Rice Value Chain Study Cambodia

Rice Value Chain Study:

Cambodia

A Report Prepared for the World Bank

By

Agrifood Consulting International

September 2002

AGRIFOOD CONSULTING INTERNATIONAL

Rice Value Chain Study - Cambodia

www.agrifoodconsulting.com 2

Preface A report prepared for the Poverty Reduction and Economic Management (PREM) Unit of the World Bank by Agrifood Consulting International. This report1 presents the results of a study into the rice value chain in Cambodia. It is one of two reports looking at rice value chains in Cambodia and Viet Nam2. The objective of the two country rice studies is to assess the current situation (constraints, costs, efficiency, quality) of the rice markets and rice sector value-chains in Viet Nam and Cambodia with a view to diagnosing issues and proposing policy options, strategies, and practices by which the competitiveness of the rice sector in each country can be enhanced. This is done with a view to proposing means by which returns to producers and the value added by the sector in each country can be enhanced. The studies pay particular attention to how such policies, strategies, and practices may benefit poorer populations engaged in this sector, such as small farmers. They also pay particular attention to issues of quality and strategic international marketing of the product that would increase domestic value added. In so doing, the country studies take into account regional differences within countries, as well as differences in rice varieties and their prospects in global markets. The fieldwork for the studies was carried out over four weeks in July and August 2002 (Cambodia from 10 July to 24 July and Viet Nam from 24 July to 8 August). The studies involved the analysis of background data, field trips and key informant interviews with people involved in all sectors of the rice chain. The report for Cambodia is the result of a joint effort by the Study Team of Tim Purcell and Karl Rich of Agrifood Consulting International. The Study Team would like to thank all those people who assisted in providing information and help in completing the report. In particular the team would like to express their appreciation to Mr. Srey Vuthi, Chief, Mr. Lim Saody, Vice Chief, and the staff of the Office of Agricultural Marketing, MAFF, for the excellent support and sharing of information. The views expressed in this report are those of the consultants and do not necessarily reflect the views of the World Bank or the Royal Government of Cambodia. Francesco Goletti President, Agrifood Consulting International Phnom Penh, Cambodia 13 September 2002

AGRIFOOD CONSULTING INTERNATIONAL

1 Agrifood Consulting International (2002) Rice Value Chain Study: Cambodia. A Report Prepared for the World Bank. Phnom Penh, Cambodia. Agrifood Consulting International. 2 Agrifood Consulting International (2002) Rice Value Chain Study: Viet Nam. A Report Prepared for the World Bank. Ha Noi, Viet Nam. Agrifood Consulting International.



Table of Contents Preface................................................................................................................................ 2 Table of Contents................................................................................................................ 3 List of Tables....................................................................................................................... 5 List of Figures...................................................................................................................... 9 List of Boxes...................................................................................................................... 11 List of Abbreviations and Acronyms .................................................................................. 12 Executive Summary .......................................................................................................... 13 1 Introduction ................................................................................................................ 15 2 Background to Study.................................................................................................. 17 3 Global Rice Trade and Major Issues.......................................................................... 19

3.1 Major Exporters................................................................................................... 19 3.2 Major Importers................................................................................................... 20

4 Overview of the Rice Industry in Cambodia ............................................................... 22 4.1 Topography and Climate..................................................................................... 22 4.2 Demographics and the Agricultural Sector.......................................................... 22 4.3 Rice and Rural Poverty in Cambodia .................................................................. 23 4.4 Production........................................................................................................... 25 4.5 Prices.................................................................................................................. 27 4.6 Trade .................................................................................................................. 28 4.7 Credit Services.................................................................................................... 29 4.7.1 Major Rural Credit Providers in Cambodia ...................................................... 30 4.7.2 Credit Access and Uses in the Rice Value Chain............................................ 32

4.7.2.1 Credit Access and Uses by Farmers .................................................... 32 4.7.2.2 Credit Access and Uses by Millers ....................................................... 33 4.7.2.3 Credit Access and Uses by Traders and Wholesalers.......................... 33 4.7.2.4 Credit Access and Uses by Retailers ................................................... 34 4.7.2.5 Credit Access and Uses by Exporters .................................................. 34

4.7.3 Issues and Constraints in the Provision of Credit in Cambodia....................... 34 5 Value Chain ............................................................................................................... 36

5.1 Overview............................................................................................................. 36 5.2 Value Chain Analysis .......................................................................................... 38 5.2.1 Producers........................................................................................................ 38

5.2.1.1 Seed Inputs .......................................................................................... 38 5.2.1.2 Fertilizer Inputs ..................................................................................... 40 5.2.1.3 Pesticide Inputs .................................................................................... 42 5.2.1.4 Irrigation Inputs..................................................................................... 43 5.2.1.5 Labor Inputs.......................................................................................... 44 5.2.1.6 Costs and Margins................................................................................ 45 5.2.1.7 Constraints ........................................................................................... 46

5.2.2 Collectors ........................................................................................................ 51 5.2.2.1 Costs and Margins................................................................................ 52 5.2.2.2 Constraints ........................................................................................... 52

5.2.3 Millers.............................................................................................................. 54 5.2.3.1 Costs and Margins................................................................................ 57 5.2.3.2 Constraints ........................................................................................... 58

5.2.4 Traders............................................................................................................ 62 5.2.4.1 Transportation ...................................................................................... 62 5.2.4.2 Trade Flows.......................................................................................... 63 5.2.4.3 Institutional Purchases.......................................................................... 68



5.2.4.4 Storage................................................................................................. 69 5.2.4.5 Costs and Margins................................................................................ 70 5.2.4.6 Constraints ........................................................................................... 70

5.2.5 Retailers .......................................................................................................... 73 5.2.5.1 Costs and Margins................................................................................ 74 5.2.5.2 Constraints ........................................................................................... 74

5.2.6 Exporters......................................................................................................... 75 5.2.6.1 Costs and Margins................................................................................ 75 5.2.6.2 Constraints ........................................................................................... 76

5.2.7 End Users ....................................................................................................... 77 5.3 Marketing Margins .............................................................................................. 78 5.4 Marketing Chain.................................................................................................. 79

6 Competitiveness and Comparative Advantage of Cambodian Rice........................... 80 7 Policy Simulations and Analysis Using CAMSEM...................................................... 82

7.1 Introduction ......................................................................................................... 82 7.2 Description and Specification of CAMSEM......................................................... 83 7.2.1 Price Block ...................................................................................................... 83 7.2.2 Supply Block.................................................................................................... 84 7.2.3 Consumption Block ......................................................................................... 85 7.2.4 Income Block................................................................................................... 86 7.2.5 Market Clearing............................................................................................... 86 7.3 Policy Simulations............................................................................................... 86 7.3.1 Simulation results ............................................................................................ 87

7.3.1.1 Improvements in Productivity................................................................ 87 7.3.1.2 Improvements in Technology................................................................ 87 7.3.1.3 Improvements in Infrastructure ............................................................. 88

7.4 Conclusions ........................................................................................................ 89 8 Major Constraints and Recommendations ................................................................. 90 9 Conclusions ............................................................................................................... 94 10 Tables................................................................................................................... 101 11 Figures ................................................................................................................. 183 References...................................................................................................................... 234 Terms of Reference ........................................................................................................ 239 List of Interviews ............................................................................................................. 243



List of Tables Table 1 Purchase Price for Seed Grown Under Contract to Golden Seed Company........ 49 Table 2 World Production of Rice, 1997/98-2001/02....................................................... 101 Table 3 World Production of Rice, Selected Countries, 1997/98-2001/02 ...................... 101 Table 4 World Rice Trade, Selected Countries, 1997/98-2001/02 .................................. 102 Table 5 Comparison of Thailand and Viet Nam prices for high-quality (5 and 15 percent

broken) rice .............................................................................................................. 103 Table 6 Percentage of High-Quality Rice Exported by Viet Nam, 1994-1998 ................. 103 Table 7 Destinations for U.S. Exports of Rice, 2000/01 .................................................. 103 Table 8 Export Prices for Cambodian Rice - by Variety, 1 August 2002 ......................... 103 Table 9 Export Prices for Rice - Selected Countries, by Variety and Grade August 2002

