TACR: Regional: The Rice Situation in Cambodia

Technical Assistance Consultant‘s Report

Project Number: TA 7495-REG January 2012

Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework (Financed by the Japan Fund for Poverty Reduction)

The Rice Situation in Cambodia

Prepared by Kean Sophea for the Asian Development Bank

The author is Deputy Director of the Department of Horticulture and Subsidiary Crops under the General Directorate of Agriculture, Ministry of Agriculture, Forestry, and Fisheries, Cambodia.

This consultant‘s report does not necessarily reflect the views of ADB or the Government concerned, or the institutions at which the consultant works, and ADB and the Government and these institutions cannot be held liable for its contents. ADB does not guarantee the accuracy of data and presentations included in this report and accepts no responsibility for any consequences of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

ABBREVIATIONS

ACI ADB AKR ASEAN Camcontrol CDRI CSES EBA EU FAO GDP ha hp JICA kg km kWh MAFF mt NGO NIS NR SME SOE t US WFP

Agrifood Consulting International Asian Development Bank Angkor Kasekam Roonroeung Co. Ltd. Association of South East Asian Nations Cambodia Import-Export Inspection and Fraud Repression Directorate-General Cambodia Development Resource Institute Cambodia Socio-Economic Survey Everything But Arms European Union Food and Agricultural Organization of the United Nations Gross Domestic Production Hectare horsepower Japan International Cooperation Agency kilogram kilometer kilowatt hour Ministry of Agriculture, Forestry, and Fisheries (Cambodia) metric tons nongovernment organization National Institute of Statistics (Cambodia) National Road small and medium enterprises state-owned enterprise ton United States World Food Programme

Note: In this report, "$" refers to US dollars.

ABSTRACT

Rice is the main agricultural produce and staple food in Cambodia. It contributed 25% of the

agricultural gross domestic product in 2006 and 40.7% of agriculture growth in 2003–2006. After 25 years of civil war, Cambodia is slowly recovering its status as a major rice producer and exporter. However, the country‘s rice yield is currently the lowest in comparison with other major rice-producing countries, even below that of neighboring Laos and war-afflicted Myanmar. The Cambodian government wants to double rice production in the next 5 years and boost international commercial rice exports. These goals, however, will demand improvements in irrigation infrastructures, marketing value chain, postharvest and processing system, etc. This report studies the opportunities and constraints that affect Cambodia‘s objective to once again become a major rice exporting nation while tackling food insecurity and rural poverty.

This draft report was prepared for the Asian Development Bank by Kean Sophea, National Rice Economist for Cambodia, under TA 7495-REG: Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework. The draft report is part of the TA‘s diagnostic study on the food security of five ASEAN member countries—Cambodia, Indonesia, the Philippines, Thailand, and Viet Nam—with a special focus on rice. The draft report is an abridged version of a full country research paper on Cambodia, which is available upon request. The draft report is being published to disseminate the findings of work in progress to encourage the exchange of ideas. The emphasis is on getting findings out quickly even if the presentation of the work is less than fully polished.

CONTENTS

1. INTRODUCTION…………………………………………………………………………………... 1

2. RICE SITUATION………………………………………………………………………………….. 3

3. MARKETING SYSTEMS………………………………………………………………………….. 6

4. POSTHARVEST AND PROCESSING…………………………………………………………… 11

5. PRODUCERS‘ AND TRADERS‘ MARGIN………………………………………………………. 15

6. FOREIGN TRADE………………………………………………………………………………….. 17

7. CONSUMPTION AND FOOD SECURITY………………………………………………………. 19

8. PUBLIC POLICIES AND KEY PLAYERS ON RICE……………………………………………. 28

The Public Sector…………………………………………………………………………………… 28

The Private Sector………………………………………………………………………………….. 30

9. SUMMARY AND CONCLUSIONS……………………………………………………………….. 31

The Rice Situation in Cambodia

1. INTRODUCTION

Cambodia is an agrarian country, with one-third of the total land area allocated to agricultural production. Rice is the main agricultural produce and the country‘s staple food. It contributed 25% of the agricultural gross domestic product (GDP) in 2006 and 40.7% of agriculture growth in 2003–2006. Rice production has increased significantly in the last decades, particularly since the major economic reforms of 1989. The planted areas of rice increased from 1.9 million hectares (ha) in 1990–1991 to about 2.6 million ha in 2009–2010. The increase was the result of mine clearance, improved security, and reclamation of unused or deforested land. The productivity per hectare of rice increased considerably over the same period, from just over 1.4 tons/ha in 1990–1991 to 2.8 tons/ha in 2009–2010.

The increase in yield was due to many factors: favorable weather conditions, an increase in the availability of rural credit and private investment, technology improvements, use of chemical fertilizers and other inputs, and new high-yielding rice varieties. The combination of expansion of planted areas and the increase in yields has boosted production to the highest surplus levels since 1995–1996. However, the increase in production urgently demands export markets. To expand into these markets, it is necessary for Cambodia to study the opportunities and constraints that affect this objective in relation to neighboring rice-producing countries (Table 1).

Table 1: Rice Yield, Technology Usage, and Infrastructure in Cambodia and Neighboring Countries

Year Cambodia PRC Indonesia Laos Malaysia Myanmar Philippines Thailand Vietnam

Rice yield (ton/ha) In 2000 2.1 6.3 4.4 3.1 3.3 3.1 3.1 2.6 4.1 In 2008 2.6 6.3 4.7 3.5 3.5 2.5 3.8 2.8 4.9 Average 2.3 6.2 4.6 3.3 3.3 2.7 3.5 2.7 4.6 Growth Rate % 3.6 0.2 0.7 1.9 0.8 - 2.5 2.7 0.8 2.3

Modern technology Tractor (per ha) 0.6 6.5 4.4 1.2 23.9 1.0 2.0 14.2 24.9 Fertilizer (kg/ha) 5 319 145 806 1 150 133 324 Irrigation 7 39 23 19 20 20 27 31 45 (% of arable land)

Infrastructure Roads paved 6.3 81.5 55.3 14.4 81.3 11.9 9.9 98.0 25.0 (% total road) Telephone main line 0.2 28.0 6.6 1.3 16.6 1.1 4.2 11.1 19.1 (per 100 people) Electric power con- 15 1781 509 179 3262 82 588 1988 73 sumption (kWh/capita)

Source: Yu and Fan 2009, based on calculations from the United States Department of Agriculture, Food and Agriculture Organization (FAOSTAT), and World Development Indicators.

ADB Technical Assistance Consultant‘s Report (Draft) The Rice Situation in Cambodia | 2

The yield of rice in Cambodia is the lowest in comparison with other major rice-producing countries, even below that of Laos and war-afflicted Myanmar (Figure 1). This is a significant problem in a country where more than 80% of the population relies on agriculture as their primary source of income and where rice constitutes 90% of total agricultural output. Although large amounts of fertilizer are needed to boost productivity, fertilizer inputs are low compared with similar agro-ecological zones in Thailand and Vietnam.

Figure 1: Productivity of Paddy in Cambodia Compared to Other Countries in the Region, 2008

Source: Agricultural statistics, FAO 2008.

The impact of the global economic downturn on Cambodia‘s economy has led to a reduction of growth in the garment, tourism and construction industries, and an increase in rural poverty. People working in these sectors are vulnerable to poverty, as they are most affected by layoffs, reduced working hours, and pay cuts. Although the Cambodian government has implemented a number of policies to cushion the impact of the global economic downturn, the poor and vulnerable groups in both rural and urban areas have still to feel the effects of these policies.

The rise of commodity prices across the world, especially in energy and food, has also affected Cambodia. The country suffers from high inflation as food prices increased by 24.2% between January 2007 and January 2008, which to this day continue to rise and affect everybody but hurt the poorest most.

High food prices, however, have provided an opportunity for Cambodia‘s agriculture sector to increase crop production and crop diversification. Although Cambodia harvests rice usually once a year, it exports more than 2 metric tons (mt) of rice per year, and has the potential to produce a rice surplus. The Cambodian government is intent on expanding its production and export capacity and becoming a major rice exporting nation. However, this program may not automatically translate into more income for the poorest who live in the countryside.

2.752.97

3.233.47

3.72 3.77

4.895.22

0

1

2

3

4

5

6

Cambodia Thailand Malaysia Laos Myanma Phillipines Indonesia Vietnam

Ton

s/h

a

Myanmar Philippines


2. RICE SITUATION

After the ravages of war, Cambodia is slowly recovering its status as a major rice producer and exporter.

In the 1960s, Cambodia was a significant food exporting country, particularly of rice. In the 1970s, there were considerable shortfalls in food availability for the Cambodian population due to the onset of the civil war. Since 1981, however, food has become more available nationwide, and by the late 1980s, the country appears to have approached self-sufficiency. Periodically, severe flooding and droughts have led to shortfalls in national and local food availability (e.g., the two poor harvests of 1993–1994 and 1994–1995). The 1995–1996 main rice harvest was the best of the decade, resulting in an estimated national surplus of milled rice of almost 140,000 tons (FAO/WFP 1996).

Cambodia‘s Ministry of Agriculture, Forestry, and Fisheries (MAFF) estimates that the country has maintained a national surplus of rice production since 1995–1996. Cambodia produced more than 3.5 mt of paddy rice in surplus, having achieved 7.5 mt in 2009 (MAFF 2009). The rice surplus was estimated at 2.25 mt in 2009 (Table 2).

Table 2: Rice Balance in Cambodia, 2000–2009

Paddy 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total production

4,026,092.00 4,099,016.00 3,822,509.00 4,710,957.00 4,170,284.00 5,986,179.00 6,264,123.00 6,727,127.00 7,175,473.00 7,585,870.00

Animal feed 80,521.84 81,980.32 76,450.18 94,219.14 83,405.68 119,723.58 125,282.46 134,542.54 143,509.46 151,717.40

Postharvest losses

281,826.44 286,931.12 267,575.63 329,766.99 291,919.88 419,032.53 438,488.61 470,898.89 502,283.11 531,010.90

Seed reserve 161,043.68 163,960.64 152,900.36 188,438.28 166,811.36 239,447.16 250,564.92 269,085.08 287,018.92 303,434.80

Export 1,622,058.04 1,647,959.92 1,353,215.83 2,161,967.59 1,722,251.08 3,194,442.73 3,395,804.01 3,756,575.49 4,272,391.51 4,620,492.90

Surplus/deficit 142,477.00 568,981.00 243,759.00 1,072,650.00 650,184.00 2,061,830.00 2,240,438.00 2,577,562.00 3,164,114.00 3,507,185.00

Source: MAFF 2009.

