Climate change and income diversification in the mekong river delta, a panel data analysis

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

ERASMUS UNVERSITY ROTTERDAM
INSTITUTE OF SOCIAL STUDIES THE
NETHERLANDS

VIETNAM –THE NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

CLIMATE CHANGE AND INCOME
DIVERSIFICATION IN THE MEKONG RIVER
DELTA: A PANEL DATA ANALYSIS

BY

NGUYEN THI TUYET NGA

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, December 2016
INSTITUTE OF SOCIAL STUDIES
UNIVERSITY OF ECONOMICS
THE HAGUE
HO CHIMINHCITY VIETNAM


THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

CLIMATE CHANGE AND INCOME
DIVERSIFICATION IN THE MEKONG RIVER
DELTA: A PANEL DATA ANALYSIS

A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN THI TUYET NGA

Academic Supervisor:
PHAM KHANH NAM

HO CHI MINH CITY, December 2016


ACKNOWLEDGEMENT

I would first like to thank my thesis supervisorDr. Pham Khanh Nam of the Vietnam –
The Netherlands Programme (VNP) at Ho Chi Minh City University of Economics. He
consistently allowed this paper to be my own work, but steered me in the right direction
whenever he thought I needed it.
I would like to express my gratitude to the VNP officers who were involved in
mythesis processby updating thesis schedule and providing good conditions for my
research process. Without their passionate participation, the thesis process could not have
been successfully conducted.
Finally, thanks are also due to my classmates for providing me with unfailing support

and continuous encouragement throughout my years of study and through the process of
researching and writing this thesis. This accomplishment would not have been possible
without them. Thank you.

Nguyen ThiTuyetNga
Ho Chi Minh City, December 2016

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ABSTRACT

The main objective of this study is to analyze the impact of climate change and other
socio – economic determinants on the income diversification strategy in Mekong River
Delta. The data set is drawn from the VHLSS 2010,2012 and 2014, while climatic data
including temperature and precipitation are extracted from the statistics website of The
Ministry of Agriculture and Rural Development (MARD). Salinity data is collected from
the Vietnam Institute of Meteorology, Hydrology and Climate Change.Findings of the
study show that farmers have tendency to diversify their activities to reduce risk of crops
failure when there is increasing temperature in dry season and precipitation in wet season.
However, it is recognized that those relationships are non-linear. Diversification behavior
is discovered not to be sensitive with the salinity intrusion and other climate variables.
Regarding socio-economic determinants, the household labor ratio and land area holding
are found to be positively correlated with the income diversification, while educational
qualification has the negative effect. A male household head would more likely to
diversify their activities to disperse risk of climate change than female head. From this
result, many policies are recommended in order to support farmers to access an effective
diversification strategy, helping them to response actively to climate change
consequences.

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TABLE OF CONTENT

Chapter
Acknowledgement ........................................................................................................
Abstract ........................................................................................................................
Table of content ...........................................................................................................
List of tables ...................................................................................................................
List of figures ..............................................................................................................
1.

2.

Introduction ...................................................................................................................
1.1.

Research problem ......................................................

1.2.

Research objective .....................................................

1.3.

Research scope ..........................................................

1.4.

Thesis structure ..........................................................

Literature review ...........................................................................................................
2.1.

Theoretical review ......................................................

2.1.1. Climate change ................................................

2.1.2. Impact of climate change ..................................

2.1.3. Adaptation of people to climate change ..........

2.1.4. Income diversification ......................................

2.1.4.1. Definition and classification of income div

2.1.4.2. Motivations of income diversification ......

2.1.4.3. Income diversification measurements ........
2.2.

Empirical review .......................................................

2.2.1. Impact of temperature and precipitation variat

2.2.2. Impact of high salinity intrusion to income div

2.2.3. Impact of socio-economic characteristics on in
3.

Research methodology ................................................................................................
3.1.

Analytical framework ...............................................

3.2.

Methodology .............................................................

3.2.1 Income diversification index ........................

3.2.2 Model specification ......................................

3.2.3 Variable description ......................................


3.3.

Data sources ........................................................

3.4.

Salinity measurement ...........................................

4.Result and discussion ..................................................................................................
4.1.

Overview of the Mekong River Delta..................

4.1.1 Geographical position and natural conditi

4.1.2 Socio – economic conditions ....................
4.1.3 Impact of climate change on the Mekong
4.2.

Salinity intrusion in the Mekong River Delta .....

4.3.

Descriptive statistics of variables ........................