................................................................................................................................. 104 Table 10 Basic Indicators ................................................................................................ 104 Table 11 Share of Agricultural Sectors in GDP (Current Prices) ..................................... 105 Table 12 Employment, Income and Expenditure - 1999 ................................................. 105 Table 13 Agricultural Population and Households........................................................... 106 Table 14 Performance of Annual Crops Over Time 1991 to 2000................................... 107 Table 15 Poverty Levels in Selected Provinces .............................................................. 108 Table 16 Sources of Growth of Agricultural Gross Value Added..................................... 108 Table 17 Average Monthly Household Expenditure by Area, 1997 and 1999 ................. 108 Table 18 1997 Social Indicators of Selected Southeast Asian Countries........................ 109 Table 19 Expenditure Shares, by Decile of per Capita Consumption.............................. 109 Table 20 Average Monthly Household Income by Household Income Decile and Stratum,

1999......................................................................................................................... 110 Table 21 Contributions to Income from Different Sources............................................... 110 Table 22 Human Development Index in Cambodia by Province (1997).......................... 111 Table 23 Characteristics of Rice Production Systems..................................................... 112 Table 24 Coefficients for Rice Production and Food Balance ......................................... 113 Table 25 Milling Recovery by Custom and Commercial Mills.......................................... 113 Table 26 Milling Efficiency of Custom and Commercial Mills .......................................... 113 Table 27 Milling Recovery Rates, Selected Custom and Commercial Mills .................... 113 Table 28 Post Harvest Losses - Commercial and Custom Mill Sector ............................ 113 Table 29 Post Harvest Losses by Province..................................................................... 114 Table 30 Food Balance for Rice Production 1992 - 2001............................................. 115 Table 31 Provincial Rice Crop Assessment for Food Balance 2000-2001 Area Planted

................................................................................................................................. 116 Table 32 Provincial Rice Crop Assessment for Food Balance 2000-2001 Area Destroyed

................................................................................................................................. 117 Table 33 Provincial Rice Crop Assessment for Food Balance 2000-2001 Harvesting and

Production................................................................................................................ 118 Table 34 Provincial Rice Crop Assessment for Food Balance 2000-2001 Requirements

and Food Balance.................................................................................................... 119 Table 35 Provincial Rice Crop Assessment for Food Balance 2001-2002 - Area Planted

................................................................................................................................. 120 Table 36 Provincial Rice Crop Assessment for Food Balance 2001-2002 - Area Destroyed

................................................................................................................................. 121 Table 37 Provincial Rice Crop Assessment for Food Balance 2001-2002 - Harvesting and

Production................................................................................................................ 122 Table 38 Provincial Rice Crop Assessment for Food Balance 2001-2002 - Requirements

and Food Balance.................................................................................................... 123



Table 39 Monthly Mill Paddy Prices - Cambodia............................................................. 124 Table 40 Monthly Wholesale Rice Prices - Cambodia .................................................... 125 Table 41 Monthly Wholesale Rice Prices Cambodia Continued ............................... 126 Table 42 Interest rates in Cambodia, 1996-2001 (%)...................................................... 127 Table 43 Leading Organizations in the Provision of Rural Credit (December 2000) ....... 127 Table 44 Relative Adoption of Traditional and Improved Varieties of Rice...................... 128 Table 45 Farmer Reasons for Adoption of IR66.............................................................. 128 Table 46 Historical Profiles of CAR Varieties .................................................................. 128 Table 47 Estimated Area Grown to CAR Varieties, Wet Season 2000 ........................... 128 Table 48 Characteristics of Selected Rice Varieties Released by CARDI....................... 129 Table 49 Seed Classification Systems ............................................................................ 130 Table 50 Production of Seed by CARDI 2000 2001 (tonnes) ....................................... 130 Table 51 Purchasers of CAR Varieties from CARDI ....................................................... 130 Table 52 Production of Certified Seed by AQIP Seed Companies, 2001........................ 130 Table 53 Reasons for Using Traditional/Improved Varieties ........................................... 131 Table 54 Source of Seeds............................................................................................... 131 Table 55 Utilization of Production.................................................................................... 131 Table 56 Fertilizer Application Rates............................................................................... 132 Table 57 Fertilizers Imported and Distributed by AIC, 1993-2000................................... 132 Table 58 Mean Monthly Fertilizer Prices, 1999-2000 ...................................................... 132 Table 59 Coefficient of Variation in Fertilizer Prices 1999-2000...................................... 133 Table 60 Import of Agrochemicals Approved by MAFF in 2001 ...................................... 133 Table 61 Pesticide Application Rates.............................................................................. 133 Table 62 Pesticides Imported and Distributed by AIC between 1980 and 1993.............. 134 Table 63 Imports and Exports of Rice and Fertilizer - 1990-1999 ................................... 135 Table 64 Mean Monthly Pesticide Prices 1999-2000 ...................................................... 135 Table 65 Coefficient of Variation in Pesticide Prices 1999-2000..................................... 136 Table 66 Monthly Record of Rice Pest Outbreaks in Cambodian Provinces - 1999........ 137 Table 67 Rodent Control Measures in Cambodia ........................................................... 138 Table 68 Irrigation Specifications .................................................................................... 139 Table 69 Existing irrigation schemes in Cambodia.......................................................... 140 Table 70 Gross Margins and Proportion of Production Costs for Rice Production.......... 141 Table 71 Financial Model of Rice Production Systems in Cambodia - 2000 ................... 142 Table 72 Partial Budget for Rice, Single Crop - Takeo Province..................................... 142 Table 73 Partial Budget for Rice - Kampong Speu Province........................................... 143 Table 74 Partial Budget for Rice - Battambang Province ................................................ 144 Table 75 Partial Budget for Model Rice Cropping System, Tungke Village, Takeo......... 145 Table 76 Income from Rice Production in Tungke Village, Takeo................................... 145 Table 77 Costs and Returns Wet Season Rice 1997-1998............................................. 146 Table 78 Costs and Returns Dry Season Rice 1997-1998.............................................. 146 Table 79 Percentage of Major Cost Components, Wet Season Crop 1997-1998 ........... 146 Table 80 Percentage of Major Cost Components, Dry Season Crop 1997-1998............ 146 Table 81 Farmer Consumption and Sales of Paddy........................................................ 147 Table 82 Partial Budget for Paddy Collector, Takeo ....................................................... 147 Table 83 Characteristics of Custom and Commercial Rice Mills, Business Structure, .... 148 Table 84 Characteristics of Custom and Commercial Rice Mills, Financial Management

and Financial Planning Capacity.............................................................................. 148 Table 85 Characteristics of Custom and Commercial Rice Mills, Mill Production,

Technology and Operations ..................................................................................... 149 Table 86 Technical Characteristics of Custom Mills........................................................ 149 Table 87 Technical Characteristics of Commercial Mills ................................................. 149 Table 88 Sales of Milling By-Products - 2001.................................................................. 150



Table 89 Estimated Milling Capacity 1998-1999 ............................................................. 150 Table 90 Financial Sources for Millers ............................................................................ 150 Table 91 Performance of Cambodian Rice Mills 1999 .................................................... 151 Table 92 Sales of White Rice by Millers .......................................................................... 151 Table 93 Mill Utilization Rates - 2000.............................................................................. 151 Table 94 Number of Mills by Province - 2000.................................................................. 151 Table 95 Partial Budgets for Custom Millers in Takeo, Kampong Speu, and Battambang

................................................................................................................................. 152 Table 96 Sensitivity Analysis to Assess Break-even Capacity for Kampong Speu Mill ... 152 Table 97 Partial Budgets for Commercial Millers in Kampong Speu, Takeo, and

