Case Study: Modernizing the Rice Sector in Cambodia infoD v INNOVATION & ENTREPRENEURSHIP Case Study: Modernizing the Rice Sector in Cambodia © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Website: www.infodev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG This work is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the donors of infoDev, the World Bank Group, its Board of Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Other contributors include the International Finance Corporation and the Agriculture Global Practice of the World Bank Group. The study team included Anupa A Pant, Blair Edward Lapres, Ellen Olafsen, Loraine Ronchi, and Peter A Cook of the Finance, Competitiveness & Innovation Global Practice, and William Mott, Martin Webber, Stephanie Haile, Madeleine Nelson, William Scott, Gareth Smail, Donald M. Taylor, and Laya Hess-Skinner of a consortium of Agland Investment Services and J.E. Austin Associates. The team received guidance from a decision review panel chaired by Ganesh Rasagam and consisting of Dietrich Fischer, Milaine Rossanaly, and Christopher Ian Brett. The paper benefited from discussions with and guidance from numerous World Bank colleagues, Bradford Roberts, Parmesh Shah, Selchuk Tanatar, Bas Rozemuller, and Sarah Ockman. This study was made possible through the support from the governments of Norway, Sweden, Finland, and the UK’s Department for International Development (DFID). Table of Contents Synopsis 1 Background 1 Rice Market Conditions, Challenges, and Opportunities 1 Cambodia’s Competitive Advantage 3 IFC Advisory Service Intervention 3 Project Implementation and Results 4 Mill Management Development: 4 Software Development for Mill Management: 5 Rice Product Specifications: 5 Rice Market Access and Export Promotion: 5 Visits to Other Countries: 6 Industry Trade Organization: 6 Promotion of Clean Technologies for Waste Reduction and Energy Efficiency: 6 Finance and Investment: 7 Publicly Sponsored and Lead Firm Linkage: 7 Value Chain Approach 7 Rice Export Industry in 2016: 7 Future of the Rice Industry: 8 Lessons Learned 9 Bibliography 10 Annex I Statistics 11 1 Synopsis Background This case illustrates how publicly supported To appreciate the significance of the sector’s technical and marketing assistance provided transformation, it is important to understand the recent the basis for bottom-up modernization of the history of the Cambodian rice sector. After the first rice processing sector and facilitated linkages general election in 1993, the government prepared and to international markets, resulting in a large implemented a comprehensive macroeconomic policy increase in rice exports. In 2008, the IFC- and structural reform program in an effort to integrate sponsored Cambodia AgriSector Support Project Cambodia’s economy into the region and the world.2 The (SCL-CBA AgriSector or AgriSector) became Cambodian rice sector was recovering from decades of the vehicle for supporting the Cambodian rice civil unrest, political upheaval, and bad economic policy. sector as it emerged from decades of civil unrest, Under the new policy, rural producers could resume rice political upheaval, and bad economic policy. By production under more normal conditions. The country first supporting SME rice millers in the supply reached self-sufficiency in rice again in the mid-1990s. chain, and gradually providing improvements Farmers began to grow marketable surpluses of rice. In to other elements of the supply chain, lead 2000, the country produced 4.026 million metric tons firms expanded export marketing programs (MT) of paddy rice. By 2008, the country produced 7.175 and investment in the sector increased. The million MT of paddy rice, a dramatic average increase of demonstrated success of the initial agricultural over 9.7 percent per annum. support project led to a second IFC project specifically focused on the rice value chain. Cambodia had become the fourteenth-largest rice producer in the world. At issue was how to market the With the considerable economic opportunity emerging surplus. Historically, a significant portion provided by the European Union’s 2009 decision of the paddy rice crop was purchased and milled by to allow Cambodian rice exporters duty-free companies with modern milling facilities in neighboring access to the EU market, the IFC project was Vietnam and Thailand. The economic and political timely. The project provided important resources uncertainties in Cambodia had restricted interest in to an SME-based processing sector that needed investing in modern rice mills. Rice producers and millers to expand rapidly as Cambodia’s farmers began suffered low prices and yields due to limited markets for producing rice surplus to domestic requirements. their product, particularly during the harvest period. From an estimated 20,000 metric tons (MT) of rice exports milled in Cambodia in 2009, exports of Cambodian rice increased dramatically to Rice Market Conditions, Challenges, over 500,000 MT by 2015. The expansion of and Opportunities SME agro-processing is an excellent example While farmers were producing more rice, the quantity of industry revitalization and competitiveness of milled rice exported between 2008 and 2009 totaled in global commodity markets achieved through only 20,000 MT, a small amount compared to the technological modernization coupled with neighboring rice-producing countries of Thailand and trade incentives.1 