An Economic Survey of Rice Sector in Cambodia
77
AN ECONOMIC SURVEY OF RICE SECTOR IN CAMBODIA G.L.G. CONSULTANTS 7, rue Claude Bernard 7 5 0 0 5 PARIS TËL: 01 43 31 33 13 FAX: 01 43 31 33 18 Nicolas Gergely Pierre Baris Chanty Meas Novembre 2010
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Transcript of An Economic Survey of Rice Sector in Cambodia
AN ECONOMIC SURVEY OF RICE SECTOR
IN CAMBODIA
G.L.G. CONSULTANTS
7, rue Claude Bernard
75005 PARIS TËL : 01 43 31 33 13
FAX : 01 43 31 33 18
G.L.G. CONSULTANTS
7, rue Claude Bernard
7 5 0 0 5 PARIS
TËL: 01 43 31 33 13
FAX: 01 43 31 33 18
Nicolas Gergely
Pierre Baris
Chanty Meas
Novembre 2010
1
AN ECONOMIC SURVEY OF RICE SECTOR IN
CAMBODIA
Summary
1 ANALYSIS OF THE VALUE CHAIN ................................................................................... 10
1.1 PADDY SUPPLY AND DESTINATION .......................................................................... 10
1.1.1 MAIN PRODUCTION DATA ............................................................................. 10
1.1.2 RICE AGRO-ECOSYSTEMS .............................................................................. 12
1.1.3 PADDY PRICES ........................................................................................... 16
1.1.4 PRODUCTION PAST TRENDS AND CAUSES: A MASSIVE GROWTH ................................. 20
1.1.5 MARKETING SYSTEM FOR PADDY AND DESTINATION OF PRODUCTION ......................... 23
1.1.6 PRODUCTION COSTS ................................................................................... 26
1.1.7 MAIN FINDING ON PRODUCTION CONSTRAINTS FOR EXPORT ................................... 29
1.1.8 MAIN SHORTCOMINGS IN RICE PRODUCTION ...................................................... 29
1.2 ORGANIZATION, CHARACTERISTICS AND CAPACITY OF THE RICE PROCESSING SECTOR ............ 30
1.2.1 VILLAGE AND INDUSTRIAL MILLS ..................................................................... 30
1.2.2 MILLING CAPACITY, INDUSTRY STRUCTURE AND TECHNICAL CHARACTERISTICS OF INDUSTRIAL
MILLS 32
1.2.3 INVESTMENT COSTS FOR NEW RICE MILLS ........................................................... 34
1.2.4 MAJOR CONSTRAINTS AND SHORTCOMINGS AT THE PROCESSING STAGE ...................... 35
1.2.5 PROCESSING AND MARKETING COSTS ............................................................... 36
1.3 RICE EXPORTS: PERFORMANCES AND COMPETITIVENESS ................................................ 38
1.3.1 EXPORT VOLUME AND PERFORMANCE OF EXPORTERS ............................................ 38
1.3.2 EXPORT PRICE OF CAMBODIAN RICE AND COMPARISON WITH WORLD PRICES................ 39
1.3.3 CURRENT COMPETITIVENESS OF CAMBODIAN RICE AND POSSIBLE EVOLUTION ............... 40
1.4 ECONOMIC ANALYSIS OF THE VALUE CHAIN ............................................................... 43
1.4.1 GLOBAL ANALYSIS ...................................................................................... 43
1.4.2 SPECIFIC EMPHASIS ON EXPORTABLE VARIETIES .................................................... 44
2 PROSPECTIVE ANALYSIS AND RECOMMENDATIONS .............................................................. 47
2.1 PRODUCTION PROSPECTS AND INCREASE OF THE EXPORTABLE SURPLUS ............................. 47
2.1.1 PRODUCTION PROSPECTS ............................................................................. 47
2.1.2 DEMAND AND DESTINATION PROSPECTS ............................................................ 48
2.2 EXPORT MARKET OPPORTUNITIES FOR CAMBODIAN RICE ............................................... 49
2.2.1 BRIEF PRESENTATION OF THE RICE WORLD MARKET .............................................. 49
2.2.2 TYPES OF EXPORTABLE RICE FROM CAMBODIA ..................................................... 51
2.2.3 PRIVILEGED MARKET ACCESS FOR CAMBODIA ...................................................... 52
2
2.2.4 PRIORITY MARKETS AND OTHER POTENTIAL MARKETS FOR CAMBODIAN RICE ................ 52
2.3 STRATEGY TO DEVELOP RICE EXPORTS ..................................................................... 54
2.3.1 PROPOSED ORGANIZATIONAL STRUCTURE FOR THE RICE EXPORT INDUSTRY ................. 54
2.3.2 ACTION PLAN TO ALLEVIATE CONSTRAINTS AND PROMOTE EXPORTS .......................... 56
2.4 RECOMMENDATIONS TO IMPROVE PRODUCTION ........................................................ 64
2.5 ECONOMIC IMPACT OF THE IMPLEMENTATION OF THE EXPORT DEVELOPMENT STRATEGY ........ 65
3 ANNEX ................................................................................................................. 70
3.1 ANNEX: CONTRACT FARMING ............................................................................... 70
3.2 ANNEX: WORLD TRADE STATISTICS FOR RICE............................................................. 72
3.3 ANNEX: INTERNATIONAL PRICE FORECAST ................................................................ 73
3.4 ANNEX: RICE DEFICIT AND SURPLUS PROVINCE ........................................................... 74
3.5 ANNEX : MACRO ECONOMIC IMPACT ...................................................................... 75
Figures
Figure 1 : distribution of rice cultivation ...................................................................................... 11
Figure 2: Different agro-ecosystem of rice in wet season ................................................................... 14
Figure 3: Different agro-ecosystem of rice in dry season ................................................................... 16
Figure 4 : paddy prices at farmer’s gate in September 2010 ................................................................ 17
Figure 5 : mix paddy price ....................................................................................................... 17
Figure 6 : index prices Cambodian paddy and Thai rice ..................................................................... 18
Figure 7 : Fragrant and Mix varieties prices ................................................................................... 19
Figure 8 : paddy prices for different varieties ................................................................................. 20
Figure 9 : paddy production ..................................................................................................... 20
Figure 10: paddy yields ........................................................................................................... 21
Figure 11 : main growth trends in areas ....................................................................................... 22
Figure 12 : production by variety ............................................................................................... 23
Figure 13 : assessment of consumption by variety ........................................................................... 23
Figure 14 : actors of the rice value chain and exchanges .................................................................... 25
Figure 15 : rice utilization in 2009 .............................................................................................. 26
Figure 16 : Production cost of traditional ordinary and fragrant rice in wet season .................................... 28
Figure 17 : Production cost of rice in dry season ............................................................................. 28
Figure 18 Destination of paddy by type of processing (net of losses) ..................................................... 31
Figure 19 : industrial processing capacity ...................................................................................... 32
Figure 20 : Added value by branch of the value chain ....................................................................... 43
Figure 21 Rice value chain income 2009 ....................................................................................... 44
Figure 22 : Production costs for 1 ton fragrant rice exported .............................................................. 45
Figure 23 : added value for fragrant and ir rice ............................................................................... 46
Figure 24: yield projections 2015 2020 ........................................................................................ 47
Figure 25 : paddy production projections to 2020 ........................................................................... 48
Figure 26 : impact of government target on rice utilization in 2015 ...................................................... 65
3
Figure 27 : impact of paddy and rice export compared (for one ton fragrant rice) ..................................... 66
Figure 28 : Economic gains for 1 million tons of rice exported ............................................................ 67
Figure 29 : Added value by sub sectors 2015 ................................................................................. 68
Figure 30 Rice utilization in 2020 .............................................................................................. 69
Figure 31 : Added value by sub sector 2020 .................................................................................. 69
Figure 33 example of contract farming ........................................................................................ 71
Figure 33 : rice price forecast ................................................................................................... 73
Figure 34 harvested Area ......................................................................................................... 74
tables
Table 1: Production cost of rice ................................................................................................. 27
Table 2: Balance of rice production for home consumption ................................................................ 29
Table 3 : List of millers with more than 5 T/hour capacity ................................................................ 34
Table 4 : average investment cost for a 4/5 T/h mill ....................................................................... 35
Table 5 : Processing and marketing cost per type of rice for a 5 T/h mill ............................................... 38
Table 6 : Current prices of rice on the world market in USD/ton ........................................................ 39
Table 7: Comparison between world prices and prices obtained by Cambodian exporters ........................... 40
Table 8: competitiveness of Cambodian rice on export markets (USD/ton) ............................................ 41
Table 9 : rice destination in 2015 ............................................................................................... 48
Table 10 : rice destination in 2020 ............................................................................................. 49
Table 11: Possible market prospects by 2015 ................................................................................. 54
Table 12: modern processing capacity requirements for exports .......................................................... 57
Table 13: need for working capital ............................................................................................. 58
Table 14 world trade statistics ................................................................................................... 72
Table 15 : added value for a ton of fragrant rice export ..................................................................... 75
Table 16 : added value for a ton of IR rice export ........................................................................... 76
4
EXECUTIVE SUMMARY
ANALYSIS OF THE VALUE CHAIN
Production
1. Cambodia has recently re-joined the club of countries with exportable surpluses of rice,
following a 30-year hiatus caused by war, political isolation and decimated agricultural sector.
Production has reached 7,5 tons in 2009, with an impressive 15% per annum growth rate since 2005,
due primarily to a favorable environment (prices have followed the upwards trend of the world market
and the primary marketing system is transparent and very competitive), but also to the rehabilitation of
irrigation schemes and improved seeds and agricultural practices leading to increased yields. Despite
recent improvements, there is still a considerable scope for further increasing yields, which remain
among the lowest in East Asia (2,8 tons/ha).
2. Among the large number of varieties used, two types, fragrant and IR, which represent
respectively 1,5 and 1 million tons (in paddy weight), have a real potential for exports, while
traditional varieties are directed mainly to the domestic market. Production of exportable types of rice
have a large potential for increase, in response to market demand, as they can substitute to traditional
varieties in some of the main agro-systems, both in the wet and in the dry season.
3. The current production is largely exceeding the domestic market demand estimated at 1,7 MT
(in rice weight) for home consumption and 0,5 MT for other rural and urban consumption. The surplus
production (2,6 MT in rice weight) is overwhelmingly exported as paddy to Vietnam ( for traditional,
IR and fragrant varieties) and to Thailand (mainly for fragrant varieties), which makes Cambodia
highly dependable on the rice import policy of those two countries.
4. The production cost ranges, depending on the production system, from 140 to 180 USD/ton
(including family labor), which leaves, considering a current price of $320 for fragrant and $230 for
other varieties, a substantial profit per hectare, although the profit per farm remains limited, due to the
small average farm size (1 ha). The farmer‟s profit is substantially higher for fragrant rice, which gives
an incentive to shift from traditional to exportable varieties for farmers who have marketing surpluses
(40% of farmers).
5. The main shortcomings at the production level are the low quality of the seeds used by
farmers and the lack of drying equipment for the wet season harvest, which affect severely the quality
of the rice.
Processing
6. Custom mills (ate the village level) are essentially used to process the paddy for home
consumption and partly for rural markets. Industrial mills have a global capacity estimated between
300 and 450 T/hour (for 200 to 300 mills), which would allow them to process, under normal
conditions, 0,6 to 0,8 MT/year, whereas the processing demand both for the domestic market and rice
exports is only estimated at 0,5 MT, thus revealing a global over-capacity. The overwhelming
majority of those mill,s built before 200,9 have a capacity of less 5 T/hour, use outdated technologies
and lack sorting, polishing and drying equipment required to meet export standards.
5
7. An additional capacity of 123 T/hour, corresponding to modern mills designed for export
processing, has however been built since 2009 (or is under construction), illustrating a new interest
from millers for export markets.
The major constraints faced by millers, beside the size of the domestic market which limits their
activity unless they are operate for the export market, are the lack of working capital (particularly for
the new mills financed through bank loans, which reduces their ability to be further indebted on short
term credit), and the lack of technical, export marketing and, in some cases managerial expertise to
access to export market.
8. Total net estimated ex factory costs are estimated under current conditions, at $411/ton for
traditional mills operating for the domestic market, $449 and $582/ton for modern mills exporting
respectively white rice (IR variety) and fragrant rice and selling the broken grains to the domestic
market. Given the prevailing prices both on domestic and export markets, the net profit made by
millers amounts to $19/ton for traditional rice. It is substantially higher for fragrant rice ($72/ton), but
lower for export white rice ( $17/ton)..
Rice export performances and competitiveness
9. Rice exports remain at a very marginal level (20 000 tons estimated in 2010), despite a steady
increase in the two past years. Almost half of exports goes to EU, which Cambodia can access with a
full tariff exemption, contrarily to its main competitors who pay $200/ton (EBA regulation).
10. FOB prices obtained by Cambodian exporters remain however lower than prices obtained by
Thailand for fragrant rice ($840/ton instead of $ 880-1000), due to lower and more irregular quality,
absence of branding and lack of knowledge of Cambodian rice by distributors and consumers in EU.
White rice is exported to EU with a slight premium ($500 against $468 for Thai white rice in whole
grains), but lower than its tariff advantage.
11. Comparing costs and prices, both fragrant and white rice are currently competitive on the EU
market (thanks to the tariff advantage), but the cost of white rice would have to be reduced by at
$16/ton to to break even on non EU markets. This lack of competitiveness is due to the extra cost (at
least $30/ton on energy, transport and fobbing) borne by Cambodian rice as compared to Vietnam,
which, with Thailand, will be Cambodia‟s main competitors, and which are currently price makers on
the world market. Such a cost disadvantage could however be reduced by $30/ton through the use of
cogeneration (from the husk) to reduce energy costs, improved transport conditions and elimination of
unofficial fees on export procedures.1
Economic analysis of the rice value chain
12. Based on the model developed by the Consultants, the value added currently created by the
value chain is $1,5 billion, of which 1% for rice exports, 43% from paddy exports, 39% from home
consumption, and 17% from other domestic consumption. This value added is distributed among
farmers (78%), millers and workers (17%), government income (5%). The foreign exchange gain is
more than $400 Million.
1 The competitiveness of Cambodian rice is not depending on the world market price, but on the processing and post processing cost differential with Vietnam and Thailand
6
PROSPECTIVE ANALYSIS AND RECOMMENDATIONS
13. This part of the report focuses on the government objective of 1 million tons of exported rice
by 2015, and analyses the conditions, constraints, required alleviation measures and economic impact
corresponding to this objective.
Production prospects and increase of the exportable surplus
14. Based on the assumptions of a moderate growth rate for yields ( 6% for dry season and 4% for
wet season), a 6% growth rate for irrigated area and 0,2% for non irrigated areas, production will reach
10 million tons by 2015, and might exceed 12 million tons in 2020. The exportable surplus would
reach 3,6 million tons in 2015 and more than 4 million tons in 2020. Unless considerable progress is
made to develop rice exports, the country would thus become increasingly dependable on paddy
exports to neighboring countries.
Export opportunities
15. In order to export its two main exportable varieties (fragrant and IR white rice), each
corresponding to different quality grades (whole grains, partly broken, fully broken), Cambodia will
need to adopt an offensive marketing strategy directed simultaneously to a variety of countries: EU is
a priority market, but cannot absorb more than 200 00 tons (mainly for top qualities); Russia (where
Cambodia has a privileged access), Middle East, Malaysia and China are also interesting markets for
higher quality rice (fragrant and white rice): lower qualities can find a market in Russia, the
Philippines and Vietnam (two countries where Cambodia can have export quotas) and Africa; broken
rice, once the absorption capacity of the domestic market is saturated, will have to be marketed to
Western Africa, the main outlet for this quality.
In purely marketing terms, the objective of 1 MT by 2015 is not out of reach, but requires a very
determined strategy to alleviate all the constraints, improve quality (mainly for fragrant rice), reduce
costs (mainly for white rice) and promote Cambodian rice.
Action plan to alleviate constraints to rice export development
16. The processing industry for export should ideally include a limited number of large scale
operators, playing the role of market integrators and exporting the rice produced by smaller mills (with
around 5 T/hour capacity), which are more flexible in operational terms and more suitable to collect
locally quality paddy through entering into contractual relationships with local producers. Ideally, two
thirds of production for export could be processed by medium scale mills (around 5 T/hour).
The following priority action plan can be identified:
Increase the processing capacity for export quality: the existing modern processing capacity
cannot process more than 270 000 tons. An additional capacity of 646 T/hour is required to reach
the export objective, of which 145 T/hour for large mills and 500 T/hour for medium scale ones
(corresponding to 100 new or rehabilitated mills). The corresponding investment cost is estimated
at $137 million. In order to overcome the reluctance of banks to finance the rice industry (which is
the main constraint to investment), targeted credit lines to commercial banks will have to be set up
7
by the Central bank or international partners. Risk sharing facilities (through government
financing or international partners) are also needed to reduce security requirements of commercial
banks. Innovative financial products (such as leasing) should also be developed. Finally, advisory
services should be made available to millers to improve their management techniques and their
capacity to make well documented loan applications.
Increase short term facilities to millers for financing their working capital: Working capital is
critical for millers, especially for export markets. The total additional working capital need is
estimated at $200 million by 2015, based on the export objective, and even more if contract
farming develops as recommended. This need will have to be financed by local commercial banks,
whereas it was up to now financed by Vietnamese and Thai banks, through Vietnamese or Thai
paddy buyers. In addition to the measures already proposed for facilitating commercial banks
involvement in the rice sector, inventory credit should be developed through an enabling
legislation.
