Government policy and private sector development in post-conflict states: Growing Cambodia’s rice production and export industries

Abstract

This article deals with the rehabilitation of economies in post-conflict states, paying particular attention to the role played by the state in this process. Using the example of Cambodia and its policies on rice production and export, the article shows the prominent role that may be played by the state in prioritised areas of economic development where there has been market failure. In the Cambodian case, the government targeted rice production and export as these had great potential for promoting the major aims of national development policy – economic growth and poverty alleviation. Using a whole-of-government approach and a combination of direct involvement and the creation of an enabling environment, the government appears to have contributed to vastly increased rice production and export.

Keywords

Agricultural development Asian development state Cambodia economic development market failure post-conflict states poverty alleviation rice production and marketing

Introduction

One of the many difficulties facing post-conflict countries is how to rehabilitate shattered economies. Infrastructure has often been destroyed or is no longer functional, people have left their homes, there has been capital flight and production has severely declined. It has been estimated that an ‘average’ civil war costs in the region of USD64b with a reduction in economic growth of around 2.3% per year (Collier, 2009; Collier et al., 2003). Children and young adults miss out on education, while the already educated often seek refuge in other countries. The health status of the population worsens while the stock of capital in the countryside declines significantly. And it takes a long time to rebuild economy and society.

But who does the rebuilding and how? This article seeks to suggest answers to these questions with reference to one post-conflict country, Cambodia, and one major industry, paddy (rice) production. It is especially concerned with policy-making and implementation. Specifically, it examines the policy process, seeking to elucidate the role of government in economic development and how government interacts with the private sector. Is ‘big government’ still apparent in Cambodia’s case, with considerable direct intervention in the economy? Does government adopt the role of creator of an enabling environment? Or is it simply left to the market to generate the desired growth?

Theory and hypothesis

This article is primarily an empirical case study of a country whose businesses and economic policies are rarely subject to academic scrutiny. However, the case of Cambodia’s rice production and export industry contributes to theoretical debates about the role of the state in developing country economies. The neoliberal ascendancy in the 1990s led to great faith in market mechanisms as the driving force of economic development. The prescription for governments was to avoid becoming involved in the economy except for providing some basic economic and other conditions that would enable the private sector to maximise the efficient use of resources (Williamson, 1990; World Bank, 1996). The disappointing results of neoliberal prescriptions led to a rethink of state involvement in the economy and to the state making a comeback – not to the pre-eminent position it enjoyed in the early development decades, but in collaboration with the private sector. Government was now allocated the role of creating the enabling environment that would enable the private sector to thrive (United Nations Industrial Development Organization (UNIDO), 2008).

The contention of this article is that in developing countries with weakly developed private sectors, it may be necessary for the state to become heavily involved in directing economic policy for particular industries, if economic and social policy objectives are to be achieved. There is now a more nuanced view of varieties of the developmental state (Bagchi, 2000; Joshi, 2012; Stubbs, 2009). Governments may need not only to create an enabling environment but also to engage in some direct involvement in the economy. Certainly, they will need to provide strong policy direction to all relevant actors. This view is premised on the inability of market mechanisms to generate the desired economic growth in conditions of a weak private sector and market failure. A case study of the Cambodian rice production and export industries is used to test the proposition that the state in developing countries may still engage strongly in particular industries to achieve its major developmental goals of economic growth and poverty reduction. This is a single case study, and it is made in the absence of a counterfactual. The results can only be suggestive of useful policy approaches.

Method

The research uses a case study methodology, defined as an in-depth examination of a phenomenon (Kumar, 2005; Neuman, 2009; Yin, 2003). In this case, the phenomenon is government policy-making and implementation in Cambodian rice production and export. The study contains elements of both descriptive and explanatory case approaches, involving detailed delineation of the phenomenon and causal analysis (Yin, 2003). The ‘bounded context’ (Miles and Huberman, 1994), in the case of the Cambodian rice industry, is government policy and implementation. The approach involved study of the actions and responses of various stakeholders in the rice industry.

Utilising qualitative methods, most information was collected from academic literature; government reports, policy documents and statistical presentations; foreign aid agency reports and data sets; and media reporting. The documentary information was supplemented by interviews with relevant government officials and representatives of the private sector involved in the rice industry. While a heavy reliance on government sources may appear to have biased the result, there is nevertheless evidence, both from international data sources and to a trained observer who has visited Cambodia many times over the past 20 years, of vastly improved infrastructure and rice production.

Data analysis

Context

In the civil war leading up to the Khmer Rouge takeover in Cambodia, rice production declined dramatically. It had risen from 2.3 million tons in 1963 to 3.8 million tons in 1970, but in the following 4 years, the rice area declined by 77% and production fell by 84% (Helmers, 1997). The new authorities set about establishing an agrarian society based on high yielding varieties (HYVs) of rice and massive irrigation systems. Nothing is known about the fate of the three varieties developed by Chinese technicians but the development of rice production in the Khmer Rouge’s Democratic Kampuchea was ‘almost a total failure’ with an estimated 70%–80% of the irrigation works deemed as ‘useless’ (Helmers, 1997: 5).

