the impacts of fluctuations of inputs price on the economic efficiency of tea production of farmer housedolds in thai nguyen province

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DEPARTMENT OF EDUCATION AND TRAINING
THAI NGUYEN UNIVERSITY


NGUYEN THI PHUONG HAO



THE IMPACTS OF FLUCTUATIONS OF INPUTS
PRICE ON THE ECONOMIC EFFICIENCY OF TEA
PRODUCTION OF FARMER HOUSEDOLDS IN
THAI NGUYEN PROVINCE

Speciality: Agricultural Economics
Code No.: 62.62.01.15



Ph.D THESIS SUMMARY OF AGRICULTURE

THAI NGUYEN, 2014
2

The study was done at:

COLLEGE OF ECONOMICS & BUSINESS
ADMINISTRATION, THAI NGUYEN UNIVERSITY






Scientific supervisors: 1. Doan Quang Thieu PhD.
2. Assoc. Prof. Nguyen Dinh Long PhD.

The peer review 1:
The peer review 2:
The peer review 3:
The thesis is prevented to the Council held in Thai Nguyen
University at the …, … , 2014



Desertation can be found at:
- National Library
- Learning Resource Center, Thai Nguyen
University

- Library of College of Economics & Business
Administration




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PREAMBLE
1. The necessity of the subject
The economic efficiency of tea in Thai Nguyen has given farmers
and the province economic benefits. However, in recent years, the
input market of tea production has fluctuated, which is detrimental to
farmers. Prices of inputs such as fertilizers, plant protection
chemicals, stimulants, labor, fuel has been continuously
increasing, causing difficulties to a majority of farmers and adversely
affecting their tea production efficiency. In this context, facing
general difficulties of tea sector of Thai Nguyen and of tea farmers in
the province, it is very necessary and practical to conduct a study
which assesses the impact of price fluctuations of inputs on
production, results and efficiency of tea farmer households, therefore
introducing practicable solutions to improve the efficiency of tea
production. From the above reason, the author has chosen the subject
“The impacts of fluctuations of inputs price on the economic
efficiency of tea production of households in Thai Nguyen province”
as a doctoral dissertation.
2. The research purposes
The purpose of the thesis rearch is to propose a number of
measures to advise the government and farmers to behave properly to
improve the efficiency of tea production in Thai Nguyen, after
analyzing the influence of price fluctuations of inputs on efficiency

of tea production of households in the province.
3. Object and scope of the thesis research
* Object:
The main researching objects of the thesis research are economic
efficiency in tea production of farmer households, the impact of
increasing price of inputs on economic efficiency in tea production
of farmers, the influence of inputs on productivity and technical
efficiency in tea production of farmers in Thai Nguyen province.
* Scope:
Of content, the research limits on the economic efficiency in tea
production of farmers before and after increasing price of inputs; the
influence of increasing price of inputs on economic efficiency in tea
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production of farmers; analysis the impact of various types of inputs
on the technical efficiency in production of farmers in Thai Nguyen;
the impact of rising costs on economic efficiency in tea production of
farmers. Of space, the research limits on Thai Nguyen province. Of
time, the research uses secondary data collected from 200 to 2012.
Primary data was collected through direct interviews with
households in 2008, and 2012.
4. The layout of the thesis
Besides the introduction and conclusion, the thesis consists of 04
chapters:
Chapter 1: The rationale for the impact of increasing price of inputs
on economic efficiency in tea production of farmer households.
Chapter 2: Research methodology.
Chapter 3: Impact of increasing price of inputs on economic
efficiency in tea production of farmer households in Thai Nguyen
province.
Chapter 4: Major solutions to improve economic efficiency in tea

production of farmer households in Thai Nguyen province.

Chapter 1. THE RATIONALE FOR THE IMPACT OF
INCREASING PRICE OF INPUTS ON ECONOMIC
EFFICIENCY IN TEA PRODUCTION OF HOUSEHOLDS
1.1 Rationale for the price, price fluctuations and economic
efficiency in tea production of households
1.1.1 Specification and economic characteristics of tea plant
According to Willson, K.C (1992 ), the scientific name for tea
plant is Cmaellia sinesis whose leaves and buds are used to produce
tea .There are many factors influencing tea production such as
natural conditions ( soil , climate), technical ones( breed, irrigating
water, fertilizer, planting density, hewing, picking tea . ), economic
ones (prices ).
1.1.2 Farm household’s economy
There are many different notions of farm household and farm
household’s economy. Refering to documents, the dissertation
presents the concept of farm households and farm
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household’economy. Farm household is a household that is
considered as an economic unit having land, means of production,
productive capital owned by the household and mainly using family
labor for production in agriculture. The household members are
entitled to the income and all decisions are based on the general idea
of adult members of the household. Farm household’s economy is
kind of economy in which production activitities are based mainly on
family labor and its purpose is to meet the demand of the household
(not to manufacture goods for sale) . However, it should be noted
here that the households can also produce for exchange but at a
limited level.