4.3.1 Dependent variable .....................................

4.3.2 Independent variables .................................
4.4.

Empirical results ..................................................

4.4.1. Findings of the Poisson model ...................

4.4.2. Findings of the Tobit model ......................

4.4.3. Interpretation ..............................................

5.Conclusion ..................................................................................................................

5.1Conclusion ............................................................................................................

5.2Policy implications.................................................................................................

5.3Research limitations and research directions .........................................................

Reference ....................................................................................................................

Appendix .....................................................................................................................

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LIST OF TABLES

Table 3.1.Variable description......................................................................................................... 21
Table 4.1.Descriptive statistics........................................................................................................ 34
Table 4.2.Results of the panel Poisson model and panel Tobit model................................... 42

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LIST OF FIGURES

Figure 3.1.Analytical framework.................................................................................................... 16
Figure 3.2.Salinity stations in Mekong River Delta................................................................... 27
Figure 4.1.GDP share per sector in Mekong River Delta.......................................................... 29
Figure 4.2.Regional Division of Mekong River Delta............................................................... 31
Figure 4.3.The salinity intrusion map of Mekong River Delta................................................ 32
Figure 4.4.Income shares of households in Mekong River Delta........................................... 35
Figure 4.5.Precipitation in Mekong River Delta......................................................................... 37
Figure 4.6.Temperature in Mekong River Delta......................................................................... 38
Figure 4.7.Salinity at stations in Long An and Ca Mau – Bac Lieu....................................... 40

Figure 4.8.Marginal effect of precipitation in wet season......................................................... 44
Figure 4.9.Marginal effect of temperature in dry season.......................................................... 45
Figure A.1.Salinity at stations in Mekong River Delta.............................................................. 59

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CHAPTER 1: INTRODUCTION

1.1.

Research problem

Climate change has been the most controversial issue in the world due to its significant
impacts on many aspects of society and economy in which agriculture is the most vulnerable
sector. The variationof climate conditions is reflected through temperature rising, abnormal
precipitation, droughts, or floods. Thoseare the main reasons for insects, diseases, and crop
failures (Zerihun, 2012). Climate change is generally harmful for crop production, but
indeed, the impact is much diversified (IPCC, 2014).Specifically, higher temperature
shortens the growing period of rice, leading to rice yield reduction; however, in some study
the increased CO2 from the pollution has supported the photosynthesis process of some crops
such as maize and wheatresulting in a better productivity of cereals. In Japan, the increase of
o

1 C in the 20

th

century has resulted in the drop of wheat, vegetables, milk, and egg

production. In Russia, the potential production of major crops is acknowledged to fallby 50%
on average due to the climate change.On the other side, climate change does notgive identical
effects on agriculture sector in different areas in the world due to alternative natural
conditions and specific socio-economic characteristics of each region. All demographic
properties and adaptive solutions of people in an area are the main factors, which determined
the vulnerability to climate change.In spite of diversified impacts,it is undeniable that climate
change has severely affected food security all over the world.
Being the second biggestrice exporter in the world just after Thailand, Vietnam has 90%
of exported production derived from the Mekong River Delta. Located nearby the final
branches of Mekong River before converging into the ocean, Mekong River Delta is the wide
fertile area, which is appropriatefor rice paddy cultivation and is known as the biggest rice
granary in Vietnam. However, in recent years, Mekong River Deltaisseriously exposed to
threat of climate change, which is clearly shown in high saline intrusion in coastal areas,
droughts, and the shortage of fresh water in dry season, resulting in the restriction of arable
land.In particular, according to the projected climate scenario in 2100 of the Ministry of
Agriculture and Rural Development, if the sea level risesby 1meter, an approximate of 40%
arable land could be sunk in salt water. The yield shortfall has significantly caused the
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income loss for farmers, theincrease of poverty, and the social insecurity at the same time.
However,overcoming all difficulties of natural conditions, Mekong River Delta still keeps a
stable development rate of production.
In order to deal with environmental challenge, farmers have applied many solutions to
adapt with climate change and improve their lives. In those solutions, income diversification
is considered as an effective response to climate change (Smit et al., 2000; Bryan et al.,2011).
Specifically, income diversification helps farmers to reduce the risk of crop failureand
increase household’s total revenue (Zerihun, 2012;Haiwang et al., 2015).Income
diversification process is understood as the way in which farmers participate in
manyactivities to generate incomefor their households. For example, household’s income