In 1979, Cambodia emerged from 5 years of brutal Khmer Rouge rule as a shattered country (Gottesman, 2004; Slocomb, 2004). Economic production had declined dramatically, the collectivisation of agriculture having been a comprehensive disaster. There had been about two million deaths and many persons had fled the country. There was no private sector and very few educated persons remained to take over the reins of state. Government organisations were virtually non-existent. Staff with technical and planning knowledge in agriculture had been decimated. Infrastructure was ruined. The new government, with Vietnamese support, made steady but slow progress in rehabilitating economy and society while international wrangling over Cambodia’s future meant that foreign aid was just a trickle despite the country’s enormous needs. Agriculture, which was dominated by rice production, was collectivised under the Krom Samaki (Solidarity Group) system but there were variations in its operation from the outset and the system was de facto dismantled by the mid-1980s in favour of family production (Diepart, 2015).

In 1991, the Paris Peace Agreement saw Cambodia and its government welcomed back into the global community of nations. The peace settlement was quickly followed by the arrival of the United Nations Transitional Authority in Cambodia (UNTAC). Democratic elections were held and large amounts of foreign aid began to flow into the country. The economy was opened up and the growth of a private sector encouraged. Economic development was important but initially took second place to the achievement of political objectives. The Royal Government of Cambodia’s (RGC) first legislature (1993–1998) did not give full priority to economic development and poverty reduction, as it perceived its major task to be neutralising the remaining Khmer Rouge forces scattered across the country. The government saw its policy foci as peace-building, state-building and rehabilitation.

To begin the process of rebuilding and rehabilitating the social, physical and institutional infrastructure, the RGC started national development planning, a practice that has retained importance until now and indicates how far the government will intervene in the economy. The first planning measure was to outline a long-term vision for the future in the National Program to Rehabilitate and Develop Cambodia (NPRD), adopted in 1994. Based on this vision, the first 5-year Socio-Economic Development Plan (SEDP I – 1996–2000) was formulated, setting goals and milestones to be reached by 2000. The focus was on macroeconomic growth, social development and poverty alleviation. At the same time, a 3-year rolling Public Investment Program (PIP) was developed for the period 1996–1998 so that domestic and external development cooperation resources could be channelled into priority areas to achieve the goals of SEDP I. Since then, the PIP has been updated annually. In the second elected legislature, 1998–2003, the issue of economic recovery rose in prominence. The RGC situated the economy and development more generally within the context of an ‘aspiration of reconstruction’. The RGC assisted and cooperated with all key domestic actors including the private sector and civil society. The international community supported the reforms by providing assistance for implementing the government’s Triangular Strategy (TS) for national development. The TS focused on the restoration of peace and security, the integration of Cambodia into the region and the world, and the promotion of socio-economic development.

The economic take-off phase was adopted as a philosophy of the third legislature – 2003–2008 (RGC, 2010: 2–3). The second Socio-Economic Development Plan (SEDP II – 2001–2005) focused on economic growth and poverty reduction. One formidable development challenge has been the development of the private sector as the engine of economic growth. Poverty reduction, improved livelihoods and enhanced quality of life for the rapidly growing Cambodian population, also considered important, were closely linked to economic growth and development.

The Rectangular Strategy I (RS-I), introduced in 2004, replaced the TS in driving further reforms for economic growth and poverty reduction. The RS consisted of four main axes: social stability, regional and international integration, partnership with the international community and the private sector for the development of the country, and macroeconomic development. Good governance was the core of the new strategy: it focused on four key reform areas (fighting corruption, legal and judicial reform, public administration reform, and armed forces reform and demobilisation). Agriculture, infrastructure, employment and human resource development were the strategy’s priority sectors.

The socio-economic policy agenda for the fourth legislative mandate – 2008–2013 –was to be implemented through new priority policies for economic growth, social development and further poverty reduction (Ministry of Planning (MoP), 2013: 3–4; RGC, 2010: 3). The National Strategic Development Plan (NSDP) Update 2009–2013 served as a road map to implement Rectangular Strategy II (RS-II). The strategy began in an uncertain international environment created by the global financial crisis (GFC).

The most recent socio-economic agenda was prepared for 2014–2018 at the start of the fifth legislative mandate, to implement the Rectangular Strategy Phase III. The NSDP 2014–2018 was designed for growth, equity and efficiency to enable Cambodia to reach the status of an upper–middle income country. The Monitoring and Evaluation of the Result Framework sets responsibilities for line ministries and agencies to achieve high benefits from Association of Southeast Asian Nations (ASEAN) Economic Integration in 2015, to enable Cambodia to move out of the Least Developed Countries (LDCs) category. An Industrial Development Policy (IDP) 2015–2025 was enacted, aiming at maintaining high economic growth through diversification, improved competiveness and enhanced productivity.

