INTRODUCTION

I.BACKGROUND AND RELEVANCE OF THE TOPIC

In developing and less developed countries where many people are living at subsistent level, one of the biggest concerns of government is to help the poor have a better life. To do that, it is necessary to understand the factors that affect their earnings.

In developing countries, most of the poor are living in rural areas and their income mainly comes from agricultural activities such as cultivation, livestock, fishing etc. For those people, factors affecting their income can be divided into two categories: non-price-related factors and price-related factors. Many economists argue that in developing countries physical inputs still play an important role but these resources are constrained and at a certain level, we cannot further expand them. In the meantime, government policies now become more and more important. Therefore, it is also necessary to evaluate impacts of government policies on household income and income distribution in rural areas.

In Vietnam, specifically in the areas producing goods for export or import substitutes, trade policy is an important determinant of household income particularly in a highly protected sector like sugar. Therefore, analyzing the impacts of trade liberalization on a specific group of people in a typical region is an interesting study, which is required for formulation of trade reform strategy to maximize the benefits and minimize short-run costs.

There are many researches on income and poverty alleviation in Vietnam. Also, many studies of the impacts of government policies on certain industries have been undertaken. However, less work has been done on determinants of household income and impacts of government policies on people’s life in areas producing import substitutes. Therefore, a study on household income in one of those areas, specifically Lamson sugarcane area, is worth undertaking.

This research will try to analyze the determinants of household income as specified earlier. In particular, the thesis will look at government policies that may have significant impact on household income in Lamson sugarcane area by using partial equilibrium analysis.

II.FOCUS AND SCOPE AND LIMITATION OF THE THESIS

Review theoretical and empirical issues relating to factors affecting household income in rural areas.

Identify determinants of and quantify their contribution to household income in Lamson sugarcane growing area as well as their degree.

Simulate the impact of changes in policies on household income based on collected data at household level.

Data from the survey sometimes do not permit to analyze in more details several determinants and aspects of household income in Lamson because of the process of designing questionnaire. In addition, secondary data used in this thesis were collected from many sources and thus statistical differences occurred. Therefore, despite the efforts to find the most reliable data and information, the research still suffers from several problems with data and information.

I.THE RESEARCH QUESTION:

The central question is: What are the major determinants of household income in Lamson, Thanh Hoa province? To answer this main question, the research will seek to answer the following sub-questions:

What are the determinants of income in theories and among these determinants what is most important (physical inputs versus government policies)?

What are the major determinants of the household income in Lamson sugarcane area, Thanh Hoa province and how important are they?

How will the income of households in the region change if policies (trade policies) are changed?

What are the recommendations for the Government to undertake its policies?

I.STRUCTURE OF THE THESIS:

Beside the Introduction, Appendix and Bibliography, the thesis includes four chapters:

Chapter 1: Analytical Framework

Chapter 2: Household Income in Lamson Sugarcane Growing Area

Chapter 3: The Determinants of Household Income in Lamson

Sugarcane Growing Area: Regression and

Chapter 4: Conclusions and Recommendations.

CHAPTER I: ANALYTICAL FRAMEWORK

This chapter will review some arguments and debates in development economics on rural household income and its determinants.

I.HOUSEHOLD INCOME

Figure 1: Household Income and Its Determinants.

I.NON-PRICE RELATED FACTORS

The major non-price-related factors that affect income of household are land, labor, capital, and other resources necessary for agricultural production such as irrigation and water supply, transportation etc.

1.Land
Land is a basic factor and plays a vital role in most types of agricultural activities, especially in cultivation and husbandry. Farmers can have different level of earnings with different land sizes and land qualities.

There has been a debate about the relationship between farm size and land productivity. And as productivity is positively related to income, farm size and farm income (per unit of land) may have the same kind of relationship as that between farm size and land productivity.

Some economists argued that the larger the farm size is the lower land productivity the farm achieves and vice-versa.

Most of the economists and analysts, who support the inverse farm size - productivity relationship, agree the following explanations:

Declining land productivity

Concentration of large farms extensive crops with lower value

More multiple cropping done by smaller farms

Less fertile soils owned by large farms

More intensively use of labor and other inputs by small farms.

