Can Cambodia’s fragmented agriculture sector save the economy?

Ever since the pandemic razed the world, most sectors in the Kingdom were wrecked but there is hope in agriculture, only if the government takes stock of some system failures

Content image - Phnom Penh Post
No rest for the wicked . . . Rice farmers in Kampot province’s southeastern Kampong Trach district begin the rainy season rice cultivation in August in the hope that it will yield a good harvest in December. Post staff

Reminiscing the heydays of rice farming is a painful process for 60-year-old Chak En, a paddy farmer in Kampong Trach, Kampot, for most of her life.

“My family used to harvest 40 bags of rice from just 1ha. These days, we cannot even sustain that amount from 3ha,” said En, who despite the setback and her children’s plea to retire, stubbornly carries on in a bid to champion her birthright.

For the mother of eight and grandmother of eleven, farming is rooted in her ancestry, the same as millions of Cambodians whose families own farmlands, big or small, across the Kingdom.

“I cannot give up farming. It has fed my family throughout our lives. This is our lifeline,” she said.

Rice farming and agriculture, on a wider scope, has been the grounding force of Cambodia’s economy for many centuries. 

So, when Prime Minister Hun Sen asked Cambodians to return to the humble sector to self-sustain and help the economy, it seemed like a viable solution for hundreds of thousands of workers in the garment, tourism and other service sectors who were made redundant or forced to take lower salaries.

But many went back dispirited, assuring themselves that it is only temporary until the pandemic tapers and industries re-open.

They did so because they know the industry is full of hardship as it is deeply entrenched with problems that stem from structural weaknesses.

They range from water management, lack of measures on climate change, high operating costs such as electricity tariffs, logistics and raw materials, loss of land to corporations, to dubious middlemen and market norms dictated by an oligopolistic market.

These are the very reasons which drove many out to seek alternative jobs that offered a higher and steadier income.

On average, Cambodian households own 0.5ha of paddy land for subsistence farming.

Overall, the sector is spread over four million hectares where three million of that is for rice planting, 170,000ha for multi-crop production and 30,000ha for vegetables.

Nearly three million people are employed in the sector which also acts as a barometer for poverty and economic vulnerability.

Some smallholders cultivate one crop per year on less than 5ha – usually rice for food security and export – based on the availability of water for agriculture.

To date, there is a surplus of about four million tonnes of milled rice a year for domestic consumption, said Council of Ministers spokesman Ek Tha last month.

Rice production grew to 7.9 million tonnes in 2019 from 7.4 million tonnes in 2018 with an average yield of 3.1 tonnes per hectare.

Similarly, exports from January to July 2020 rose 38.3 per cent to 426,073 tonnes, valued at $285 million, from 308,108 tonnes in the corresponding period in 2019 because of Covid-19 food security, lower rice tariff in the EU, and market diversification.

Rice exports are expected to climb to 800,000 tonnes this year, Cambodia Rice Federation (CRF) said.

As for total agricultural exports comprising 61 products to 59 countries, the figure inched up to $1.5 billion last year from $1 billion in 2013.

Buoyant as it may seem, the total agriculture share of the economy has unfortunately decreased over the years. Last year, it fell to 16.7 per cent of gross domestic product (GDP) from 28 per cent in 2009.

This year, the government thinks it will hit 32 per cent of GDP because of the expanded workforce by 40 per cent, underpinned by the loss of jobs due to the pandemic.

And with that, agricultural labour productivity (annual output per agricultural worker) could be on track to meet the target of $4,625 by 2030 from $1,839 in 2019.

All these are yet to be seen.

Overspending or underspending?

The issue remains that this economic pillar does not receive equal attention as the other three pillars (manufacturing, real estate and construction, and tourism), indicated by the paltry three to five per cent allocation from the annual national budget.

This is damning because the sector is susceptible to external factors, such as the imposition of a regressive rice tax by the EU and competitive pricing, which in the past has seen rice farmers dump their harvest out of fury when global prices collapsed.

According to the central bank’s Financial Stability Review 2019, extreme weather – floods and droughts – and the drop in prices of agriculture commodities, moderated its output growth to one per cent between 2014 and 2018 compared to 3.7 per cent (2009-2013).

