Keynote Address at the Launching of “Policy Document on Rice Production and Export Promotion”

Government House, Phnom Penh, August 17, 2010

- Excellencies Members of Senate and Parliament,

- Excellencies Members of the Royal Government and Representatives from Governmental Ministries/Institutions,

- Excellencies, Ladies and Gentlemen, Ambassadors and Representatives of Development Partners and Non-Governmental Organizations,

- Excellencies, Oknhas, Ladies and Gentlemen Representatives from the Private Sector,

- Excellencies, Ladies and Gentlemen, Distinguished National and International Guests!

Today I am very pleased to present here at the launching of the “Policy Document on Rice Production and Export Promotion” which was discussed and endorsed by the Council of Ministers on July 25, 2010. I would like to express my sincere appreciation to the Committee on Economic and Financial Policies, led by H.E. Deputy Prime Minister Keat Chhon, for the excellent and timely arrangements to disseminate this “Policy Document on Rice Production and Export Promotion” as decided by the Council of Ministers.

All of you may recall that during the 15^th Royal Government – Private Sector Forum held on April 27, 2010 at the Government House, I instructed the Supreme National Economic Council, led by Dr. Aun Porn Moniroth, to prepare the draft “Policy Document on Rice Production and Export Promotion”, to be ready within one month timeframe. Then, as indicated earlier by H.E. Keat Chhon, within the deadline, on 29 May 2010, the Supreme National Economic Council submitted the draft paper to the Prime Minister to seek guidance and approval. On 31 May 2010, after having gone through the draft, I instructed the Committee on Economic and Financial Policies, led by H.E. Deputy Prime Minister Keat Chhon, to call an urgent meeting to collect additional inputs from related ministries-institutions to fine-tune the paper and ensure full participation from related ministries/institutions.

Following a meeting of the Committee on Economic and Financial Policies held on 16 June 2010, which involved lengthy discussion and collection of additional inputs, I personally led the plenary Cabinet Meeting on 26 June 2010 to review, discuss and finally approve the draft of the “Policy Document on Rice Production and Export Promotion”.

Therefore, counting from the date the instruction was given by the Prime Minister, it took just two months for the drafting and final approval of the paper to take place. This, on one hand, indicates improved efficiency and capacity of the RGC’s related ministries/institutions that are able to prepare a realistic and comprehensive paper perfectly fit to real practices within short timeframe. On ther other hand, it is a clear indication of the RGC’s high commitment and attention given to agriculture development particularly the promotion of rice production and export.

Thus I would like to take this opportunity to commend all concerned ministries/institutions, especially the Supreme National Economic Council, chaired by Dr. Aun Porn Moniroth and the Committee on Economic and Financial Policies led by H.E. Deputy Prime Minister Keat Chhon, for their utmost efforts in preparing a quality and timely draft policy paper and further refining it into a complete and comprehensive final draft for review and approval by the Council of Ministers which is now being launched.

The Royal Government has given special attention to agricultural development since its 3^rd Legislature of the National Assembly, which we clearly indicated the priority in the “Rectangular Strategy” for Growth, Employment, Equity and Efficiency. During the 4^th Legislature of the National Assembly, this priority was further emphasized in the “Rectangular Strategy-Phase II”, through which, the Royal Government further refined its major strategic policy measures to promote agriculture. In realizing this objective, the RGC has adopted a three-pronged strategy — productivity enhancement, diversification and agricultural commercialization (from subsistence to commercial agriculture) — through implementing a package of interrelated measures: (1) infrastructure building and enhancement (roads, irrigations, energy/electricity and information and communication technologies (ICT); (2) improvement in the provision of extension services and agricultural inputs; (3) land management reform; (4) finance; (5) marketing; (6) farmer organization; and (7) institutional building and coordination.

H.E. Deputy Prime Minister Keat Chhun had reminded me in his early remarks that during time Cambodian economy was struggling to weather the storm of global financial crisis and economic downturn, among all the important, systemic and interrelated measures introduced by the RGC to reduce or address the negative impacts of the crisis, there were some measures focusing on the promotion of agriculture sector through channeling more and more public investment funds to transport infrastructure, irrigation network, improvement in agriculture productivity, establishing “Agriculture Support and Development Fund”, and the provision of tax incentives to production and processing activities and so on. Why did the Royal Government consider the promotion of agriculture as an important economic policy tool to tackle the adverse affects from global financial crisis? I would like to give my explanation to this question as follows:

If we examine the current Cambodia’s socio-economic structure we would notice that:

1. The Gross Domestic Product (GDP) consists of more than 30% from agriculture sector and sub-crop sectors, in which paddy rice contributed the most, consisting of nearly 20% of GDP.

2. According to the General Population Census of Cambodia 2008, 80% of Cambodian population is living in rural area, 72% of the labor force in Cambodia is related to agriculture sector.

3. The relationship of each family’s socio-economy among those living in rural and urban area is strongly related and complementing each other. For example, labor forces in urban area mostly have parents or relatives live in the countryside, performing agricultural work; maintaining their good family relationship, assisting each other.

