Voluntary Report - public distribution

**Date:** 3/29/2006

**GAIN Report Number:** CB6001

CB6001

**Cambodia**

**Grain and Feed**

**Grain Industry In Cambodia**

**2006**

**Approved by:**

![](media/image1.wmf)Russ Nicely, Agricultural Attaché

U.S. Embassy, Bangkok

**Prepared by:**

Sakchai Preechajarn, Agricultural Specialist

**Report Highlights:**

Upward trends in rice and corn production in Cambodia could pose some
measure of threat to U.S. export opportunities in the region in the
future.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Bangkok \[TH1\]

\[CB\]

**Table of Content**

## 

[EXECUTIVE SUMMARY 3](#executive-summary)

[I. Rice Section 4](#i.-rice-section)

[PRODUCTION 4](#production)

[CONSUMPTION 5](#consumption)

[TRADE 6](#trade)

[POLICY 7](#policy)

[MARKETING 7](#marketing)

[II. Corn Section 8](#ii.-corn-section)

[PRODUCTION 8](#production-1)

[CONSUMPTION 9](#consumption-1)

[TRADE 9](#trade-1)

[POLICY 9](#policy-1)

[MARKETING 9](#marketing-1)

##   {#section-1 .unnumbered}

## EXECUTIVE SUMMARY

Rice and corn production in Cambodia has increased rapidly in the past
decade due mainly to improved productivities and area expansion.
Cambodia has developed into a net exporter of rice and corn, and nearly
all exports are unofficial border trade with Vietnam and Thailand.

Cambodia has a high potential to further increase rice and corn
production because it still has a lot of idle land that can be converted
to cultivated area and there is room to increase productivity through
increased use of fertilizer and improved irrigation systems.

Cambodia is currently an indirect U.S. competitor in the world rice
market in the sense that it exports paddy (unmilled) rice for milling in
Vietnam, which is then re-exported onto the world market. Cambodia is
expected to play a more important role in the global market in the next
decade when improved yields and area expansion will efficiently reduce
the costs of its exportable surplus. Meanwhile, trade development
between Cambodia and Thailand under the Ayeyarwady-Chao Phaya-Mekong
Economic Cooperation Strategy (ACMECS) is likely to encourage an
increase in Cambodian corn exports to Thailand, and may pose some threat
to U.S. exports to the Thai market.

# ![](media/image2.wmf){width="5.997222222222222in" height="3.703472222222222in"}I. Rice Section

## 

## PRODUCTION

Cambodia was a major rice-exporting nation in the 1960's during a period
of political stability following independence from the French in 1953.
In MY 1964/65 rice exports exceeded 500,000 tons and Cambodia was
considered one of the rice bowls of South East Asia. The encouraging
production trend of increasing yields and growing area was reversed when
the country became embroiled in the war against communism. By 1975, when
Phnom Penh, the country's capital, finally fell to the communist Khmer
Rouge, the rice-growing area had declined by 77 percent and rice
production had decreased 84 percent from the 1970 level. During the Pol
Pot (Khmer Rouge) era (1975-1979) the country was further devastated
through mass dislocation of the population and persecution of
intellectuals and agriculturalists. As a result, Cambodia faced annual
rice shortfalls of 100-200,000 tons per annum during the 1980's.
Cambodia missed the wave of the green revolution almost totally. In the
1980's, nearly all Cambodian farmers continued to use traditional
farming practices as they had for over a thousand years. Pol Pot's
policy of dislocating farmers from their homelands also resulted in the
loss of many traditional rice varieties. Cambodia desperately needed
access to improved technology when the country's political situation
became more stable in the mid 1990's.

During the past decade, there was an influx of international aid to
relieve food shortages and poverty among Cambodians. Some international
support efforts aimed to improve productivity in rice cultivation, the
staple sustenance and primary income earner of rural people. The
Government of Cambodia (GOC), in cooperation with several International
Organizations (IOs) and Non-Government Organizations (NGOs), implemented
rice productivity programs utilizing different approaches and strategies
to increase rice yields in small farm operations. Some approaches, for
example, introduced improved high-yielding varieties, fertilizer split
applications, or improved farming practices of newly developed
techniques called "System of Rice Intensification (SRI)," integrated
pest management (IPM), etc.