1.1.3 Economic efficiency in tea production of farm households
a. The concept of economic efficiency in tea production
Presently there are a lot of views on economic efficiency, but in
this topic we refer to some materials and synthesize a concept:
Economic efficiency in tea production of farm households is an
economic category reflecting the quality of tea production process
which is determined by comparing the outputs of tea production with
the cost of inputs.
b. Factors affecting the economic efficiency in tea production of farm
households
Technical factors in tea production (breed, fertilizer, farming
practices); Economic conditions and organization of production
(production scale , competence of the household head, policy
environment) ; social factors (farming practices , ethnicity , gender);
price factors (price of inputs, price of tea)
c. Methods to assess the impact of changes in input prices to
economic efficiency in tea production of farm households
Qualitative Analysis : Participatory rural appraisal (PRA) is used,
including in-depth interviews, group discussion method, expert
meetings, method of scoring and ranking, scheduling, causal diagram
(problem tree ).
The quantitative analysis is performed by following methods:
Comparing the efficiency indicators before and after the price
changes. Using the CD production function to assess the impact of
price on economic efficiency in the tea production. Using the frontier
6
production function to analyze the influence of inputs on
productivity and technical efficiency of tea production. Using
creasing regression to analyze the impact of increasing input costs on
household economic efficiency.

d. Improving economic performance of tea farmers
In order to improve economic efficiency in production, farmers
need to consider and follow the directions: Firstly, expanding the
scale of production in order to enhance the results obtained, however
the growth rate of output must be greater than that of input costs.
Secondly, improving the results obtained with unchanged input costs.
Thirdly, using inputs economically and effectivelys to reduce
production costs while results are constant.
1.1.4 Price and price fluctuation in tea production
a. The concept of price and types of price in tea production
Prices in tea production include prices of inputs and outputs.
There are many types of prices used in the market depending on the
purpose and exchange relationships. In this research for the purpose
of considering the effects of increasing price on production
efficiency of farmers we mention the following prices: (1) Price of
inputs for tea production: comprises costs of materials, services and
rental price of labor. (2) Price of outputs of tea production which is
the selling price of tea products.
b. Price fluctuations and Cause
The concept of price fluctuations is interpreted as the increase or
decrease in the price of products on the market from time to time or
space. In this research, price fluctuations are subject to increasing
price of inputs typically between one or several production cycles
that can create the risk of increasing or decreasing perfomance and
production efficiency.
The main causes of price fluctuations are: Currency inflation
(depending on the macroeconomic policy of the government);
External price fluctuations (regional and international prices);
Urbanization: Increasing demand, attracting rural labours makes
rural labors’cost increase; Events, factors caused reduced demand or

increased supply (eg, natural disasters, avian flu , mad cow epidemi);
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Consumer psychology (eg, fear of disease transmission products );
Monopsony situation , exclusive sales; Other causes
c. The impact of increasing price of inputs on tea production
Price fluctuation is not a new phenomenon but contains many
potential instability of agricultural production. Price risk is the
biggest obstacle to the development of farmers which have smal -
scale production. Economic cooperation is a solution to help
smallholders overcome the "shock" in price and increase production
efficiency.
1.2 Practical basis of the impact of increasing price of inputs on
economic efficiency in tea production of farmers
1.2.1 Price fluctuation of some key inputs in tea production
Fertilizer is a key input in the production of tea. The price of
fertilizer increased greatly recently which had a strong impact on the
efficiency in tea production of farmers in Vietnam in general and in
Thai Nguyen province in particular.
1.2.2 Lessons of farmers to cope with price fluctuations of input
Lesson 1: State plays an important role in price management,
price stability and farmers’support to minimize risks caused by
increasing price.
Lesson 2: To expand production and promote access to capital is
the best solution to overcome the impact of increasing prices of labor
and fertilizer in production.
Lesson 3: Farmer organizations, industry organizations and
industry coordination is a solution to overcome the impact of
increasing price of inputs.
1.3 Overview of the study
In the past few years there are many studies on tea and farmers in

Thai Nguyen province, these works mainly refer to issues about
resources of farmers producing tea, there has been no work which
researched comprehensively and specifically the impact of price
fluctuations on economic efficiency of farmers in Thai Nguyen
province. Therefore, the study “The impacts of fluctuations of inputs
price on the economic efficiency of tea production of households in
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Thai Nguyen province” has practical significance, meeting practical
requirements.
Chapter 2. RESEARCH METHODOLOGY
2.1 Approach and analytical framework
2.1.1 Approach
The study has used the participatory approach, the area approach,
the economic situation of households approach, household type
approach, public and private sector approach.
2.1.2 Analytical Framework
2.2 Research Methodology
* Subject: Thai Nguyen province is chosen as the subject of the
thesis.
* Data collection:
- Secondary Data Collection: Through books, articles, published
materials, documents available
- Primary Data collection: household survey method comprises
the following steps: selecting the survey; selecting households;
determining the number of households surveyed; surveying
households.
* Synthetic Methods: The study uses synthetic tools: Excel,
EViews, Frontier.
* Methods of analysis:
Qualitative Methods: Using PRA analysis tools, tree matter,

priority rank.
Quantitative Methods: descriptive statistical method, comparative
method, disaggregated approach, modeling methods: Using Cobb -
Douglas production function for analysis of price factors affecting
economic efficiency in tea production of farmers. Applying frontier
function to analyze the impact of inputs on productivity and technical
efficiency of households. Using creased regression analysis to
analyze the impact of increase in the cost of inputs on economic
efficiency of households.