However, several economists rejected the inverse relationship between farm size and land productivity and argued that this relationship is ambiguous.

It can be concluded that the relationship between farm size and land productivity is not clear. This relationship varies from case to case and depends on characteristics of each region. However, in many cases, farm size and productivity are often inversely correlated.

In short, land is one of the most important types of household assets and the accessibility to land (in terms of both quantity and quality) of household is a determinant of agricultural production and thus affecting the rural household income.

Labor

Labor can contribute to household income in two ways: through on-farm employment and off-farm employment. First, the more labor the household uses in its agricultural production, the higher yields it may receive from its cultivated land. Beside earnings from farming, off-farm wage has become an increasingly important component of household income because of the seasonality characteristics of agricultural production.

1.Capital
The more the amount of capital invested the higher the agricultural yields. Therefore, together with land and labor, capital is another determinant of household income.

2.Other Factors
In addition to physical input factors, there are other non-price-related factors, including education, healthcare, information, technology, investment policy etc. that can affect household income in rural areas. These factors play a certain role in determining rural household income.

In conclusion, land, labor and capital are important inputs of agricultural production and thus can have effects on agricultural output. Through their impacts on agricultural yields, these factors can affect household income in rural areas.

I. PRICE-RELATED FACTORS

Price-related factors include world prices, exchange rate regimes, interrelation (will be discussed later) and trade policy. Channels through which these factors affect rural household income are presented in figure 1.

1.Trade Policy
This part of the paper will mostly discuss policies that have effects on rural household income such as subsidy, import restriction, etc.

a.Policy of keeping food and agricultural prices low.
There are several ways that the government can apply to lower the food and agricultural prices, such as setting ceiling price, providing subsidies to consumers. However, this policy is often biased against food producers, i.e. households in rural areas.

b.Import restriction
Import restriction by means of import tariffs, import quota and others create deadweight losses to the society, yet bring producers more surpluses.

c.Export subsidy and tax
This export subsidy will raise the income of agricultural commodity exporters by increasing their revenue and/or reducing costs. Yet, normally, farmers are not exporters who often are private or state traders. Thus, how much farmers benefit from this subsidy policy depends on the relationship between farmers and exporters.

d. Trade liberalization
Trade liberalization can have different effects on different groups of farmers. Usually, farmers, who are producers of import substituting commodities, will lose from trade liberalization. Meanwhile, exporters of agricultural commodities seem to benefit from it.

Beside its effects on agricultural markets, trade liberalization may also affect rural household income through other channels such as labor wages, changing from subsistence food to cash crops, etc.

e.Exchange rate policy
Exchange rate is one of the most pervasive prices in international commodity markets and its fluctuation can affect commodity prices in both world markets and domestic market. The fluctuations in commodity prices, in turn, affect the household income in rural areas. In addition, exchange rate fluctuations affect not only the world prices but also the welfare of farmers in exporting countries.

In summary, among price-related factors, trade policy is one of the factors which should be carefully considered while studying the determinants of household income in rural areas.

1.World Price
It is clear that for countries participating in open trade, changes in world prices have also affect domestic production.

2.Traders and Farmers Relationship
If the farmers have strong bargaining power, they can receive high price for their products and thus can increase their income from their crops and vice-versa. However, in practice, strong bargaining power is often in the hand of traders, leading to low income of farmers

I. CHAPTER REMARKS

In summary, determinants of household income in rural areas can be divided into two categories: non-price-related factors and price-related factors. These factors and their role vary from region to region, depending on characteristics of each region. It is worth noting that the role of agricultural inputs is still important but these factors are constrained. In that context, government policies play an increasingly important role in raising household income in rural areas.

CHAPTER II: HOUSEHOLD INCOME IN LAMSON SUGARCANE GROWING AREA
Lamson is a typical region producing sugarcane, an import substitute, in Vietnam. This chapter will discuss household income - an important aspect of poverty alleviation - in the area, basing on a survey of 299 households in the region. This survey was undertaken by the Centre for Consultation on Agriculture and Rural Development (CECARDE).