sources could stem fromgrowing varieties of rice, fruits and other cereals; livestock breeding;
aquaculture rearing; or non-farm activities. Although income diversification is observed in
various levels, researchers still concern aboutthe drivers of income diversification. Several
studies suggested that drivers are temperature, drought, salinity,price change, and
institutional change. Understanding separate channels that lead to the farmer’s behavior on
diversifying income is important since it allows policy makers to know what to focus on in
their policies for farmers. Moreover, drivers of income diversification in the Mekong River
Delta could be different from other areas and in the world where evidences could be
found.Specific evidences for the Mekong River Delta are what policy makers need.
In Vietnam, income diversification process, which is considered as an effort to reduce
thethreatens of climate change, is favorablyrecommended for farmers by Vietnamese
Government.Besides,Government policies also relate to the improvement of physical
infrastructure, financial subsidy, and the openness of agriculture market. However, both
uncertainties about determinants of income diversification and the response of farmers to
climate changecould lead to the inefficiency or less efficiency of Government supporting
policies. Therefore, a research of climate change and income diversification could
producereliable and sustainable evidences for policy makers about the impact of climate
change on income diversification. Based on those empirical findings, policy makers could
implement policies, which are more efficient to support farmers in income diversification
process.

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1.2.

Research objective

The main objective of this study is to analyze the impact of climate change on the degree of
incomediversification. Climate change is reflected by the variation of temperature,

precipitation, and salinity intrusionin both dry season and wet season.Besides, other socioeconomic characteristicsare also investigated to clarify the responses of different households
in term of income diversification behavior.
Relying on the empirical findings, this study helps policy makersto understandhow
farmers diversify their income, the reliable determinants of income diversification, and the
behavior of farmers with different socio-economic characteristics to climate change through
income diversification. Then, policy makers could design current and futurepolicies that are
more appropriate for farmers. Those policies could reduce the potential risks of a specific
conventional agricultural activity due to harmful effect of climate change, maintain and
improve the living standard of farmers.
1.3.

Research scope

This study employs apanel data analysis for 362 households in the Mekong River Delta of
Vietnam, which is a coastal areaseverelyaffected by the climate change. Most of households
participate in the agricultural activities, which are the most vulnerable sectors. The time span
for the study is the period2010 – 2014 whichdraws an overall picture of the impact of climate
change and other socio-economicfactors on the income diversification, a common and
effective approach of adaptation.
1.4.

Thesis structure

The remaining of this study includes four chapters.Chapter 2 concentrates on theoretical and
empirical reviews from previous studies.Chapter 3 gives analytical framework of the studyin
term of empirical model and variable description. Chapter 4 shows us the data description
and givesempirical findings of the impact of climate change and other socio-economic
determinants on income diversification behaviors in Mekong River Delta. Finally, chapter 5
summarizes the main findings of research paper, suggests policy recommendations, figures
out research limitations, and gives several further research directions.

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CHAPTER 2:LITERATURE REVIEW

The chapter starts with the review of relevant issues on climate change, including the
concept, the impact and the response of people to climate change. Then, the chapter provides
a brief theory on the motivations of income diversification, an effective adaptation behavior
to climate change and approaches to measure diversification degree. An overview of
empirical researches contributes to the construction of a framework for estimating the impact
of climate change and other determinants on income diversification.
2.1

Theoretical review

2.1.1. Climate change
Climate change is defined as: “A change in the state of the climate that can be identified by
changes in the mean and/or the variability of its properties, and that persists for an extended
period, typically decades or longer. It refers to any change in climate over time, whether due
to natural variability or as a result of human activity”(IPCC,2007).That definition has a little
difference from the explanation of the United Nations Framework Convention on Climate
Change (UNFCCC) onclimate change: “A change of climate that is attributed directly or
indirectly to human activity that alters the composition of the global atmosphere and that is in
addition to natural climate variability observed over comparable time periods”
(UNFCCC,1992).
Following the definition, climate change could originate from natural changes of global
climate such as the change of the Earth’s orbit, the ability to receive energy from sun, and
volcanic eruption. However, the rapid warming of the Earth in recent decades could not
flame only for the natural activities, but human activity is likely to be the main reason. In the

fourth report of IPCC, scientists demonstrated that human activities are responsible for over
90 percent possibility of the greenhouse effect intensification, a phenomenon that long-lived
gases absorb heat radiated from the earth to space, making the earth surface warmer.
2.1.2. Impact of climate change
The increase of greenhouse gas emission has produced harsh effects to the climate, making
the climate change become more and more severe. Climate change intensifies potential
threats for natural conditions and human society. Impact of climate change much Page
4