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Chapter 3. EFFECTS OF INCREASING PRICE OF INPUTS
ON ECONOMIC EFFICIENCY IN TEA PRODUCTION OF
FARMERS IN THAI NGUYEN PROVINCE
3.1. Natural and socioeconomic features of Thai Nguyen province
Based on natural features, Thai Nguyen has the potential to
develop tea plant. The province has the 2nd largest tea area in the
country (18 605 ha), 9 districts and cities produce tea. Thanks to the
blessed soil, water, climate, it suits tea very much. Therefore, raw
fresh tea in Thai Nguyen has very high quality. Beside, tea producers
in Thai Nguyen have sophisticated care, harvesting and processing
techniques which have created the characteristic of Thai Nguyen tea,
100 % of the products are green tea products, high-grade green tea,
mainly for domestic consumption and exports.
3.2. Price fluctuations of inputs in tea production
3.2.1 Limiting period of price fluctuations of inputs tea production
in recent years to conduct research
Research chooses the landmark of 2007 which was before price
fluctuation, in which prices of inputs had not fluctuated much.
Research chooses 2011 which was after price fluctuation, in which

prices of inputs increased and became stable, interest rate was fixed,
inflation was slight and weather did not change much.
3.3.2. Fluctuations in the price of some key inputs in tea
production
In recent years, inputs such as fertilizer, plant protection
chemicals, fuel, labor fluctuated greatly. Causes contributing to
the increase in price of inputs in tea production in recent years are:
fluctuation in world market prices, urbanization, monetary inflation,
consequence of macroeconomic policies, monopoly of agricultural
services, profiteering and others
3.3 Assessing the impact of fluctuation in price of input on
economic efficiency in tea production of farmers in Thai Nguyen
province
3.3.1. The situation of tea production of researched households
- Types of households: Tea production of households seemed to
increase after price fluctuation. Prices of inputs in the production of
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tea grew which made the price of tea products increase, thus tea
production of households are reflected through norms of production
value’s, added value’s and mixed income’s increase after
fluctuations in price of inputs .
Value of tea production of specialized households increased more
greatly than non-specialized households. After fluctuations in price
of inputs, specialized households got the value of tea production of
52 577 ngd, non-specialized got 40 441. Considering mixed income,
specializing households still had higher growth rate than non-
specialized ones. Comparing the tiem after price fluctuations with the
time before price fluctuations, the growth rate of mixed income of
specialized households was 72%, of non-specialized ones was only
61%.

- Level of income: Production value of wealthy households at the
time before price fluctuations of inputs was 1.69 times greater than
average households and 3.87 times greater than poor ones. Mixed
income of wealthy households is 1.44 times higher than the average
household and 4.05 times greater than the poor ones. After price
fluctuation, the gap between wealthy households and average and
poor ones is widening. The production value of wealthy households
is 2.2244 times and 5.18 times higher than that of average household
and of poor household, respectively. Mixed income of wealthy
households is 2,03 times and 5.45 times higher than that of the
average household and of the poor one. After price fluctuations,
wealthy households’production value increased from 32604 ngd to
76864 ngd, income increased from 21921 ngd to 42088 ngd.
Indicators of tea production of poor households increased but less
than wealthier households, production value increased from 8422
ngd to 14830 ngd Mixed income of poor households increased from
5411 ngd to 7718 ngd. The average household’s production value
and mixed income also increased after price fluctuations.
3.3.2 Economic efficiency in tea production of researched
households
* By types of household: Table 3.16 shows the efficiency of using
captial of two groups changes differently, overall efficiency of the
two groups decreased after price fluctuations. On average, before
price fluctuation, cost of 2.654 thousand dong resulted in production
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value of 3,747 thousand dong and mixed income of 2,654 thousand
dong. After fluctuation, costt of 1 thousand dong resulted in
production value of 2,749 thousand dong and mixed income of 1,624
thousand dong. Labour efficiency of household also decreased after
price fluctuation. On average, before price fluctuation, labour cost of

1 thousand dong resulted in production value of 3,158 thousand dong
and mixed income of 2,232 thousand. Labor cost increased which
reduced labor efficiency. After fluctuation, labour cost of 1 thousand
dong resulted in production value of 2,757 thousand dong and mixed
income of 1,522 thousand dong.
Table 3.14. Economic efficiency in tea production of different types of
household (on average)
Indicator
unit
Type of production