I.REGION INTRODUCTION AND HOUSEHOLD INCOME

1.Region Overview and Survey Setting
Lamson is a region located in south west of Thanh Hoa province, characterized by sugarcane production. Lamson became an area producing sugarcane when the government established Lamson Sugar Factory in 1986. As a result of this establishment, there has been a structural change in agricultural production of the region with a shift from rice production to sugarcane growing.

1.Household Income in Lamson Sugarcane Growing Area.
a. Household Income Characteristics
There are several characteristics regarding household income in Lamson. First, the income level is relatively low in comparison with the whole country. The second characteristic is income inequality among quintiles.

Another point should be noted about household income in Lamson is that although much progress has been achieved, farmer income is still lower than income of workers of Lamson Sugar Factory.

b. Income Sources
Figure 2: Sources of Household Income: Percentage Share
Source: Table 2.2 (Thesis)

In Lamson sugarcane growing area, households often earn their income from cultivation, livestock, off-farm employment, and sideline activities. Like most rural areas in Vietnam, households in Lamson earn most of their income from agricultural activities (see figure 1).

Among the components of household income in Lamson, income from cultivation is the most important components. Then comes income from sideline activities such as trading, transportation, construction, etc. Income from these two major sources of income varies considerably from quintile to quintile. In the meantime, incomes from livestock, off-farm employment and others also vary but to a much smaller extent.

The production of sugar is the most important cultivation activity in Lamson. Yet, despite high profitability of sugarcane growing, households in the region, especially low-income ones, still maintain a specific piece of land for rice production to meet the subsistent needs.

In summary, as a region growing sugarcane for sugar industry, Lamson has recently achieved good results in improving household income. Thanks to the structural change in the region, sugarcane production in Lamson has become the main source of household income. However, it can be seen that income is distributed unequally in the region.

I.AGRICULTURAL INPUTS IN LAMSON SUGARCANE GROWING AREA

This section will discuss major agricultural inputs that are considered the determinants of household income in Lamson.

1.There are two interesting points about land in Lamson. First is the obvious inequality in land allocation among households. And the second is the complex relationship between household income and the area of agricultural land.

a. Unequal Distribution of Land
The results of survey are presented in table 1. It can be observed that land is distributed unequally in Lamson. This inequality presents in not only the amount of land per household but also in the amount of land per capital or per labour. However, the inequality in land distribution in Lamson is acceptable compared to other rural areas with Gini for land of 0.52.

Table 1: Agricultural Land by Land Quartiles (unit: hectare)
Land quartiles	Agri. land per household	Agri. land per capita	Agri. land per labor	Share of quartile in agri. land (%)
Quartile 1	1.44	0.30	0.71	2.6
Quartile 2	5.03	0.99	2.45	9.1
Quartile 3	8.77	1.58	4.00	16.0
Quartile 4	13.38	2.39	5.81	24.3
Quartile 5	26.32	4.82	11.30	47.9
Whole sample	10.99	2.02	4.86	100
Source: CECARDE, 1999, Lamson Household Survey

b. The Complex Relationship

First, household income almost declines as the land area of the household decreases, yet there is still exception. This pattern shows that land does matter in those groups that possess most of agricultural area in Lamson while plays a little role in those groups that account for only small part of land.

Second, from table 2, it is found that land area appears to be inversely related to the household income per hectare.

Table 2: Household Income by Land Quartiles (unit: VND thousand)
Land quartiles	Agr. land (hectare)	Household income	Income per capita	Household income/hectare
Quartile 1	1.44	19,559.2	4,050.3	13,560.7
Quartile 2	5.03	15,540.1	2,957.4	3,091.7
Quartile 3	8.77	16,599.8	2,927.5	1,892.8
Quartile 4	13.38	21,385.1	3,908.7	1,598.8
Quartile 5	26.32	34,607.8	6,374.7	1,314.8
Whole sample	10.99	21,538.4	4,043.7	1,960.3
Source: CECARDE, 1999, Lamson Household Survey

In summary, it can be concluded from the above analysis that land plays an important and complex role in determining household income in Lamson sugarcane growing area.