Battambang.............................................................................................................. 153 Table 98 Partial Budgets for Custom Mills ...................................................................... 154 Table 99 Partial Budgets for Commercial Mills................................................................ 155 Table 100 Summary of Constraints in the Milling Sector in Cambodia............................ 156 Table 101 Volume of Transport in Cambodia - 1993-1999 ............................................. 156 Table 102 Transportation and Traffic Problems .............................................................. 157 Table 103 Transportation Costs - Cambodia 1998-2002 ................................................ 158 Table 104 Fee Collection at Roadblocks, July - August 2000 ......................................... 159 Table 105 Fee Collection on Paddy Trade to Thailand - 2002 ........................................ 159 Table 106 Cost of Transportation and Unofficial Costs July 2002................................... 160 Table 107 Places and Features for Paddy Trade with Thailand and Viet Nam ............... 161 Table 108 Trade Flows of Rice and Paddy ..................................................................... 161 Table 109 Partial Budget for Transporter from Battambang to Phnom Penh and Viet Nam

................................................................................................................................. 162 Table 110 Fee Collection on Paddy Trade in Takeo Province - 2000 ............................. 162 Table 111 Cambodia - Vietnam Cross Border Trade in Paddy ....................................... 163 Table 112 Rice Procurement Contract Details - Police and Army, 2000 ......................... 163 Table 113 Rice procurement and distribution by the World Food Program..................... 163 Table 114 Rice Procurement Contract Details World Food Program, March 2000 ...... 164 Table 115 Warehouse Storage for Rice .......................................................................... 164 Table 116 Wholesale of Rice in Phnom Penh - July 2002 .............................................. 164 Table 117 Buying and Sale Price of Imported Jasmine Rice from Thailand.................... 165 Table 118 Wholesaler Partial Budget - Phnom Penh...................................................... 166 Table 119 Transportation and Traffic Problems .............................................................. 167 Table 120 Comparison of Retailers in Cambodia............................................................ 167 Table 121 Breakdown of Rice Sales by Variety, Sample of Phnom Penh Retailers July

2002......................................................................................................................... 167 Table 122 Retail Prices of Rice, by Variety, Sample of Phnom Penh Retailers July 2002

................................................................................................................................. 168 Table 123 Retail Prices for Various Rice Varieties, 2001................................................ 168 Table 124 Margins for Rice Sales by Retailers - 1998 .................................................... 168 Table 125 Preferences for Different Varieties of Rice in Cambodia ................................ 169 Table 126 Summary of Constraints in the Retail Sector in Cambodia............................. 169 Table 127 Export Amount & Turnover, 1996-2000.......................................................... 169 Table 128 Comparison of Transportation Costs for Export from Phnom Penh, 2001-2002

................................................................................................................................. 169 Table 129 Potential Export Costs from Kampong Speu and Battambang....................... 170 Table 130 Export Costs from Phnom Penh to Sihanouk Ville - 2001 .............................. 170 Table 131 Cost of Milled Rice Export Procedures........................................................... 170 Table 132 Estimated Partial Budget for Large Rice Exporter, Phnom Penh ................... 171 Table 133 Summary of Constraints on Exports in Cambodia.......................................... 171 Table 134 Preference Criteria for Purchasing Rice ......................................................... 171



Table 135 Consumer and Restaurant Preferences for Rice - 2001................................. 172 Table 136 Marketing Costs and Margins for Rice, 1998 ................................................. 172 Table 137 Marketing Costs and Margins for Rice, 2002 ................................................. 172 Table 138 Summary Table for Rice Marketing Margins .................................................. 173 Table 139 Computation of NPCs for Various Provinces and Varieties of Rice................ 173 Table 140 DRC Computations for Cambodian Rice........................................................ 173 Table 141 Tradable Input Costs for DRC and NPC Calculations .................................... 174 Table 142 Non-tradable Input Costs for DRC and NPC Calculation ............................... 175 Table 143 Calculation of DRC and NPC ......................................................................... 176 Table 144 Sets Used in CAMSEM ................................................................................. 177 Table 145 Variables Used in CAMSEM .......................................................................... 177 Table 146 Simulation 1a: Changes in Prices by Commodity........................................... 178 Table 147 Simulation 1a: Changes in Production, Consumption and Trade by Commodity

................................................................................................................................. 178 Table 148 Simulation 1a: Changes in Income................................................................. 178 Table 149 Simulation 1b: Changes in Prices by Commodity........................................... 178 Table 150 Simulation 1b: Changes in Production, Consumption and Trade by Commodity

................................................................................................................................. 179 Table 151 Simulation 1b: Changes in Income................................................................. 179 Table 152 Simulation 2a: Changes in Prices by Commodity........................................... 179 Table 153 Simulation 2a: Changes in Production, Consumption and Trade by Commodity


................................................................................................................................. 180 Table 157 Simulation 2b: Changes in Income................................................................. 180 Table 158 Simulation 3a: Changes in Prices by Commodity........................................... 180 Table 159 Simulation 3a: Changes in Production, Consumption and Trade by Commodity


................................................................................................................................. 181 Table 163 Simulation 3b: Changes in Income................................................................. 181 Table 164 Major Constraints in the Cambodian Rice Sector........................................... 182 Table 165 List of Interviews............................................................................................. 243 Table 166 List of Interviews - Continued ......................................................................... 244



List of Figures Figure 1 Rice Cropping Patterns ..................................................................................... 183 Figure 2 Average Rainfall and Temperature, Phnom Penh............................................. 184 Figure 3 Cambodia by Province ...................................................................................... 185 Figure 4 Provinces and Regions of Cambodia ................................................................ 186 Figure 5 Poverty Map of Cambodia Human Development Index Score ....................... 187 Figure 6 Production of Paddy and Rice, Food Requirements and Food Balance ........... 188 Figure 7 Food Balance in Cambodia 2000-2001.......................................................... 189 Figure 8 Area of Wet Season Crop under Cultivation 2000-2001 ................................... 190 Figure 9 Area of Dry Season Crop under Cultivation 2000-2001 .................................... 191 Figure 10 Food Balance in Cambodia 2001-2002........................................................ 192 Figure 11 Area of Wet Season Crop under Cultivation 2001-2002 ................................. 193 Figure 12 Area of Dry Season Crop under Cultivation 2001-2002 .................................. 194 Figure 13 Monthly Paddy and Wholesale Prices for Rice Banteay Meanchey............. 195 Figure 14 Monthly Paddy and Wholesale Prices for Rice Battambang ........................ 196 Figure 15 Monthly Paddy and Wholesale Prices for Rice Kampong Cham.................. 197 Figure 16 Monthly Paddy and Wholesale Prices for Rice Kampong Chhnang............. 198 Figure 17 Monthly Paddy and Wholesale Prices for Rice Kampot and Kandal ............ 199 Figure 18 Monthly Paddy and Wholesale Prices for Rice Phnom Penh....................... 200 Figure 19 Monthly Paddy and Wholesale Prices for Rice Prey Veng........................... 201 Figure 20 Monthly Paddy and Wholesale Prices for Rice Siem Reap.......................... 202 Figure 21 Monthly Paddy and Wholesale Prices for Rice Sihanouk Ville ..................... 203 Figure 22 Monthly Paddy and Wholesale Prices for Rice Takeo.................................. 204 Figure 23 Relationship Between Different Measures of Farm Profitability ...................... 205 Figure 24 Internal Rate of Return for the Investment in Tubewell and Pump.................. 206 Figure 25 Commercial Lending to Agriculture in Cambodia, 1998-2001 ......................... 207 Figure 26 Relationship Between Sales of Paddy and Provincial Food Balance 2001-2002

