1. Introduction
Over the past decades, adverse social and environmental effects have increased the need for a more sustainable production system. One strategy for such long-term production with minimal effects on the environment is conversion from conventional to organic farming practices. The extant literature documents the environmental and social benefits of organic over conventional farming. From the environmental perspective, organic farming can save energy, preserve biodiversity, mitigating climate change, and sustain the environment, especially in the long run [
1,
2,
3]. In addition, it can enhance soil fertility and feed nutrients to the soil. Furthermore, organic farming helps to reduce non-renewable energy use and contributes to mitigating global warming by locking away carbon in long-term reserves. From asocial perspective, owing to the constrained use of inputs, organic farming inevitably leads to healthier lives of both producers and consumers [
4,
5]. At the same time, organic farming often results in higher demand for labor than does conventional practice. This should contribute to employment in rural areas and to rural economies through sustainable development.
However, the economic benefit of converting from conventional to organic farming has been debatable. First, organic farming can reduce production costs because of limited opportunities to use chemicals, fertilizers, and pesticides [
6,
7]. However, the cost of controlling insects naturally is relatively high. In addition, more labor is necessary to implement organic farming and operate the farms, leading to higher production costs and loss of off-farm income [
8]. Second, organic products can be sold at high prices owing to consumers’ willingness-to-pay for better quality and healthier products [
9]. However, organic farming often results in lower yields than conventional farming, especially during the transition period [
2,
10]. Lower output does not allow farmers to gain the income comparable to conventional farming. In addition, as organic production is often in small amounts, its marketing and distribution is not efficient. To maintain effective distribution channels, farmers have to incur additional costs. Third, despite growing demand for organic products, the market is still narrower compared to that for conventional products, especially for the underdeveloped regions. All these problems have led to ambiguity on whether or not organic farmers can be better off than conventional farmers, at least from an economic perspective.
The mountainous areas of Northern Vietnam are among the poorest regions of Vietnam, and their major inhabitants are ethnic minorities. In these areas, ethnic minority farmers have low levels of education. At the same time, weather conditions are severe while terrains are craggy. In order to earn a living, farmers have had a long tradition of conventional farming using chemicals, pesticides, and inorganic fertilizers. This farming practice brings about economic efficiency in the short run because of cheap inputs and high productivity. However, such exploitation has quickly caused the depletion of soils and degradation of trees, leading to low productivity and reduced economic efficiency in the long run. Since farmers in these areas are generally poor, economic motives are of paramount importance. Converting to organic production would probably help farmers to solve the above challenges to the economic sustainability. Specifically, organic farming provides local producers with great opportunities to sustain the farmers’ incomes because of the following reasons. First, yields under organic practice are more stable than those under conventional ones [
2,
11]. Under conventional practice, due to intensive farming, soil nutrients are quickly exhausted while plants are easily degraded. In contrast, organic farming contributes to better preservation of soil due to lower level of runoff and erosion [
12]. Soil under organic farming also has high organic matter content [
13] and microbial biomass carbon [
14], which releases nutrients from crop residues. In addition, organic farming helps to preserve water quality [
15] because it prevents water contamination by chemicals and pesticides, induces less nitrate leaching [
16], and results in less phosphorous losses [
13]. Furthermore, organic practice reinforces sustainable biodiversity [
17,
18,
19]. Second, the application of organic production means appropriate management of resources, brings about cost-effectiveness, and therefore leads to higher efficiency [
20]. Third, the market for organic products has promising growth due to increased local demand, enhanced export prospect to developed countries, and higher return on investment [
21]. The possible explanation is that organic products taste better, contain no pesticide residues and heavy metals [
5], and have higher nutrients such as polyphenol content [
22], vitamin C [
23], and antioxidants [
24]. Fourth, organic farming mitigates climate change via reduced greenhouse gas emissions [
25], which affects production negatively. Finally, due to labor intensive requirements and non-use of synthetic chemicals, organic farming improves working conditions for farmers and provides healthy foods for the inhabitants in these areas [
26]. Agricultural chemicals sprayed on the plants can last for years and are extremely harmful to farmers’ health via contaminated air, water, and foods. Therefore, organic farming results in better health via reduced exposure to chemicals and increased quality of food.
