346


1161


Rice,


Floating


Sorghum
Peanuts
Tobacco
Coconut


656.3
178.0


10.0


40.0


10.0
40.0


Pineapple


Bananas
Jute
Kenaf


Eastern


Crops


Rice
Rice
Corn


218.1
194.7


16.0


223.3
199.9
16.0


Sorghum
Soybeans
Peanuts
Sugarcane
Tobacco


Rubber


Coffee
Pineapple


Bananas


Jute


Item


Percent
Change


10.7


10.3
120.0


10.7


10.3
120.0









Table


- continued


Optimum
Solution


Item


of Bolton
(1971 Prices)


Optimum
Solution
of Standard


National
(1973


Model


Percent
Change


Prices)


----- -Thousandc Hectares-------


Lower


Coastal


Crops


(cont.)


Sorghum
Soybeans
Peanuts
Jute


Central


Coastal


17.7


17.7


Crops


146.3


Rice
Rice,
Corn


101.


Sorghum
Peanuts


61.7
10.8


61.7
10.8


Sugarcane
Jute


North


Coastal


Crops


Rice
Rice,
Corn


134.2
65.1


21.1
86.6


Sorghum
Peanuts
Jute


Highland


65.7
21.1
86.6


Crops


Rice


34.7


34.7


Rice, HY
Corn
Sorghum
Soybeans
Peanuts
Rubber
Tea


46.2


0
26.1
20.0


45.8


0
26.1
20.0









Table


National


Crop


Production.


Comparison


of Optimum


Solution


under


1971


and 1973


Price


Levels


Optimum
Solution
of Bolton


Item


(1971


Prices)


Optimum
Solution


Standard


National Mod


(1973


Percent
Change


Price


------Thousand


Metric


Tons------


Paddy Marketed


Paddy
Paddy


3419.
3328.


Home


3419
3328


295.9


Total


Paddy


7244.3


7317.5


Rice


Corn Marketed


86.6


Corn Home


100.9


86.3


100.


Total


Corn


187.5


187.


Sorghum Marketed
Sorghum Home Fed


150.


351.4


150.
351.


Total


Sorghum


502.0


502.0


Soybeans
Peanuts
Sugarcane
Tobacco


119.0
220.0


25.9


176.0


119.0


25.9


176.


Rubber


Coffee


480.0


480.0


Coconut
Pineapple


Bananas


215.3
11.1


Jute


208.9


11.1


Kenaf


aLess


than


one


percent.










Table


Facility


Requirements.


Comparison


of Optimum


Solution


under


1971


1973


Price


Levels


Optimum
Solution
of Bolton


Item


(1971


Prices)


Optimum
Solution


Standard


National
(1973


Model


Percent
Change


Prices)


------ -------Units- -----------


Tobacco


Processing


East


Banana Marketing


Delta


East


Fiber


Processing


East


Rubber


Processing


East


Highland


106.0


20.0


106.0
20.0


Processing


Highland


Rice


Mill


East
Lower Coast
Highland


Rice


Drying


Delta


East


52.1
12.1


52.1
12.1


Grain


Storage


-- ana nf


^ r A


II~ C










Table


- continued


Optimum
Solution
of Bolton


Item


(1971


Prices)


Optimum
Solution


Standard


National
(1973


Model


Percent
Change


Prices)


--------------Units----------


Threshing-Shelling


Delta


East


Lower


Central


North


Coast


Coast


Coast


17.4
27.9
94.0


136.8


17.4
27.9
94.0
136.8


Highland


64.7


64.4


Feed Mill


Delta


Lower Coast


Central
North C


Highland


Oil Mill


Delta


East


Lower Coast


Central


North


Coast


Coast


Highland


Sugar


Mill


East


Sugar


Refinery


East


Central


Coast


than


one


percent


Coast


oast


aT.aa,










Table


Livestock and


Solutions


under


Livestock


Products.


Alternative


Price


Comparison
Situations,


of Optimum


South


Vietnam


Optimum
Solution
of Bolton


Item


(1971


Prices)


Optimum
Solution


Standard


National Model


(1973


Percent
Change


Prices)


-------Thousand


Metric


Tons--- ----


Porka


Delta


Eastern


Lower


Central


North


Highland
Vietnam


166.1
60.2
17.0


32.2
39.0
26.7


178.1


60.2
17.5
31.5
39.5
27.0


Chicken


52.4
19.3


Delta


Eastern
Lower
Central


52.4
19.3


North


13.3


Highland
Vietnam


90.2


98.5


Ducka


Delta


44.3


44.3


Eastern
Lower
Central
North
Highland
Vietnam


57.0


57.0


Chicken Egg


Delta


20.8
10.4


Eastern
Lower


20.8
10.4


a fl


II 1









Table


4.4 -continued


Optimum
Solution
Item
of Bolton


(1971


Prices)


Optimum
Solution
of Standard


National


(1973


Percent
Change


Model


Prices)


-------Thousand


Metric Tons--------


Duck Egg


Delta
Eastern
Lower
Central
North
Highland
Vietnam


12.3


12.3


Beefa


27.6


Delta


Eastern


32.1
23.9


Lower


Central


9.3


North


10.0


Highland
Vietnam


60.1


86.2


live weight.


than


one


percent.


bLess
Less










percent).


