A Barren Harvest

Falling prices have produced a glut of cash crops like corn

By An Channthla & An Sithav
Economics Today

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As Cambodia’s other sectors reel from the onslaught of the global economic crisis, the agricultural sector was initially seen as a safe haven. But waning agricultural exports and falling prices have left small holders and the barons of agro-industry alike hurting and worried about the future.

According to an International Labor Organization (ILO) report, commodity prices that are dependent on international market will inevitably fall during a downturn. In Cambodia, cash crops such as maize, cassava, and pepper sold to Thailand, Vietnam and China are at risk as the global economic slowdown reduces demand for manufacturing products from these economies, leading to fewer sales at lower prices for Cambodian farmers, the report said.

Though only a fraction of the kingdom’s agricultural output is exported (about 20 percent), the farm gate price-the price paid to farmers for their produce by buyers- changes in line with export prices. Thus a fall in export demand causes a drop in the export price, and a further drop in farm gate prices.

Dr. Theng Vuthy, program coordinator at the Cambodia Resource Development Institute (CDRI), said that the prices of popular cash crops have been savaged by the economic crisis. Comparing export crop values from November, 2007 with prices from November, 2008, total soybean exports lost US$8.1 million in value, maize lost US$4.1 million, rubber US$36.9 million and cassava lost a staggering US$95.1 million. Cassava and rubber are “severely affected by the crisis,” Dr. Vuthy added.

Rice, soybean, maize, cassava and rubber have indeed plummeted in price, confirmed Chhim Vichara, deputy director of the Department of Agriculture in Battambang province. These crops were aggressively promoted as a way out of poverty for farmers, leading many to plant them. But as the economic crisis broke, demand for agricultural fell markedly, he said, especially the cassava usually exported to Vietnam and Thailand. Farmers in Battambang could unload only half of their cassava harvest, he lamented, with little chance of a sale later on because of cassava’s short shelf life.

Heng Bonhor, the director of the Banteay Meancheay Provincial Department of Agriculture, said the situation is even worse in some areas of his province. The few exports to Thailand, such as the dry cassava sent from Malai district, receive only rock bottom prices, though other areas, such as Svay Chek and Thma Puok districts, cannot find buyers at all. Rice and cassava crops are the main income for Banteay Meanchey farmers who have become used to exporting to Thailand every year, he added, leading many to rely on the income from exports.

Pao Suy, representative of farmers from Thnot commune, Prey Veng province, was familiar with such a scenario. Farmers mostly sell to neighboring countries because Cambodia lacks infrastructure to process crops, and “anyway, [farmers] grow all their crops because of foreign demand [in Vietnam],” he told Economics Today.

“Increasing agricultural outputs is [in theory] … a good thing in terms of increasing rural income,” he said. “But the most pressing problem that farmers face is that there is no market for their agricultural products.”

Yin Kimly, representative of another farmer association in Kandal province, said that the lack of a market leads around 2,500 families to leave paddies fallow in the dry season, despite their potential to deliver more than just a single harvest. “The rest of the time … they grow some vegetables to just to survive,” he said.
Withering Demand
Source: Impact of High Food Price in Cambodia, CDRI, 2008; AMO Price Bulletin, 2007-Jan, 2009

Even major exporters like Mong Reththy and TTY Tapioca complain about a slump in demand for cassava and rubber.

The price of tapioca starch this year fell by about US$185 per ton, a far cry from the US$ 330-340 per ton of 2007, said Tan Kosal, administrative director of TTY Agricultural Plant Development. The price of tapioca starch continued to increase through the first half of 2008, he added, before fading at the end of 2008. In 2007 the company exported 10,000 tons, stopping tapioca starch production in 2008 to Farmers Hit by Falling Demand, Prices Falling prices have produced a glut of cash crops like corn 18 Economy & Business April 16-30, 2009 Economics Today increase production capacity with new plant machinery. The company projects only 5,000 tons of exports this year.

Vietnam is the largest export market for TTY’s tapioca starch, with China, Indonesia, Malaysia, Philippine, Korea and European countries smaller buyers. The far lower prices offered by Vietnamese buyers for tapioca starch, led Tan Kosal to voice concern over the amount of money lost. Future prices and market demands are unclear, he said.