As a post-conflict nation, Cambodia has attained impressive growth in the last decade and a half. The annual gross domestic product (GDP) growth rate increased from around 7% in 2000–2002 to 10% between 2003 and 2007. While economic growth plummeted to 0.1% in 2009 as a result of the GFC, recovery was rapid and has since been averaging about 7% per year (World Bank, 2015).

The Cambodian government has consistently prioritised agriculture sector enhancement, arguing that it promotes two of its key aims: economic growth and poverty reduction. Cambodia’s economic growth is narrowly based and the agriculture sector is the high labour absorbing sector. Also, agricultural development has been promoted within the context of increases in food prices throughout the world and thus great potential for export. It was prudent for the government to promote policies enhancing the welfare of farmers, as 67% of the workforce was involved in agriculture in 2012 (Food and Agriculture Organization (FAO), 2014: 1). They comprise the largest bloc of votes. Until recently, rural areas have supported the ruling Cambodia People’s Party (CPP) but enhanced rural–urban interaction has enabled rural dwellers to see the consumption patterns of urban elites, leading to feelings of relative deprivation despite improvements in their own welfare (Ngoun, 2013).

In order to achieve economic growth and poverty reduction, the RGC has developed a policy mainly aiming at promoting agricultural productivity and diversification as well as land, fisheries and forestry reforms. This has required institutional mechanisms and effective coordination for sector-wide progress. Moreover, the government has been concerned to create an enabling environment to attract private investors, both domestic and foreign, and has welcomed the contribution from non-governmental organisations (NGOs) to ensure the transfer of know-how and new technology to farmers for crop farming and animal rearing. It further sought to link farmers to regional and global agricultural markets by creating necessary institutional mechanisms and through efforts to make the quality of agricultural products conform to international standards. It is within this general policy context that the specific policies for rice production and export have been formulated and implemented.

Targeting paddy production and rice exports

Agriculture currently makes up more than 30% of Cambodia’s GDP and rice has played an important role in the sector’s growth as about 80% of the total crop acreage is devoted to rice (Ministry of Agriculture, Forestry and Fisheries (MAFF), 2012). Being an agricultural-based country, Cambodia was a major rice exporter in the 1960s before becoming a war-torn nation, leading to the closing of international trade and the collapse of rice production (Helmers, 1997). While rice production recovered steadily under the post-Khmer Rouge Vietnamese-backed government. Almost 70% of the population is engaged in agriculture, and over 80% of farmers cultivate rice, 60% of them for subsistence purposes (Agricultural Development International (ADI), 2010; Sophea, 2012). Most farmers’ rice production has yielded just enough for their household consumption. Because of the agrarian nature of the Cambodian economy, in which rice accounts for more than 70% of total agricultural outputs, currently, more than 80% of the population generates some income from rice production, and nearly three million people are employed in the rice value chain (ADI, 2010).

The vast majority of Cambodian farmers still face the challenge of overcoming poverty as the average cultivated area is less than 2 hectares (ADI, 2010). Despite this, there have been very positive trends in Cambodian rice production and exports. Data available from the MAFF (2011) show that all of the 24 cities and provinces of Cambodia grew rice in 2010. The yield of 2.7 tons per hectare, while among the lowest for Asian rice producing countries, was almost double the 1990 figure (ADI, 2010; Sophea, 2012). However, Cambodia has abundant land for rice growing. In 2010, the rice growing area accounted for 2,674,603 million hectares, and rice production amounted to 7,585,834 million tons (MAFF, various years; see especially 2014). Despite relative neglect in the first post-Khmer Rouge decade, since 2004, Cambodia has attained growth in agricultural value addition of around 5% per annum. Cambodian agriculture, however, is predominantly rain-fed and thus susceptible to large year to-year variations in yields and production. There is typically only one crop per year as against two or even three crops in irrigated production systems (Helmers, 1997).

Cambodia has set a rice export goal of 1 million tons for 2015 which will necessitate exporting both fragrant and non-aromatic rice. Although Cambodian rice has much cheaper production costs than its chief competitors – Thailand and Vietnam – Cambodia’s prices for non-aromatic milled rice have become increasingly uncompetitive. Rice in Thailand and Vietnam is available at USD70–USD90 per ton more cheaply, primarily because their milling and transport costs are approximately half of those of Cambodia. Furthermore, Thai rice has very strong brand recognition at a similar price to Cambodian rice while Vietnamese fragrant rice is available at a cheaper price (Slayton and Muniroth, 2012). Potential sales of Cambodian non-fragrant rice to neighbouring markets such as Indonesia and the Philippines are currently less promising because of uncompetitive export prices.

