Rice Price Volatility Leads to Gov’t Action

With Farmers Vulnerable, Policy-Makers, Experts Look for Ways To Stabilize Prices and Production

In March 2008, the price of rice in Cambodia peaked, hitting record highs of 4,000 riel per kilogram, or $1,000 per ton. People in cities and towns were shocked by the rocketing prices, while on a wave of exuberance Minister of Commerce Cham Prasidh declared that Cam­bodia had struck gold—white gold, to be exact, in the form of rice.

But by the end of last year, rice prices plummeted. The nation’s largest crop had lost more than 75 percent of its value, and was selling for the more usual price of about $200 per ton, according to the Min­istry of Agriculture.

Several months on, and the price of the highest quality rice is currently being sold for around the $400 mark, said Phou Puy, president of the Association of Cambodian Rice Miller Federation in Cambodia.

The turbulence in prices that far­mers have had to contend with in the past year as well as the vulnerability of the population to volatility in the price of the country’s food staple is prompting agriculture experts and policy-makers to devise new ways of ensuring a stable supply and more stable price for rice.

“The rice market is in fact a very sen­sitive one because the volume tra­ded is so small in relation to the production. If one country experiences a sharp change, it has an effect on everyone,” said Yang Saing Koma, director of the Cambodian Center for Study and Development in Agriculture.

Only 7 percent of the world’s rice output is actually exported. But in Cambodia this figure is much higher with farmers exporting 2 million out of the total 7 million tons of rice produced in the country every year, Mr Saing Koma said.

The dramatic rise in the domestic price of rice last year was not sim­ply a matter of demand outstripping supply, as 2008’s harvest was just as productive as in previous years, Mr Saing Koma said, noting that he agreed with the explanations outlined in a report released earlier this month by the US De­part­ment of Agriculture.

The report, titled “Factors behind the rise in global prices in 2008,” blames trade restrictions by major suppliers, panic buying and a weak dollar for the dramatic rise in prices internationally.

Chet Mao, a rice farmer from Ban­teay Meanchey province, typifies the situation that leaves local far­mers exposed to global conditions.

Mr Mao said that whatever the asking price is, he is obliged to sell his rice as soon as it has been harvested just to make ends meet. This means he cannot store crop in anticipation of prices going up as better off rice traders in other countries are able to do.

It is widely accepted that 70 percent of rice farmers in Cambodia own less than 1 hectare of land.

“As there is very little stockpiling and the farmers are often very poor, they sell the rice nearly straight away. What’s more, be­cause everybody produces at the same time, they sell it at its cheapest,” said Herve Conan, program officer at the Agence Francaise de Devel­oppement, the French government’s international aid arm.

According to Mr Conan, Cam­bodian farmers must increase both their productivity and the quality of their rice in order to build a more stable and profitable rice industry.

For Mr Phou Puy, of the rice mill­ers federation, a major factor is the development of a better irrigation program.

Unpredictability surrounding the duration of the rainy season, as the majority of the country’s paddies are rain fed, and the lack of irrigated fields means Cambodian farmers often use highly resistant seeds that can sometimes produce lower quality rice.

“During some years the rainy season ends early, leading to a big loss,” he said. “In Vietnam and Thailand the amount of irrigated land is far superior to that of Cambodia meaning they can have 2 or 3 harvests a year compared to only one in Cambodia.”

Mr Conan said that simple initiatives such as installing sprinklers can double the productivity of the rice paddies. In one project that has been carried out by AFD aimed at distributing sprinklers, the rice yield per hectare increased to between 5 and 6 tons from the national average yield in Cambodia of around 2.7 tons.

The small amount of irrigated fields means that Cambodia produces 6.8 million tons of rice a year in comparison to Thailand’s 19.3 million tons, according to the US Department of Agriculture.

Another problem inhibiting the profitability of Cambodian rice farmers is that, generally, the price of rice is valued much lower than that of its neighbors.

In both Thailand and Vietnam, two of the world’s biggest export­ers, rice is currently selling for above $500 per ton for the highest quality rice.

According to Yang Saing Koma, unmilled Cambodian rice paddy is in fact sold in large quantities at an inferior price to both Thailand and Vietnam where it is milled and finished and either exported internationally or sold back at a higher price into the Cambodian market.

“Cambodian rice is exported to Thailand and Vietnam for a lower price, where it is milled and adds to their export capacity,” he said.

From Sept 1, rice will be completely duty free when being ex­ported to Europe, making Cam­bodian rice cheaper than Thai rice, a glimmer of hope for the future, but quality and supply will still be an issue.

For Stephane Boulaki, a technical assistant with the French-based Centre de Cooperation Inter­nationale en Recherche Agro­nomique pour le Developpement, a public institution that is currently working on projects with the Agence Francaise de Develop­pement and the Cambodian Ministry of Agriculture, one of the main issues at hand is productivity.

“Many areas in Cambodia are currently experiencing a local deficit in rice production,” he said, adding that efforts to irrigate the land in Cambodia are in fact a very complex process.

“In some areas like Battambang and locations near a river which floods regularly, farmers have to wait until the flooding eases before they can plant the rice. Whereas farms on higher land are dependant uniquely on rainfall,” he said.

Putting the situation into context, Brooks Evans, an economist at the UN Development Program, said that Cambodia has the lowest yield per hectare in the 10-nation Asean region. And yet he says the productivity per day worked by Cambodian farmers is actually higher than the majority of those nations.

The major reason for the land’s poor performance is the limited amount of investment in agriculture from the private sector.

“No private investors would be able to invest because the amount of work to do is so huge,” said Wisal Hin, poverty reduction unit leader at the UNDP. “The risk involved is just too high.”

Mr Conan also agrees that attracting investors is easier said than done.

“If you invest in production then the costs are automatically high because the land often has to be irrigated,” he said.

Likewise, “if you invest directly in the rice fields then costs are still high because electricity in Cambodia is the highest in Asean.”

According to Mr Conan, technological capacity is also an issue. He explained how in Cambodia, half the weight of the harvested rice plant is actually turned into rice fit for the market. In Thailand, this figure is 60 percent.

To help increase investment from the private sector, AFD are currently working alongside the International Trade Center to secure the loans that the banks lend to rice farmers. The idea is to insure that the risk in lending to farmers, who are often very poor, is more spread. The banks will, therefore, be less exposed and will hopefully feel more comfortable about lending.

To meet the high demand for a makeover of the rice industry in Cambodia, the Ministry of Agriculture says it has introduced a series of strategic plans to help farmers.

Secretary of state for the Ministry of Agriculture, Chan Tong Yves said the government is trying to promote rice production in Cambodia by introducing “irrigation improvements, the teaching of farming techniques and the spread of micro-financing programs,” with the help of donors such as the International Finance Corporation and Agence Francaise de Developpement.

He added that 1 million hectares of Cambodia’s rice fields were now sufficiently irrigated.

But there is still a mountain to climb until Cambodia rises to the same level as that of its neighbors in Thailand and Vietnam, meaning the word on everybody’s mouth, for now, is still just potential.

Cambodia’s low productivity in the agriculture sector puts a major cap on the size of its economy seeing as agriculture generates 32 percent of the country’s GDP and employs 4.75 million workers of the 8 million people that make up the labor force.

(Additional reporting by Neou Vannarin and Phorn Bopha)


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