Cash Influx a Band-Aid for Failing Rice Sector

As the government scrambles to buoy a rice sector suffering from crashing paddy prices and fierce international competition, Prime Minister Hun Sen on Thursday lauded the government officials and “generous businesspeople” who heeded calls for emergency funds.

Falling from about $250 per ton in mid-August to $193 last week, the prices that millers were offering farmers for paddy briefly plunged the sector into disarray. But a potential financial calamity has been prevented, the premier announced on Thursday.

Farmers transplant rice next to a sugar cane field in July (John Vink)
Farmers transplant rice next to a sugar cane field in July (John Vink)

With a $27 million grant approved by Mr. Hun Sen to subsidize millers, allowing them to stabilize the price they pay for paddy, additional rice purchases this week by government officials and wealthy friends helped the sector stay operational, he said.

“I’m truly thankful to the ministers, secretaries of state, civil servants and armed forces, as well as the generous business people who have helped purchase paddy,” Mr. Hun Sen said at a graduation ceremony in Phnom Penh on Thursday.

“Some have bought 10 tons, 20 tons or five tons,” he added. “Now it’s not a matter of having no money to buy paddy, but a matter of having a place to dry it.”

Mr. Hun Sen made his point by turning to Justice Minister Ang Vong Vathana, who admitted that he had purchased 10 tons of paddy, but left it at the mill. The prime minister lamented the situation, saying the minister’s financial contribution was not enough.

“We have only resolved the issue of money, but we have not yet settled the basic issue,” he said. “Every rice buyer, please transport the rice to be dried at your residence” and then have it milled in Phnom Penh.

This would give mills in the provinces more space to buy and process rice, he added.   

But even these efforts will not be enough to fix the festering and fundamental issues plaguing the rice sector, according to agricultural experts and economists.

Annual financial intervention—although particularly severe this year—has been required to keep the sector going for years, said Chan Sophal, director of the Center for Policy Studies for Cambodian Development. 

Rice mills lack the capital to pay farmers for their paddy, while farmers feel the constant threat of mounting debt and land insecurity, Mr. Sophal said.

“The government has done this in the past too—sometimes $15 million, $18 million,” he said of the capital influx. “Rice millers are usually short of cash.”

Every year, “the government has provided some credit, which is not much compared to the need of the sector. The sector needs hundreds of millions of dollars,” Mr. Sophal said. “More needs to be done.”

Due to the relatively high cost of fertilizer, transportation and electricity in Cambodia—well above that in Vietnam and Thailand—the country’s standard varieties of rice have no chance of competing internationally. Instead, the government should assist farmers in cultivating premium rice and “ensure that we have pure aromatic rice seeds,” he said.

A farmer ploughs after the first heavy downpour from the rainy season flooded his rice field in May (John Vink)
A farmer ploughs after the first heavy downpour from the rainy season flooded his rice field in May (John Vink)

Additionally, farmers need quality fertilizer, planting materials and training to produce high-yield harvests, all of which the government should be doing by deploying experts into the field, he said. 

Cambodia has unrealized potential to rise above competitors due to its vast arable land, according to Theng Savoeun, secretary-general of the Coalition of Cambodian Farmers Community. However, “farmers are using fertilizers and pesticides in an inappropriate way, for example below the recommended rate, or overusing them, or at the wrong time,” he said.

“The result is high production costs, environment pollution and eventually it affects the sustainability of the industry,” Mr. Savoeun said. And although the majority of Cambodians rely on rice farming, the country seriously lacks “irrigation systems, research and development.”

While the government’s emergency financial intervention is appreciated by farmers facing imminent bankruptcy, it also seems to be an attempt to gain or maintain political support, said Yaing Sang Koma, program director for the Grassroots Democracy Party and former director of the agricultural NGO Cedac.

“We’re living in a democratic society with an upcoming election, so if the farmers are not happy…I’m not sure if they are going to support the party or the government that is leading the country,” he said.

With complaints from farmers quickly piling up—hundreds in Battambang province blocked a highway with their paddy on Sunday in protest of plummeting prices—the government had to act, he said.

“Agriculture is still the motor of our economy, so if a lot of farmers have problems or do not make money, it will affect the whole sector, the whole of society,” he said. 

Hean Vanhan, deputy director of the Agriculture Ministry’s general directorate of agriculture, admitted that the government had fallen short in supporting the rice industry.

Fortunate farmers may choose to pump water into their fields in order to have more than one harvest per year, but many must rely on the rain and keep operating costs to a minimum, Mr. Vanhan said.

“The cost of electricity affects every part of the value chain,” he said. 

More effectively marketing Cambodia’s rice for the international market and developing irrigation systems to address the needs of the majority of farmers who “still rely on nature” must be a priority, he said.

And not only for the private sector, which Agriculture Minister Veng Sakhon blamed this week for failing to properly assess and cultivate domestic rice production and exports. 

“It is also the role of the government,” Mr. Vanhan said. 

(Additional reporting by Kang Sothear)

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