Benefiting from import duty preferences and new investments in modern rice mills and polishing factories, Cambodia’s rice exports are on a steep upward trajectory – albeit from a low base. Exports averaged less than 6000 tons during the 5-year period 2004–2008, but the European Union’s (EU) Everything but Arms (EBA) import duty waiver became effective for Cambodia’s rice in late 2009. With over 90% of formal rice exports being shipped to the EU and Russia (another market which provides Cambodia with duty-free access), Cambodia’s exports rose rapidly to over 51,000 tons in 2010, and then to almost 400,000 tons in 2014. However, Cambodia’s export of a large amount of unprocessed raw rice to neighbouring countries has resulted in the loss of value addition (ADI, 2010). It is estimated that in 2009, about 2.19 out of 3.08 million tons were exported to Vietnam (85%) and Thailand (15%) without being processed (ADI, 2010). Thus, about two-thirds of the total exports have not gone through formal channels and have accrued no value-added for the Cambodian economy (ADI, 2010).

Government planning and policy

The Cambodian government has utilised traditional national planning methods in its policy-making and implementation for rice production and exports. This is most clearly seen in the establishment of specific targets. For example, the NSDP 2006–2010 set the target of 5.5 million tons of paddy production by 2010 with the yield per hectare rising from 2.0 tons in 2005 to 2.4 tons in 2010, and the proportion of irrigated paddy land increasing from 20% to 25%. In the 2008 Mid-Term Review of NSDP, targets were adjusted upwards: production total up to 7.5 million tons, yield per hectare up to 2.8 tons per hectare and 200,000 more hectares of irrigated land.

In order to achieve these and current targets, the government set out policy measures across the full range of activities related to rice production, processing and export in its 2010 Policy Document on Promotion of Paddy Rice Production and Export of Milled Rice (RGC, 2010). Rice is seen as having a bright future and playing a major role in Cambodian economic development – ‘rice – white gold’ as the policy document and the prime minister say. The policy measures contain elements of both direct government involvement and of government’s efforts to create an enabling environment for farmers, suppliers, processors and exporters. The measures also have a strategic orientation comprising a combination of quick-win initiatives and medium to longer term ones. The overall policy for rice production and export can be divided into four distinct but interrelated measures involving paddy rice production, paddy rice collection and processing, logistics and marketing. Details of each cluster of policy measures are set out below.

For paddy production, the policy has involved a combination of government and private sector activities. As a quick-win measure, the policy aims to increase paddy rice productivity by using high yield seeds and promoting modern farming techniques. The private sector has been encouraged to participate through government initiatives to improve import procedures for rice seed, fertilisers and other agricultural inputs and by providing incentives to local seed producers and distributors. Another quick-win measure has been continued expansion of the irrigated area through government, NGO and community investment. There has also been a continuing programme of building and maintaining rural roads, and supporting the promotion of micro-credit for agriculture. Longer-term measures include facilitating productivity gains, enhancing methods of water management, increasing investment in agricultural research, technology transfer and bringing extension services down to the lowest level of local government, the commune. Rural electrification is also viewed as important for pumping irrigation water. Institutional development is planned through the establishment of farmers’ organisations while ensuring the sustainable use of agricultural land is the collective responsibility of several government organisations.

Paddy rice collection and processing have been identified as the most problematic parts of the rice value chain (Sophea, 2012). As a quick-win measure, the government has changed investment laws to encourage greater private sector investment, supporting and strengthening rice miller associations, and ensuring finance for paddy rice collection. The latter has envisaged recapitalisation of the Rural Development Bank (RDB), doubling the capital of the Agricultural Development and Support Fund (ADSF), and developing a credit guarantee scheme and a risk-sharing facility. For the medium to longer term, new financial instruments are planned, including an agricultural development bank, and reducing electricity prices while extending the areas covered.

For logistical improvements, the government has specified a range of measures especially as inefficiencies in logistics have driven up the price of Cambodian rice exports. A first quick-win step is the attempted elimination of informal fees and illegal check points. Corruption is a longstanding problem in Cambodia, hampering economic development (Keo, 2013; Transparency International, 2014; Turner, 2013). However, there has been very limited progress in reducing corruption with Cambodia remaining the most corrupt country in Southeast Asia in the Transparency International rankings. Further quick-win policy measures in logistics are the proposed establishment of a single-stop service for export processing, bringing grading and quality standards into line with accepted international practice and encouraging the construction of bonded warehouses. In the medium to long term, there is concern about sanitary and phyto-sanitary matters. There is need for new legislation and regulations on standards and a strengthened system of certification. Infrastructure development is also seen as critical for the reduction of the costs of rice exports. Investment is perceived as necessary in various aspects of infrastructure from ports to roads and railways. New financial institutions have been proposed, including an export-import bank and a development bank.

In the field of marketing, three quick-win policies were identified. First, opportunities in regional and global markets should be explored through studies and visits. Second, the public and private sectors should be encouraged to cooperate in forming a rice marketing intelligence unit. Third, concerned government agencies should be more proactive in disseminating market information to relevant stakeholders. In the medium to long term, the need was identified for a ‘strategic penetration plan’ of how the country will position itself in international markets to maximise benefits for the rice production and export industries.