However, while some Cambodian provinces have large rice surpluses, others regularly face rice shortages, aggravated in some years by adverse climatic conditions, such as droughts and floods (Table 3).


Table 3: Balance of Food Production by Province, 2004–2009

Province 2004 2005 2006 2007 2008 2009

‗000 tons of paddy

1 Banteay Meanchey 139 189 229 202 235 309

2 Battmbang 181 298 319 257 259 372

3 Kampong Cham (17) 130 132 216 273 282

4 Kampong Chhnang 34 106 130 148 164 221

5 Kampong Speu (96) (2) 43 57 69 71

6 Kampong Thom 2 139 183 210 229 281

7 Kampot 12 118 132 138 146 213

8 Kandal (44) 21 31 28 31 43

9 Koh Kong (16) (26) (27) (29) (12) (7)

10 Kratie (29) 9 10 25 33 24

11 Mondul Kiri (4) 14 13 18 14 13

12 Phnom Penh (231) (284) (296) (310) (304) (298)

13 Preah Vihear 4 20 19 32 30 40

14 Prey Veng 215 546 476 623 613 649

15 Pursat 22 75 84 108 119 144

16 Ratanakiri (2) 7 2 11 5 4

17 Seam Reap 56 85 113 92 93 202

18 Preah Sihanouk (18) (19) (26) (33) (27) (19)

19 Stung Treng 3 25 30 30 29 27

20 Svay Reang 97 108 111 218 235 278

21 Takeo 347 476 478 495 515 611

22 Otdor Meanchey 13 45 58 45 24 47

23 Kep (9) (3) (3) (5) (4) (0)

24 Pailin (7) (2) (1) 2 (7) 1

Cambodia 650 2,076 2,240 2,578 2,763 3,507

Note: Statistics in bold indicate provinces with a deficit food balance. Gray highlight indicates province that are just

more or less sufficient despite their small surplus. Sources: Sothath and Sophal (2011), citing National Institute of Statistics (2008) and MAFF agricultural statistics.

The paddy growing area in Cambodia is currently 2.6 million hectares, which covers around 90% of the total cultivated land. The ecological rice-growing zone is divided into 4 groups: (1) rainfed lowland rice zone, (2) rainfed upland rice zone, (3) deepwater or floating rice zone, and (4) irrigated dry season rice zone.

There is considerable potential for increased output and farm income due to the rising price of rice, increased fertilizer application, and widening of irrigation systems.

The low yield of rice in Cambodia partially reflects the low productivity of land in the country, which calls for substantial improvements in production technology. The average yield of the national rice crop is among the lowest in Southeast Asia, despite a decade of very strong growth following the gradual adoption of improved varieties and the expanded uses of irrigation. On average, the yield of rice increased from 1.6 tons/ha in the 1994–1997 season to 2.3 tons/ha in the 2003–2008 season, representing 5.4% per year. The yields of wet season rice increased from 1 ton/ha in 1994 to more than 2.6 tons/hectare in 2009 (Figure 2). If Cambodian rice yield were raised to the level of Vietnam at 4.6 ton/ha, rice production would double, an equivalent of 7% average annual growth in rice output over a 10-year period.


0

1

2

3

4

5

2000 2002 2004 2006 2008

ton

s p

er

he

ctar

e

Yield Wet season

Yield dry season

Average Yield Wet and Dry

Figure 2: Improvement of Paddy Productivity in Cambodia, 2000–2009

Source: MAFF 2009.

Cambodian rice farmers face serious constraints in productivity and output quality, which

include the lack of purified seeds; lack of access to commercial credit; high interest rates; limitations of irrigation; and high costs of energy, fertilizers, pesticides, etc. Chemical fertilizer use is extremely low and native soils are often very infertile. The average amount of fertilizer use in Cambodia is below the nationally recommended rate (Blair and Blair 2010). The Food and Agricultural Organization of the United Nations (FAO) estimates that Cambodia has the lowest rate of fertilizer use for rice in Southeast Asia, with around 30% of the total area receiving even minimal applications. According to FAO (2010), farmers on average applied 221 kilograms (kg) of fertilizer in Vietnam and 108 kg in Thailand, which both share similar soil and temperature conditions with Cambodia.

The Cambodia Socio-Economic Survey (CSES) in 2004 and 2007 reported that only 77%–78% of wet season and 87%–94% of dry season paddy areas received chemical fertilizer (Table 4). Calculations from CSES data plus an estimation of the average fertilizer price paid by farmers show that fertilizer use was about 72 kg/ha and 105 kg/ha for wet and dry season paddy rice in 2004, respectively. The amount of fertilizer application per hectare further decreased in 2007 due to the sharp increase in fertilizer prices.

Table 4: Fertilizer Use in Cambodia

Wet season paddy Dry season paddy

2004 2007 2004 2007

Share of plots (total number of plots in both seasons = 100

86.8 84.1 14.3 15.9

Share of total cultivated land (total cultivated area in both seasons = 100)

60.9 79.2 10.8 20.7

In paddy plots (total paddy plots = 100)

Share of plots using fertilizer 77.5 76.8 81.5 86.9

Share of area using fertilizer 76.9 78.5 87.2 93.5

Average fertilizer expense (riel/ha) 101,426 84,871 148,265 222,666

Average plot area (ha) 0.9 0.9 1.0 1.3

International urea price ($/ton)* 200 415 200 415

Farmer price ($/ton)** 350 600 350 600

Average exchange rate (riel/$)*** 4021 4032 4021 4032

Calculated cultivated use (kg/ha) 72.1 35.1 105.4 92.0

Note: Fertilizer use in quantity is not reported in the survey. * is drawn from the International Fertilizer Development Center (2008); ** is from the Cambodia Development Resource Institute (2008) in which urea price was $350–$510 per ton, and DAP $450–$1,080 in provincial markets in 2007; and *** is from the International Monetary Fund (2009). Source: Yu and Diao (2011), calculations from CSES 2004 and 2007.

Yield: Wet season Yield: Dry season Average yield: Wet and dry seasons


Lack of sufficient irrigation facilities is another constraint on rice development, especially with the dependence of Cambodian agriculture on rainfall. As a result, significant fluctuation exists in agricultural growth over time, reflecting the excessive exposure of producers to production uncertainties. For example, it is estimated that in 2002, drought damaged more than 130,000 hectares of rice while floods damaged 40,000 hectares (Hach and Acharya 2002). With sufficient irrigation support, however, Cambodia‘s irrigated areas can potentially reach 1 million hectares, or around a quarter of arable land (Ministry of Water Resources and Meteorology 2003). The Agrifood Consulting International and CamConsult (2006) have estimated that a surge in rice productivity can add $35 million to Cambodian farmers‘ income. The increase in productivity of dry season rice could elevate agricultural income by 1.85% per year and total income by 0.89% per year, while that of wet season rice could raise agricultural income by 1.62%. Such growth rates would generate additional income, lift large number of farm households above the poverty line, improve food security, and allow for regular rice exports.

Output also responds to changes in price. Dry season paddy production responds to price changes more quickly than wet season paddy production, and therefore shows higher short- and long-run elasticities (long-run values always exceed the short-run values as all inputs are viewed as variable). The estimated short- and long-run supply elasticities for the 2007 dataset are 0.26 and 1.15, respectively, for wet season paddies, while these increase to 0.33 and 1.45 for dry season paddies. Also, elasticity varies significantly across the four agro-ecological zones. In the short run, the elasticity in the Cambodian Plain and coastal zones is more sensitive to the market price of wet season paddy rice (above 0.3 compared to 0.14 to 0.16 in the Tonle Sap and plateau/mountain zones, respectively). As expected, the long-run supply elasticities are much higher than their short-run counterparts, ranging from 0.9 in the plateau/mountain zone to 1.25 in the Central Plain zone. The supply elasticities are in line with those found in many other studies made in the region (Yu and Fan 2009).

3. MARKETING SYSTEMS

The rice marketing system is dominated by small traders and processors, linked in short yet fairly responsive marketing chains.

The growing rice market is one of Cambodia‘s major economic activities and the marketing system plays an important role in bridging distances between producers and consumers to ensure production efficiency and food security. The rice distribution system has developed quickly since 1996, the first year that a rice production surplus was attained at the national level. Previously, this system was highly fragmented, involving a large number of small-scale operators in the initial stage and a smaller number of large-scale operators at later stages that supplied large bulk orders to populous city markets and for export. At that time, the Cambodian government had very limited market intervention or market control systems for domestic marketing. Therefore, the marketing channels were carried out almost completely by the private sector. The current rice marketing system in Cambodia can be seen as a system of price/non-price linkages between producers and consumers. This process normally involves a variety of actors ranging from producers/farmers, to paddy rice collectors/traders, millers, wholesalers/ traders, transporters, retailers, and finally consumers.

In some cases during a natural calamity, some rice-deficit communes and villages in the province may produce a surplus. Although supply and demand determine rice movements from the production areas to consumption areas, marketing channels from production areas to


provincial towns are relatively simple. The rice wholesaler or retailer in each market buys the locally produced rice directly from rice mills nearby (Tables 5 and 6).

Table 5: Wholesale Price of Rice in Phnom Penh, July 2002

Variety Quantity/month Buy Ex-Mill

Sell Sale Margin Percent Tonnage $/ton

Phka Khney 20% 100 240 260 7.70%

Somaly 10% 50 250 300 16.70%

Neang Khun 10% 50 220 240 8.30% Neang Malis 55% 270 190 200 5.00%

IR/Mixed 5% 25 160 180 11.10%

Total/Weighted Average 100% 500 207.5 225 7.80%

Thai Jasmine Rice 300 240 260 7.70%

Source: Ministry of Commerce 2008.

