Potential for Agribusiness Investment in the y Cambodian Rice Industry

Sok Muniroth Tim Purcell

15 October 2009

Overview of Agricultural Sector

P Percent of Tota Value Added (constant 2000 prices) al 60.0% 50.0% 2003 40.0% 30.0% 20.0% 10.0% 0.0% 2004 2005

Total

Paddy

Cassava VegetableSoybeans Rubber Crops

Maize

Tobacco Other CasOther Crop Livestock Fisheries Forestry

2003 2004 2005

48.7% 48 7% 48.9% 53.7%

24.7% 24 7% 21.5% 26.4%

3.8% 3 8% 6.0% 6.8%

4.4% 4 4% 4.3% 3.7%

1.1% 1 1% 1.8% 2.5%

3.2% 3 2% 3.1% 2.4%

2.6% 2 6% 2.1% 1.7%

0.8% 0 8% 0.3% 1.3%

3.6% 3 6% 5.4% 4.9%

4.5% 4 5% 4.5% 3.9%

15.5% 15 5% 16.0% 14.5%

28.3% 28 3% 27.5% 24.9%

7.6% 7 6% 7.6% 6.9%

15 October 2009

Paddy Rice Production in Cambodia

7,000,000

5,986,179

6,264,123

6,672,127

6,855,480

6,000,000

5,000,000

4,170,284 , ,

4,000,000

3,000,000

2,000,000

1,000,000

2004

2005

2006

2007

2008

15 October 2009

Rice
Significant increases in global prices for rice and other food staples in 2008
Rice price rises in Cambodia mirrored global trends but not as high

Cambodia unable to take advantage of increased global prices because vast bulk of paddy was purchased at harvest and exported to Vietnam and Thailand for milling
Limited domestic stocks in Cambodia Very limited exports of milled rice
4 15 October 2009

Trade Flows of Rice and Paddy

Lao PDR Unofficial Exports Paddy
Otdar Mean Chey

Rotanak Kiri Banteay Mean Chey Stueng Traeng Siem Reab Preah Vihear

Imports Thai Jasmine Rice Unofficial Exports Paddy

4 4

4
4

Kampong Thum

Thailand

Krong Pailin Bat Dambang Mondol Kiri Kracheh

Pousat Kampong Chhnang

Kampong Cham

Kampong Spueu Phnom Penh

Prey Veaeng

Kaoh Kong

4
Svay Rieng

Kandal

Krong Preah Sihanouk

Takaev Krong Kaeb

Imports WFP Rice

Unofficial Exports P dd U ffi i l E t Paddy

15 October 2009

Official Exports

Phmon Den Border Gate

Kampot

Knom Samnar Border Gate

Chrey Thom Border Gate

4
4 4
4
Trade Flows in Cambodia
Large Flow of Rice Medium Flow of Rice Small Flow of Rice Large Flow of Paddy Medium Flow of Paddy

4 4
4

Viet Nam Mok Va Border Gate

Imports of Thai Rice Imports of World Food Program Rice

100

200

kilometres

Rice
Significant opportunities for agri-business agriinvestment in integrated contract farming g g and milling operations Returns to agri-business highly variable agridepending on year/season
But consistent profits can be made through vertical integration

15 October 2009

Profitability of Paddy Production y y (% Gross Margin) 2008

60.00% 50.00% 40.00% 30.00% 21.30% 20.00% 10.00% 0.00% 0 00% Early Crop Medium Crop Late Grop Dry Season Crop High Value Wet Season Crop 10.22% Farmer Practice Improved Practice 34.16% 25.37% 44.63% 38.35% 38 35% 55.27% 49% 39.39% 39 39%

15 October 2009

Profit Levels along Rice Value Chain 2008

45.00% 45 00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

41.25% 31.86% 18.75% 6.90% 10.42% 10 42% 4%

15 October 2009

Seasonal Variation in Rice Prices

Market price of Paddy and Milled rice from January to October 09, 2009

Paddy
Aroma Mix IRR(66) MilledRice Aroma Mix IRR(66)

(Riels/Kg) Jan Feb Mar April May June July Aug Sept 9Oct09 1,150 1,200 1,250 1,300 1,350 1,350 1,400 1,500 1,600 1,600 720 640 770 820 850 880 900 920 1,000 1,100 880 930 930 820 680 680 750 780 850 900 2,500 2,700 2,800 2,800 2,850 2,900 3,000 3,050 1,100 1,100 1,150 1,250 1,320 1,380 1,420 1,450 1,150 1,250 1,280 1,320 1,380 1,350 1,380 1,400 3,100 1,550 1,520 3,150 1,750 1,600

(Source:RiceMillersAssociation) (S Ri Mill A i ti )

15 October 2009

Major Constraints in Rice Farming

Seed
Maintenance of breeder stock requires significant public investment that can be undermined by commercial pressures for breeding centers to be financially viable. Certified seed is available but it is relatively expensive for most farmers, and only 2000 metric t f d l t i tons i produced each year b is d d h by AQIP Seed Company. Company.

