Market prices for unmilled rice are rising rapidly and are likely to continue to increase in the coming months due to high foreign demand, according to agriculture experts, who said yesterday that a subsequent rise in rice prices for ordinary consumers is expected to follow in a few months time.
Meanwhile, local rice millers said they are scrambling to buy paddy rice before prices rise further and that they find it difficult to compete with foreign traders who have more capital available to buy Cambodia’s paddy rice.
Similar conditions in the midst of a global rice shortage in 2007 and 2008 preceded a shock to the market that briefly prompted Cambodia to ban exports. However analysts disagreed as to whether such circumstances were likely to recur.
Chhong Sophal, who monitors provincial rice markets for the Cambodian Center for Study and Development in Agriculture, said the price of high quality paddy rice had risen from 1,050 riel per kilo in early November to 1,420 riel per kilo now.
In January 2009, the cost was 1,320 riel, Mr Sophal added. Low quality paddy rice currently costs 1,070 riel per kilo, up from 780 riel per kilo during the same last year, he said.
Mr Sophal said he expected rice prices on the consumer market to go up by as much as 500 riel per kilo in February or March, adding prices currently stand at around 2,800 riel per kilo.
CEDAC director Yang Saing Koma said many farmers were experiencing a good year due to the high prices. “Farmers are happy. It means a big profit for the wet season farmers. It gives them an incentive for next year to increase production,” he said.
Mr Sophal said Vietnamese traders had already bought up more than 60 percent of all paddy rice in Kompong Speu, Takeo, Kampot and Kompong Cham provinces.
Phou Phuy, president of the Cambodian Rice Millers Association, the country’s largest millers organization, said he was worried local millers were being pushed out of the market by foreign traders.
“We are concerned we cannot buy enough rice to meet our goals. We have two problems: we lack capital and second there is strong competition from local and foreign traders,” said Mr Phuy.
An executive at Angkor Kasekam Roongroeung Company, who spoke on condition of anonymity, said prices of raw paddy would continue to rise in the coming months. He added that his rice milling company—which sells a premium fragrant rice to markets in the European Union, Australia and Hong Kong —was buying “as much as we can right now.”
“Prices of paddy are 10, 20 percent up from last year,” he said, “In March or April people will notice a price rise in the markets, even for low quality rice.”
He said his company had the comparative advantage of having 40,000 rice farmers under contract, but most local rice millers were struggling to compete with Thai and Vietnamese traders rushing in to buy Cambodian paddy.
“Cambodia’s millers will lose a bigger share of paddy than last year,” the official said, adding that the millers should be given more access to credit to buy rice while the government should consider taxing the paddy flowing out of the country in order to slow it down.
“If they don’t do like this, all paddy will go out and then when [consumer] prices go up there will be a problem,” he said.
Son Koun Thor, chairman of the Rural Development Bank, said RDB had provided $13 million in loans to rice millers to buy paddy—with which millers could only buy a fraction of this year’s total surplus of 3.3 million tons of paddy.
Mr Thor said RDB had received a total request for $46 million in credit from miller associations, but added the bank could not provide more loans because the associations lacked required collateral.
“Many do not meet the criteria…. Usually they already have a loan with commercial banks,” he said, adding the RDB was in the process of arranging a $23 million loan with three commercial banks to free up funding for the millers. He could not say when this money would become available, however.
The current rise in prices is due to a sharp increase in regional rice demand, which international experts say is very similar to the situation that occurred in 2007 and 2008, when prices on world rice markets soared, leading to what was described as a global crisis.
In a paper from the Center for Global Development from last month, Peter Timmer said rice prices were set to continue to rise as the Philippines had placed huge and “reckless” tenders for hundreds of thousands of tons of rice, following damage to its rice harvest by Typhoon Ketsana in September.
At the same time India, the world’s second biggest rice producer, has put a rice export ban in place, Mr Timmer said, adding that Vietnamese traders were busy trying to meet the Philippines’ orders. “Today’s world rice market has an unnerving similarity to 2008. All three of the elements in the price explosion then are again in place,” he wrote.
In 2008, the price of milled rice in Cambodia doubled in the span of a few months. Studies later showed the price spike seriously affected the poorest households in the country, forcing them to take on new debts, cut back on food consumption and pull their children from school.
CEDAC director Mr Koma said between 30 and 40 percent of all Cambodian farmers could not feed their families from their harvests, adding these households would be faced with an increase in the price of rice in the coming months.
Mr Koma said that although the high prices were “not good news” for these families, he did not expect a repeat of the situation that occurred in 2008 in Cambodia. “There is more storage capacity now in Cambodia,” he said.
Srun Darith, deputy secretary-general of the government’s Council of Agriculture and Rural Development, said he also did not fear a spike in domestic rice prices would recur and affect poor families. “I don’t have a big concern the prices will go up like in 2008,” Mr Darith said.
“It may affect the purchasing power of the net food buyer,” he said about a possible price increase, before adding, “When the prices reach an unaffordable level the government had to something.”