1.Labor
The results of the survey show that household income and labor appear to have a positive relationship. The larger the family size and the number of household labor, the higher income the household achieves and also the higher the income per capita.

In Lamson, only households with a very small area of agricultural land find land constraint is the main motive for their off-farm employment.

2.Other Household Assets.
In Lamson, total assets and working capital of the household have a positive relationship with its income level. This is because households with large assets and working capital can employ more of these factors of production in their agricultural production and thus can receive higher level of income. However, this fact also means that the inequality in income distribution will become larger as the rich receive more income than the poor do.

In summary, land, labor, and capital are important factors that affect the income of household in Lamson sugarcane growing area. However, they are only static factors. There are also other factors that are even more important to Lamson sugarcane growing area (see next section).

     I.            GOVERNMENT POLICIES AND THE RELATIONSHIP BETWEEN SUGAR PROCESSORS AND GROWERS

1.   Government Policies

First, to protect the domestic sugar industry, the Government applies non-tariff measures such as import quota, import license, to restrict sugar imports. These non-tariff barriers to sugar import provide unlimited protection and so-called implicit subsidies to domestic sugar producers.

As a result of these government policies, the domestic prices of sugar nearly doubled the world price for the same quality of sugar. High price of sugar leads to high price of sugarcane that the factory pays sugarcane growers making sugarcane growing more profitable than other crops such as cassava, sweet potato, maize, etc.

However, high protection provided by the government created smuggling which has adverse impacts on domestic sugar industry. And there is now a trend of trade liberalization which requires countries to reduce their border and non-border barriers to trade. Therefore, in the future, the Government will not be able to protect sugar industry and will have to reduce tariffs and non-tariff barriers imposed on sugar import.

Second, because Vietnam dong has been kept overvalued in every year of the past ten years, price competitiveness of sugar import has been raised. As a result of this unfavorable policy, domestic price of sugar is lower than it would be otherwise.

In addition to the above-mentioned protection, the Government also provides sugar industries and sugarcane growers with various incentives which include floor prices, interest-free credits, infrastructure improvement and agricultural research and other direct subsidies.

Among the above-mentioned government policies, protection of sugar industry seems to be the most important one that has large impacts on household income in Lamson sugarcane growing area.

1.   Relationship between Sugarcane Growers and Lamson Sugar Factory

In the case of Lamson sugarcane growing area, Lamson Sugar Factory is the largest processor and trader in the region. Therefore, it is the relationship between sugarcane growers and Lamson Sugar Factory that affects income of sugarcane growers in the region.

As the dominant sugarcane buyer in Lamson, Lamson Sugar Factory can be considered a monopsony of sugarcane in Lamson sugarcane markets. In current context where government protection is still effective, with such relationship, households in Lamson still benefit although their share of profit is much smaller than that of Lamson Sugar Factory. However, this relationship does matter when protection of sugar industry is removed. With market power in hand, the factory may pass most of the losses arising from this removal to sugarcane growers whose income will be heavily affected.

The establishment of sugar cooperatives and the Lamson Sugar Association has improved the role of sugarcane growers. These organizations are representatives of farmers in negotiating with Lamson Sugar Factory and thus the monopsony power of the factory decreases.

In summary, it can be concluded that protection policy applied in sugar industry and the relationship between sugarcane growers and Lamson Sugar Factory are two key determinants of household income in Lamson. Both of these factors affect household income through their impact on prices of sugarcane which sugarcane growers receive.

     I.            CHAPTER REMARKS

Like in other rural areas, household income in Lamson sugarcane growing area is affected by two groups of factors: non-price-related and price-related ones. Among non-price-related factors, land plays an important role in determining household income, especially those with large area of land. Yet, government policy, one of the price-related factors, seems to be the major determinant of household income in the region.

