Nikkei Asian Review | 5 July 2021
Can Cambodia’s farmers reap the benefit of China trade deal?
PHNOM PENH — In early June, nine women in red gowns held platters of mangoes as Cambodian and Chinese dignitaries cut a red ribbon strung between the piles of tropical fruit.
Concluded with the release of balloons, the ceremony at a wholesale market in Hebei Province marked the arrival of the first fresh Cambodian mangoes shipped directly to China. Initial demand was impressive, reported FreshPlaza, a produce industry outlet, which quoted market spokesman Yang Jianfei.
"Everyone at the welcoming ceremony was amazed at the speed of sales," said Jianfei, noting the four fruit-laden shipping containers at the event were quickly emptied.
The milestone reflects China’s central role in Cambodia’s agricultural sector, both as its largest market for produce and its biggest source of investment. But local growers, analysts and experts say the country has a long way to go if it hopes to fully capitalize on the promise of its farmland.
The Cambodian government is keen to ramp up agricultural exports, not least to diversify its economy, which is heavily reliant on the garment industry.
China seems a perfect partner to achieve that goal. Beijing has been Cambodia’s top source of development aid since 2010, its policy banks having provided more than $5.8 billion to its Southeast Asian ally as of 2018. A list of 100 China-funded projects from the past 20 years records 17% as agricultural. It has financed major irrigation works and new rice mills, built an agricultural school and backed, as a Belt and Road "priority" project, an "agricultural demonstration zone" in Kratie Province.
The recent mango shipments represent the latest milestone for Cambodia after it signed its first bilateral free trade agreement with China last year. Although the full content of the deal has not been made public, statements by officials suggested it is focused largely on agricultural products.
The first shipment of fresh Cambodian mangoes to China, which left in May, contributed to a surge of more than 200% in exports of the fruit in the first five months of this year, according to government figures cited by local media.
Such exports could help Cambodia chip away at its big trade deficit with its economic patron and top trading partner. Of $8.1 billion in bilateral trade with China in 2020, just over $1 billion was sent from Cambodia.
The country’s minister for agriculture, Veng Sakhon, has touted the benefits of direct access to one of the world’s biggest markets. "It will not only contribute to boosting Cambodia’s economy during the COVID-19 pandemic but also help reduce poverty in rural areas," he said at an event in May.
Fresh mango exports were made possible after the countries finalized sanitary requirements for fresh fruit in June last year. The arrangement allows Chinese regulators to certify that specific Cambodian orchards and packing factories meet the quality standards required to ship directly to China. Previously, Cambodian mango exporters had to ship their produce to China through Vietnam.
Bananas were the first Cambodian fruit to receive such approval, in 2018, and have already seen a major rise in exports to the Chinese mainland — rising to $121 million last year from $8 million in 2019.
Longmate Agriculture, a joint venture with Chinese investors that set up a 1,000-hectare banana plantation in southern Kampot Province in 2016, plans to more than double its current output of 20,000 tons a year.
Company Director Hun Lak said Cambodia was well-positioned because its soil was untouched by fusarium wilt, popularly known as Panama disease. The lethal fungal disease that has hit other banana producers in the region, such as the Philippines.
"There is more and more demand because Cambodia is newly growing yellow bananas, our soil is still virgin, that’s why we’re not worried about diseases," said Lak. "Our goal is 50,000 tons per annum."
Cambodia’s government wants China to approve fresh longans next and hopes other tropical produce like dragon fruit will follow.
Direct market access, however, is no magic bullet for Cambodia’s highly fragmented farm sector, which is dominated by smallholders.
For one thing, there is the cost of compliance. Chan Sophal, director at the Centre for Policy Studies (CPS) in Cambodia, said quality standard compliance posed one of the country’s biggest challenges in terms of boosting exports. Better public infrastructure would help reduce costs, he added. "My main concern is whether the sales price is enough to cover the increased cost [of compliance]," he said. "We still need better electricity, logistic systems, and to reduce transport costs by having better roads, more roads," Chan Sophal added.