................................................................................................................................. 208 Figure 27 Monthly Market Prices for 15-15-15 Fertilizer, Cambodia ............................... 209 Figure 28 Monthly Market Prices for 16-20-0 Fertilizer, Cambodia ................................. 210 Figure 29 Monthly Market Prices for 18-46-0 Fertilizer, Cambodia ................................. 211 Figure 30 Monthly Market Prices for Urea Fertilizer, Cambodia...................................... 212 Figure 31 Monthly Market Prices for 2,4D Pesticide, Cambodia ..................................... 213 Figure 32 Monthly Market Prices for Azodrin Pesticide, Cambodia................................. 214 Figure 33 Monthly Market Prices for DDT Pesticide, Cambodia ..................................... 215 Figure 34 Monthly Market Prices for DDVP Pesticide, Cambodia................................... 216 Figure 35 Monthly Market Prices for Desil and Diazinon Pesticide, Cambodia............... 217 Figure 36 Monthly Market Prices for Hypermetrin Pesticide, Cambodia ......................... 218 Figure 37 Monthly Market Prices for Phosphidezinc Pesticide, Cambodia ..................... 219 Figure 38 Monthly Market Prices for Photrin Pesticide, Cambodia ................................. 220 Figure 39 Monthly Market Prices for Sumisidin and Trifon Pesticide, Cambodia ............ 221 Figure 40 Number of Registered Commercial Mills in Cambodia 1994-2000.................. 222 Figure 41 Number of Registered Custom Mills in Cambodia 1994-2000 ........................ 223 Figure 42 Road Network in Cambodia ............................................................................ 224 Figure 43 River Network in Cambodia ............................................................................ 225 Figure 44 Graph of Transport Fees for Rice/Paddy in Cambodia for Selected Transport

Routes...................................................................................................................... 226 Figure 45 Marketing Channels in Battambang, Takeo and Kampong Speu Provinces ... 227 Figure 46 Trade Flows of Rice and Paddy in Cambodia ................................................. 228 Figure 47 Trade Flows of Rice and Paddy in Cambodia (1998-1999)............................. 229



Figure 48 Costs and Margins for Rice Marketing Chain 1998-99, Phaka Khgney Variety................................................................................................................................. 230

Figure 49 Costs and Margins for Rice Marketing Chain 1998-99, Neang Menh Variety . 231 Figure 50 Marketing Chain for Cambodia........................................................................ 232 Figure 51 Framework for Industry Policy......................................................................... 233



List of Boxes Box 1 The Cambodian Agricultural Research and Development Institute (CARDI) .......... 49 Box 2 Seed Multiplication System by Golden Seed Company, Takeo .............................. 49 Box 3 The Ministry of Water Resources and Meteorology (MOWRAM)............................ 50 Box 4 On-farm use of Rice for Consumption and Cash Needs ......................................... 53 Box 5 Interview with Female Paddy Collector in Takeo Province...................................... 53 Box 6 Profile of Angkor Kasekam...................................................................................... 61 Box 7 Transportation Law and Checkpoints...................................................................... 71 Box 8 Routes for Cambodian Paddy Trade with Viet Nam................................................ 71 Box 9 Imports of Thai Jasmine Rice.................................................................................. 72



List of Abbreviations and Acronyms ACIAR Australian Centre for International Agricultural Research ACLEDA Association of Cambodian Local Economic Development Agencies ADB Asian Development Bank AIC Agricultural Input Company AMO Agricultural Marketing Office AQIP Agriculture Quality Improvement Project AusAID Australian Agency for International Development BS Breeder Seed CAAEP Cambodia Australia Agricultural Extension Project CARDI Cambodian Agricultural Research Development Institute CDRI Cambodia Development Resource Institute CGE Computable General Equilibrium Models CHDR Cambodia Human Development Report CIAP Cambodia IRRI Australia Project CS Certified Seed DOALP Department of Agronomy and Land Improvement DRC Domestic Resource Costs EDC Enterprise Development Cambodia EMT Ennatien Moulethan Tchonnebat FCRMA Federation of Cambodian Rice Miller Associations FSS Farmer Saved Seed FTBC Foreign Trade Bank of Cambodia FWUG Farmer Water User Group HDI Human Development Index HPI Human Poverty Index IFPRI International Food Policy Research Institute IRRI International Rice Research Institute JICA Japan International Cooperation Agency MAFF Ministry of Agriculture, Forestry and Fisheries MFI Micro-Finance Institutions MOC Ministry of Commerce MOWRAM Ministry of Water Resources and Meteorology NBC National Bank of Cambodia NIS National Institute of Statistics NPC Nominal Protection Coefficients

PRASAC Program of Rehabilitation and Support to the Agricultural Sector of Cambodia RCA Revealed Comparative Advantage RDB Rural Development Bank RGC Royal Government of Cambodia SOE State Owned Enterprise UNCTAD United Nations Conference on Trade and Development USDA-ERS United States Department of Agriculture Economic Research Service

WB World Bank WFP World Food Program WHO World Health Organization WTO World Trade Organization



Executive Summary Rice plays an integral role in the economy of rural Cambodia. Over 80 percent of Cambodian farmers cultivate rice, primarily through traditional farming practices. For most of these farmers, rice is the major source of income and sustenance and thus is of critical importance in the formulation of any type of agricultural policy. Yet the rice sector faces a number of important constraints in Cambodia. Agricultural productivity remains low, with yields averaging barely 2 tonnes per hectare. While surpluses of rice have occurred over the past five years, such harvests remain dependent on favorable weather and climatic conditions. Moreover, over 60 percent of rice farmers produce for subsistence needs, yet many remain food deficit for one to two months per year. Farmers lack consistent access to income-generating activities and credit for the purchase of inputs to rice production. This cycle of poverty remains a powerful force in the rural sector in Cambodia. Further downstream, the rice processing and distribution sector faces a number of key constraints. Milling technology is often outdated, resulting in high levels of broken rice. Furthermore, millers are fundamentally constrained by a lack of working capital that limits their ability to purchase paddy from farmers and update machinery. This contributes to the unofficial export of paddy to regional markets such as Viet Nam and Thailand and prevents Cambodia from capturing the value-adding from rice milling. The lack of capital also perpetuates the low levels of technology implicit in the sector. Institutional and infrastructural constraints also impede the sector. High costs in the provision of credit dampen private investment by farmers and millers, forcing farmers to seek unofficial sources of credit from moneylenders, often at usury interest rates, and millers to delay or reduce investments. Poor infrastructure, in the form of roads and irrigation dampen production incentives and reduce market access. Unofficial costs, in the form of checkpoints and port fees, unnecessarily raise the costs of rice for Cambodian consumers and lower the competitiveness of a bourgeoning, high-value niche export market. The key conclusion of the study is that there is a fundamental lack of an enabling environment, in terms of infrastructure and institutions. This enabling environment needs to be developed in order to improve food security, alleviate rural poverty and generate export revenues from the rice industry. The report highlights two themes where an enabling environment will provide benefits in the development of the rice sector. The first theme is that productivity in the rice sector needs to be enhanced and the second theme of the report is that Cambodia possesses the ability to become an exporter of small volumes of niche and high quality varieties of rice. The report suggests that in order to address these two themes, an enabling environment should be developed by both the private and public sectors. Productivity improvements need to be made in order to increase the yield of rice in Cambodia. In order to increase yields from their current average level of around 2 tonnes per hectare, improvements need to be made in seed varieties, access to inputs (credit, fertilizer, pesticides and irrigation) and agricultural extension. It is argued that the role of the public sector in direct investments to increase productivity should be limited to the provision of irrigation, where it is economically viable. The role of the public sector in the other factors limiting productivity should be confined to an enabling role, both through legislation and provision of enabling services, such as improved infrastructure and public policies to reduce the transaction cost for credit provision.



The development of niche export markets for high quality rice has been almost entirely driven by private sector expertise and investment. The role of the public sector has so far been minimal. The report argues that the role of the public sector in the future development of these markets should be to provide an enabling environment for the private sector to gain access to credit and improved marketing channels. The private sector should be encouraged to develop high valued niche markets, which will benefit those few farmers who are supplying high quality varieties of paddy. Simultaneously there needs to be efforts to encourage an increase in quantity and yield of the bulk of the remaining rice crop. Again, the role of the public sector is an enabling role, rather than to provide subsidized inputs or research. Productivity increases and investments in the rice sector are unlikely to be major driving forces for poverty reduction in rural Cambodia. For the majority of Cambodian farmers, rice is still cultivated in small plots for subsistence reasons. Even with increases in productivity, household income from rice is likely to be only between $100 and $200 per hectare. Unless farmers have an extensive amount of land, rice cultivation is unlikely to be the main source of poverty reduction in Cambodia. Rather, it suggests that investments in rice production may need to be combined with policies aimed at achieving crop diversification to tackle poverty in rural areas.