Simplify export procedures and reduce its cost: Export procedures need to be simplified and their
cost reduced through elimination of non official fees and establishment of a “single stop service”
(guichet unique)
Increase port handling and transport capacity: the export objective corresponds to a flow of 150
containers exported per day, which exceeds by far the current transport and handling capacity. In
addition to the Sihanoukville port extension project, private investments will also be required to
alleviate this constraint. The option of making bounded warehouses arrangements in Vietnam and
Thailand ports, from which freight costs are lower because of their larger capacity, could be
considered for overcoming the port capacity constraint in the short term, and for reducing shipping
costs (which affect the competitiveness of Cambodian rice). This would however increase the
logistical dependency of Cambodia
Increase the local operators’ expertise in milling operation and international rice trade: Training
and advisory services to millers are needed, in particular for improving the rice quality through
better awareness of market demand, processing technologies adoption of more stringent quality
requirement for paddy. Operators directly dealing with foreign markets also need to improve their
knowledge on international rice trade and possible marketing strategies, and improve their
connection to the world market
Develop internationally recognized quality standards: As all major rice exporters, Cambodia will
have to put in place a national quality standard, a crucial condition for establishing trustful
business relationships with buyers.
Comply to SPS regulations: In order to comply with SPS regulations (in EU, but also increasingly
stringent on other markets), Cambodian processors and Competent Authorities will have to set up
a SPS risk management and control system.
17. Specific strategies will have to be developed for each type of rice: for fragrant rice ( which is a
specialty rice), the focus should be put on quality and branding (as Cambodia cannot use the
“Jasmine” brand developed by Thailand), in order to reduce its discount to Jasmine Thai rice, which
corresponds to the same varieties. Niche markets, such as organic or fair trade, could also be explored.
For white rice, the focus should be put on cost reduction, in order to improve its competitiveness, in
particular through introduction of bulk shipping (instead of containers).
The success of the strategy will, to a large extent, depend on the co-ordination capacity within
government agencies, within private operators, and between Government and the private sector. This
need for co-ordination calls for the strengthening of the newly created “Rassemblement pour le Riz”,
as a co-ordinating forum within the industry, and for the creation of a Rice Export Authority,
8
reporting to the highest government level, in charge of co-ordinating the implementation of the
strategy by Government agencies and to conduct a dialogue with the private sector.
18. On the agricultural production side, efforts should be made to develop contract farming,
improve the quality of paddy through promotion of Cambodian varieties corresponding to the market
demand, promotion of the use by farmers of high quality seeds, promotion of fragrant varieties (which
attract a higher income for farmers) and promotion of drying machines operating on a toll basis.
Economic impact of the rice export strategy
19. Reaching the export objective will reduce paddy exports to 2,5 million tons (instead of 4
million in the absence of such a strategy) by 2015. It will generate an additional added value of
$137/ton of exported fragrant rice and $85/ton of white rice (as compared to paddy exports).
20. The overall gain in added value will be $ 110 million, of which $98 million for millers and
processing workers and $12 million for government income. The impact on the foreign exchange
balance will be $57 million.
21. The strategy is highly profitable in economic terms, with an internal rate of return of 28%,
both for economic and financial return. For the public sector, the economic return depends on the
investment required for improving public infrastructure, which cannot be estimated precisely at this
stage. Public investments would however equal the discounted value of expected government
additional income as long as it does not exceed $200 million.
9
INTRODUCTION
22. As specified in the terms of reference, the objectives of this economic survey of the rice
sector is (a) to provide a simplified picture of the rice sector, and its economical importance in the
country; (b) to measure the impact of the main measures considered by category of actors, (c) to assess
the competitiveness of Cambodian rice on the export markets and propose conditions for improving it.
23. More specifically, this study takes place a few months after the issuance by the Government of
a national strategy for developing rice exports, which gives an ambitious objective of reaching 1
million tons of rice exports by 2015 and calls for a number of measures to be taken in order to reach
this objective . This government strategy is addressing one of the major shortcomings of the rice sector
in Cambodia, as identified by a number of studies and policy papers in recent years: the inability of
Cambodia to export its rice surplus production as processed rice, leading to massive exports of paddy
to neighboring countries.
24. As agreed with the SNEC and AFD at the beginning of the mission, this economic study aims
at building up on the government strategy, in order to facilitate its implementation, through detailed
investigations on:
the production potential,
the constraints to develop processing and exports,
the competitiveness of the Cambodian rice and the way to improve it,
the market potential for each type of rice and for the main possible markets,
the measures to be taken for alleviating the identified constraints and their cost
the economic importance of the rice sector and the economic impact of the government strategy.
In conformity with this objective, the study focuses therefore on the development of rice export
subsector, recognized as the main issue of the rice value chain in current conditions.
10
1 ANALYSIS OF THE VALUE CHAIN
1.1 Paddy Supply and destination
25. This chapter deals with global paddy production, with however a distinction between
traditional varieties, and exportable varieties. A special emphasis is put throughout this report on
exportable varieties, in relation with the objective of promoting rice export. The distinction between
traditional and exportable varieties, which is usually not done in report on the rice sector in Cambodia,
is therefore a contribution to improving the sector analysis.
26. In market terms, three main types of rice are cultivated in Cambodia: mixed or traditional rice,
IR variety and fragrant rice. Mixed rice is usually made of a mixture of traditional varieties. It is the
type of rice corresponding to the traditional local taste, but is usually not exportable, because often
glutinous and not homogeneous. The IR variety, introduced in Cambodia 15 years ago, is not
appreciated by the locals and mainly exported as paddy to Vietnam but also to Thailand in small
quantity, but could be exported as white rice on the world market. The fragrant varieties are well
appreciated in a number of markets, and usually deserve a premium over white rice.
1.1.1 Main production data
27. Farmers are primarily subsistence producers. Rice is a staple food in Cambodia and is
cultivated all over the country. The 2.25 million rice farmers cultivate small average farm size: 1,2 ha,
but most rice farmers cultivate only about 1 ha. Only 40% of Cambodia‟s rice farmers have a
marketable surplus. Rice farmers thus tend to be small subsistence producers, though there is also
medium and large farms producing for the market.
28. The lowest yield in South East Asia. The Cambodian average of 2.8 tons/ha is below levels
in China (6.6 t/ha), Indonesia, Viet Nam (5.2t/ha).. The main reasons are the weak irrigation system:
only 25% of rice cultivation is irrigated and the low use of fertilizers (according to FAO, only about
30% of Cambodia‟s total area receives even minimal applications). Bur the government has made a
concerted effort to acquire international loans and grants to expand the reach of its national irrigation
infrastructure, and this effort has born fruit in the rice sector. USDA (2010) reports that the Ministry of
Water Resources and Meteorology (MOWRAM) brought approximately 650,000 hectares of rice area
under irrigation between 1996 and 2007, and has plans to irrigate an additional 800,000 hectares over
the next decade.
11
29. Rice is grown in all provinces in Cambodia, though there are mainly two corridors:(1)
Eastern provinces along the Vietnamese border (Prey Veng, Takeo, Kampong Cham, and Svay Reang)
specialize in high yield IR varieties; (2) Western provinces along the Thai border (Battambang,
Banteay Meanchey) produce especially aromatic rice2.
FIGURE 1 : DISTRIBUTION OF RICE CULTIVATION
30. Surplus area. Cambodia‟s surplus producing area is concentrated in the northwestern
provinces bordering Thailand (Battambang and Banteay Meanchey), as well as Siem Reap, the areas
2 See annex 3.3
12
bordering Tonle Sap Lake, along the Tonle Bassac and Mekong Rivers –including Takeo and Prey
Veng along the Vietnamese border3.
1.1.2 Rice agro-ecosystems
31. Two seasons. There are many rice agro-ecosystem according the seasons, the types of land
and the water conditions. The main crop, which is produced under rain conditions, is primarily
harvested in November-January and principally consists of traditional photosensitive varieties. The dry
season crop, which is much smaller, is primarily harvested in February-May. It includes a flood-
recession rice with supplementary irrigation and irrigated lowland rice. The dry season harvest is
essentially planted with non-photosensitive varieties. The rice dry season concerns 15 % of the rice
cultivated area (both in the wet and dray season and) 20 % of the production. The 3 main varieties:
mix variety or traditional, IR variety and fragrant variety are, in Cambodia, cultivated in different
agro-ecosystem.
A rapid presentation of those agro-systems, combining toposequences and rice varieties (varieties with
shorter or longer cycles; photosensitive or not) is necessary to fully understand the production
constraints and the dynamics of production
1.1.2.1 Wet season
Five agro-systems can be distinguished in the wet season, described as follows, starting from the
highest to the lowest lands
32. Upland Rice. Upland rice is a traditional and very extensive rice system in high land. The
area cultivated is very marginal (2.25%)4. Upland rice is cultivated without tillage and based on slash-
and burn practices, using only family labour, and with very low yields. (From 1 to 1.5 ton/ha).
Production is only for the family consumption.
33. Early rice: a potential for IR and fragrant varieties. Early rice is the main practice
whenever the rice field can receive some complementary irrigation during the short dry spell in wet
season. The area represents around 25% of total rice area in wet season5, generally located on upper
lands around the village. Its crop calendar is from May or June to the end of August or beginning of
September. The rice system is intensive with high rate of fertilizers (2-3 bags) and insecticides. The
yield is high from 3 to 4 tons/ha. Varieties used for this rice are not photoperiodic, early (around 105-
115 days), and can be fragrant or not. The popular varieties are IR 66, 504 (from Vietnam), and
fragrant variety Sen Pido, Sen Kra-Ob (from Thailand). The main problems of this rice system are:
Need to make the complementary irrigation when there is the dry spell (mainly in July).
Drying problem when the harvest is done simultaneously over a rain period
Frequently the early rice crop is followed by a second rice crop (early or traditional rice) .
3 See annex 3.3 4 Wet season rice 2009. Cultivated area by province, MAFF sources 5 idem
13
34. Midland rice: a potential for fragrant varieties. Midland rice is the major wet season agro-
system, representing 46% of the total rice area in wet season6. The farmers use traditional varieties.
Rice is transplanted in August and harvested in November. This rice system is extensive with a haft to
1 bag (50 kg) of fertilizer and only a limited insecticide application for crab control after the
transplanting. The rice is fully dependent on rainfalls for the development. Irregular rainfalls will
damage the seedling or delay the date of transplanting and decrease the yield.
35. Lowland late varieties. This rice is cultivated on low land areas between midland and
floating rice, on 23% of the total rice area in the wet season7. Most of the varieties are traditional
varieties transplanted in August and harvested in the end of December or beginning of January. This
rice system is as extensive as midland rice and faces the same risk when there is a dry spell in the
beginning of the rainy season.
36. Floating rice. Floating rice is practiced mainly in the provinces located around Tonle Sap
Lake. This rice can develop in deep water and its yield is depends on the flood regime. The quick
flood and the small flood may affect the rice development as well as the rice yield. It is very extensive
and nearly no fertilizers and insecticides are used for this rice. The harvesting is late until the end of
December or in the beginning of January. This rice represents only 4% of total rice area in the wet
season8.
6 idem 7 Wet season rice 2009. Cultivated area by province, MAFF sources 8 Idem
14
1.1.2.2 Dry season
Two agro-systems prevail in the dry season, both based on short cycle varieties.
37. Irrigated rice. The dry season rice depends largely on irrigation. The government of
Cambodia has massively invested the last ten years in the rehabilitation of irrigation schemes the area
of which doubled over the last 15 years. The yield reaches now 4,1 tons/ha for IR and fragrant
varieties. The irrigated rice is generally located around the irrigation scheme (reservoir of water from
upstream or reservoir of water from flood), lake, affluent of river, canal, creek etc at high and medium
land and sometimes in low land (in floating rice area). Varieties used in this rice system are not
photoperiodic and short term cycle (105-115 days). The calendar of crop is from December to
1: Upland rice 2: Early
rice
3: Medium rice 4: Late rice 5: Floating rice Flooded shrub
RICE SYSTEM CULTI.
AREA
(ha)
% VARIETY CROP
CALENDAR
DESTINATION
Upland rice 52,497 2.25 Traditional June to Nov. Home consumption
Early rice 577,888 24.76 IR and fragrance var. June to
September
Exportation
Medium rice 1,081,681 46.34 Trad. ordinay and
trad. fragrance var.
June to mid
Nov-Dec.
Home consumption and
exportation
Late rice 527,151 22.58 Traditional var. June to
January
Home consumption
Floating rice 95,011 4.07 Traditional var. May to
January
Home consumption
CULT.AREA (ha) 2,334,228 HARV.ARE
A (ha)
2,290,552 AV.YIELD
(t/ha)
2.62 PRODUCTIO
N (T)
6,001,385
FIGURE 2: DIFFERENT AGRO-ECOSYSTEM OF RICE IN WET SEASON
Long term rice
Clear flooded shrub and grass land
Floating rice Medium rice
Early rice Upland rice
WET SEASON
15
February or March. The popular ordinary variety cultivated by farmers is IR 66 and 504 from
Vietnam. The fragrant variety is Sen Pidor and Sen Kra-ob from Thailand. This system is very
intensive and dependent on water from irrigation scheme. The seed dissemination is more and more
practiced by the farmers and a lot of fertilizers (4 to 5 bags/ha) and insecticides are applied in this rice
system.
38. Receding rice. This rice is also early rice in which IR 66 and 504 are dominant. The crop
calendar is similar with irrigated rice but the cultivation way is different. The field for cultivating this
rice is the lake when the flood goes down. The soil tillage is done before the flood comes and the
farmers just harrow it to transplant it when the water goes down. When the flood recedes, the farmers
prepare their nursery in the high area on the waterside then the seedling is transplanted as the flood
goes down. The parcel of this rice is generally small and is bound to retain flood water at different
topographic level. Anyway, the complementary irrigation from downstream canal or lake is needed
after the parcel is dried up.
This rice system is very intensive with a lot of mineral fertilizers and insecticides used. The soil is
fertile thanks to the lime brought by the flood. The yield is high.
The total cultivated area for both systems in season 2009-2010 was around 384, 852 ha9 and the
average yield is 4.12 tons/ha10.
9 Dry season rice 2009. Cultivated area by province, MAFF sources 10 Wet season rice 2009. Cultivated area by province, MAFF sources
16
AVERAGE YIELD (t/ha) 4.12 6 PRODUCTION (T) 1,584,485
39. In conclusion, Cambodia has a large variety of agro-systems, which provides the following
advantages :
There are several harvesting periods for exportable rice (from September to December, and from
January to February). The paddy buying period lasts therefore 6 months, which a clear economic
advantage for processing and exports
Both traditional and exportable rice can be produced during the wet season (in the midland and
early rice systems, which represent 70% of the cultivated area in the wet season). This gives more
flexibility to farmers for choosing their varieties and adapting to the export market demand
There is also a large potential for increasing and securing exportable rice production through
increasing irrigated areas in the dry season
Finally, there is still a substantial scope for intensification and yield increases.
These physical and environmental advantages made it possible for Cambodia to react positively to
market signals, by increasing considerably production in recent years, especially for exportable
varieties.
1.1.3 Paddy prices
1.1.3.1 Current Prices by type of rice
40. Different prices. According to information collected on the field, the fragrant rice is more
expensive than the other varieties (Riel /kg 1 360 or USD 0.32 /kg at farm gate in September 2010). IR
1: Pasture
upland
2: Early rice
(Irrigation
scheme)
3: Pasture area (Rice stubble) 4: Receding and
irrigated rice
RICE
SYSTEM
CULT.
AREA (ha)
HARV.AREA (ha) VARIETY CROP CALENDAR DESTINATION
Early rice 384,852 335,440 IR & Fragrance var. Dec-February Exportation
Pasture
(Rice stubble) Receding and irrigated rice
(Early rice)
Pasture
(Rice stubble)
Irrigated rice
(Early rice) Pasture
DRY SEASON
FIGURE 3: DIFFERENT AGRO-ECOSYSTEM OF RICE IN DRY SEASON
17
and Mix varieties are less expensive, and both at the same level (with, in some instances, a slightly
higher price for mix, more in demand on the domestic market): around riel /kg 1 000 or USD 0.23.
FIGURE 4 : PADDY PRICES AT FARMER’S GATE IN SEPTEMBER 2010
1.1.3.2 Evolution in the past decade
41. Higher paddy farmer prices. The paddy prices at farm gate have been multiplied by 2.5 in
current value over the last 10 years. During the period 2000 to 2004 the paddy price level did not
change significantly, but from 2004 on, the current price increases rapidly and doubles. Prices of
paddy have indeed increased considerably, even when one takes inflation into account. In constant
2000 value, prices still increased by 50 % (see Figure 5). The price increase at farm gate is certainly
the main reason for the spectacular production growth evidenced since that time (see 1.1.4). This
stimulates farmers to cultivate for profitable market using more fertilizers and selected seeds.
FIGURE 5 : MIX PADDY PRICE
Source: Agricultural marketing information
0
0,05
0,1
0,15
0,2
0,25
0,3
0,35
Fragrant IR Mix
$ p
er
kg
18
42. This price increase has followed world trends. The paddy price in Cambodia is linked to
international market as shown in the different correlation between paddy prices and world prices,
measured by the reference quality Thai 100% whole grain (see Figure 6). This correlation is obviously
due to the fact that paddy can be exported without barriers to Vietnam and Thailand, which countries
are the two main world exporters and, as such, closely related to world prices.
It is however striking to note that the international soaring prices crisis in 2008 had less impact on the
Cambodian paddy price in constant value11, probably because both Vietnam and Thailand took at that
time some restriction measures on exports, in order to avoid a too brutal price increase on their
domestic market. Since the end of the crisis, the different trends seem to converge.