Table 6: Retail Prices of Milled Rice in Phnom Penh Markets

Type of milled rice May 2007 Nov 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008

Retail Prices (riels per kg)

Category 1

1 Somali or Pka Malis from Btambang 1870 2029 2050 2236 2892 3299 3548

2 Somali from Moung Russey 1750 1900 1960 2092 2712 3250 3437

Category 2

3 Pka Knhei from Battambang 1491 1652 1759 1851 2523 2939 3058

4 Pka Knhei from Moung Russey 1445 1610 1650 1810 2387 2900 2950

5 Neang Khon from Battambang 1349 1587 1674 1747 2289 2811 2900

Category 3

6 Neang Minh from Battambang 1230 1527 1620 1636 1954 2509 2699

7 Pka Knhei from Takeo 1283 1500 1620 1640 2050 2500 2650

8 Mixed from Moung Russey 1200 1467 1600 1612 2025 2400 2400

9 Brown rice from Kompong Speu 1185 1457 1500 1525 1887 2267 2450

Category 4

10 Banla Pdao 1080 1384 1500 1525 1832 2133 2200

11 Milled rice for porridge 970 1100 1200 1200 1487 1700 1700

Type of milled rice Index (May 2007 = 100)

Category 1 May 2007 Nov 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008

1 Somali or Pka Milh from B‘bang 100 109 110 120 155 176 190

2 Somali from Moung Russey 100 109 112 120 155 186 196

Category 2

3 Pka Knhei from Battambang 100 111 118 124 169 197 205

4 Pka Knhei from Moung Russey 100 111 114 125 165 201 204

5 Neang Khon from Battambang 100 118 124 130 170 208 215

Category 3

6 Neang Minh from Battambang 100 124 132 133 159 204 219

7 Pka Knhei from Takeo 100 117 126 128 160 195 207

8 Mixed from Moung Russey 100 122 133 134 169 200 200

9 Brown rice from Kompong Speu 100 123 127 129 159 191 207

Category 4

10 Banla Pdao 100 128 139 141 170 198 204

11 Milled rice for porridge 100 113 124 124 153 175 175

Source: Recompiled and calculated from the Ministry of Commerce (2008).


Rice trade flows are dependent on the supply and demand conditions in different provinces and on the prices established by neighboring countries. The high demand for specific rice varieties and quality also affects trade flows (Table 7). Specific rice varieties such as Somaly, Phka Khgney, Neang Minh, Srov Krahorm, Srov Sor, and IR 66 are famous in the market place (Table 8).

Table 7: Trade Flow of Rice and Paddy

Area From To Type Kind / Major Variety

Thailand Phnom Penh Phnom Penh Thai Jasmine broken

Northwest Region

Battambang

Phnom Penh Rice Somaly, Phaka Khgney, Neang Minh, Neang Khon

Banteay Meanchey

Phnom Penh Rice Somaly, Phaka Khgney, Neang Minh, Neang Khon

Battambang Seam Reap, Pursat, Kampong Chhnang

Rice and Paddy Somaly

Banteay Meanchey Thailand Paddy Somaly, Domaly

Battambang Thailand Paddy Somaly

Seam Reap Kampong Cham Rice and Paddy Mixed

Central Kampong Speu Kampong Cham Rice and Paddy Mixed

Southeast Region

Takeo Kampong Speu Rice and Paddy IR

Kampong Speu Phnom Penh Rice and Paddy IR, Mixed, Other Local Varieties

Prey Veng Kratie Rice and Paddy IR, Mixed

Takeo Phnom Penh Rice IR, Phaka Kagney Srov Krahome, Mixed

Prey Veng Phnom Penh Rice IR, Phaka Kagney Srov Krahome, Mixed

Takeo Vietnam Paddy IR

Prey Veng Vietnam Paddy IR

Phnom Penh Vietnam Rice Phaka Kagney

Source: Agrifood Consulting International 2002.

Table 8: Consumer and Restaurant Preferences for Rice, 2001

Variety Consumers Restaurants

Phaka Khgney Neang Minh Somaly Thai rice Mix of Thai Jasmine + Local Variety Srov Krohom Wet Season Mix Rice IR + State Rice + Dry Season Rice Other Local Varieties Neang Khon Neang Linh / Phaka Khgney / Somaly Don‘t know

73 29 19 19 – 4 3 4 3 – 8

–

48% 19% 12% 7% –

3% 2% 3% 2% –

5%

–

10 6 3 1 8 – 2 0 8 0 – 1

26% 15% 8% 3% 21%

– 5% 0% 21% 0% –

3%

Respondents 153 100% 39 100%

Source: Agrifood Consulting International 2002, citing JICA study 2001.


Many other wet season varieties are marketed ―Mixed rice‖ since they are mixed together at the collector stage from many small plots of individual varieties. Somaly, Phka Khgney, and Neang Minh are produced in the northwest and have an established reputation for high quality and good taste. These are sold to urban areas in Phnom Penh, Sihanoukville, and the provincial towns of Takeo, Kandal, Seam Reap, and Kampong Cham. Other local varieties are marketed only within the province and/or neighboring provinces, according to a study of the Japan International Cooperation Agency (JICA 2001).

The JICA study noted that only the provinces of Battambang and Banteay Meanchey had outflows of rice despite being close to Thailand. Both provinces produced high quality wet season rice varieties that were more in demand than Thai Jasmine rice. Conversely, even though Takeo province produces most of the rice surplus in Cambodia, the flow of wet season rice from Battambang to Takeo Town is sufficient to meet consumer demands for high quality rice. Similarly, the flow of Thai Jasmine, Battambang wet season rice, and Somaly from Banteay Meanchey into Seam Reap is sufficient for the large tourist trade (JICA 2001).

Rural infrastructure remains underdeveloped, with roads being a key constraint.

Decades of war and lack of investment in infrastructure have resulted in poor transportation, placing a significant constraint on the marketing of agricultural commodities. The increase in fuel prices due to high taxes has added to already high transportation costs. However, road transport has recently been more available due to road works on major highways. Paddy and milled rice are mostly transported by road rather than railway or water transport.

Due to infrastructure constraints and undeveloped means of transportation, ox carts and tractor trailers are still the most common form of rural transportation. Most traders and millers do not have their own transport, and hire transporters to move shipments of milled or paddy rice (JICA 2001). For medium distance travel within districts (village to local town/rice mills), tractors and trucks are used. For long distances (interdistrict/interprovincial), heavy trucks of 10–40 tons with trailers are used to transport rice from Battambang to Phnom Penh.

The rates of short distance trucking or cart transport from surrounding areas to the town or rice mill are usually around 5,000–10,000 riel/ton/kilometer (km) or $1.22–$2.44 (4,000 riel=$1). The rates of medium and long distance transports vary depending on particular conditions. For roads in poor condition, the transport rates are about 300–500 riel/ton/km. In contrast, the cheapest rate is 55 riel/ton/km on the National Road (NR) 4 (JICA 2001). There is not enough information collected on transportation fees to identify major trends. While the costs may be lower for some roads like NR1 and the railway, transportation fees on NR4 and NR5 appear to be increasing or static. Due to the variable and changing road conditions, there is no set of standard freight rates for rice transport in Cambodia (Table 9).


Table 9: Costs of Transportation in Cambodia, 1998–2002

Road From To Distance

km Cost

Riel/ton/km Mean of transport

Date of costing

Source

NR1 Phnom Penh Vietnam border 167 201 20 ton truck 2000 A NR4 Kampong Speu Sihanoukville 181 55 20 ton truck 2000

NR4 Phnom Penh Sihanoukville 229 94 40 ton truck 2000

NR4 Phnom Penh Sihanoukville 229 108 20 foot container 2000

NR5 Battambang Phnom Penh 291 137 40 ton truck 2000

NR 6 Sisophon Seam Reap Boeung Tra Koun

105 467 10 ton truck 2000

NR6+ PR1

Seam Reap Thai Border 165 242 4-WD pick-up 10 ton truck

2000

NR1 Peam Ro, Prey Veng

Phnom Penh 63 248 +Ferry fee 2000

NR3 Takeo Phnom Penh MongKul Borey

74 2000

NR5 Battambang Soutr nikum

Battambang 58 259 2000

NR6 Seam Reap Seam Reap 37 324 10 ton truck 2000

NR11 Peam Ro, Prey Veng Samrong District

Prey Veng 23 593 10 ton truck 2000

NR68 Otdor Meanchey, Bavel district

Seam Reap, Thmar Koul District

67 597 2000

NR157 Battambang Battambang 23 522 10 ton truck 2000

Village road

Leuk Daek, Kandal

Vietnam border 40 875 2000

Railway Battambang Phnom Penh 291 110 2000

Railway Phnom Penh Sihanoukville 229 77 Includes truck transport to town

2000

NR1 Ferry Phnom Penh 60 367 Truck 1998 B

NR1 Ferry Phnom Penh 60 250 Truck 1998

NR5 Battambang Phnom Penh 300 153 Truck 1998

NR5 Battambang Phnom Penh 300 130 Truck 1998

Road Battambang Banteay Meanchey 110 227 Truck 1998

Road PTB Kampong Cham 13 1596 Trailer 1998

Road District Svay Reang 25 800 Trailer 1998

Road Village PTB 5 4000 Ox cart 1998

NR4 Phnom Penh Sihanoukville 229 108 20 foot container 2001 C

NR3 Takeo Phnom Penh 74 250 10 ton truck 2001

NR11 Prey Veng Phnom Penh 63 248 10 ton truck+ferry fee 2001


Road Battambang Battambang 18 556 20 ton truck 2002 D

Road Battambang Thailand 100 300 40 ton truck 2002

NR5 Battambang Vietnam border 500 160 40 ton truck 2002


Road Takeo Kampong Spue 260 20 ton truck 2002

Road Takeo Takeo Mill 10 1500 10 ton truck 2002

Road Kandal Sihanoukville 181 201 20 foot container 2002


Railway Battambang Phnom Penh 291 62 20 foot container 2002

NR4 Phnom Penh Sihanoukville 229 103 20 foot container 2002


NR4 Phnom Penh Sihanoukville Svaypor Mill

229 140 40 ton truck 2002

Road Village Battambang 1 5000 Ox cart 2002

Road WFP >100 280 40 ton truck 2002

Road WFP <100 360 40 ton truck 2002

Source: Agrifood Consulting International 2002, citing following sources: A–Japan International Cooperation Agency (2001); B–Agricultural Marketing Office (1998); C–Ministry of Commerce (2001); D: Field interviews (2002).


4. POSTHARVEST AND PROCESSING

Numerous problems constrict the postharvest and processing system, of which the key bottleneck is milling.

Milling is the key bottleneck in the rice value chain in Cambodia. Despite some 3,000 milling plants scattered across the country, nearly all of them are small-scale operations that rely on obsolete milling equipment, resulting in high levels of broken rice and other processing losses. Lack of working capital and the high cost of credit constrain millers from upgrading their machinery and buying paddy rice from farmers (Table 10). Recently, a handful of large-scale mills have started processing rice to a high level of quality that meets international standards. However, a few millers monopolize operations, allowing them to capture higher margins than if the milling link were more competitive.