As a result, paddy production has increased steadily in the past two
decades. The country turned from being a less than self-sufficient
producer with paddy production only at 2.5-2.8 million tons in the early
1980's to reaching self-sufficiency in 1985, with 3.2 million tons of
production, and finally becoming a net exporter in more recent years,
with 4.0-4.3 million tons per annum. This increase is attributed to an
expansion of growing area and significantly improved yields. Average
paddy yields rose from 1.3-1.4 tons/hectare in early 1990's to a current
2.0-2.1 tons/hectare. However, Cambodia's average paddy yields are among
the lowest in Asia, especially compared to neighboring rice-exporting
countries like Thailand (which registers about 2.7 tons/hectare) and
Vietnam (4.3 tons/hectare). There is still room to increase
paddy-growing area and productivity if the GOC can manage to increase
irrigation systems (now covering only 8 percent of total agricultural
area), improve access to high-yielding varieties, increase fertilizer
utilization in poor-quality soil areas, and introduce improved farming
practices.

The paddy growing area in Cambodia is currently 2.2 million hectares,
which occupies about 90 percent of the total cultivated land. Major
growing areas in Cambodia are Battambong, Siem Reap, Bakeo, Prey Veng,
Kandal, and Kampot. The rice growing pattern is divided into 4 groups,
including 1) rain fed lowland rice; 2) rain fed upland rice; 3)
deepwater/floating rice; and 4) dry season irrigated rice.

According to a recent report, rain fed lowland and rain fed uplands rice
represents 86% and 2% of the total rice area, respectively. Rain fed
rice belongs to a monsoon-season crop, which is seeded in May-June and
harvested in November-December. Dry season accounts for 8% of total rice
area, which planted in around November in areas close to major rivers
and their floodplains. Short-period rice varieties are normally grown
for this crop that take only about 3 months from planting to harvest.
Deepwater or floating rice is a very unique crop in Cambodia, occupying
about 4% of the total rice area. Farmers plant paddy in April-May in
areas around Tonle Sap Lake when the water recedes but still covers the
soil adequately to permit planting without soil preparation.

Nearly all of Cambodian rice farmers acquire paddy seed by collecting
grains from their own fields. Although there are thousands of local rice
varieties, most farmers are using rice varieties co-developed by the
Cambodian Agricultural Research and Development Institute (CARDI) and
the International Rice Research Institute (IRRI). In addition, rice
farmers apply very small amounts of fertilizer and pesticides to their
paddy fields.

Paddy production in MY 2005/06 is estimated at 4.5 million tons, a sharp
increase from 3.7 million tons in MY 2004/05 when production was
seriously affected by dry weather conditions. Paddy production is
forecasted to reach 5 million tons in the next few years due mainly to
increased use of high-yielding seed varieties and improved farming
practices.

## CONSUMPTION

Rice is the main staple for Cambodians, accounting for 70 percent of
daily calorie intake while the rest is from other foods (such as fish,
corn, root crops, fruits and vegetables). According to the Food and
Agriculture Organization (FAO)'s recent report, a national surplus in
rice production since 1995 does not imply that all Cambodians have
enough rice to eat. The country suffers the highest prevalence of
chronic child malnutrition in Southeast Asia, while 21 percent of women
of childbearing age have low body mass index, and women are especially
affected by multiple problems of micronutrient deficiency. These
problems are caused by poverty, a poor marketing/distribution system,
price variation, poor transportation infrastructures, and a lack of
off-farm employment opportunities to generate income.

Per capita rice consumption in 2005 is 189 kilograms, which is among the
highest countries in Asia. Like other developing countries, per capita
rice consumption in Cambodia should decline in the next decade when
growing urbanization that accompanies economic growth lead to changes in
food habits and an increase in the practice of eating away from home.

All rice farmers keep a portion of unmilled rice for their own home
consumption. This paddy rice is normally milled at home by using
traditional manual mills or at nearby small-scale rice millers. Farmers
sell their surplus of unmilled rice to local traders or nearby rice
millers for milling. Milled rice is sold to rice wholesalers in
districts or provinces, who then distribute it to retail marketers.