Imported


pork is


reduced


about


7,800


(-44


percent).


Chicken and


beef


of import


solution


due to increased


domestic


beef


chicken


production.


Comparison


the Reduced


Model


Results with the Standard Model


This


section


provides


a comparison


of the standard


model


which


utilizes


1973


prices with a


geographically


reduced model


comprising


the Delta


region


plus


one


half


the Eastern


region.


Saigon


is located


within


the reduced


region.


In the optimum


solution


of the reduced model,


farm


income


is de-


creased


to 195.4


billion


piasters


or 57


percent


standard


national model


Consumer


surplus


increases


to 31.7


billion


piasters


or an increase


of 306.4


percent


compared with


the standard


optimum


model,

export

a measu


primarily b

levels. Co

re of total


because

mbining

income


of the shift

farm incomes


which


in rice


is reduced


prices


consumers

to 235.5


from


import


surplu

billion


provides


piasters


or -51


percent


(Table


Cropland


Comparin


the optimum


results


of the standard


reduced


models,


total


cropland


(Table


4.5)


decreased


1,226,100


hectares


or 26


percent.


Total


rice


land


decreased


822,500


hectares


or -20


percent.


non-


floating


rice


area


reduced


slightly


or 258,800


hectares


(-14


percent),


- a


A A


A





I


__ 1










drastically


(-95


percent)


Sorghum


cropland


is nearly


reduced


in half.


peanut


area


area


is also


is reduced more


than


reduced


one half


greatly


(-59


or -77


percent)


percent.


Tobacco


sugarcane


hectarage


is reduced


percent.


Rubber


is reduced


in area


to more


than


half.


jute


area


is reduced


nearly


in half.


Soybeans and


pineapple


enter


the optimum


solution


with


1,100


10,000


hectares,


respectively,


for the


reduced model.


coconut


area


remains


unchanged,


whereas


banana area


increased


slightly


percent)


Rice,


sorghum,


rubber,


coconut,


peanuts


are important


crops


in the reduced


model


(Table


4.5).


On a


regional


basis


(Table


there were


some


changes


in the


Delta


region,


, the non-floating


rice


area


increased


percent,


the floating


rice


area


decreased


percent


the HYV


rice


area


decreased


hectarage was


percent.


reduced


Tobacco


percent


decreased


compared


in area


with


percent


the standard


banana


optimum


solution.


Sorghum maintained


same


cropland


level.


In the Eastern


region


the non-floating


rice


area


decreased


percent


the HYV


rice


area


was


reduced


percent.


corn


area


decreased


drastically


(-74


rubber


percent),


(-48


while


percent)


peanuts


decreased


percent),


Banana


tobacco


cropland


(-54


increased


percent),


percent)


No sorghum


is produced


in this


region.


Soybeans


entered


the reduced


model


solution


for the first


time.


Because


of the


comparative


advantage


of rice


in the Delta


Eastern


regio


... rL -


is the dominant


enterprise


in the reduced model.


one










occupies


percent


of the cropland,


permitting


percent


of the total


crop


area


for the other


crops.


Rubber


a second


important


crop


this


region.


Production


In terms


of livestock


production


the reduced


model


provides


reduction


for all


items when


compared


with


the standard model


which


utilizes


1973


prices


(Table


4.8).


Beef


production


is reduced


per-


cent.


In the reduced


model


poultry


(chicken and


duck)


pork


produc-


tion satisfy


export.


alternative

broilers, 1


domestic


No small


enterprise


ayers)


consumption


commercial


possibility


of the Delta


requirements


poultry


ies.


region and


and give


enterprises


are


Poultry production


one half


a small amount


included as


(chicken,


of the Eastern


region


remains


at the


same


level,


except


Eastern


farm


type


enterprises


decreased


percent.


Capital,


Facilities


and Foreign


Trade


In the reduced model


total


capital


inve


stment


(Table


4.5)


is 29.0


billion

percent


piasters.


from


This


the standard


a reduction


national


of 3


model.


8.2 billion

Production


piasters


capital


or -57

re-


duced


-29.5


billion


piasters


(-71


percent)


and distribution


capital


is decreased


8.7 billion


piasters


(-34


percent)


In this


solution,


capital


investment


for production


facilities


percent,


with


percent


for distribution


facilities.


About


percent


of total


new