Striking a Balance: Managing El Niño and La Niña in Viet Nam's Agriculture

Report
from World Bank
Published on 02 Apr 2019 View Original

Overview

This report’s purpose is to help Vietnam policy makers and stakeholders prepare for future El Niño–Southern Oscillation (ENSO) events. It does this by providing information on ENSO’s agricultural, economic, and poverty impacts in Vietnam and outlining ways forward. The report finds that ENSO’s impacts vary from region to region and harm Vietnam’s people, economy, and agricultural sector. The country prepared for, and responded to, the 2014–2016 El Niño, but there is still room to improve upon these actions. Being proactive to prepare for ENSO is important because of Vietnam’s high exposure to climate shocks, the prominence of the agricultural sector in the national economy, the rural population’s climate vulnerability, and the lack of research on ENSO in Vietnam. Moreover, there is a high likelihood that Vietnam will face another El Niño by winter 2018/2019.

ENSO has important impacts on Vietnam’s climate, agriculture, economy, and society

Vietnam is highly exposed to ENSO-related climate shocks. ENSO describes naturally occurring ocean and atmospheric temperature fluctuations that can have major implications on global weather patterns. Historical data show that the two phases of ENSO, El Niño and La Niña, tend to depress and increase average rainfall, respectively. Also, while both phases decrease average rainfall in the north, only El Niño depresses rainfall in the center and south of Vietnam, with La Niña increasing rainfall in both. The South also faces the ENSO-related challenge of saltwater intrusion. In fact, the country’s most vulnerable regions to ENSO are the South Central Coast, Central Highlands, and Mekong River Delta. Complicating matters is Vietnam’s high risk of natural hazards, including floods, drought, and cyclones. By some measures, Vietnam is the seventh most disaster-prone country in the world, with more than 13,000 deaths and $6.4 billion in property losses over the last two decades. In the case of El Niño, drought and saltwater intrusion during the 2014–2016 event caused an estimated $3.6 billion in damages to agriculture, fisheries, and aquaculture alone.

ENSO’s impacts on agriculture have economy-wide implications. Agriculture is an important economic sector in Vietnam providing over a fifth of gross domestic product (GDP) and two-fifths of employment. However, when accounting for downstream processing and spillover across sectors, the entire agriculture food system (AFS) provides over a quarter of GDP and over half of employment. As such, any shocks to agriculture lead to reverberations across the entire economy, with serious implications for welfare, food security, and national poverty levels. Figure A shows how average rainfall during ENSO varies in north, central, and south Vietnam and which of those regions are the most important for agriculture.

Crop production losses during El Niño can be partially recovered by crop production gains during La Niña. Over the last four decades, the largest El Niño reductions typically occurred in the Northern Midlands and lower parts of the Mekong Delta, while the largest La Niña gains occurred in Central Vietnam. Maize production gains during El Niño are on par with maize production losses during La Niña in many parts of Vietnam, but rice gains are only about half of rice losses. This is because maize is more drought tolerant than rice. Nevertheless, these results suggest that higher production during La Niña can offset some production losses from El Niño.

There is evidence that ENSO contributes to declines in Vietnamese fisheries and livestock. By the end of the last El Niño in March 2016, domestic fish production was about 38,000 tons, or 2.6 percent lower than the previous year. Simulations run for this report also estimate that El Niño causes fishery production losses for both capture fisheries and aquaculture. There is no evidence that La Niña contributes to fishery production losses. ENSO’s links to livestock production are less well established. However, La Niña causes more hot and humid days, which increases heat stress on livestock and imposes related costs on producers.

Strong El Niño events lead to GDP losses, while strong La Niña events lead to smaller GDP gains. Simulations for this report show that national GDP losses during a strong El Niño event are $2.5 billion compared to a $1.1 billion gain during La Niña. Percentage losses are larger in agriculture, where GDP falls by nearly 10 percent. Even small percentage reductions in national GDP can imply substantial monetary losses. For example, a 1.5 percent drop in national GDP is equal to $2.5 billion in lost value-added. Overall, simulations estimate about a quarter of the agriculture food system’s economic damages during strong El Niño events occur outside of agriculture. Simulations for individual sectors show that La Niña gains in each sector, in percentages and dollar-value amounts, do not match El Niño losses in those same sectors. Since Vietnam is a major rice exporter, international rice markets can also be adversely affected, especially when combined with policy actions that limit exports.

