GDP Growth of the Agricultural Sector and Role of Science and Technology in Vietnam’s Agriculture

GDP Growth of the Agricultural Sector and Role of Science and Technology in Vietnam’s Agriculture

Published: 2023.11.09
Accepted: 2023.11.09
27
Institute of Policy and Strategy for Agriculture and Rural Development,Ministry of Agriculture and Rural Development of Vietnam
Institute of Policy and Strategy for Agriculture and Rural development of Vietnam

ABSTRACT

Science and Technology is one of the important factors contributing to great performance in Vietnam's agricultural growth. The contribution of science and technology to agricultural growth is assessed through Total Factor Productivity (TFP). The growth accounting method is used in this study to calculate the contribution of TFP to agricultural GDP growth. The study's data were collected from the General Statistics Office of Vietnam during the period 2000 - 2022. Research results show that agricultural workers are gradually withdrawing from the agricultural sector, leading to decreasing contribution of the labor factor to agricultural growth, and reducing the growth rate of the agricultural sector, especially in the period 2016-2020. Current agricultural growth is mainly based on the contribution of capital and TFP (which includes science and technology). The results show that to promote agricultural growth in the future, it is necessary to have policies that prioritize more investment in science and technology for the agricultural sector.

Keyword: agriculture growth, science and technology, TFP

INTRODUCTION

Vietnam’s agriculture is developing quite comprehensively and is shifting towards large commodity production, with increasing productivity and quality, firmly ensuring national food security and gradually ensuring nutritional security. After more than 30 years of reform, Vietnam’s agriculture has come up with great achievements: meeting the domestic food demand and becoming an agricultural product exporting country at the same time. Agricultural products of Vietnam have reached up to about 190 countries and territories, including major markets such as the US, Japan, EU, etc. Besides, the agricultural product market has made new development steps, many of Vietnam’s agricultural products have attained high positions in the international market, with 10 groups of products with export turnover of US$1 billion or more (including fruit, cashew nut, coffee, shrimp, and wooden furniture). Export of Vietnam’s agricultural products ranks 2nd in Southeast Asia and 15th in the world. In 2022, Vietnam exported agricultural products with a turnover of US$53.2 billion. Aside from other factors of policy, capital, labor, etc., science and technology has been contributing to the growth of Vietnam’s agricultural sector in recent years. Science and technology will keep playing a key role in determining the efficiency and competitiveness of Vietnam’s agricultural products at the present and in the future, especially when the challenge for the agricultural sector is much greater.

However, scientific activities as well as technological applications in agriculture are still far from the set forth requirements. Vietnam’s agriculture faces competition in the globalized market. Investments in science and technology in agriculture and rural areas are still limited. Food preservation and processing technology has not been paid due attention, with low investments in harvesting and preservation technology. Besides, there is a lack of investments in science and technology for smart agricultural production to adapt to climate change. Total factor productivity (TFP) growth, the main contributor to labor productivity growth in the 1990s, declined sharply in the post-2000 period, and labor productivity growth declined in most areas.

This study aims to assess the current role and effectiveness of science and technology in agriculture and identify the stages that can be improved, the contribution of science and technology to GDP growth of the agricultural sector through assessment of TFP. It also aims to propose appropriate policies and solutions to enhance efficiency of science and technology applications in agricultural production, which support the restructuring of agricultural sector.

METHODOLODY

Evaluating the effectiveness and contribution of science and technology in agricultural GDP growth

Estimating the direct contribution of science and technology to agricultural growth is complicated, therefore, it is assessed through Total Factor Productivity (TFP). In this study, we use the growth accounting method to calculate the contribution of TFP in agricultural GDP growth based on data from the General Statistics Office (GSO).

The information system approach is based on the assumption that there is a production function that links an economy's output to labor and capital inputs. By using this production function, the contribution of each unit of input to output growth is measured, and the residual that cannot be explained by an increase in input is called TFP growth. The production function has the following general form:

Y = f (K, L, A)

In which: Y-Total Output; K – Capital; L - Labor; A - The rest of the elements

It is the remainder other than the contribution of K, L, also known as TFP

The growth rate of TFP is calculated by following function:

gTFP = gY- α *gK - β *gL

Contribution ratio of TFP is calculated by this function:

%TFP = gTFP/gY*100%

Sources of data required for the calculation:

Output value (Y) : Y: is agricultural GDP, usually the output value Y used is the value added (GDP) of the agricultural sector at constant prices. In this study, we use the value of agricultural GDP at constant 2010 prices from 2000 to 2022. This data is published annually by the General Statistics Office.

Labor (L) : Labor is the labor force of people aged 15 years and over who worked in the agriculture, forestry and fishery (AFF) industry, during the period of 2000 - 2022. This data is published annually by the GSO.