Prices for unmilled rice and rice has reportedly been on the rise in
recent years due to increased local demand and an upward trend in global
rice prices. Based on a recent survey, prices for MY 2005/06 main crop
paddy rice were in a range of 500-600 Riels/kilogram (approx. US\$
140/ton). Wholesale prices for milled white rice are currently 900-1,100
Riels/kilogram (approx. US\$ 250/ton).

## TRADE

Liberalization policies plus successes in improving productivity have
pushed up the rice supply considerably over the past decade. These
production increases allowed Cambodia to achieve self-sufficiency and to
export rice.

Cambodia has a competitive advantage in rice relative to other regional
and international rice producers due mainly to relatively low costs of
labor and land. However, opportunities to increase rice exports are
currently limited by a few factors, including an inferior rice
processing sector and a lack of good infrastructure in the country.

The rice processing sector is relatively less developed and
internationally uncompetitive. Despite some 3,000 milling plants
scattered across the country, nearly all of them are small-scale
operations. Rice millers reportedly have monopsony power, allowing them
to capture high margins from their business. Reliance on obsolete
milling equipment results in high levels of broken rice and other
processing losses. A lack of working capital among rice millers and the
high costs of credit limit their ability to buy paddy from farmers and
update their machinery. This encourages the unofficial export of paddy
to Vietnam and Thailand and prevents the country from capturing the
value added from rice milling. Rice millers have limited access to
foreign markets, given their inability to produce consistent amounts of
standard varieties of milled rice and their lack of information about
foreign market conditions. A recent survey found that there are only a
few modern rice millers that are able to export milled rice to overseas
markets.

Prevailing poor infrastructure, especially roads, ports, and electrical
power, raises the marketing costs of various agents in the chain, thus
reducing the volume of trade and margins. In addition, there are also
other transactions costs in Cambodia such as illegal fees while
transporting rice from farm-gate to port.

The official record on exports of paddy and milled rice in Cambodia is
low because of high prevailing under-reported and/or illegal exports.
The official exports in the last several years have been far behind the
estimated actual exports. For example, the reported export of milled
rice reported by the Customs and Excise Department in 2003 was merely
US\$ 0.6 million, while unofficial exports estimated by the Economic
Institute of Cambodia reached US\$ 111 million.

Based on an interview with one of the largest rice miller/exporter's in
Phnom Penh, Cambodia's exports of milled rice for MY 2005/06 were pegged
at about 40-50,000 tons. Major markets for Cambodian milled rice are
Japan and the EU countries. Exports in MY 2004/05 were reportedly low,
about 15,000-20,000 tons due to a severe drought in the country. Exports
of paddy rice are totally illegal border-trade, which are shipped to
only Vietnam and Thailand. Trade sources reported that paddy rice
exports may reach to 500-600,000 tons in MY 2005/06, about 90 percent of
total exports to Vietnam and the rest to Thailand.

Cambodia also imports paddy rice from Vietnam when there is short supply
at the end of market year or when disaster strikes Cambodian rice
production. Meanwhile, Cambodia imports an unrecorded amount of
high-quality milled rice from Thailand to meet the need of high-income
consumers in large cities like Phnom Penh, Poi Pet, etc.

## POLICY

Cambodia's rice trade policy has been changing from a planned economy
model into an open market model since Cambodia joined Association of
Southeast Asian Nations (ASEAN) in 1999 and World Trade Organization
(WTO) in 2004.

Cambodia no longer implements any quantity restrictions on rice imports
and exports. Current import duties on milled rice are 7 percent plus a
10 percent of value-added tax (VAT).

The Government of Cambodia (GOC) has made some efforts to improve rice
productivities through its establishment of the Cambodian Agricultural
Research and Development Institute (CARDI) as an agricultural research
center (financially supported by the Australian Government) and by
increasing irrigation systems. However, on the marketing side, the GOC
does not offer any price support or intervention programs for paddy or
milled rice.

There are no clear measures or food security policy to establish a
national reserve of rice or putting a distribution in place for poor or
disaster-affected citizens.

## MARKETING

There are no opportunities for U.S. rice in Cambodia at the moment due
to its relatively higher prices. Also, high-quality rice from Thailand
as well as the prevailing preference for local varieties among Cambodian
consumers makes it a tough market to enter. On the other hand, Cambodia
is currently an indirect U.S. competitor in the world rice market in the
sense that it is exports paddy rice to Vietnam for milling, which in
turn is re-exported onto the world market. Cambodia is expected to play
a more important role in the global market in the next decade when
improved yields and area expansion will efficiently reduce the costs of
its exportable surplus.