Vietnam.3 Figure 1 illustrates Cambodia’s rice value chain from 2008 to 2009. In those years, approximately 18 1 Agro-processing activities create a demand-pull for percent of the crop, and probably more, represented upstream raw materials, input provision, veterinary post-harvest losses; 5 percent was for seed retention; services, production and harvest equipment, and and 3 percent was used for animal feed. This left aggregation, wholesale, sorters, and graders, as well as for professional support services, such as financial 75 percent of the crop to be processed for human services, third-party certifications, packaging, storage and warehousing, and logistics services. In turn, opportunities 2 Chhair, Sokty and Luyna Ung, “Economic History of Industrialization for income growth and greater value generation are in Cambodia” (working paper, UNU-WIDER, Helsinki, 2013). created for every actor in the value chain, from production to distribution and sales. (See literature review, page 4.) 3 Thailand was exporting some 8.8 million MT in 2009 and Vietnam was exporting 5.2 million MT in the same year. See also Annex Table I-1 for the comparative size of Cambodian rice production. 2 FIGURE 1 – CAMBODIA’S RICE VALUE CHAIN (2008) Source: Slayton, Tom. A Road Map for Cambodian Rice Export, World Bank Working Paper, May 2009. consumption, of which 37 percent of the rice was These small mills processed almost 50 percent of the consumed by the rural population, after processing in farm paddy output in 2013 to 2014 (see Annex Table I-2). many small and antiquated “custom” mills. An estimated These mills were constrained by low levels of milling 23 percent of the unprocessed paddy crop for human technology, a lack of working capital, low-quality consumption was exported to Thailand and Vietnam. It paddy, and a lack of drying and storage facilities.5 should also be noted that processing rice using outdated Local estimates of grain losses from harvest to storage equipment resulted in losses of both yield and quality range from 20 to 50 percent, and losses as high as 30 (i.e., broken kernels). With rice production increasing, it percent during the milling process. The commercial became important for the Cambodian rice industry to mills varied greatly in size, with the smallest processing increase capacity up the value chain. facilities processing less than 1 MT/hour, and the largest processing up to 30 MT/hour (see Annex I, Table I.3 for In 2008, the rice processing sector in Cambodia was a a listing of large rice mills in 2009 and 2016). In 2009, serious bottleneck. Surveys showed there were 12,198 there was a total hourly processing capacity in the SME custom rice mills (defined as those with 0.2 to 0.3 existing large commercial mills of some 93.5 MT/hour, MT/hour of milling capacity) and 518 SME commercial with an addition 106 MT/hour being installed in 2009. mills (defined as those with 0.3 to 1 MT/hour of milling The size of commercial mills was small and inefficient capacity).4 The custom mills were small operations compared to neighboring Thailand and Vietnam, and the that milled primarily for the farmers’ own consumption. level of the equipment was inadequate to compete in exacting export markets. 4 Sophea, Kean, “The Rice Situation in Cambodia” (technical assistance consultant’s report, Asian Development Bank, Project Number TA 7495-REG, 2012). 5 Ibid., 11. 3 TABLE 1 – PRODUCTION OF PADDY RICE AND EXPORT OF MILLED RICE (‘000 MT) – 2008-2015 2008 2009 2010 2011 2012 2013 2014 2015 Production Paddy (‘000 T) 7,175 7,585 8,245 8,779 9,290 9,390 9,324 9,200 Exports - Milled (‘000 T) 5 20 52 202 205 378 387 538 Source: FAOSTAT6 for production figures and Cambodian Rice Federation for export figures. Cambodia’s Competitive Advantage6 investment in improved milling capacity also led to a rapid increase in exports, fueled by the duty-free In December 2009, the European Union made an entrance of rice into the European Union. In the four- important decision to include milled rice under its year period from 2011 to 2015, rice exports increased Everything But Arms (EBA) system of preferential by an annual average rate of 41.2 percent. duties for least developed countries, expanding Cambodia’s access to EU markets. This policy provided China and Malaysia were among Cambodia’s Cambodian rice exporters with duty-free access to top export markets in Asia. France, Poland, the the EU market, a significant 30 to 40 percent tariff Netherlands, Belgium, and the United Kingdom were advantage over neighboring Vietnam and Thailand.7 The among the largest export markets in the European importance of this decision can hardly be overstated. Union (see Annex I-4). It encouraged investors from Cambodia, the European Union, and Asia to invest in the rice processing sector Despite the rapid growth in milling capacity in in Cambodia, and to provide the capital necessary to Cambodia, the milling sector faced a number of serious upgrade and increase the capacity of Cambodian mills to obstacles. The quality and quantity of rice production international standards. needed to improve and grow, largely through government investment in training and the creation Additionally, on July 25, 2010, the Cambodian of a more robust seed sector. Cambodian millers were government adopted a policy paper on the promotion also saddled with high electricity prices compared to of paddy production and rice export.8 The objectives competing countries, as