The tea sector has played an important role in Vietnam’s agricultural development. Tea is grown in 40 out of 63 provinces with a total tea-producing area of approximately 130,000 hectares, with more than 400,000 households involved in tea production. However, the production of tea is mainly concentrated in the mountainous areas of Northern Vietnam, which account for 80 percent of the area. With more than 160 exporting companies, Vietnam has been able to export various kinds of tea. During the period 2012–2016, the average export revenue was 173 million USD per year [
27]. Among exported tea, black tea accounts for 78 percent, while green tea and other tea products make up 22 percent. The price of exported tea is relatively low, approximately 1.67 USD/kg in 2016 [
27]. This is lower than the world average because of low and unequal quality and safety reasons. Because of this, Vietnam tea is mainly exported to Pakistan, Taiwan–China, Indonesia, and Russia, while exports to the EU are very modest.
The mountainous areas of Northern Vietnam are characterized by the topography of mountains with the temperature, water quantity, and light conditions being suitable for tea production. In these areas, Thai Nguyen, Phu Tho, Ha Giang, and Lai Chau are among the major tea-producing provinces. Previously, tea production in the mountainous areas of Northern Vietnam was mainly carried out on a small scale and based on individual experience. This farming practice resulted in low productivity and uneven quality. However, in recent years, farmers have been increasingly aware of the consequences of conventional practice and the advantages of organic farming. With support from the government, farmers gradually shifted to organic production.
Organic tea is produced based on the topographical and climatic characteristics of each area. In addition, farmers must use seeds originating from the locality in order to make sure tea trees have strong resistance to the climate conditions, diseases, and insects. Therefore, organic tea products in the mountainous areas of Northern Vietnam are diversified. In addition, several specialties are produced in these provinces such as Shan tea in Ha Giang Province, Tam Duong tea in Lai Chau Province, and Tan Cuong tea in Thai Nguyen Province. This diversity helps the organic tea of the areas meet the consumers’ demands in both domestic and international markets. In the domestic market, organic tea is mainly sold to the consumers who have high incomes. Organic tea not only contributes to improving farmers’ income, solving the problem of unemployment, and reducing poverty in the region, but also helps Vietnam become the fifth largest tea exporter in the world.
Although the mountainous areas of Northern Vietnam have considerable potential for organic tea production owing to favorable natural conditions, increasing awareness among producers of environmental impact, and growing demand for healthier food, a large number of ethnic minority farmers are still reluctant to convert to organic tea farming methods. Some even returned to conventional farming after a few years of organic farming. The most important reason for such behavior is the perception that the benefits of organic farming do not exceed the costs of conversion. In other words, ethnic minority farmers are unsure if organic tea conversion really makes them economically better off when considering the benefits and costs of organic conversion.
Recognizing the potential benefits of conversion from traditional to organic tea farming, there has been a growing interest in organic tea farming from both supply and demand sides in Vietnam. Thus far, several studies have analyzed various aspects of organic conversion. Most such studies found that farmers in developed countries are more concerned about health and environmental issues, whereas farmers in developing countries focus on economic benefits. However, there is little consensus on whether organic tea farming results in higher income than conventional tea production when the opportunity costs of organic conversion are taken into consideration. Given the knowledge gap in the existing literature, this study is unique, in that no empirical study has been conducted in the mountainous areas of Northern Vietnam for the purpose of such comparison.
The objective of this study is to determine if organic tea farming brings about higher income than conventional tea farming in the underdeveloped mountainous areas of Northern Vietnam. To do so, this study adopts the following research objectives:
It aims to systematize the theoretical foundation and empirical evidence on income difference between conventional and organic tea production.
It aims to empirically compare the incomes of tea producing farmers under conventional and organic farming methods.
2. Literature Review
According to the adoption models of a new technology, farmers make decisions attempting to maximize their utility. In principle, farming households would only adopt a new technology if the expected value of benefits from the adoption exceeds the value of the benefits generated from current practices, at least in the long run. Although non-economic benefits play an important role in the conversion decision in developed countries, economic benefits have dominated the decision-making process in developing countries. To this date, the literature has discussed whether or not organic farmers can be economically better off than their conventional counterparts [
28,
29,
30]. Despite the evident relationship between organic conversion and economic benefit in the existing literature, the nature and direction of such relationships have been potentially debatable.
