Agrifood Market Participation and Household Livelihood Diversification: Evidence from Vietnam

ABSTRACT:Despite the growth of agrifood markets, and gradual structural transformation, smallholder farm households (SFHs) persist in Asia. Such patterns are at odds with the views that market growth should encourage more specialization whereby smallholders transition to either larger farmers or specialized non-farm households. Agrifood market participation is one of many factors that affect SFHs' expansion into the non-agricultural sector, including a range of other economic shocks or climate change, among others. Nonetheless, focusing explicitly on agrifood market participation is still important because of the particular economic pathways through which it potentially affects the economies of diversification into the non-agricultural sector. For example, market participation can transform households' economic environment by enabling them to exploit comparative advantage between food production and non-agricultural sector activities. At the same time, among various markets, participation in the agrifood market is unique in the sense that it is in the context of the consumption of "food" which is an absolute necessity, unlike the consumption of many other goods. In such a context, it is questionable whether SFHs are better off by fully specializing in non-agricultural sector activities and exiting from their own food production activities. Knowledge gaps, however, remain regarding the precise linkages between such agrifood market participation and SFHs' expansions into the non-agricultural sector. Using the panel household data in Vietnam, this study investigates how participation in agrifood markets affect smallholder households' economies of scope (EOS) in diversifying into agriculture and non-agricultural income-earning activities. We find that, greater agrifood market participation proxied by the increased food purchase is generally associated with increased EOS between agriculture and non-agricultural activities at the household level. Moreover, it leads to greater labor productivity in agriculture, and also increases female household members' diversifications into both agriculture and non-agricultural income-earning activities. These effects are relatively stronger and more consistent than conventional indicators of agrifood product sales or proximity to the market. The findings suggest that, in addition to focusing on income potentials of increased agrifood commodity sales, policies that facilitate SFHs' increased purchase of food items from the market can have further complementary effects on their livelihood improvements.