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Access to finance limits export potential for millers

Access to finance limits export potential for millers

Cambodian rice exports have grown year-on-year since 2009 but have fallen well short of reaching the government’s 1 million tonne annual target, with experts saying that limited access to finance, warehousing and logistical support are holding back the potential of rice millers.

According to the Economic and Social Survey of Asia and the Pacific 2015, published by the UN Economic and Social Commission for Asia and the Pacific (UNESCAP), despite the 3 million tonnes of paddy available for processing in Cambodia, it will not reach the 1 million tonnes export mark in 2015 and will need to invest in scaling up milling capacity and irrigation facilities.

David Van, adviser to the Cambodia Rice Federation, said that while government figures for paddy production are probably inflated, the issue wasn’t the sector’s capacity to mill this paddy, but rather access to finance.

“Big impediment is not in milling capacity but in working capital of millers and exporters to buy paddy and compete with mainly Vietnamese brokers with deep pockets and plenty of cash provided by the Vietnamese government,” Van said.

The problem stems from millers and exporters’ ability to get finance, Van said, with the government and donor partners failing to address the issue for years, though there was some assistance from the private sector.

“Now we’re seeing more commercial banks, like ANZ Royal and Acleda, focusing on establishing some ‘paddy banks’, trying to team up with millers using a warehousing receipt concept - to use paddy as collateral,” Van added.

While there is some access to financing, it was more difficult to attain when compared to neighbouring Vietnam and Thailand, who are aided by local subsidies to buy paddy from Cambodia, said Kunthy Kann, CEO of rice miller Brico.

“Vietnam and Thailand have government subsidies or warehouse facilities to buy during the season, so whatever is left after buying by local [Cambodian] millers goes to these countries,” Kann said.

He added that the lack of financing and warehousing make it difficult for local millers to stock up all the rice available in November or December, given that Cambodia has only one harvest window.

While the sector currently has the potential to produce 1.5 million tonnes of exportable rice, the mills are working at only 30 to 40 per cent average capacity a year due to low stockpiles, Kann said.

“Each miller has to have a lot of working capital to buy the paddy and have a huge warehouse facility, because the harvest is about eight weeks. This means you have to be able to collect as much as you can,” he added.

Kann said that logistical costs, like using road transport instead of railways, to get rice to the ports was an additional cost that takes away from their limited capital spending.

Charles Vann, executive vice president at Canadia Bank, said that private banks have been supporting rice exporters and millers with financing and collateral management, adding that the onus was on the borrower to meet bank criteria for loans.

“If they do not [have] access, or not have enough [access], it means that they are not qualified to [meet] the criteria. The rice miller needs to meet the banks criteria to qualify for a credit line,” Vann said.

He said that it is helpful where the government can provide assistance, but for the private sector, when financing of the rice industry, collateral options would have to be a decision made by each individual bank.

Cambodia’s rice exports in 2014 was a record-breaking 387,000 tonnes, but was still more than 60 per cent short of its intended 1 million mark.

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