From a theoretical perspective, converting from conventional to organic farming would probably lead to two opposite effects. On the one hand, organic farming increases profitability [
31] and income for farmers [
28,
32]. First, organic production results in significant cost reduction due to lower input costs of pesticides, fertilizers, and fuels to maintain farms [
33,
34,
35]. Second, organic products can be sold at higher prices than traditional farm produce due to consumers’ willingness-to-pay for better quality products [
5,
29,
36,
37,
38,
39,
40,
41,
42,
43,
44,
45,
46,
47,
48,
49,
50,
51,
52,
53,
54,
55,
56,
57,
58,
59,
60,
61,
62,
63,
64,
65,
66,
67,
68,
69,
70,
71,
72,
73,
74,
75,
76,
77,
78,
79,
80,
81,
82,
83,
84,
85,
86,
87,
88]. Third, subsidies also play an important role in the profitability of organic farms [
39]. Finally, in the context of climate change, organic farmers are less vulnerable to natural risks [
40] and can better adapt to the changing climate [
41]. On the other hand, organic conversion is likely to result in the reduction of farmers’ net incomes [
42]. First, organic farming is subject to potential production risk, which includes lower yields [
43] and productivity [
34] in certain crops. This is due to the application of new production methods, lack of chemical stimulation, adoption of new management practices, and weed and pest outbreaks. Second, organic farmers are more likely exposed to price risks [
44] due to underdeveloped markets for organic products. Although premium price is the most attractive factor for farmers, access to premium markets is limited in many developing regions. Third, the increase in producer price for organic products might be insufficient to compensate the increase in cost of production [
8]. As organic farming is more labor-intensive [
33], additional labor is needed to maintain a competitive yield [
29]. In addition, the cost of certification and annual inspection would be significant, especially for small-farming households [
45,
46].
In the context of the mountainous areas, conventional production is widely applied. Under this farming system, farmers often use crossbreeds, which brings about high productivity, which is further boosted by inorganic fertilizers. Since crossbreeds are less resistant, farmers use chemicals to protect plants from insects and antibiotics to prevent diseases for plants. All these inputs are very cheap, and thus, affordable in the mountainous areas. The advantage of this farming practice is apparently low input cost and high productivity in the short run. However, this farming practice can lead to serious long-term economic (yield instability, decreased fertility, and volatile profitability), environmental (compressed soil, increased erosion, and decreased biodiversity), and social (negative health consequences) side effects [
47,
48].
Under an organic system, farmers must make efficient use of locally available resources. In the mountainous areas, local seeds are often used in order to ensure a certain level of resistance to environmental conditions. Unlike conventional farming, organic production uses such methods as soil cleaning, crop rotation, and biological pest control to prevent pest infestation. The use of bio-pesticides is not harmful to human health and crops, such as drugs derived from micro-organisms and herbs. In the context of the mountainous areas, there are several visible advantages of organic production. First, organic farming provides enhanced access to attractive markets [
49] because the products can be easily sold to the consumers in the cities and exporting companies with high price (In the domestic market, the average price of conventional tea is 105,000 VND, while that of organic tea is 200,000 VND). Second, organic products are rich in nutrient contents and improve the quality of health [
49,
50]. This advantage is becoming increasingly important because of the increased number of farmers suffering from lung and liver cancers recently. Third, crop yields under organic systems are more stable, especially in risk-prone ecosystems [
2]. Finally, organic farming contributes to the sustainable development via preservation of the environment [
30]. However, several drawbacks and challenges of organic farming must be addressed [
51]. First, the crop productivity is often lower than that in conventional farming in the short run due to the use of local seeds and absence of synthetic fertilizers and pesticides. Second, the mountainous areas have a humid season. In this case, crops face diseases, bacteria, and germs. Third, the cost of natural methods of pest control are often higher than that of conventional farming. Fourth, since organic products are only suitable for people with high income, the market for organic products is not developed in the mountainous areas. Finally, there is a lack of consumers’ belief in whether or not the products are really produced in an organic way. In many cases, consumers are often confused by labels and indications which seem to be organic but are actually not.
In terms of marketing, the distribution channel under conventional production is more diverse than that under organic production. First, a large portion of conventional products is sold to the region—mainly sold directly to the consumers. The majority of consumers are people who live in the mountainous areas. Second, another portion is sold to the consumers in the cities, mainly through merchants. Third, the rest of the conventional products are exported through exporting companies. However, major importing destinations are those developing countries whose quality requirements are easy and not strict. In contrast, organic products are usually not sold in the mountainous areas because of high price. First, a portion of organic products are sold to the cities, mainly through retail channels. The majority of consumers in the cities are those who have high incomes. Second, another portion is often sold to the manufacturing companies in the form of raw materials. Third, the rest of organic products are exported through the exporting companies. However, the organic products do not meet strict standards regarding fertilizer and chemical use set by importers in the developed countries.