well as lower output efficiency laid out in the policy paper were to increase paddy and high logistical costs (e.g., port costs, transport production, in particular by raising output per hectare; costs). Thus, there was a need for government and to increase the milling of rice to international standards; private investment in improved logistics and better and to seek out markets abroad for Cambodian milled storage for paddy rice. To create new investment rice. The specific targets were to attain, by 2015, an opportunities, improved access to finance through annual paddy rice surplus of more than 4 million tons, warehouse receipts (among other options) was also and milled rice exports of one million tons.9 Since 2009, needed, along with stronger food safety regulations. production of paddy rice has increased by 4 percent per annum during the period from 2008 to 2015. The IFC Advisory Service Intervention 6 Food and Agriculture Organization of the United Nations, “Cambodia It was against this backdrop in 2008 to 2009 of Rice Production Statistics.” http://faostat3.fao.org/home/E increasing rice production, along with relatively little 7 The EU duty on rice can vary, but it is significant and close to €175/ rice being milled for export in the country, that the MT on rice valued at €500 to 600/MT. International Finance Corporation (IFC) identified 8 Royal Government, Policy Paper on The Promotion of Paddy a need for assistance in the agricultural sector and Production and Rice Export (2010), Council of Ministers. 9 World Trade Organization, Trade Policy Review: Report by initiated the SCL-Cambodia AgriSector Support Cambodia, WT/TPR/G/253 27, September 2011, 23. 4 Project Project.10 The overall objectives were broad: improving the operational efficiency of agricultural processors in Cambodia by investing in new technology; developing product standards; developing improved infrastructure, such as storage facilities; working with farmers on product quality; and linking the supply chain to sources of Implementation debt finance. This project worked with a variety of crops and processors that included 19 rice mills11 in northwest Cambodia. The IFC budget was $2,276,180 and the and Results first project ended in June 2013. By project closure, the objectives of the program had expanded to include linking SCL-Cambodia AgriSector Support Project: SME Supplier to the supply chain of larger buyers. Linkage Initiatives The success of the original 19 client mills who upgraded The project’s scope and design identified five key weak their processing equipment encouraged many more elements within the SME rice milling and export sector: mills to join the project. At the end of the first project, the IFC had provided advisory services to more than one hundred mills and exporters, representing 70 percent of • Mill Management and Software Development Cambodia’s milled rice exports. Equipment upgrades also • Product Specifications made it possible for mills to pursue Good Management • Rice Markets and Export Promotion Practice (GMP), Hazard Analysis, Critical Control Point (HACCP), and ISO 22000 food safety certification. With • Clean Technologies many export markets now requiring food safety and • Finance and Investment quality certifications, advice and support in this area become one of the most requested services under the Mill Management Development IFC’s second project with the Cambodian rice sector To improve the operational efficiency of processors, (RSSP). the IFC team began work with 19 rice mills, mainly In 2013, the success of the AgriSector project with rice members of the Rice Millers Associations in Battambang mills, coupled with expanding rice production and exports, and Banteay Meanchey provinces. The IFC hired a led to a similar engagement with the Cambodian rice local technical assistance company with expertise sector known as the Rice Sector Support Project. This in milling technology—SME Cambodia—to carry out second project involved more SME rice millers and covered an assessment of the milling equipment and mill many more elements within the rice sector, such as management practices at these milling companies. The food safety, rice export promotion programs, and seed local technical assistance company also sampled and multiplication. The new project budget was approximately catalogued the quality of rice produced in the various twice the size of the initial project’s figure. mills as a baseline assessment to serve as specifications in rice trade deals and eventually for developing Given the continuation of support for the rice sector, the national rice standards.12 This work resulted in mill-level primary elements and results of the two projects are recommendations to upgrade operations and replace discussed together in the section below. milling equipment. As a result of the IFC-funded assessments and guidance, 10 The original agricultural project design was much broader than all 19 rice mills pursued upgrading and modernization rice, and included other crops such as cashew, fruit and vegetables, maize, soybeans, mung beans, and cassava. It also included the of their facilities. Based on thorough diagnostics of development of new products, such as animal feed, cooking oils, their existing equipment, as well as advisory services and biomass. The implementation team realized that this was too on opportunities for value-added technological ambitious with the resources available and concentrated principally improvements, millers purchased paddy drying on the rice and cashew sectors. This report will only discuss the work done by the project in the rice sector. The project began pre- implementation activities in April 2008 and ended implementation 12 In addition, Vietnamese milling technology experts visited the 19 activities in June 2013. mills in November 2009, taking stock of the existing equipment 11 Selected from the most progressive mills in the Battambang Rice and assessing the need for technology upgrading and equipment Miller Association and the Banteay Meanchey Rice Miller Association. replacement. 