The rural poor are particularly vulnerable to ENSO. Welfare, or consumption, levels in Vietnam are lower in rural areas than urban areas, and lower among the poor than the nonpoor. Simulations show that rural households see a 3.5 percent decline in welfare during a strong El Niño compared to a 2.7 percent decline for urban households. Simulations also show that the poorest households experience the largest welfare declines during strong El Niño events. More specifically, consumption falls by 4.9 percent for households in the poorest quintile, compared to a 3.9 percent decline for all households. Since ENSO contributes to higher food prices, it disproportionately affects the poor, who spend more of their total income on food. This exacerbates food insecurity,7 malnutrition,8 and consumption poverty. As such, ENSO’s effects on rice and maize, for example, have larger implications for poorer consumers, who also tend to be rural, because they spend a large share of their incomes on cereals. Lower income households may also be unable to smooth consumption by selling assets during ENSO-related shocks. Simulations show a strong El Niño event increases the national poverty rate by 1.9 percentage points. This is equivalent to an additional 1.7 million people living below the poverty line during the El Niño period.

Women particularly suffer from El Niño. Women play a central role in agriculture in Vietnam, making them vulnerable to ENSO. The female agricultural labor force contributes more hours of labor than men in cultivation, livestock breeding, agricultural processing, and agriculture produce marketing. Women in Vietnam also make up 80 percent of the rural aquaculture workforce10 and often lead livestock rearing, especially for poultry. In reality, women work in all facets of agricultural activity. This partly explains why they suffer disproportionately from El Niño. Simulations show that the poverty rate for people living in female-headed households increases by 2.7 percentage points during strong El Niño events, which is higher than for people in male-headed households. This is, in large part, because people in female-headed households are more likely to be poor farmers, who are the hardest hit by El Niño.

Vietnam has taken actions to support ENSO preparedness, but there is room for improvement

The government has several mechanisms in place to respond to ENSO and acted as the 2015–2016 El Niño progressed. The government has a well-established system of disaster response, though its mechanisms for dealing with climate change and ENSO are less robust. The government also works with a wide array of partners on these issues, including the World Bank, which supported Vietnam through several salinity-, drought- and climate change-related projects. During the 2014–2016 El Niño, the government mobilized nongovernmental organizations (NGOs), international organizations, and local and national government agencies to support different ENSO response measures. In March 2015, the government initiated response and recovery measures to mitigate the drought that began in late-2014. This included information gathering missions, forecasts from the National Center for Hydro-Meteorological Forecasting (NCHMF), and eventually, financial support to the affected regions. The goal was to mitigate potential disasters in three severely affected regions: South Central Coast, Central Highlands, and Mekong River Delta. In total, the government mobilized $65 million in aid for El Niño–affected provinces and irrigation operators. Despite these efforts, the Ministry of Agriculture and Rural Development (MARD) calculated that 2015–2016 recovery costs in the 18 drought-affected provinces would reach $1.2 billion by 2020.

Government efforts in 2016 revealed areas where it is possible to strengthen Vietnam’s preparation for future ENSO events. These include:

Government areas to strengthen

  • Existing government policies for slow onset events, such as El Niño, have unfulfilled potential. Strategies for ENSO, climate change, and disaster risk are fragmented. Also, government officials lack capacity in some of these areas.

  • ENSO preparedness is underfunded and undercoordinated. ENSO interventions would benefit from a clearer coordination mechanism, ideally building on existing mechanisms or institutions for climate change adaptation and disaster risk management.

  • There is an inability to localize climate and weather forecasts and transform them into advisories that local farmers and technicians can more readily use. Current limitations in forecasting data reflect scarce subnational weather and agricultural data.

General areas to strengthen

  • Logistical capabilities do not reach their full potential in supporting interventions.
    For example, during 2015 and 2016 drought and salt tolerant seeds were not available in the quantities needed, planting time adjustments and plans to use short-duration varieties were not prepared, and mechanisms to plant alternative crops were not in place when needed.

  • Local farmers and extension workers could improve their capacity to implement alternative preparedness options, such as developing alternative crop value chains or monitoring salinity and adaptation progress.