Capital (K): Capital is the total value of assets for production. However, it is extremely difficult to directly calculate the capital value and takes a long time due to the need for full annual inventory data, which has not been done in Vietnam; so capital (K) is still calculated indirectly through accumulation of fixed assets in agriculture. The study uses social investment capital and accumulated fixed assets data provided by the GSO to estimate fixed assets for agriculture. Accumulation of fixed assets is an accumulative indicator, so it can only be determined from time to time (usually at the end of a quarter or at the end of the year) and then averaged over time. Thus, within the scope of this study, fixed assets calculated include: production infrastructures, irrigation works (dyke construction, embankments, culverts, etc.), agricultural and forestry machinery and equipment, ships, cost of major repair of fixed assets and other fixed assets: perennial plants, seeds, etc. Fixed assets according to the General Statistics Office's statistics do not include the value of land for agricultural production because in Vietnam, the General Statistics Office has not yet officially calculated the value of land to add to the capital.

Fixed assets are cumulative statistics, so the value of each year will be calculated according to that year's price (the current price). Then the 2010 price index is used to convert the value of fixed assets according to the current price of the years to the constant 2010 price. To calculate the value of fixed assets for the research period 2000-2020, the study has calculated the accumulated value. Fixed assets are from the beginning of 1979 to the end of 1999 (usually, an asset will be fully depreciated within 20 years). Thereafter, the accumulated value of fixed assets until the end of 1999 is used to calculate for the research period of 5 years and 10 years.

Coefficients α, β: To determine α and β, economists have assumed that labor markets are competitive and that returns to scale are constant. Then, α + β = 1 and the labor elasticity of GDP will be equal to the share of labor income in GDP (Park, 2012). In this study, coefficient β is calculated from the results of Vietnam household living standards survey (VHLSS), agricultural GDP data and income from agriculture which are calculated by the General Statistics Office. The most complete information about workers' incomes to calculate the β coefficient is found in the IO tables (intersectoral balance sheets). However, the IO table is usually built every 5-7 years, so in order to have the data to calculate the coefficients for the each year, it has been adjusted according to the data from the results of the VHLSS done by the General Statistics Office.

RESULTS AND DISCUSSION

Agro-forestry GDP growth status and key inputs in agriculture

Agriculture always plays an important role in the economy, especially in times of crisis. On average, in the period 2011-2021, agriculture GDP grew at on average of 2.84% per year, while the industry-construction industry grew by 7.04%/year, services grew by 5.97%/year. In the two years of 2020 and 2021 due to the impact of the COVID-19 pandemic, while the growth of the industry - construction and service sectors decreased sharply, once again the agriculture sector had an impressive growth rate of 2.68% in 2020 and 2.90% in 2021 which was higher than the general growth rate of the economy.

Regarding resources in economic development, in agriculture, one of the main resources is land. Recently, the area of agricultural land has increased and there is a tendency to shift from low-productivity land to more productive land. According to statistics of the Ministry of Natural Resources and Environment, the total agricultural, forestry and fishery land as of December 31, 2020 is 27,983,000 hectares, an increase of 1,757,000 hectares compared to 2010. Vietnam is one of the countries with high land productivity in the region, only after Malaysia. On average, in the period of 2010-2020, Vietnam’s agricultural production land productivity is about US$283,000/km2; while Malaysia is US$298,000/km2, Philippines is US$269,000/km2, India is US$199,000/km2, Indonesia is US$196,000/km2, China is US$175,000/km2 and Thailand is US$169,000/ km2.

The proportion of total social investment capital for the agricultural sector has continuously decreased. The share of total social investment in the agricultural sector decreased sharply from 20% in the period of 1986-1993 to only 6% in the period of 2008-2012 and 5.8% in the period of 2013-2020. However, the agricultural sector has contributed 16% of the total GDP of the country. This shows that the agricultural sector invests the least but brings the highest efficiency. For many years, Vietnam’s economy has operated according to the growth model of mainly basing on capital factor. Most of social investment capital is concentrated in the service and industrial sectors, while investment in agriculture is very low. With the determination to accelerate the restructuring of the agricultural sector in the direction of increasing added value and sustainable development, the government has increased investment in agriculture during the last ten years. State investment in agriculture increased at an average rate of 9.00%/year in the 2016-2020 period, higher than the 6.46%/year in the 2011-2015 period.

Agricultural labor tends to decrease gradually but still accounts for a large proportion of the total social labor. According to the General Statistics Office, agricultural labor has decreased rapidly in both quantity and proportion in the total social labor force in the period of 2011-2020. In 2011, agricultural workers were about 24 million people (accounting for 48.4% of the total number of employees in the whole society), and this number decreased to about 18 million people in 2020 (accounting for about  33% of total number of the country’s emloyees). The rate of labor withdrawing from agriculture has been faster in recent time. The downward trend of agricultural labor in terms of number and share of total employment is faster in rural areas than in urban areas.