5 equipment, weighing scales, paddy separators, huskers, Microsoft, Oracle, or SAP. Similarly, Song Saran, polishers, color sorters, and packing equipment. From CEO of Amru, said there had been little updating or these early activities through the scale-up under RSSP, training for the original software, so his firm began the IFC charged fees to project clients for these advisory looking for more integrated alternatives, as well. consulting services. After the mills implemented the recommended upgrades, Rice Product SME Cambodia also collected samples and measured the Specifications quality of milled rice. It was determined that head rice13 recovery (a key milling efficiency measure) increased by At the start of the project, there were no trading 2.1 percent. Based on milling volumes over three years specifications or grading standards for milled rice and prevailing rice prices, this increased efficiency for the in Cambodia. Beginning with the aforementioned 19 mills was equivalent to $5,375,160 in private sector survey of rice output from different mills, IFC savings, according to IFC evaluations. consultants, in close partnership with the government through the Institute of Standards of Cambodia (ISC), conducted workshops and meetings Software Development for Mill with Cambodian millers to develop these standards. Management Developing a consensus proved challenging, however, and the partners only came to an agreement at the The software consultant team also reviewed the current end of the second project. The final result was the management practices at the 19 mills, and examined the first Cambodian rice standards since the 1950s. systems in place for buying and storing paddy, selling milled rice, and maintaining records on milling-related Both the rice industry and government adopted expenses, among other tasks. None of the 19 mills the standards. The development of the standards were using computers to assist in mill management. fostered greater collaboration in the sector, Based on the survey results, the project developed with several improvements and modifications basic management software and provided training for implemented since initial adoption. The standards the millers in its use. Sixteen mills readily accepted the have led to improved quality in the rice processing computer-assisted systems, which helped the companies sector, and they are an important contributor to better manage their paddy flows, stock control, and the success in increasing exports from Cambodia to overall accounting of business practices. The latter led to international markets. a critical enhancement of computer and financial literacy among mill managers and personnel. Rice Market Access and The participating mills appreciated the new mill Export Promotion management software. According to Yi Van Mao, head of the Banteay Meanchey Rice Millers Association, “We Quality improvement was the foundation for now have better, computerized recording in place thanks the expanded export rice marketing efforts of to IFC, and we never want to go back to the old way of the follow-on project. The project surveyed the manual recordkeeping.” international rice market and explored opportunities for Cambodian rice. The EU’s zero-tariff EBA The software initially provided to the mills served agreement and regional shortfalls in production its purpose by introducing Cambodian managers to provoked increased demand for Cambodian milled computerized mill management. Yet Kann Kunthy, chief rice. Project consultants facilitated a number of executive officer (CEO) of Battambang Rice Investment export deals with rice and commodity traders Corporation (BRICO), suggested that the software had identified early in the project. The objective was to become inadequate because it did not integrate all test the export capacity of the millers, while learning mill management functions, such as finance, human about the costs, procedures, and potential pitfalls resources, and inventory. As a result, BRICO considered of the export process for millers. Recommendations trying to obtain more integrated software from would then be made for future rice export targets, and the project would develop rice export guidelines 13 Head rice is the full grain, which sells for a higher price than for the millers and exporters. broken grains. 