Economic Analysis of Farm Household Perceptions and Preferences for Salinity Intrusion Risk Reduction in the Mekong River Delta

Abstract

As a result of three prime compounding factors, sea water is intruding into the Mekong River Delta (MRD). Declining flows, as a result of increasing upstream water use, are a primary cause of sea water intrusion. Climate change-induced sea level rise is a secondary cause. Finally, increased water use due to an expansion in the number of farmers planting three, rather than two, rice crops per year have generally extended the total area of salinity intrusion in the MRD. Adverse impacts of this increased salinity on rice and other forms of agricultural production are now occurring, and are expected to get worse; with severe consequences for local farmers and rural incomes. To address the issue of MRD salinity intrusion various mitigation and adaptation strategies have been proposed. Chief among these strategies is the construction of earthen and concrete sea-dikes along the MRD coast to protect farmland from flooding, and to prevent further salinity intrusion. It has been estimated that, based on the total MRD coastal region length involved, it would require an investment of between US$1.7 and US$4.1 billion to construct concrete sea-dike walls to a height of between two and four meters, respectively. Although the benefit of concrete sea-dikes is significantly higher than their cost, Vietnam like other developing countries is limited in its capacity to fund projects of this nature. Hence, there is a degree of uncertainty for policy-makers as to how best to proceed. It is possible that Vietnam could access international funding to support its strategic construction plans, especially as the need for much of the damage that would be prevented has been caused by others. But if this were achieved, there would be repayment issues for the loans, as well as the ongoing costs of sea-dike maintenance and operation. In this context, it is possible that affected farmers as beneficiaries of a MRD sea-dike construction program, might provide part or all of the necessary funds. This thesis therefore seeks to explore MRD farmer perceptions of salinity intrusion impacts, and their willingness to contribute to the cost of building and maintaining the sea-dikes necessary to protect their livelihoods. The project collected primary data from a sample of 441 farm households, stratified by salinity intrusion impact level. The results provide an in-depth economic analysis aimed at contributing to the research literature, and practical policy advice for consideration by the Vietnamese, other developing country governments, and the broader international community. Two broad research questions were examined in this study: (1) whether or not community-based governance arrangements designed to mitigate salinity intrusion impacts may succeed in developing countries, and in terms of methodology, (2) can inferred valuation (IV) approaches to the estimation of willingness to pay be used to reduce payment-bias impacts commonly associated with conventional Contingent Valuation Methodology estimates of value. The results of the farm households’ perception analysis in Chapter 2 reveal that farm households are aware of the salinity intrusion risk, and have already implemented some adaptation strategies. The analysis offers an understanding of how MRD farm households respond to salinity risk, and farmer perceptions of the effectiveness of any private and public responses. Facing the dilemma of changing traditional paddy-rice farming to aquaculture, livestock and/or other off-farm activities, MRD farm households are seeking more detailed salinity impact risk information from local and central authorities. Notably, additional to impacts on physical health, this analysis found evidence of adverse impacts of salinity intrusion on farmers’ mental health. Chapter 2 also finds that farmers have a strong preference for the construction of infrastructure in order to mitigate salinity intrusion impacts, which allow them to maintain rice farming. These results indicate farm households’ choices are consistent with other climate change perception studies in the literature. Building upon the data collected, this study goes on to recommend some specific local policy proposals to mitigate salinity intrusion risk mitigation, and improve planning arrangements. In summary, local authorities and policymakers are advised to recognize the benefits of making greater investments in awareness programs as they consider how best to construct sea-dikes and the associated hard infrastructure necessary to reduce the adverse effects of salinity intrusion. When making these recommendations, pragmatically it is assumed that the international community and upstream water users in the Mekong River will never be made to pay for the full cost of building the concrete sea-dikes needed to maintain rice production in the MRD; even though they have caused most, if not all, of the need for it. Chapter 3 in this thesis employs a referendum Contingent Valuation Methodology (CVM) approach to estimate farm household willingness to pay for sea-dike salinity intrusion risk mitigation including ongoing operation and maintenance. Interviewee responses indicate that farm households are willing to contribute sufficient funds to reduce any deficit associated with international loans, as well as ongoing annual maintenance and operational costs. Interestingly, and consistent with other studies, our results show that farmers are willing to make a significant cash contribution – even in areas that are unlikely to be affected by salinity intrusion in the next 15 years. Chapter 4 then explores the use of an inferred valuation (IV) method, which can be employed to potentially provide robust estimates of willingness to pay than a conventional CVM. In WTP estimation research, social desirability bias, hypothetical bias, and large private gains can result in over-estimates of willingness to pay. It is reasoned that before settling on a final program, policy-makers would be well-advised to check the robustness of farmer willingness to pay estimates. I therefore use several mechanisms to address hypothetical bias impacts, and explore whether any overestimation has occurred. It is found that the determinants of WTP are broadly consistent across different valuation approaches. However, the IV estimates of willingness to pay were found to be as much as 17 percent lower than the conventional CVM estimations; although it must be noted that these values still account for a very small proportion of annual farm income. Moreover, in real dollar term any disparity may not significantly alter the actual contribution levels by MRD farmers. This may have important implications for the financial viability of salinity mitigation project funding, and any future loan repayment/operational maintenance cost-recovery requirements. Overall, the findings from this thesis confirm that MRD farm households are aware of salinity intrusion threats, and that they are willing to pay for reduced salinity intrusion risks. Significantly, it is found that community financial contributions towards salinity intrusion mitigation projects could be used to overcome any public funding deficit. In passing, I observe that this result could be generally applicable to other developing countries. Chapter 4 also finds that, to mitigate any bias arising from the estimation of stated values for non-market goods, the use of IV methods offers a valuable alternative estimation approach and, arguably, more reliable approach than conventional CVM. Further, involving cheap talk script and provision point mechanism (PPM) payment vehicles as ex-ante instruments also offer effective means to mitigate bias. Future researchers may like to extend from this study in the following ways. Firstly, the survey could be expanded to include all adult members of a household, rather than focusing only on the farm households’ head. More in-depth householder perception analysis would then be possible, as well as the capacity to focus on gender issues. Secondly, it might be useful to expand the survey to other areas of Vietnam where salinity intrusion impacts are also being experienced. Finally, if the policy recommendations for contributions to a mitigation fund are accepted, then it would be important to determine the extent of the gap between stated intentions and the actual contribution households are willing to pay as the program is implemented.