All Hopes Pinned on Rice Exports
By An Sithav, Economics Today
Rice-one of the world’s major food staples-has for years been called the white gold of Cambodia, and with the kingdom’s garment industry seemingly in its death throes and tourism growth slackening, there are ambitious plans to turn Cambodia into the world’s biggest rice exporter within a decade.
The prime minister, who has said Cambodia could become the number one rice exporter in six years, and Minister of Agriculture Chan Sarun, who expects Cambodia to export 8 million tons of rice annually by 2015, are two of the most vocal advocates of rice cultivation. But government officials, development partners, agriculture experts and industry operators are also united in their belief that Cambodia can become one a leading exporter of white rice.
“A fertile agricultural sector produces white gold to set Cambodia apart and propel its economic growth,” Douglas Broderick, UN resident representative, told an economic forum in early February.
A source reliable of revenue and economic growth would be invaluable at a time when two former major export earners and growth engines-garments and tourism-are crumbling. Raising the profile of the kingdom as a major agricultural hub and reopening the door to foreign direct investment (FDI) would be another key benefit.
Several obstacles stand in the way however, not least widespread ignorance of modern farming, a lack of funds and high business costs. Any overhaul of Cambodia’s creaking agriculture will be a massive endeavor that will need require administrative reform and capacity building, but most of all, time and money.
“I agree that Cambodia has potential in the rice sector because Cambodia has much abandoned land and underutilized labor [but] to export millions of tons of rice like the other leading rice exporters … Cambodia will needs years,” Tes Ethda, chairman and CEO of the National Cambodian Rice Millers Association (NCRMA), told Economics Today.
In the long-term Cambodia could become a leading rice global exporter, he stated, but current constraints are just too over-whelming to allow a short-term sprint to the front, especially if Cambodia wants to beat Vietnam and Thailand. Cambodian rice is not yet competitive in terms of price, quality and quantity, Tes Ethda said.
Real Potential, Really Daunting
According to the Ministry of Agriculture, Forestry and Fisheries (MAFF), total un-husked rice (paddy) production in 2008 reached more than 7 million tons, allowing for at least 2 million tons of rice processed for export. The rainy season rice crop results in a harvest of about 5.7 million tons from 2.25 million hectares of rice fields. The dry season crop produces a mere 1.4 million harvest from only 350,000 irrigated hectares. This gives a productivity of 2.54 tons and 4 tons of rice per hectare, respectively.
These favorable figures are driving the optimism of both the government and industry stakeholders.
“If we look at the MAFF’s statistics regarding rice surplus, Cambodia can stand among the top leading rice exporters,” said Phou Puy, president of the Federation of Cambodian Rice Miller Associations (FCRMA), though he conceded that there are quality issues with Cambodian milled rice, which cannot yet meet international standards like rice from Thailand and Vietnam.
Currently, the milled rice export market is dominated by Thailand, Vietnam, Pakistan, India and China. According to estimates from the US Department of Agriculture (USDA), the five countries together exported a total of 21.2 million tons of rice in 2008, Thailand leading with 9.5 million tons of rice exports.
The same estimates show Cambodia exported only 300,000 tons of milled rice, way below the millions of tons needed to become a leading exporter.
But economists and industry sources say that the figures are skewed by the huge amount of Cambodian paddy that flows out to both neighbors.
“Cambodia has a paddy surplus every year but Vietnam and Thailand always buy paddy from Cambodia and then mill it for export to the world market,” said Chan Sophal, president of the Cambodian Economic Association (CEA). He claimed that, if Cambodia could reduce this informal export of paddy, the kingdom would have ammunition for a rapid expansion of the nascent milled rice production sector.
Informal paddy exports are bleeding the economy of potential income, claimed Tes Ethda, though the issue will remain unresolved without access to finance, advanced technologies and infrastructure improvements.
“Cambodia does not have the ability to combat the problem of informal exports because we need much money, storage facilities and milling rice machineries,” he said. “If we ban informal paddy exports, rice farmers will die because there is no market for them and the Cambodian market ca not absorb all surplus-paddy for milling.”
Chan Vuthy, general manager of Golden Rice, a recently established milling factory equipped with the cutting edge technology needed to meet international standards, said a more favorable business environment for rice millers would help drive investment. “A lower interest rate is one solution to reduce informal paddy exports. The interest rates should be 6 percent [when] lending to the private sector such as rice millers or collectors,” he said. “By building more standard rice millers, Cambodia could compete with other top rice exporting about price and quality.”
Just building the factories will be a considerable feat: Chan Sophal estimated that over a hundred high technology rice milling factories would be needed to process Cambodia’s entire paddy surplus, as well as funds to purchase the crop. So far, only a few rice millers can afford the expensive equipment to meet international standards, with Angkor Kasekam Roong Roeung, Golden Rice and Green Trade the best known.
An international standard rice miller needs capital of between US$5 million and US$10 million, Tes Ethda estimated. The investment is probably a good one, he said, but few have such funds on hand in the current climate.
Finding markets for nonstandard rice-rice with a higher percentage of broken grains that is also called broken rice-is the best bet while investors slowly install the high technology needed for the highest quality processed rice, Chan Vuthy said. Selling to more unfussy markets, like African countries and the Philippines, would reduce informal paddy exports and enable Cambodia to move up the value chain. Such markets are also an intermediate step between selling paddy across the border to neighbors and exporting the highest grade of rice to the exacting markets of the developed world, he added.
Rice mills equipped with the lower standard of equipment needed for broken rice are already relatively common in Cambodia and such mills are also much less costly to build than international standard mills. Thus low-technology mills “can contribute significantly to GDP growth in the context of the global economic crisis this year,” claimed Chan Vuthy.
Tes Ethda warned that finding markets for broken rice may not be easy as some hope. Still, Cambodian broken rice fetches more than its competitors because of its higher quality and cultivation that eschews pesticides and chemical fertilizers. At an average of US$460 per ton, it costs around US$100 more than similar Vietnamese rice.
Mills can certainly help boost profits, but without better irrigation, post harvest management, roads, markets and access to credit, the changes to Cambodian farming will be minimal.
Agricultural diversification and farmers with better knowledge and techniques are needed, according to World Bank report, sustainable environment released in January 2009.
Dr. Yang Saing Koma, the president of local agricultural development organization CEDAC, underlined the importance of irrigation. “Based on my experience working with farmers, most of them are growing rice with inadequate irrigation,” he said, adding that a greater use of fertilizer could help Cambodia compete with its neighbors.
“Most developed countries such as EU and US always buy organic rice … and Cambodia has produced organic rice. But unfortunately Cambodia could not meet the standard because Cambodia does not have high technology for milling,” said Dr. Yang Saing Koma.
The government is beginning to put its money where its mouth is: US$14 million has been earmarked for the Rice Miller’s Association to buy paddy for processing in 2009, said Phou Puy.
In addition, the Rural Development Bank (RDB) has been lending the Rice Miller’s Association money to buy up paddy during the harvest season since 2005, helping to curb the outflow of rice. The RDB increased funding from US$2 million in 2005, US$4 million in 2006, US$6 Million in 2007 and around US$16 Million in 2008, said Son Kounthor, the RDB’s chairman and CEO.
As the trickle of laid-off urban workers returning to Cambodia’s sprawling agrarian hinterland turns to a flood, the kingdom has few other short-term options than to rapidly claw its way up the rice value chain. ■