Table 10: Financial Sources for Millers

Source of Funds Custom Mills Commercial Mills

Own Bank Relative Privates Government Others Own plus Bank Own plus Relatives

69.4% 0%

4.1% 8.2% 0% 2%

4.1% 12.2%

85.1% 1.5% 0%

4.5% 0%

1.5% 3%

4.5%

Total 100% 100%

Average Capitalization $1,000 $37,500

Number of Respondents 49 67

Sources: Japan International Cooperation Agency 2001 and Vuthy 2001. Increased competition in milling is needed to help reduce milling margins in Cambodia that

are substantially higher than those in Vietnam, and to raise prices to help impoverished producers. Building the capacity (both private and public) to provide marketing information services is also important to improve knowledge services among participants in the rice marketing chain. Millers and farmers have also an important role in strengthening collaboration to encourage more productive cultivation of paddy rice and improved postharvest handling.

Postharvest and milling losses in the Cambodian rice industry are high and variable. Most

rural farmers are forced to sell their excess grains immediately after harvest as they lack the facilities and expertise for timely and efficient threshing, handling, drying, storage, and processing of crops. Local estimates of grain losses, from harvest to storage, range from 20% to 50%, and as high as 30% during milling. Due to poor and limited storage facilities, farmers must sell whatever extra rice they produce immediately after harvest. At such time, given the oversupply of rice in the market, farmers have little bargaining power to negotiate the selling price. In addition to this, the quality of the rice has decreased, representing an added cost to farmers.

Two types of milling operations are involved in the production of rice in Cambodia: the custom or village mills, and the commercial mills (Table 11). Custom mills are small operations that mill primarily for the farmers‘ own consumption; hardly any quantity of rice is supplied to the


domestic markets. In some cases, village mills augment the operator‘s own livestock production by providing a source of animal feed in the form of bran to the millers. Typically, the custom miller will mill the farmer‘s paddy rice in exchange for the bran.

Table 11: Number of Mills by Province, 2000

Mill Type Commercial Mills Custom Mill

Total Capacity Horsepower (hp)

0.3 to >1.0 t/ha 20 to 200 hp

0.2 to 0.3 t/ha 10 to 20 hp

Battambang Kampong Cham* Kampong Chhnang Kampong Speu** Kandal Phnom Penh Prey Veng Seam Reap Svay Reang Takeo

207 49 11 59 87 6

50 23 3

23

153 2,363 1,090 830

1,688 63

2,495 956

1,447 1,113

360 2,412 1,101 889

1,775 69

2,545 979

1,450 1,136

Total 518 12,198 12,716

* 1998, ** 1999

Notes: * 1998, ** 1999 Sources: JICA 2001 and Vuthy 2001.

It is hard to identify the number of custom and commercial mills in operation because a lot of mills are not registered with the Ministry of Industry. However, the JICA study conducted in 2000 found that almost 96% of surveyed mills were custom mills. The study identified 12,198 as custom mills and 518 as registered commercial mills (JICA 2001).

Constraints in the milling sector can be summarized in three major areas: limited access to working capital, quality constraints, and technological constraints. The three types of constraints are inexorably linked, primarily through the constraint on credit. Limited working capital impedes the ability of millers to improve milling technology and to work with farmers to supply higher quality paddy rice. Commercial mills, by contrast, face a number of significant constraints that are summarized in Table 12.

Table 12: Major Constraints in the Milling Sector

Constraints Nature of Constraints

Lack of working capital

Millers lack working capital to buy paddy at harvest time due to cash purchases of paddy and sales of milled rice on credit. As a result, rice mills are often idle for a period of time, limiting the amount of paddy that can be domestically milled. Limited capital also precludes improvements in milling technology and expansion in milling capacity.

Low paddy quality

Millers are constrained by poor paddy quality in the form of mixed variety of seeds from farmers and/or traders and inadequate postharvest handling (particularly drying). This results in high levels of broken rice that limits entry in world markets.

Low levels of milling technology

The majority of mills use old equipment from Vietnam and the People‘s Republic of China that are inadequate for sophisticated sorting of varieties and result in higher levels of broken rice than more modern machines.

Lack of market access

Rice millers have limited access to foreign markets due to the inability to produce consistent amounts of standardized varieties of milled rice. Market access is also compromised by limited information about foreign market conditions and competitive factors.



A major constraint for Cambodian millers is the quality of paddy rice sent for milling. Millers complain that poor seed quality and mixed paddy rice varieties compromise the quality of milled rice (Table 13). Cambodian farmers use multiple varieties of seeds in their paddy rice production, which result in higher losses for millers as the rollers used in the milling process are better suited for paddy rice of a relatively uniform length. The combination of low levels of operating technology and mixed varieties of paddy rice milled results in high levels of broken rice, ranging from 35% to 45%. The interviews conducted by a World Bank study team found that recovery rates for custom mills were about 60% milled rice for each 100 kg of paddy rice (ACI 2002). This figure is lower than that found by the JICA study (2001), which reported extraction rates of 62.57% for dry season rice and 63.61% for wet season rice (Table 14).

Table 13: Milling Efficiency of Custom and Commercial Mills

Custom Mills Commercial Mills

Whole Grain Broken Rice Bran Husk Others

62.34% 59.53% 8.68% 10.27% 16.17% 10.93% 12.53% 19.1% 0.28% 0.17%

Source: Enterprise Development Cambodia 2001.

Table 14: Coefficients for Rice Production and Food Balance

Units NIS(1999) MAFF(2000) MAFF(2001) JICA(2001) AFF(2002)

Milling Recovery Ratio Postharvest Losses Seed Reserve Animal Feed Food Requirement

% % % %

kg/hd/yr

– – – –

143

62 10 5 2

162

62 10 5 2

151.2

64 7 4 2

143

64 7 4 2

143

Source: Agrifood Consulting International 2002, citing the National Institute of Statistics (1999); Ministry of Agriculture, Forestry, and Fisheries 2000, 2001, 2002; and JICA 2001.

Millers are further hampered by the limited knowledge of overseas markets and suppliers.

Also a major problem are the huge losses averaging 35.6% in all stages of the postharvest chain, which include cutting, transportation, threshing, drying, storage, and milling (Table 15). These losses result from spoilage and wastage at farm level, delay in drying, poor storage, poorly maintained or outdated rice mills, and pest damage throughout the postharvest chain.

Table 15: Rice Quantity Losses in Cambodia, 2000–2009

Postharvest Stage Mean (%) Range (%)

Cutting 3.0 2.2-3.8

Transportation 3.6 2.0-5.2

Threshing 1.6 1.0-2.2

Drying 2.0 1.0-2.0

Storage 10.7 3.5-18.0

Milling 14.7 7.5-22.0

Total 35.6 17.2-53-2

Source: Cambodia Agricultural Research and Development Institute 2010.


The combination of poor drying techniques, open storage systems, high relative humidity, and high ambient temperatures reduces seed and grain quality during the storage period. Unlike the storage of paddy rice, the storage of milled rice is especially difficult, particularly for dry season IR rice varieties that need to be bought and consumed relatively quickly. There is no major storage facility for rice in Cambodia. Most traders neither have the capital nor the interest to invest in speculative operations such as storage. Even in the capital city of Phnom Penh, there is no large rice wholesaler with storage facilities, apart from around 10 medium- to large-size millers and the 17 rice shops near the railway station. Most of the large warehouses in Phnom Penh and in provincial towns that were previously used for rice storage by the government or the state-owned rnterprise (SOE) are now unused or used for keeping other goods incompatible with food storage, such as cement, pesticides, and fertilizers. Table 16 shows that only 50% of the Green Trade Company/SOE facilities are presently being used for rice; 25% are leased by the World Food Programme (WFP). Only 2 out of the 79 warehouses that belong to the Ministry of Commerce are presently being used for rice storage.

Table 16: Warehouse Storage for Rice

Province

Ministry of Commerce Green Trade Company

No. Capacity Usage Building Conditions

No. Capacity Usage

Tons No. Good Fair Poor Unknown Tons Tons

Battambang Kampong Cham* Kampong Chhnang Kampong Speu** Kandal Seam Reap Svay Rieng Phnom Penh Sihanoukville Takeo

13 17 7 3 5 15 12

7

43,438 36,369 12,703 1,040

10,783 21,154

161,400

11,300

1 0 0 0 0 0 0

1

– 2 2 0 0 9 –

2

– 10 1 - 1 6 –

5

– 5 4 3 3 0 –

0

13 – – 1 – 12

–

1 3

27* 5 1

7,000 6,000

50,000 2,650 4,230

7,000 6,000

15,250 2,650 4,230

Total 79 298,187 2 10 69,880 35,130

Note: *4 warehouses contracted to World Food Programme. WFP has 12 warehouses in total, with 15,000 t capacity. Source: Agrifood Consulting International 2002.

Some investors are now putting money into new mills with contract farming, private extension, and input supply services so they can produce high quality fragrant rice for export. Angkor Kasekam Roonroeung Co. Ltd. (AKR), a private Cambodian firm established in 1999, is organizing the largest contract rice farming operation in Cambodia. Its main business is to export noncertified organic Neang Malis, an aromatic Cambodian rice variety introduced by AKR to the international market. AKR has invested about $8 million in a high-tech rice mill that has a processing capacity of up to 10 tons per hour or 30,000 tons per year.

The Cambodian government should encourage the private sector, including rice millers and communities, to improve processing capacities for paddy and processed rice as well as milling capacities by giving soft loan incentives or by seeking developing partners.


5. PRODUCERS’ AND TRADERS’ MARGIN

Preliminary evidence suggest that rising farm yields have been accompanied by increased farm profitability; however, better data are needed to discern patterns and trends for the traders’ margin.

Due to limited information on farm gate prices for paddy and milled rice in any province, it is difficult to estimate the marketing margin of rice in Cambodia. The farm gate prices and retail prices seem to vary considerably with the seasons. The low prices of produce at the farm level can be explained by the farmers‘ weak bargaining position under a small, fragmented, subsistence, and family production system. The vast majority of farmers typically have an immediate need for cash during or right after the main harvesting season. It is a common practice for farmers in Cambodia to borrow cash for the purchase of agricultural inputs such as fertilizers, seeds, pesticides, or even for hiring labor. They must pay back their loans during harvest seasons, otherwise they face cumulative interest charges. Farmers also need cash during harvest season to pay for their own needs. Therefore, large volumes of paddy rice reach the market at the same time, bringing prices down. According to a study (ACI and CamConsult 2006), market margins have been rapidly rising due to yield increases. Marketing margins and profits at each level of the marketing chain are detailed in Table 17 and Table 18 for 1998 and 2002, respectively. Table 17 shows the marketing margins of top quality rice variety in 1998 while Table 18 indicates the marketing margins of average rice in 2002. Table 19 presents summary data on marketing margins.

