Excellencies, Ladies and Gentlemen!
Today, I am very pleased to once again participate in this “16th Government Private Sector Forum” with Excellencies, ladies and gentlemen, members of the Royal Government, and representatives of private sector as well as national and international guests. Today’s event is another new event to be held in Peace Building, a meeting place of the Council of Ministers.
Though, as usual, the objective of this open meeting of the Council of Ministers is to collectively review the progress and reforms that have taken place since the 15th Government-Private Sector Forum, examine the challenges brought up at the time and evaluate the solutions in addressing them, and to assess the difficulties facing investors in Cambodia, today’s forum only has one agenda, which is “review the implementation progress of the Policy on the Promotion of Paddy Production and Rice Export”. In fact, we have established various working groups to review and thoroughly take care of other sectors and have resolved many major tasks, allowing the operations of many sectoral activities to go smoothly and effectively. Apparently, we need to continue promoting the vision and strategy in the promotion of paddy production and rice export, which aims to make Cambodia become a paddy storage and “ rice or white gold” exporting country in the international market. In general, for this task I have instructed the Supreme National Economic Council to prepare a draft policy document on the Promotion of Paddy Production and Rice Export in the 15th Government-Private Sector Forum held on 27th April 2010. Indeed, what I brought up at the time is not by chance, the issue is in parallel with the rising trend of the need of milled rice in the global market that increases steadily from year to year, the favorable conditions of natural endowments, and comparative advantage of Cambodia in agriculture, in particular in paddy-milled rice production. I think this task is a priority task that needs to be urgently resolved in order to seize the opportunity to promote the living standard of our farmers nationwide because this task will provide quick-win results. In this spirit, we have determined to use 2015 as a base year in order to promote the paddy production to more than 4 million tons including export of at least 1 million ton of milled rice and make Cambodia’s milled rice internationally recognized.
Truly, this time is different from other times; we all need to be firmly committed to seizing this “Golden Opportunity” in order to achieve the ambition of turning Cambodia to be a major milled rice exporting country among other rice exporting countries. We can achieve this ambition because we have right policy and collective efforts of the Royal Government, private sector and relevant development partners as well as the formers.
So far, we have seen that in our economy faced with the negative impact of global economic and financial crises; and in that context agriculture sector remained a pillar of economic growth of Cambodia as at the time food prices much increased. I still remember that at the beginning of 2008 while there was a global food crisis, the price of milled rice skyrocketed, and I emphasized that this is a “Golden Opportunity” for Cambodia. Cambodia possesses “White Gold”, which is the milled rice. This factor truly has promoted the growth of agriculture sector and rural economic activities; and we expect that most Cambodians who rely on agricultural for their living have received the benefit from this growth, and their living standard has also improved. In fact, in 2010 Cambodia has a total of 2.79 million hectares of paddy plantation, in which 2.77 million hectares have produced 8.25 million tons of paddy yield, an increase of 8.75% compare with 2009. This is due to the increase in plantation area, with wet season rice area increased by 56 thousands hectares and dry season rice area increased by 20 thousands hectares. The growth of this plantation area is made possible by the increase in plantation seasons with vigorous investment of the Royal Government on irrigation and the change in farmers’ attitude in the use of seeds from heavy to medium and light ones. In term of paddy yield, wet season paddy has increased by 5.3% compared with 2009, and dry season paddy has increased by 1.7% compared with 2009 as well. However, recent flooding has been initially assessed and found that it is more damaging than the flooding in 2000; and it impacted paddy on area of 390,000 hectares and damaged paddy on area of 190,000 hectares, and could cause a decline in the dry season paddy production.
In parallel, the use of agricultural vehicles and the use of inputs for agriculture have increased remarkably. In fact, agricultural tractors have increased from 8,138 units in 2008 to 9,250 units in 2009 and to 10,135 units in 2010. Power tillers have increased from 110,000 units in 2008 to 130,000 units in 2009 and to 160,000 units in 2010. Rice threshing machines have increased to 25,243 units in 2010, from just 23,000 units in 2008. At the same time, so far about 57% of the farmers use fertilizers, and about 30% use pesticides. The growth in the use of agricultural vehicles and the agricultural inputs show that the gradual change in thinking of farmers from using traditional methods in rice farming to using standard methods, and also show the success of commercialization, namely “Subsistence Farming” to “ Commercial Farming”.