Land Tenure
Limited tenure rights (less than 10 percent of farmers hold land titles) discourages investment in agricultural land.

10

15 October 2009

Major Constraints in Rice Farming

Fertilizer and Pesticide
Access to fertilizer and pesticides among small-scale farmers is smallextremely limited due to income and credit constraints, resulting in sub-optimal use of fertilizer. Knowledge of appropriate input subusage t h l technology also li it d l limited. Price of (imported) Chemical fertilizer nearly doubled between 2006 and 2007 seasons.

Irrigation
Lack of irrigation in many areas reduces the productivity of rice. Where irrigation is p g present, operation of water user g p p groups replete with politicization and free rider effects.

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15 October 2009

Major Constraints in Rice Farming

Profitability
In many areas rice production is a marginally profitable activity due to technical factors such as climate and soil fertility/salinity.

Credit
Even when credit i available commercial l di requirements E h dit is il bl i l lending i t dictate that loans are not tailored to agricultural activities or the seasonal nature of agricultural production. Credit application procedures are complex and not tailored to small loans sizes for inputs. Farmers find it difficult to access loans for emergency cash purposes and have to resort to high interest loans from moneylenders.
12

15 October 2009

Major Constraints in Rice Trading

Transportation Costs
Increased fuel costs Increased cost of vehicles Unofficial Fees

Capital
High interest rates for working capital from moneylenders (Larger traders can obtain short-term loans from banks and shortMFIs) MFIs)

P th tt h l i Postharvest technologies
Shortage of local storage facilities since 2007 Drying is l by D i i only b sunshine lack of uniform moisture content hi l k f if i t t t Packaging is only in poly-weave bags at the field/mill level polyHandling is becoming expensive as daily wages increase
13 15 October 2009

Major Constraints in Rice Trading Quality

Low quality of marketable p q y paddy and rice y Poor milling efficiency Most rice is blended and not a pure variety

Infrastructure
Poor roads and bridges Inadequate storage within the provinces

Lack of organized channels g

Market places are not well maintained Collection and distribution centers are poorly organized, Packhouses are very inefficient and rely solely on hand labor Contracts are hard to enforce Poor market demand and price i f P k td d d i information ti
14 15 October 2009

Rice Milling Companies in Cambodia

Only small number of mills have a capacity to mill more than 9t/hr Angkor Rice. Angkor Kasekam Roongroeung Co Ltd (AKR) Co., Ltd.
capacity of 10 tons/hr although it only operates at 30% of its capacity. normally processes 20,000 tons of paddy annually, has storage for 30,000 tons of paddy. paddy.

Golden Rice.
capacity of 10 t it f tons/hr /h maiden order is to ship 12,000 tons of brown Jasmine to Reunion (via containers) where it will be milled and re-exported to the E.U. re-

15

15 October 2009

Rice Milling Companies in Cambodia Green Trade Company p y

has 6 rice mills four of which are located in PP combined capacity of 10 tons/hr. 46 warehouses with storage capacity of 56,000 tons of rice in PP and 5 provinces. The utilization rates of the mills and the warehouses appears to be limited as the firm typically mills 5-10,000 tons of paddy annually. Milling yields of 55-60% are reported. ill 5-10 000 t f dd ll Milli i ld f 55t d The firms highest quality rice is a 10%. 10%.

Lor Ngor Peng Rice Mill Co. Ltd.

reportedly has a milling capacity of 12.5 tons/hr. tons/hr.

Loran Import-Export Co., Ltd. Import4 mills with a combined capacity of 12.5 tons/hr. Annually mills approximately 20,000 tons of paddy. They produce 5% rice, but most of their sales (under LH brand) are a 15%.

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15 October 2009

Rice Milling Companies in Cambodia Men Sarun Group p

40 rice mills located throughout the country process 150,000 tons of rough rice annually. its largest rice mill has a capacity of 24 tons/hr. Operating 20 days each month, its product reportedly evenly split f military/police/WFP vs commercial sales. t dl l lit for ilit / li /WFP i l l the main mill typically processes 90,000 tons annually The groups other mills typically have capacities of 1-2 tons/hr. 1- tons/hr.

Phou Poy Rice Mills

2 rice mills on the outskirts of Battambang City with a combined capacity of 9 tons/hr. Factories can achieve a milling outturn of 60-62%. 60Having invested in a new hotel in Battambang, the rice mills are operating only 7 days/month. Battambang,

17

15 October 2009

Rice Milling Companies in Cambodia

Baitong (Kampuchea) Plc.
rice mill in Banteay Meanchey (Mongul Borey district) with a capacity of 2 tons/hr. up to 8,000 tons of storage. storage a new rice mill is under construction near Battambang City (Battambang District) - planned as a (Battambang turnkey facility with 60 tons/hr which will make it the largest single rice mill in Cambodia by far. The mill, with its primary focus on the E.U. market, will mill both fragrant and non-fragrant rice and noneventually will h t ll ill have rice h k b i equipment t supply th mills energy needs. i husk burning i t to l the ill needs. d

Paragon Corporation.
Paragon, which once was involved in rice milling and Trading, shut down its rice operations several years ago to concentrate on property development and construction. With the real estate market having crashed, Paragon is in the midst of what appears to be advanced negotiations with potential joint venture partners from the Philippines to build a major rice milling operation by 2011, including storage 2011 facilities located in six different sites. sites.