Furthermore, the report said that because young people move to work in urban areas, it not only resulted in a labour shortage but also pushed up the average age of farmers to 39 (as of 2016), inevitably lowering productivity.

Compounding this are unclear policies, lack of expertise and bureaucracy, said Cambodian Farmer Federation Association of Agricultural Producers (CFAP) founder and managing director Sok Sotha.

The fact that there is little improvement despite gargantuan investments is another challenge raised by an official review on public investment in the sector.

The report, shared by Ministry of Agriculture, Forestry and Fisheries (MAFF) spokesman Srey Vutha with The Post, revealed puzzlement among policymakers, development partners and other stakeholders on the sector’s declining growth despite increased spending.

Dated April 2020, the review was jointly conducted by the Supreme National Economic Council’s Analytic Unit for Agriculture Sector and MAFF’s Agriculture Services Programme for Innovation, Resilience and Extension (Aspire).

It said public investment excluding wages climbed 1.5 folds, estimated in an aggregated term to be $272.6 million per year, between 2011 and 2017, where 35 per cent of that was funded by the national budget and 65 per cent by development partners in the form of loans and grants.

“[It is] approximately 1.6 per cent of gross domestic product [GDP] where MAFF and Ministry of Water Resources and Meteorology (MWRM)’s public spending accounted for 0.43 per cent and 1.17 per cent of GDP, respectively,” it added.

Unable to decide if it was overspending or underspending that resulted in low improvement, the review found, inter alia, that the level of expenditure was not low compared to other Southeast Asian countries.

The spending focussed on large-scale irrigation schemes that were financed by several development partners’ concessional loans and grants.

“While the increased investment in irrigation over the last decade has been strategic and instrumental to the growth of a specific commodity, predominantly rice, it might not have been well-balanced and sufficiently diverse,” the report said.

And because the efforts were not comprehensively harmonised and inter-connected, the report urged the government to re-prioritise and rationalise the irrigation schemes in relation to the expenditure on other economic compositions.

“[They include] research and development [R&D], extensions and other non-irrigation infrastructure which have yet to receive sufficient share of the total spending,” it said.

The thing about the report is not so much the novelty of its revelation as the weaknesses have been repeatedly highlighted in the past by various bodies such as the National Bank of Cambodia (NBC), Asian Development Bank, World Bank and UN agencies. Rather, it is whether any change will come of it.

Smuggling rice to Vietnam

For farmers like En, funds and policies mean nothing.

“I have never received any help from the government. We don’t even have an irrigation canal. We depend on the rain.

“The farmers in my village carry on with what we have. We buy seed from Vietnam and chemical fertilisers on loan from sellers who charge us interest. Each bag costs $30. We pay them back after the harvest,” said the widow.

At the end of the season, she barely breaks even after paying debts and rent for ploughing and harvesting machinery.

On top of that, farmers have to contend with low yields, market prices, and land degradation due to prolonged usage of chemical fertilisers.

They are ultimately compelled to sell the harvest regardless of the cost to middlemen who dictate the terms.

“What choice do we have? We can’t keep the paddy until prices increase. The stock won’t last because not everyone has storage facilities,” En said.

Due to this, many farmers located along the Thailand and Vietnam borders resort to selling their harvest via informal means to foreign millers who offer slightly better rates.

An MAFF report last year said some 1.6 million tonnes of rice was sold illicitly to Vietnam in the first eight months, which was substantially higher than the 342,000 tonnes of milled rice exported overseas through legal channels.

In fact, the UN Food and Agriculture Organisation projected that 44 per cent of total rice export in 2018 was subject to smuggling.

Unofficial figures say two million tonnes of rice are sold illegally every year.

These stocks that filter through porous means are rebranded and sold as Thai or Vietnamese rice. The activity is so prevalent that an MAFF official remarked that “any crackdown on the illegal rice trade would cripple the rice farming segment”.

When asked, CRF president Song Saran dismissed it as a black market activity.

“Some varieties [fetch] a good price [from] Vietnam and other ASEAN countries. Farmers grow mostly white rice as per Vietnam market demand, so they work through middlemen.

“Fragrant and special aromatic rice are exported to international markets,” he said, adding that CRF continues to explore new export markets in Europe and the Asia Pacific for special aromatic and fragrant rice.