diversifiesvia its unequal magnitude for different areas, and depends on vulnerability,
sensitivity, and adaptation capacity of affected zones to climate change.
First, the temperature increase makes the atmosphere becomehotter and more unpleasant,
and promotes the evaporation and precipitation. Glaciers and ice in the oceans are
remarkably meltedwhen the oceans water becomes warmer, making the sea level rise
constantly around the world. As a result, storms and floods happen more frequently and
intensely. The dry and hot weather in some regions has led to an increase of violent forest
fires and wildfires over recent decades, destroying the fresh atmosphere and threatening
habitats and lives.
st

o

At the end of the 21 century, the average temperature increases by about 1.9 – 3.4 C, the
global precipitation increases by 3.3 – 5.0%, and the sea level risesby over 18 – 24 cm in
comparison with those of the 1990s (IPCC,2013). The climate change has been the reason for
many long-lasting changes in the structure of the Earth surface and the remarkable, pervasive
change of the ecosystem in both continents and oceansall over the world. The water reserve
is harmfully influenced in term of both quantity and quality. In detail, fresh water shortage
becomes more hazardous, and high saline water gradually encroaches to the interior field.

Agriculture sector is heavily affected in both cultivation and animal husbandry, for example,
cropfailure rises due to drought, insects, diseases and salinity intrusion, soil
degradation;increase of cattle dead is caused by droughts or floods.
2.1.3. Adaptation of people to climate change
Agricultural system is the combination of biological, physical and chemical agents, while
climate plays a key part in influencing all three above processes.The vulnerability of the
agricultural sector is determined not only by harmful effects of climate change but also by the
adaptive capacity taken by people to overcome difficulties(Marshallet al.,2010).
Parry et al.(2007) gave a definition for “adaptation to climate change”as the “adjustment
in natural orhuman systems in response to actual or expected climatic stimuli or their effects,
whichmoderates harm or exploits beneficial opportunities” (IPCC, 2007).Adaptation and
mitigation areusually considered as the same, but in fact, they are just similar in the
purposeaspect. Mitigation is the practice to reduce emissions of greenhouse gases, while
adaptation is the response to climate change by exploiting new opportunities resulting from
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climate variation. According to Mastrandreaet al. (2010), adaptationcould reduce the
sensitivity and vulnerability of a society to the impacts of climate change.
In agriculture sector, key drivers which determine adaptive behaviors consist of
awareness and preferences of farmers (Godfray et al., 2010), the experience to cope with the
influences of climate change (Parry et al., 2007; Spies et al., 2011), market signals and
government policies (Preston et al., 2011). Besides, inventions and innovations from
researches contribute to the determination of adaptation investments because they propose
new and effective solutions.The harmonization of those drivers would promote the efficiency
of the adaptation solution and facilitate the optimal measure to response to climate
variability.One of the most important factors, which affects the adaptation method decision,
is the assessment of the costs and benefits achieved from the adaptation response. The
complicated happening of the climate scenario and the tentative performance of the adaptive
process make it difficult to measure the economic effectiveness of the adaptive typology.

Researchers proposed that the adjustment action would be more efficient if it is taken at large
scale (Adger et al., 2007).
Adaptation behaviors are categorized by multi-dimensional aspects such as space or time
span, intentionality (active or non-active behaviors), specific purpose (to adjust or reduce
susceptibility), the performer (individual, household, enterprise or government), the outcome
(increase heat tolerance or remain income), or approach(physical or technological measure).
Adaptation behaviors could also be the combination of many abovementioned attributes(Smit
et al., 2002; Adger et al.,2007).Because of the complex and ambiguous happenings of climate
change, adaptation solutions should be taken at multiple dimensions, requiring the
collaboration of many participants including farmers, researchers and policy makers.
The vulnerability of the agricultural system strongly depends on human behaviors to
adjust with the climate change. Therefore, the mission to improve the adaptive capacity of
agriculture is very necessary to intense the resilience of the system. This process is
implemented through improving the awareness of socio-economic and biological
determinants of the adaptive capacity, evaluating the costs and benefits of the response,
assessing the social and technological feasibility and resource limitation. All the adaptation
strategies focus on the objective of developing a sustainable agriculture economy.

