Rice millers said yesterday they welcomed the prime minister’s announcement that the government would make over $20 million in funds available shortly to support cash-strapped millers and prop up falling paddy prices.
“We’ve been waiting for these loans for a long time like fish waiting to be fed,” said Phon Nary, director-general of Heng Huch Rice Mill in Battambang province. “I hope to receive the loans soon so that we can survive.”
Cambodia’s rice industry is facing a crisis as two consecutive years of drought take their toll on farmers and millers struggle to stay afloat.
Millers have repeatedly called on the government and industry bodies to facilitate emergency loans, arguing that liquidity shortages prevent them from purchasing paddy rice from farmers, one factor contributing to a steep decline in market prices on paddy in recent weeks.
According to the Ministry of Economy and Finance (MEF), the average farm-gate price of paddy has plummeted from $240 per tonne to $192 per tonne over the past month as farmers short of capital and desperate to pay back debts sell off their paddy, even at a loss.
Prime Minister Hun Sen raised the struggling sector’s hopes on Friday when he announced on his official Facebook page that the government-backed financing to millers promised three months ago could soon be released.
“In the past few days, I’ve ordered the Ministry of Economy and Finance and other relevant institutions to find solutions to this issue. Now, the Royal Government of Cambodia found some necessary measures to intervene in increasing the paddy rice prices, including the use of a budget of at least $20 million along with other funds to support the paddy prices.”
The posting was the clearest indication to date that the government will issue lines of credit to shore up the Kingdom’s struggling rice sector.
Hours later, the Ministry of Economy and Finance announced it would provide $27 million in loans to millers to purchase rice paddy from farmers. Some $7 million would be disbursed through the state-run Rural Development Bank (RDB), while the other $20 million would come from the government’s budget, the ministry said.
The ministry announcement confirmed that the RDB would only provide loans to millers who put down rice paddy stock as collateral, and urged these millers to invest in increasing their warehouse capacity.
Meanwhile, the central bank held meetings with the Association of Banks in Cambodia (ABC) and the Cambodian Microfinance Association (CMA) on Friday to encourage their member financial institutions to step up lending to the agricultural sector at lower interest rates and with more flexible repayment plans.
The ABC and CMA responded with a joint statement stating that loans would not “solely rely on fixed assets [for] collateral.”
“Mindful of this difficult time, ABC and CMA members will continue to provide loans to qualified farmers, rice millers and traders to support their business,” the statement said. “Depending on our members’ expertise in the sector, loans to agriculture-based businesses have been provided on financial strengths, cash-flows, future receipts past repayment and behaviour history.”
Song Saran, CEO of Amru Rice, said he welcomed the prime minister’s announcement, but he felt the government’s commitment to the rice sector was long overdue and the loan package would only cover about 10 percent of the capital needed by millers to buy rice from farmers at a fair price. He estimated that an additional $50 million would be needed to ensure that prices remained stable.
Saran urged financial institutions to expand lending and ease up on restrictions.
“I appeal to banks to continue to provide loans to millers,” he said. “When millers have more funds, they are able to buy larger amounts of paddy from farmers, making the sector more stable.”
In Channy, president of Acleda Bank, denied that his bank had slowed lending to the agricultural sector. On the contrary, he said, the number of loans given to individual rice millers had grown by over a third in the past year.
“We’ve always planned to enlarge loans to the agricultural sector, including rice,” he said, adding, “we have sufficient funds for millers.”
Channy said about $500 million of Acleda Bank’s $2.67 billion in outstanding loans were in the agricultural sector, a total he reckons accounts for 40 percent of all domestic rice lending.