In recent years, the rural economy has been diversified, gradually shifted to non-agricultural activities, there have been rapid changes in the structure of labor by occupations in rural areas. Rural labor tends to shift to non-agricultural occupations. Agricultural labor productivity is still low and has a big gap compared to other occupations. In 2020, the average productivity of agricultural labor was approximately VND52.74 million (~US$2,245), while the labor productivity in industry sector was VND128.56 million (~US$5,471) and in the service sector was VND135.19 million (US$5,753). According to World Bank data, Vietnam’s agricultural labor productivity in 2019 (US$1,313) is much lower than the average numbers of countries in the region such as China (US$4,191), Indonesia (US$3,996) or Thailand (US$3,326). Vietnam’s labor productivity growth rate of 4.8%/year on average is also lower than that of countries in the transition period in the region such as China (8.0%/year), Indonesia (5.5%/year) and India (5.0%/year).

Contribution of inputs and TFP to AFF GDP growth

The objective of the study is to evaluate the contribution of science and technology to GDP growth in the agricultural sector. Science and technology are important parts and account for a large part of TFP, therefore, the study chose to evaluate the contribution of science and technology to GDP growth of the agricultural sector through assessment of TFP's contribution. The main inputs contributing to growth include capital, labor, and land, but as the calculated data on the value of land in agriculture have not been fully compiled and available, this study can only use data of capital and labor. Based on the existing database, the study uses the growth accounting method to calculate: (i) TFP growth rate; (ii) The proportion of TFP's contribution to AFF GDP growth. In which, data to calculate TFP for the period of 2000-2020 includes: output is AFF GDP; inputs include capital (fixed assets) and labor in the agricultural sector.

Besides, for the coefficients α and β, the calculations of the research team are based on the IO table of the General Statistics Office. Accordingly, the contribution coefficient of labor β is calculated as the total income of employees working in the agricultural sector in the total AFF GDP. However, the limitation of the IO table is that there are only 4 years of data including 2007, 2012, 2016 and 2020. Therefore, the research team adjusted the coefficients α and β for each year according to the Household Living Standards Survey (VHLSS) data for the period of 2000-2020. The coefficient β is calculated as the per capita income in the agricultural sector multiplied by the rural population and divided by the total AFF GDP. Then, the study calculated the annual development index of the β coefficient and used this index to adjust the β coefficient from the IO table to each year for the period 2000 - 2020.

Calculation results show that, of the three factors affecting the growth rate of AFF GDP, the growth rate of fixed assets and the growth rate of TFP have the most impact. As labor is gradually withdrawing from the agricultural sector, the labor growth rate is decreasing. In the period of 2001-2020, the growth rate of AFF GDP decreased from 3.7% in the 2001-2010 period to 2.9% in the 2011-2020 period (Table 1). The growth rate of TFP and labor also tends to decrease. The growth rate of TFP tends to decrease slightly from 2.1 % in the 2001-2005 period to nearly 2% in the 2016-2020 period. The growth rate of labor decreased by an average of 1.6% in the period 2001-2020. Compared to other sectors in the economy, the agricultural sector has a higher level of risk, lower economic efficiency, investment, especially private investment, etc. In addition, in recent years, the labor force of agricultural households is gradually shifting to industrial production, construction and services because the agricultural sector has low and precarious incomes, facing many difficulties, risks in the production and consumption of products due to the influence of natural disasters, market fluctuations, etc. Farmers in many places leave their fields, do not cultivate, switch to service business or work in the service or industry sectors or migrate to centers and big cities to find work to improve their incomes.

The growth rate of AFF GDP has been gradually reduced, partly due to the impact of the rapid reduction in the number of employees, especially in the 2016-2020 period. Looking at every phase of the 5-year period, the growth rate of fixed assets tends to recover in the period of 2016-2020, which are factors that help maintain the growth of the agricultural sector when labor is withdrawn. Fixed assets increased from 5.1% in the period of 2011-2015 to 7.4% in the period of 2016-2020. In the future, in order to maintain and improve the growth rate of AFF GDP, growth in investment capital and total factor productivity (TFP) will play a decisive role.

TFP also makes an important contribution to the growth of the agricultural sector when the share of TFP in the GDP growth of AFF accounted for about 75.3% in the 2001-2010 period and 74.2% in the 2011-2020 period. In the period 2001-2020, the contribution of TFP is about 74.8%.