Average
Specialized
household
Non-
specialized
household
Before fluctuation
1. GO/DT
Ngđ/rod
2,991
3,67
3,289
2. MI/ DT
Ngđ/rod
2,162
2,53
2,323
3. GO/IC
Turn

3,792
3,690
3,747
4. MI/IC
Turn
2,741
2,544
2,654
5. GO/LĐ
Turn
2,920
3,462
3,158
6. MI/LĐ
Turn
2,111
2,387
2,232
After fluctuation
1. GO/DT
Ngđ/rod
6,047
7,382
6,634
2. MI/ DT
Ngđ/rod
3,719
4,097
3,885
3. GO/IC

Turn
2,941
2,506
2,749
4. MI/IC
Turn
1,808
1,391
1,624
5. GO/LĐ
Turn
2,564
2,617
2,587
6. MI/LĐ
Turn
1,577
1,453
1,522
Source: Summary of household survey data in 2012
* By income
There are also significant disparities in efficiency between
wealthy households with average and poor ones. GO, VA, MI of
wealthy households tend to increase more greatly, therefore
production efficiency was higher than that of poor households.
12
Average households have the highest efficiency. Considering the
impact of price fluctuations, the efficiency in using land of
households increased. But efficiency in using capital and labor
decreased.

Table 3.15. Efficiency in tea production of households by income
(average/household)
Indicator
Unit
Wealthy
household
Average
household
Poor
household
Average
Before fluctuation
1. GO/DT
Ngđ/rod
3,385
3,018
2,955
3,103
2. MI/ DT
Ngđ/rod
2,276
2,380
1,898
2,220
3. GO/IC
Turn
3,351
5,371
2,978
4,159

4. MI/IC
Turn
2,253
4,236
1,914
3,053
6. GO/LĐ
Turn
3,448
3,275
1,985
2,975
6. MI/LĐ
Turn
2,318
2,583
1,276
2,155
After fluctuation
1. GO/DT
Ngđ/rod
7,980
5,415
5,203
6,075
2. MI/ DT
Ngđ/rod
4,370
3,251
2,708

3,417
3. GO/IC
Turn
2,508
2,785
2,294
2,574
4. MI/IC
Turn
1,373
1,672
1,194
1,459
6. GO/LĐ
Turn
3,111
2,309
1,404
2,289
6. MI/LĐ
Turn
1,704
1,386
0,731
1,298
Source: Summary of household survey data in 2012
Before price fluctuation, cost of 1 thousand dong resulted in
mixed income of 2,253 thousand dong in wealthy household, of
4,236 thousand dong in average household and 1,914 thousand dong
in poor household. After price fluctuation, cost of 1 thousand dong

resulted in mixed income of 1,373 thousand dong in wealthy
household, of 1,672 thousand dong in average household and 1,184
thousand dong in poor. Labour efficiency of poor household after
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price fluctuation was very low. This proved that increasing price of
labor greatly affected poor household.
3.3.3 Analysis of the impact of increasing price of inputs on
efficiency in tea production of farmers
3.3.3.1 Analysis of price factors affecting economic efficiency in
tea production of household
The thesis used Cobb - Douglas production function to analyze the
impact of increasing price on economic efficiency of production of
tea farmers. Price factors affecting economic efficiency in tea
production of farmers include: selling price of tea bud’s products,
price of inputs (fertilizer, pesticide, fuel, labor), household type,
education level of household head, gender of household head and
production technology of household.
* Analysis of prices affecting MI /rod
Production function:

4.D4γ3.D3γ2.D2γ1.D1α5
5
α4
4
α3
3
α2
2
α1
1

αi
yi
.ePPPPPAPY




Using EViews software to estimate the results obtained:
Y = 35,547.
195.0
5
-0.023
4
-0.048
3
-0.095
2
-0.323
1
0.219
y
PPPPPP


D40.189 - 0.015D3 - 0.007D2-0.273D1
e


Coefficient αi is (+) positive, suggesting that the selling price of
tea increased which made mixed income/rod increased. Specifically,

