Weakest Links

For Farmers, Prosperity Begins at Home

By An Channthla
Economics Today

Cambodian farmers make up around 80 percent of the Cambodian population but have so far seen little benefit from agri-business.

For all the talk of exports abroad, Cambodian products are often not even available in Cambodian markets, increasing Cambodia’s trade deficit and wasting a golden opportunity to alleviate the stubborn poverty afflicting the kingdom’s smallholders.

Cambodian farmers’ inability to grow produce for market means crops from other countries, especially neighboring Thailand and Vietnam, flow in to Cambodia. Fruits, vegetable, eggs, chickens, pigs and other products grown and raised in Cambodia are imported over much is more modern than some of the other commercial banks or the payment systems of the NBC, and is safe and highly secure. In Channy, president and CEO of ACLEDA Bank, told Economics Today that ACLEDA’s substantial and sustainable growth every year relies on its powerful payment system. “ACLEDA bank has spent a lot of money for setting up a core banking system—T24. The core banking system provides us real time and on time information, including the creation of mass reports for the bank management,” he said. In Channy lauded the NBC’s move toward a payment system for clearing house members called Client Module. Under this system, clearing house members can input all cheque data at individual bank premises and send the data to the Clearing House. Still, the system is not exactly cutting edge-all cheques must be sent to the Clearing House. longer distances to Cambodia’s markets.

“Before we think about markets in foreign countries, Cambodian farmers should produce to fulfill the domestic demand, as consumers here use products from other countries a lot now,” said Dr. Yang Saing Koma, director of the Cambodian Centre for Study and Development in Agriculture (CEDAC).

Reliable data is scarce, partly because much of what is imported into Cambodia is still not officially recorded. According to the few informal market research institutions on agricultural products, between 50-60 percent of products on sale in Cambodian markets are imported from Vietnam and Thailand. Cambodian farmers thus lose their opportunity to benefit from their local market, and the trade deficit in agricultural products widens, said experts.

A two year regional project, “Linking Small Farmers to Market” (LSFM), seeks to remedy the situation. Running since 2008 in three pilot countries, the Philippines, Cambodia and Vietnam, LSFM is helping Cambodian farmers to improve their capacity to sell agricultural products in the local market.

“Since the pilot project has started in Cambodia, we see improvement, with more farmers linking to the market,” said Dr. Yang Saing Koma. “We hope that Cambodia can compete with neighboring countries, but it takes time to do this.”

The fast pace of agricultural trade liberalization and the opening up of markets is both a threat and an opportunity for small farmers in Asia. In the liberalized market, small farmers and agricultural producers are unable to maximize the benefits of their production efforts. The income derived from farming is low because they are unable to benefit from the price differential that happens after their produce leaves the farm and reaches the consumers.

Various studies have already demonstrated the impact of the influx of cheap agricultural products from other countries on Cambodia’s small farmers. However, there are also successful cases where farmers with appropriate support were able to capture opportunities in the liberalized market.

The two year LSFM project has focused on building the capacity of both male and female leaders of small farmers’ organizations and cooperatives, together with their partner NGOs and agri-agencies, to respond to agricultural marketing issues faced by small farmers and producers.

It has also undertaken the formation of marketing intermediation mechanisms that link small farmers to markets, helping lessen transaction costs and increase the benefit of engaging with the market for smallholders.

In Cambodia, the project was kicked off by CEDAC in early 2008 with support from the ASEAN Foundation through Asia DHRRA based in the Philippines.

Cambodia identified chicken as an initial focus because most Cambodian farmers raise chickens, and chickens are in demand in the local market. CEDAC says it is currently helping 150 households in 10 communities in Kampong Cham and Kampong Thom raise chickens.

CEDAC claims that, in the two years the project has been running, farmers have seen their incomes rise, and more farmers have expanded their chicken raising activities.

“Cambodia has potential in agriculture and agri-business; it has large spaces and opportunities to develop this sector,” said Dr. Kang Chandararoth, the Cambodia Institute of Development Study (CIDS) president.

Weighed Down

Cambodia’s challenges, however, are also considerable.

Low productivity is partly the result of farming that relies on ageold, pre-industrial techniques. Farmers reap relatively small crops for a large input of labor. Knowledge of product standards, a necessity even for Cambodian markets, is practically non-existent.

An increasing attention to quality and product safety in Cambodia means stiff competition from imports, said Dr. Yang Saing Koma, director of CEDAC.

And donor projects are not a complete solution—without transport infrastructure, getting goods to market is a losing battle. Indeed, driving produce in from a neighboring country using newly resurfaced National Roads is often much quicker and easier than transporting from much closer Cambodian provinces, and that’s without factoring in the higher price of energy used in production.

Luckily, the Cambodian government’s Agricultural Products Export Promotion Action Plan 2009-2013 focuses on developing both physical and non-physical infrastructure to up the quantity, and improve the quality and safety of products. Improving laws, regulations and facilitation— the non-physical infrastructure—is also important in promoting local produce.

In addition, a lack of capital investment and loans with high interest rates keep smallholders tied to their cheap but inefficient traditional practices.

Poor market information and lack of trade experience make Cambodian farmers easy to dupe, with smooth-talking buyers often keeping the lion’s share of the profits.

The Ministry of Agriculture, Forests and Fisheries is aware of what is at stake. “Now Cambodian agricultural trade is in deficit, and the deficit will continue to go higher and higher if there is no appropriate intervention,” said a representative of MAFF’s Trade Promotion Secretariat of Agricultural Products.

To promote agricultural trade, both farmers and the government must work together, he added. Farming communities must link their land together to benefit from economies of scale and ensure sustainable supply in quantity.

The government has to provide good trade facilitation, invest more in infrastructure and clarify national standards for agricultural products, he added.