As discussed above, TFP or . TFP contains intangible factors such as technological innovation (varieties, machinery for agricultural production, processing and preservation of agro-forestry-fishery products, biotechnology, information technology, etc.), production rationalization, improvement management, improving labor qualifications, knowledge-experience- labor skills, management skills, restructuring of the economy, the quality of investment capital, the quality of technological equipment, institutional environment, policy, etc. The impact of TFP is through the transformation of tangible factors, especially labor and capital. This is a general efficiency measurement indicator, it shows the synergistic effects of the main inputs associated with different technologies, so it is often considered as representing of technology and the efficiency of technology application into production.

TFP's positive growth and high contribution ratio over the periods shows that policies related to the business environment, regulations and institutions of the agricultural sector and science and technology for the agricultural sector have been effective. It should also be added that, although the number of agricultural laborers is decreasing sharply, it is still valuable to contribute to the growth of the agricultural sector through TFP because TFP includes management elements, labor skills. Therefore, it can be said that science and technology and improving the quality, knowledge and skills of labor will be important factors for the growth of the agricultural sector in the future.

The results of the analysis and calculation show that the growth of the agricultural sector today is mainly based on the growth of capital (or fixed assets). Increasing total factor productivity (or TFP) is also an important factor contributing to agriculture’s value-added growth. The results show a certain importance of science and technology in the growth of Vietnam’s agricultural sector in recent years.

In addition, in the face of a declining labor force in the agricultural sector, necessary measures to promote the growth of the agricultural sector are to focus on growth in terms of labor quality and qualifications to compensate for the decrease in in the number of workers. Growth in fixed assets should also focus on increasing investment efficiency and improving the quality of the capital efficiency index. In addition, it is also necessary to focus on implementing numbers of solutions to increase the productivity of synthetic factors in the agricultural sector, in which to focus on promoting research and innovation, to improve productivity, production efficiency in the agricultural sector.

CONCLUSION

Currently, science and technology is an important factor contributing to the sustainability of agriculture in Vietnam. In a country whose agriculture depends largely on natural resources and weather, science and technology play an important role in creating leaps for Vietnam’s agricultural growth, reducing the influence of uncontrolled natural factors. The research results show that the current agricultural growth is mainly based on capital growth, specifically capital investment in fixed assets and increased productivity of synthetic factors or TFP, including science and technology. Despite Vietnam’s many policy and investment efforts to promote science and technology in agriculture, the results show that agricultural workers are withdrawing sharply from the agricultural sector, leading to the contribution of the labor factor tending to decreasing trend, and reducing the growth of the agricultural sector, especially in the period 2016-2020. In that context, science and technology (through TFP) plays an increasingly important role in the growth of AFF GDP.

Appropriate policy is therefore needed to encourage and facilitate investment in research and development, and government commitment to provide new sources of investment to fund public agricultural research which can help to have a great impact on the development of science and technology in Vietnam in general and agriculture in particular. By 2030, Viet Nam aims to become a prosperous society, belong to the group of high-middle-income countries. To achieve this goal, Vietnam needs to have a strong development strategy in science, technology and innovation as the basis for improving productivity, output quality, efficiency and competitiveness of the economy, promoting research and development, starting innovation and technology development, especially in potential new industries and fields. This also needs to improve coordination in science and technology development between government and society, between internal and external resources. It is expected that in the coming years, increased productivity will contribute over 50% of total agricultural growth.

At present, the government expects the private sector to be the main driver of research and development investment. With the efforts of all stakeholders in the field of science and technology, this policy has been partially successful, especially in the agricultural sector. However, relying on the private sector alone is not enough to achieve the country's development goals. Agriculture has always played an important role in the economy, however, investment in agriculture has not been commensurate. In this context, the Government of Vietnam should reallocate spending, put more emphasis on research and development, and use public procurement tools to encourage research and development activities.

POLICY RECOMMENDATIONS

Science and technology play an important role in GDP growth of the agricultural sector, especially in the context of limited investment capital in the agricultural sector, while labor is withdrawing from the industry at a rapid rate, so in the coming years, investment in science and technology to improve productivity and efficiency is very important. Some main orientations for policies to support the development of science and technology for agricultural production are proposed as follows:

  • Innovating the research mechanism and transferring science and technology research so that science and technology can really bring efficiency in production.
  • Increasing investment, improving the potential for science and technology in agriculture, mobilizing the private sector to participate in research and promoting technology transfer in agriculture.
  • Investing in the development of material and technical foundations of science and technology organizations in a synchronous manner in service of scientific research, demonstration and transfer of technology and technical advances.
  • Building a cohesive ecosystem in training, research, and science and technology transfer among groups involved in science and technology development.

The other solutions supporting development of science and technology include: Developing the S&T market; Improving the quality of human resources; Attracting investment for science and technology; Diversifying forms of science and technology transfer; Strengthening international cooperation in scientific research and technology application.

The results from this study will be an important reference for agricultural policy makers to consider and make policy decisions to support and increase investment in science and technology to develop Vietnamese agriculture sector in the future.

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