when other factors unchange, if the price of tea increased by 1 %,
mixed income/rod would increase by 0.219 %, meaning that when
product prices increase by 1 thousand dong, mixed income/rod
increases by 0.731 thousands dong.
Coefficients α1, α2, α3, α4, α5 are (-) negative, suggesting that
when price of inputs (fertilizer, pesticide, fuel, herbicide, outsourced
labor) increases, mixed income / rod decreased.
Specifically, the biggest deciding factor to economic efficiency in
the production of tea of household is the price of fertilizer. When
fertilizer price increased by 1 %, mixed income of households/rod
fell by 0.322 %. Provided that other factors are constant, the price of
fertilizer increased by 1 thousand dong then mixed income/rod
decreased by 4.404 thousand. In case fertilizer prices increased so
greatly, households must invest fertilizer according to technincal
14
instructions as well as fertilizer limit for tea plants with the lowest
cost to achieve the highest economic efficiency. Cost of outsourced
labor had a major influence on mixed income/rod of household.
When outsourced labor cost increased by 1 %, mixed income/rod
decreased by 0.195 %. When price of pesticides increased by 1 % ,
mixed income of households/rod fell by 0.095 % , meaning that
when price of pesticides increases by 1 thousand dong, mixed
income of household decreases by 1.572 thousand. Effect of
pesticides is to limit pest, stimulating tea and higher tea production.
However, pesticides and drugs should be used moderately and
appropriately to ensure the quality of tea and save costs.
The dummy variable for the type of tea growers showed non-
specialized households have lower mixed income / rod than
specialized ones by 0,273%. This is because specialized households
know how to invest in tea production more reasonably than non-

specialized ones. Dummy variable for manufacturing technology
shows households applying innovative machine have lower mixed
income / rod than non-specialized ones by 0.189 %. The reason is
that households applying innovative machine invest more on fuel for
production whose price increases causing their cost increase and
reducing their mixed income/rod.
- Analysis of price factors affecting the efficiency costs (MI/IC)
Estimation resulted in results:
Y= 20,794.
757.0
5
0.140
4
0.084 -
3
-0.080
2
-0.064
1
0.016
y
PPPPPP


D40.081 - D30.030 - D20.026 0.069D1
e


The biggest determining factor to their cost effectiveness is the
price of outsourced labor. When the price of outsourced labor

increases by 1%, the MI / IC of household decreases by 0.757 %.
When fertilizer prices increases by 1 %, the MI / IC 0.064 % of
households decreased . As fuel price rises by 1 %, mixed income of
households / cost decreased by 0,084 %. Pesticide price increased by
1 % then the MI / IC decreased by 0.080 %. The dummy variable for
the type of tea growers shows that non-specialized households’ MI /
IC is 0.273% lower than specialized ones.


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3.3.3.2 Analysis of the influence of inputs on productivity and
technical efficiency in the production of tea of households
The thesis use the limited production function to analyze the
impact of various types of inputs on productivity and technical
efficiency in tea production. Effectiveness of using production costs
and technical efficiency of farmers are reflected in the results
estimated from Cobb - Douglas production function (OLS - Average
function and MLE - Frontier function).
Table 3.18. The results estimated from the limited production function
Variable
OLS (Average function)
MLE (Frontier function)
Coefficient
t- test
Coefficient
t- test
Coefficient of
freedom
3,814
5,315

3,816
6,762
The amount of
urea
0,059
1,591
ns
0,042
1,415
Phosphorus
0,083
1,562
ns
0,074
1,353
Amount of
potassium
0,0103
6,363
0,0104
9,230
Amount of NPK
0,043
3,182
0,045
5,579
Pesticide
0,028
2,181
0,029

2,806
Amount of
manure
0,057
3,843
0,057
3,872
Amount of
working day
0,064
2,682
0,065
2,706
Sigma-square: 0.149766
Gamma: 0.850231
Sigma-square: 0.129173
Gamma: 0.870826
Note: ns: No statistically significant
The estimated results in Table 3.20 show inputs such as potash,
NPK fertilizer, pesticides, manure and care help increase the
productivity of farmers producing tea in Thai Nguyen.
Ptassium being increased by 1 % would make tea leaves yield
increase by 0.01 %. That is, potassium being increased by 1kg / rod
would cause yield increase by 0.69 kg/rod. Similarly, NPK being
increased by 1% would cause tea yield increase from 0.043 % to
0.045 %, meaning that potassium being increased by 1kg / rod would
cause yield increase by 1.76 kg/rod.
Manure being increased by 1 % would make tea yield increase by
0.057%, that is manure being increased by 1kg/rod would casue tea
16

yield increase by 1.8 kg /rod. Likewise, working days being
increased by 1 % would make tea yield increase by 0.064 - 0.065 %.
Coefficient of nitrogen and phosphate fertilizer are not statistically
significant, which may be explained that investment of these factors
was so high that their impact on tea yield was low and unclear.
Table 3.1. The effect of tea production techniques surveyed households
Level of technical efficiency
Number of
households
Ratio (%)
< 60 %
0
0
60 – 70 %
42
11,69
70 – 80 %
71
26,79
80 – 90 %
105
39,62
90 – 95 %
36
17,35
95- 100 %
11
4,55
Average technical efficiency
80,68 %