FIGURE 6 : INDEX PRICES CAMBODIAN PADDY AND THAI RICE
11 The index of Cambodia paddy price is inflation deflated
0
50
100
150
200
250
300
350
400
2000 2002 2004 2006 2008 2010
ind
ex
10
0=2
00
0
index Prices
riz Thai 100
paddy fragrant Camb
paddy MIX Camb
19
43. The prices of fragrant variety (SOMALY) and Mix variety have followed the same trend
during the period 2000 – 2008 ending with a strong rise of paddy prices linked to the world food crisis
(see Figure 7). The prices came down in 2009, and then started again to follow a long period trend.
But the price gap between fragrant and Mix is still more important than it used to be before the crisis.
FIGURE 7 : FRAGRANT AND MIX VARIETIES PRICES
Source CAMIS
1.1.3.3 A highly competitive and effic ient market
44. Relative stability. Prices are relatively stable during the year and the harvest season has low
impact on the paddy price. The analysis of the data of CAMIS12 shows that prices do not move so
much during the year, even during harvest period. The price differences between varieties are also
steady during the year (see Figure 8). Thus the paddy market seems efficient with many actors and
high competition.
45. Efficiency of paddy market. The paddy market is now well organized with a network of
collectors and traders. The farmers can now sell their paddy all along the year on a highly competitive
market. They are daily informed of the paddy price level and are always paid in cash. So the paddy
market is highly efficient with intense competition between a large numbers of actors. This explains
the small difference of price in different places in the country, due only to the transport costs13.
12 Cambodia Agricultural Market Information Service which collects wholesale agricultural price information 3 times a week in 21 major markets. 13 The difference between farm gate and miller gate is $ 21/ton
0
200
400
600
800
1000
1200
1400
1600
1800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
rie
l kg
SOMALY
MIX
20
FIGURE 8 : PADDY PRICES FOR DIFFERENT VARIETIES
1.1.4 Production past trends and causes: A massive growth
46. A fast growth of production. Rice is by far the most important crop in Cambodia. The
production reached more than 7.5 million tons of paddy in 2009/10 including a dry season harvest of
1.5 million tons. The paddy production doubled during the last 10 years, which is quite an impressive
achievement (see Figure 9).
FIGURE 9 : PADDY PRODUCTION
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
Rie
lsKang Soy
Kngork Pong
MIX
0
1
2
3
4
5
6
7
8
Mill
ion
t
total
dry season
21
47. Two seasons. The main crop, which is produced under rain conditions, is primarily harvested
in November-January and principally consists of traditional photosensitive varieties. The dry season
crop, which is much smaller, is primarily harvested in February-May. It includes a flood-recession rice
with supplementary irrigation and irrigated lowland rice. The dry season harvest is essentially planted
with non-photosensitive varieties.
48. 2 main periods. From 1995 to 2004, the yearly average growth rate was near 9 %, which is
already great. But in the last 5 years the growth has been greater (15% per year average) which is an
extraordinary acceleration, resulting in major changes in the rice sector (see Figure 9). Now Cambodia
is largely self sufficient and the main part of the production is traded and exported.
49. Increased yields. The growth in rice production has been driven by increased productivity,
though from 1995 to 2004 rice productivity remained stagnant (see Figure 10). But since 2004 yields
rose sharply both for dry and wet season. The dry season yield rose to 1 ton and went up to 4 tons. The
wet yield increased from 2 tons to approximately 2,6 tons. Despite this spectacular growth, Cambodia
still lags behind the rest of the region in terms of rice yield.
FIGURE 10: PADDY YIELDS
50. Increased dry season area. The government of Cambodia has massively invested in the rice
sector in the last ten years, particularly in the rehabilitation of irrigation schemes. As seen in the next
figure the wet season area mainly doubled over the last 15 years (see Figure 11). The main result is a
higher yield but also more secure harvests.
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
paddy yield
dry saison
wet
22
FIGURE 11 : MAIN GROWTH TRENDS IN AREAS
51. News varieties. Now farmers use more and more selected varieties. Some are imported from
Thailand but recently CADI14 promoted 10 different strains of rice, which may boost yields by up to
50%. These varieties of rice are selected because they produce long grains suitable for export markets.
52. The main factors leading to increased production have been, in order of decreasing
importance: paddy prices (which probably played a major role), market efficiency, rehabilitation of
irrigation schemes, improved seeds and fertilizers, improved techniques for weeding and pest
controlling, but also favorable weather since 2005.
53. Progress potential. Significant potential for sustainable increases lies in overall crop yields
through increased use of agricultural inputs such as fertilizers, and improvement in irrigation
infrastructure
54. Production by variety. MOWRAM‟s15 inventory statistics do not collect the production by
variety. We assess the production by variety by crossing production data (by agro-ecosystem) with
consumption by variety. IR and fragrant varieties are both cultivated mainly in the dry season but also
as early rice in the wet season. On that basis, we estimate the production of IR and fragrant paddy at
around 2.5 million tons, which is consistent with the consumption assessment by variety (see Figure
12).
14 CARDI is a research institute founded in 1999, aiming at agricultural science and technology improvements. 15 . Ministry of Water Resources and Meteorology
90
100
110
120
130
140
150
160
170
180
190
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
ind
ex
wet season area (ha)
dry season aera (ha)
23
FIGURE 12 : PRODUCTION BY VARIETY
1.1.5 Marketing system for paddy and destination of production
55. Consumption and destination by type of rice. Mix rice is the type of rice corresponding to
the traditional local taste. It is mainly consumed by farmers themselves and in rural areas. A part of the
surplus production is traded to cities but also to Vietnam. (as paddy). The IR variety is not appreciated
by the locals and is mainly exported as paddy to Vietnam but also to Thailand in small quantity. The
fragrant varieties are mostly exported to Thailand and, in a smaller quantity, to Vietnam. A market for
fragrant rice has recently developed in Phnom Penh. According to the traders and collectors we
interviewed, 40 % of paddy exports is fragrant rice (mainly to Thailand), 30% IR variety and 30% Mix
variety.
FIGURE 13 : ASSESSMENT OF CONSUMPTION BY VARIETY
Fragrant rice IR Mix
Home consumption
+++
Other rural consumption
+ ++
urban consumption +
+
paddy export to Thailand ++ +
paddy export to Vietnam + ++ ++
56. The primary marketing system is very fluid and involves a large number of actors...
Farmers. The majority of farmers keep paddy for their own consumption and only sell their
harvest when they are short of cash or have extra requirements. The home consumption is
24
estimated at 40 % of the net production; this brings the consumption per head to 195 kg of rice.
The paddy is stored on-farm until ready to mill at the local village custom mill. The mill service is
free, but the miller keeps in exchange husk, bran and broken rice. Globally the home consumption
is assessed to 1,750 million of rice.
Farmers sell their paddy surplus mainly to collectors and sometimes directly to medium and large
millers. Actually we estimate that about 60 % of the net total paddy harvested enters the marketing
chain.
Collectors and middle men. The trade of paddy involves many actors: collectors, intermediary
traders called “middle men” and traders. Collectors generally cover 4 or 5 villages and gather the
rice from individual farm lots into small warehouses. Depending on the price, they sell paddy to
medium and large millers but most of the quantity is sold to middle men. “Middle men” go to the
collector‟s place with trucks to buy a ten of bags of paddy. Sometimes they have their own trucks
or rent the trucks for the day. These intermediary traders are typically involved in the inter-
provincial and cross border trade with Vietnam and Thailand. In such a case, they usually sell their
paddy to traders located close to the border, who are in direct contact with Vietnam millers (they
are, in particular, pre-financed by them). They are also involved in the trade of other commodities,
such as soybean, sesame, and fertilizers.
Export paddy to Vietnam and Thailand. Cambodia exports the majority of its surplus rice
production as paddy to Vietnam and Thailand, by-passing the milling stage. Middle men sell
paddy to traders who transport the bags to Vietnam and Thailand traders across the borders
(although export paddy is not allowed). Most of the paddy exported to Vietnam comes from the
dry season harvest of the IR variety. The amount of paddy exported depends almost solely on the
differential in the paddy price between Vietnam and Thailand. Thailand imports mainly fragrant
paddy, while Vietnam imports IR, fragrant but also mix varieties.
In the last years, the export flows have paralleled the increase in production. We estimate at 1,7
million tons the paddy export to Vietnam, equivalent to 1 million tons of rice. Export to Thailand
should rise to 0,9 million tons of paddy, an equivalent to 0.6 tons rice.
Medium and large millers. Rice millers buy paddy from primary collectors, traders, or farmers
themselves. Milled rice is then distributed from mills back to collectors and traders and to
wholesalers in towns and larger markets. From these wholesalers, the rice is distributed to
consumers through retailers.
25
The next figure represents the main actors of the rice value chain and the exchanges of rice and paddy
between them.
FIGURE 14 : ACTORS OF THE RICE VALUE CHAIN AND EXCHANGES
26
57. 40 % of production is exported as paddy. Rice consumption per head is not really known in
Cambodia and different reports use different assessments16
, none based on any recent survey.
According to a recent enquiry done in 201017
, home consumption is between 170 kg and 230 kg rice
per head. We assess 18 the rice per capita average consumption at 173 kg at national level with 194 kg
for farmers (home consumption), 152 kg for rural consumers and 115 kg for urban consumers (see
Figure 15). The flows of paddy for export to Vietnam and Thailand have increased substantially as
production of paddy has increased in Cambodia. Now the export paddy flows (2, 7 M t) represent 43
% of the paddy production.
FIGURE 15 : RICE UTILIZATION IN 2009
58. Dependency on exports. The matter remains that domestic absorption of surplus production
is limited and export markets for paddy will remain vital for the rice sector. Cambodia is now deeply
dependent on the trade policy of its neighboring countries. If Vietnam or Thailand close their borders
or tax the paddy imports to protect their own market, the domestic paddy price will drastically
decrease in Cambodia resulting in a major income crisis. Opening a Cambodian export rice chain is
largely an economic safety priority.
1.1.6 Production costs
59. There is a large variety of production cost models, corresponding to the various agro-systems
and to the family labour and cash availability of farmers. Consistently with the objective of the study,
16 FAO : 143 kg in 2007 , 189 kg in 2005 17 Rice Value Chain Study in Kampot and Kampong Speu CSPPM project coordinated by CRS 18 We used a model that compares the supply and demand and ensures consistency between consumption per capita and destination of the production flows. The model uses per capita consumption standards, taking into account urbanization and differences between rural and urban consumption.
0,00
0,50
1,00
1,50
2,00
2,50
Mill
ion
tons
home consumption
rural consumption
urban consumption
rice export
paddy export (rice equiv)
27
cost models have been selected, to reflect the dominant production systems and associated costs for
ordinary, IR and fragrant rice, both in wet and dry season conditions.
60. The next table presents the cost production according to agro-ecosystem, hired or family labor
used, and the type de varieties cultivated, both for the wet and the dry season. The net profit, the
productivity of work and the unit production cost allow comparing the profitability for the farmer.
TABLE 1: PRODUCTION COST OF RICE
UNIT
MIDLAND RICE IN WET SEASON BASED ON EARLY RICE IN WET OR DRY SEASON
BASED ON
FAMILY LABOR HIRED LABOR HIRED LABOR
ORDINARY RICE
FRAGRANT RICE
ORDINARY RICE
FRAGRANT RICE IR RICE
FRAGRANT RICE
YIELD T/Ha 2 2 2 2 4 4
GROSS INCOME USD 480 640 480 640 960 1280
INPUT & OTHER COST USD 120 128 246 246 311 332
HIRED LABOR USD 50 50 72.5 72.5 63 63
FAMILY LABOR19 MAN/DAY 64 64 19 19 90 90
TOTAL COST USD 170 178 319 319 374 395
NET PROFIT USD 310 462 161 321 587 885
Productivity of family labour
USD/Pers 4.84 7.22 8.49 16.91 6.52 9.84
PROD. COST/KG (excluding family labor) USD 0.09 0.09 0.16 0.16 0.09 0.10
PROD cost/kg (including family labor) USD 0,149 0,153 0,179 0,179 0,139 0,144
61. Production of fragrant rice is more profitable, whatever the model used. Figure 16
presents the more frequent case in wet season (midland rice system), where farmers can choose the
cultivated variety. The calculation is based on a yield of 2 tons/ha and partial use of hired labor. The
gross income of fragrant rice is 33% higher than ordinary rice while the net profit is almost double.
The midland ordinary and fragrant rice have similar yields and similar costs of production, but the
advantage of fragrant rice is its higher selling price. The same remark applies also to the early ordinary
rice and early fragrant rice system in the wet season.
Similarly, (see FIGURE 17) corresponds to an irrigated and intensive system for the dry season
comparing early rice (IR) and fragrant rice with 4 tons/ha of production. Both models are similar in
terms of production cost (inputs and labor) but gross and net income from fragrant rice are always
higher that IR rice due to higher price
19 Family labour is not included in the cost calculation
28
FIGURE 16 : PRODUCTION COST OF TRADITIONAL ORDINARY AND FRAGRANT RICE IN WET SEASON
FIGURE 17 : PRODUCTION COST OF RICE IN DRY SEASON
In all models, the net cash profit of the farmer is higher with family labor, but the remuneration of the
family labour is higher when hired labour is also used.
62. The production of fragrant rice is therefore more profitable than IR, whatever the model used.
This explains the rapid growth of fragrant rice production for marketing. This result shows the
potential for increasing production of fragrant rice in both agro-ecosystems, midland rice and early
rice (not photoperiodic) by replacing the ordinary rice with the fragrant rice as well as promoting
fragrant rice cultivation in relevant agro-ecosystem and improving the yield. This move can however
be made only by farmers who have a surplus production, implying that they have more than one
hectare of rice.
This is illustrated by the following table, comparing the quantity of paddy available for sale, after
deduction of the home consumption needs and of the paddy used for repayment of inputs, for two
farms with one crop per year and respectively 1 and 1,5 ha. The volume of paddy available for sale
becomes significant with 1,5 ha (783kg), but not with 1 ha (only 137 kg), unless the farmer can have
two crops per year on the same plot.
29
TABLE 2: BALANCE OF RICE PRODUCTION FOR HOME CONSUMPTION
Rice surface (Ha) 1 1.5
Production (Kg) 2000 3000 Repayment of production cost (Kg paddy) 708 1063
Consumption/year (Kg paddy) 1155 1155
Surplus paddy /year (Kg paddy) 137 783
1.1.7 Main finding on production constraints for export
63. In conclusion, there are few physical and ecological constraints to increase production of rice
varieties for export. On the farmer‟s side, the main findings are the following :
The large increases of yields and irrigated area have helped a part of the producers to produce
surplus that reach now 60% of production (even if it concerns only 40% of farmers).
The surge in the price of fragrant rice and IR oriented production towards commercialization of
this type of variety. Analysis of the costs of production shows consistently higher profitability for
the fragrant rice and, to a lesser extent, for IR than for ordinary rice.
Only producers who have more than one ha can produce for the export market. They will be the
target of the exports increase policy.
Producers will continue to intensify production if economic conditions (price and cost) are
maintained. With the pessimistic hypothesis that the price of paddy will drop down and reach the
same level as 5 years ago, farmers will still continue to produce rice for export markets (though
probably less intensively), because they have no alternative for cash crop.
There is a potential to increase production of fragrant rice both in the dry and wet seasons by
extending the irrigated scheme in the country and also by promoting the fragrant rice in the
relevant agro-ecosystem and by increasing its yield.
1.1.8 Main shortcomings in rice production
64. Rice variety. To response to the government policy for rice exportation around 1 million tons
in 2015, Ministry of Agriculture Forest and Fisheries (MAFF) and Cambodian Agricultural Research
and Development Institute (CARDI) have announced the promotion of 10 existing varieties in
different agro-ecosystem.
Medium rice: Phka Rumdul, Phka Romeat, Phka Rumdeng (fragrant rice) and Phka Chan Senso
Long term rice: Raing Chey, CAR 4, CAR 6
Short term or early rice: Sen Pidor (fragrant rice), IR 66 and Chulsa
On the field, the farmers use more and more foreign varieties to the detriment of local varieties (IR 66
and Sen Pidor). Variety 504 from Vietnam is used by the farmers in irrigated and receding rice system
and Sen Kra-Ob from Thailand is also early rice usually used in the northern province of Cambodia.
According to farmers, this rice is more sought by brokers and its price is good and its yield high.
30
65. Low quality seeds. Actually there are companies and rice seed associations that produce
quality seeds to sell to producers. Even though these quality seeds are still limited and most of the
farmers don‟t renew their seeds regularly. They renew the seeds only when rice brokers or rice millers
demand quality and propose better prices.
66. Lack of dryer in wet season. Early rice cultivated in wet season has an important part in
national production level (25% of total cultivated area in wet season). This rice system has the
interesting yield and potentiality to extend the cultivated area when there is the water resource.
Unfortunately the harvest of this early rice coincides with the rainy period in August or September.
The farmers are afraid to extend the cultivated area because on the one hand, the paddy is hard to dry
up during the rainy time and on the other hand the quality of paddy will be reduced when they don‟t
find a place to dry it correctly.
67. Agriculture extension service is still limited. On the field, most of the farmers complain
about the pest problems on rice production and it is difficult to find technical advices from the local
authority. To control these problems many farmers use different kinds of pesticides. Among them,
some are banned because they are very dangerous for public health and environment. A lot of
pesticides are sold in the market, mainly of them are produced in Vietnam and Thailand with the
original language labels.
1.2 Organization, characteristics and capacity of the ri ce
processing sector
68. This chapter describes the rice processing capacity, with a strong focus on industrial
processing (as opposed to the village level hullers), which is critical for reaching export objectives. It
also analyzes the constraints of the rice processing sector, its cost performances and potential for
improvement.