Owing to the offsetting nature of these two effects, no determinate prediction can be made regarding the income effect of organic conversion. Such theoretical ambiguity has led to several empirical attempts at resolution [
52,
53,
54]. These empirical studies can be classified into three groups. The first group of studies states that organic farming households are economically better off than their conventional counterparts [
32,
33,
55]. For example, Galnaitytė et al. [
55] found that organic farming practices achieve higher profitability and greater energy efficiency. In addition, higher values of benefit to cost ratio and lower value of total cost of production in organic rice production imply that organic farm management showed more economic improvements than the conventional rice production system [
56]. Conversely, the second group of studies found opposite results. For example, Lien et al. [
54] found that the organic farming was less economically sustainable than the conventional practice, especially when the organic price premiums and organic area payments were to be phased out. In addition, Zhang et al. [
42] found that the net income per ha was 25% lower in organic farming than the conventional soybean production system. Interestingly, the last group of studies indicated that whether organic farming households are economically better off than conventional farming households depends on specific circumstances. For example, Delate and Cambardella [
57] demonstrated that organic and conventional soybean yields were similar in the first three years of transition. According to Binta and Barbier [
30], organic farming is economically more attractive to farmers in the Niayes than the conventional counterpart, only when a premium price is applied to organic crops. Forster et al. [
53] found different outcomes; while soybean gross margin was significantly higher in the organic system than the conventional systems in India, it depends on the cycle of other crops. Therefore, our extensive review of the literature suggests that the income effect of organic conversion is an empirical issue.
Based on extensive review of the literature, we designed our study in a way that differentiates it from previous ones in two important aspects. First, when comparing the incomes of conventional and organic tea farmers, we take into account the opportunity costs of organic tea production. As the opportunity costs of organic tea farming are relatively high, ignoring them would lead to biased and inaccurate estimates. Second, instead of using total income from tea as a unit of measurement, we opt for average income per 1000 m2, as there are great variations in land areas used for tea growing in this region.
3. Methodology
This study aims at estimating the average treatment effect (ATE) of conversion to organic tea production on household income. However, the most challenging task in estimating such a treatment effect in observational studies is that the assignment to treatment is not random. In experimental studies, participants can be randomly allocated to control or treatment groups. However, in most social science-related research with observational data, individuals often “self-select” into the treatment [
8]. In this study, farmers are not randomly assigned to produce tea conventionally or organically. Instead, certain number of farmers are more likely to voluntarily choose organic tea production than are others. In the case where assignment to the treatment is not random, simply comparing the outcome variable between the two groups can lead to potential bias estimate because it ignores some underlying factors that affect both assignment to the treatment and the outcome variable. For instance, if the level of education of farmers is correlated with both conversion to organic production and farm household income, the difference in farm household income between the two groups of farm households may be attributable to both the treatment status, that is, organic or conventional, and educational attainment.
An alternative method to estimate the ATE, which has been widely recognized in social science research, is to match observations in both the treatment and control groups based on some observable characteristics. Several “matching estimators” have been put forward based on the method used to match observations from the two groups. Rosenbaum and Rubin [
58] proposed the propensity score, according to which we can employ predicted probability of being in the treatment estimated in either the logit or probit models. An important feature of the propensity score model is that it summarizes the information contained in the multi-dimensional vector into a single-index variable [
59].
To overcome the problem of self-selection bias, we employ a framework with two potential outcomes
Y1—an outcome for converting (treated) households, and
Y0—an economic for non-converting (control) households. The observed outcome for any individual household
i can be written as
, where
indicates treatment status, with
T = 1 if a household converted to organic tea production. The gain/loss of individual household
i from converting to organic tea production is
. Since we cannot observe both outcomes for individual household
i, estimating the individual household treatment effect
i is impossible. Therefore, we need to concentrate on (population) average treatment effects (ATEs), as displayed in Equation (1) [
60]:
The most popular evaluation parameter is the “average treatment effect on the treated” (ATT), which in our context represents the difference between the expected economic performance and viability outcomes of converting households and non-converting households had they converted. Algebraically, this can be presented in Equation (2):
In practice, observing in Equation (2) is not possible. A household has either converted or not converted; treatment assignments are mutually exclusive. Estimating the ATT associated with adoption of organic tea production for households that converted by comparing the mean difference between and will result in serious errors due to selection bias. To overcome this problem, we opt for propensity score matching (PSM) as the best procedure. In impact evaluation, if the covariates have many dimensions, individual matching on the basis of observed covariates may not be feasible. Thus, matching along the propensity scores can provide better results than matching along the covariates. The effectiveness of PSM depends on two assumptions: conditional independence and common support.
