Day 1 session 3.4 transaction cost of smallholder farmers’ participation in forest management. florence milan
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The document discusses transaction costs associated with smallholder farmers' participation in forest management schemes in Vietnam. It finds that transaction costs are higher for poorer households. This creates constraints on participation. The study examines transaction costs for different household wealth groups in a watershed in Hoa Binh province. It finds that searching, screening, negotiation and monitoring costs are highest for poorer households. To improve participation in payments for forest environmental services (PFES) schemes, the document recommends reducing transaction costs for poorer households and further research on community-based arrangements.
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Day 1 session 3.4 transaction cost of smallholder farmers’ participation in forest management. florence milan
- 1. Transaction cost of smallholder farmers’ participation in forest management: Policy implications on PFES schemes in Vietnam 3rd Mekong Forum on Water, Food and Energy Hanoi, Vietnam 26-30 August 2013 Florence Milan, Areeya Manasboonphempool, Manfred Zeller Water for a food-secure world www.iwmi.org 1
- 2. Challenges in Payments for Forest Environmental Services in Vietnam High transaction cost associated with centralized management and many contracts with small scale service providers Constraints on participation due to high transaction cost Photo source: http://www.melville18.co.uk/accountancy.html Water for a food-secure world www.iwmi.org 2
- 3. Transaction cost in forest management Institutions that effectively reduce transaction costs will endure (North 1990) Searching for partner or group Monitoring the agreement Screening potential partner Negotiating to reach an agreement Transferring property rights Source: http://vimeo.com/25636067 Water for a food-secure world www.iwmi.org 3
- 4. Case study: Hoa Binh watershed What are the elements of transaction costs in different forest management schemes and how to improve scheme participation to achieve policy objective? 20 random villages in Da Bac District 15 household per village 1. Focus group discussions 2. Baseline survey 300 households 2. Transaction cost survey 3% attrition Water for a food-secure world www.iwmi.org 4
- 5. Forest Management Total Planted Forest (hectares) 14588 Average number of trees planted per hectare 1388 9492 2028 11278 Poor Middle 1885 Well-off Poor Middle Well-off Water for a food-secure world www.iwmi.org 5
- 6. Transaction Costs Poor Middle Well-Off 16 TOTAL MAN-DAYS 14 12 10 8 6 4 2 0 Search & Screening Negotiation & Transfer Monitoring DIFFERENT TRANSACTION COSTS Water for a food-secure world www.iwmi.org 6
- 7. Transaction Cost Household vs Community Information gathering Monitoring Attending meetings Decision to participate Negotiations Administration of contracts Conflict resolutions Enforcement of compliance Water for a food-secure world www.iwmi.org 7
- 8. Some determinants of transaction cost Education of household head Interest in intercropping Farmers’ union membership Seed support Water for a food-secure world www.iwmi.org 8
- 9. Conclusions and Policy Implications Private transaction costs are major components of PES and are significant for uptake of PES contracts but difficult to quantify Transaction costs are higher for poorer households To compensate for the higher transaction costs in poorer households, there should be provisions for direct access to NTFPs and cash products Further research on comparison of transaction cost associated with different forms of arrangements (household, community) Water for a food-secure world www.iwmi.org 9
- 10. THANK YOU! Water for a food-secure world www.iwmi.org 10
Editor's Notes
- The State of Vietnam issued a decree in 2010 on the Policy for Forest Environmental Services.
- Recent research has observed that there is high transaction cost involved in PES, for both the state and farmers.For the state, there is high transaction cost associated with centralized management and may contracts with small scale service providers. The organization and administration of the forest program brings along high transaction cost.For farmers, high transaction costs related to scheme entry pose significant constraint on participation.
- Transaction costs are “the costs of searching for a partner (or group) with whom to exchange, screen potential partners to ascertain their trustworthiness, negotiating to reach an agreement, transferring products, monitoring the agreementSearch and screening costs arise prior to contracting, as farmers collect information on the contract, on the economic and financial consequences, the possible work load and so on.Negotiation and transfer costs are the costs of drawing the contractsMonitoring cost are ex-post to the transaction
- 1. To present the private transaction cost incurred by farmers who participated in reforestation/afforestation program2. To compare the level of transaction cost between individual and community-based participation. 3. Tolook at the determinants of transaction costs using socio-economic factors as explanatory variables.
- Wealthier households were given more forest areas than poor households.But, forest allocated to the wealthier households planted less number of trees per hectare.This can imply a targeting problem of the forest management scheme and lack of monitoring.
- High transaction cost among the poor increase the actual cost of participating in the program.