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The designation of a typology of adaptation strategies is rather complicated due to the
dynamic and complex relationship between the climate change, the agricultural system and
the limitation of natural resources. The typology of adaptation behaviors is described
obviously in the case of Smit et al. (2002), in order to response to the variability of climate
conditions. The rising of seasonal temperature and reducing precipitation are determined as
the key drivers of adaptive strategies. In term of farm production, farmers are encouraged to
switch cultivars, change planting dates, use drought resistant crops, and build irrigation
system. In the aspect of financial management, economists suggest that farmers should
engage in crops insurance, invest on crops shares future, or diversify their income generating

activities. Regarding to farm infrastructure, the installation of the water management,
irrigation system, and weather forecast systems are essential. Concerningscientific
researches, demands for studying drought tolerant crops, accurate weather forecasting or
abnormal climate phenomenon areproposed. Among many actors, government plays a major
role in planning and supporting the most effective and appropriate adaptive strategies through
subsidy, government insurance, market connection or investment on technology.

Among many adaptation strategies of the agriculture system to climate change, income
diversification is assessed to be one of the most effective approach, which is suitable for
almost conditions. Diversification could be implemented in scope of farms by expanding
crops, engaging in more sources of farm income (animal husbandry, aquaculture), or
participating in non-farm activities. Income diversification is highly appreciated by its
efficient financial management aspect, which presents by the ability to prevent excess loss
due to harmful impact of climate change. Due to the convenience and efficiency aspects,
income diversification is greatly encouraged by policy makers when establishing adaptation
typologies.
2.1.4. Income diversification
2.1.4.1. Definition and classification of income diversification
Income diversification is defined as an effective adaptation method in which a household
engages in a portfolio of different income sources, including farm income, off-farm income,
and remittances (Kelly &Adger, 2000; Mendelsohn, 2000; Ellis, 2000, Minot et al., 2006).

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In term of farm-scale activities, Smit et al., (2000) referred two types of farm income
diversification, including geographic diversification and crop diversification. First,
geographic diversification needs a large area for integration many crops inside, requires a
high expense for fertilizers, labor, and management, and is just suitable for immense zone. In
the comparison with geographic diversification, crop diversification is assessed to be more

suitable in case of limited labor and arable land, and is more favored due to its high economic
effectiveness. Crop diversification introduces growing more short-day crops that could
tolerate severe natural conditions (high salinity or droughts) and could enhance the soil
quality and maintain moisture for land beside the main crop (e.g. rice, wheat). Diversified
crops with different harvest stages are grown in rotation, and help farmers to take benefit
from using land most efficiently.Moreover, farm income diversification also consists of
livestock breeding and aquaculture to take advantages of products from cultivation and create
additional value for farm activities (Bradshaw,Dolan, &Smit, 2004).
Besides farm activities, more and more farmers have tendency to involve in non-farm
activities, which are not volatile and independent on the abnormal weather. Non-farm
activities develop together with the growth of infrastructure (Escobal, 2001; Lanjouw, 2001).
Building new roads and expansion of water supply and electricity network have opened new
opportunities for the market economy,supported processing industry and services, and
provided hundreds of jobs for people in rural areas.
2.1.4.2. Motivations of income diversification
There are three main purposes of income diversification. First, diversification could reduce
the volatility result from yield risk caused by climate change or price risk caused by the
market instability. Income diversification is “a trade-off between a higher total income
involving greater probability of income failure, and a lower total income involving smaller
probability of income failure” (Ellis, 2000). Farmers accept to diversify in order to ensure
security although income may not be as much as specialization in just one income source.
Second, diversification is a medium of meeting household’s requirement, especially with
remote areas from the city. The difficult conditions, high expense of exchangingconsumption
goods, and necessities motivate farmers to engage in new activities to meet their own
demand. Finally, diversification is appreciated as an effective strategy to overcome “the

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diminishing marginal returns to labor problem” which is a common problem of farm

activities.
The motivations of income diversification could be classified into push and pull factors
(Davis &Bezemer, 2003; Haggblade et al., 2002). Push factors involve harmful exterior
elements such as climate change and policy adjustment causing adverse effect on farmer’s
income. Pull factors mention favorable conditions, which motivate farmers to diversify. Pull
factors could originate not only from inside resources such as educational qualification,
gender, and age, but also from outside resources such asinfrastructure improvement, industry
zone investment in rural areas, and evolving market. Pull factors provide opportunities for
households to engage comfortably in new income generating activities, while push factors
drives households to diversify compulsorily. With specific conditions of each household and
each zone, it is hard to compare the influence of pull and push factors on the incentive of
diversification.
2.1.4.3. Income diversification measurements
Income diversification measurements could be classified into two groups, including the onesided indexes and two-sided indexes. The first group evaluates the diversity by simply
counting the number of activities that generate income for a household or focusing on the
variation in the volumes of an important representative source; whereas the remaining group
succeeds in the combination of both dimensions of diversity (Zhao et al.,2013).
First, the one-sided group consists of following proxies:
(1)

