For several years, Khmer Agricultural Products in Kompong Cham province was the firm that donors and the Ministry of Commerce presented to show how Cambodia could move from subsistence farming to full-scale food processing.
As Cambodia’s only cashew nut processing factory, donors and government officials visited KAP’s prominent display booth at the Cambodia Expo in March 2005. Later that year it sent its first shipment of nuts to the US.
KAP, the Commerce Ministry said at the time, was a model for the future: Cambodian business entrepreneurs leading the nation out of poverty.
But 2005 did not end well for KAP. In December, the firm folded.
KAP owner Banh Leng now says that despite business reforms touted by the Commerce Ministry, in the end, government corruption and competition from Vietnam drove him out of business.
“We had no support from the government,” he said. “Hundreds of workers are suffering.”
Four hundred staff, who earned between $50 and $100 a month, have lost their jobs at KAP, and Banh Leng says the other small and medium-sized enterprises in his province are being equally ill-served by the government.
“Officials never care for their country’s SMEs such as my factory, they only ask me for money every time they ask for certificates of origin,” he said.
“Those corrupt officials at the Commerce Ministry killed our business.”
Bahn Leng said that in late 2005, government officials continued to talk about cracking down on corruption while lining their pockets with his meager profits whenever he tried to get the Commerce Ministry certificate proving that his products were Cambodian.
“I am so tired of dealing with commerce officials and illegal police checkpoints,” he said.
The KAP factory was set up with $1 million in capital and could produce 3,000 tons of nuts per year. But last year it was only able to shell and roast 1,000 tons because it could not purchase enough raw cashews, which are plentiful in Kompong Cham.
Bahn Leng said that although corruption was the nail in KAP’s coffin, an inability to buy cashews at low prices, due to competition from Vietnamese businessmen who could pay more for the cashews of Kompong Cham’s farmers, long plagued his ability to stay afloat.
Contacted Monday, senior officials from the Ministry of Commerce and the Ministry of Industry, Mines and Energy, said they were unaware that KAP had gone under.
Commerce Ministry Undersecretary of State Mao Thura said any problems with local corruption could have been discussed with the ministry in Phnom Penh.
“We do not know exactly what happened at that factory,” he said. He added that in a free market, the ministry cannot protect firms like KAP.
“The ministry can’t force people to sell to local companies and the government doesn’t have money to subsidize it either,” he said.
Keo Rotanak, cabinet chief at the Ministry of Industry, said Bahn Leng never reported his problems to ministry headquarters in Phnom Penh.
But he added that obtaining certificates of origin remains a difficulty for Cambodian exporters.
“Export document procedures remain a complicated issue for exporters,” he said. “I think the SME operator should raise the issue with the provincial industry department.”
But Keo Rotanak added that problems with documents were secondary to problems caused by trade with Vietnam.
“The Vietnamese offer higher prices than the local buyers,” he said.
Soun Dy, director of the Ministry of Industry’s Kompong Cham office, said competition drove KAP out of business.
“Price competition is a big problem for local companies,” he said.
He added that the local price for raw cashews is $0.75 per kilogram, and that locals will sell to Vietnamese businessmen to make even $0.02 per kilogram in extra profit.
Kompong Cham has 10,000 hectares used for growing cashews, producing up to 10,000 tons of raw nuts per year. Seventy percent of the produce goes directly to Vietnam, he said.
Earlier this month, Prime Minister Hun Sen and Vietnamese Premier Phan Van Khai agreed to eliminate Vietnamese tariffs on cashews and 39 other products imported from Cambodia, which some economists think will make it even harder for companies like KAP to compete.
Kang Chandararot, director of the Cambodia Institute for Development Study, said the tariff elimination will allow Vietnamese buyers to raise the prices they offer to Cambodian farmers.
He added that Vietnamese buyers have a cost advantage already because Vietnam is providing cheap energy, while Cambodia is adding more costs to its already struggling businesses in the form of corrupt fees.
The Cambodian government must lower fees for SMEs, tax imported goods like processed cashews from Vietnam and foster micro-credit schemes, he said.
“Electricity, water, gasoline, transportation are extremely high here, so SMEs cannot compete with the lower costs of Vietnam,” he said.
At Phnom Penh’s O’Russei Market on Tuesday, cashew vendor Keat Kea, 37, said that while a few Phnom Penh vendors buy cashews directly from Kompong Cham to roast privately, most of her stock comes from Vietnam.
“I think most Khmer cashews are exported to Vietnam and return as packaged cashews,” she said.