Another question is how inclusive development of the agriculture sector will be, given that many of Cambodia’s larger fruit plantations are owned by, or are joint partnerships with, Chinese investors.
"It will contribute to creating some employment. We agree China is a big market for agricultural projects," said Yang Saing Koma, founder of the Cambodian Center for Study and Development in Agriculture. "But the Cambodian government should have a policy and strategy to support small and medium farmers, how they can produce and enter the Chinese market, rather than just working with the Chinese investors and a few tycoons."
The most urgent task is to organize Cambodia’s growers, the majority of whom are smallholders, according to Saing Koma, who says fragmentation has created inefficiencies in the sector. These can be seen in the regular gluts and shortages of certain items in different areas, and the fact that Cambodia imports fruits and vegetables that it also grows.
Economically, Cambodia’s agricultural sector has been a bright spot in the coronavirus pandemic, remaining "resilient" and benefiting from increased labor availability as other sectors such as tourism were hit by layoffs, according to a World Bank report published in June.
The country’s agricultural exports hit $932 million last year, according to the Economist Intelligence Unit. The figure, an almost 17% jump on the year before, comprised just 5.4% of total exports, which are dominated by garments and footwear.
The EIU attributed the jump in 2020 to a rise in the value of rubber exports amid a pandemic-driven surge in demand for personal protective equipment, as well as the Chinese market opening to Cambodian bananas.
But future growth is likely to be slow, particularly given the lack of funds for processing facilities. EIU analyst Imogen Page-Jarret said it looked unlikely that such investment would come from the government, which was focused on value-added sectors like electronics assembly.
"Currently, most farmland in Cambodia is made up of small private homesteads that produce unmilled rice and other unprocessed products," she said. "The goods are usually shipped to neighboring Thailand and Vietnam for processing. This is a huge loss in terms of value added."
Cambodia’s government has called increasing diversification and productivity in agriculture an "urgent" but "uphill task."
In response to questions about its plans to improve the sector, a Ministry of Agriculture spokesman sent screenshots of parts of Cambodia’s new Agricultural Development Policy, which aims to grow the sector by 3% a year, from $5.5 billion in 2019 to $7.8 billion in 2030.
The EIU is less optimistic, predicting it will grow 1.9% a year on average, but noting the estimates were vulnerable to extreme weather such as droughts and floods.
Logistics is another major hurdle for the country’s farmers. Lu Song and his wife, He Yan, moved to Cambodia in 2012 after selling their 50,000 hectare cassava farm in Indonesia.
Their company, Long Wo Agriculture, which covers around 2,000 hectares, began with cassava and then added dry mangoes in 2018. They have also exported fresh mangoes to China, but only via Vietnam until this year. Now the pair run one of five factories in Cambodia certified to treat fresh mangoes for export directly to China.
Lu said the advantages of Cambodia — cheap labor, cheap land, a good climate for tropical fruits, and its close relationship with Beijing — must be balanced against the challenges: a lower level of technology, and problems with electricity and transportation.
One major barrier is shipping. Mangoes have a shelf life of about 20 to 25 days after being picked, but shipping from Cambodia takes about 12 days on average.
"Sometimes it takes 15 days, which means we only get 10 days to sell it at the market," Lu said.
Airfreight is too expensive. Overland shipment to Vietnam takes three days, but is also costlier and harder to move large quantities.
Ratha Chan, country director of the Cambodia Partnership for Sustainable Agriculture, said the government, NGOs and industry groups need to plan for the long term. Without strong leadership, he said, Cambodia will be stuck at the bottom of the supply chain as an exporter of raw produce, with local workers remaining cheap labor. "If we just use low-educated, cheap labor, our sector won’t go anywhere. Cambodia needs to move up in the supply chain," he said.
Saing Koma agrees and hopes the sector can one day rival Cambodia’s $10 billion garment sector in terms of exports if the right policies are implemented "There’s a lot of work to do, but it can be done. The question is, does the government have the policy and people to do it?"