Source: Result from running the Frontier function
From the results estimating the model, the technical efficiency of
farmers in Thai Nguyen is determined. Table 3:21 shows that the
average technical efficiency of tea producers in Thai Nguyen reached
80.68 % compared with the potential yield which can be achieved in
normal farming conditions. Thus, Thai Nguyen province is still
likely to increase the yield more tea if inputs like potash NPK,
manure and labor are invested more along with improving cultivation
techniques of farmers.
In short, models show that inputs like NPK, potassium, manure,
pesticides, labor play an important role enhancing productivity and
technical efficiency in tea production of farmers in the province.
3.3.3.3 Effect of cost fluctuation on economic efficiency
To assess the impact of fluctuations in costs on the economic
efficiency of households, the thesis used the creased regression
models to analyze. Regression takes the form:
E (Yt) = a1 + a2.Xt + a3.(Xt - Xt0).Dt + Vt
Where: Yt is mixed income (MI ) of households ;
Xt is the intermediate costs of households in 2011;
17
Xt0 the intermediate costs of households in 2007;
Results of regression analysis obtained regression of the form:
Xt Yt = 18 547 + 2,504 - 1,045.(Xt - Xt0 ) Dt
Comparing effectiveness of using capital before and after
fluctuations shows that the coefficient a3 = -1.045 < 0 indicating
effectiveness of using capital after fluctuation was lower than that
before fluctuation by -1.045 units .

Chart 3.5. Effectiveness of using costs before and after price
fluctuation

- Before fluctuation (D = 0): MI = 18 547 + 2,504 IC
Thus, before fluctuations, every extra 1 thousan dong of capital will
increase the effectiveness of investment by 2.504 thousand dong of
mixed income.
- After fluctuation (D = 1): MI = 24109.535 + 1.009 IC
Thus, after fluctuation, every extra 1thousand dong of cost will
increase the effectiveness of investment income by 1.009 thousand of
mixed income.
3.3.4 General comments on the impact of increasing price of inputs
on economic efficiency in tea production of households
MI = 24109 + 1,009 IC
MI = 18547 + 2,504 IC
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* Comparing the growth of increasing tea production with the
growth of increasing tea production cost of households

Table 3.22 . Growth and cost outcomes by type of household
Unit: ngd
Indica
-tor
Before fluctuation
After fluctuation
Growth rate (%)
Specialized
household
Nonspecializ
ed household
Specialized
household
Nonspecializ
ed household
Specialized
household
Nonspecializ
ed household
GO
25.988
12.455
52.557
25.025
102
101
VA
19.135
9.080
33.686

15.042
76
66
MI
18.789
8.587
32.324
13.889
72
62
TC
7.199
3.868
20.233
11.136
181
188
IC
6.853
3.375
17.871
9.983
161
196
(Source: Summary of household survey data in 2012)
Table 3.23. Growth rate of results and and cost by income
Unit: ngd
Indic
-ator
Before fluctuation

After fluctuation
Growth rate (%)
Weal
-thy
Ave-
rage
Poor
Wea
thy
Aver
age
Poor
Wealt
-hy
Aver
-age
Poor
GO
32.6
19.3
8.4
76.9
34.6
14.8
136
79
76
VA
22.9
15.7

5.6
46.2
22.1
8.4
102
41
59
MI
21.9
15.2
5.4
42.1
20.7
7.7
92
37
43
TC
10.7
4.1
3.1
34.8
13.8
7.1
225
239
136
IC
9.7
3.6

2.8
30.6
12.4
6.5
215
246
129
(Source: Summary of household survey data in 2012)
The impact of the rise in prices of inputs in the production of
farmers exacerbated their costs. Along with rising costs, price of tea
products also increased, production value and household’s income
also increased. However, the growth rate of costs was greater than
that of the results. This reduced the economic efficiency in tea
production of farmers. Specifically, for non-specialized households,
the growth rate of mixed income is 72 % but the growth rate of the
total cost and intermediate costs were respectively 181 % and 161 %,
2 times more than the growth rate of results. Non-specialized
households were affected as specialized ones. The growth rate of
costs of non-specialized household were greater than that of
specialized ones.
In terms of income, average household and wealthy household had
greater growth rate because they remain high level investment for tea
19
production. Poor households lacked the resources, therefore when
price of inputs increased, they cut down on costs for production
which reduce the growth rate of costs. After fluctuation, the growth
rate of mixed income of wealthy and average households were 92 %
and 37 %, respectively. While the growth rate of intermediate costs
of wealthy and average households were 215 % and 246 %,
respectively.

* Evaluation of economic efficiency in tea production of household
after iincreasing price of inputs
Table 3.24. Comparing the efficiency in tea production of
household before and after increasing price of inputs (by types of
household)
Indicator
Specialized households
Non-specialized households
Absolute
(times)
Relative
(%)
Absolute
(times)
Relative
(%)
1. GO/DT
3,056
202,2
3,712
201,1
2. VA/DT
1,674
176
1,767
166,2
3. MI/ DT
1,447
172
2,440

196,4
4. GO/IC
- 851
77,6
-1,184
67,9
5. VA/IC
- 907
67,5
- 1,184
56,0
6. MI/IC
- 933
66
- 1,153
54,7
7. GO/LĐ
- 356
87,8
- 845
75,6
8. VA/ LĐ
- 506
6,5
- 951
62,3
9. MI/LĐ
- 534
74,7
- 934