1 Introduction The concept of export-led poverty reduction starts from the realization that the determinants of national economic growth and social development have changed profoundly as a result of global and regional trade liberalization. World trade is growing far faster than world GDP, which means that growth opportunities are typically greater for exports than they are for domestic sales. Export-led poverty reduction seeks to ensure that poor producers benefit from the new economic opportunities arising from improved market access conditions, which allow them to supply their products to regional and global export markets (International Trade Center 2001, pg. 2). This also recognizes that poor producers can establish a sustainable foothold in world markets only if their production can stand up to the tough requirements of quality and price dictated by global competition and only if their production is linked to larger producers and/or marketers that can promote and sell their goods or services (International Trade Center 2001, pg. 2). There is further recognition that, even where others (business enterprises, national or international NGOs, other agencies and donors) have worked in particular poor communities to mobilize their entrepreneurial capacities, the linkage between those capacities and actual exports remains typically weak. Ultimately, export-led poverty reduction is about helping poor producers succeed in profit-making ventures in regional and global export markets (International Trade Center 2001, pg. 2). The poor may best benefit from trade (and growth more generally) by increasing their productivity and returns from their existing factors of production, such as land or labor. In the context of a global trading economy this would mean engaging and increasing productivity in sectors where the country has a comparative advantage. Should these be sectors in which the poor and their resources are employed, growth through increased competitiveness and trade would be effective in reducing poverty. However, at the same time, globalization has had its dark side. There has been an increasing tendency towards growing inequity within and between countries and a growing incidence in the absolute levels of poverty, not just in poor countries. These positive and negative attributes of globalization have been experienced at a number of different levels. The distributional pattern emerging in recent decades of globalization is thus simultaneously heterogeneous and complex (Kaplinsky and Morris 2001, pg. 1). If those who had lost from globalization had been confined to the non-participants, the policy implications would be clear take every step to be an active participant in global production and trade. However, the challenge is much more daunting than this, since the losers include many of those who have participated actively in the process of global integration. Hence, there is a need to manage the mode of insertion into the global economy, to ensure that incomes are not reduced or further polarized (Kaplinsky and Morris 2001, pg. 1). These issues pose serious problems for economic management, not just within governments, but also within firms and other institutions. Thus, the key policy issue is not whether to participate in global markets, but how to do so in a way which provides for sustainable income growth. This is a particular problem for poor producers and poor



countries who seem to have experienced more of the downside than the upside of globalization over the past two decades (Kaplinsky and Morris 2001, pg. 18). In practice, history and country context has determined sectors in which poor populations have traditionally engaged and earned a livelihood. This is particularly so with the production of food crops, especially among subsistence farmers. In much of Asia, and indeed in Cambodia and Vietnam, the sector from which most of the poor earn a living is through the cultivation of rice. Indeed the rice culture permeates the farming traditions of this region. These facts beg several questions. Is rice a commodity where these countries and their populations indeed have a competitive advantage in a global, trading economy, given demand in global rice markets? Can rice varieties be produced and marketed in such a way that further adds value and efficiency so that this is a sector in which producers, and the economy, can increase competitiveness and returns? Given the fact that this sector is where the poor are employed and earn a living in Cambodia, it would follow that increasing productivity and returns to producers in this sector will be important to improving the livelihoods of the poor. Understanding the constraints to increased productivity and returns whether they be issues related to policy, to input markets, to infrastructure and access, to other behind the border factors, to trade policy, to improving seeds and cultivation techniques, to improving milling and processing techniques, to improving quality of the product (paddy and milled rice), to strategic marketing are therefore all critical and relevant issues to enhancing the benefits of the poor from growth in the rice sector in general, and particularly from this sector through trade. In Cambodia, the issues with respect to the rice value-chain are complex and multi-faceted. Until 1995, Cambodia was deficit in rice as a result of low productivity based to some extent on the political turmoil that engulfed the country from the 1970s. Since 1995, however, Cambodia has steadily increased its surplus of rice, with an eye towards targeting both high-value and commodity markets for rice. The means by which Cambodia develops its rice sector in response to these goals is of prime interest. Despite these gains in exports, rice yields and productivity remain low, with most farmers growing rice for subsistence needs. The rice that is marketed is often of low quality, as a result of mixed varieties and poor milling technologies. The challenge for Cambodia is thus to understand and, more importantly, prioritize the constraints facing the marketing system and develop strategies to overcome these bottlenecks. These issues will be raised throughout the course of the report. In addition, while the rice sector has important ramifications on rural poverty in Cambodia, it is also important to understand the competitiveness and profitability of rice production with respect to regional competitors and in terms of alternative crops. While this report will identify and address some of these concerns, it remains an area for further research as to the means to develop appropriate agricultural strategies aimed at alleviating rural poverty. The outline of the report is as follows. Section 2 presents a background and motivation to the study. Section 3 presents an overview of the global rice trade. Section 4 presents an overview of the rice industry in Cambodia. Section 5 presents the analysis of the marketing and value chain for rice in Cambodia. Section 6 analyses the competitiveness of the Cambodian rice industry. Section 7 presents some policy simulations using a multimarket model developed for the study. Section 8 summarizes the major constraints to the development of the rice industry in Cambodia. Finally, Section 9 concludes.



2 Background to Study Rice has played a central role in the agricultural sector, economy and psyche of Cambodia. Farmers have been growing rainfed rice for at least 2000 years, and irrigation technologies was introduced 1,500 years ago (Chandler 1993). The Angkorian period from 800-1300 A.D. was based on rice cultivation with improved irrigation and cultivation techniques. Throughout the centuries Cambodian farmers adapted their rice production technologies to mitigate the risk of poor soils, erratic rainfall and the complex hydrology of the Tonle Sap basin. On the social side, Cambodian farmers had to contend with the vagaries of the state taxation system and the continual threat of civil strife and war. The arrival of the Khmer Rouge in 1975, and the devastation of agriculture and society that followed, plunged Cambodia into food deficit a far cry from the peak harvest of 3.8 million tonnes in 1970. The collectivization of agriculture was coupled with double and triple cropping of rice and the use of traditional rather than improved varieties of rice. Failures in irrigation and agricultural methodologies and the destruction of human capital resulted in widespread famine (see (Chandler and et al. 1988; Pijpers 1989; Helmers 1997)). The subsequent occupation by Vietnamese forces after 1979 continued the policy of collectivization with the use of krom samakki solidarity groups of 20-25 farmers but instituted some market reforms in the purchase and sale of agricultural products (Helmers 1997). The establishment of the State of Cambodia in 1989 instituted a market orientated system with private land tenure. Along with the rest of the economy the agricultural sector has been in a state of transition. Rice has the biggest share of agricultural GDP (46 percent) while agriculture comprises 37 percent of total GDP (see Table 10). The reforms of the early 1990s has resulted in Cambodia moving from rice deficit to surplus in 1995 with continued strong gains in production ever since. In addition to policies designed to stimulate domestic production levels, trade policies related to the rice sector in Cambodia have also been liberalized. The encouragement of all sectors of the economy to become involved in the rice export system has resulted in private firms being the major exporters of rice in Cambodia. These private firms have created niche markets for high quality rice able to fetch a price premium in the world market. The majority of people in Cambodia live in rural areas (84 percent), and make their livelihood from agricultural production activities (74 percent). In the Tonle Sap and Plains regions, where most of the rice production takes place, nearly 6.8million people (59 percent of the population) are involved in agricultural production. For the majority of these people rice production is the dominant production activity of the household. It would seem that policies designed to increase rice production and stimulate exports would accrue benefits to those involved in the production of rice. As many of the people involved in rice production are poor, it would also seem that such policies would be a useful tool in alleviating poverty in rural areas.



This study sets out to analyze the impacts of past increases in production and trade on rice producers, and in particular the poor. The main aim of the study is to identify whether future productivity increases and trade liberalization will bring real benefit to producers and assist in the poverty alleviation process, and to identify the main constraints to increasing productivity and generating improvements in producer livelihoods.