The approach, which is based on the quantity of income sources, is suitable with the

original definition of the concept of income diversification. However, this proxy could not
describe the level of participation in each activity.
(2)

Another method to evaluate the rural diversification is to differentiate farm and

nonfarm activities, or low value and high value agricultural activities. By this approach, the
timespentfor each income source, or the share of income from each source in the total income

are used as the measurement of diversification (Lanjouw&Feder, 2001; Davis &Bezemer,
2003).
(3)

In term of commercialization characteristic of farming, diversification is regarded as

the ability to switch from raw material crops to commercialized products. This index is
measured by several ways such as the share of yield, the share of value, and the share of
income from sold or bartered products in the total agricultural output (Minot et al., 2006).
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Second, the two-sided index is higher evaluated than the one-sided one due to its
flexibility in describing the degree of diversification. With many varieties of income
generating sources unequally distributed, the proxies in this group give results that are more
accurate by taking into consideration all dynamic characteristics of diversification process.
These proxies include Shannon-Weaver index, Simpson index, Herfindahl index,
andHerfindahl-Hirschman index (Ellis, 2000; Bithal et al., 2007; Minot et al., 2006). These
indexes reflect not only the income sources but also the share of each income source in total
income sources or the evenness of income sources. Specifically, Shannon-Weaver index is
calculated by taking the sum of the proportion of each income source multiplied with its
natural logarithm. This index is less popular than the remaining indexes because of its less
sensitivity to the evenness of the sample(Colwell& Robert, 2009). Simpson index and
Herfindahl index are closely related due to the relevant calculation, based on the sum of
square of proportion of income source, with reverse value in the same range from 0 to 1.
Both Simpson index and Herfindahl indexare considered as the most common indexes in
measuring income diversification in many previous studies.
2.2.

Empirical review

2.2.1.

Impact of temperature and precipitation variation

Seo and Mendelsohn (2008) have made a breakthrough in the history of researching the way
to switch crops to adapt with climate change. In previous studies, researchers only focused on
the harmful impact of severe climate on a specific crop yield. The crop failure makes the
revenue of farmers drop down significantly, and the quantitative method by using Ricardian
model is often estimated to evaluate the effects. However, in reality, farmers always try their
best to adapt by switching main crop to alternative crops that could sustain harsh natural
conditions. By observing these adaptation behaviors, Seo and Mendelsohn (2008) conducted
a research on the farmers’ crop choice on South America by using a multinomial logit model.
By collecting data from 949 farmers in seven countries, that study indicates a relationship
between farmer’s choice with both precipitation and temperature. Farmers have tendency to
grow fruits and vegetables rather than maize and wheat to cope with the global warming.
Wetter climate is more suitable for potatoes, rice and fruits, whereas dry climate seems to be
appropriate for maize and wheat. Study also indicates that farmers switch to not only a single
crop but also a combination of multiple crops at the same time, as well as reaching the goal
to maximize their profits.
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Similarly, in a study about African farmer’s behaviors in livestock management, Seo and
Mendelsohn (2007) showed that the choice of income diversification much depends on
climate change. Three econometric models have been used to investigate the farmer’s
performance. First, primary choice multinomial logit model is applied to find out the most
profitable livestock species. Second, the optimal portfolio model is used to investigate the
possible portfolio of livestock that farmers feed together. Finally, the demand system
multivariate probit model is regressed to check the probability of choosing specific species.