6 Visits to Other Countries Trade Fair in Bangkok, Asia’s largest food fair. At the event, Cambodia had a national booth for the first time The IFC organized a visit for five millers to a milling manned by exporters and project consultants promoting equipment and technology trade fair in Thailand in Cambodian rice, which resulted in huge interest in its July 2009. Another trip visited equipment suppliers rice products. in China and Malaysia. The project also organized a study tour to Saraburi, Thailand, where a selected The original visits organized by the project to Vietnam, group of eight Cambodian rice millers visited a large Thailand, China, and other regions were instrumental Thai rice reprocessing plant and discussed selling in helping Cambodian rice millers and exporters make Cambodian rice with Thai and French traders. contacts that led to export contracts. Additional trips to the EU and United States, organized under the follow- Interview feedback from participating millers was on RSSP project, continued to help Cambodian millers positive. Song Hong, president of the Battambang successfully export to new markets and increase exports Rice Millers Association, led the delegation to China. to more traditional markets. He was impressed by what his delegation saw and the contacts they made: “We took home many new The two projects’ export interventions led to facilitated experiences, knowledge, and ideas, and also learned rice exports valued at $10,558,066. When the IFC began that for Cambodia to increase its capacity to export, supporting the Cambodian rice industry in 2008, few it needs to purchase modern drying equipment.” mills could produce export-quality rice, and hardly any rice traders would consider sourcing from Cambodia. As a strategy for facilitating rice exports, the project According to one of the largest exporters, Song Saran of pioneered the participation of Cambodian rice AMRU, “One visible result from IFC work was the arrival exporters at international commodity conferences of new buyers, purchasing directly from us [Cambodian and trade exhibitions. In 2010, the AgriSector millers and exporters].” project supported the participation of 10 rice mills in the World Rice Conference. This marked the first time Cambodian rice exporters had attended an Industry Trade Organization international trade event. In 2011, a larger delegation The IFC supported the creation of the Cambodian Rice attended the conference in Vietnam. Under the IFC’s Federation, an industry association that advocates for second project, known as RSSP, one of the IFC’s millers, exporters, and other rice value chain actors. The Cambodian mill clients won the conference’s award association also serves as a focal point for coordinating for “World’s Best Rice” in 2012. The following year, promotional efforts for the rice sector. They have a more than 40 members of the industry attended the website and training materials, and have made it easy to World Rice Conference in Hong Kong. access information on the Cambodian rice sector. The “World’s Best Rice” award was an excellent promotional tool for Cambodian rice, with traders Promotion of Clean Technologies for around the world taking notice of Cambodia. RSSP Waste Reduction and Energy Efficiency emphasized continued international promotion of The project worked with the local Millers Association to Cambodian rice; laid the groundwork for a Cambodian develop an assessment of the waste management and mark of certification similar to Thai Hom Mali, the energy efficiency practices followed by the different mills. mark used by Thai jasmine rice; and conducted export The analysis led to the development of training manuals studies in a number of European, Asian, American, in four areas: energy efficiency, rice hull gasification, and African rice markets. waste management, and equipment operation and Another direct consequence of the project was the maintenance for improved energy efficiency and waste newfound enthusiasm of Cambodian exporters minimization. The project also offered training in these for industry promotional materials and initiatives, areas through various workshops for interested milling such as matchmaking events and buyer visits to operations. In addition, the team developed a rice mill Cambodian rice mills. In 2012, 15 Cambodian rice equipment handbook, and published a study on the rice exporting companies participated in the THAIFEX husk gasification industry in Cambodia. 7 Two mills that participated in the AgriSector project the economic incentive of duty-free access to installed gasifiers to produce energy from waste rice the European Union, as well as the Cambodian husk. SME Cambodia offered recommendations on the government’s interest in the rice sector, the IFC advantages of gasifiers and the best model to install interventions were well timed to improve the quality under the same $120,197 contract. The two mills reduced and quantity of Cambodian milled rice, and to the amount of diesel fuel and electricity they purchased stimulate exports. by $252,000 over three years. Building on this success, SME Cambodia launched a sister firm called SME Investors were encouraged by the opportunities Renewable. That firm has gone on to install 38 gasifiers offered by the Cambodian rice sector, which was at rice mills across Cambodia. becoming more organized and more professional. Foreign importers and distributors, which became It is difficult to judge the impact of the clean technology essentially lead firms, began to invest in Cambodia. training manuals prepared within the IFC project. The For example, Haudecoeur, a major rice processor in mills have placed a greater emphasis on gaining HAACP France, and E. Leclerc, a large French supermarket, certification, rather than installing or maintaining clean made investments or formed special relationships with technology. Many of the gasifiers that were installed are Cambodian processors