Policy implementation

The wide-ranging measures proposed in the 2010 Policy Document (RGC, 2010) plus the overarching strategies and specific targets set in other national planning documents mean that implementation must be shared across several government agencies and with other domestic and international actors. It can be seen as a whole-of-government approach linking with independent actors in the economy. The rice industry has a chance to contribute to policy through twice yearly meetings of the Government-Private Sector Forum. These meetings offer working groups on particular industries the opportunities to communicate difficulties, challenges and policy suggestions to the government. Working Group 9 was created to deal specifically with issues relating to rice production and export.

The policy document on rice industries required all concerned stakeholders in the state sector to develop action plans for efficient and effective policy implementation. All agencies complied, in an authoritarian political system that places great emphasis on hierarchy and awards extensive, and largely unchallenged, decision-making powers to the prime minister (Diamond, 2002; Turner, 2013). MAFF (2011) was identified by government as the lead coordination agency, and as such produced an Action Plan for Paddy Production and Rice Export. With a budget of USD48m, MAFF instigated a variety of actions, to increase and improve paddy production and processing, and to enhance export processes. These actions included expanding agricultural extension services, increasing research activity and capacity, facilitating import clearance procedures for inputs, strengthening farmers’ capacities to secure loans from financial institutions, drafting new laws and regulations, conducting research and developing procedures for ensuring rice exports comply with international standards.

The Ministry of Commerce (MoC) worked on trade development for rice as it is one of the prioritised items identified for further exports. The activities fit within the broader policy framework of the MoC to diversify the country’s narrow export base of garments and tourism, to seek preferential trade agreements and to comply with World Trade Organization (WTO, 2011) requirements. Specifically, the MoC identified the following tasks: a comprehensive study on Cambodia’s potential markets for rice, dissemination of the study results, leading delegations to explore overseas market possibilities, establishing a Rice Market Intelligence Unit to provide information and analysis on regional and global rice markets, disseminating market information and an initiative to establish an association of rice-exporting countries.

Also among the implementing agencies is the Ministry of Economics and Finance (MEF), which is concerned with establishing financial institutions and processes that will increase investment in rice production and export. The MEF created a Credit Guarantee Scheme which attracted commercial bank credit worth USD200m for rice purchase. There is also a finance cooperation agreement with the World Bank’s International Finance Corporation (IFC) on risk sharing for agricultural and agro-industry projects with USD25m to expand agricultural loans. This would prove attractive to commercial banks. The MEF also doubled the capital of the ADSF to USD36m and recapitalised the RDB with an addition USD7m.

The Ministry of Water Resources and Meteorology (MoWRAM) has worked with MAFF on another key aspect of support for rice policy – the Strategy for Agriculture and Water (SAW) 2010–2013 (MAFF and MoWRAM, 2009). Targets included increasing the area of cropping land with access to irrigation services by 100,000 hectares and the value of agricultural exports by 20%. The six programmes identified in SAW were appropriate policy and legal frameworks in the agriculture and water sectors; institutional capacity building and human resource development for effective agriculture and water resource development and management; research and education to generate and use agricultural and water-related knowledge and to acquire information on technology transfer; food security for Cambodians; integrated land and water management; and agricultural business and marketing approaches delivering full benefits to farmers, rural communities and other stakeholders.

The Ministry of Land Management, Urban Planning and Construction (MLMUPC) is also involved in implementing agricultural policy and gives priority to delivering land titles in potential rice production areas. These can be used as collateral for receiving loans for seeds, fertilisers and other production inputs. The NSDP 2014–2018 highlighted some of the achievements of this policy. These include l2,257,151 land titles distributed through systematic titling and 603,302 from sporadic titling. Social land concessions had also been granted through MLMUPC to approximately 31,000 qualifying households by the end of 2013. On the negative side of the land ledger, there have been allegations of smallholders’ land being grabbed by powerful interests, claims disputed by the Cambodian government (Cambodian League for the Promotion and Defense of Human Rights (LICADHO), 2015; Hunt, 2014). However, grants of land for commercial purposes, Economic Land Concessions, have greatly exceeded Social Land Concessions to the poor. There had been 12,374 recipients of the latter by June 2014 and 113,167 hectares allocated, 4% of the area granted for Economic Land Concessions (Diepart, 2015: 24).

In addition to government organisations, the private sector has also been involved in policy implementation, notably in the provision of finance. Rice industry associations have been particularly important. For example, the Alliance of Rice Producers and Exporters of Cambodia (ARPEC) provides a range of services including banking facilities, selling large tonnages consolidated from multiple producers, reporting daily rice prices and providing centralised purchase of inputs such as seedlings and rice bags. Interviews with senior figures in two of the country’s largest banks, Canadia Bank and Association of Cambodian Local Economic Development Agencies (ACLEDA), revealed that they were working to provide loans to rice millers. Canadia Bank had established a special facility of USD100m to provide loans to rice millers.