1.2.1 Village and industrial mills
1.2.1.1 Village (custom) mills
69. Operation and volume of activity. Village hullers (also called “custom mills”) work mostly
for processing of paddy, on a service basis, for farmers‟s own consumption (estimated at 2,7 M tons,
net of losses). One can also assume, based on interviews with local traders, that custom mills process a
part (estimated around 50%) of the paddy sold for rural consumption (0,47 M tons, net of losses).
According to the consumption flow estimates (see chapter 1.1.5), the quantity of paddy processed by
custom mills can be estimated at 3,2 million tons.
70. Number and Capacity. Custom mills are disseminated in the villages of the production area.
They are usually operated by individuals, who mill the paddy for free, but recuperate the bran, used for
feeding their cattle or sold as animal feed. The capacity of those custom mills range from 100 to 300
kg/hour. Their number is uncertain, but often estimated around 12 000 (and believed to have been
decreasing in the past decade, due to the increasing competition of larger mills, better equipped and
31
thus having a higher yield). Based on this estimate, custom mills would work in average 1000 hours
per year, or more or less three hours a day, which corresponds to the observation made on the field.
71. Technical performances. Most of the custom mills are rubber roller types, which allows
separation of bran and husk. They are often more than 10 years old, and were often purchased second
hand. Their rice recovery ratio is low, and was estimated by JICA in 2001 to 60%, but it may improve
since that time.
1.2.1.2 Industrial processing
72. Volume of activity. The volume of paddy processed in industrial mills (excluding customs
mills at village level) can be estimated as the sum of the paddy processed for domestic urban
consumption, 50% of the paddy processed for rural consumption (excluding home consumption by
paddy producers) and paddy processed for rice export. Given a rice export volume of 20 000 tons
(corresponding to a paddy volume of 30 000 tons; see chapter 1.3), the volume of paddy industrially
processed is estimated at 470 000 tons. (Figure 18)
FIGURE 18 DESTINATION OF PADDY BY TYPE OF PROCESSING (NET OF LOSSES)
0
0,5
1
1,5
2
2,5
3
3,5
non industrially processed
industrially processed
export paddy export of rice
mixed
IR
fragrant
3.2
0,47
2,7
0,03
32
1.2.2 Mill ing capacity, industry structure and technical
characteristics of industrial mills
73. Operation and capacity. The size of industrial rice mills ranges from less than a ton per hour
to 40 tons/hour for the largest. These mills are usually owned by individuals, although there exists
several chains of mills belonging to a single company. Contrarily to village hullers, rice millers buy
paddy from collectors (very rarely directly from farmers), process it and sell the rice to wholesalers.
Their main market is the urban market, in particular Phnom Penh, but a part of their production also
goes to local rural markets.
Estimates of the number and capacity of rice mills are quite divergent. The Ministry of Industry gives
a number of more than 30 000 mills, which obviously includes village hullers, with probable double
counting. According to field interviews made during the study, the number of rice mills in activity
should be between 200 and 300, while a large number of mills have stopped their activity, either
because their equipment is outdated or because owners consider it more profitable to operate as paddy
or rice traders rather than processors.
74. Global processing overcapacity. With the exception of a small number of large mills (4 large
mills with a combined capacity of 52 T/H built before 2009; see Table 3), the average capacity is
currently reported between 1 and 2 T/h, which is quite consistent with the findings of the field survey.
The total capacity of mills in operation since more than two years can thus be estimated between 300
and 450 T/hour20, or between 600 000 and 800 000 tons per year. Comparing with the quantity of
paddy industrially processed (470 000 tons), one can deduct that the average utilization ratio must be
around 60%21 (and probably less in larger mills, which are facing working capital constraints). This
ratio is low by usual standards and suggests that there is a global overcapacity in rice mills for the
domestic market.
75. The description of the technical characteristics of rice mills requires a differentiation between
mills built before 2009, which were mainly purposed at processing paddy for the domestic market, and
mills built since 2009, or currently under construction, which are usually equipped for producing
export quality rice.
FIGURE 19 : INDUSTRIAL PROCESSING CAPACITY
0
100
200
300
400
500
built before 2009 built since 2009 (or in process)
industrial processing capacity
more than 5 T/h
less than 5 T/h
20 1,5 T/hour x 250 mills = 375 T/hour 21 Assuming that a mill operates 10 hours a day (which is the usual practice in Cambodia, but could be increased by creating two shifts of workers), and 200 days a year (or 9 months)
33
76. Mills built before 2009 have outdated technology. An overwhelming majority of mills built
before 2009 are more than ten years old and their equipment was often bought second hand. Their
equipment technology is therefore out-dated and mills are only equipped for producing the quality
required by the local market:
they have most of the time no dryer, which means that they have to rely on traditional sun
drying performed by farmers, resulting in a high ratio of broken grains; this shortcoming is becoming
increasingly important, as the volume of rice harvested during the rainy season is increasing
they often also lack or have inadequate polishing machine;
they have poorly performing separating and sorting devices, unable to produce rice with less
than 5% or even, in some cases, 10% broken grains; because they have no color sorting, the
percentage of red or immature grains is often beyond usual trading tolerance.
Out of the estimated global capacity (between 300 and 450 T/hour) for mills built before 2009, not
more than 20 T/hour is able to process export quality rice
77. New mills: adequate technology but partially operational. In addition to the above
described mills, a number of new mills have been built since 2009 or are currently under construction,
and have therefore not reached their fully operational level. During the field survey, five mills of more
than 10 T/h, two mills with capacity between 5 and 10 T/h and two 4 T/h mills were identified,
totaling an additional capacity of 123 T/h (see Table 3).
All of those new mills are fully equipped for production of quality rice suitable for exports, and are
planned, according to their owners, mainly for export, particularly for fragrant rice export to the newly
opened EU market. Most of those mills have been financed partly by BRD loans or other financiers
(Proparco, ANZ).
Two of those mills are operated by joint venture with foreign capital, which should facilitate their
access to financing and to export markets, and should therefore allow them to operate satisfactorily.
There are however some doubts on the ability of some other new mills to reach their production
objectives, due to their ownership and management structure: two mills among the largest recently
built or under construction (financed by RDB), are operated by a management without specific
expertise in rice milling and without clear export marketing strategy. Considering those constraints,
these mills are obviously oversized, and it is likely that they will meet great operational difficulties
(one of them has already problems in selling out its stock).
Altogether, the capacity of new mills which combine a good technical equipment, access to working
capital and technical/marketing expertise, and are therefore able to reach their production objectives is
probably not exceeding 70 T/hour, or 90 T/hour, when well equipped mills built before 2009 are added
to this figure.
34
TABLE 3 : LIST OF MILLERS WITH MORE THAN 5 T/HOUR CAPACITY Name Year of
creation
Location capacity market ownership % capacity
utilized
Existing end of 2008
Ankor Rice (AKR) 2001 Near PP 10 T/h Export (fragrant)
and domestic
Thaï Cambodian
individual
30%
Green Trade Before
2005
Near PP 6 T/H Domestic Government full
Lor Ngor Rice
mills
? K Cham 12 T/h Domestic Individual ?
Men Sarun 2003 Near PP 24 T/h (+
more than 30
smaller
mills)
Domestic
(institutional
market)
Local agro-
industrial group
?
New mills and mills under construction22
Golden Rice (2009) 2009 Near PP 10 T/h Export (fragrant) Cambodian/French
partnership
50%?
Baitong (Phou Puy) 2010 Battambang 30 T/h (but
only 5 T/h
for dehuller)
Export (fragrant
and IR)
Individual (RDB
financing)
Less than
30%
Sour Kheang QC
Rice
2010 K Cham 6 T/h Export (fragrant
and IR)
Individual (RDB
financing)
N. A.
Chhun Thom
2010 Prey Veng
5 T/h Domestic and
export
Individual (ANZ
financing)
N. A.
Green Trade 2011 Near PP 24 T/h Export to Vietnam
(fragrant)
Joint venture with
Vietnamese
N. A.
Loran 2011 Battambang 20 T/h Export (fragrant
and IR)
Individual (RDB
financing)
N.A.
BVB 2011 K Thom 20 T/h Export (fragrant
and IR)
Individual (RDB
financing)
N.A.
1.2.3 Investment costs for new rice mil ls
This section applies to new mills, and not to mills built 10 years ago or more, the construction and
equipment cost of which was probably minimal, because of their rudimentary equipment.
78. Calculation assumptions. The investment cost for a rice mill depends obviously on its
capacity, the type and origin of the equipment, and the area for storage of paddy and rice. The standard
investment cost is calculated below, based on data collected through interviews with millers and
engineers and on the following assumptions:
The calculation is made for a 5 tons/hour mill, which corresponds to the most common size of
recently built mills in Cambodia, and to an optimum, above which economies of scale, both in
investment and operation costs, are marginal.
The equipment is assumed to be imported from neighboring countries (Vietnam and Thailand),
where local manufacturers are able to propose milling equipment well adapted to the type of rice
grown in Cambodia, at a lower price than Korean or Taiwanese manufacturers, and corresponding
to acceptable quality standards
The mill is assumed to include all equipment necessary for producing export quality rice: a dryer
of 5 to 10 tons capacity, a color sorter, a double polishing device. The mill is powered by fuel, but
has a co-generator able to burn the husk in order to reduce the fuel consumption
22 Other identified Mills of less than 5 T/h under construction: 2 mills of 4 T/h each, financed by RDB
35
The construction is sized to allow the storage of 3 months of paddy processing and 2 months of
rice production (4 500 sqm).
79. Standard cost. Based on these assumptions, the investment cost for equipment is estimated at
$ 684 000 and the construction cost at $540 000, i. e. a total investment cost of $ 1,2 M, or $272 000
per ton/hour of installed capacity (Erreur ! Source du renvoi introuvable.).
TABLE 4 : AVERAGE INVESTMENT COST FOR A 4/5 T/H MILL
USD
core equipment 160 000
dryer 220 000
color sorter 80 000
polisher 30 000
co-generator 80 000
miscellaneous (20%) 114 000
total equipment 684 000
construction ($120/sqm x 4500 sqm) 540 000
total cost 1 224 000
cost for 1 T/H 272 000
cost without co-generator 1 144 000
cost for domestic market 844 000
1.2.4 Major constraints and shortcomings at the processing stage
80. Limited size of the domestic market. A first constraint to the processing sector as a whole is
the limited size of the domestic market, the absorption capacity of which is well below the theoretical
installed capacity. As long as an overwhelming majority of millers are not able to process for exports,
this constraint explains why mills are not, generally speaking, operating at full capacity, which
contributes to increase their production cost.
81. New mills are primarily constrained by lack of working capital. The new mills, which are
equipped export quality, are severely limited, according to the interviews conducted during the
mission, by a lack of working capital for purchasing the paddy required to operate at full capacity.
This constraint is all the more severe that most of those mills had to take long or medium term credit
for their construction, which limits their borrowing capacity for short term credit23. It is striking to note
that neither the owners nor the lending banks have, in many instances, anticipated that those new mills
cannot operate adequately, if they do not have enough working capital to purchase at least one third of
the yearly volume of paddy needed for their capacity. The need for working capital is all the more
important for export marketing, as the shipping time delays the full payment of the rice by the
purchaser.
…and by a lack of technical and export marketing expertise. In addition to the working capital
constraint above mentioned, the new mills owners find it more difficult than expected to export their
rice production, because they are lacking information on the requirement of the export markets, as
well as connections with importers.
23 Banks require usually a security amounting to twice the amount of credit granted, including long term and short term credits.
36
82. Lack of export facilitation is also a problem for export millers. The export procedures are
particularly complicated and costly, and the Government has, up to now, made little efforts to facilitate
rice export trade, as it did for the garment sector. The priority given to the rice export development
strategy still needs to be translated into visible and effective actions.
The strategy for alleviating these constraints will be developed in chapter 2.3.
1.2.5 Processing and Marketing costs
83. The cost models. The cost and return analysis is based on data collected during interviews
with millers for a typical 5 tons per hour mill (the most common size among recently built mills),
producing 10 000 tons of rice per year (therefore operating close to full capacity). It distinguishes
three production lines corresponding to specific markets:
Production of mixed rice for the domestic market: for this market, only a standard equipment is
needed, which reduces the equipment cost
Production of fragrant rice, exported to EU24 for qualities with maximum 5% broken grains, and
sold on the domestic market for other qualities
Production of white rice, exported to EU for qualities with maximum 35% broken, and sold on the
domestic market for other qualities.
Fragrant and white rice production for export requires a fully equipped mill, including color sorter,
dryer and double polishing. This translates into higher investment and amortization costs, higher
maintenance costs and higher manpower costs, due to extra sorting and polishing.
84. Processing costs. The rice outturn ratio is assumed to be the standard rate of 64% for mixed
and white rice, but slightly lower (62%) for fragrant rice, as observed by most millers. The mill is
assumed to use fuel as energy, without co-generator, which is the most common case in present
conditions. The processing cost per se (excluding non industrial costs and amortization) amounts to
$25/ton of rice for mixed rice, $33 for white rice and $44 for fragrant rice (see Table 5).
85. Full cost borne by millers. The total cost for the miller includes also taxes, bags,
amortization of equipment (based on the current investment cost) and interest on the working capital
(3 months of activity in the case of mix rice sold on the domestic market; 5 months in the case of
exported rice, for which the turnover is necessarily slower and full payment delayed until the rice
arrives at its final destination). The total miller’s cost amounts to $44/ton for mixed rice, $62 for
white rice for export and $81 for fragrant rice. This cost is higher than the cost usually estimated
by millers, who often under-estimate the working capital and amortization costs.
The purchasing cost of paddy (delivered at the mill) corresponds to the price of September, 2010 (see
paragraph 1.1.3). The selling price of rice on export markets corresponds also to prices in September
2010 (see paragraph 1.3.2)
24 This assumption corresponds to the current situation, in which most of the rice exported is sold to the EU market, on which Cambodia has a privileged access (see section 1.3)
37
86. Cost from mill to FOB. The cost from factory to FOB was estimated at $50 in 2008, and was
progressively reduced to $40 in 2009 and $35 at present, as a result of efforts made recently by
government agencies to reduce the unofficial costs (which remain nevertheless substantially high).
The $35 cost can be broken down into $15/ton for physical transport and handling at the port
(fobbing), while the remainder ($20/tons) corresponds to the official and unofficial fees collected by
public services, as toll fees along the road or for custom clearance, custom inspection, cam-control
inspection and certificate issuance, as certificate of origin, Ministry of Commerce‟s inspection,
fumigation, scanning and phyto-sanitary inspection. It is commonly recognized that the fees collected
for these services amount to roughly twice the official fees (which should therefore be, according to
official regulations, around $10/ton. The factory to FOB cost is variable depending on the quantity
shipped as some cost items are calculated on the basis of the quantity shipped, while others are a lump
sum per shipment.
87. Millers net profit. When the purchasing cost and the cost from mill to FOB (for the part of
the production which is exported) are added to the mill‟s cost, the total FOB cost amounts to $596 for
fragrant and $449 for white rice (IR varieties). When this cost is deducted from the current average
selling prices (different for each quality of rice; see § 1.3.2), the net profit for the miller (or to be
shared between the miller and the exporter if the miller is not exporting directly) amounts $72/T for
fragrant rice and $17/T for white rice. The net profit on fragrant rice is thus much higher than the
profit made by millers when processing mixed rice for the domestic market ($18/ton), while the net
profit on white rice partially exported to EU is almost identical to the latter. It is worth noting that this
analysis corresponds to current export practices. If rice was to be exported to other countries than EU,
or if broken rice has to be exported instead of being marketed domestically, the profitability would be
affected, as analyzed in section 1.3.
38
TABLE 5 : PROCESSING AND MARKETING COST PER TYPE OF RICE FOR A 5 T/H MILL (EXPORTING TO EU OR SELLING ON THE DOMESTIC MARKET)
cost for 1 T of rice
quality mixed
market domestic
energy fuel
equipment standard
cost of paddy 255
outturn ratio 64%
cost of paddy/tonne of rice 398
processing cost
fuel 15
salaries 7
maintenance and misc 3
total processing 25
other costs
bags 2,4 2,4
taxes 1
amortization of mill ( 1 to 1,3 M$ over 20 years) 4,0
interest on working capital (3 to 5 months; 12%) 12,0
total miller's cost (excl paddy) 44,3
sale of by-products 31,3
total net cost ex factory 411,4
factory to FOB cost ($35/T for exported rice) 28
total cost FOB 411,4
price of rice (wholesale or FOB) domestic FOB domestic FOB domestic
5% broken (40% of production) 840 500
25% to 35% broken (40% of production) 430 580 460
100% broken (20% of production) 500 410
total sales income 430
net miller's and exporter's profit 18,6
1
Perfumed
export for whole grains;
domestic for broken
330
IR
export for 5 and 25%
broken; domestic for
broken
fuel fuel
dryer, sorter, polisher dryer, sorter, polisher
62%
532
30
1
31,3
581,9
9
6
45
6,0
26,6
14
250
64%
391
20
8
5
33
6,0
19,5
61,9
31,3
421,2
81,0
2,4
668 466
16,872,1
595,9 449,2
NB: The above table calculates an average cost and profit for each type of rice but not the FOB cost for export rice, as only a portion of the transport
and fobbing cost (corresponding to the exported part) is taken into account
1.3 Rice exports: Performances and competitiveness
1.3.1 Export volume and performance of exporters
88. Lack of reliable statistics. There is no reliable data on the volume of rice exported from
Cambodia in recent years. Official statistics indicate a yearly volume of exports (excluding paddy,
which is not officially recorded, since exports of paddy are theoretically banned) between 1 200 and
1 500 tons in 2006, 2007 and 2008, and an increase to 2 000 tons in 2009. These statistics are however
inconsistent with available mirror statistics (from importing countries statistics): EU import statistics
indicate 2 000 tons imported from Cambodia in 2003/4, 3 700 tons in 2004/5, 3 900 tons in 2005/6,
2 500 tons in 2006/7, 1 900 tons in 2007/8 and 5 400 tons in 2009. In the first eight months of 2010,
imports from Cambodia increased to 6 000 tons, which shows a rather regular increase in exports to
Europe at least since the tariff free regulation25 has been put in place.