CHAPTER III: DETERMINANTS OF HOUSEHOLD INCOME IN LAMSON: REGRESSION AND SIMULATION

This chapter will test the relationship between household income in Lamson and its possible determinants by undertaking some regression. In addition, it will also examine the role of major price-related factors such as world price changes, exchange rate regime, tariffs, etc., which were mentioned in Chapter II, in determining household income in Lamson sugarcane growing area.

     I.            DETERMINANTS OF HOUSEHOLD INCOME IN LAMSON SUGARCANE GROWING AREA.

1.   The Income Regression Function

In this section, we apply Cobb-Douglas function with some small modification. The model will take the following form:

ln(income) = B1 + B2 * ln(land) + B3 * ln(labor)

+ B4 * ln(capital) + B5 * sugash + B6 * livesh

+ B7 * lasuco + B8 * collecti + B9 * ethnic (1)

(See the Thesis for more details)

The results are presented in table 3.

All coefficients of land, labor and capital variables are positive (expected signs) and highly significant, implying that household income in Lamson is positively correlated with agricultural inputs. It can be noted that although these agricultural inputs have positive relationship with household income, their impacts are relatively small.

Another interesting issue is the economies of scale. The regression results show that household production in Lamson yields decreasing returns to scale. The situation of decreasing returns to scale of household production in Lamson shows that increasing agricultural inputs is not a good way to raise household income in Lamson sugarcane growing area.

Table 3: Regression Results
Ln(income)	Coef.		t	P value
Ln(land)	0.09		3.08	0.002
Ln(labor)	0.19		2.75	0.006
Ln(capital)	0.37		10.41	0.000
Sugash	0.31		2.93	0.004
Livesh	-1.70		-6.23	0.000
Lasuco	0.11		1.79	0.075
Collecti	0.11		2.11	0.036
Ethnic	0.27		5.26	0.000
Cons	1.31		10.26	0.000
R-squared = 0.5991		Adjusted R-squared = 0.5852

The next regression on sugash variable gives us a positive relationship between household income and the area of land devoted to sugarcane production. On the contrary, livesh variable, which measures the share of income earned from livestock in total household income, is negatively correlated to household income. This result indicates that livestock in Lamson is underdeveloped and yields a low productivity.

The last three variables are dummy variables show positive relationships: Lasuco (0.11), collecti (0.11) and ethnic 0.27.

The R squared (0.6) obtained from the regression indicates that the variables that we include in our model do not fully explain household income. It also means that some important qualitative variables are not adequately reflected in the model.

1.   Farm Size and Land Productivity

The results presented in table 4 show that land productivity is somewhat inversely related to farm size. However, a large part of variation in land productivity is unexplained by farm size due to very a small value of R squared obtained (0.0488).

Table 3.2: Farm Size and Land Productivity: Regression ResultsProductivity	Coef.			t		P value
Land	-0.04			-3.80		0.000
Cons		2.11			11.65		0.000
R squared = 0.0488			Adjusted R squared = 0.0454
Note: land and land productivity are measured in hectare and VND million per hectare respectively.

It can be observed from table 4 that high wage often concentrates in household with small area of land with the coefficient of land receiving minus sign (-0.07). Yet, R-squared obtained is relatively small suggesting the existence of other influencing factors.

Table 3.3: Farm Size and Wage: Regression Results
Wage	Coef.		t	P value
Land	-0.07		-2.39	0.018
Cons	2.81		7.81	0.000
R squared = 0.0247		Adjusted R squared = 0.0204
Note: land and wage are measured in hectare and VND million respectively.

EXTERNAL FACTORS

Some important price-related determinants of household income in Lamson cannot be analyzed by regression method. This section will, therefore, try to analyze the impacts of major price-related factors including tariffs, world prices and exchange rate on household income in Lamson by undertaking several simulations.

1.   Simulation Scenarios

To analyze the impacts of price-related factors, specifically tariffs, world prices and exchange rate, four following scenarios need to be built:

Scenario 1: all tariffs are removed, other things being equal.

Scenario 2: overvaluation of exchange rate is removed.

Scenario 3: world prices change

Scenario 4: all of the above changes.