Plummeting oil prices have caused a sharp contraction in Chinese demand for cassava used to produce ethanol fuel, said Chan Sophal, president of the Cambodian Economic Association (CEA). Most Cambodian cassava export to Thailand and Vietnam also ends up in China for fuel so these markets will also dry up, he added.

The crash in the automotive industry has sent the demand for rubber skidding downwards, so rubber exporters such as Cambodia should expect the industry to shrink, said Chan Sophal. Cheaper crude oil has also led many factories to use oil-derived raw materials instead of rubber, further reducing demand and driving down prices.
Sowing the Future
Source: AMO Price Bulletin, 2007-Jan 2009, MAFF

With around 80 percent of the population farmers and agro-industry hoped to be one of the few areas of Cambodia’s narrow industrial economy to survive the crisis, experts are concerned about the possible consequences of sustained low prices.

Many local farmers borrowed money from microfinance institutions (MFIs) to increase production and replant fallow land. Much of this year’s agricultural harvest has gone unsold, leaving many farmers with debts, said Heng Bonhor.

Unfortunately, Cambodia cannot intervene in the short-term to increase prices and boost agricultural exports because of its free market economy, where everything is driven by market demands, said economists.

The World Bank has advised that finding a “market for the crops is very significant while the other sectors (garments, tourism and construction) are affected from the global economic crisis.”

In the short-term, “developing countries have to seize opportunities for agricultural products in both ASEAN markets and other developing countries”, said the Sustaining Rapid Growth in a Challenging Environment report. “For the long-term, expand the range of options by upgrading [infrastructure and skills].”

For Dr. Vuthy, Cambodia’s underutilized, sparsely populated land holds great promise. “There is significant potential to expand production areas,” he said. “Like most developing countries, Cambodia’s endowment structure is characterized by a relative abun

dance of natural resources and unskilled labor and a scarcity of human and physical capital … Downturn in other sectors may provide labor for the agriculture sector so Cambodia now has potential to boost economic growth.” Finding additional markets through bilateral agreements with Middle Eastern and African countries, and nations in East Asia will also be crucial, he stressed.

Chan Sophal also cited the potential but said that irrigation, roads, affordable credit, machinery and know-how will be the necessary foundations for any agricultural revolution. Some projects already agreed upon are lagging, he continued. “Cambodia has … 65 land economic concessions with the total area granted are about 1 million hectares [but] most companies have not yet implemented their projects.”

In the medium- to long-term, Cambodia must expand its secondary industries so that crops can be refined and processed domestically, said Son Chhay, a parliamentarian for the opposition Sam Rainsy Party. The kingdom should try to avoid depending on neighboring countries in future, he added.

Farmers’ representative Pao Suy agreed. Markets in countries besides Thailand and Vietnam are needed before Cambodians will receive a fair price for their products, he said. Currently, he claimed, agricultural products are sold to Vietnam through Cambodian middlemen who pocket most of the profits.

SRP, HRP call for rural relief

Kem Sokha, right, and Sam Rainsy at a press conference Wednesday. (Photo by: HENG CHIVOAN)

Thursday, 19 February 2009
Written by Meas Sokchea
The Phnom Penh Post

Claims low prices are driving farmers to the brink of survival

THE country's two main opposition parties called Wednesday for immediate government action to help indebted farmers struggling with plummeting produce prices. More than 80 percent of Cambodians rely on farming for their livelihood.

In a joint press conference, the Sam Rainsy Party (SRP) and the Human Rights Party (HRP) said the government must act to ensure banks do not confiscate land pledged by farmers as collateral for loans.

They also demanded the government introduce mechanisms to stabilise the prices paid to farmers for their crops.

SRP President Sam Rainsy said that other countries facing this type of situation would undertake similar actions to protect farmers' lands.

"First the debts must be suspended and interest on their loans must also be reduced while we wait on the situation to resolve itself," the two parties stated in a letter to Prime Minister Hun Sen.