25 See § 2.2.3 for details
39
89. Exports in 2010 are believed to reach 20 000 tons. The Ministry of Commerce estimates
that real rice exports volumes were in the range of 10 000 tons until 2008, rose to 15 000 tons in 2009
and are expected to reach 20 000 tons in 2010 (of which one third is exported to EU). These estimates,
although not supported by any statistical data, seem more realistic when compared to discussions with
exporters, and are consistent with available mirror statistics.
In 2010, only four large scale millers (Golden Rice, Baitang, Angkor Kasekam Rice and Dragon Rice)
are reported to have directly exported rice. Only one smaller scale miller (Khmer Food) has directly
exported, while ten other millers (in majority medium scale mills) exported for a global amount of
8 000 tons (i. e. 40% of total exports), through the Small and Medium Industries Association of
Cambodia (SMI), a private sector association providing technical assistance to exporters and
supported by the World Bank and ITC.
1.3.2 Export price of Cambodian rice and comparison with world
prices
90. World prices for main competitors of Cambodia. The world price of rice is highly
differentiated depending on quality and varieties. Whole grains are more expensive than broken
grains, although the price differential can vary substantially depending on the supply/demand balance
for specific market segments. Among the main exporters, Thailand deserves a premium over Vietnam
in relation with its quality reputation26. Fragrant rice varieties (Basmati rice from India and Pakistan
and Jasmin rice from Thailand) get a high premium over other rice types.
The average 2009 prices and the latest available market prices are summarized on the following table.
TABLE 6 : CURRENT PRICES OF RICE ON THE WORLD MARKET IN USD/TON
(AS OF SEPTEMBER, 2010)
Quality/variety 2009 average prices27 Aug/Sept 2010 prices28
Thai whole rice 58729 536/600 (depending on quality)
Thai 5% 555 475
Thai 25% 460 440
Vietnam 5% 432 460
Vietnam 25% 384 420
A1S (broken quality rice) 329 400
Basmati rice (India and Pakistan) 93730 1300/1800 (depending on quality)
Thai Jasmin (Pathumthani) 954 777/1000 (depending on quality)
Thai Jasmin (hom mali) ? 850/1156 (depending on quality)
Fragrant 100% broken (Thailand) ? 465
26 although the price differential between the two origins tends temporarily to reduce in 2010, in relation with the export policy of Vietnam, which set a minimum export price 27 FAO statistics 28 World bank and Thai Rice Board 29 Second quality 30 Second quality
40
91. Price obtained by Cambodian exporters. All Cambodian rice exports are made on FOB
terms, the freight and insurance cost being borne by the foreign importer. A comparison of FOB prices
(see Table 7) as declared by exporters to the mission with world prices shows that:
Cambodian perfumed rice is exported to Europe at a price $100 to $300 per ton below the price
obtained by Thaï Jasmine, which is the same rice variety; the discount applied to perfumed
Cambodian rice is even higher if one considers that Thaï rice attracts a $200 tariff (paid by the
importer) whereas Cambodian rice does not; the European importer is therefore ready to pay a
$1100 to $1300 per ton for Thaï Jasmine (including taxes), but only $840 for a Cambodian rice of
the same variety. The difference is due to the lower and more irregular quality of the Cambodian
rice and to the fact that it is not branded as Jasmine rice on the European market, and therefore is
not familiar to European distributors and customers
For white rice, for which branding is less important as it is not a specialty rice, Cambodia is able,
thanks to its tariff exemption, to attract a price higher than its main competitors. The premium
attracted by Cambodian white rice ($30 to $40 per ton) is however much lower than its tariff
advantage ($200 per ton), which suggest that Cambodian white rice could be priced higher with an
adequate quality and marketing efforts. White rice is also exported to Russia at the same price as
to EU, due to the tariff advantage it also has on the Russian market.
Perfumed broken rice can, for the time being, be sold on the domestic market at a higher price
than on the non EU market, which explains why there is no substantial export of broken rice.
TABLE 7: COMPARISON BETWEEN WORLD PRICES AND PRICES OBTAINED BY CAMBODIAN
EXPORTERS
domestic price
export price ( EU market) world price Basis for world price
Perfumed less than 5%
840 880/1000 average price Pathumthani/ Hom Mali
Perfumed broken 500
465 Thaï 100% broken
non fragrant less than 10% 500 468 Average Vietnam 5% and Thaï 5%
non fragrant 25% 400 460 430 Vietnam 5%
1.3.3 Current competitiveness of Cambodian rice and possible
evolution
92. The competitiveness of Cambodian rice on the export markets can be calculated by combining
export prices (previous paragraph) and FOB costs ( paragraph 1.2.5), as shown on the table below:
41
TABLE 8: COMPETITIVENESS OF CAMBODIAN RICE ON EXPORT MARKETS (USD/TON)
type of rice mixed fragrant IR IR
market
domestic
market
export to
EU
export to
EU
export to other
markets
Cost FOB or wholesale 411,4 595,9 449,2 449,2
selling price FOB or ex mill (average
whole grains, 25% and broken) 430,0 668,0 466,0 426
profit 18,6 72,1 16,8 -23,2
cost/price 96% 89% 96% 105%
profit/price 4% 11% 4% -5%
93. Fragrant rice is competitive on the EU market. Despite the considerable discount in price
as compared to Indian or Thaï fragrant, Cambodian fragrant is competitive on the EU market, partly
due to the EBA advantage. It is probably also competitive on other markets, although this is difficult
to assess, as very limited sales are reported. Though the price that Cambodia could attract on other
markets is uncertain (because of a lack of experience), it can be assumed, given the relatively high
margin on fragrant rice, that Cambodia can be competitive on other markets, provided the quality
requirements are met
94. White rice is not competitive to non EU markets. Cambodian rice is competitive on
European market, thanks to the tariff advantage granted by the EBA initiative. Non perfumed white
rice is however not competitive, at the current cost structure on non European market, as the FOB cost
is $23/ton higher than the world market. This lack of competitiveness explains most likely why
exports of white rice to non European markets stagnated have in recent years, and why a number of
orders have not been followed by deliveries.
95. Crucial issue of competitiveness versus Vietnam and Thailand. In fact, the main issue for
Cambodian competitiveness is to reduce its disadvantage to Vietnam (and to a lesser extent, to
Thailand) as regards processing and post processing costs. Vietnam competes with Cambodia by
buying Cambodian paddy, transporting it to Vietnamese mills, processing it and partially exporting it
on the world market. As one of the major rice exporter, Vietnam is price maker on the world market,
which, to a large extent, is based on Vietnamese production costs.
96. Comparison with Vietnam. This theoretical approach is confirmed by a factual compared
analysis between Cambodian and Vietnamese cost structures. In September 2010, according to
Vietnamese traders, IR paddy purchased in Cambodia at $250/ton from local collectors (near the
Vietnamese boarder), was sold to Vietnamese mills at $284/ton, leaving a gross margin of $34/ton.
After deduction of transport cost (on the Mekong river), handling and some informal fees at the
boarder ($23/ton altogether), the trader‟s profit amounts to roughly $7/ton, which is quite limited, if
one considers that it covers both profit and financial costs.
This comparison shows that, contrarily to some what is stated in a number of reports, the Cambodian
paddy is not considerably underpaid as compared to the Vietnam market conditions, and that the profit
made by Vietnamese traders is limited, probably due to a very high competition between operators.
42
When applying a conversion rate of 65%, the purchasing price at mill‟s gate in Vietnam would be in
the range of $431/ton of rice equivalent. Considering that, at that time, the world price was at
maximum $460/ton (depending, of course, on the quality mix obtained by the Vietnamese mill), one
can see that the processing and post processing cost plus the miller‟s margin in Vietnam are probably
not exceeding $30/ton, as compared to $65 in Cambodia (excluding net margin). This estimate is
confirmed by available information, which indicates that energy costs in Vietnam are 1/3 of
Cambodian costs, transport costs are $7/kg lower and fobbing costs (including informal costs) are $20
lower. This confirms that, to be competitive with Vietnam on the white rice export segment,
Cambodian costs need to be reduced by at least $30/ton.
TABLE 1 : ESTIMATED COST STRUCTURE FOR PADDY EXPORTED TO VIETNAM (USD/TON)
purchase price of paddy near Vietnam boarder 250
transport cost to Vietnam mill 23
trader's margin (estimated) 7
price of paddy in Vietnam 280
equivalent in milled rice (65% recovery) 431
FOB price 460
miller's processing and transport cost + profit (estimated) 29
97. Comparison with Thailand. Comparison of prices and competitiveness with Thailand (for
fragrant rice) is much more difficult. According to the Consultants‟ informants, the price of paddy in
Thailand‟ areas near the boarder would be 15 to 20% higher than the price in Bantey Manchey. It is
however not clear whether it corresponds exactly to the same quality, and it is difficult to draw a
conclusion from this information. It is however clear, given the price at which Thailand can sell its
Jasmine rice on the export market, that the processing and marketing margin is much higher than in
Cambodia for fragrant rice. The problem for Cambodian fragrant rice is therefore not so much a cost
competitiveness one, but rather a quality and marketing problem (how to reduce the export price
differential?).
98. Possible cost reduction by $30/ton. It is estimated that the cost of exported rice from
Cambodia can be easily reduced by $30/ton, through:
Using cogeneration for producing a part of the energy required by the milling process, which
allows a 70% reduction in the need for fuel or electricity
Eliminating the unofficial fees at the transport and fobbing stage, which would reduce the cost
from mill to FOB to $20/ton instead of $35
Such a cost reduction would substantially increase the profitability of exports for rice millers. It
would, in particular, increase from $16/ton to $46/ton the profit on export of white rice to EU and
make slightly profitable exports of white rice to non EU markets, which appears critical to develop
exports.
43
1.4 Economic analysis of the value chain
1.4.1 Global analysis
99. Methodology. The target is to carry out an analysis of the rice value chain, in order to assess
its importance in terms of income distribution, job creation, poverty reduction and macro-economic
impact. This analysis covers the three levels of the value chain: production, processing, and marketing.
Costs at various stages of the value chains are quantified from the producer stage to consumer markets
or export. For that, we consolidated the accounts of all the rice value chain actors31.
100. Paddy export is the most important branch of the value chain. The next figure shows the
added value created by each branch of the value chain. The income distributed along the export
branch, from the farmer to collectors and traders up to export, was reached USD 678 millions in 2009.
In other words, more than 40 % of the income is dependent today on the paddy export flows. An
eventual interruption of these flows would endanger more than 500 000 jobs. The local consumption
branch of the value chain (home consumption excluded) creates USD 230 millions income, and the
rice export branch is still insignificant, with less than USD 10 millions income.
FIGURE 20 : ADDED VALUE BY BRANCH OF THE VALUE CHAIN
Sub value chains USD million %
Home consumption 614 39%
paddy export 678 43%
domestic consumption 263 17%
rice export 9 1%
Total value added 1 565 100%
31 The principle is to assess for each component of the value chain, the incomes and expenditure in local and foreign currency of the main agents involved (farmers, processing firm, traders, state,..). The model uses for that "decomposition coefficient" data. The part of the cost that is not imported creates incomes or added value.
-
0
0
0
0
1
1
1
1
1
1
1 256 81 146 79
mill
ion
$
44
101. Rice: a major value chain. The rice value chain creates USD 1.5 billion added value; this is
more than 15 % of the GNP. The most part is rural income (green in the figure) linked to the activity
of production of farmers and processing of small village millers. The workers‟ income, mostly urban
income, is likewise primarily from the processing, marketing and transport of rice related to the urban
consumption but also to local agricultural inputs.
The rice value chain is then essential for a policy of poverty reduction. It creates USD 1,2 billion
farmer income. It increases the income in rural areas, where the prevalence of poverty is higher.
102. USD 80 millions for tax income. The State collects taxes along the value chain, such as
import taxes for agricultural materials and machines, and such as VAT (Value Added Tax) for some
goods and services. This includes also the VAT paid through the consumption generated by the rice
income of the main actors32.
103. In 2009, the foreign exchange gain was more than USD 400 millions. On the one hand, the
gain is largely due to export of paddy (USD 800 millions), on the other hand, imports of agricultural
inputs and other intermediate consumption lead to spending USD 400 million foreign exchange.
FIGURE 21 RICE VALUE CHAIN INCOME 2009
1.4.2 Specific emphasis on exportable varieties
104. Who makes profits in the rice export subsector? The next figure presents all the costs and
profits included per exported ton of fragrant rice. The farmers‟ profit (including family labour
remuneration) is 40 % of production costs and millers‟ profit 10 %. The other actors (traders,
transporters, agricultural services...) make little profits: 5 % of all cost for paddy trading, 2% for FOB
services. The other costs are relatively low: 8% for agricultural inputs, 6 % for credit interest
(production + processing), and 4 % for fuel. This high level of farmers‟ profit explains the growth of
32 We suppose that 1/3 of the consumption is related to VAT taxed goods.
-
200
400
600
800
1 000
1 200
1 400
farmers' income workers' income
state income foreign exchange
mill
ion
$
45
production this last year, particularly for fragrant rice. The farmers‟ profits are directly linked to paddy
price level in Vietnam and Thailand and indirectly to the price of inputs imported also from Vietnam.
The potential of decreasing farmers‟ production costs to lower the global rice export cost is therefore
limited.
FIGURE 22 : PRODUCTION COSTS FOR 1 TON FRAGRANT RICE EXPORTED
0
50
100
150
200
250
300
350
Seed
N-P
-K f
erti
lizer
Ure
a fe
rtili
zer
Inse
ctic
ides
Her
bic
ides
Wat
erin
g
Soil
tilla
ge
Har
vest
an
d t
hre
shin
g
Cre
dit
inte
rest
Bro
adca
stin
g
Inse
ctic
ides
+Her
b
Fert
.ap
plic
atio
n
Wat
er c
on
tro
l
Har
vest
ing
farm
ers
pro
fit
colle
cto
rs a
nd
tra
de
fuel
sala
ries
mai
nte
nan
ce
amo
rtiz
atio
n
inte
rest
s
net
mill
er p
rofi
t
fact
ory
to
FO
B c
ost
$ p
er
ton
46
105. Comparing added value for fragrant and white rice. The next figure shows the added value
created both by fragrant and white rice (IR) varieties. We take the entire value chain into account from
production to export, including processing. Per exported ton, fragrant rice generates USD 150 more
income than white rice. Most of the difference comes from the production stage: USD 100 income per
ton. The processing and export create a USD 50 added value difference. The foreign exchange balance
is also in favor of fragrant rice: USD + 30 per ton.
A quality policy based on fragrant variety is more economically efficient than IR or MIX variety.
FIGURE 23 : ADDED VALUE FOR FRAGRANT AND IR RICE
0
100
200
300
400
500
600
700
fragrant rice IR rice
$ t
on
processing
production
47
2 PROSPECTIVE ANALYSIS AND RECOMMENDATIONS
2.1 Production prospects and increase of the exportable
surplus
2.1.1 Production prospects
106. The future production level depends mainly of the growth of yields and areas for both wet and
dry seasons. The yield growth trend was really high these past 5 years: 15 % yearly rate for the wet
season and 4 % for the dry season. Probably the yields will progress more slowly in the coming years.
A hypothesis of a 6% yearly rate for the dry season yield and 4 % for the wet season for the next 5
years seems reasonable. From 2015 to 2020 we consider that the trend will slow to 4 % for the dry
season and to 1 % for the wet season. On these hypotheses the wet yield will rise 3.5 tons /ha in 2020,
and the dry yield 6.4 tons ha.
FIGURE 24: YIELD PROJECTIONS 2015 2020
107. For the areas, we assume that the irrigation government program will expand at the same rate:
6 % growth of new scheme until 2015, and 4 % after. Non irrigated areas in the wet season are
assumed to continue growing, but very slowly (0.2 %, then 0.1 %).
108. 2015 production: over 10 M ton. According to these hypotheses the production will
continue to grow but more slowly than in the last 5 years. The paddy production will be superior to 10
Million tons in 2015 and reach more than 12 Million tons in 2020. The dry season production which is
now 22 % will rise by 35 % of total production in 2020 making the production more secure.
In 2020 the main issues will be the importance of the surplus and shifting from paddy to rice export.
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
T h
a
wet
dry
48
FIGURE 25 : PADDY PRODUCTION PROJECTIONS TO 2020
2.1.2 Demand and destination prospects
109. We assess prospects of the domestic demand over the next 5, and 10 years, using a model
based on demography and evolution of consumption per capita, taking in account urbanization and
differences between rural and urban consumption33.
TABLE 9 : RICE DESTINATION IN 2015
Ton %
Home consumption 1 700 000 29%
rural consumption 208 911 4%
urban consumption 290 000 5%
surplus for export 3 624 000 62%
total rice 5 822 911 100%
110. In 2015 the surplus for export will reach more than 3.6 million tons of rice, or 62 % of the
global production. The dependence of the Cambodian rice sector on export will be critical if a
Cambodian export channel is not developed.
