A Barren Harvest

cambodia, commodities, commodity prices, corn, economy

30 Apr, 2009 by New York Herald in Uncategorized

By An Channthla & An Sithav
Economics Today

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

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

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.

Editor’s Note: This article was originally published in Economics Today, a publication based in Phnom Penh, Cambodia.  Reprinted with permission.

Photo: Falling prices have produced a glut of farm products, like corn.

Credit: Economics Today