and exporters (for example, no longer in operation, victims of lower energy prices Golden Rice), leading the SMEs to improved milling that changed the economics of cogeneration and other practices, better food safety standards (HAACP), clean technologies. improved export capabilities, and stronger financing. The same is true of BRICO, which was able to attract a group of Asian investors, according to CEO Kann Finance and Investment Kunthy. They now have a HAACP certification and are The project was originally linked to a proposed IFC growing rapidly as a firm. investment in ANZ Royal (ANZ), a banking joint venture between major Australian and New Zealand banking Value Chain interests and a local business conglomerate, to provide risk sharing to borrowers in the agribusiness sector. As a major financial institution, ANZ’s role was to provide a link to other potential lead firms through their existing loan book. New clients were to be brought to ANZ by reaching out to members of agribusiness associations. Approach The project was not able to create successful access The original AgriSector project focused on several to finance for the 19 rice processing firms through the agricultural subsectors, but was organized along lines planned risk share facility (RSF). Rice mills were able of technical engagement (e.g., finance, inputs). This to access lower-cost financing from China and other structure made the project less efficient and more sources, reducing demand for the RSF. In addition, difficult to administer. The evolution of the project in firms wanted to borrow smaller amounts than the 2013 clearly placed the focus on the rice value chain, RSF minimums. The project, however, did support the allowing the project to intervene in new and important investment of an IFC-financed SME fund (CAMLAO fund) areas. For example, the original AgriSector project’s for one mill client. surveys of rice mills revealed that farmers were using poor-quality seed and supplying a mixture of varieties. Publicly Sponsored and Lead This insight led directly to a seed multiplication activity in the RSSP project, which improved access to Firm Linkage high-quality seed, with consequences down the supply This project is an example of a publicly sponsored chain for milling yields and quality. bottom-up (or SME-focused) linkage initiative.14 Given 14 See pages 25-29 of the literature review. On page 29, the review Rice Export Industry in 2016 states: “For ‘bottom up’ [SME-focused] linkage initiatives, activities According to interviews with rice mill officials in 2016, are customized to the business needs of agro-processing SMEs… and there is a great deal of work left to do in improving organized around reducing key constraints to growth and seizing market opportunity.” 8 many elements of the value chain. Kann Kunthy of months of 2016 totaled 201,770 MT, beating the total BRICO has introduced contract farming with a few for the first four months of the previous year.15 The famers and cooperatives, but contracts are not always AgriSector project alone reached 169 micro, small, and respected. Ny Lyheng, deputy general manager at medium enterprises (MSMEs), which mainly consisted Baitang (Kampuchea) Plc, stated that contract farming of rice millers, traders, and exporters. The support was not working for his company, though they planned provided included in-depth technical assistance on to roll out contracts in the future. In the meantime, equipment upgrades, mill management, and clean they were carefully testing rice brought to the mill and technology; rice standards development; and export buying stations, and negotiating a price based on the promotion. test’s results. Storage is another important issue in the rice value Future of the Rice Industry chain. There are few good storage facilities in Cambodia, There are still over 12,000 custom mills (defined as resulting in considerable losses. Song Saran, CEO 0.2 to 0.3 MT/hour of milling capacity) and over 518 of Amru Rice, stated that he would be interested in commercial mills (defined as 0.3 to 1 MT/hour of milling collaborating on a public-private partnership to increase capacity) in Cambodia that are relatively inefficient the size of his storage facilities. Eventually, Baitang and could use equipment upgrades. Not surprisingly, would like to build bulk storage in the form of silos. At the the IFC targeted larger mills and exporters with the moment, that mill is storing rice in jumbo, one-ton bags willingness and capacity to invest in improvements stored in a section of the processing plant. for assistance. This focus allowed the IFC to maximize its influence on the economic contribution of the rice Song Saran of Amru Rice also mentioned the lack sector. However, there are still many midsize and small of a testing laboratory in Cambodia. Currently, they mills that would benefit from technical assistance to send their rice to be tested at laboratories in Vietnam improve efficiency. or Thailand, which is expensive and time consuming. Members also raised the issue of developing an Within the Cambodian rice sector, there are still accredited laboratory in Cambodia at the Cambodian considerable quantities of rice being exported to Rice Federation. Vietnam (especially from southeastern Cambodia) and Thailand as paddy. These exports reflect established Finally, both David Sok, vice president of Golden Rice, trading patterns between Cambodian farmers and and Oknha