The UN Food and Agriculture Organisation (FAO) is forecasting that 44 percent of Cambodia’s total rice exports will be smuggled out of the country through informal channels this year, a persistent problem that weighs down profits and threatens to cripple the industry.
The FAO’s forecast, released earlier this month, predicted that Cambodia’s rice exports in 2018 would reach 1.35 million tonnes, a 5 percent increase over last year. But only 750,000 tonnes of that would be formal exports, according to Shirley Mustafa, an economist at the FAO.
The other 600,000 tonnes would be “unrecorded cross-border deliveries” – rice that is bought directly from farmers by so-called brokers and then smuggled into neighbouring countries, usually Vietnam or Thailand.
Smuggling has long plagued Cambodia’s rice sector. While the Kingdom recorded 635,700 tonnes of exports last year, Mustafa said the FAO estimated an additional 650,000 tonnes went unrecorded.
But any government crackdown on the illegal rice trade would cripple the country’s rice farmers, said Hean Vanhan, director-general at the General Directorate of Agriculture, which is under the Agriculture Ministry.
“During harvesting season, the capacity of rice millers cannot handle all the rice from farmers, so our rice and paddy rice must be sold to brokers along the border,” he said, blaming the problem on limited financing and storage for the paddy rice.
The government has taken steps to improve the country’s storage capacity in the past year, distributing $30 million in loans to construct three new storage and processing facilities. But the total storage capacity at those three facilities is just 300,000 tonnes of rice, far below the required space to meet the government’s target of 1 million tonnes of officially exported rice.
“In order to reach 1 million tonnes of rice exports, we need to store approximately 2 million tonnes of paddy rice,” said Hun Lak, vice president of the Cambodian Rice Federation (CRF), the sector’s industry body. That would be a more than sixfold increase over current storage capacity.
Ngeth Chou, a senior consultant at Emerging Markets Consulting, said the government should begin cracking down on the unofficial border checkpoints to stem the flow of smuggled rice.
“Cambodia will lose a lot of profits and revenue from [rice] exports,” he said, adding Cambodian rice’s international reputation was also being harmed.
Despite widespread smuggling, it hasn’t been all bad news for the rice sector. China agreed to increase its Cambodian rice import quota to 300,000 tonnes this year, up from 200,000 tonnes last year and 100,000 tonnes the year before. And Mustafa from the FAO noted that the 2017-18 rice harvest season had unfolded positively so far, which should ensure adequate supply for export.
But the smuggling issue is compounded with internal struggles within the CRF, which is headed by Sok Puthyvuth, the son-in-law of Prime Minister Hun Sen. Puthyvuth was narrowly re-elected as CRF president in 2016 with 113 out of 215 votes.
The CRF released a scathing assessment of its own capabilities in a report in January this year, noting “there are many challenges facing the CRF”, including board members with “commitment discipline issues” who only show up “when the meeting is about their interests”.
It also notes that farmers often suffer in favour of millers and traders, complaints from members often go unaddressed, decisions by board members often go unimplemented and the entire operation is hampered by a lack of financing.
When it came to the topic of smuggling, the CRF report said that porous borders posed an existential threat to the entire rice industry.
Over 40 percent of Cambodia’s rice exports went to the EU last year, which has stringent requirements to verify the origin of the rice. But the porous border means Vietnamese rice could be brought into Cambodia, labelled as Cambodian rice and then exported, which would be a violation of trade rules. That would jeopardise Cambodia’s preferential access to the EU market, the report says.
In a separate case, Italy and six other EU countries filed a complaint with the European Commission in December regarding Cambodian rice. The countries urged the commission to invoke a so-called “safeguard clause” to limit the import of Cambodian rice, which the complaint claims is causing a trade imbalance. The commission has not yet publicly responded to the complaint.
Te Taing Por, who ran against Puthyvuth in the 2016 CRF election, said yesterday he agreed smuggling was a big issue for the sector and called for the government to curb unrecorded trade.
“The government should know their duty to stop the unofficial exports,” he said. “They should work more transparently in order to reach 1 million tonnes of rice exports.”