3 Global Rice Trade and Major Issues According to USDA-ERS (USDA-ERS 2001), world production of rice in 2001/02 was estimated at 393 million tonnes, a slight decline from the 408 million tonnes produced two years previously (see Table 2). Major producers of rice include China, India, Indonesia, Bangladesh, Viet Nam, and Thailand (see Table 3). While global production of rice is significant, the majority of rice production is consumed in local markets, with global trade in rice averaging just 23 million tonnes over the past five years (USDA-ERS 2001) (see Table 4). Major producers such as China, India, Indonesia, and Bangladesh typically produce for home consumption, with Indonesia, Bangladesh, and the Philippines deficit in rice despite strong levels of production.

3.1 Major Exporters

Thailand is the leading exporter of rice in the world. During the past three years, Thailand has produced roughly 25 million tonnes of paddy, of which 40-50 percent is exported. In 2002, Thailand is estimated to export 7 million tonnes of rice. Roughly 20 percent of its exports are of Jasmine rice, which are exported primarily to the United States (USDA-ERS 2001). Thai exports of rice compete with high-quality rice exports of the United States, particularly with Thai Jasmine varieties. IFPRI also notes that Thailand is a major exporter of low-quality long grain varieties (IFPRI 1996). Despite the high levels of exports in Thailand, yields remain low at about 2.3 tonnes per hectare, as many traditional, high-quality varieties are low-yielding (IRRI, 1999). Most rice in Thailand is rainfed, with only 25 percent of the rice areas having access to irrigation. Thai varieties of rice typically receive a premium in world markets over comparable varieties from regional competitors such as Viet Nam. As noted in Table 5, the export prices of Vietnamese rice of 5 percent and 15 percent broken are about 90-95 percent of the price of comparable Thai varieties. Interestingly, in the most recent (2001/02), export prices for Vietnamese rice have actually been greater than Thai prices. USDA-ERS (2002) attributes this to a weaker Baht, stronger price competition from India, and strong loadings from older sales in Viet Nam. IFPRI (IFPRI 1996) identifies a number of factors that have enhanced the competitiveness of Thai rice in world markets. These include: Large areas of rice under cultivation (nearly 10 million ha) High levels of integration and price responsiveness among Thai farmers to changes in

international markets Subsidies on inputs and exemptions from taxes Well-organized and integrated channels of distribution High levels of milling technology Role of the Thai Exporters Association in promoting quality and standardization among

members Existence of brokers that act as intermediaries between buyers and sellers and serve

an important information role for each group Institutionalized rice quality standards (32 in total) to meet demands of foreign buyers



Diversity in export outlets while Asia was the top destination, Thai rice has significant penetration in Africa, the Middle East, Europe, and the United States.

Viet Nam is the second-leading exporter of rice in the world. Domestic production of paddy in Viet Nam was estimated by USDA-ERS (USDA-ERS 2001) at 31.2 million tonnes in 2001/02, of which nearly 4 million is exported. Exports from Viet Nam have increased rapidly since 1989, when the policy of doi moi was established. The majority of Viet Nams rice exports are indica varieties of medium-to-low quality, with the quality of Vietnamese rice declining in recent years after several years of improvements in the early 1990s (see Table 6). The major destinations for Vietnamese rice include Indonesia, the Philippines, Cuba, Africa, and Middle Eastern markets such as Iraq. Most exports are made on government-to-government contracts that are typically agreed to a year prior to delivery. The United States is the third-leading exporter of rice, annually exporting between 2.5 million and 3 million tonnes and competing mainly in high-quality markets, medium-grain markets. The U.S. share of global rice exports has declined over the past twenty years on account of the entry of Viet Nam and regional competitors in Latin America into the global rice trade. According to IFPRI, U.S. rice achieves a price premium of $30-$50 per ton over comparable Thai varieties (IFPRI 1996). Most U.S. rice is exported regionally to markets in North and South America. The leading destination of U.S. rice is Mexico, which imported 403,500 tonnes of rice from the United States in 2000/01 (see Table 7). The United States also exports a significant amount of rice to Japan under Minimum Market Access requirements of the WTO. The success of U.S. rice is attributed to high quality and grading standards among U.S. suppliers and the technological ability to supply exacting varieties and qualities of rice to buyers (IFPRI 1996). China has emerged as a major exporter of rice in recent years, though exports have declined recently from their peak of 3.7 million tonnes in 1998. Plantings of rice in China have declined since 1999/2000 (USDA-ERS 2001). India is also a major exporter of rice, but its exports have also declined significantly since 1998. Projected exports in 2002 are 1.5 million tonnes, down from the 4.7 million tonnes exported in 1998, on account of changes in pricing policy in India that have rendered much its surplus rice uncompetitive on world markets (USDA-ERS 2001). Exports from India include high-quality basmati varieties to Europe and the United States and low-quality parboiled rice to South Africa and the Middle East. Other major exporters of rice include Pakistan (1.9 million tonnes in 2002), Australia (700,000 tonnes), Uruguay (650,000 tonnes), Egypt (650,000 tonnes), Myanmar (500,000 tonnes), the EU (350,000 tonnes), and Argentina (250,000 tonnes). Exports from Pakistan include high-quality basmati varieties and low-quality rice destined for regional Asian markets and Middle Eastern destinations. Exports from Uruguay and Argentina are typically regionally bound, primarily for Brazil under preferential MERCOSUR arrangements. Australian exports are generally destined for Asian markets.

3.2 Major Importers Indonesia is the world largest importer of rice, despite producing over 50 million tonnes of rice annually. Imports are estimated at 1.6 million tonnes for 2002, though this is significantly lower than the record 5.8 million tonnes imported in 1998, due to weather damage caused by El Nino (USDA-ERS 2001). Nonetheless, rice imports have grown recently on account of higher demand and lower domestic stocks. While IFPRI



categorizes Indonesia as an occasional importer, recent import trends show consistent levels of imports over the past three years (see Table 4) (IFPRI 1996). Nigeria is the largest African importer of rice and traditionally one of the top three markets for imported rice. In 2002, Nigeria is projected to import 1.2 million tonnes of rice, down from 1.6 million in 2001 but on par with average quantities imported over the past five years (see Table 4). Most imports by Nigeria are of parboiled rice from Thailand and India (USDA-ERS 2001). Iran and Iraq each consistently import over 1 million tonnes of rice per year. Neighboring Middle Eastern countries import significant quantities as well, with Saudi Arabia projected to import 875,000 tonnes in 2002 and Turkey to import 350,000 tonnes. Production in the Middle East is relatively small, with limited ability to expand domestic production (USDA-ERS 2001). USDA-ERS (USDA-ERS 2001) reports that imports comprise roughly 75 percent of consumption in the region. Imports by Iraq fall under the United Nations oil-for-food program, with large amounts of imports coming from Viet Nam. Saudi Arabia traditionally imports parboiled rice, while Turkey is a major market for japonica rice. The Philippines has traditionally been a major Asian market for imported rice, though recent trends have seen a steady decline in the quantity of imports, based on higher levels of production since 1999/2000 (USDA-ERS 2001). Imports in the Philippines are projected at 800,000 tonnes in 2002. Bangladesh is also a large importer of rice, despite being fourth-largest producer of rice in the world. Imports have declined in recent years due to record levels of productions, but increased demand and population growth have continued to fuel demand for imports. Projected imports in 2002 are 500,000, mainly of parboiled and low-quality varieties from India (USDA-ERS 2001). Other Asian markets, such as China, Japan, Taiwan, and Korea, also import sizable volumes of rice. In the case of China, however, most imports cater to an affluent urban demand for high-quality Thai rice. Imports by Japan and Korea are mandated by WTO minimum access agreements and are used in industrial applications3. North Korea is also a major importer of rice (450,000 tonnes in 2002), most of which is for food aid purposes. Other major importers of rice include numerous countries in Sub-Saharan Africa and Latin America. South Africa imports about 525,000-550,000 tonnes of mainly parboiled rice per year. Senegal is projected to import 750,000 tonnes of rice in 2002, while Cote dIvoire is predicted to import 650,000 tonnes, based on strong demand for rice in these markets that outstrips production (USDA-ERS 2001). Brazil is projected to import about 500,000 tonnes of rice from MERCOSUR partners Argentina and Uruguay in 2002, down sharply from the 1.6 million tonnes imported in 1998. This is due to stagnant consumption and expanded production in Brazil (USDA-ERS 2001). Mexico is a large market for U.S.-origin rice, while Caribbean markets, such as Cuba, Haiti, and the Dominican Republic also import sizable amounts of rice.