Kim Savuth, CEO of Khmer Foods, mentioned Vietnamese and Thai traders who buy paddy with cash. the financial difficulties faced by the rice processing Increased milling capacity in Cambodia has increased sector. Despite the achievements of these two projects, in-country processing, but further improvements in a number of challenges remain, such as the higher procurement, contracting, logistics, and other aspects logistical costs (e.g., port costs, transport costs, energy of the value chain will be required before Cambodia is costs) and lower average milling efficiency compared able to reach its million-ton export goal. to neighboring countries. These challenges threaten the ability of Cambodian millers to remain competitive When the IFC’s AgriSector project began, it was the internationally. There is still a need for the government of only project funded by a development organization Cambodia to invest in these areas to lower logistics costs that was working with the rice milling sector in and stimulate mill growth. Cambodia. Since then, a number of development groups have initiated projects in the rice sector, In addition, the liquidation of Thai rice stocks has including the Asian Development Bank, the depressed world rice prices since 2013 from the average French Development Agency, and the World Trade range achieved after 2008. The lower rice prices from Organization. This expanded engagement is important late 2013 through early 2016 have placed considerable for addressing the remaining inefficiencies in the financial pressure on mills. The Loran Group, one of the Cambodian rice value chain. original participants in the IFC project, closed down its milling operations in 2016 due to low profitability. 15 Cambodian Rice Federation and Secretariat of One Window Despite these challenges, Cambodia’s exports for 2015 Service for Rice Export Formality (SOWS-REF), “Annex: Report on reached a record high of 538,396 MT, and the first four Cambodian Rice Export Status in April 2016, 4 month.” 9 Lessons Learned quality in order to meet international standards was essential for successfully connecting Cambodian millers to international lead buyers. Lesson 4: Importance of Grades and The following lessons focus on the bottom-up (or SME- Standards. For an export program to be successful, focused), publicly sponsored initiative to evaluate and it was clear that established grades and standards address the needs of SME rice millers and exporters. For were needed in order to compete with the larger and a variety of political and economic reasons, the sector more well-established rice exporters in neighboring had fallen behind industry norms in adjoining countries, countries. and so was a prime candidate for a bottom-up initiative. This approach addressed targeted efficiency bottlenecks Lesson 5: Management and Software to kick-start interest and investments by global lead importers and marketers in the Cambodian rice sector. Utilization. The replacement of manual systems with mill management software, as well as the Developing economies often have weak SME agro- delivery of software training programs, proved processing sectors, and many of the lessons learned can invaluable to exporters for driving efficient mill be applied to other situations and crops. management and building relationships with Lesson 1: Public Sponsorship. Public sponsorship importers. Such support also provided the information for basic modernization of the SME agro-processors in and structures for mills to develop clearer financial the rice sector, coupled with trade incentives in the form reporting and financeable business plans. of duty-free access to the EU market, provided an ideal combination to illustrate the business opportunity in the Lesson 6: Demonstration Impact. The success of the original 19 participating SME rice millers Cambodian rice sector. Illustrating the sector’s capacity attracted other rice millers and actors within the and possibilities accelerated private sector investment supply chain to participate in training events, and the expansion of the rice milling sector, leading to conferences, and marketing trips. The project increased rice exports and industry profitability. provided support to establish a rice sector association. Lesson 2: Rice Value Chain Focus. The project, While the Cambodian Rice Federation has served as initially conceived along technical specialties and a focal point for value chain activities, some value numerous crop categories, was modified to focus on the chain actors, principally the millers, have continued rice value chain, by far the most important Cambodian to organize their own associations in order to defend crop. The project followed a bottom-up approach of first their specific interests. Balancing the varied, and modernizing and improving the capacity of SME mills to occasionally conflicting, interests of its members is produce export-quality rice, and then focusing on market often a challenge when an association’s mandate development. The case reveals how successfully meeting encompasses an entire value chain. export market standards allowed the development of close relationships between lead importers and SME Lesson 7: Availability of Finance. Though availability of financing for SMEs is often a problem millers and exporters in the second project phase. that restricts expansion, publicly supported funds Lesson 3: Technical vs. Market-Driven Approach. In may not be