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Cambodia's rice revolution

091105_08

With plenty of surplus rice but only recently the infrastructure to process paddy, the Kingdom is about to see exports soar, says Phou Phuy, head of Baitong Co

CEO TALK

By Nguon Sovan



Photo by: HENG CHIVOAN <
Phou Phuy, head of Baitong Co, says Cambodia can benefit from the recent offering by the European Union of duty-free status for the country’s rice exports.

Cambodia will be able to export rice at volumes comparable to neighbouring countries in the near future.

Baitong Co has just invested millions of dollars in post-harvesting machinery for rice-processing at your Battambang plant. What is your business strategy?
Currently, Cambodia can export only 6,000 to 7,000 tonnes of rice to Europe because it has no post-harvesting technology to process rice to an international standard, so the rest of the husked rice has been sold to Vietnam and Thailand.

We are building this factory in order to enable Cambodia to export more rice to overseas markets.

The latest post-harvesting technologies are from Japan. This will process quality rice for export.... Without it that would be no way to export quality rice.

The mill cost US$7.8 million including the cost of 16 hectares of land for the site.

Construction began in August 2008, and up to now a rice store and drying machine are in use.

The remaining processing machine, polishing machine and packaging machine will arrive in mid-November and will take a fortnight to install.

When will all the machines be up and running, and what kind of capacity will they offer?
Operations will begin in January next year, and therefore the exports of good quality rice to overseas market will begin at the same month.

The post-harvesting technologies will be capable of producing 720 tonnes of processed rice per day (running 24 hours a day), or 259,200 tonnes per year, for export.

This amount is still low because Cambodia has about 2 million tonnes of husked rice or more than 1 million tonnes of milled rice in surplus for export.

What challenges remain in developing the rice industry for export to markets overseas?
Now there is no concern over the market, but the concern is that there is no capital to buy husked rice from farmers to process – the market is waiting for us.

With this post-harvesting machinery we also now have no concern over the quality of our rice in terms of meeting the necessary standard of overseas markets. It’s about quantity due to limited capital resources.

The limited capital to buy in husked rice from farmers is a concern for us and it is an obstacle to increasing stocks to process for export.

Currently, according to data from our 700 rice millers, 300,000 tonnes of husked rice worth $75 million has been purchased from farmers for stock with their own capital and loans from the Rural Development Bank (RDB).

This year, due to a good market, millers may increase purchases of husked rice for stock up to half a million tonnes because the RDB has offered more loans.

Financing from banks is very important for collecting rice from farmers.

When millers have more capital to buy husked rice … more will be processed in Cambodia for export, without selling out to Vietnam and Thailand.
In fact we do not want to sell husked rice, but due to limited capital we have to sell it all.

Another challenge for rice-market development is that some farmers use seeds that are not popular on overseas markets, so now we are educating farmers to change to types that are appropriate for European markets [in particular] which gain high prices, and produce high yields … up to 5 tonnes per hectare, compared to 2.5 tonnes to 3 tonnes with the current seeds.

You mention capital problems. To what extent have the RDB and private banks helped the sector this year?
With RDB, it has a special arrangement with the government so that interest rates are just 5 percent per annum.

This year, RDB has set aside $18 million to lend to rice millers, an increase of 38 percent on last year.

But thus far the [Rice Millers] association hasn’t accessed it, while interest rates at commercial banks are between 10 and 12 percent per year.

This is an acceptable rate, but in terms of developing Cambodian rice-milling, it would be more helpful if banks lend at 7 percent per year.

With limited capital, how concerned are you that Cambodian millers cannot compete with their counterparts in Thailand and Vietnam, in terms of buying up rice from farmers following the harvest beginning this month?
We cannot compete with them in buying rice from farmers because [millers] buy wet husked rice … because they have drying machines, while Cambodian millers – about 99 percent – have no drying machines or other modern post-harvesting machines.

On the other hand, we do not have much capital to buy all the rice from farmers.

Transportation costs in Cambodia remain high. How can Cambodia compete with its neighbours in terms of shipping exports to Europe?

In terms of transportation, it’s true that costs here are higher than in those countries.

We do not have a railroad, and their transport companies offer cheap fees, so expenses are higher … but we have more favourable conditions since September when Cambodia was given duty-free status on rice exports to European countries.

Therefore, tax exemption on rice will enable Cambodia to compete with Vietnam and Thailand on rice exports to EU countries.

In Europe, a tonne of good quality rice is about $940, and standard quality around $600.

How else will Europe’s decision to eliminate tariffs on Cambodian rice affect the domestic industry?

The tax exemption is a golden opportunity for Cambodia.

Cambodia is thus far not well known for exporting rice, so we will have difficulties, as we have not really exported rice before.

Therefore we do have overseas market partners. They do not know us, but they know Thailand and Vietnam.

However, I am worried that tax exemption will be a chance for neighbouring investors to do business in Cambodia in order to export rice from Cambodia to other countries duty-free.

It’s good for Cambodia if they’re serious, but we are concerned that they would just start companies to get a licence to export rice … then export just a little Cambodian rice and then bring in foreign rice … to use the Cambodian name to export to Europe so as to benefit from tax exemption.
If this were to happen it would kill local rice exporters.

Given the situation now, how do you see the future of the domestic rice industry?
Cambodia will be able to export rice at volumes comparable to neighbouring countries in the near future.

Cambodian rice will become well-known on international markets next year when our mill is in operation.

Companies from Canada, Australia, France, Germany, Japan, the Philippines, Indonesia and Malaysia have visited Cambodia and told me that they need rice from Cambodia.

So far, contracts have not been signed, but when our machinery is in operation, we will invite them to visit our factories, and contracts will be agreed.

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