Ying Yang Rice Headquarters.

In contrast to the other firms which will mill Rough rice, Ying Yang which is a Cambodian-French Cambodianjoint venture will polish and refine milled rice for export. Located in Sihanoukville Port, Ying Yangs processing equipment will be operational by mid-July with mida capacity of up to 12 tons of milled rice/hr.

18

15 October 2009

Major Constraints in Rice Milling j g

Cambodian farm-gate prices are 35-40% farm35below those in Thailand and Vietnam Vietnam. This comparative advantage is negated by high marketing, milling, and shipping costs both domestically and via formal export channels. channels. Lack of Working Capital
There is a lack of working capital among millers for purchases of paddy at harvest time, due to cash purchases of paddy and sales of milled rice on credit. As a result, rice mills are often idled for periods of time, limiting the amount of paddy that can be domestically milled. Limited capital also precludes improvement y in milling technology and expansion in milling capacity.
19 15 October 2009

Major Constraints in Rice Milling j g Low Paddy Quality

Millers are constrained by poor paddy quality in the form of mixed quality, varieties from farmers and/or traders. Inadequate post-harvest handling (particularly drying). postThis results in high levels of broken rice and limits entry into higher value markets and for export. export.

Low Levels of Milling Technology f

Higher levels of broken rice than more modern machines. The majority of mills use old equipment from Vietnam and China that is inadequate for sophisticated sorting of finished rice. Rice milling use diesel engines to process their milling because electricity cost is high (Urban electricity cost $0.18-0.20 and Rural $0.18area is $0.30-$0.90 when Vietnam is less than $0.10 per Kwh) $0.30Kwh)

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15 October 2009

Major Constraints in Rice Milling Lack of Market Access

Rice millers have limited access to foreign g markets, due to the inability to produce consistent amounts of standardized varieties of milled rice. Market access is also compromised by limited information about foreign market conditions and competitive factors factors.

21

15 October 2009

List of Major International Rice Traders

Name ADM Ascot Commodities Capezzama Cereal Investments Co Dewisri Olam General Produce & Fibre Location Tarrytown, New York Geneva Geneva Geneva Paris Singapore London Name Louis-Dreyfus Corp Nidera Phoenix Commodities Novel Commodities The Rice Company Toepfer Voest-Apline Intertrading Location Geneva Lausanne Bangkok Geneva Roseville, California Singapore Bangkok

22

15 October 2009

List of Major International Rice Brokers

Jackson & Son Co. (London) Limited London Schepens & Company N.V. Belgium J.S. Commodities - London

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15 October 2009

Major Constraints in Rice Exporting

Domestic storage facilities at
Private mills Provincial level Port facilities

Bulk handling transport

Trucks, trains, boats within Cambodia Unloading t U l di at ports t

24

15 October 2009

Major Constraints in Rice Exporting Transport costs

Containers Trucking Informal fees $39.56/MT from PP to Sih $39 6/MT f Sihanouk port ( k (around d $48$48-$50/MT including unofficial fees and h ) other costs) Taxes

25

15 October 2009

Transportation Cost for Agricultural Products (US$/t/100km)

16

15

14

12

10

7.5 4

Cambodia
26 15 October 2009

Vietnam

Thailand

Major Constraints in Rice Exporting Importers food quality and certification I t f d lit d tifi ti standards
Difficult to certify exports to importers standards SPS certification from MAFF GMP Certification lacking (chemical physical (chemical, and biological contamination ) Fumigation f F i ti of packing materials and ki t i l d containers Khapara beetle
27 15 October 2009

Opportunities for Agribusiness Investment in Rice

High t ti l for integrated contract farming Hi h potential f i t t d t tf i and milling operations Significant challenges i storage of paddy and Si ifi t h ll in t f dd d milled rice
Lack f L k of modern storage f iliti d t facilities Lack of bulk handling facilities High levels of investment in infrastructure needed
100,000 t bulk storage >$15 million Transportation to Port, Storage at Port, Loading onto Ships, Limited capacity at port for bulk commodities

Working Capital requirements significant

28 15 October 2009

Opportunities for Exports

Export sales should be focused on high quality aromatic rice and l lit ti i d low grade nond nonaromatic rice.
concessionary financing for lending to rice millers for operating and capital expenses significantly lower port and export charges eventually upgrade transport and port infrastructure capitalize on l i li lower transport costs to neighboring i hb i markets by negotiating bilateral bonded warehouse arrangements.
29 15 October 2009