At the same time, the export of rice has increased vigorously since 2009 due to the increase in food prices and the open up of markets in European Union, in particular after the launch of Policy Document on the Promotion of Paddy and Rice Export of the Royal Government. In 2009, the export of milled rice increased by 236% compared with 2008. In 2010, export of rice was 51 thousand tons compared to 15 thousand tons in 2009, which is 251% increase. As of June 2011, export of rice has increased to 85 thousand tons, which is 370% increase compared with the same period of 2010. In parallel, the number of milled rice exporting countries has increased from 9 in 2009 to more than 30 in 2010 and 2011.
In general, the progress of paddy-milled rice sector and the high acceleration of rice export is not by chance. However, this progress is the fruit of the implementation of the policy measures stated in the policy document on the promotion of paddy production and rice export. Indeed, in the implementation of relevant measures for paddy production, the Royal Government has reduced import tariffs to zero and change value added taxes as the government’s responsibility for equipment and vehicles used in paddy production such as agricultural tractors, power tillers, water pumping machines, and other agricultural machines and equipments. In addition, the Royal Government has decided to change excise tax to zero percent for supplying paddy rice domestically and allowing excise tax payment on relevant inputs for rice plantations to be delayed and providing maximum tax reliefs for profits including key period plus 3-year tax relief, 3-year priority period as well as minimum tax-relief 1% on turnovers.
The Royal Government has also invested USD 101.43 million in 2009 and USD 188.79 million in 2010 in the continued expansion of irrigation. As of June 2011, the Royal Government has made an additional investment of USD 220 million. At the same time, the Royal Government, through the Ministry of Economy and Finance, is planning to provide financing, in a form of no-interest credits, of about USD 80 million in 3 years (2011-2013) to Electricité du Cambodge for the investment in the establishment of sub-transmission lines in order to increase the scope of energy supply for more people to use and connect with paddy production and milling machines areas.
For the implementation of measures for paddy collection and processing, the Royal Government has doubled the money of Agriculture Support and Development Fund from the initial fund of USD 18 million to USD 36 million. This fund is managed by the Rural Development Bank, and the Bank has provided credits to 251 Rice Millers Associations in 10 provinces. The Royal Government through the Ministry of Economy and Finance has established Credit Guarantee Scheme with an amount of Riel 105 billion, equivalent to USD 25 million, to encourage commercial banks to provide loans for paddy collection and processing. Also, the Ministry has also signed agreements on financing cooperation and on risk sharing in agriculture and agro-industry management with the World Bank and International Financial Cooperation (IFC) with an amount of USD 25 million to promote the provision of loans to agriculture projects such as paddy-milled rice.
Furthermore, procedures related to exports have been improved and both official and unofficial spending on export has been reduced and gradually eliminated; this has contributed to the enhancement of Cambodia’s competitiveness.
Based on this, we necessarily need to continue evaluating the effectiveness of the implementation of quick-win measures and understand the weaknesses as well as request for more reform measures or additional measures to link short-solution with medium and long term measures in order to ensure the enthusiastic environment in the implementation of measures toward achieving set objective. Indeed, based on implementation made so far, we are still facing a number of problems that need to be improved and resolved. These tasks include:
- Seedling: Some farmers still continue using their own seeds, grown themselves, from one season to another and other farmers use importing rice seeds. Although ten types of seed have already been selected, their usage within the country, in particular at major paddy production areas, is limited and other seeds have yet to be considered by farmers. The distribution of recognized seeds is still limited.
- Plantation Techniques and Yield Collection: In general, the knowledge of farmers is still limited including the preparation of soils, seed selection, plantation, water management and use, the use of fertilizers, pest controls. Also, post-harvest techniques include: cutting, threshing, transporting, drying, and maintaining, of famers remain limited, which are impacting the processing of paddy and quality of rice.