Table 17: Marketing Costs and Margins for Rice, 1998

Farmer Miller Wholesaler Retailer Total

Transport Cost Cleaning Handling Packaging Milling Tax and Levy Rent Invested Capital Input Cost

30 43.20

12.50 6.60 4.50 1.86

14

470

11.78 2.36 2.95

8.84

559.55

5.77 2.89 1.92

5.09 5.77

605.85

Total Costs 30 552.66 585.47 627.29

Price Received Value of By-Product

470 559.55 53.25

605.85 663.55

Profit 440 60.14 20.38 36.26

Marketing Margins Markup

70.83% 0%

13.50% 30.38%

6.98% 28.90%

8.70% 41.18%

29.17%

Notes: 1. Riel per kg of paddy rice. 2. Phaka Khgney variety of paddy, Battambang miller, transported to Phnom Penh. 3. Conversion factor: Paddy to rice 0.589; miller to wholesaler wastage 0.98. Source: Agrifood Consulting International 2002, derived from Agricultural Marketing Office 1998.



Input Farmer Collector Miller Transporter Wholesaler Retailer Total

Transport Cost Operating Cost Input Cost

355.02

15

453.24

34.22

469.74

26.5

526.72

10.00 6.03

561.72

605.06

Total Cost 355 468 503.96 553.22 577.75 605.06


355.02 453.24

469.74

526.72 65.52

561.72

605.06

625.06

Total Revenue 355.02 453.24 469.74 592.24 561.72 605.06 20.0

Profit 355 98 1.5 88.3 8.5 27.3 3.2% 243.81

21.7% 0.3% 14.9% 1.5% 4.5% 8%

Percent of Total Profit 40% 0.62% 36% 3% 11% 3.20% 100%

Marketing Margins Markup over Farm Gate Price

56.80% 15.71% 0%

2.64% 4%

9.12% 31%

5.60% 24%

6.93% 33%

3%

27.49%

Notes: 2 tons /ha yield, transport from Battambang to Phnom Penh. Riel / kg of Paddy rice, Milling recovery 0.64. Source: Derived from data collection by Agrifood Consulting International 2002.

Table 19: Summary Data for Rice Marketing Margins, 1998–2002

Source Inputs Farmer Collector Miller Transporter Wholesaler Retailer

ACI*** 57% 16% 3% 9% 6% 7% 3%

73% 12% 13%

AMO* Phaka Khgney 71% 13% 7% 9%

JICA** Phaka Khgney 44% 33% 4% 16% 5%

JICA** Neang Minh 51% 21% 6% 17% 5%

Notes: * = Agricultural Marketing office 1998, Table 1 and pp. 10-11 ** = JICA 2001 *** = JICA 2002


There are some differences in margins accruing at other levels of the marketing chain due

to differences in grouping together collectors and traders at other levels of the chain. In 2002, farmers and millers earned the largest marketing margins, 16% and 9%, respectively (Table 20). At the same time, the gross margin from farming operations was around 21.7% in 2002, which increased to 50.4% in 2006 (Table 20). This appears to be the result of efficiency achieved at the farm level as yields increased.


Input Farmer Collector Miller Transporter Wholesaler Retailer Total

Transport Cost Operating Cost Input Cost

255.97

20 5

500.00

49.64

530.00

60

675.84

10.00 6.00

750.00

832.00

Total Cost 256 525 579.64 735.84 766.03 832.00


255.97 500.00 16.13

530.00

675.84 117.57

750.00

832.00

896.00

Total Revenue 257.97 516.13 530.00 793.41 750.00 832.00 896.00

Profit 256 260 5.0 213.8 14.2 66.0 64.0 623.06

50.4% 0.94% 26.9% 1.9% 7.9% 7.1%

Percent of Total Profit 42% 0.80% 34% 2% 11% 10% 100%

Marketing Margins Markup over Farm Gate Price

28.57%

29.04% 3%

3.35% 6.0%

16.28% 59%

8.28% 50%

9.15% 66%

7.14% 79%

42.40%

Notes: 3 tons/ha yield, transport from Battambang to Phnom Penh Riel per kg of paddy rice, Milling Recovery 0.64 Source: Agrifood Consulting International and CamConsult (2006), derived from data collected by the Consultant Team, March–April 2006.


In Cambodia, from March 2007 to March 2008, rice prices doubled due to uncertainty about stock levels in the country and higher production and transport costs. Related to this were the critically low level of global food stocks and rising global rice prices that were compounded by the export restrictions of large exporting countries and the significant rice purchases of importing countries at higher prices. The lack of reliable and up-to-date information on crop supply, demand, stocks, and export availability further contributed to the price volatility.

The volatile rice situation in 2007–2008 underscores the need for the government to

integrate rice reserves in its national food security strategies in order to stabilize prices. As of 2011, the Cambodia Import-Export Inspection and Fraud Repression Directorate-General (Camcontrol), which is under the Ministry of Commerce, reports that the country has about 3.9 mt of paddy rice or 2.5 mt of milled rice available for export. To boost its rice exports, Cambodia will need $350 million in investment in hi-tech postharvesting technologies.

6. FOREIGN TRADE

Exports have grown under the government’s liberal stance and active support; however, supply and postharvest constraints have restricted Cambodia’s share in the export market.

Cambodia was once an important rice exporter. In the end-1960s, Cambodia had annual exports of up to 0.5 mt of milled rice. In the 1950s and 1960s, rice was the country‘s most important earner of foreign exchange, accounting for about one-third of the total in the late 1950s, about 60% in the mid-1960s, and about 40% by the end of the 1960s. However, after 25 years of civil war, isolation, and social chaos, rural infrastructure was destroyed and the rice industry was severely damaged, making the country a rice net importer. Rice production remained at a deficit level nationwide until 1995–1996. The shortages were alleviated by commercial imports of rice from Vietnam and the food aid supplied by the WFP and other donors, as well as through direct government-to-government assistance (Cameron and Twyford-Jones 1995).

Within the last 5 years, rice production has again reached a sustainable level of surplus. The rice production reached its highest level ever in 1999–2000, with more than 4 mt of paddy rice produced. However, this rise in domestic production has put increasing pressure on domestic markets and urgently requires expanded export markets. To encourage the export of surplus rice products, the government has eliminated all barriers to Cambodian rice exports although exporters must obtain a permit before exporting any rice to ensure national food security. Despite the government's efforts to encourage rice exports, the legal exports of milled rice over the last 5 years have been minimal.

Traders of rice are usually involved in the trade of other goods and services, and may also be involved in other parts of the marketing chain as farmer/collectors, farmer/retailers, miller/collector/wholesaler, or wholesaler/retailers. Cambodia has a competitive advantage in rice over other regional and international rice producers due to relatively low costs of labor and land. However, opportunities to increase rice exports are currently limited by a number of factors, including an internationally uncompetitive rice processing sector and the lack of good infrastructure in the country. Poor support has encouraged the unofficial export of paddy rice to Vietnam and Thailand, preventing Cambodia from capturing the value added from rice milling.

A recent survey found that only a small number of modern rice millers are able to export

milled rice to overseas markets. Prevailing poor infrastructure, especially roads, ports, and


electrical power, increase the marketing costs of various agents in the chain, thus reducing the volume of trade and margins. In addition, there are also other transactions costs in Cambodia such as illegal fees while transporting rice from farm to port. The official record on exports of paddy and milled rice in Cambodia is low because of high prevailing underreported and/or illegal exports. The official exports in the last several years have been far behind the estimated actual exports. Due to the lack of accurate information on rice export/import, it is difficult for policy makers, investors, and development agencies to strengthen the rice sector in Cambodia.

Because of the lack of investment in the country‘s quality commercial milling sector, Cambodia‘s share in world paddy rice production reached only 0.7% in 2001, while Thailand and Vietnam had paddy rice production shares of 4.5% and 5.4%, respectively (Economic Institute of Cambodia 2004). This indicates that Cambodia‘s rice export capacity remains relatively weak, making it difficult for Cambodia to internationally compete with its neighboring countries for the export of conventional rice (Table 21). Given this situation, Cambodia could enjoy exporting more rice with higher value addition if niche markets are identified.

Table 21: Rice Exports (by ton), 2000–2009

Exports

2000 1,622,058.04

2001 1,647,959.92

2002 1,353,215.83

2003 2,161,967.59

2004 1,722,251.08

2005 3,194,442.73

2006 3,395,804.01

2007 3,756,575.49

2008 4,272,391.51

2009 4,620,492.90

Source: MAFF 2009.

Cambodia‘s rice exports to Europe increased significantly in 2010, compared to 2009. The

rise was largely due to the easing of import measures by the European Union‘s (EU) Everything But Arms (EBA) initiative, according to government officials. Under the terms of the EBA initiative, EU import quotas were cancelled and Cambodian rice was exempt from import tax. According to the Ministry of Commerce, 37,458 tons of rice were exported to Europe in the first 11 months of 2010 worth $27.5 million—a 45% increase from the 25,833 tons shipped in 2009 worth $19 million. The EU ended restrictions on importing rice from Least Developed Countries such as Cambodia in the second half of 2009. From January to June 2011, Cambodia exported 80,442 tons of milled rice to European markets.

To be a major rice exporter, Cambodia needs more capital to buy paddy surplus from farmers and increase storage capacity, paddy rice drying capacity, and middlemen. For 2010, Cambodia‘s local middlemen could buy only 0.5 mt, while 3.8 mt of rice were exported to Thailand and Vietnam for further processing and packaging. According to some experts, Cambodia would need $800 million to buy all paddy rice surpluses from local farmers.


During the Association of Southeast Asian Nations (ASEAN) summit in Indonesia in May 2011, the Cambodian Prime Minister met with the Philippine President and offered to sell rice at lower prices. The meeting followed a fact-finding mission by the Philippines‘ National Food Authority to Phnom Penh as part of the plans of the Aquino government to diversify and reduce spending on rice imports. The Thai Rice Exporters Association estimates that Cambodia supplies up to 1.5 mt of paddy rice to Vietnam every year, which is then processed and shipped as official export produce to markets, including the Philippines. Therefore, the Philippines wants to import directly from Cambodia so that it can lower import prices. 7. CONSUMPTION AND FOOD SECURITY

Despite surpluses at the national level, many households grapple with severe hunger and malnutrition due to widespread poverty. Vulnerability to market shocks has been underscored in the recent price crisis.