111. In 2020 the domestic consumption will not grow rapidly because of urban expansion and
decrease of rice per capita consumption (food diversification); consumption per capita is estimated at
145 kg. As the paddy production is supposed to grow by 3 % during the 2015-2020 period, the surplus
for export will be 64 % of rice production, with more than 4 million tons. This will therefore further
increase the country‟s dependency.
1. 33 We suppose the demographic growth at 1.54 % then 3 % for urban areas and 1.2 % for rural areas. The rice consumption will be of 147 kg per head then 93 kg for the urban population and 176 kg for home consumption, and 97 for rural areas.
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
Mill
ion
t
total
wet
dry
49
TABLE 10 : RICE DESTINATION IN 2020
Tons %
Home consumption 1 800 000 28%
rural consumption 211 200 3%
urban consumption 340 000 5%
surplus for export 4 240 000 64%
total rice 6 591 200 100%
2.2 Export market opportunities for Cambodian rice
112. This chapter examines the rice world market situation and the market opportunities for
Cambodian rice. It also proposes, as requested by the terms of reference a possible export market
strategy, targeted on the most promising markets, in order to increase exports to one million to in the
medium term (and two million tons in the longer term), as considered by the Government rice export
development strategy.
2.2.1 Brief presentation of the rice world market
113. Internationally traded rice is only a small proportion of production. The quantity of rice
annually traded internationally is around 30 million tons, which is only 5% of total world production.
This small proportion of internally traded rice explains the relative price volatility of this commodity,
as weather conditions may drastically affect exportable surpluses in the major exporting countries.
114. Limited number of suppliers. Exports are rather concentrated in a limited number of
countries. The main rice exporters in 2008/09 were, by order of decreasing importance: Thailand (9 M
T), Vietnam (6,2 M T), USA (4 M T), Pakistan (3,8 M T) and India (2,2 M T). These five major
exporters accounted for 70% of total rice exports. The distribution among major exporters has not
drastically changed in the last past years, although an increasing trend can be observed in Vietnam and
Pakistan, while India is on a decreasing trend, due to its reduced surpluses.
115. Large number of importers. The import distribution is much less concentrated. By regional
groups, the main regions of imports are: the Middle East (4 MT, mainly Iran, Iraq and Saudi Arabia),
Western Africa (3,6 M T mainly for Nigeria, Côte d‟Ivoire and Senegal), Philippines (which has
become the main world importer country, with 2,6 MT), other South East Asian countries (2,4 MT,
mainly for Malaysia and Japan), and EU (1,4 M T). Those countries account for only 46% of world
imports, the remainder being distributed among a large number of countries worldwide. (see in annex
Table 14 world trade statistics). The share distribution has not significantly changed over the past
years, but an increasing trend can be noted in South East Asian importing countries, particularly in the
Philippines.
50
india; 6301; 20%
Pakistan;2696; 8%
Thailand; 9557; 30%
Vietnam; 4522; 14%
others; 8775; 28%
Main exporters in 2006/07 india;2200; 7%
Pakistan; 3800; 13%
Thailand; 9000; 30%Vietnam;
6200; 21%
others; 8901; 29%
Main exporters in 2009/10
EU; 1342; 4%Western Africa;
3470; 11%
Middle East; 3697; 12%
Philippines; 1900; 6%
Other SE Asia; 2072; 6%
others; 19370; 61%
Main importers in 2006/07
EU; 1350; 4% Western Africa; 3590; 12%
Middle East; 4015; 13%
Philippines; 2600; 9%
Other SE Asia; 2420; 8%
others; 16126; 54%
Main importers in 2009/10
116. Differentiated quality demand. Each of those markets has its own demand characteristics:
The European market imports brown (0,5 MT) and milled rice (0,4 MT). Milled or semi milled
rice imports have tendencially increased in recent years, due to a reduction on import duties,
which used to be much higher for milled rice than for brown rice. EU also imports large quantities
of broken rice (0,3 MT), probably for animal feed. For milled rice, EU imports mainly long grain
whole rice or 5% broken (around 0,3 MT), and almost half of imports originate from three main
Asian exporters (Thailand, India and Pakistan). Perfumed high quality rice represents a very large
proportion of imported milled or brown rice : imports of Basmati from India and Pakistan are
estimated around 300 000T, and imports of Jasmine rice from Thailand around 100 000T.
Western Europe, where most of the European demand for perfumed rice is concentrated, is clearly
a highly demanding market in terms of quality, and large scale distributors (Carrefour, Tesco, …)
51
are by far the main marketing channel, implying that branding, reliability in supplying capacity,
safety and traceability are particularly important.
Eastern Europe (Poland, Baltic countries) is a less demanding market and is mainly importing
medium quality white rice
The Middle East market is also, though to a lesser extent, a quality market, concentrated on whole
white rice and 5% to 10% broken
The South East Asian market, in particular the Philippines (which is currently the main importing
single country in the world) is more a price market, concentrated on 10 to 25% broken white rice
The African market is also a price market, concentrated on 25% broken white rice (for instance for
Côte d‟Ivoire and Nigeria) and fully broken rice (for Senegal). It is however worth mentioning
that fragrant broken rice meets an increasing demand, in particular on the Senegalese market,
where it represents currently more than 50% of the imports (nearly 500 000T).
2.2.2 Types of exportable r ice from Cambodia
Cambodia can export two main types of rice, each with a range of different qualities: Perfumed rice
and white rice corresponding to IR varieties (non sticky medium/long grains).
2.2.2.1 Perfumed rice:
117. Main perfumed rice internationally traded are Basmati and Jasmine. The main perfumed
rice types internationally traded are Basmati (from India and Pakistan) and Thaï Jasmine rice. Two
different qualities of Thaï Jasmine rice are exported: Hom Mali, which deserves the highest price, and
Pathum Thani, less expensive. 90% of Thaï exports of Jasmine rice correspond to the Hom Mali type.
118. Lower quality of Cambodian perfumed rice. The Cambodian perfumed rice compares with
Thaï Jasmine rice, as most of varieties used are common to the two countries, and both types of
perfumed rice are produced in Cambodia (although the proportion of each type is not known).
Cambodia cannot however brand its perfumed rice as Jasmine rice, a brand which is well known
among consumers and distributors, especially in Europe, because Jasmine rice is considered as a
trademark registered for Thaï rice. Cambodia faces therefore a branding problem to promote its best
quality perfumed rice, especially in Europe, where branding is important due to the prominent role of
large distributors.
119. In general terms, Cambodian perfumed rice is considered of lower quality than Thaï Jasmine,
because of lack of seed purity and inadequate sorting and grading.
Cambodia can produce several qualities of perfumed rice: whole grains with 5% or less broken, which
can be marketed on the quality oriented EU market; 10 to 25% broken, which can find a market in
some European countries, but also in Russia, some Asian countries (China, Vietnam, Malaysia) and in
Africa; 100% broken rice, which can find a market in Western Africa.
2.2.2.2 White rice
120. IR rice is a long grain white rice, which can find a variety of markets, depending of the
quality: whole grains or less than 5% broken can be marketed in EU (Eastern Europe), and in the
Middle East; 25% broken can be marketed in particular in the Philippines, in Russia and in some
African countries; 100% broken can be marketed in Western Africa.
52
2.2.3 Privileged market access for Cambodia
121. The export marketing strategy of Cambodia must take into account the tariff preferences
Cambodia has on some markets.
European Union. On the EU market, Cambodia enjoys, since September 2009, a tariff exemption
within the framework of the “Everything But Arms “ arrangement, whereas its main competitors
(Thaïland, India and Pakistan) face high tariff, which depends on the volume imported globally in
the previous semester. This tariff is currently at 145 €/ton tariff, and should remain at the same
level in a foreseeable future. The tariff advantage for Cambodia is therefore around $200/T.
Russia. In Russia (which imports around 200 000 tons of white rice per year), Cambodian rice
also enjoys a zero tariff, against a 21% tariff for its main competitors.
Vietnam. Vietnam grants to Cambodia a tariff free quota of 200 000 tons of rice or 300 000 tons
of paddy. Vietnam is not at present a rice importer, but it imports currently a large quantity of
paddy from Cambodia (which is not registered as imports by the Vietnamese customs), a large
proportion of which is believed, according to some collectors interviewed during the mission, to
be for local consumption in Vietnam (in particular for the tourism market, which is booming).
This informal flow of paddy could therefore, if rice milling in Cambodia is competitive, be
replaced by an equivalent flow of milled rice34 for local consumption.
Philippines. In the Philippines, which is currently the largest rice importer in the world, rice
imports are under the control of the Government owned National Food Authority of Philippines,
which can grant import licenses to private importers in compliance to a national procurement plan
set up every year. Rice imports are subject to a very high tariff rate for rice imported from non
ASEAN countries. For ASEAN countries, the import tariff is substantially lower, and is sheduled
to be gradually eliminated, in compliance with the Asian Free Trade Agreement (AFTA), though
the speed at which this elimination will take place is still uncertain, as the Philippines consider rice
as a strategic produce, on which tariff elimination should be delayed. The Philippines are
traditionally importing rice mainly from Vietnam, but need to negotiate with other AFTA rice
exporting countries import quotas, in order to avoid their complaining about the delay in tariff
disarmament. Cambodia is thus currently negotiating an import quota of 300 000 tons at the
privileged AFTA tariff rate. If the negotiations succeed, Cambodia would open its way, through
to the Philippines market.
2.2.4 Priority markets and other potential markets for Cambodian rice
122. Need for an offensive marketing strategy. Exporting 1 million tons of rice by 2015, as
expected by the Government strategy, would place Cambodia among the 6 main world rice exporters,
whereas it is now only a minor player, with less than 20 000 tons exported annually. The program is
therefore extremely ambitious. Such an ambitious program requires an offensive marketing strategy,
addressing simultaneously all possible markets, as no single regional market is able to absorb such
quantities, and as rice exports will necessarily include a variety of rice qualities, requiring a variety of
different markets. Cambodia will thus have to export both perfumed and ordinary white rice. It will
have to export, for each type of rice, a variety of qualities, from high quality whole grains to mixed
broken and wholly broken grains, as the milling process will produce simultaneously whole grains and
brokens, which the domestic market cannot absorb.
34 Cavifood, the newly created joint venture between the Government owned Cambodian miller Green Trade and the Vietnamese public agro-industrial group Vinafood, claims officially the ambition of using this quota to export milled rice to Vietnam; one can however wonder whether the Vietnamese group does not plan also to export the rice produced in its Cambodian subsidiary to enter without tariff into the European market
53
123. Vietnam and Thailand are the main competitors. The projected increase in rice exports will
result in a shift from exports of paddy processed in Vietnam and Thailand and partially re-exported to
the rest of the world, towards direct exports of rice from Cambodia. This will therefore not result in a
significant increase of the supply on the world market, but in reducing the export capacity of those two
countries, because their supply of paddy would be reduced by 1,5 million tons previously coming from
Cambodia. Cambodia will have to seize this opportunity, and to take markets shares from those two
countries, of which it will become a direct competitor.
124. Need for a wide marketing mix. It is of course not possible nor advisable to make a detailed
export plan showing what quantity of rice can or should be exported to each market, as the outcome of
a marketing strategy is, by essence, unpredictable. It is however possible to identify the main markets
which should be prospected for the various rice qualities produced.
125. Priority but limited EU market. The top priority market for Cambodian rice should
obviously be the European market, on which Cambodia has a strong tariff advantage. As shown in the
paragraph on world markets, the European market is however limited, and Cambodia cannot expect to
export more than 200 000 tons to EU, combining perfumed and white rice. Moreover, despite the tariff
advantage, the penetration of this market up to its full capacity will be a time consuming process, as it
requires constant marketing efforts.
126. The possible export market objectives for each type of rice can be identified as follows,
provided the following assumptions:
an objective of 1 M tons of exports,
perfumed and white rice represent each 50% of the export quantities (which corresponds to
production trends, as identified in the chapter on production systems)
the overall percentage of broken grains will be around 35%, which means that it can be sorted in
three main categories: whole grains (or less than 5% broken), which could represent around 40%
of the exportable production; 25% broken, which can represent also around 40%; and wholly
broken rice, which can represent around 20%. This mix is, of course, flexible, depending of price
of each category.
54
TABLE 11: POSSIBLE MARKET PROSPECTS BY 2015
type of
rice
export
objective
(mT)
Possible markets for
Cambodia total
world
imports
(mT)
market quality
demand
possible market share
Priority
market other markets mT %
Cumulated
exports by
rice type
less than
5%
broken
400
EU
300
high (mainly
perfumed) 100 33%
400
Russia
100
medium (mainly
white) 30 30%
Middle East
(Saudi Arabia,
Iran, Iraq) 4 000 high and medium 120 3%
Malaysia,
China 1 200 high and medium 150 13%
25%
broken 400
EU
100 high and medium 30 30%
400
Russia
100 medium 30 30%
Philippines 2 600 low (white rice) 200 8%
Vietnam 0
medium (mainly
perfumed) 100
Africa 2 800
low (white and
perfumed) 40 1%
broken 200 Western Africa 800
low (mainly
perfumed) 200 25% 200
total 1 000
1 000
1 000
2.3 Strategy to develop rice exports
127. The proposed strategy is based on the Government objective of reaching 1 Mt of rice exports
by 2015, as stated in the SNEC strategy paper. It aims at alleviating the existing and foreseeable
constraints and at maximizing the economic impact of the development of rice exports. It takes into
account the recommendations made in the SNEC strategy paper, details and prioritize them whenever
necessary, and proposes also additional actions.
2.3.1 Proposed organizational structure for the rice export industry
128. The current processing capacity for exports is mainly with large scale mills. The current
structure of the rice processing industry is characterized by:
a large number (around 200) of small (less than 2T/hour) mills, none of them processing rice for
export
a more limited (although not precisely known) number of medium size mills (between 2 and
10T/hour), among which less than a dozen have updated their equipment to be able to produce
rice for export, representing a global capacity estimated at 20 T/hour
55
8 large scale mills (10 T/hour and more), including those under construction, of which 635 are
export oriented and have the equipment to produce quality rice; their global processing capacity is
estimated at 115 T/hour
The existing processing capacity for export is thus presently mainly with large scale mills, while
medium scale ones have only around 18% of the total capacity.
129. Medium scale mills are well adapted to produce quality rice. Processing to the export
market is probably not feasible for small scale mills (less than 4 tons/hour), which lack financial
means and technical expertise, and which would probably not be able to operate profitably the
equipment required for quality rice. A network of medium size mils (4 to 6 T/hour) is, however, the
best possible industry structure to collect paddy and process rice under good conditions, as:
the size of such mills is large enough to allow the profitable operation of improved equipment (it
is usually considered that economies of scale are very limited above a capacity of 6 T/hour)
their need for working capital remains manageable, as compared to the largest mills
they can collect locally most of the paddy needed, which reduces primary transport costs and
allows them to develop contract farming in their vicinity; they can also more easily establish
business relationships with local collectors, and thus better compete with the Vietnamese and the
Thaï paddy collection networks, and better control the quality of the paddy collected, a crucial
advantage for exports
They usually have a good technical expertise and more professional experience than some of the
large scale millers who have entered recently on the market
Such mills can be operated with more flexibility than large scale ones, in particular to adapt the
the processing to the quality of paddy.
130. Medium size mills cannot however access directly large export markets. Despite their
comparative advantage, these medium scale mills can hardly have a direct access to the export market.
With a production capacity ranging from 10 000 to 15 000 tons per year, they are not big enough to be
able to sell more than some hundreds tons at a time (for a given quality and at a given date), which is
well below what the market usually requires. They cannot either spend the marketing investment
required for market prospection, nor impose their brand on the world market. In fact, all medium size
mills currently operating for export production are either using SMI „s assistance for export marketing
or sell their production to a larger scale miller who will export it.
131. Need for a dual industry structure. There is therefore clearly a need for a dual industry
structure, including a network of medium size mills and a limited number of large scale operators,
specialized in export. These large scale operators would play the role of market integrators, and should
be able to negotiate export contracts of several thousand tons for each shipment, to prospect export
markets, to develop their own brand and make it known on export markets.
Such large scale operators need to control themselves a part of the production they sell, in order to
secure their supply, but they also have an interest, in order to minimize their fixed costs, to outsource
a part of their export volume to smaller mills, with whom they can build up regular business relations.
It is commonly accepted in most agro-industrial sectors that such a market integrator should ideally
control directly the production of one third of his export volume and outsource two thirds.
35 AKR, Golden Rice, Baitong, Green Trade, Loran and BVB
56
132. Need for a network of medium and large scale mills. Following this scheme, the industry
structure should be composed of
Large scale millers specialized in exports; the number of such operators should be limited, in
order to avoid dissemination, but large enough to avoid monopsonic behaviors: four or five
operators is probably a reasonable objective. It is probable that these lead operators will emerge
from the large scale mills currently in operation or under construction
A network of medium size new or upgraded mills, exporting mainly through the large scale
operators. This network is, for the time being, the weakest part of the industry structure, and needs
to be strengthen and increased.
2.3.2 Action plan to alleviate constraints and promote exports
133. The ambitious objective of 1 million tons of rice exports by 2015 is not out of reach,
considering the market prospects, but will require a co-ordinated strategy to alleviate constraints,
strengthen the capacity of actors and improve the marketing positioning of Cambodian rice on the
market. Some of the actions to be taken are common for both rice types, while others concern
specifically fragrant or white rice.