- Farmers’ Organization Structure: in particular small farmers are fragmented and not formed into a group or co-operative, this factor makes it for farmers in getting techniques, credit, and bargaining power.
- Paddy Collection and Processing: in general, there are many investments related to paddy processing but the size and the speed do not respond to what the Royal Government wants yet. For example, though the financing for paddy collection has been gradually resolved and improved remarkably, but the shortage of financing remains a major challenge. This issue makes milling machines and rice exporting companies unable to sufficiently in the collection of paddy that farmers produce and paddy is still exported to neighboring countries. Besides, though the Royal Government has launched a number of new mechanisms, they are not enough. Finding solution for this issue is complicated, and it requires relevant institutions to take part in particular the involvement of commercial banks, finding more investment from both domestic and foreign investors and finding new source of finance, which is the concern of the banks.
- Electricity: the price of electricity remains a major challenge causing high processing and making Cambodia’s rice remains uncompetitive.
- Paddy Processing Association Network: due to the isolation and independence among milling machine owners, milling machine association has not been well established; and it is the cause for not achieving the economy of scale in the paddy processing. This factor has impacted the capability of rice export of Cambodia; in general, it has limited large purchases of milled rice from Cambodia. Processing capability for exports is still limited though at present investments in major rice milling machines are ongoing that can process of up to more 1 million tons of milled rice, some of these investment projects are yet to be completed while others have insufficient equipments/technology.
- Paddy/Rice Standard and Sanitary Standard: the establishment of national paddy/rice standard which complies with the market can be used as a yardstick for producers, processing units, exporters and consumers.
- Market Access: in spite of the effort of concerned ministries/institutions in seeking the market for Cambodian rice, it is still a big challenge that must be immediately addressed, for instance, bilateral trade agreements. In particular, majority of Cambodian rice has been exported to the European Union which is an existing opened market. Overreliance on the EU market is a big risk. Therefore, the good coordination between exporters, rice millers and farmers is the way forward. The establishment of the “Association of Cambodian Rice Exporters”, which has its own and independent management structure, is necessary for addressing some common issues such as lack of trust and leadership, promoting participation in the improvement of policies and timely addressing any problem. Access to market intelligence and international competition situation remain a big challenge as the Paddy/Rice Information Unit has not been established yet.
We are well aware that the laid out measures are vital, but more need to be done, therefore, in order to implement these measures effectively and to grab this rare opportunity, we must review and re-evaluate them. In this spirit, I would like to request the concerned ministries/institutions, the private sector and development agencies to continue pushing for the implementation of the existing measures and address challenges within the production line, processing and export with greater ownership. Those include:
- Paddy Production: Quick-win measures: The Ministry of Agriculture, Forestry and Fisheries must prepare programs and outline financing requirement to boost the production and dissemination of foundation rice seeds and certified rice seeds that will return high yield and respond to the market demand. Along with this, we must push for the issuance of directives on the production and purification of seeds, prepare programs/projects and outline financing requirement in order to promote the production of high-yielding and in-demand seeds and work with the Ministry of Information to disseminate cultivation techniques to all parts of the country through existing institutional mechanisms and information channels by producing TV or radio spots. On the other hand, the Ministry of Economy and Finance must consider the possibility of providing additional incentives to the seed production projects by the end of 2011. For the medium-term and long-term measures, the MAFF must accelerate the establishment of farmer organizations, strengthen the capacity of existing cooperative farming and link to the value chain and export through the implementation of “contract farming”,and strengthen the statistical work by utilizing highly accurate methods. The Ministry of Water Resources and Meteorology must promote the establishment of and strengthening of existing water-utilizing farmer communities along all irrigation system development zones. Also, the Ministry of Water Resources and Meteorology must collaborate with the Ministry of Agriculture, Forestry and Fisheries to transform water-utilizing farmer community into farmer organizations and improve the statistical data of irrigation systems. On the other hand, the Ministry of Planning must cooperate with concerned ministries to complete the agriculture survey in 2013.