National estimates indicate that rice and other cereals provide approximately 65% of daily caloric intake, or up to 69% in rural Cambodia. Cambodians depend on fish for 70% of their protein intake. According to CSES 2004 data, rice consumption accounts for almost two-thirds of the calorie intake, followed by fish (8% average) (Table 22). These are supplemented by root crops. A wide variety of fruits and vegetables are produced in Cambodia but their consumption by the rural population appears limited, and surpluses are sold to supplement rice needs (Figure 3). As Cambodians rely heavily on imports and buying food to guarantee adequate food availability, food security depends largely on the purchasing power of households. Cambodia‘s agriculture is vulnerable to external shocks (e.g., economic crises, rising food prices, etc.) and emergencies (droughts, floods, etc.), and the stability of food availability is hampered by the lack of adequate social safety nets and disaster management programs.

Table 22: Structure of Household Food Consumption, 2004

Food groups

% of total food expenditure % of total calories

Cambodia Urban Phnom Penh

Other urban areas

Rural areas

Cambodia Urban Phnom Penh

Other urban areas

Rural areas

Cereals 31.3 11.4 24.6 34.5 65.4 33.7 57.7 69.4

Fish & seafood 19.9 15.4 21.2 20.2 8 20.7 11.4 6.3

Meat & poultry 15.6 20.7 15.8 15 6 12 6.9 5.4

Vegetables 8.7 9.7 8.4 8.7 5.6 10.5 8.1 4.8

Food out of home 8 20.8 11.3 6.2 5.7 8 5 5.7

Seasonings, salt, etc. 5.8 3.9 6.7 5.8 2.3 5.4 3.2 1.9

Fruits 4.3 7 4.5 4 3.6 3.6 4.4 3.4

Take-home food 2.1 5.4 2.8 1.6 1.8 3.5 1.5 1.7

Eggs & dairy 1.7 2.6 2.2 1.5 0.7 1.3 0.9 0.6

Alcoholic beverages 1.1 1.1 1 1.1 0.4 1 0.4 0.3

Non-alcoholic bev. 0.7 1.1 0.8 0.7 0.5 0.2 0.4 0.6

Oils &fats 0.7 0.7 0.7 0.7 0.1 0.2 0.1 0.1

Group Total 100 100 100 100 100 100 100 100

Source: Cambodia Development Resource Institute (2008), citing Johansson and Backlund (2005).


Figure 3: Contribution of Main Food Group Quantity of Carbohydrates Consumed (%)

Source: CSES 2004.

Cambodia has been receiving food aid, predominantly rice, for more than two decades. However, the country has reduced its food aid dependence over the last years—from a high of 120,000 mt per year in the early 1980s to support refugee operations on the Thai border, to 30,000 mt–50,000 mt for the past 10 years. The share of food aid in overall food consumption declined from 2.3% in 1990–1992 to 1.4% in 2001–2003. The WFP has been the major food aid donor in Cambodia from the time of the downfall of the Khmer Rouge regime to the present, but considerable levels of food assistance have been channeled as well through nongovernment organizations (NGOs). The average level of food aid distributed by WFP for the period 1999–2006 was 38,000 mt, varying between a high of 62,000 mt in 2002 and a low of 15,000 mt in 2005. As shown in Table 23, the amount of food aid entering Cambodia through WFP was erratic over the 8-year period. In this period, 250,500 mt of rice were donated through WFP. In 2006, WFP distributed about 19,000 mt, representing 0.3% of Cambodia‘s total rice production in 2006 and 1.4% of the rice surplus. Data on NGO food assistance are not available over this period, but figures for 2005 indicate that the United States Department of Agriculture provided 9,400 mt to Cambodia through several NGOs. In 2006, WFP distributed about 19,000 mt, representing 0.3% of the total rice production in 2006 and 1.4% of the rice surplus.

Table 23: Food Aid Distribution in Cambodia by the World Food Programme (mt)

Year Rice Veg.Oil Fish/Canned Salt Corn-Soya/

Pea-Wheat Blend Sugar Beans TOTAL

1999 23,906 1,567 959 200 0 0 0 26,632

2000 51,536 1,394 1,857 478 3,667 278 0 59,210

2001 45,582 1,510 643 295 2,752 449 0 51,230

2002 53,205 2,409 2,875 357 2,365 420 0 61,632

2003 15,412 948 1,425 397 877 0 0 19,059

2004 31,203 1,786 777 230 2,901 257 0 37,154

2005 10,687 115 150 200 1,591 70 2,241 15,054

2006 18,970 198 942 211 3,563 417 620 25,000

Total 250,500 9,926 9,629 2,368 17,805 1,891 2,861 294,980

Source: World Food Programme, Cambodia Office.

81%

10% 2% 2% 2% 1% 1% 0% 0%

0%10%20%30%40%50%60%70%80%90%

CER

IALS

PR

EPA

RED

FO

OD

VEG

ETA

BLE

SUG

AR

FRIU

T

SPIC

ES

RO

OT

AN

D T

UB

BER

MIL

K A

ND

CH

EES

PU

LSET


The majority of Cambodian farmers do not produce a paddy rice surplus and are thus likely to suffer from food insecurity. A national survey of the Cambodia Development Resource Institute (CDRI 2008) reveals that only 35% of Cambodian farm households produce a paddy rice surplus, and the rest produce less than enough for consumption needs or just a sufficient amount. A study of 1,070 households in 15 typical villages across Cambodia (Chan and Ngo 2010) suggested that 61% of surveyed households in rural villages would encounter food insecurity in August–October 2009. To assess family food security, crop assessment data from each year were used to calculate the food deficit/surplus at commune level based on a need of 143 kg milled rice per capita per year. A commune is classified as being food insecure or rice deficient if there are more than two months of deficit per capita per year.

Table 24 and Figure 4 present estimates of the sample means (with standard errors in parentheses) of per capita consumption in both current and constant 2004 calendar year average Phnom Penh prices by per capita consumption quintile in 2004 and 2007. These estimates indicate that real per capita consumption increased significantly in all quintiles although the largest percentage increase occurred in the richest quintile (+30%).

Table 24: Sample Means of Per Capita Daily Household Consumption in Current And Constant Price (Riel, 2004 Calendar Year Average Phnom Penh Prices) by Per Capita Consumption Quintile, 2004 and 2007 (Standard Errors in Parentheses)

2004 2004* 2007

% change 2004–2007

(col. 3/col. 2)

Per capita consumption per day (current Riel)

Poorest 20% 1,107(8) 1,106(8) 1,108(22) +44.4

Next poorest 20% 1,660(4) 1,656(4) 2,407(40) +44.3

Middle 20% 2,231(6) 2,224(6) 3,227(16) +44.1

Next richest 20% 3,192?(14) 3,180(14) 4,710(36) +47.1

Richest 20% 8,004(152) 7,957(154) 12,889(640) +61.0

Cambodia 3,238(59) 3,224(59) 4,964(198) +53.0

Per capita consumption per day (in constant 2004 calendar year average Phnom Penh prices)

Poorest 20% 1,378(9) 1,377(9) 1,524(21) +10.7

Next poorest 20% 2,062(4) 2060(4) 2,296(8) +11.5

Middle 20% 2,749(5) 2,743(5) 3,093(12) +12.7

Next richest 20% 3,860(10) 3,852(11) 4,458(29) +15.7

Richest 20% 9,046(163) 8,990(166) 11,723(652) +30.4

Cambodia 3,819(67) 3,804(68) 4,616(192) +21.4

Notes: *Sample limited to village in the 2007 CSES sampling frame. Source: CSES 2004 and 2007.


0

2,000

4,000

6,000

8,000

10,000

12,000

Phno Penh Other urban Rural Cambodia

2004

2004*

2007

Figure 4: Sample Means of Per Capita Daily Household Consumption in Current and Constant Prices (Riel, 2004 Calendar Year Average Phnom Penh Prices)

by Region, 2004 and 2007 (Standard Errors in Parentheses)

Source: CSES 2004 and 2007.

Rural areas are more affected by food insecurity. In rural Cambodia, 12.5% of the

households had poor and borderline food consumption (more than 1.5 million persons), while only 5.5% of households were considered food insecure in Phnom Penh and other urban areas (150,000 persons). Phnom Penh is least affected by food insecurity among urban areas: 98.6% of the households living in the capital have acceptable food consumption.

The Council for Agricultural and Rural Development (CARD) of the Royal Government of Cambodia, in consultation with the technical working group on food security and nutrition, developed in 2007 the Strategic Framework for Food Security and Nutrition (SFFSN) for 2008–2012. The SFFSN is expected to provide substantial progress toward improved food security and nutrition conditions in Cambodia. Based on this strategy, by 2020, the poor and food insecure Cambodians should have substantially improved their standard of living and are expected to have sufficient, safe, and nutritious food to meet their dietary needs and food preferences for an active and healthy life.

The surge in global food prices has been driven by various factors, including rapid increases in demand, low global stocks, and high oil prices. Cambodia is a net importing country and record food and oil prices, together with a depreciated US dollar, have driven inflation to a 9-year high of 10.8%, at a time when the domestic economy is already showing some signs of slowing down. Prices of food and nonfood items have risen gradually since mid-2000 along with the rising price of energy, and suddenly increased more rapidly after January 2008, reaching double digits between May and October 2008. From March 2007 to March 2008, rice prices in Cambodia doubled. Such fluctuations in the price of rice impact poverty reduction efforts and the World Bank predicts that a 10% increase of the rice price would raise the national poverty rate by 0.5% in both rural and urban areas (Figure 5).


Figure 5: Soaring Food Prices, Cambodia Overview

Source: United Nations–Cambodia 2008, citing WFP field data.

The Cambodian riel is artificially pegged to the US dollar at 4,000 riels. Aside from dealing with eroded purchasing power, Cambodia is facing inflation on imports from neighboring countries whose currencies have appreciated against the dollar. Dollarization presents a further challenge for policy makers to devise sustainable policies to address the current food crisis.

Cambodia imports 100% of its oil and only 25% of the total population is connected to the electrical grid. Cambodian farmers are largely dependent on diesel generators for household-operated water pumps and/or irrigation (Table 25). The current price of oil in Phnom Penh is around 5,450 riel/$1.36 per liter. Domestically, the rising cost of fuel has pushed up the costs of local and industrial transport and agricultural inputs such as fertilizer, which has increased in cost by 2–3 times in the past year (MAFF 2008) (Table 26).

