Rice Sector Facing Collapse, Millers Warn

By | February 29, 2016

About half of the country’s rice millers and exporters went out of business last year and those clinging on are likely to follow suit within two years unless the government injects capital into the sector and takes measures to curb the flood of imported rice from Vietnam, millers and exporters said in a letter to the Commerce Ministry yesterday.

“The government may not know or understand the extent of the gravity of the situation facing the rice industry now and in the near future,” the letter from an “activist” group in the Cambodia Rice Federation said. “Nobody has given any concrete attention to the plight of millers and farmers,” it added before outlining risks the industry faces and solutions to avoid bankruptcy for millers and farmers.

The letter also referred to the rice federation as a “sinking ship,” and urged the Commerce Ministry to facilitate an extraordinary general meeting of the federation in order to change its charter and bylaws to salvage it.

The federation needs to be overhauled to strengthen it, create unity, add “brain power,” experience, capacity and unity in decision making as well as good governance, the letter said.

This is required to “strengthen the rice industry by forging unity [and] reaching out and mobilizing all stakeholders to come up with a pragmatic strategic road map with a clear set of much needed government interventions in the short run.

“This has not happened as complete inertia, destructive narrow interests and unprofessional management have prevailed [in the federation and the rice sector],” the letter stated.

The letter called on the government to move quickly because competition in export markets, as well as domestic ones, is increasing.

Millers and exporters face a threat in their key European Union market due to falling import duties on rice imported by the EU from Vietnam, following a free trade agreement signed between the bloc and Hanoi, according to the letter, which notes that Thailand is also increasing its rice exports.

Farmers are also facing a cash crunch due to a flood of low-grade rice from Vietnam, it adds, stressing that bankruptcy has been widespread among farmers, millers and exporters alike.

“If the threat and the problem remain unresolved [by] the government, the following consequences and chain reaction will likely occur – all our rice mills will go bankrupt within the next two years,” the letter said. “This will lead to massive uncertainty, poverty and social instability in our rural area as our farmers won’t be able to sell their paddy.”

Song Saran, president of miller and exporter Amru Rice, said the letter was written by millers and exporters (including himself) to explain the current issues and challenges rice millers, exporters and farmers face. It also lists several recommendations, including a ban and/or tax on rice imported from Vietnam, and financing for projects like a warehouse at Sihanoukville port.

They also sent their letter to the Cambodia Rice Federation. “Rice millers and exporters are upset that companies or traders are allowed to import rice from Vietnam while we have enough milling capacity and paddy surplus to supply the local market,” he said.

“Small and medium-sized millers need more loans to buy paddy from farmers during harvest so that they can store it to supply the market year round,” Mr. Saran said.

He said Vietnamese companies were snapping up high-quality Cambodian paddy for export from Vietnam and flooding the Cambodian market with low-grade rice. This is driving domestic millers out of the market, Mr. Saran said.

“We cannot sell in the domestic market in recent year because we cannot compete with Vietnam rice. The government should increase tax on imported rice to protect domestic farmers,” he added.

Vietnam also reached a free trade agreement (FTA) with the EU earlier this year that will see the EU remove all duties on about 80,000 tons of rice imports annually from Vietnam, including 20,000 tons of husked rice and 30,000 tons of aromatic rice. Duties on other rice products will gradually fall over the next five years, according to the FTA.

According to the letter sent to the Commerce Ministry yesterday, Cambodian rice exports to the EU will be affected, as half of all rice exported by Cambodia goes to that market.

Vietnamese exporters have lower production and shipping costs, while Cambodian exporters struggle with high production and transportation costs, a lack of infrastructure, insufficient storage facilities, a lack of unity and price wars.

Hun Lak, vice president of the Cambodia Rice Federation, told Khmer Times recently that the EU-Vietnam FTA will restrain growth of Cambodian milled rice export to the EU this year, but added that the federation had set up five working groups to improve domestic capacity and find ways to maintain competitiveness in the global market.

According to yesterday’s letter, domestic rice millers and exporters requested the Commerce Ministry to prohibit imports of milled rice from Vietnam for six months or enact policy measures to stem them. It also called for soft loans of about $500 million at 4 percent per annum to develop infrastructure and cut electricity costs to $0.10 per kilowatt hour so that domestic millers can become as competitive as their counterparts in Thailand and Vietnam. It also called for a warehouse to be built at Sihanoukville port with the capacity to hold 20,000 tons of rice.

Ken Ratha, a spokesman for the Commerce Ministry, told Khmer Times yesterday that a meeting had been held between the minister and exporters and millers yesterday to address all the challenges and concerns from the industry.

He described it as a “normal meeting” during which “concern and challenges” were discussed. “The minister noted the concerns and issues,” he said without elaborating.

A source who was present at the meeting said Commerce Minister Sun Chanthol “basically agreed with all of our recommendations to save the industry and called for us to provide a detailed cost analysis of the supply chain.”

The ministry will submit the report to Prime Minister Hun Sen urgently, said the source who asked not to be named. A suggestion that Deputy Keat Chhon chair an “urgent inter-ministerial meeting” on the rice sector will also be made, the source said.

Cambodian rice won the World’s Best Rice award for three consecutive years, 2012 to 2014, while milled rice exports rose about 40 percent from 2014 to 538,396 tons last year, according to government figures. This amount, however, fell far short of the government’s export target of 1 million tons.