3 The World Bank Study Team noted that donations of Japanese rice to the World Food Program in Cambodia consisted of re-bagged US Calrose rice. At least some of the WTO minimum access agreement rice imported by Japan is being re-routed for food aid purposes.



4 Overview of the Rice Industry in Cambodia

4.1 Topography and Climate Cambodia is located in the southwestern part of the Indo-Chinese peninsular. It has a land area of 181,535km2, of which about 20 percent is used for agriculture. The country comprises 24 provinces in four geophysical zones: the Plains Region, the Tonle Sap Region, the Plateau and Mountainous Region, and the Coastal Region (see Figure 3 and Figure 4). The Central Plains are a result of long-term deposition originating from the mountains within Cambodia and from sediments carried into the plains by the Mekong River. The height of the Mekong River varies approximately 9 meters each year, and is influenced by melting snow in the Himalayas and rainfall in China, Myanmar, Northern Vietnam, Lao PDR and Thailand. As the water level rises, some water also flows back up northwesterly along the Tonle Sap River into the Tonle Sap Lake. The lake expands to approximately 25,000km2 between the months of May and November. Receding water flows primarily down the Bassak River and feeds many irrigation areas in the provinces of Kandal and Takaev. To a large extent the agricultural economy is built around this annual cycle of inundation and recession of these waters (Japan International Cooperation Agency 2001). The climate of Cambodia is tropical monsoon, with a wet season from May to November, caused by the southwest monsoon, and a dry season from December to April when the country is under the influence of the northwest monsoon. Rainfall distribution varies between regions. Average annual rainfall is more than 3,000mm in the western region, while to the east of the Mekong River it is generally 1,800-3,000mm. The central area, comprising the lower Mekong and the basin of the Tonle Sap Lake, is drier with rainfall averaging 1,200-1,500mm (see Figure 2).

4.2 Demographics and the Agricultural Sector Cambodia is still a largely agrarian society with agriculture representing the major share of GDP (37 percent) and most of the population living in rural areas (84 percent). As Table 10 shows, productivity of agricultural production is low, being US$166/worker and US$480/ha, while GDP per capita for the rural population is US$119 compared with a country wide US$271. Approximately 74 percent of households in Cambodia are classified as farm households and, excluding Phnom Penh, this is consistent across provinces in Cambodia (see Table 13). As Table 12 shows, most of the population in rural areas is employed in agricultural, forestry or fishery activities (85 percent), with most of the rural population self-employed (71 percent). There are over 1.6 million farm households, most of whom are involved in rice production to some extent. With a population growth rate of 2.5 percent and 42 percent of the population under the age of 14, there is a need for improvements in productivity of agriculture and rapid growth in employment to absorb the imminent increases in the labor force. There is a significant difference in the proportion of the population in each age group. For example, the 20-24 cohort comprises only a small proportion of the total population (6.4 and 6.6 percent of males and females respectively), while the 5-9 cohort represents a larger proportion (16.4 and 14.7 percent of males and females respectively). The other unique feature is the striking imbalance of males to females. The 1998 census determined



that there were 93 males for every 100 females, which translates into 415,000 more women than men in the population. This gender imbalance means that gender equality is an integral part of the development process. While increases in industrial activity (particularly in the textile, clothing and footwear sector) have absorbed large numbers of the labor force, the largest sector absorbing labor has still been the agricultural sector. This implies that unless there is a large and relatively immediate shift in the structure of the economy away from agricultural production, agriculture will continue to be the main labor utilizing sector in the economy. As Table 11 shows, agricultures share of GDP has been declining slowly over time, from a peak of 51.4 percent in 1995 down to 39 percent in 2001. This has major implications for the role agriculture has in the Cambodian economy, and the ability of agriculture to absorb the increasing labor force and improve standards of living. In 2001 the majority of agricultural activities (as a percentage of GDP) were crop production (46.4 percent) followed by fisheries (31.7 percent). These two sectors had average growth rates of over 4 percent, compared with 2 percent for livestock and forestry (see Table 11). Crop and fishery activities not only had higher growth rates, but were more stable, with standard deviations of 5 and 3 percent respectively, compared with 6 and 41 percent for livestock and forestry activities respectively (see Table 11). Forestry has been negatively affected by changes in logging policy while livestock has been affected by the floods of 1999-2000 which resulted in heavy stock losses.

4.3 Rice and Rural Poverty in Cambodia Cambodia is one of the poorest countries in Asia. According to the Second Five Year Socioeconomic Development Plan (Ministry of Planning 2001), Cambodia ranked 136th out of 174 countries in terms of the UN Human Development Index, with only Bangladesh and Laos having lower indices among Asian countries (see Table 18). Cambodia also ranks poorly with respect to the Human Poverty Index (HPI), which measures factors such as the proportion of children under 5 that are severely stunted and underweight, percentage of the population with limited access to safe drinking water and medical services, illiteracy rates, and percentages of the population with low life expectancy rates. In comparison with the rest of Asia, Cambodia had an HPI score of 38 that was exceeded by Pakistan and Bangladesh alone (Ministry of Planning 2001). Due to war and armed conflict a relatively large proportion of the population is living in female-headed households (17 percent). These households are not necessarily poorer than male headed households because, on average, female-headed households are larger and may have more income-earning members. However, women generally are more constrained than men in their access to resources and there is a perception that female-headed households constitute a major vulnerable group in the community (International Trade Center 2002). The most recent socioeconomic survey results (National Institute of Statistics 1999) show significant inequities between rural areas and urban areas and among income deciles. In US dollar terms, per capita monthly expenditure has declined among all groups between 1997 and 1999 (see Table 17). Moreover, the gap in expenditures between urban and rural areas has grown, with expenditure levels in rural areas that are less than 30 percent of expenditure levels in Phnom Penh and about 63 percent of the expenditure levels in other urban areas (see Table 17). The share of food expenditure as a proportion of total expenditure is significantly higher among lower income declines. The bottom three deciles



devote 76 percent of their expenditures on food and between 23 percent and 28 percent on rice (see Table 19). The bottom eight deciles allocate over 70 percent of their expenditures on food, while the top decile allocates just 39 percent on food and only 6 percent on rice (see Table 19). Significant income disparities are also prevalent in Cambodia. Overall, the top income decile earns nearly 30 percent of income, while the lower half of the income deciles receive just 29 percent (see Table 20). The Gini coefficient is 0.42 and is higher than in most other Asian countries at Cambodia's level of economic development (International Trade Center 2002). For the poor, expenditures on rice are the single most important item of all expenditures (about 30 percent). Thus policies affecting food prices, especially rice, have important implications on households' welfare. The poor are generally disadvantaged by various factors such as inadequate food supplies, poor health, physical disabilities, lack of access to land, insecure land titles, lack of skills, inadequate information, and poor access to input and product markets (International Trade Center 2002). There is substantially less income inequality in rural areas, though rural income levels are just 61 percent of other urban areas and 28 percent the level in Phnom Penh (see Table 20). The proportion of income from self-employment and rice cultivation is highest among middle deciles, as the bottom decile receives less income from rice cultivation and more income from wages (see Table 21). This suggests that the poorest households have a greater propensity to augment their agricultural income with non-farm work. The 1997 socioeconomic survey reported that 36 percent of Cambodias population of over 11 million was below the national poverty line, defined as the level of income required to purchase food allowances of 2,100 calories with a small level of non-food expenditures (Asian Development Bank 2000). ADB notes the majority of the population in Cambodia subsists slightly above or slightly below the poverty line (Asian Development Bank 2000). The difference between the poverty line and actual expenditure was relatively small at 8.7 percent, while average caloric intake in Cambodia in 1997 was estimated at just 162 calories above the national poverty line (2,262 calories) (Asian Development Bank 2000). Eighteen percent of the population was reported to be below the food-only poverty line in 1997 (Ministry of Planning 2001). Almost 90 percent of the poor are concentrated in rural areas, with farm households having the highest poverty rate at 44 percent. The distribution of income at or near the poverty line is magnified by a CHDR study (Ministry of Planning 1997) cited by ADB which found that an income transfer of less than $20 per day ($190 million for Cambodia) would be required to lift the poor above the absolute poverty line; this transfer was reported to be 40 percent of the total quantity of development assistance received by Cambodia in 1995 (Asian Development Bank 2000). Despite surplus production in rice since 1995, nearly one-half of the provinces in Cambodia are in food deficit, with access to rice compromised by low incomes, poor roads, limited marketing and distribution channels, and agricultural production that is weather-dependent and utilizes low levels of technology (Ministry of Planning 2001). While majority of farmers produce rice mainly for own consumption, many face a deficit situation for one to two months per year, as agricultural productivity remains relatively low. About 20 percent of the rural population does not have adequate or reliable access to food supplies to meet the nutritional poverty line of 2,100 calories per day and many poor families are in constant debt for buying rice (International Trade Center 2002). With respect to farm production, many farmers are particularly income-constrained with respect to fertilizer usage and use inadequate quantities of fertilizer and/or resort to the acquisition of credit by moneylenders who charge interest rates as high as 20 percent per month. The