In all of these scenarios, household income is mainly affected by changes in domestic prices of sugar, rice and fertilizer.

a.   Tariffs:

The tariffs imposed on sugar and fertilizer imports in 1998 were 40 per cent and 0 per cent respectively. Export tax for rice was also 0 per cent. Therefore, if all import and export taxes are removed domestic prices of rice and fertilizer are unchanged while domestic price of sugar reduces by 30%.

b.   Exchange rate:

According to our analysis in Chapter II, exchange rate in 1998 was overvalued by 20% with respect to that in 1992. Therefore, if the overvaluation of exchange rate is removed, domestic prices of sugar will increase by 20 per cent.

c.    World price

Basing on World Bank analysis on prices of sugar, rice and fertilizer, we can assume that in 2000 – 2002 sugar price will reduce by roughly 30 per cent, rice price by 10 per cent and fertilizers by 10 per cent from 1998 level.

1.   Simulation Methodology

Our simulation will examine both short-run and long-run impacts of changes under each scenario.

There are two points that should be noted here. First, high return on rice production compared to sugarcane due to new conditions (price changes) seems to have no impact on the areas of land that has been devoted to sugarcane cultivation for years. Second, farmers cannot shift their entire area of land that is devoted to sugarcane to rice production because some pieces of land are suitable for sugarcane growing but not for rice cultivation.

We can calculate the changes in household income through changes in sugarcane price which in turn depends on sugar price.

2.Simulation Results and the Impacts of Price-related Determinants

a.   Scenario 1 – Impacts of Tariffs

Figure 3: Simulation Results under Scenario 1

It can be seen from figure 3 that there is a dramatic decrease of 48 per cent, on average, in household income if tariff, i.e. government protection over sugar industry, is removed. Farmers will shift part of their land from sugarcane to rice production and possibly other competing crops such as cassava, maize etc. wherever possible and thus can reduce the impacts of tariff removal. In the long run, farmers and Lamson Sugar Factory can increase their efficiency and thus reduce costs of production. Therefore, the income losses of farmers in the long run are not as severe as in the short run.

b.   Scenario 2 – Exchange Rate Alignment

It can be seen from figure 4 that the average income of surveyed households has risen about 30 per cent, from VND 21.5 million per to VND 28 million per annum.

The overvalued exchange rate has negative impacts on household income in Lamson sugarcane growing area. The correction of this overvaluation will help farmers increase their income considerably. Our calculation from simulation results shows that there is no shift of land from sugarcane to rice under this scenario. This means that under new situation, sugarcane production is still far more profitable than rice production.

Figure 4: Simulation Results under Scenario 2

c.    Scenario 3 – World Price Changes

Figure 5: Simulation Results under Scenario 3

It is clear that under new set of prices, households in Lamson sugarcane growing area are worse-off. In the long run, farmers in Lamson sugarcane growing area will shift from sugarcane production to rice production.

d.   Scenario 4 – Total Impacts of Tariff Removal, World Price Changes and Exchange Alignment

Under this scenario, households in Lamson sugarcane growing area have suffered from the largest loss in terms of income compared to other scenarios.

Therefore, in the medium- and long-term, farmers may not only shift from sugarcane to rice production in pieces of land that are suitable for rice cultivation but also stop producing sugarcane in those pieces of land that is only suitable for sugarcane production.

Figure 6: Simulation Results under Scenario 4

     I.            IMPACTS OF TRADE LIBERALIZATION.

This section will consider to what extent trade liberalization can affect household income in Lamson sugarcane growing area. Our scenario assumes that trade is liberalized in 2010 and at that time, the overvaluation of exchange rate assumably no longer exists.

1.   Prices of Sugar, Rice and Fertilizer under the Scenario of Trade Liberalization

Prices of sugar, rice and fertilizer under the scenario of trade liberalization will be 0.75, 1.36 and 1.63 times of 1998 levels respectively.

1.   Simulation of Trade Liberalization

Trade liberalization makes sugarcane production less profitable than rice production in the short run. In the long run, if farmers can reduce income losses by several ways such as increasing their efficiency and bargaining power in negotiating sugarcane price with the factory.

