Essays on the transformation of the rural economy in rubber producing areas in Southwest China

Abstract

This thesis aims to contribute to an improved understanding of the livelihood strategies of smallholder rubber farmers in Southwest China, in particular in Xishuangbanna Dai Autonomous Prefecture (XSBN), Yunnan Province. In this region, driven by high commodity prices, plantations of natural rubber have expanded hugely, replacing traditional farming systems and rainforest. This has resulted in economic growth and the reduction of poverty but has also led to environmental externalities. Furthermore, by 2011, the rubber price started to decline, causing income loss, especially in marginal areas with lower productivity, i.e. in higher elevations. At the same time, however, regional labor markets expanded, thus providing potential off-farm employment opportunities for smallholder rubber farmers. Against this background this thesis has three objectives which are being dealt with in three papers, presented in chapters two to four, respectively: (1) identify and classify the livelihood strategies of smallholder rubber farmers, as well as their transitions on the short and medium term and the impact of changes on household income (paper 1); (2) analyze the effects of off farm labor market participation by smallholder rubber farmers on household income and their overall well-being (paper 2); (3) estimate the impact of land rental market participation on household income and its compositions (paper 3). The data for this thesis are drawn from a three-wave panel dataset, collected among 612 small holder rubber farmers in XSBN in 2013, 2015 and 2018. A stratified random sampling method was applied, using location and rubber cultivation area as criteria. The sample is believed to be representative for smallholder rubber farming in XSBN. Standardized household and village questionnaires were used as survey instruments. Different methodological approaches have been applied to achieve the objectives. In the first paper, a dynamic livelihood strategy framework is applied and a hierarchical agglomerative cluster analysis is used to identify livelihood strategies, followed by a multinomial logit regression and an ordered logit regression model to estimates the determinants of livelihood dynamics. In the second paper, a two-stage least square model is used to identify factors influencing smallholder rubber farmers off farm labor market participation and its intensity. This is followed by endogenous switching instrumental variable models to assess the impact of labour market participation and its transitions on household income. In the third paper, a two-stage least square regression and a tobit and probit model were used to estimate the correlation between renting out land and household income, its compositions. Propensity score matching (PSM) method is then used to estimate the average treatment effects of land rental market participation. Furthermore, a mediation analysis was applied to decompose total impact of renting out land. In order to account for possible endogeneity problems, instrumental variable is included in the analysis. The results from the thesis contribute to the empirical literature in a number of ways. In the first study, five livelihood strategies were identified. It was found that majority of farmers reallocate resources and have changed their livelihood strategy between 2012 and 2017, in response to declining rubber prices. Factors significantly related to the choice of livelihood strategies are: occupation and gender of the household head, farm size, altitude and transportation costs. Household income differed significantly between livelihood strategies. The same is true for the income effect of livelihood transitions. Livelihood strategies based on self-employment, wage employment or renting out land dominated rubber-based livelihood system brings largest income for rubber farmers, whereas rubber absolutely dominant strategy falls in the low-income category. By means of livelihood transitions, majority of farmers were able to remain in the same income group in spite of lower rubber prices. 10 % of them in 2014 and 24% in 2018 moved to a lower income category, while approximately 20% of households in 2014 and 2018 have moved in livelihood strategies with higher income. Hence, considering the decline in rubber prices, farmer did well in coping with the situation. In the second paper, it was found that household characteristics and assets were significantly correlated of labor market participation. The treatment effects are significant, i.e. households who participated in off farm labor markets achieved higher income than non-participants. The counterfactual analysis (ATU) suggests that if non-participating households had participated, their estimated income would have increased significantly. Furthermore, between 2012, 2014 and 2017, households with continuous participation would have significantly decreased income had they adopted non or variable participation. Income of variable participation would decrease had they never participated. It is can be concluded that continuous participation was superior to non- and discontinuous participation strategies. In the third study, results show that household’s decisions to rent out land is significantly and positively correlated with household income. Results of the average treatment effect on the treated, shows that renting out land can increase total household income while reducing farm income, as expected. Results from the mediation analysis showed that the overall impact of land rental market participation consists of a direct effect and an indirect effect, whereby the indirect effect is through labor market participation facilitated by reducing cultivated land.