The research is performed in ten countries with a data collection of 9000 households, and has
revealed that farm options always correlate with the variation of climate change. Farmers
prefer crops to livestock under cool temperature and high moisture climate. When the
temperature increases, farmers tend to choose goat and sheep rather than beef cattle and
chicken. With higher precipitation, goats and chicken are more chosen than cattle and sheep
because the goats and chicken favor forest, which is more popular than savanna in wet
weather. Furthermore, the study simulated the models based on climate scenarios, and gave
results that livestock would continue to develop in warm and dry climate, but would decrease
in case of high precipitation, and heat tolerant species would be dominant in African in
future.
One of the most important drivers of income diversification is the high vulnerability of
the agriculture. In Southern Ethiopia, the arid climate is a great challenge to the livestock
production due to detrimental effect on water shortage; wither pasture, hot weather, and
disease risk.Megersa, Markemann, and Ay (2014) made a survey with 242 households in two
provinces Dike and Yabelo. A set of data about socio-demographic properties such as family
size, gender and education level of household head, and livestock holding behaviors is
collected through interview process directly each household. The study focused on five most
common species in the region, including cattle– the most dominant species, camel, goat,
chicken, and donkeys. Livestock diversification is assumed to recognize when the household
has at least three species. The participants are asked about the tendency in livestock holding
when there are changes in temperature, precipitation, and drought. The study used linear
regression to estimate the impact of climate variables on livestock adoption, with the ranking
model to rank the livestock priorities, and then logit model to measure the probability to
select livestock alternatives from the most to the least.

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Through evaluating the tolerance of each species by measuring the average mortality of
livestock in the drought, they find out that cattle is the least adaptive species in 4 kinds of

species, while camel and goat have more ability to suffer the water scarcity and food
shortage. Analysis of rainfall and temperature in long term has indicated that the frequency of
droughts has increased remarkably, making the annual precipitation reduce much, while
temperature only changes slightly on average. Therefore, livestock diversification is
evidenced to be negatively correlated with precipitation, but seems to be not meaningful with
the temperature.
By contrast,Brenshaw, Dollan, and Smit (2004) showed an opposite farming option of
farmers in Canadian prairies compared to previous studies. That study is conducted by estimating
cropping behaviors of farmers during a long period 1994 – 2002. The average number of crops in
the period is recorded for each prairies farms, and Herfindahl index is used to measure crop
diversity level. Researchers believed that cropping diversification is a useful adaptation method
to reduce risk from climate change. In contrast to researchers’ expectation, the study shows that
farmers have tendency to specialize in their cropping rather than diversification. The reason for
this matter is that Canadian prairies confront many difficulties and limitations in diversification.
The start-up cost is high, the ability to catch up new technologies in producing new crops is
limited, and the benefits reduce due to economies of scale. Another interesting finding from the
research is that farmers feel more likely to diversify income sources rather than crops switching.
Off-farm activities are preferable selections of farmers to reduce challenges from climate risk and
other economic risks.

2.2.2.

Impact of high salinity intrusion to income diversification:

The two most common threatens to the coastal and low-lying delta are the seawater
inundation and the increased salinity in the soil and underground water, which adversely
influence on agriculture.
IPCC (2014) proposed many adaptation measures to respond with salinity intrusion, in
which new and diversified livelihood seems to be the most important method. Shannon
(1997) emphasizes the importance of researching the threshold of salinity tolerance of each

plant before selecting plants for the coastal area. According to the study, barley and wheat are
higher salinity tolerant than rice and corn. Cotton and sugar beet have higher degree of saline
than bean, pea and potato. In the oil seed group, sunflower, linseed and soybean are
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more sensitive to salinity than canola and safflower. Fruits and citrus are not popular in the
condition of saline area. Bithal et al. (2011) suggested that crop varieties in the coastal and
low-lying delta should enhance the ability to resist to drought, heat and salinity. Pitmann and
Michael (2002) recommend genetic engineering as the effective approach to make plants
endurable with high salinity and even be irrigated by brackish water. Besides, Ahmed (2010)
and Khan et al. (2012) introduced other adaptation methods including non-rice crops in
floating gardens, or exploiting small-scale fish and other aquacultures on inundated land.
In Vietnam, as an obvious illustration for the risk of salinity intrusion, Mekong Delta has
coped with detrimental effects from this phenomenon in recent years, especially in the dry
season. Seawater could intrude 40-60 km from the coast (Miller,2003), leading to the fact
that millions hectares of arable land have been highly saline. Crops failure happens more
frequently, the agricultural production is strongly affected in both quantity and quality.
Binh (2015) measured the vulnerability to salinity intrusion of Mekong River Delta in the
period 1995 – 2011 by using both the quantitative and qualitative methods. Result of the
study showed that the rate of intrusion becomes more and more rapidly and widespread in the
years later. By a survey of 512 households in TraVinh, researchers indicated many adaptation
methods, which are applied in this zone to cope with the hazard, including dyke building,
crop rotation, and ground water management. Many previous studies asserts that dyke system
has developed to prevent floods and salinity intrusion, so that farmers could rise into 2 to 3
crops per year, contribution to the increase of rice production (Hoanh et al., 2003; Tuonget
al., 2003; Can, 2005). De et al. (2002) introduced new short day and high saline tolerant rice
varieties, promising that these crops would be well appropriate with the coastal area.

