Vietnam - Prices and social costs of land acquisition

VietNamNet Bridge - Formal discussion of land policy in Vietnam reveals a confused understanding of price and social cost of land. The confusion makes adverse impacts on the welfare of farmers.

Our field trip to some provinces shows a common story. Land is recovered; the proposed compensation values are generally lower than the value attached to the land; disagreement makes slow site clearance and finally conflicts are resolved by paying more compensation for the people, who know that they may be forced to relocate. There are also other common stories. Local officials do not believe that farmers will protest their treatment. These officials also always said that the only problem in land acquisition is the high compensation that the State (or other agencies) has to pay.

There's something wrong. Vietnamese farmers whose land is recovered said that the proposed compensation is low, while officials and agricultural observers argued that compensation is too high.

The problem here is the confusion between the opportunity cost and economic cost. Managers focus on the cash price and similar forms. In contrast, farmers emphasize the opportunity cost of the land that they are asked to return.

Price is often understood as the amount of money paid by the buyer and received by the seller when they provide goods or services.

The opportunity cost of the resources (or goods) is the value of the options that go away when the resources (or goods) are used for different purposes. Opportunity costs include private costs and social costs. For example, in a particular season, farmers can plant flowers or vegetables on their land, not both at the same time.

The Government, playing the representative role for the society, can allocate land for agricultural production or recovers land for other purposes, but not both at the same time. The opportunity cost for farmers (assuming that land is acquired) is the loss of food output (or expected profit). For society, the benefit cost is the loss of product, or the wealth and welfare, if land is not recovered.

The price proposed by the State cannot offset income line and products that people lose when they lose the right to use land. Farmers who have to sacrifice the production opportunity will directly affect their present and future income, their welfare, food security and position in the community. Moreover, farmers find themselves to be excluded from the share of land rent conversion when land is acquired. This reinforces the loss of people.

In fact, because farmers cannot share land rent from the land conversion that the State and investors (state or private enterprises) earn when they use resources for site clearance; for example, they break old buildings to build infrastructure facilities for residential, commercial and industrial, or other purposes.

Farmers feel lost mainly by the treatment they receive from provincial and local authorities in the process of land acquisition. Many managers behave based on the principle that the State is responsible for the management of land so the state and affiliated agencies can and will recover land when necessary.

As being stated, the law favors managers. The Constitution and the Land Law ensures the State’s rights in land management. The Land Law 2003, Article 38.1 allows the recovery of land whenever "The government needs to use land for the purposes of national defense and security, national interests, public interests and economic development."

In its role as the nation's landowners, the government guarantees to grant land use rights for farmers. Then, because it needs to recover land for some other necessary purposes, the government strips that right. If they oppose, people will challenge the Government's statement on the "need" of the land. At another level, the land acquisition that is being applied now often damages (unnecessarily) the livelihoods of poor people who lack the ability to protect their rights.

The loss to the nation is a largely rural population, compared with the period before the land acquisition, produce inefficiently, earn less income, become poorer and lose the ability to create sustainable livelihoods.

Other individuals and groups benefit. Among the benefits is the state, which does not have to spend money for compensation and site clearance because relevant agencies use the conversion land rent to cover the payment. Investors and other partners share the conversion land rent also benefit from two ways. The first type, because the difference in land rent is too high, the investor does not need to invest effectively.

The second, the land rent is higher than the reasonable pay for those who are involved in land recovery. These people urge officials to continue to recover more land. And so a cycle that makes farmers lose their land continues.

Ho Dang Hoa, Le Thi Quynh Tram, Pham Duy Nghia and Malcolm F. McPherson

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