60,9
(Source: Summary of household survey data in 2012)

20
Table 3.25. The efficiency in tea production of household before
and after increasing price of inputs (by income)
Indicator
Wealthy household
Average
household
Poor household
Absolute
(times)
Relative
(%)
Absolut
e (times)
Relative
(%)
Absolut
e (times)
Relative
(%)
1. GO/DT
4.595
235,7
2.379
179,4
2.248
176,1

2. VA/DT
2.424
202,1
1.015
141,3
974
149,6
3. MI/ DT
2.094
192,0
871
136,6
810
142,7
4. GO/IC
- 843
74,8
- 2.586
51,9
- 684
77,0
5. VA/IC
- 843
64,1
- 2.586
40,8
-684
65,4
6. MI/IC
- 880

60,9
- 2.564
39,5
- 720
62,4
7. GO/LĐ
- 337
90,2
- 966
70,5
- 581
70,7
8. VA/ LĐ
- 549
77,3
- 1.185
55,5
- 1.380
0,1
9. MI/LĐ
- 614
73,5
- 1.197
53,7
- 1.275
0,1
(Source: Summary of household survey data in 2012)
Considering the pace of development of land use indicators in
table 3.24 and 3.25 shows that they are greater than 100 % reflecting
the increasing efficiency after price fluctuation. In terms of cost

efficiency and labor efficiency, speed the development of
performance indicators are less than < 100 % indicates cost
efficiency and reduced labor efficiency.
In summary, through considering the results and effectiveness of
tea production, the indicators reflecting the production results of
household increased after fluctuation. Specifically, the production
values and mixed income of households increased after fluctuation.
This proves that although the price of inputs increased, farmers still
obtained certain results. However, the growth rate of production
values and mixed income was less than that of costs, so efficiency
declined after fluctuation. When considering the effectiveness of
using costs or of using capital, they both decreased after fluctuation.
This proves although production increased due to increasing price,
economic efficiency declined due to the fact that the growth rate of
in input prices was greater than that of productivity and output price
21
(price of tea). This is detrimental to the production of farmers and
disadvantagous for their agricultural practices.
3.3.5 Assessment of farmers about the elements needed to improve
economic efficiency in terms of input price volatility
Needs of different households are different due to the disparity in
resources of household and are evaluated as follows:
Level of importance: Demand for loans was considered as very
important by up to 59 % of households, as important by 24 % and as
not very important by only 3 % of respondents. This is because most
farmers lack capital for tea production, a number of households
wanted to invest in manufacturing technology and increase planted
area. Beside, the demand of for extending the training was
considered as very important by 61 % of respondents (Table 2.23)
and as not very important by no one. This suggests that the majority

of farmers had little chance of participating in training to improve tea
production.
Level of unimportance: The criteria of applying new variaties to
production was considered as very important by only 8 % chose and
as not very important by 49 % of respondents, this is due to the fact
that the transition from the midlands varieties to new varieties
encountered many difficulties in the application of technical
measures and capital.
Chapter 4. MEASURES TO ENHANCE ECONOMIC
EFFICIENCY IN TEA PRODUCTION OF FARMERS IN
THAI NGUYEN PROVINCE IN CASE OF INCREASING
INPUT PRICES
4.1. Base of measures to improve the economic efficiency in tea
production of farmers in Thai Nguyen province in case of
increasing input prices
4.1.1 Policy to develop and plan tea production in Thai Nguyen in
the coming time
* Developing tea production on the basis of bringing the
strengths of each region and local into play.
* Developing tea along with industrialization, modernization of
the country and industrialization, modernization of the rural area.
22
* Developing tea production in the comprehensive and
sustainable agricultural development.
* Developing tea production on the condition that our country
joined the WTO.
* Developing tea production being oriented farm economy.
* Strengthening management, especially promoting the brand of
Thai Nguyen tea.
* The result of the planning and development of tea production

in Thai Nguyen and its task.
4.1.2 Demand for tea and tea products’ price
Domestic demand: According to the Vietnam Tea Association
(Vitas), domestic tea consumption tends to increase recently. At
present, the demand for tea of the country's population accounts for
about 30 % of the total tea production of the country, with an average
increase of 3 to 5% per year. Demand is growing up which is a good
sign for the decision to increase productivity and output of farmers in
Thai Nguyen. Besides, the domestic tea consumption of green tea is
mainly processed manually, the price is relatively stable. There have
been special and premium kinds of tea, however the volume has not
meet the market demand.
Trends in international and domestic price fluctuations: The
international tea prices by month started to increase from the end of
November, 2010 and peaked in January, 2011, at about 368.1 U.S.
cents / kg but decreased from February, 2012. Overall, tea supply
increased but demand had increased at a higher rate, therefore prices
tended to increase.
4.1.3 Forecast price trends in tea production inputs
To see the price fluctuation of inputs of tea production in the
coming time, the thesis applies the model predicting the trend of
linear functions and AR function.
* The model predicted the trend of linear function:
Yt = a0 + vt + a1.t
The parameters a0, a1 are estimated in normal equations.
Forecasting function takes the form: Yt = 3860.37 + 583.73. T
* Forecast model AR (1): Yt = a0 + a1 Yt - 1 + Ut
23
According to Annex 02 the correlation coefficient r = 0.9337. As
the observed value t depends only on the value of previous