International donors have been supportive of Cambodia’s rice production and export policy. At the farm level, there has been investment in seeds, harvest and post-harvest handling, irrigation and yields. Rice millers and exporters have also benefitted from foreign aid with trade-related assistance from bodies such as the United Nations Development Programme (UNDP), IFC and EU (IFC World Bank Group, 2014, 2015).

Discussion: Policy results

The results of Cambodia’s rice production and export policy have been generally very positive. They are clearly reflected in the reduction of poverty. According to the World Bank (2015), poverty levels have diminished from 34% of the population in 2008 to 17.7% in 2012. Cambodia’s own National Institute of Statistics tells a similar story with their figures showing poverty levels declining from 29.9% of the population in 2008 to 18.9% in 2012. As 70% of the population makes their living from rice production and rice-related industries, it can be assumed that rising rice output has contributed to higher rural incomes, improved welfare and poverty reduction.

More specifically, the rice policy’s impact is evident in growing rice yields and overall production. As Table 1 demonstrates, there have been significant increases in paddy yields, production, cultivated area and paddy surplus. Yield per hectare grew by 50% over the period 2000–2013 from 2.12 tons per hectare to 3.163 tons per hectare (MAFF, 2014). The cultivated area grew by more than 25% from 2.32 million hectares to 2.97 million hectares. Paddy production more than doubled in the period from 4.03 million tons to 9.39 million tons, while the paddy surplus grew enormously from a mere 142,476 tons in 2000 to 4.83 million tons in 2013 (MAFF, 2014).

Table 1.

Paddy yield, production, cultivated paddy area and paddy surplus in Cambodia, 2000–2013.

Year	Yield (tons/ha)	Paddy production (tons)	Cultivated area (ha)	Paddy surplus (tons)
2000	4,026,092	2,318,495	142,477	4,026,092
2001	4,099,015	2,240,917	568,981	4,099,015
2002	3,822,509	2,137,125	243,759	3,822,509
2003	4,710,957	2,314,285	1,072,650	4,710,957
2004	4,170,284	2,374,175	650,184	4,170,284
2005	5,986,179	2,443,530	2,061,830	5,986,179
2006	6,264,123	2,541,433	2,240,438	6,264,123
2007	6,727,127	2,585,905	2,577,562	6,727,127
2008	7,175,473	2,615,741	3,164,114	7,175,473
2009	7,585,870	2,719,080	3,507,185	7,585,870
2010	8,249,452	2,795,892.00	3,932,425	8,249,452
2011	8,779,365	2,968,529	4,344,263	8,779,365
2012	9,290,940	2,980,297	4,735,964	9,290,940
2013	9,389,961	2,968,967	4,828,832	9,389,961

Source: MAFF (various years); see esp. MAFF 2014.

There have also been positive trends in access to finance for rice millers. The government established counterpart funding through the RDB – a modest USD2m in 2005 increasing to USD16m in 2009 (RDB, 2010). In 2011, government funding increased to USD40m being loaned to 251 rice mills. However, there are concerns that the funds have gone to provincial heads of rice miller associations and other politically well-connected rice millers. Interviews with banks revealed that government has been prevailing on them to make larger loans to rice millers and that the banks are responding. One major bank told us that it had established an agricultural loans department and that government was collaborating to guarantee business loans for rice mills.

Government trade promotion activities have also contributed positively to the enabling environment for exporters. Arranging rice exhibitions and overseas tours for persons in the rice industry has facilitated learning among key actors from the private sector. From the knowledge and contacts acquired, private sector millers and exporters have been able to introduce improvements in such things as milling technology, safety standards and rice quality. Also, the government’s promotion of bilateral trade agreements has had a positive impact. A particular success has been the preferential trade agreement with the EU, which, in 2001, accounted for 80% of formal Cambodian rice exports (EU External Action, 2016).

Communication between government and the private sector has been enhanced by the biannual Government-Private Sector Forum in which there is a Rice Export Working Group, separate from the Agricultural and Export Processing Working Group. One of the rice working group’s recommendations implemented was the Secretariat of One Window Services for Rice Export Formality (SOWS-REF). This organisation has positively affected processing for export in terms of cost and time. These outcomes are reflected in Table 2 (World Bank, 2014). For example, sanitary and phyto-sanitary certificate costs have reduced from USD150 per case in 2012 to USD35 in 2013 while the time taken has halved from 2 days to 1 day. Customs certificate costs have been slashed from USD25 per container in 2012 to USD6.50 per container in 2013 and time taken from 2 days to half a day.

Table 2.

Reduction of time and cost of rice export processing in Cambodia.