“Competitiveness is the key element to diversify markets and product strategies [but] we need to lower logistic and energy costs, and other input costs for growers so they get more opportunity in global markets,” Saran said.

In the long term, the government should modernise irrigation, and mechanise and digitalise the sector.

“For the medium term, we will focus on developing climate-friendly rice, reduce input cost, improve competitiveness and implement rice technology for traceability,” he said.

Rising non-performing loans

All this sounds good but the conflict of interest and bureaucracy among the ministries in providing funds to farmers continue to affect the sector’s progress, CFAP’s Sotha said.

CFAP represents 21,138 households in 12 provinces where 46 per cent or 9,769 households are headed by women. In total, it has 105,690 members and female farmers make up 52 per cent of that.

“For instance, the functions of laws and policies related to agriculture and farmers’ associations are unclear to the officials from the sub-national level right down to the village.

“The government does not have sufficient expertise. Sometimes [we see] some intervention where seeds are distributed after a drought or flood. However, not every farmer has access to it,” he said.

It should be noted, though, that the MAFF works with agencies including the semi-autonomous Cambodian Research and Development Institute, International Rice Research Institute and UN agencies.

In the meantime, Sotha stressed that funds should serve the interest of farmers, particularly the smallholders who represent some 80 per cent of the rural population in Cambodia.

“The government must involve farmers’ associations and agriculture cooperatives in funding programmes so that the voice of the farmer is heard,” he said.

Funding, in this instance is pertinent as the farming community remains among highly-indebted groups in the country who possess loans with microfinance institutions and microfinance deposit-taking institutions.

In 2019, the non-performing loan (NPL) ratio of the agriculture sector registered 7.4 per cent, a trend that has been rising since 2014.

In comparison, the manufacturing sector recorded an NPL ratio of three per cent while other sectors came in around two per cent, NBC said.

Granted, the credit growth to the agriculture sector had dipped to eight per cent in 2019 from 11 per cent in 2017 due to unfavourable weather conditions and slower sectoral productivity growth, the expansion in NPL ratio could result in banks being reluctant in providing loans.

“[This] should explain a slower growth in banks’ credits to the sector in the last few years,” the central bank said.

Reduce the producer-buyer gap

Going forward, the government is banking on the sector to help the economy. Of late, Hun Sen has been praising the industry’s resilience in the current economic landscape while calling for efforts to fortify it.

Even the impending Cambodia-China Free Trade Agreement is based on the premise of raising exports on agriculture and agro-processing products to China.

First though it has to resolve the endemic problems in the sector, Sotha said.

He said smallholders and rural folk are in debt and are having to lose their homes and farmland due to discrepancies in the policies and economic development. As if climate change was not bad enough, their condition is exacerbated by Covid-19, which has only widened the gap between rice producers and buyers.

“The government must urgently intervene to connect the two parties and ensure proper and regular markets. Farmer associations and cooperatives must be allowed to buy rice from its members to store and sell for them,” Sotha said.

The government and international development partners should focus more on supporting farmers to overcome challenges and raise the allocation for the sector in the national budget.

“There should also be a critical study over how much rice is needed internally and externally, what type of rice is required and for which markets,” he said.

Similarly, the government must formulate a strategy to export rice directly and regularly to Vietnam or facilitate cooperation between the buyers and farmer associations to protect farmers.

International Fund for Agricultural Development (IFAD) country director Kaushik Barua said the next phase of focus is on imparting new skills and technology to farmers, investing in value chain-related infrastructure, and providing access to credit on appropriate terms to smallholders.

IFAD has loaned $544.2 million to Cambodia for 10 projects over the last 25 years.

Seeing that farmers are mostly reliant on rain-fed agriculture, there should be diversification by moving to higher value-added areas such as vegetables, and building more climate-resilient infrastructure.

“A lot of the work is underway, but farming communities need to maintain their focus on moving up in terms of technologies, value-adding, and enhancing resilience,” Kaushik said.

At the same time, the government should ensure that domestic demand is maintained to absorb agriculture production while efforts are made to provide comprehensive social support and cash transfer programmes.

“Finally, to ensure that farming families are kept out of poverty, the twin support of social protection systems and more production-oriented support have to work in complementarity and synergy,” he said.

By : Sangeetha Amarthalingam – Phnom Penh Post

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