- Paddy Rice Collection and Processing:Quick-win measures: the Ministry of Economy and Finance must accelerate the implementation of risk-sharing finance facility project and put the credit-guarantee scheme to operation by the upcoming dried rice field harvest season and urgently open discussion on the establishment of regional rice banks. Along with this, the Ministry must consider providing additional incentives to export-oriented large rice milling factories by the end of 2011. The rural development bank must fully utilize its existing capital and mobilize additional resources from external partners. The Ministry of Industry Mine and Energy, Electricity Authority of Cambodia and the Electricity of Cambodia must accelerate electricity connection to rice milling zones and consider reducing connection fee and electricity tariff for rice millers. On the other hand, the Steering Committee on Private Sector Development must consider transforming the sub-working group on agriculture and agro-industry of the G-PSF into the working group on paddy-rice development to elevate the rice-paddy dialogue between the Royal Government and the private sector and reflect the Royal Government’s firm support. For the medium-term and long-term measures, concerned ministries/institutions must prepare coordination measures to encourage the cooperation among rice millers to move toward the establishment of the association of rice millers, which is as bold as the garment manufacturers association in Cambodia, to improve domestic competition environment, the capacity to enter into large contracts and enhance competitiveness of Cambodian rice. The Ministry of Economy and Finance must mobilize resources for investing on the construction of sub electricity transmission line to major rice production and milling zones.
- Export Facilitation:Quick-Win Measures: the Ministry of Public Work and Transport must accelerate the construction of railways and makes the Phnom Penh autonomous port a main gate of rice export. Along with this, the Ministry must cooperate with the Ministry of Economy and Finance and related institutions to dispatch a group of delegates to Vietnam to negotiate agreement on transiting Cambodian exports along the Mekong River or through Vietnam’s ports, without having to pay taxes to Vietnamese authority. The Ministry of Industry Mine and Energy, through the National Institute of Standard, must work with the Ministry of Agriculture, Forestry and Fisheries, the Ministry of Commerce and rice millers to create Cambodian rice standard or at least temporary standard in 2012. For the medium-term and long-term measures: The Ministry of Agriculture, Forestry and Fisheries must implement measures to reduce certification fees and SPS certificate fees by the end of 2011. Along with this, all concerned ministries/institutions must work together to create a single window and disclose administrative procedures regarding issuance of permission, license and certificates for rice export by giving details of fees and duration of each procedure by the end of 1st quarter of 2012. The Ministry of Public Work and Transport and the Ministry of Economy and Finance must promote investment on the transport infrastructure such as ports, rice warehouses and transport and so forth.
- Market Access: Quick-win measures: the Ministry of Commerce and the Ministry of Foreign Affair and International Cooperation, with participation from concerned ministries/institutions must engage in bilateral negotiation with foreign governments to open market access in the Philippines, Indonesia, Malaysia, Africa as well as coordinating the effort of the private sector to sell rice in these markets. Along with this, embassies of the Kingdom of Cambodia in rice-import countries must coordinate rice trade, by considering this as a priority. For the medium-term and long-term measures, the Ministry of Commerce and concerned institutions must promote good cooperation among rice exporters by establishing the Association of Cambodian Rice Exporters to coordinate large exports, especially through the existing chamber of commerce. The Ministry of Commerce, the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Industry Mine and Energy must jointly examine the laws and regulations, especially those related to rice trade, and patent requirements.
The implementation of the Policy on the Promotion of Paddy Production and Rice Exports is a major and deepened reform site and a test for Cambodia in expanding the growth base and strengthen its competitiveness. The success of this implementation not only reflect the attainment of target, but also what Cambodia can do in improving the investment and business environment through reform, which is an important message to our partners, especially investors and businesspeople. Moreover, the successful implementation of this policy will have deep implications for other reform programs as well as other sub-sectoral and sectoral development. In this sense, active contribution from all stakeholders is needed.
Thank you for your attention!