Fast and easy informal rice exports are causing Cambodia to lose millions in potential revenue

By Raksmey Phen and Sithav An
Economics Today

Huge transport trucks weighted down with Cambodian rice paddy rolling through to the border, where Vietnamese middlemen are eagerly waiting to buy up the bounty. For Cambodians who live near the Bontay Chakrey border crosssing in Prey Veng province, this is a familiar sight during rice harvest and it’s a scene that’s repeated over and over again at border crossings in Battambang, Bantey Meanchey and Svay Rieng provinces.
Prey Veng rice farmer March Khun says she would rather not see so much of Cambodia’s rice paddy cross the border, but she and other rice farmers don’t feel they have any other choice. After harvest, rice farmers are in a hurry to repay loans and Vietnamese traders offer higher prices for their paddy than rice millers in Cambodia do, she said.

Volume of informal exports is anyone’s guess
It’s impossible to say with any certainty how much paddy is ex-ported from Cambodia each year. A significant portion of rice paddy ex-ports go unrecorded and even when it is tracked, border officials have no means of measuring the paddy. They simply make their best guess after a cursory inspection of trucks laden with paddy.
“When the truck arrives, (customs officials) estimate the size of the truck and how much is to be paid and then the paddy goes directly to Vietnam,” a Bontay Chakrey border official told Economics Today. A fee of about 150,000-200,000 riels is charged per truck.
The World Bank estimated in 2003 that 80 percent of Cambodia’s rice paddy is exported informally. According to the bank’s calculations, the country loses more than US$70 million annually in unexploited value addition opportunities.
The bulk of Cambodia’s paddy rice is bought up by millers in Vietnam and Thailand. Countless jobs would be created and thousands of additional dollars collected in taxes if Cambodia were to refine its rice paddy in the country. Cambodia also runs the risk of creating food shortages by exporting its paddy, the World Bank has warned.
Cambodia’s annual rice paddy surplus is estimated to be about 3 million tons, making it one of the world’s largest rice exporters.
Pou Puy, president of the Federation of Cambodian Rice Miller Associations, says Cambodian rice millers simply do not have the funds to prevent paddy from being exported to Vietnam and Thailand.
According to the federation’s estimates, Cambodian millers currently spend about US$300 million to purchase paddy annually and would need an additional $US70 million, at the very least, to purchase all of the country’s surplus paddy.
“Export taxes are zero,” Pou Puy told Economics Today by phone, making informal exports relatively fast and easy for traders.
About 6.7 million tons of rice paddy were produced in Cambodia in 2007 an increase of about 2.6 million tons from 2004, according to the Ministry of Agriculture.
Earnings from rice paddy grew almost 51 percent in 2007, said Agriculture Minister Chan Sarun, who agrees that jobs and business opportunities are being lost as a result of informal rice paddy exports.
The Government has avoided banning rice paddy exports during harvest because it does not want to prevent Cambodian rice farmers from benefiting from higher prices offered by Vietnamese and Thai traders, he said.
Cambodia can’t compete with Vietnamese, Thai millers
Tang Yourk, a Prey Veng rice miller, said he can’t compete with Vietnamese millers, who receive financial assistance every year from the Vietnamese government in the form of low-interest loans.
Last year, Cambodian rice millers
received about US$14 million in loans from the Cambodian Government, which is tiny compared to the US$ 1 billion Thailand loaned its millers to purchase paddy, said Chan Sarun.
“I hope that the Government and rural development bank will increase loans to the federation of rice miller associations this year,” Chan Sarun said.
But even if the country’s millers could buy up all of Cambodia’s surplus paddy, they lack the equipment and technology needed to process the quality of rice that today’s consumers are demanding on the global market, he pointed out.
Ankor Kasekam Rong Reong in Kandal province is the first and only high technology rice miller in the country capable of producing rice that is of the international standard that is expected of most EU and Asian markets.
To improve competitiveness over the long term, Cambodia needs to invest significantly more in the rice milling sector so that operators can upgrade to high technology equipment, said economist Chan Sophal.
The private sector rather than Government ought to spearhead the high-tech transition, he added, but the Government can still help to facilitate trade.
Over the short term, revenue from rice paddy production could be boosted if farmers were able to store their rice until two or three months after harvest, when traders begin offer higher prices for rice. ■