combination of income demands to repay loans and the lack of inadequate storage facilities means that farmers often have to sell paddy production at times of low prices. Poverty has a significant regional element as well, as indicated by the HDI measure at a provincial level (see Table 22 and Figure 5). Poverty mapping undertaken by the United Nations World Food Program (WFP) during 1997-2000 found that over 40 percent of households live below the poverty line in rural areas (see Table 15). According to ADB, the Tonle Sap region (including Kampong Thom, Siem Reap, Battambang, Pursat, Kampong Chhnang, Banteay Meanchey, Oddar Meanchey, and Krong Pailin) has the highest incidence of poverty (38 percent) (Asian Development Bank 2000). The Plains region (Phnom Penh, Kandal, Kampong Cham, Svay Rieng, Prey Veng, and Takeo) has a poverty incidence level of 29 percent. In Phnom Penh poverty is lowest, with 11 percent of all households below the poverty line. In other urban areas, this percentage is considerably higher (30 percent). Economic growth in recent years was concentrated in urban areas, in particular in Phnom Penh, driven by reconstruction efforts, and an increase in tourism. Growth of rural activities, particularly agriculture, lagged behind. Hence, there is huge potential to reduce poverty in rural areas, especially through expanding economic opportunities through rapid growth in the agricultural sector (International Trade Center 2002).

4.4 Production As noted in Table 11, crops are the most important sub-sector of agriculture, with 46.4 percent of agricultural GDP in 2001 coming from crops compared with 16.2 percent coming from livestock. Growth in rice paddy production still comprises most of the growth in agricultural GDP (28.6 percent over 1993-2001), with only fisheries contributing more to agriculture, forestry and fisheries Gross Value Added over the same period (48.8 percent) (see Table 16). Rice production comprises 84 percent of total cultivated land, and provides 65-75 percent of the populations energy needs. Average growth in production has been 5.9 percent for the decade to 2000, but has been slowing down, with growth from 1996 at 3.1 percent (see Table 14). Compared with other food crops such as maize and cassava, the growth rate of rice has not been as much, but these other crops have being growing from a very small base compared with rice production. Cambodia as only recently moved from rice deficit to surplus (see Table 30). While the actual volumes of surplus or deficit are under dispute4, it is generally agreed that Cambodia moved into rice surplus in the 1995-96 cropping year. Volumes of rice produced and consumed depend on the coefficients used for milling recovery, post harvest losses, and food requirements (see Table 24 and Table 25). Presently, the information from the JICA survey (Japan International Cooperation Agency 2001) is considered to be the most reliable for milling recovery ratio and post harvest losses, while JICA accepted the NIS (National Institute of Statistics 1999) consumption data as being reliable. For the purposes of developing conservative estimates of food security needs, this study chooses to use a relatively higher level of post-harvest losses, seed retention and animal

4 Due to the different post harvest losses, milling recovery and per capita consumption ratios used by different studies.



feed. Post harvest losses of 17 percent are used and reflect older estimates of post-harvest losses. There are several reasons for this: Seed reserve estimates are calculated at 4-5 percent of total production. In the 2001-

2002 cropping year this equates to seed use of 120-150kg/ha for dry season production and 60-80kg/ha for wet season production. Discussions with farmers and MAFF staff indicate that the latter rather than the former seeding rates are more common (i.e. 150kg/ha Dry Season and 80kg/ha Wet Season).

Post harvest losses are more difficult to calculate. The JICA study attempted to

calculate these with some rigor and obtained a value of around 7 percent (see Table 29 and Table 28). This depended on whether custom mills or large mills were used, and whether the paddy was machine or hand threshed. Since most paddy is milled in small custom mills the higher post harvest loss of 8 percent is more likely. A more conservative figure of 9 percent is used in this study.

Animal feed use data is unavailable, and both MAFF and JICA use an arbitrary 2

percent retention for animal feed. This study uses a more conservative figure of 3 percent.

Milling recovery ratios have been estimated by the JICA survey at 64 percent. These range from 62 percent recovery from custom mills for dry season paddy up to 67 percent from commercial mills for wet season paddy (see Table 25). In contrast, the EDC survey ((Enterprise Development Cambodia 2001) obtained milling recovery ratios of 62 from custom mills and 59.5 percent from commercial mills (see Table 26). A significant qualifier to these latter results is that while JICA conducted actual milling recovery trials at mills, EDC relied on self reporting by mill owners. Mills visited by the study team indicated milling recovery ratios of between 60 and 65% (see Table 27). For the purposes of this study the JICA results are taken as being the most accurate. Apart from the NIS Socio-economic survey in 1999 (National Institute of Statistics 1999), no other broad based survey of consumption patterns has been carried out. Previous statistics had relied on an estimated food (rice) requirement of 151kg/head/year. Subsequent to the NIS survey all studies use a value of 143kg/head/year. As Table 30 and Figure 6 show, production of rice has increased around 3.4 percent per year on a long term average basis. Over the same period of time the population has grown by 2.2 percent per year. Assuming that the amount of rice consumed per capita has not changed, this equates to a 2.2 percent increase in rice requirements. There are potential implications for food security with only a 1.2 percent growth in rice production above domestic food requirements5. The main types of paddy production systems are upland and lowland rainfed rice, deep water floating rice and dry season rice. These can be generally classified as being wet season versus dry season rice (see Table 23). Wet season rice is grown from May to December while dry season rice is grown from December to March (see Figure 1). Dry season rice is usually improved varieties of rice like IR66 and grown for cash income purposes. In contrast, wet season rice is usually traditional varieties cultivated for subsistence and food security purposes. Even though traditional wet season varieties have

5 CIAP notes that slowing productivity gains plus ongoing population growth may see Cambodia slide back into food deficit by the end of 2010. (Young, Raab et al. 2000, pg. xii)



a lower yield, they fetch a higher price as the quality and taste is better than the dry season improved varieties. Most of the increase in rice production has come through increases in dry season area production (3.3 percent per year), and yields of wet season rice (3 percent per year). The yields of wet season rice increased from 1.2 tonnes per hectare in 1992 to over 1.9 tonnes per hectare in 2001 and thus the increase in yield should be seen in the context of improvements from a very low base. Because access to better wet variety seeds has been limited, this increase in yield has been due to better access to fertilizer and other inputs (rather than improved varieties of seed). Even though the growth in production of wet and dry season rice has been the same (3.4 and 3.7 percent increase per year respectively) the total tonnage of wet season rice has increased from 1.87 million tonnes in 1992 to 3.3million tonnes in 2001, compared with 0.35million tonnes of dry season rice in 1992 to 0.82million tonnes in 2001. This indicates that although dry season rice is becomi

Rice Value Chain Study Cambodia

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Transcript of Rice Value Chain Study Cambodia