preferable lenders. Rice millers found the technology-focused stage of IFC engagement, the that equipment suppliers were often the lowest- project enhanced mill efficiency and output quality cost source of financing, while Cambodia’s attractive through improved technology and management. Based export prices under the EBA agreement provided on the results of the first project phase and considerable operating profit margins that attracted investors appetite for additional mill upgrading, the second phase from the neighboring rice industry and marketers. focused on rice marketing, quality improvement, and Furthermore, attendance at international rice sector supply chain linkages, particularly linking the SME rice events was helpful for making marketing contacts and milling sector to lead firms in significant rice-importing exchanging information about the modern, efficient countries. The investment in improved efficiency and equipment and financing available. 10 Bibliography Royal Government. 2010. Policy Paper on The Promotion of Paddy Production and Rice Export. Council of Ministers. Slayton, Tom. 2009. “A Road Map for Cambodian Rice Cambodian Rice Federation and Secretariat of One Export.” Working Paper, World Bank, Washington, DC. Window Service for Rice Export Formality (SOWS-REF). “Annex: Report on Cambodian Rice Export Status in April Slayton, Tom. 2015. Rice sector review: a more 2016, 4 month.” Working Group on Paddy Rice of the detailed road map for Cambodian rice exports. Royal Government and Private Sector Forum. Technical Working Paper, World Bank, Washington, DC. http://documents.worldbank.org/curated/ Chhair, Sokty and Luyna Ung. 2013. “Economic en/908681468190184741/Rice-sector-review-a-more- History of Industrialization in Cambodia.” WIDER detailed-road-map-for-Cambodian-rice-exports Working Paper 2013/134, UNU-WIDER, Helsinki. https:// www.wider.unu.edu/publication/economic-history- Sophea, Kean. 2012. The Rice Situation in Cambodia. industrialization-cambodia Technical Assistance Consultant’s Report, Asian Development Bank, Project Number TA 7495-REG. Food and Agriculture Organization of the United Nations. “Cambodia Rice Production Statistics.” http:// World Trade Organization. 2011. Trade Policy Review: faostat3.fao.org/home/E Report by Cambodia. WT/TPR/G/253. Interview List Organization Interviewee Name(s) Date of Interview Cambodia Rice Federation Sok Puthyvuth 4/11/2016 Baitang (Kampuchea) Plc. Ny Lyheng 4/13/2016 Battambang Rice Investment Co. Ltd. (BRICo) Kann Kunthy 4/9/2016 Golden Rice (Cambodia) Co. Ltd. David Sok 4/10/2016 Amru Rice (Cambodia) Co. Ltd. Song Saran 4/11/2016 Yamm Loeung Rice Mill Yamm Loeung 4/14/2016 Khmer Foods Group Sreyroth Kim 4/9/2016 Cambodia Rice Federation Oknha Kim Savuth 4/11/2016 Cambodia Rice Federation Moul Sarith 4/11/2016 Cambodia Rice Federation Poeuv Bunrith 4/11/2016 International Finance Corporation Sarak Duong 4/9/2016 11 Annex I Statistics TABLE I-1 WORLD RICE SUPPLY, DEMAND, AND TRADE BALANCE 12 TABLE I-2 STRUCTURE OF PADDY AND MILLED RICE PRODUCTION AND TRADE IN CAMBODIA Source: Rice-SDP estimates based on industry interviews and 2013-14 crop year statistics from MAFF 13 TABLE I-3 LARGE RICE MILLS IN CAMBODIA CAPACITY IN 2009 AND 2016 (MT PADDY/HOUR)   Capacity Capacity Existing Mill 2009 Location  2009 2016   Angkor Rice (AKK) 10 Near PP 30 Golden Rice 20 Near PP 55 Green Trade 10 4 of 6 near PP   Lor Ngor Peng 8 K. Cham 15 Loran Import-Export 12.5 Battambang 30 Men Sarun 24 PP 24 Phou Poy Rice Mill 9 Battambang 20   Sub-Total 93.5   174   New Mills   Baitang 20 Battambang 45 BVB 30 K. Thom 80 Chhun Thom 10 Prey Veng   QQ Rice 12 Pursat   Sour Keang QC Rice 12 K. Cham   Yam Leoung 10 Battambang   Vinh Cheang 12 K. Cham     Sub-Total 106   125   Rice Polishing   Baitang 30 Battambang 45 Int’l Rice Trade 10 PP   Khmer Foods 10 PP 15 Loran Import-Export 30 Battambang 30   Sub-Total 80   90   Rice Upgrading   Ying & Yang Rice 10 Sih’ Gile Port 10   Total 289.5   399   Source: Overview of Rice Production in Cambodia, Romnea Pech, Deputy Director of Department of Rice Crop, General Directorate of Agriculture, March 2013 14 TABLE I-4-: IMPORTS OF CAMBODIAN RICE, ALL TYPES, 2003 TO 2013 Source: UN Comtrade TABLE I-4-: IMPORTS OF CAMBODIAN RICE, ALL TYPES, 2003 TO 2013 Existing Mills 2016 Capacity 2016 Agri Biz Khmer 16 Amru Rice (CMB) 16 Angkor Kasekam Roongroeung 30 Apsara Rice Company 20 Baitang (Kampuchea) 45 Battambang Rice Investment 10 BVB Ag. Development Company 80 Boost Riche Company 18 CARMA Rice Limited 12 CHYN Rice Import Export 22 City Rice Import 12 Domnak Teuk Group 12 Eang Heang Import-Export 20 Fedrice Battambang Company 10 Golden Daun Keo Rice Mill 65 Golden Rice 55 Hak Se Modern Rice Mill 8 Inodchina Rice Mill 12 Kampong Thom Rice Mill Ltd. 8 Khmer Foods 15 Khy Thay Corporation 10 Lor Eak Heng Sek Meas Rice 15 Loran Group 30 Mega Green Imex Cambodia 8 Mekong Oryza 10 Men Sarun Import Export 24 MK Agricultural Partnership 12 Nikoline Rice Mill 12 Phou Py Development Im/Export 20 QC Rice Company 6 Signatures of Asia 15 SMCG Rice Company 4 Sok Keo Import Export 10 Soma Group 30 Tauch Tepich Import Export 12 Vong Bun Heng Import Export 30 White Gold Import Export 14 Total 748 Source: Compiled from Cambodian Rice, White Gold, www.TheWorldsBestRice.com © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Website: www.infodev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG infoD v INNOVATION & ENTREPRENEURSHIP