First, according to the conditional independence assumption (CIA), selection into the adoption group is solely based on observable characteristics. Given the values of some observable covariates, this assumption implies that the value of the outcome variable is independent of the treatment state. This means that the household’s income should be independent of the adoption of conversion assignment. Therefore, the outcomes for adopters and non-adopters of organic tea production are independent of the treatment status:
where
denotes independence [
61,
62,
63,
64,
65].
Second, according to the common support assumption (CSA), ATT is only defined within the region of common support. It also assumes that no explanatory variable predicts the treatment perfectly. Common support also assumes that the probability of being treated (given covariates X) falls between 0 and 1,
. Under the CIA and CSA, the PSM estimator for the ATT can be written as shown in Equation (3):
A post-matching balancing test was carried out to ensure that the covariates balancing property was satisfied. This test involved comparisons of the characteristics of participating and non-participating households (adopters and non-adopters) before matching, and an evaluation of whether any significant differences in the characteristics of the two farming groups were revealed after matching. Once the post-matching balancing test was completed, the participating and non-participating households were matched on the basis of estimated propensity scores, which were used to derive the impact of conversion to organic tea production on the households’ income.
6. Conclusions
Although organic farming is one of the most thriving segments in Vietnam today, consumers recently witnessed periodic shortages of organic products. This study aimed at assessing whether organic households were better off than conventional farmers in terms of farm household income in the mountainous areas of Northern Vietnam. This issue is of paramount importance both in terms of theoretical and practical contributions. From the theoretical perspective, this study is the first study on the impact of conversion to organic tea cultivation on household income in the mountainous areas of Northern Vietnam. The unique feature of our study is that when comparing the incomes of conventional and organic tea farmers, the opportunity cost is taken into account. From the practical perspective, the findings of the study would strongly encourage farmers to convert from conventional to organic tea production. In such an underdeveloped region with high poverty levels as the mountainous areas of Northern Vietnam, economic motives play a dominant role in the conversion from conventional to organic tea production. In contrast, non-economic factors such as health and environment problems are of lesser importance.
Primary data was collected from 319 adopters and 226 non-adopters of organic tea production in this area. Instead of the conventional parametric regression method, we employed a non-parametric approach and used different matching algorithms to estimate the average treatment effect of conversion to organic tea production on farm household income. This matching method allowed us to evaluate the marginal effect of conversion to organic production on the household income without either specifying functional forms or making distributional assumptions about the conditional distribution of the dependent variables.
The results indicated a significant difference in average per hectare income between adopters and non-adopters of organic tea production. Using different matching algorithms, households that adopted organic farming had earned a better average per hectare income than their non-adopting counterparts did. They earned 1038.838 to 1059.016 thousand VND more from a unit hectare of cultivation plot. This implies that the adoption of organic tea production had a positive impact on household farm income in the study area.
Therefore, to increase conversion to organic tea farming amongst smallholder farmers, the government and other stakeholders should provide better extension services, which incorporate relevant training to farmers and greater access to information on organic tea production, while making organic fertilizers easily available for farmers by encouraging commercialization of such fertilizers. Easier access to affordable credit is a policy option for enhancing technology adoption and conversion to organic tea farming, while aiming to increase tea production. Adequate financial support enables farmers to lease more farmlands and adopt improved farm technologies, which have consequential effects on both conversion to organic tea farming and increase in income. Lastly, the Vietnamese government should introduce mechanisms to coordinate production activities and the delivery of tea products by farmers to processing and/or marketing facilities. When efficiently organized and managed, contract farming reduces risk and uncertainty for both parties, in comparison to buying and selling tea on the open market.
The limitation of our study is that we have not explained the reasons why, on average, organic tea producing households are economically better off than conventional counterparts in the mountainous areas of Northern Vietnam. More specifically, our study has not indicated, on which circumstances, organic tea production leads to higher income in comparison with conventional farming. This knowledge gap provides rich opportunity for future research such as factors affecting income difference between conventional and organic tea production in the mountainous areas of Northern Vietnam.