  • Inaccurate or ineffective location-specific information limits local-level support for certain ENSO-related initiatives.

  • Women are often unable to assume leadership roles in agriculture despite their central role in that sector.

Different policy interventions can mitigate El Niño’s impacts to varying degrees

Policy interventions and investments, especially expanded irrigation, can offset some of the GDP losses associated with ENSO. In-depth modeling carried out under this study simulated six policy interventions—including introducing drought-tolerant crop varieties, expanding irrigation, restricting rice exports, storing and distributing grains, expanding social protection coverage (or social transfers), and applying all of these policy interventions simultaneously—to understand how they would mitigate El Niño’s impacts on GDP, household welfare, and poverty. Expanding the use of irrigation offsets GDP losses by making overall production more resilient to climate shocks. It also raises yields during normal years. Overall, expanding irrigation reduces GDP losses from $2.5 billion to $2.2 billion. Compared to other countries where similar analyses were conducted, irrigation’s impacts in Vietnam are somewhat muted because most of the country’s agriculture already uses irrigation, leaving little potential to expand. For example, for Vietnam’s main crop, rice, 85 percent of rice paddies are irrigated in the North, 82 percent in the Central, and 90 percent in the South. Introducing drought-tolerant varieties and depleting grain stores had minimal impacts on offsetting GDP losses. By contrast, introducing social transfers, like cash transfers, or restricting rice exports actually add to GDP losses. The reason is that cash transfers do not directly increase production and require offsetting tax increases, while restricting rice exports lowers food prices, which benefits net consumers and helps maintain demand for nonfood products during El Niño events but also reduces incomes for net food producers. Overall, when all of the interventions considered in this study are combined and implemented concurrently, there is still a sizable GDP loss of $2.1 billion during a strong El Niño event.

Policy interventions are effective in reducing household welfare losses. Expanding irrigation use and providing drought-tolerant seed varieties reduce consumption losses across the income distribution but do not eliminate all losses. Restricting rice exports, which also has several downsides, and expanding social transfers such as cash transfers are more effective, even when they have tax and income implications for higher income households. Social transfers are especially effective at minimizing consumption losses, since they directly target the poor during El Niño. Of the six policy options considered, social transfers are the most effective intervention for limiting ENSOrelated poverty increases. When all policy scenarios are implemented at the same time, total consumption losses during strong El Nino event years are almost eliminated, from a 3.9 percent to a 1.2 percent loss. Welfare improvements are even more dramatic for households in the poorest quintile, reducing losses from 4.9 percent to 0.4 percent.

Rural and female-headed households’ welfare declines the most during El Niño, but these households also stand to gain the most from policy interventions. Simulations show that without any policy interventions, rural family consumption falls by 3.5 percent. This is 0.8 percentage points more than urban family consumption losses. Restrictions on rice exports are the most effective in stabilizing urban consumption losses during a strong El Niño. The goal of export restrictions is to curb increases in domestic rice prices during supply shocks. This is a policy Vietnam has implemented before, albeit temporarily, in 2004 and 2007. Unfortunately, export restrictions also reduce rural farmers’ incomes and can negatively impact other countries whose populations depend on imported grains from Vietnam. For similar reasons, rural households benefit less from distributing stored grains than urban households because it reduces farmers’ incomes. Social transfer programs, like targeted cash transfers, benefit rural families the most because these families tend to be poorer than urban families. Simulations also show that female-headed households benefit more than male-headed households from policy options. This is especially true for social transfers, in part because female-headed households are more likely to be poor and thus more likely to be the beneficiaries of a progressive transfer scheme.

The government can take additional actions to improve ENSO preparedness in Vietnam

There are many opportunities to improve ENSO preparedness and resilience. In Table A, recommendations are divided into two groups: preparedness and resilience.

Preparedness are measures specifically geared toward ENSO and should, ideally, be in place before the next ENSO event occurs. These actions will significantly empower people to cope, respond, and recover from damaging ENSO events. Resilience, by contrast, are measures that are not specifically tailored to ENSO, but that will build individuals’ and organizations’ ability to adapt to multiple forms of risks and shocks without compromising long-term development. Recommendations in purple are a high priority; recommendations in yellow are a moderate priority. The final two columns denote short-term (S) actions that could be completed within a year, and medium- to long-term (M/L) actions that require more than a year to achieve.