Services	Processing costs		Processing time
Services	2012	2013	2012	2013
Sanitary and phyto-sanitary certificate	USD150/case	USD35/case	2 days	1 day
Fumigation certificate	USD20/container	USD35/container	1 day	1 day
Certificate of origin	USD250/case	USD141/case	1 day	1 day
Custom certificate	USD25/container	USD6.50/container	2 days	½ day
CamControl certificate	USD25/container	USD52.50/container	2 days	½ day
GMO certificate	USD150/sample	USD80/sample	3–4 days	2–3 days
Average total	USD20/ton	USD14/ton	8 days	4 days

Source: World Bank (2014).

GMO: Genetically Modified Organisms.

In milling, there have been impressive gains with the capacity of larger mills nearly quadrupling to an estimated 350 tons/hour since 2009 (Slayton and Muniroth, 2012). The number of exporters has grown from 70 to 84 between 2012 and 2014, while export destinations have increased from 35 in 2010 to 74 in 2013 (Cambodian Rice Exporters Association (CREA), 2014). The amount of rice exported has increased from no exports in 2000 to 387,061 tons in 2014 (Styllis, 2015). Rapid growth has continued until the present with 149,464 tons of rice exported in the first 3 months of 2015, up 77% from the previous year. There has also been diversification of markets with China signing an agreement for 100,000 tons of rice to be supplied in 2015 (Muyhong, 2014). The main destinations are still EU countries, especially France, Poland and the Netherlands. Within ASEAN, Malaysia is also importing Cambodian rice.

Despite these major advances in rice production and export, the aims of achieving exports of one million tons in 2015 and up to five million tons thereafter look overambitious at least in the short to medium term. The paddy area and yields are not expanding rapidly enough to achieve these aims. Finance is still an issue with inadequate amounts being available to fund improved and new processing facilities and to purchase paddy (Sophea, 2012). A major issue is the practice of farmers selling their product immediately after harvest due to their need for income and the cost of storage. This drives rice onto the more informal market, with buyers from neighbouring countries purchasing large amounts. This greatly reduces value-adding possibilities in Cambodia for domestically grown rice. It also reflects a structural problem that landholdings are typically small and thus have low incomes and very little if any capacity to save. In 2001, 47% of agricultural households had less than 1 hectare of land (Diepart, 2015: 18).

Financial limitations have also worked against exporters being able to gather enough rice to satisfy the volume shipment requirements of buyers from importing countries. Interviewees in this study sometimes reported their inability to supply the amounts wanted by foreign buyers. They also reported that many milling businesses still lack the technology and knowledge to produce rice of the quality required in foreign markets. But quality issues commence on the farms where there is a shortage of high quality rice seed and still a shortfall in the knowledge of farmers about quality issues. Many farmers have not used high-quality seeds because of their unavailability or their unaffordability for poor households (ADI, 2010). Government and donor efforts in seed propagation and distribution have made only a minor impression and the private sector has not scaled up to the level hoped for. Furthermore, post-harvest seed retention is only estimated to be about 5% of the total rice production.

Logistics still cause problems of competitiveness for Cambodian rice exports. Undoubtedly, there have been improvements as indicated by Cambodia’s moving from 129 in 2010 to 83 in 2014 on the Logistics Performance Index (World Bank, 2014). However, there is much ground to make up on major competitors, Thailand and Vietnam. They ranked 35 and 48 on the Index. As Slayton and Muniroth (2015) have discovered, the cost of transporting rice to port facilities in Cambodia was double that in Thailand.

While government policy stressed its support for the development of rice millers and exporters associations, the results have been mixed. Interviews for this study revealed a lack of cooperation among millers and exporters. Information sharing is limited and communication among private sector companies poor. For example, export opportunities are lost when large volume orders are rejected by individual businesses rather than engaging in collective action. Also, interviewees raised issues about perceived inequity in benefit-sharing among members of associations, and even that heads of provincial associations have a habit of absconding with RDB loan funds.

A final issue for Cambodian rice exports relates to the uncertain future in the main market, the EU. The EU’s tax exemption that was due to run out in 2015 was extended, but there have been efforts by Italy to restrict subsidised rice imports to the EU and calls to look for new low-income country suppliers now that Cambodia has entered the ranks of the lower middle income countries (Khmer Times, 2016). The situation has not been helped by rumours that Cambodian rice exports are mixed with rice from Vietnam, a matter interviewees worried could undermine trust in Cambodia’s attempts to brand as a world-class rice exporter (Le Fevre, 2016).

Implications

The major implication of the Cambodian rice production and exporting case study is that strong state action involving direct involvement in the economy and creating an enabling environment can be a viable means for securing substantial economic gains for the economies of developing countries. In this case, it appears that it was not necessary or desirable to leave an industry to market forces where those forces were not well developed and where the private sector was unable or unwilling to take certain risks and pursue opportunities. To compensate for such market failure, it can be effective for government to play a major role in promoting what is essentially private sector development.

