Big Farm, Little Farm

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Balancing Agricultural Investment with Farmers' Needs

By An Sithav & An Channthla
Economics Today

Agriculture has been the main industry in Cambodia for millennia, though its potential has only recently come to the attention of foreign investors. How Cambodia chooses to develop agriculture will likely decide the fate of millions of farmers.

Investment in agriculture has been tirelessly cited as the best way to reduce poverty and contribute to economic growth in Cambodia by everyone from the Government, to NGOs and the international organizations.

Paddy is the primary crop and the staple, with 80 percent of crop area and 70 percent of crop production, said Soken Sok of the Council for the Development of Cambodia (CDC).

But the growth of the sector has lagged; Cambodia’s agriculture was worth about 30 percent of GDP 2006 and around 34 percent in 2009, said Soken Sok. Investment in agriculture is small at 6 percent of the total, against industry (20 percent) tourism (53 percent) and infrastructure (21 percent) between 1994 and 2009, according to the CDC.

But Cambodian farming is now on the radar—in 2009, foreign investment in agriculture jumped to over US$600 million last year, with domestic investment in agriculture over US$37 million, said the CDC.

Saurav Ray, first secretary of the Embassy of India in Cambodia, said that there is tremendous potential for agriculture in Cambodia, with a vast land area, fertile soils, huge water resources with large rivers and lakes and good rainfall.

The Government of India is working with the Government of Cambodia on irrigation projects to improve crop productivity. Irrigation has been installed in Siem Reap province and will be constructed in Kampong Speu province, said Saurav Ray, encouraging investors to explore opportunities in Cambodia’s agricultural sector.

At present, there are no significant Indian investments in farming, aside from one company which has invested in a sugarcane plantation in Rattanakiri province, and one company in a joint venture with a Cambodian company to produce turmeric in Battambang province. However, several other Indian companies have shown interest in rice, palm oil, rubber, cashew nuts and other agricultural investments.

These kind of large plantation crop investments are proving increasingly popular with investors from around the world, including Malaysia, Kuwait and most notably Vietnam. Cambodian businessmen have also cleared large tracts for these cash crops.

Peter Costello, president of Australia- based financial consultancy BKK Partners former Australian treasurer, recently came to Cambodia to discuss investments worth US$600 million.

BKK Partners and Indochina Gateway Capital Limited, based in Phnom Penh, planned to bring in investment on 40,000 ha for rice, 20,000 ha for sugarcane, 20,000 ha for oil palm, 10,000 ha for banana, and 10,000 ha for teak. Utilizing new agro-technology for increased yield and enhanced quality to reach international standards for export, Costello claimed that the proposed investment could help create 150,000 jobs for Cambodians.

Crop Out

But the constraints on Cambodian agriculture are considerable—levels of knowledge are low and farmers have limited access to farmers training services, said Soken. Crop yields are low, with an average of average at 2.46 tons of paddy per hectare, compared to Vietnam’s are 4.6 ton/ha, Thailand’s 4 ton/ha and even Laos’ 3.3 ton/ha. Technology uptake is sporadic at best.

Cambodia’s geography and growing conditions also leave much to be desired. Water resources are highly variable—2.1 million ha are cultivated in the wet season but only 0.3 million ha in the dry season. Limited access to credit, inadequate rural road, electricity and irrigation infrastructure are a turnoff for investors.

Sauray Ray said there needs to be better organized collection and selling of agri-products, and to change from the present one crop system to a multiple crop cultivation, maintaining a good balance between rice farming and other cash crop cultivation.

Madhurjya Kumar Dutta, research director of the Economic Institute of Cambodia (EIC), said that there have been impressive achievements in agriculture, but there remains a technology gap in relation to neighboring countries in most aspects of production, transport, storage, processing and marketing of products. He also referred to the limited development of production and marketing organizations; weak R&D in agriculture, market information and extension services; limited diversification of crops.

“Long-term agribusiness investment is limited due to a weak investment climate. There is a need for better business and taxation regulation to facilitate trade and improvements in the legal system governing contractual and property rights,” said Dutta. He said that there is good scope to enhance crops such as edible oilseeds for processing for markets aboard.

A Fair Crop

But while foreign investors can provide much needed cash, the large plantations implied are actually less productive. Seen from the angle of incentive and management, the family farm seems to be the ideal system, especially with the introduction of modern technology.

Family farms account for about 60-70 percent of agricultural labor, with family farming the dominant form of economic activity in rural Cambodia. Family farms are crucial for maintaining political, social and economic stability in the country, but it is also competitive in organic agricultural products.

The land consolidation now taking place raises the possibility of setting up larger commercial farms. Large-scale, mechanized farms and plantations enable the production of agricultural goods for export, such as rubber, palm oil, tea and bananas, which requires systematic management, processing, and packing. The advantages of large-scale plantations hinge on the creation of roads, bridges, and ports to move the products to the international markets.

However, small-scale family farms could also be organized under a contract farming system in order to create a critical mass to promote the export of agricultural products.

As in other countries in Asia, small farms in Cambodia are more productive than large farms, according to report from World Bank published in 2007. Small farms can generate as much as five times more employment per hectare at similar levels of productivity and profitability, the report added.

The smaller paddy plots less than 1 ha are more efficient than larger paddy plots more than 1 ha, said Dr. Tong Kimsun, Research Fellow and Pram Coordinator, Economy, Trade and Regional Cooperation of CDRI.

Investment in processing facilities to add value to crops grown by smallholders could be the ideal solution. Competition would help create a fair price for farmers, and investors could reap the profits of moving up the value chain, and exporting high-quality produce to developed countries.

But with less than a quarter of farmers estimated to hold a secure title to their land, maintaining a balance between big business and family farms could be about to get a lot harder.