2.3.2.1 Increase the processing capacity for export quality
Needs for additional processing capacity
134. The currently existing (or under construction) processing capacity adapted for export quality
rice is estimated at 135 T/hour (of which 20 T/hour for mills constructed before 2009 and 115 T/hour
for mills constructed since 2009 or still under construction). This capacity corresponds to the annual
processing for export of 270 000 tons of paddy, which may be sufficient during the two first years,
but is far from the export objective for 2015. The processing capacity for quality rice will therefore
become a constraint as soon as the export volume exceeds 270 000 tons, possibly in 2012 or 2013, if
the sector grows at the required rhythm. In the meantime, the large scale mills, whose polishing and
sorting capacity is higher than their dehulling capacity, could continue, as they already do to some
extent, to buy rice from under-equipped smaller mills and sort and polish it in their own mill before
export. This practice is however generating extra costs, and should be avoided as much as possible in
the future.
135. As shown on Table 12, the capacity for quality processing will have to increase by 646 T/hour
by 2015 to reach the export objective. This shows that milling capacity will become a major constraint
in the medium term, even if it does not appear as the most urgent constraint in the very short term,
thanks to the new mills recently constructed with RDB‟s assistance. Given the construction delays,
one cannot however wait until the existing capacity is saturated to start building new mills (or
rehabilitate existing ones), and construction programs should start as soon as possible.
136. The table shows also that the need for additional capacity is particularly important for medium
size mills, taking into consideration the proposed sector structure (1/3 of processing by large scale
mills and 2/3 by medium scale ones):
145 T/hour of additional capacity for large mills is required (corresponding to 4 to 6 new mills,
depending on the unit capacity) and
57
But the additional capacity for medium size mills amounts to 500 T/hour (corresponding to
100 mills of 5T/hour capacity).
TABLE 12: MODERN PROCESSING CAPACITY REQUIREMENTS FOR EXPORTS
needed capacity existing
in 2010
additional requirement
modern capacity requirements for exports unit 2015 2020 2015 2020
export objective t of rice 1 000 000 2 000 000
T of paddy 1 562 500 3 125 000
processing capacity required t/h 781 1563 135 646 1428
of which:
large mils (1/3) t/h 260 521 115 145 406
medium size( 5 T/h) mills (2/3) t/h 521 1042 20 501 1022
number of medium size mills required mills 104 208 6 to 10
137. Based on a unit investment cost of $272 000 per ton capacity for a new mill36, and $154 000
for rehabilitation of an existing mill, and assuming that 50% of the additional capacity will come from
new mills and 50% from rehabilitated ones, the average investment cost is $213 000 per ton, or $137
Millions for 646 ton/hours, of which $1 million for medium scale mills
Constraints to increase the processing capacity and alleviation measures
138. The lack of self financing capacity, especially of the medium size mills and the lack of interest
of commercial banks for financing equipment needs are the main constraints to increasing the
processing capacity. The following remedial measures are identified:
On the supply side, credit lines targeted on rice milling should be set up by the Central bank
and/or international financial partners, and accompanied by an information campaign directed
towards commercial banks, in order to make them more knowledgeable of the prospects of the rice
export sector
Risk sharing facilities, aiming at reducing the risk borne by the commercial banks, should also be
set up by the Government and/or international financial partners; the facilities would be crucial to
convince commercial banks to reduce their security requirement on equipment loans (which is
barrier to rehabilitation of existing mills)
Innovating financial products, such as leasing for milling equipment, should also be introduced as
an alternative to traditional loans.
On the demand side, one of the factors that limit the readiness of banks to finance the sector is the
absence of accounting and financial information on mills operation, which makes it difficult to
assess the profitability of the proposed investment. Training and advisory services should
therefore be made available to millers wishing to increase their capacity, so that they become able
to provide to their bankers well documented loan applications.
139. The above mentioned measures are necessary to create a momentum and attract the interest of
commercial banks for the rice milling sector. Once the momentum has been created and the financial
feasibility of the rice exports milling sector demonstrated, it is quite probable that commercial banks
36 See section 1.2.3
58
will spontaneously increase their interest for the rice sector and compete within each other to increase
their portfolio.
2.3.2.2 Increase short term facil it ies to millers for f inancing their
working capital
Need for additional working capital
140. Lack of working capital is quoted by all interviewed millers as the first or second (behind the
need for equipment financing) constraint. In particular, all millers having recently increased their
processing capacity claim that they cannot fully utilize their new equipment because of a lack of
sufficient working capital to purchase paddy.
141. Considering three harvest period per year, a typical 5 T/hour miller would need to procure
5 000 tons of paddy three times a year in order to produce up to his capacity (10 000 tons of rice per
year), which requires a working capital of at least 1,5 M$ (assuming an average price of $300/ton).
The need for working capital may be more realistically estimated at 2 M$, if one considers that the
rice produced from the previous harvest is not fully sold out when the buying campaign for the new
harvest starts. The working capital required for producing one ton of rice amounts therefore to $200.
142. It should be noted that the turnover would be lower, and the need for working capital higher, if
contract farming develops as considered, since the miller would have to partly pre-finance the
production cost of paddy: a pre-financing of $500/ha would imply an additional working capital need
of $200/ton of rice (based on a yield of 4 T/ha).
TABLE 13: NEED FOR WORKING CAPITAL
quantity of
rice/year(T)
quantity of paddy
per year (T)
purchase of
paddy/year ($)
working
capital ($)
Calculation basis
1 T paddy= 0,64 T
of rice $300/T 1/3 of purchase
+ 25%
for one 5 T/h mill 10 000 15 625 4 687 500 1 953 125
for 1 T of rice 1 1,56 469 195
for 1 million tons of rice 1 000 000 1 562 500 468 750 000 195 312 500
143. On a global point of view, the 2015 objective of exporting 1 million tons of rice implies an
additional capital of 200 M$. This is clearly a need for additional financing: the financing of paddy
purchases is presently mainly borne by Vietnamese and Thaï banks, which finance their nationals for
paddy collection in Cambodia; processing domestically one million tons implies that Cambodian
banks will have to bear the financing previously borne by foreign banks.
The amount of required additional short term financing is therefore considerable and represents twice
the amount needed for financing processing equipment. The availability of sufficient short term
financing is a crucial condition for the success of the strategy, as new mills cannot operate
satisfactorily if they do not have sufficient working capital to buy paddy. Commercial banks should, in
their own interest, combine systematically equipment loans with short term credit for working capital,
as shown by the example of some mills recently financed by RDB, and whose operating capacity is
limited by a shortage of working capital, thus putting at risk the repayment of the loan
59
Constraints and remedial measures
144. The constraints for millers‟ access to bank short term financing are similar to those already
analyzed for equipment financing, but even stronger for new mills, which have already borrowed from
banks to finance construction and equipment and are indebted up to the maximum possible
considering the security mortgage requirements.
In addition to the measures already proposed for facilitating commercial banks involvement in the rice
sector, two mechanisms should be introduced to reduce the banks‟ risk on short term credit:
Risk sharing facilities, either provided by the Government or by international financial partners
(for instance, the ARIZ scheme set up by Agence Française de Développement, which takes up to
50% of the repayment risk on the portfolio of the partner banks, against a fee.
Inventory credit (or warehouse receipt), which guarantees a short term credit by the value of the
stock of paddy or rice held by the miller; such a mechanism, which is commonly used in a number
of countries, would considerably reduce the risk borne by banks on short term credit for the
purchase of paddy, since the value of the stock owned by the mill is at least equal to the amount of
credit needed. To develop such a mechanism, which does not exist in Cambodia, an enabling
legislation might be necessary.
2.3.2.3 Simplify export procedures and reduce its cost
145. Export procedures are time consuming, cumbersome and costly, and, in some instances,
redundant. All rice containers must have a fumigation certificate (delivered by the Ministry of
Agriculture (cost: $23), a phyto-sanitary inspection certificate (done by the Ministry of Agriculture;
cost: $1,5), a certificate of origin (delivered by the Ministry of Commerce), a custom certificate
(delivered by the Ministry of Finance) and a quality control certificate by CAMCONTROL (cost: $75
per shipment). The whole process can take several weeks, and cases are reported of rice arrived at
destination before all required documents are ready for clearance. The whole process can cost up to
$20 per ton, including unofficial fees collected on top of published fees for services, contributing to
the lack of competitiveness or Cambodian exports of white rice.
This constraint can be easily alleviated through the establishment of a single stop service (guichet
unique) to which would be delegated the responsibilities of the various Ministries and public services
involved, provided this move is supported by a strong political will.
2.3.2.4 Increase port handling and transport capacity
146. The objective of 1 million tons of rice exported requires a highly efficient transport and port
handling capacity in order to move 50 000 containers per year, or 150 containers per day (if all the
exported rice is shipped in containers). This exceeds by far the current capacity, and a number of
logistics bottlenecks will need to be overcome:
The limited availability of clean containers, suitable for shipping food products, is already
mentioned as a bottleneck. Similarly, the transport capacity for trucking containers to the port is
also very limited at present (less than 50 trucks are reported available). Both of these constraints
can be alleviated by the private sector relatively easily, provided operators are adequately co-
ordinated.
60
The limited handling capacity at the port of Sihanoukville, the only deep sea port in the country
will also be a constraint, at least until the new terminal financed by JICA and planned for a
capacity of 450 000 containers a year is ready for use, in 2014.
Another constraint hampering the competitiveness of Cambodian rice is the fact that the port of
Sihanoukville cannot accommodate large break bulk vessels, generally used for transport of rice.
Containers have thus to be shipped in small vessels to Singapore or another large Asian port for
loading on a larger container carrier vessel. This implies extra freight cost, borne by the buyer
(since rice is sold on FOB terms), but passed on to the FOB price.
This constraint will be theoretically alleviated in the medium term with the new port terminal,
which is planned to accommodate vessels up to 50 000 T. However, despite this new project, it is
likely that the port of Sihanoukville will remain more expensive than ports in Vietnam or in
Thailand, and that freight costs from Sihanoukville will remain higher, because volumes handled
are much lower. For this reason recent logistics studies have recommended that the Government of
Cambodia should negotiate bounded warehouses arrangements with Vietnam and Thailand,
through which rice produced in the North-Western region could be trucked to Laem Chabang in
Thailand and rice produced in the southern and South Eastern regions could be barged from PP to
HCMC or the new port of Cai Mep in Vietnam, thus solving the problem of handling capacity in
Sihanoukville in the short term while reducing shipping costs. This option is worth being
considered, but would, in turn, increase the dependence of Cambodia on the facilities of the
neighbor countries.
2.3.2.5 Increase the local operators’ expert ise in mil l ing operation and
international r ice trade
147. Two different types of training are required:
Medium scale millers need to acquire better financial management and financial reporting
practices, in order to be considered as trustworthy by commercial banks, and access the equipment
and working capital credit which they need. They also need to improve the quality of the rice
produced (and to ensure reliability of quality) through a better awareness of quality market
requirements, improved awareness of rice processing technology, and adoption of more stringent
quality requirements for their supply of paddy.
Operators directed exporting to the foreign market should improve their knowledge of
international rice trade, improve their connections with the main actors (international traders,
brokers, main large scale retailers), and become more knowledgeable of marketing strategies.
2.3.2.6 Develop internationally recognized quality standards
148. The quality control exercised by Camcontrol is based on the codex definition of quality and
not on a national quality standard, which does not exist at present. The absence of a quality standard is
a major constraint to the international trading of Cambodian rice: samples have to be sent to buyers
before shipments, and full payment requires a quality analysis of each shipment. As all major rice
exporters have done, and as Cambodia did for rubber, a national quality standard system should be set
up, as the definition of quality standards (percentage of broken grains, grain length, moisture content,
maximum allowance for foreign matters, yellow of red kernels, immature grains,…) is essential for
secure transactions and for international quotation of Cambodian rice. These standards must be
defined in cooperation between public authorities (who will be in charge of control) and private
operators (who are directly exposed to the market demand). They should be strictly controlled for each
shipment, and should be known and considered as reliable by importers.
61
2.3.2.7 Comply to SPS regulations
149. As a food product, rice imports into the European market are subject to the Feed and Food
regulation, which requires traceability, and requires countries of origin to have a Competent Authority
officially in charge SPS controls, a SPS risk assessment, a SPS risk management system, and official
controls (with certified laboratories) to ensure that that the risk management system is properly
functioning. Although SPS risks on rice are limited (it mainly concerns pesticides residues and
aflatoxins), the absence of such a risk management system in Cambodia may become a major
constraint to accessing further the EU market37, as well as other markets which have adopted or plan to
adopt similar SPS regulations (USA, China, some Middle East markets,…).
The experience of other countries shows that the best way to put in place such a SPS risk management
system is, as for quality standards, through a close cooperation between the industry (who will have to
build their own risk management system within the exporting firms), the control laboratories and the
public authorities (responsible for the reliability of the system).
2.3.2.8 Specif ic act ions to develop the perfumed rice market
150. In order to penetrate the high value market of quality specialty rice, the focus should clearly be
put on quality improvement and marketing, so as to reach the same quality reputation than the main
competitors of perfumed Cambodian rice (Thaï Jasmine and Basmati) and to reduce the considerable
price differential presently existing between Cambodian and Thaï perfumed rice. The following
actions are recommended.
2.3.2.8.1 Improve qual ity of perfumed r ice
151. Though the genetic origin is similar, the Cambodian perfumed rice has often the reputation of
a lower quality than the Thaï rice. This can be remedied by:
Improved agricultural practices (dissemination of quality varieties, better control and renewal of
seeds used, better homogeneity of production, adoption of improved drying techniques by farmers
or collectors), through extension services, development of contract farming (see annex 3.1).
Adoption of quality standards for paddy, and payment on quality of the paddy (moisture content,
foreign matters, recovery ratio, percentage of broken grains, …), which is not yet commonly
accepted in Cambodia, whereas it is a common practice in most major exporting countries
Improved processing equipment, especially for separating and sorting grains.
2.3.2.8.2 Promote branding
152. One of the major constraint of the Cambodian perfumed rice to access the high quality market
in Europe, mainly under the control of large scale distributors, is the fact that the Cambodian rice has
no reputation and is not branded, as it cannot be branded as Jasmine rice, a denomination well known
in Western Europe, because the brand is considered as specific to the Thaï rice. It could obviously be a
considerable marketing advantage for Cambodian rice if Cambodia develops its own brand for quality
perfumed rice (like “Royal Cambodian rice”, …). This is a long process, which needs a co-ordinated
37 If the European Commission considers that the SPS risk is not well managed in Cambodia, it may impose individual controls for each shipment, which would increase the cost for importers and may discourage them to import from Cambodia
62
approach of all perfumed rice exporters, and strong cooperation with importers and distributors, who
have the final responsibility of promoting the brand on their market.
2.3.2.8.3 Ini t iate special branding on niche markets
153. Organic and fair trade certifications open promising niche market (with a premium price) for
specialty rice in Western Europe, and promoting such special branding should be an interesting way of
differentiating Cambodian perfumed rice an create an attractive image. It would not be too difficult to
introduce a fair trade certification, which requires mainly good quality standard and contract farming
between producers organized in groups and some interested millers (see annex 3.1).
2.3.2.9 Specif ic act ions to develop the white rice market
154. For white non perfumed rice, the export development strategy should primarily focus on
production cost, as this type of rice has currently a competitiveness problem on the non European
world market, because of higher processing and marketing costs than its main competitors. Logistics
improvements, marketing strategy and quality are also important factors. More specifically the
following actions will be necessary.
Reduce as much as possible the processing and transport cost. Two areas of possible cost
reduction in the short term are identified: reduction of informal fees on export procedures;
introduction of co-generation to reduce energy costs. Other costs can be reduced in the longer
term: transport costs from mill to the port can be reduced with the railway from PP to
SIhanoukville. Port handling costs can be reduced as the port traffic increases with the
construction of the new port terminal.
Develop bulk handling and sea transport. Virtually all the rice currently exported from
Cambodia is exported in 50 kg bags, which is acceptable for high quality perfumed rice, but does
not correspond to the usual demand for lower quality rice, which is usually transported in big bags
or in bulk. If Cambodia is to become a major rice exporter, it will have to develop bulk handling
facilities at the port.
Link business-to-business (B to B) and Government to Government (G to G) marketing
efforts. Opening up new markets for rice, especially for lower quality rice to the East Asian
countries (but also to some African countries) imply often Government to Government
negotiations, when rice imports are regulated by Government entities (this is the case for the
Philippines). G to G negotiations need however to be accompanied by contacts between market
operators in order to result into effective transactions.
2.3.2.10 Need for a co-ordinated approach
155. The success of the strategy depends of the ability to address all bottlenecks, as the global
growth rhythm of rice exports would be slowed down if limiting constraints are not alleviated. Given
the number of participants involved in the implementation of the strategy, there is therefore a need for
strong co-operation mechanisms to ensure that all required actions are implemented in due time and at
the required speed, that actions taken by the various actors or not redundant or contradictory, and to
provide an overall follow up and monitoring of the progress made in implementing the strategy.
2.3.2.10.1 Coordination within government agencies
156. A first needed level of coordination is between government entities. The need for coordination
concern in particular the following actions:
63
Simplification of export procedures and creation of a single stop service: although the
principle of such a single stop service is simple, its implementation will probably raise a number
of difficulties and resistances, as all the concerned Ministries will need to delegate some powers to
the entity in charge of operating the single stop service. Such a decision has probably to be taken
at the top governmental level, in order to be rapidly implemented by all concerned ministries
Coordinated planning of required infrastructure improvements: the future competitiveness of
Cambodian white rice will depend partly on transport cost reduction, thanks to the new railway
between PP and Sihanoukville, the increase of the port capacity and improvement of its handling
equipment, the negotiation of bounded warehouses arrangements with neighboring countries,…A
coordination between the concerned ministries is necessary to ensure that the needs of the rice
export sector are adequately taken into consideration in the infrastructure and transport
improvement programs.