From the Cambodian case, it seems that there were some conditions that needed to be fulfilled for successful government intervention. First, there was commitment by government. This was obtained in the hierarchically oriented government of Cambodia by strong support from the Prime Minister – a very powerful figure – and the prioritisation of agriculture in the national development strategy and associated plans. This meant that organisations responsible for policy implementation would toe the line making rice policy one of their priorities. This is a highly significant matter in a public service that has often been characterised as inefficient and ineffective, and suffering from the adverse consequences of patronage (Taliercio, n.d.; Turner 2013).

Second, rice production and export policy was comprehensive. This meant that the complexity of the industry was appreciated and that in order for production and export to increase, there needed to be full understanding and action on the many components of the overall rice production and export system – seed production, extension service, irrigation, milling technology, quality control, land titling, market knowledge and more. Third, and resulting from policy complexity, it was necessary to adopt a whole-of-government approach. A wide range of activities needed to be undertaken, and this necessitated action from several government organisations specialising in different activities relating to rice. While all responsible organisations produced plans and targets, it is less clear what coordination mechanisms were in place. Organisations in the Cambodian bureaucracy have typically been zealous guards of their areas of functional control. It appears likely that this compartmentalisation has been maintained in implementing the rice production and export policy and may have impinged upon overall effectiveness. However, the areas of individual organisation’s responsibility have been clearly indicated in policy documents and implementation plans so that complementarities could still be achieved despite any coordination issues.

Fourth, the policy to increase rice production and export has been popular with the private sector – both businesses involved in buying, milling and exporting and the farmers as private operators. Businesses have been happy to receive additional finance and other assistance from government while farmers are keen to boost production as the extra income improves household welfare. As paddy farming involves such a large proportion of rural households, a policy promoting increased production and hence income is guaranteed widespread support.

While it is tempting to see the government’s direct intervention in the production side of the industry as the dominant element in the industry’s success, it is important to give due weight to the trade agreements, which are generally regarded as the province of even a non-interventionist state. The agreement with the EU, in particular, was essential.

A final consideration is the matter of cause and effect in policy-making and implementation. In the Cambodian case, it is not possible to make precise causal links between government intentions and actions and the positive changes in the rice industry. At best, it can be said that government policy has contributed to the considerable rises in paddy production and export. Other changes in society and economy will have undoubtedly played their parts. Improvements in health mean that households lose fewer working days; better education entails improved understanding of government messages; road building has linked farmers to markets; and rice production was already increasing when the big policy push for ‘Rice – White Gold’ was made.

Conclusion

This case study of policy-making and implementation for rice production and export in Cambodia has painted a generally positive picture. Rice production has been rising; yields have been increasing; the area under cultivation has been growing; investment in modern milling technology has risen; government has boosted research and information dissemination; new markets have been explored; and rice exports have boomed.

These gains appear to have been largely linked to government involvement in industry promotion. Using a comprehensive approach to rice production and export, government identified and acted upon a wide range of policy initiatives. It did this in two ways: first by direct involvement and second through creating an enabling environment for the private sector, including farmers. Market forces were not ignored. Indeed, the promotion of the enabling environment was very cognisant of how to take advantages of market opportunities and to respond to market signals. However, in a situation where the private sector is unable to generate autonomously the desired rice industry growth, the government stepped in to delineate what needed to be done and how it would be done, the latter mostly involving government action. The case study therefore illustrates the overly simplistic nature of the one-size-fits-all neoliberal prescription of the late 20th century that the state should step aside to make way for private sector regulation, investment and trade.

Despite the production and export success, there are still problems that affect the industry and which make production and export targets overambitious. It is possible that through progressive strengthening of private sector actors in rice production and export, the industry may be sustained with less interventionist approaches in the future.

Footnotes

Funding

This work was supported by a grant from the Academy of Korean Studies funded by the Korean Government (MOE) (AKS-2010-DZZ-3101).

Author biographies

Mark Turner is Honorary Professor at UNSW Canberra. He has undertaken research, teaching and consultancy in more than 20 Asia-Pacific countries. His research and many publications address issues in Asia-Pacific politics, public sector management and development, decentralisation and autonomy, economic development, terrorism and kidnapping. He has undertaken advisory work for the United Nations Development Programme (UNDP), the World Bank, the Asian Development Bank and other development organisations.

Ribaun Korm is Dean of the Institute of Foreign Languages at the Paññāsāstra University of Cambodia. He is a member of the Cambodian National Committee for the Economic and Social Commission for Asia and the Pacific (NC-ESCAP). Dr Korm is an Associate of the Korean Research Institute at the University of New South Wales, Sydney.

Kim Veara is from the Department of Economic Development in the Royal University of Phnom Penh. His research interests include small and medium enterprise development, value chains, industrial development and upgrading in the rice milling industry. He is an Associate of the Korean Research Institute at the University of New South Wales, Sydney.

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