Figure 7: Simulation Results under Trade Liberalization

     I.            CHAPTER REMARKS

Analysis of the household survey shows that land, labor and capital have positive relationship with household income but the impacts seem to be rather small. It is also worth noting that household income has positive relationship with the share of land devoted to sugarcane in total agricultural land and negative relationship with the share of livestock in total household income. On the other hand, among the non-price-related factors, trade liberalization that includes the removal of tariff and non-tariff barriers, correction of exchange rate overvaluation etc. is an inevitable and farmers in Lamson sugarcane growing area will suffer from large loss if trade is liberalized.

CHAPTER IV: CONCLUSIONS AND RECOMMENDATIONS

Basing on the analysis of data and information obtained from a household survey, several concluding remarks and policy recommendations have been drawn from the previous chapters.

     I.            CONCLUSIONS

Lamson is a region which recently specializes in sugarcane production to provide input for Lamson Sugar Factory. Thanks to government policy to protect sugar industry sugarcane growers in the region have recently enjoyed a considerable increase in their income. With such characteristics, sugarcane production becomes an important activity and the major source of household income in the region.

With the important role of sugarcane in the region, agricultural inputs – non-price-related factors – still play a certain role in determining household income. All land, labor and capital are found to have positive relationship with household income but households in the region face diminishing return to scale. Thus, expanding these factors is not an efficient way to increase household income in the region. In addition, the analysis of the household survey shows that farm size is inversely related to land productivity but this relationship is not strong.

The policy of protecting sugar industry plays an especially important role in the increase of household income in the region. A comparison of household income in the case of government protection and in the case without government protection shows that household income in Lamson reduces sharply if the protection is removed. By contrast, the overvaluation of exchange rate maintained by the government so far has negative impacts on household income in the region. In addition, changes in world prices, especially sugar price also create fluctuations in household income in Lamson sugarcane growing area.

There is a great concern about the impact of trade liberalization on people’s life in Lamson sugarcane growing area. As Vietnam participate in trade agreements and trade organization, the policy of protection will have to be removed. In the short-term, as a result of trade liberalization, households in Lamson may face a sharp decrease in their income. In the long-term, this impact will be reduced as farmers gradually adjust to the changes such as shifting from sugarcane production to rice production, reducing production costs, etc.

     I.            POLICY RECOMMENDATIONS

Supporting policies of government play a very important role in increasing household income in Lamson sugarcane growing area and the removal of these policies will create large losses in farmer income in the region. However, trade liberalization is inevitable for Vietnam as the country already participated in AFTA and intends to join WTO in the future and thus the government cannot follow the policy of protecting sugar industry forever.

Following is a set of policy recommendations for reducing the negative impacts on households if trade is liberalized.

The analysis of tariff imposition and exchange rate overvaluation suggests that if trade is liberalized, the tariff removal should be undertaken with the correction of exchange rate overvaluation. The devaluation of exchange rate to the real equilibrium level will reduce negative impacts of the tariff removal on household income in Lamson.

The study suggests that the situation of monopsony of Lamson Sugar Factory should be eliminated and the relationship between sugarcane growers and Lamson Sugar Factory should be improved to reduce negative impacts of trade liberalization. It is suggested that the floor price of sugarcane should be adjusted annually according to changes in the situation and based on equal distribution of income. Recently, Lamson Sugar Factory has been put under equitization and this action may improve the bargaining power of sugarcane growers if they become the shareholders of the factory.

It is recommendable that more investment on agricultural research should be taken to increase productivity and reduce costs of sugarcane production in Lamson sugarcane growing area. In the meantime, measures to increase efficiency and reduce production costs of Lamson Sugar Factory should also be applied.

The conclusions of the thesis accentuate the need to support ethnic minorities in accessing information, agricultural techniques, and education.

Finally, the study suggests that trade liberalization should be undertaken step-by-step to avoid a shock to sugarcane growers in the region. The tariff imposed on sugar imports should be cut through various steps and the schedule of tariff reduction should be declared before hand so that sugarcane growers can adjust their production accordingly.