Table 25: Retail Prices of Fuel (Phnom Penh)

Type of Fuel Jan 07 May 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08

(Riel per liter)

Gasoline 3750 3813 4450 4450 4500 4676 5000 5500

Diesel 3050 3125 3800 3800 3900 4105 4550 5500

Kerosene 2950 3071 3700 3700 3800 3980 4300 4900

Index (January 2007 = 100)

Gasoline 100 102 119 119 120 125 133 147

Diesel 100 102 125 125 128 135 149 180

Kerosene 100 104 125 125 129 135 146 166

Source: Ministry of Commerce 2008.


Table 26: Prices of Fertilizer in Different Provincial Markets in Cambodia (Thousand riels per sack of 50 kg)

Type of Fertilizer Jul 07 Mar 08 Apr 08 May 08 Jun 08 % Increase (Jul-Jun)

Chamkar Kor (Banteay Meanchey )

15.15.15 70 83 127 156 165 137

12.20.0 62 81 121 140 159 158

18.46.0 86 131 223 267 268 211

46.00.00 74 83 108 138 160 118

Takhmao (Kandal)

15.15.15 83 139 142 154 164 99

12.20.0 71 126 124 146 155 120

18.46.0 96 216 225 260 258 168

46.00.00 69 113 132 150 168 143

Bos Khnaor (Kompong Cham)

15.15.15 84 141 143 152 164 95

12.20.0 80 120 120 148 148 84

18.46.0 95 179 176 240 253 166

46.00.00 74 117 118 115 118 58

Deaun Keo (Takeo )

15.15.15 82 150 180 155 – 88

12.20.0 74 130 136 130 – 76

D.A.P 94 166 240 240 – 156

46.00.00 74 100 120 – – 63

Average of different markets

15.15.15 79 132 149 154 164 107

12.20.0 71 110 122 141 154 118

18.46.0 94 183 208 256 260 175

46.00.00 78 107 113 127 139 78

D.A.P 91 219 240 240 – 164

Urea 71 107 126 150 168 138

Source: CDRI 2008, recompiled and calculated from MAFF 2008.

The increased prices of farm inputs pushed up the production cost by 30% for dry season rice, 70% for wet season rice, and 45% for maize, cassava, and soybean production in May 2007–May 2008 (Chan and Sothath 2008).

The consumer price index in January 2008 was up 18.7% from January 2007. Although the National Institute of Statistics has not published monthly issues of the Consumer Price Index Bulletin since January 2008, other sources indicate that prices continued to rise rapidly in February–May 2008. The government reacted by banning rice exports for a time and later raised the bank reserve ratio. It remains to be seen whether this approach will work as it is essentially world demand, not domestic, that has pulled up prices. The availability of some food items and consequent price trends tend to vary with the seasons. Prices before May 2007 did not increase significantly (Table 27).


Table 27: Retail Prices of Other Food Items, 2007

Commodity Unit May 07 Nov 07 Feb 08 Mar 08 Apr 08 May 08

Retail Prices in Phnom Penh

Beef kg 18,864 20,000 20,000 20,200 21,200 21,963

Pork kg 11,286 16,000 18,000 17,510 19,400 19,025

Chicken kg 14,062 15,000 17,000 17,248 21,200 21,679

Fish, Trey Ros kg 11,294 14,000 15,000 13,195 13,100 13,017

Egg, chicken 10 eggs 2914 3556 3664 3690 3880 4036

Egg, duck 10 eggs 3979 4340 4500 4520 4720 4908

Morning glory kg 1567 2000 1966 2041 1980 1992

Tomato kg 2271 2560 2560 2560 1920 1993

Cabbage kg 1749 2200 2000 2000 1960 1990

Cucumber kg 1436 2000 2000 2000 1800 1924

Banana Hand 1898 2000 2000 2000 2000 1904

Pineapple Unit 1384 1500 1630 1860 1900 1875

MSG 500 g 3378 3800 3928 3955 4900 4900

Sugar, Thai kg 2412 2300 2419 2397 2240 2263

Palm Sugar kg 2000 2100 2100 2100 2120 2120

Salt kg 539 600 600 643 820 928

Commodity Index (May 2007 = 100)

Beef kg 100 106 106 107 112 116

Pork kg 100 142 159 155 172 169

Chicken kg 100 107 121 123 151 154

Fish, Trey Ros kg 100 124 133 117 116 115

Egg, chicken 10 eggs 100 122 126 127 133 139

Egg, duck 10 eggs 100 109 113 114 119 123

Morning glory kg 100 128 125 130 126 127

Tomato kg 100 113 113 113 85 88

Cabbage Kg 100 126 114 114 112 114

Cucumber Kg 100 139 139 139 125 120

Banana Hand 100 105 105 105 105 108

Pineapple Unit 100 108 108 134 137 135

MSG 500 g 100 112 116 117 145 145

Sugar, Thai kg 100 95 100 99 93 94

Palm Sugar kg 100 105 105 105 106 106

Salt kg 100 111 111 119 152 172

Source: CDRI (2008), citing data from the Ministry of Commerce.

Higher rice prices reduce household spending on other goods and services, depressing the economy. The GDP falls by around 0.2%. Farming households are better off, with incomes of surplus producers rising by almost 4%; but other households see incomes fall by around 2%. Cambodia is still a predominantly agrarian society, with 70% of the population and an even higher percentage of the poor (79%) engaged in agriculture, and subsistence consumption absorbs 60%–65% of agricultural output, according FAO. With the poverty line defined on the basis of caloric intake, food insecurity remains an important aspect of rural poverty in Cambodia (Table 28).


Table 28: Poverty Estimate by Region, 2004 and 2007 (Estimated Standard Errors)

Note: *Limited to village in the 2007 CSES sampling frame; Source: CSES 2002 and 2007.


The poverty headcount was estimated in 2007 at 35% in the rural areas, compared with 0.8% in Phnom Penh and 22% in other urban areas. The country‘s overall rural poverty line was equivalent to $0.58 in 2007 (World Bank 2007). Based on the international poverty line with purchasing power parity, about 40.2% of the 13.8 million Cambodian population lived below $1.25 and 68.2% below $2 in 2004 (Bauer et al. 2008).

Agriculture accounted for an estimated 27% of GDP in 2007, and about 59% of the

population is also estimated to rely on this sector for their livelihood. Offsetting the declines in the rest of the economy, the agriculture sector is expected to grow significantly in volume and it is unlikely to be much affected by the global financial crisis (Hossein et al. 2009). The 90 household panel data collected in nine villages in rural Cambodia during March 2008 and May 2009 revealed that both per capita income and per capita consumption shrank significantly by around 30% and 23%, respectively. While there was no significant change in residential or agricultural land holding size, non-land assets dropped 38% between March 2008 and May 2009, of which durable assets and livestock declined 30% and 45%, respectively. As a result, poverty incidence increased in 2009 (Tong 2009).

For the urban area, a CDRI survey of daily earnings of vulnerable workers in Phnom Penh and two provinces over the past several years reveals that the global financial crisis has hit garment workers hardest, because the garment sector relies heavily on US and EU demand. The real daily earnings of garment workers fell by 17% between February–May 2007 and February–May 2009. The decline in garment workers‘ remittances brought great downward pressure on their livelihood. Their daily consumption cannot be sustained if both real daily income and savings continue to decline (Jalilian et al. 2009).

The focus group discussions held in May 2009 in Siem Reap province confirmed that tourism workers, particularly hotel and restaurant workers, were also affected by the global financial crisis due to the decline in tourist arrivals. Consequently, some staff were encouraged to take unpaid leave or were temporarily laid off, forcing them to engage in informal jobs.

Some rural households do not have adequate or reliable access to food supplies. Up to two-thirds of 1.6 million rural households face seasonal food shortages each year and 50% of children under 5 are underweight, according to Cambodia‘s National Poverty Reduction Strategy. Rice alone makes up 25% to 30% of the total expenditures of poor households.

The WFP approaches have endeavored to support these goals with food-for-work

schemes. But sometimes their efforts have been curtailed by difficulties in targeting, determining the number and quality of some employment-generating schemes, problems of access, and the limited capacity for administering such programs at comparatively short notice. The WFP has made strong efforts to assess communes and households since 1993 in relation to their food insecurity, together with the Cambodian Red Cross, National Committee for Disaster Management, and some NGOs; they have endeavored to respond to the immediate need, rather than to provide a suitable longer term mechanism for relieving short-term food insecurity.

Cambodia‘s Ministry of Economy and Finance and the Asian Development Bank (ADB) implemented the Food Emergency Programme in October 2008 to mitigate the effects of food price increases on poor households. The government works closely with the ADB to develop and implement two projects that constitute a stimulus package at the grassroots level. Under the Emergency Food Assistance Project, with a total amount of $38.5 million, ADB provides $35 million ($17.5 million in loans and $17.5 million in grants) and the government provides a contribution fund of $3.5 million. The project covers consumption support such as free food


distribution ($8.36 million); food for work ($11 million); productivity enhancement such as rice seeds ($8.72 million); fertilizer support ($6.28 million); capacity development ($3.06 million); and contingencies.

8. PUBLIC POLICIES AND KEY PLAYERS ON RICE The public sector

The Cambodian government wants to double rice production in the next 5 years and radically boost its international commercial rice exports. These goals, however, will be virtually impossible without an expansion of the country‘s irrigation infrastructures and cultivated rice area. The potential arable land area of the country has been estimated at roughly 3.6 million hectares, although some officials in the National Institute of Statistics maintain that up to 6.0–6.5 million hectares could potentially be converted to agricultural use. Cambodian agricultural development officials have also indicated that the rice area could be further expanded to about 3.5 million hectares, an increase of roughly 1.2 million hectares or 52%.

Rice farmers in Cambodia are predominantly subsistence producers, with the World Bank

estimating that only 40% of growers are generally capable of generating a marketable surplus. Recently, the Cambodian government announced plans to double rough rice production by 2015 to export 8 mt of rice (Asian Farmers Association for Sustainable Rural Development 2008) (Table 29).

Table 29: Projection of Food Consumption and Production, 2007–2020

2007 2010 2015 2020

Rice production (million tons) 6.24 6.05 6.13 7.50

Rice area (million ha) 2.5 2.5 2.5 2.6

Rice harvested area (million ha) 2.52 2.43 2.45 2.50

Rice yield (ton/ha) 2.48 2.49 2.50 3.00

Available rice after 13% seed reserve and postharvest loss (million tons)

5.43 5.26 5.33 6.53

Milled rice under 64% milling rate (million tons)

3.47 3.37 3.41 4.18

Food requirement (million tons) 1.91 2.00 2.11 2.27

Consumption per person, kilogram 143 143 140 140

Population (million, annual growth rate 1.54%)

13.4 14.00 15.10 16.20

Rice surplus milled rice (million tons) 1.56 1.37 1.30 1.90

Source: Yu and Diao 2011.