observations and autocorrelation function, r = a1.
According to Annex 02 we have r = a1 = 0.9337. Coefficient a0
= 5436.63.
AR function (1) takes the form: Yt = 5436.63 + 0.9337 Yt - 1 + Ut
Thus, in the next few years, the average price of output in the
province still has an upward trend.
4.1.4 The concept of enhancing economic efficiency of production
of tea farmers in Thai Nguyen province in terms of input prices
Fluctuations in input prices of tea production is an objective
trend. Increasing price of inputs has a negative impact on the
efficiency of production of farmers, which may be limited by
economic, organizational and technical measures.
To limit the impact of rising input costs and enhance efficiency
in tea production of farmers, it is necessary to combine solutions that
influence both the input and output of tea production, in which the
former plays a particularly important role. Since this is the main
source for increased economic efficiency in tea production, we
should offset input costs in the context of increasing price currently.
Improving the efficiency in tea production of farmers in case of
increasing price of inputs requires basic and long-term solutions.
To reduce the impact of increasing price of input on tea
production effectively and improve efficiency of farmers, it is critical
to combine the promotion of the role of the state management
agencies and role of farmers, in which the role of farmers is
particularly important.
4.1.5. Orientation of the enhancement of economic efficiency in tea
production of farmers in Thai Nguyen province in case of
increasing price of inputs
Developing tea production oriented concentration with a high
degree of specialization, improving commodity production in tea

production.
24
Renewing provision of inputs and fertilizer for tea production to
ensure appropriate supply of inputs, reduce intermediary costs and
avoid middlemen profiteering.
Improving productivity and quality of tea products of farmers to
increase the price of tea products and of tea exports.
Improving production techniques and business management of
all tea producers.
Using inputs rationally and scientifically to save production
costs, improve productivity of tea.
Promoting the role of economic cooperation in the production and
business of tea farmers
4.2. A number of measures to improve the economic efficiency in
tea production of farmers in Thai Nguyen province in case of
increasing prices of inputs
From the results of studies assessing the impact that increasing
price of inputs has on the economic efficiency in tea production of
farmers in Thai Nguyen province and the basis for determining the
solutions presented in Section 4.1, author proposes the following
solutions:
* Solutions related to macro management include:
- Complete planning for the areas of tea, improve concentration
and specialization of production of tea in the province;
- Development of processing industry in the province;
- Actively promote the application of scientific and technological
advances in production and processing of tea;
- Enhanced credit support for farmers producing tea;
- Increase public investment in infrastructure in the areas of tea;
- Solution market input, the output of tea production;

- Formation of the tea industry value chain.
* Solutions for farmers include:
- Upgrading of technical and business management of the tea
farmers, raise awareness of households;
- Expanding the area of new varieties of tea, using new materials,
manufacturing processes applied science to save cost, high tea yield;
25
- Intensification of production reasonable limits apply at the top
achievements in tea production;
- Improve product quality and ensure hygiene and food safety
practices through VIETGAP, proceed to GLOBAL GAP to
increase the price of tea products;
- Participate in the appropriate form link at all stages of the
production process;
- Focus marketing tea products, branding, consumer
organizations network.
CONCLUSION
From the results of the study on fluctuations in price of inputs
and economic efficiency of farmers producing tea in Thai Nguyen
province, author draw some conclusions:
1. For farmers producing tea, fluctuations in price of inputs and
outputs of tea products influence the cost and competitiveness of tea
products, directly affecting farmers’ income, economic efficiency,
decisions and business strategy.
2. Generally speaking, fluctuations in price of inputs cause the
economic efficiency in tea production to decline. Comparing middle
– income farmers with low-income ones, increasing price of inputs
affects income and economic effeciency of poor farmers more
greatly.
3. The decline in economic efficiency in tea production has

consequently led to the division of investment strategies for
production among different types of households. Farmers curb tea,
poor households tend to reduce fertilizer and materials in order to
achieve the highest marginal product and also to minimize the
dependence on fertilizer market when prices go up.
4. Results when analyzing the Cobb - Douglas production
function show that: selling price of bud tea products increases
making mixed income of household rise, price of inputs (fertilizer,
pesticide, fuel outsourced labor) increases making mixed income of
household decrease. The rate of the former is greater than that of the
latter, reducing the economic efficiency in tea production of farmers.
5. Results when estimating the creased regression models show
that the increase of costs of tea production due to increasing costs of
inputs reduces the economic efficiency in tea production of farmers.