# II. Corn Section 

## ![](media/image3.wmf){width="5.997222222222222in" height="3.703472222222222in"}PRODUCTION

Cambodia's corn production has grown rapidly in the past decade from
about 50-100,000 tons in the late 1990's to 320,000 tons in MY 2004/05.
Production in MY 2005/06 is estimated to drop from the 2004/05 level to
270,000 tons, due mainly to unfavorable weather conditions in Pailyn,
Battambong, and Banteay Meanchey Provinces, which are the major growing
corn areas. A lack of rainfall in July-August 2005 wiped out some
portions of these major growing areas while average yields dropped from
the previous season.

Based on a recent survey, increased cassava acreage is likely to replace
a portion of corn area in 2006, especially in the provinces along the
Thailand-Cambodian border. As a result, the growing area for corn is
forecast to decline in MY 2006/07. However, given normal weather
conditions, harvested area for corn and average yields in MY 2006/07 are
forecast to increase from the 2005/06 levels.

# 

# The corn area in Cambodia is centered in three provinces along Thailand-Cambodia border, including Pailyn, Battambong, and Banteay Meanchey Provinces. The growing area in these three provinces accounts for 80 percent of the total corn area. The rest of the growing area is located in Kampong Cham and Takeo Provinces along the Mekong River. Although corn production can be divided into three different crops, the main crop is a rainy season crop, which is seeded April-June and harvested in August-October. All growing corn areas in Cambodia are rain fed.

Trade sources reported that Cambodian farmers adopt new agricultural
technology very well, especially the use of high-yielding hybrid corn
seeds. Charoen Pokphand Group (C.P.) from Thailand has successfully
introduced hybrid seeds to Cambodia corn growers. Hybrid seeds dominate
about 90-95 percent of the total corn area now. The market share of C.P.
hybrid seeds is about 70-80 percent, while the balance goes to hybrid
seeds from Vietnam and other multinational companies. Due to high use of
hybrid seeds, average yields of corn grown in Cambodia are about 4.0-4.5
tons/hectare, close to yields in Thailand.

Cambodia has the potential to increase its production to a million tons
per annum quite easily in the next 3-5 years because it still has a lot
of idle land that can be converted to corn area and there is still room
to increase corn productivities through increased use of fertilizer and
improved irrigation systems.

#  

## CONSUMPTION

Corn is used as feed ingredients for livestock and poultry feeds (hog
feed, broiler feed, and duck feed), accounting for about 50 percent in
feed rations. Demand for corn for feed processing is limited to
40-50,000 tons per annum because the livestock and poultry sectors in
Cambodia are small. Charoen Pokphand Cambodia (C.P. Cambodia) from
Thailand is the only commercial feed mill in Cambodia, accounting for 80
percent of total feed production, while the rest belongs to
non-commercial feed produced in medium-scale livestock farms (mostly hog
farms).

Domestic corn consumption is forecast to grow 10-20 percent per annum
during the next few years due to an ongoing emergence of new livestock
and poultry farms in Cambodia. C.P. Cambodia has just expanded its
production capacity and plans to double their feed production from about
55,000 tons in 2005 to 80-100,000 tons in 2006.

# 

## TRADE

Cambodia does not import any corn. Official trade data on corn exports
does not reflect actual trade, as most exports are unofficial
border-trade. It is estimated that 80-90 percent of the exported corn
goes to Thailand, and the rest to Vietnam. In MY 2005/06, Cambodian corn
exports is estimated at 220,000 tons.

## 

## 

## POLICY

Like rice, the GOC has no any price support nor price intervention
programs for corn. Import duties are the same as those for rice (7%)
plus 10% value added tax (VAT).

## MARKETING

Market opportunities for U.S. corn in Cambodia are minimal due to its
small feed market. On the other hand, increased Thai imports of corn
under ACMECS' favorable zero-rate tariff from neighboring countries
including Cambodia may impose some threat to U.S. exports of corn to
Thailand in the future.

End of Report.