Coordinated action to improve quality of production. The identified actions to improve the
quality of the paddy produce need coordination, in particular between the Ministry of Agriculture
and the Ministry of Water Resources.
2.3.2.10.2 Coordination between operators of the rice sector
157. Cooperation between Rice millers working on the export sector is needed in particular to
promote branding of Cambodian perfumed rice on the export market, to identify constraints common
to the whole sector and find a common response (whenever the alleviation of the constraints depends
on the private sector, as, for instance, the availability of containers), or
raise to the government the issues relevant to the public sector (for instance administrative
procedures).
None of the existing millers associations seems to be able to play this role, as these associations are
not representative of all concerned millers. A recent initiative by the Ministry of Commerce led to the
creation of the “Rassemblement pour le riz”, an informal forum grouping all the stake holders in the
rice export sector. This forum could be formalized so as to become the single co-ordination body of all
operators in the sector, and government partner for dialogue with the private sector in this sector.
2.3.2.10.3 Coordination between the Government and the private sector
158. Coordination between the Government and the private sector will also be highly needed, for
instance in the following areas:
Coordination and dialogue between the Government and the banking system as well as millers, to
introduce innovating financing and risk sharing mechanisms for financing equipment and working
capital of rice millers; coordination and dialogue is also needed to combine public and private
financing and avoid duplications or contradictions between them.
The definition and enforcement of quality standards requires a cooperation between the millers‟
organization (who should identify the quality standards on the basis of market‟s quality requirements
and on standards existing in other countries), the government department in charge of endorsing the
standards and giving them a legal force and the entity(public or private) on charge of controlling the
enforcement of the standards.
64
The setting up of a SPS risk control mechanism will also require a cooperation between the millers‟
organization and the government agency in charge of ensuring the control, in order to undertake a risk
analysis, to set a risk management and control system
The millers association and the Government will have to cooperate in order to coordinate their efforts
to promote Cambodian rice on the export markets, and to ensure that the trade negotiations led by the
Government are consistent with the export potential of Cambodian operators.
Finally, in order to reflect the high priority given by the Government to the development of rice
exports, it would be advisable to create a Rice Export Authority, reporting to the highest possible
Government level. This Authority would be given the power to co-ordinate public services and
Ministries for the implementation of the strategy (in particular, for the creation of the single stop
service), and to lead the dialogue, on the Government side, with the private sector for the development
of the sector.
2.4 Recommendations to improve production
159. The analysis of agricultural production activities leads also to a number of recommendations,
in order to improve the quality of paddy at the production stage, orient producers towards the varieties
in demand on the export market, and improve Cambodian ownership on the rice genetic material.
Promote Cambodian varieties. Ministry of Agriculture Forest and Fisheries (MAFF) and
Cambodian Agricultural Research and Development Institute (CARDI) have announced 10
Cambodian varieties as a prioritiy for the implementing the rice export strategy. It is important to
support seed producers to produce more quality seeds and link them to the farmers and rice
millers. CARDI should continue research on new varieties, both competitive on the world market
and acceptable by the farmers.
Promote high quality seed use. In order to respond to the export market, the rice produced by
farmers should conform to the market request, mainly on the purity of the variety for the high
quality market. For this, farmers have to renew their varieties regularly, but will be interested to do
so only if they get a market premium. So it is interesting to link the rice millers with farmers by
developing mechanisms such as contract farming wherein both parties should beneficiate from
the system (see annex 3.1).
Promote fragrant rice for exportation. The profit from fragrant rice production is higher than
from traditional rice. Therefore, it is relevant to promote this rice for the farmers, since the
Cambodian fragrant rice is more competitive in the international market. As detailed in section
1.1.2, there are 2 possibilities to promote fragrant rice in the wet as well as in the dry season.
Replace the ordinary variety by the fragrant variety in the existing cultivated area in midland rice
agro-ecosystem in wet season as well as in the early rice agro-ecosystem in wet and dry season.
Increase the rice production by extending the cultivated area of early rice in wet and in dry season.
This option is linked to the extension of irrigated area promoted by government.
Promote drying machine service. Drying paddy in wet season is the main issue for extending
early rice production in the rainy season. Some rice millers have modernized their equipment with
rice dryers. But it is still limited and drying machines need to be promoted also through private
service providers. Promoting the drying machines, on the one hand, has a positive impact on the
increase of production and on the other hand it may improve the paddy quality.
65
Reinforce some agricultural extension service Promoting rice production will probably increase
the pest problems on the crop. It is interesting to create a network of pest alert system that can
provide the pest information quickly from village level to provincial or national level and vice
versa for control measures. In order to create confidence with the importing countries, Cambodian
rice should be free from any toxic molecules, mainly dangerous residue or substance of pesticides.
It is important to work in this direction by promoting the training in safety and correctness of
pesticides used to the farmers, banning all the illegal pesticides sold in the market, labeling the
pesticides in Khmer language…
2.5 Economic impact of the implementation of the export
development strategy
160. This chapter is based on the economic model developed by the Consultants (see P 43).This
model is designed for assessing the changes in value added at all levels, due to changes in prices, costs
or destination of the rice production.
The export flow of non milled rice is an important economic loss for Cambodia, particularly with the
loss of the value added at processing stage. In order to reach the development objectives and to secure
a beneficial impact on farmers, the development of a modern, professional and efficient rice
processing and marketing sector is therefore essential.
1 million milled rice export in 2015. In 2015 the Government foresees a paddy rice surplus of more
than 4 million tons and sets the year 2015 as the target year to achieve milled rice export of at least 1
million tons, insuring Cambodian rice to be internationally recognized.
161. The next figure shows the rice utilization in 2015. The green represents the government
objective to export 1 million tons. In this case the surplus paddy exported to neighboring countries
remains at the level of 2.5 million tons of rice equivalent (in red: 4 million tons of paddy).
FIGURE 26 : IMPACT OF GOVERNMENT TARGET ON RICE UTILIZATION IN 2015
66
162. A gain of USD 137 added value per fragrant ton of rice exported. What is the expected
impact of the rice export development strategy both at the macro-economic level, and at the level of
the main stake holders? The next figure shows the economic gain for one ton of exported fragrant rice
variety over paddy export of the same variety. Nothing will change for farmers because they will sell
the paddy at the same price, but a lot of income is created at the processing level. The added value
gain reaches USD 137 per ton exported, with USD 14 per ton for state income. For IR variety the
added value gain is less: USD 85 per ton exported.
FIGURE 27 : IMPACT OF PADDY AND RICE EXPORT COMPARED (FOR ONE TON FRAGRANT RICE)
$/ton Paddy export Rice export gain
workers' income 46,17 169,27 123,10
state income 2,90 17,24 14,34
Total added value 476,49 613,93 137,44
163. Impact government objective: gain of more than USD 100 million income per year. If the
goal of 1 million export rice is reached, instead of paddy export, with half fragrant rice and half
white rice (IR), then the added value is USD 110 million with 98 million for workers‟ income and 12
million for state‟s income. The gain in foreign exchange is USD 57 million.
0
20
40
60
80
100
120
140
160
180
workers' income state income
$ /
to
n
paddy export
rice export
67
FIGURE 28 : ECONOMIC GAINS FOR 1 MILLION TONS OF RICE EXPORTED
USD
workers' income 99 182 621
state income 12 287 208
Total added value 111 469 829
foreign exchange 57 236 361
164. Good economic efficiency. We measure the efficiency of investing in a rice export value
chain through the internal rate of return (EIRR38). We below assess the public and private investments
necessary to build a rice value chain. For private sector it is mainly the cost of modernization of
processing (USD 137 M) and working capital39 for millers (USD 200 M)40. Concerning public
investments we assess that the cost of policy measures for promoting rice milled export41 would be
USD 200 M42. This first assessment, which needs to be further investigated, is only purposed at
identifying the condition for investment efficiency.
165. According to these hypotheses, the economic internal rate of return rises to 28 %. This rate
shows that Cambodia gains a large profit in terms of income, by investing in a rice export value chain.
Simulation on the type of rice export (fragrant or white rice), shows that if only white rice (IR) variety
is exported, the EIRR decreases to 20 %, and if only fragrant rice is exported, the EIRR increases to
38%.
38 In more specific terms, the EIRR of an investment is the interest rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (income) of the investment.
39 Calculated on the basis of a working capital turning 3 times in the year. 40 See details in section 2.3.2 41 See document entitled “Policy Document on Promotion of Paddy Rice Production and Export of Milled Rice” 42 Infrastructure, subsidized credits line, risk sharing schemes, research
-
20
40
60
80
100
120
workers' income state income foreign exchange
Mill
ion
s $
68
166. As to public finances, the rice export objective of 1 million tons will, if implemented, increase
the tax revenues by USD 12 million per year. The IRR for public finances would be positive only if
the public investment is less than USD 200 M. If Cambodia exports only fragrant rice the investment
threshold would be USD 250 M.
167. The next figure shows, in terms of added value, the weight of the different sub sectors. The
rice export (1 million tons) is not yet the main rice sub sector.
FIGURE 29 : ADDED VALUE BY SUB SECTORS 2015
168. In 2020 the surplus production for export (either in rice or paddy) will be of 4.24 M tons of
rice equivalent, or 64% of the production. Assuming that, by this time, Cambodia will be exporting 2
million tons of rice, this will leave 2.2 million tons of exports in paddy to Vietnam and Thailand. Then
the dependency would be less important than nowadays.
69
FIGURE 30 RICE UTILIZATION IN 2020
169. In 2020, if Cambodia exports 2 million tons of rice, the rice export sub sector will have an
added value not far from USD 1 billion and will be the first added value provider in the rice sector.
FIGURE 31 : ADDED VALUE BY SUB SECTOR 2020
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3 ANNEX
3.1 Annex: Contract farming
170. The contract farming: a good practice? Despite the increases in trade volume marketed
there are limited examples of rice contract farming in Cambodia. The AKR case is the most ancient.
This miller obtained rice from farmers through contracts with very high prices for organic Neang
Malis rice. To become a member, each farmer enters into an agreement with the firm to closely follow
instructions and grow only its fragrant rice which is supplied by AKR. At the end of the year, the
members harvest the crop and bring it to the rice mill in its entirety. Nearly 30,000 growers in four
provinces where involved in this sort of contract. Under normal conditions, contract farming of rice
returns a gross margin, compared to non-contract rice because of higher yields and higher farm gate
price
But, according to different sources, this system is not working properly these last two years. First
some farmers refused to deliver all of their harvest and preferred selling it at a higher price to middle
men buying paddy for Vietnam. Second, some millers did not have enough cash to buy paddy with the
result that some of their growers sold their harvest to other millers.
171. Advantages and disadvantages of contract farming. The next figure represents a frame
work of contract farming between millers and farmer. This system associates certified seeds
multiplication and quality paddy production and uses 2 types of contract. The first type links millers
and farmers specialized in seeds multiplication. The miller gives base seeds, training for modern
practices, credit and sometimes fertilizer. The quality, the price and the quantity of certified seeds are
stipulated in the contract, and the farmers deliver the seeds to the miller at the harvest. The second
type links millers and farmers. It enables farmers to access credit, inputs of quality mainly seeds,
technical advice and marketing information directly from processors. This reduces risk and guarantees
farmers‟ profits. For millers this system normally guarantees good paddy quality and a good visibility
for planning purchases.
But contract farming could also have disadvantages. For farmers the bargaining power is lower, and
conditions of payment sometimes depend on the working capital capacity of the miller. This is now, as
we saw in the field, a huge constraint for the miller. The contract farming also carries a risk for the
miller because the farmer may not reimburse the loan, but this risk doesn‟t seem important according
of the low rate of sinister in the sector.
In the current situation contract farming gives more interest to millers than to farmers. Nowadays it is
easy for farmers to get credits and to sell their surplus on the market quickly and at good price. This is
certainly the main reason for limited examples of contract farming in Cambodia, despite the increases
in trade volume marketed. Despite these difficulties, contract farming has to be supported because it is
a good way to get paddy quality, to lower credit rate, to create buyer seller loyalty, and to ensure
paddy quantity in a high competitive paddy market.
71
Rice Millers
(Processing)
Market
Farmers
Certified seeds
multiplication
Farmers
Quality Paddy Production
Sales
Paddy
Certified
seeds
Banks
Credit
Base seeds
fertilizer
Certified Seeds
Credit
FIGURE 32 EXAMPLE OF CONTRACT FARMING
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3.2 Annex: World trade statistics for rice
TABLE 14 WORLD TRADE STATISTICS
World Rice Trade (source USDA)
Year 2006/07 2007/08 2008/09 2009/10
Exports Argentina 436 408 594 550
Brazil 201 511 591 325
Burma 31 541 1052 300
Cambodia 450 500 800 850
China 1340 969 783 850
Egypt 1209 750 575 600
EU-27 139 157 150 140
Guyana 210 210 200 225
India 6301 3383 2123 2200
Japan 200 200 200 200
Pakistan 2696 3050 3187 3800
Russia 12 21 90 120
Thailand 9557 10011 8570 9000
Uruguay 734 742 926 700
Vietnam 4522 4649 5950 6200
Others 810 428 465 516
Subtotal 28848 26530 26256 26576
United States 3003 3219 2983 3525
World Total 31851 29749 29239 30101
Imports Bangladesh 1570 1658 150 500
Brazil 684 417 650 850
Canada 341 365 322 330
China 472 295 337 300
Cote d'Ivoire 980 800 800 860
Cuba 574 558 457 500
EU-27 1342 1520 1383 1350
Guinea 240 175 150 330
Hong Kong 348 399 395 400
Iran 1500 1550 1470 1150
Iraq 613 975 1089 1100
Japan 642 546 750 700
Malaysia 799 1039 1070 1020
Mexico 607 578 610 600
Mozambique 410 300 385 320
Nigeria 1550 1800 2000 1700
Philippines 1900 2500 2000 2600
Saudi Arabia 961 1166 1095 1100
Senegal 700 860 715 700
South Africa 960 650 745 800
Syria 235 230 300 350
Thailand 3 8 300 300
United Arab Emirates 285 300 320 340
Vietnam 450 300 500 400
Yemen 338 315 325 325
Others 10195 8538 7771 8507
Subtotal 28699 27842 26089 27432
Unaccounted 2457 1256 2468 2019
United States 695 651 682 650
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3.3 Annex: International price forecast
172. According to the World Bank, the rice price is forecast at $ 500/ton, up $ 25/ton for 2020.
In current price 2000, the rice price is projected under $ 400/ton, then the same value than in 1980.
But international prices have little impact to the Cambodia rice sector performance. To be exported,
the Cambodian rice must be first competitive compared to Thai and Vietnamese rice, whatever be the
international price level. The main impact of international price change will be for the farmers‟
income. The farmers‟ profits are directly linked to paddy price level in Vietnam and Thailand and
indirectly to international price.
Figure 33 : rice price forecast
74
3.4 Annex: rice deficit and surplus province
FIGURE 34 HARVESTED AREA
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3.5 Annex : macro economic impact
TABLE 15 : ADDED VALUE FOR A TON OF FRAGRANT RICE EXPORT
Production
rural income
worker's income
state income
total AV
foreigh exchange
Seed 18 9 0 27 3
N-P-K fertilizer 0 6 0 6 15
Urea fertilizer 0 3 0 3 6
Insecticides 0 2 0 2 6
Herbicides 0 6 0 6 14
Watering 12 2 0 14 6
Soil tillage 16 2 0 18 2
Harvest and threshing 32 4 0 36 4
Credit interest 0 12 3 15 0
Broadcasting 4 0 0 4 0
Insecticides+Herb 2 0 0 2 0
Fert.application 2 0 0 2 0
Water control 2 0 0 2 0
Harvesting 3 0 0 3 0
Net profit 303 0 0 303 0
collect to miller 33 0 0 33 0
total production and collect 427 46 3 476 56
Processing fuel 0 9 6 15 30
salaries 0 7 2 9 9
maintenance and misc 0 3 1 4 6
bags 0 1 0 1 2
taxes 0 0 1 1 1
amortization of mill ( 0,6 to 0,8 M$ over 20 years) 0 2 1 3 6
interest on working capital (3 to 5 months; 12%) 0 24 3 27 27
factory to FOB cost 0 13 0 13 14
net miller's and exporter's profit 0 65 0 65 72
total processing and fob cost 0 123 14 137 167
TOTAL 427 169 17 614 223
76
TABLE 16 : ADDED VALUE FOR A TON OF IR RICE EXPORT
Production
rural income
worker's income
state income
total AV
foreigh exchange
Seed 7 3 0 10 1
N-P-K fertilizer 0 7 0 7 16
Urea fertilizer 0 3 0 3 7
Insecticides 0 2 0 2 5
Herbicides 0 0 0 0 0
Watering 4 1 0 5 2
Soil tillage 0 0 0 0 0
Harvest and threshing 15 2 0 17 2
Credit interest 0 9 2 11 0
Broadcasting 20 0 0 20 0
Insecticides+Herb 8 0 0 8 0
Fert.application 3 0 0 3 0
Water control 20 0 0 20 0
Harvesting 38 0 0 38 0
Net profit 198 0 0 198 0
collecte vers rizerie 32 0 0 32 0
total production and collect 346 26 2 374 33
Processing fuel 0 6 4 10 20
salaries 0 6 2 8 8
maintenance and misc 0 3 1 4 5
bags 0 1 0 1 2
taxes 0 0 0 0 1
amortization of mill ( 0,6 to 0,8 M$ over 20 years) 0 2 1 3 6
interest on working capital (3 to 5 months; 12%) 0 18 2 20 20
factory to FOB cost 0 25 0 25 28
net miller's and exporter's profit 0 15 0 15 17
total processing and fob cost 0 75 10 86 107
TOTAL 346 102 12 460 139