From 2000, the Vietnamese Government promoted policies for rice quality upgrade,

integrated system of rice, fish or shrimp in order to induce the benefit from agricultural
products, including crops and aquaculture. Farmers in coastal zone has tried and succeeded
with the rice – shrimp farming, taking advantage of both floods and brackish water to raise
their income (Brennan et al., 2002). The system is a combination of the dry season for rice
cultivation and the wet season for shrimp farming. This model helps farmers to reduce risk of
shrimp mortality or crops failure in the adverse climate, and satisfies household consumption.
Being opposite toPhong et al. (2002) and Brennan et al. (2002), De et al. (2002)suspectedthe
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high revenue efficiency of rice shrimp system due to salt leaching. They presented evidence
that yield would be higher in the rice monoculture system.
However, almost adaptation measures are not carefully taken into consideration for the
long term impact of sea level rise. The vulnerability to salinity is different between
distinctive regions, especially between dyke and semi dyke protection regions. Renaud(2015)
proposed some other adaptation methods besides advanced crops varieties, that is
maintaining the agri-ecosystems by managing river flows, infrastructure development,
improving the degraded areas. These solutions are assessed to be long term strategy in
adaptation to climate change, and should be encouraged and directed by the government to
develop the Mekong Delta.
2.2.3.

Impact of socio-economic characteristics on income diversification

When considering the vulnerability to the global warming problem, many researchers
concern about social and economic factors. Kelly andAdger (2000) proposed four measures
to response to harmful effects relevant to human communities caused by climate change,
consisting of poverty reduction; maintaining the security, income diversification to disperse
risk, and protecting property management rights.
The vulnerable state of agriculture depends much on the economic power of a country. A

developing country with poor living standard, less-developed infrastructure, low educational
level and inefficient policies are incapable of doing many strategies to adapt with detrimental
effects of climate change (Zorom et al., 2012; Kelly & Adger,2000). Zorom et al. (2012)
conducted a research about adaptation in Sahel, one of the poorest country in the world. The
research was performed mainly by survey process with direct interview of hundreds of
farmers in Sahel. Grain growers and livestock breeders are more vulnerable than off-farm
workers and gardeners. Severe climate seems not to correlate with the off-farm workers
activities. Grain growers are traditional farmers with the major grain crop, which is need
much rain-fed, so become the most vulnerable groups. The most commonly strategy of
farmers to adapt with droughts in this area is combination of growing dry-tolerant vegetables
and short cycle varieties. Although Sahel farmers know that income diversification is the best
way for them to reduce vulnerability and react with the severe climate, they meet many
difficulties and barriers in achieving capital investment and suitable policies from
government.
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Megersa, Markemann, and Ay (2014) concluded that livestock diversification is
significantly impacted by family size and per capita holdings of cattle, while other socio –
economic seems to be insignificant, meaning that livestock diversification depends much on
labor and income source from cattle keeping.
Binh (2015) emphasized that the vulnerability also depends on financial capacity,
educational standard, distance to farms, to market, to the industrialization zone, and job
opportunity. By measuring the vulnerability index of each ethnicity, the Khmer people is
found to be more sensible than the Kinh people, mainly due to their less adaptation
behaviors. The study notes the importance of taking into account suitable adaptation
measurements in different social groups.
To sum up, it is undeniable that the efficiencyof adaptation behaviors is much influenced
by social and economic factors. Therefore, it is necessary to do comprehensive assessment
before applying an approach to response with climate change.

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CHAPTER 3: RESEARCH METHODOLOGY
This chapter connects all information from literature review to set up an analytical
framework for the research. Then, the most suitable methodology is proposed to estimate the
impact of climate change on income diversification behaviors. Many variables, which are
representative for determinants, are selected toincorporate into the empirical model.
Moreover, this chapter also gives a detailed discussion about the definition, presentation and
expected relationship between dependent and independent variables. The data source is
introduced to clarify the way to employ variables used in the regression.
3.1.

Analytical framework

Based on theoretical and empirical literature review, an analytical framework is built to
clarify the motivations and determinants of income diversification of households in Mekong
River Delta (Figure 3.1).
Natural change and
human activities

Climate change

Salinity intrusion

Rice cultivation