The policy document on the Promotion of Paddy Rice Production and Export of Milled Rice was approved by the Council of Ministers on 25 July 2010. The vision of the government is to transform Cambodia into a ―rice basket‖ and a key rice-exporting country in the global market. The government has set 2015 as the target year to reach a paddy rice surplus of more than 4 mt and achieve milled rice export of at least 1 million tons, and to ensure that Cambodian rice is internationally recognized.


In the short term, the government strategy involves promoting paddy rice production to meet market demands and the export of milled rice by shifting from the informal export of paddy rice to the formal export of milled rice. In the medium to long term, the strategy involves enhancing competitiveness in rice export through the promotion of production technology; management of soil fertility, water, seeds, and fertilizers; organization of farmer associations; improvement of rice processing quality; expansion of physical infrastructure, including roads, railways, seaports and electrical energy; improvement of land use and management; and provision of short- and long-term credits as well as trade facilitation and exploring market opportunities.

The main key players of this policy strategy have the following roles and responsibilities:

The Ministry of Agriculture, Forestry, and Fishery is responsible for increasing paddy rice productivity by using high-yield seeds and modern farming techniques, promoting seed production and distribution, and strengthening and expanding the capacity of agriculture extension and research.

The Ministry of Water Resources and Meteorology shall improve the efficiency of water management of existing water resources and strengthen technical capacity for designing and selecting investment projects, especially by learning from experiences of neighboring countries where geography and weather conditions are similar.

The Ministry of Rural Development and relevant ministries shall pay more attention to the construction and maintenance of rural roads to connect rice production areas to markets.

The Ministry of Economy and Finance and the National Bank of Cambodia shall review measures to facilitate and encourage commercial banks and other financial institutions to extend more credits to farmers.

The Ministry of Industry, Mines, and Energy shall implement the existing National Policy on Rural Electrification and design a new project as soon as possible to facilitate electricity transmission and distribution to rural areas for pumping water to fields.

The Ministry of Land Management, Urban Planning, and Construction shall give priority to delivering land titles in potential rice production areas to ensure security of tenure, reduce disputes, and encourage investments in land. The titles can be used as collaterals for receiving loans for seeds, fertilizers, and other investment needs.

The Ministry of Planning (including the National Institute of Statistics), the Ministry of Agriculture, Forestry, and Fishery, and relevant institutions shall conduct a national agriculture census at least once in 10 years. Based on the census results, the Ministry of Agriculture, Forestry, and Fishery shall develop a land use map.

The Ministry of Commerce shall carry out a comprehensive study on Cambodia‘s potential markets for milled rice and disseminate the results to wider stakeholders. The Ministry of Commerce shall also lead delegations, consisting of representatives from concerned ministries, agencies, and rice export companies, to negotiate rice sales to regional and global markets.


The government is committed to promoting paddy rice production and removing all constraints to milled rice export from Cambodia. The success of this policy will require cooperation, coordination, and strong commitment, especially by way of improving the leadership and management of all concerned ministries, agencies, and stakeholders.

The rice millers and exporters can access loans from commercial banks and credit facilities

that are guaranteed by the government. The policy measures in this regard include the following:

Recapitalize the Rural Development Bank with an additional amount of $7 million (from $13 million to reach $20 million) by early 2011.

Double the capitalization of the Agriculture Development and Support Fund from $18 million to $36 million in 2011.

Develop a Credit Guarantee Scheme to guarantee loans from commercial banks to companies and paddy rice collectors by 2011.

Cooperate with development partners to set up the Risk Sharing Facility in 2011, with the objective of encouraging commercial banks to extend loans to agriculture processing activities and small- and medium-sized enterprises (SMEs) in general.

The Cambodian government is also considering various policies and programs that will (1)

increase agricultural and rice production through productivity gains, with focus on improved research and extension and increased public investment in land and water, particularly irrigation for the second rice crop; (2) increase the value added in rice production, marketing, and export chain development, with focus on supporting farm communities, improving rice storage at various levels, and enhancing rice milling efficiency through greater public–private partnership; (3) improve food security and nutrition, with focus on crop diversification; (4) enhance energy security by developing crops for biofuel in marginal and non-rice areas, with focus on cassava; and (5) introduce measures to combat the effects of climate change. The private sector

According to the Ministry of Industry, Mines, and Energy (2003), approximately 90% of Cambodia‘s private sector is made up of SMEs. SMEs reemerged strongly after the government adopted its new economic system, shifting from a planned economy to a free market economy in the early 1990s. SMEs have been playing an important role in agro-processing by shifting more rural employment to manufacturing. In 2006, the Ministry of Industry, Mines, and Energy recorded 31,149 small industrial establishments, 23,103 of which were rice mills with less than 50 employees (Table 30). Only 10,922 rice mills were licensed establishments. Half of the small-sized enterprises were not registered. There were 1,689 small textile and garment enterprises, mostly engaged in weaving in the cottage industry, of which over 90% had no operating permit. Agro-industry accounted for 81.7% of small industry establishments. Agro-industry and cottage industries are major SMEs in Cambodia (SME 2007).


Table 30: Small Industrial Establishments in 2006

Number of establishments

Labor Licensed

establishments

Food, beverage, and tobacco 25,455 58,512 12,350

Rice milling 23,103 47,887 10,922

Textile and wearing apparel and leather industries

1,689 6,347 167

Paper produce, printing, and publishing 33 351 25

Chemical 159 1,448 155

Non-metallic mineral produce 797 8,932 652

Fabricated metal produce, machinery and equipment

2,380 8,243 1,613

Other manufacturing industries 636 3,239 435

Total Manufacturing 31,149 87,072 15,397

Source: SME 2007.

The Cambodian government has introduced various policy and fiscal measures to mitigate the effects of inflation and reduce the impact of speculation in the rice market. These include banning the export of paddy rice and milled rice for 2 months and instructing the Green Trade Company and the Cambodian Rice Millers Association to sell rice from their stocks. However, the export ban was relaxed in key border provinces to allow the export of paddy rice that could not be stored.

In addition, import duties were relaxed on some food items while import restrictions were

lifted on others such as pork that were previously banned due to food safety and health concerns. The government also increased financing, equivalent to $4 million for the Green Trade Company and $6 Million for the Cambodian Rice Millers Association, to store rice for food security and market stabilization. A provision was introduced for special financing (working capital) through the Rural Development Bank to also help private rice millers to stock rice for domestic supply; this financing increased from $6 million in 2007 to $10 million in 2008. Increases were also instituted in the base salary and the functional and dependency allowances of civil servants, the armed forces, and retirees. 9. SUMMARY AND CONCLUSIONS

Cambodia is a net exporter of rice and, therefore, the country as a whole can benefit from price increases in rice. As a small economy that produces surpluses in a few cash crops, Cambodia needs to diversify into other crops, such as mung bean, soybean, maize, cassava, cashew, and rubber. Higher prices of these crops mean Cambodia would earn more export receipts.

Technology transfer plays a crucial role in increasing agricultural productivity, but Cambodian farmers lack the necessary technology due to their limited access to services. Therefore, research and development and extension systems need to be further improved.

At present, the export of paddy rice is dominated by informal exports of paddy rice to neighboring countries. However, there is no value added because paddy rice is milled in neighboring countries. Formal exports are hindered by bureaucracy and many other factors. High transportation costs and the perception of Cambodian rice being of low quality would also


need to be addressed. To encourage the export of surplus rice products, the government has eliminated all barriers to Cambodian rice exports. Yet, access to international markets is still limited and Cambodian rice is exported only to a few countries.

The coordination between government institutions and the private sector is also still limited, and poor market information is considered as another constraint affecting the marketing of agricultural commodities. Exporters and other interest groups lack access to information on the international rice market. The institutional capacity for supporting the private sector is weak. The lack of capable and experienced staff remains the biggest constraint of the Ministry of Commerce and the Ministry of Agriculture, Forestry, and Fisheries in providing marketing support to farmers and traders.

The government requires exporters and importers to obtain an official permit before trading any kind of rice. At the moment, there are no clear official data regarding other requisites for exporting and importing.

The medium- and long-term credits provided to the Green Trade Company and rice millers can increase their capacity for stockpiling and building food reserves to reduce annual price fluctuations and emergency shortfalls. Rice mills, postharvest quality control, and storage facilities need further improvement while poor management of rice storage and inefficiency in information dissemination (e.g., laws and regulations) need to be addressed.

The lack of irrigation facilities also restricts the majority of producers to a single, rain-fed rice crop per year, discouraging the diversification of local farming systems. Increases in cultivated area require the extension of suitable varieties and the provision of irrigation to allow multiple cropping of rice in some areas. In addition, yield increases require the use of improved varieties, fertilizer, pesticide, and irrigation, which imply that farmers should have access to these inputs in the first place.

The injection of private sector capital into the rice sector in Cambodia shows the potential to add value and enhance exports. However, private sector involvement has been limited to large milling companies with significant private financing that have limited reliance on commercial sources of capital. The ability of medium- and large-sized mills to enter the export markets has been fundamentally constrained by the lack of working capital, which prevents the improvement of milling technology and limits the ability of millers to purchase paddy rice from farmers. The credit constraint also prevents many millers from working with farmers to supply mills with the consistent level of quality required by export markets.

As for the poor that are hardest hit by rising prices, immediate intervention by government,

development partners, and civil society organizations is needed. Food aid and/or food for work are the best solutions to meet their short-term needs. This requires enhanced cooperation among government agencies, development partners, and civil society. The government budget for safety nets remains low, with the majority of funding provided by development partners and earmarked for interventions that are often implemented in parallel with the government system. The government needs to develop a comprehensive safety net strategy with other partners that results in long-term sustainability. The impact of the global economic downturn on poverty and vulnerable groups is severe in both rural and urban areas. The government should provide insurance to the poor by setting up a regulatory framework for microfinance institutions that will improve the credibility of the social safety net system.


The lack of rural infrastructure seriously hampers the potentials of the agricultural sector. Transportation, storage facilities, communications, and the marketing infrastructure should all be enhanced in rural areas in all zones to help farmers increase the profitability of their production. It is especially important to improve the storage capacities for paddy and processed rice as well as milling capacities at the community level. Moreover, farmers should be encouraged to create farmer associations to be able to negotiate higher selling prices with external buyers.

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Documents

TACR: Regional: The Rice Situation in Cambodia