In the letter, made public at the press conference, they said crop prices had declined between 30 percent to 80 percent for crops such as paddy rice, corn, beans and cassava, plunging farmers into crisis.

Calls for relief

HRP President Khem Sokha said the parties - which have a combined 29 seats in the 123-seat National Assembly - could not keep silent.

Kem Sokha added that farmers in his constituency were borrowing sums of up two million riels at three percent interest and were worried about the coming months.

"We cannot sit and wait while people are suffering - we must act," he said.
"Even though we are the opposition and have no power to decide or to force the banks to act, we do have the right to call on the government to take action."

A recent IMF report noted that inflation in late 2007 through to mid-2008 saw food prices rise sharply - as high as 45 percent year on year in May 2008.

The cost of farming inputs such as fertiliser and diesel also rose, hitting farmers hard.

With thousands of farmers having borrowed to pay for the increased cost of inputs, their land was now at risk since falling produce prices could leave many unable to service loans.

But Senior CPP lawmaker Cheam Yeap dismissed the call as an opposition stunt to attract votes ahead of the upcoming council elections. He said the government had already taken steps to alleviate problems for farmers.

"[Prime Minister Hun Sen] has ordered the National Bank of Cambodia to tell banks to provide money to farmers and workers at low interest, and not to confiscate their land," he said.

"We have also ordered the Ministry of Finance and the Ministry of Agriculture to increase market prices for farmers."

Opposition renews calls for $500 million stimulus package

Thursday, 29 January 2009
Written by Sam Rith and Sebastian Strangio
The Phnom Penh Post

SRP and HRP claim falling agricultural prices are hurting Cambodia's export economy, but govt officials say they have $3 billion in reserve.

OPPOSITION lawmakers have made renewed calls for the government to prepare a US$500 million economic stimulus package, claiming the Kingdom's export-oriented economy is being hit hard by falling global prices for agricultural produce.

In a letter sent Tuesday to Prime Minister Hun Sen, 18 parliamentarians from the Sam Rainsy Party (SRP) and Human Rights Party (HRP) restated a request that $500 million be set aside to protect the economy against further degradation.

"Due to a dramatic drop in the price of agricultural produce ... the income as well as the livelihoods of millions of Cambodian farmers has worsened dramatically," stated the letter.

"We hope that the government will prepare measures to help our farmers maintain their livelihoods."

In particular, the letter called for government support of agricultural prices and the provision of low-interest loans to those in financial need, reiterating the contents of a letter SRP President Sam Rainsy sent to Hun Sen on January 16.

‘Lucky' economy

But CPP lawmaker Cheam Yeap dismissed opposition claims, saying Cambodia had been "lucky" to avoid the worst impacts of the crisis and that it has large funds set aside that would cushion the country against financial instability.

"We have prepared things in advance," he said. "Each year we have a reserve budget of between $200 and $300 million. Now we have almost $3 billion in the National Treasury that has not yet been used."

In response, Sam Rainsy dismissed the government's claims it was ready to weather the storm.

"What the government has actually set aside for the fiscal year 2009 as "unplanned expenditures" - $144 million compared with $132 million for 2008 - is not adequate to cope with the deteriorating situation," he wrote in a January 26 letter to the Post.

Export woes

Economist Sok Sina agreed with Sam Rainsy that falling prices would harm the Cambodian economy, saying that grass-roots benefits - such as cheap petrol and rice - were outweighed by the overall decline in prices of agricultural produce.

"The price of petrol has declined, but not much else," he told the Post.

"Low prices benefit many rice consumers, but not if you look at the economy as a whole. Cambodia is a rice-exporting country, and if the price of rice is low, the Cambodian economy will not benefit."

He said that the opposition's call made economic sense, although it lacked details.

"I think it's a good idea. If you look at the budget plan for 2009, you can see [it] has increased compared to 2008. Credit and aid has also increased," he said.

SRP lawmaker Son Chhay called for the Minister of Economy and Finance Keat Chhon to answer concerns set out in the letter when the National Assembly next convenes.

"It is necessary for the public to know about the government's program," he said.