The above three points have shown us that when Cambodian economy is facing hard time including economic and financial crisis, promoting agriculture sector is an emergency socio-economic measure that would assure:

First- food security and stable living condition, put it simply, “a guarantee for Cambodian people to have enough rice to eat” and no one would die of starvation.

Second- the expansion of agriculture and rural economy will create more jobs and absorb excess labor from urban economies, where laborers are losing their jobs in industry, construction and service sector.

Third- the growth in agriculture and rural economy will contribute significantly to maintaining the ongoing economic growth of the nation. In addition, it will accelerate poverty reduction by improving the living standard of the Cambodian people who most are involved with agriculture activities and living in rural areas.

Fourth- it diversifies Cambodia’s sources of growth and export. Currently, economic growth and export continue depending significantly on a number of sectors, such as garment and tourism sector and so on, which have been hit by the external economic impacts.

Hence, in general, the implementation of policy to offset the negative impacts of global financial and economic crisis in the past two years shows us the importance and potential growth of agriculture sector. In this regard, the promotion of agriculture sector is a policy that ensures food security and stable living standard for Cambodian people in the future, a policy that serves as social safety net for Cambodian people while facing crisis, a policy that ensures continuous and long-lasting economic growth, a policy that ensures further poverty reduction and a policy that diversifies the source of economic growth and export. Experience and lessons learned have encouraged the Royal Government of Cambodia to move one more step forward; that is the introduction of this policy on promotion of paddy rice production and milled rice export. The policy aims to ensure that we grab this rare opportunity to develop Cambodia in the post global financial and economic cataclysm.

H.E Deputy Prime Minister Keat Chhon has reminded me of my ambition to turn Cambodia into a key “rice-white gold” exporting country in the international market. It is true that we have a strong potential in rice production to boost milled rice export in the future. This potential is hidden in our weakness and low level of our development. Obviously we all know that Cambodia’s paddy rice yield is relatively low, compared to the neighboring countries with similar weather and soil condition. For example, our medium paddy rice yield is 2.6 tons per hectare in 2008, compared to 2.8 tons per hectare in Thailand, 3.5 tons per hectare in Laos and 4.9 tons per hectare in Vietnam. Furthermore, though the expansion of cultivation areas may be limited we have a lot of capacity to increase cultivation seasons. Most Cambodian farmers cultivate once a year in raining season, compared to 3.5 times a year in low land Mekong plain in Viet Nam. Hence the promotion of production growth is possible through the increase in cultivation times to two or more in each year for both dry season cultivated land and rainy season cultivated land. In this regard, investment on water irrigation system and water management promotion is a key factor in boosting productivity and cultivation season.

Thus I always tell my colleagues and other development partners that this is the Cambodia’s potential to grow while seeing dry rice fields that lack of water supply. That means we still have a lot of potential to boost rice production yields in the future through increasing and maintaining the sustainability of the intensification of rice production. Put it simply, we can increase average yields on existing land through the increase in cultivation seasons, the usage of seeds, fertilizers and modern cultivation technology, as such.

In the meantime, Cambodia has a unique opportunity to expand its milled rice market niche in the global market. The global milled rice trade has been estimated to reach 31 million tons in 2010, in which Thailand and Viet Nam will remain the biggest source of milled rice export, and Cambodia and Myanmar are expected to become new leading milled rice-exporting countries in the near future. Since the world is now facing the challenges of population growth, climate change, and changing economic structure, together with the improved living standard of people in many developing countries, the consumption of rice is expected to rise, driving higher demand for milled rice in the global market. Moreover, there are not many milled rice-exporting countries, and most of them are in Asia, especially Southeast Asia, and there are more and more countries such as the Philippines, Malaysia and Indonesia having become rice-importing countries. Therefore, this potential in global milled rice market will provide such a good opportunity for Cambodian farmers.

Having seen this opportunity, in an immediate time, the Royal Government has introduced a series of measures, in cooperation with farmers, rice millers and traders as well as development partners, to address the many challenges involving the high cost of rice processing, transportation, export processing and clearance etc. However, these measures were not consistent and systematic, and when implemented, they were not sufficiently effective and the results were incomplete. Thus, I have ordered a further refine of the rice policy through the introduction of “Policy Document on Rice Production and Export Promotion”.

Through the introduction of “Policy Document on Rice Production and Export Promotion”, the Royal Government would expect that:

First- Cambodia can promote the diversification of Cambodia’s sources of growth by increasing paddy rice production and milled rice export in order to complement growth in garment and other sectors. Moreover, in the future, the rice sector could become an important pillar to further promote Cambodia’s economic growth while the garment sector is facing stiffer competition. It is true that the rice sector could have a big potential comparable to that of garment sector in terms of gross export value and values added generated throughout the supply chain including employment. If rice export reaches 3 million tons, the total export value would amount to USD 2.1 billion (approximately 20% of the GDP) or equivalent to about USD 600 million (approximately 5% of the GDP) in value added contributing to the national economy. If we can solve the problems of rice export in the same way as we have promoted the garment sector, we will be able to retain substantial value added in the country and the gains will directly contribute to economic growth through employment for more than 80% of people living in rural areas, increased income, particularly poverty reduction and improved living condition of farmers and most Cambodian people engaging in rural economic activities.

Second- in addition, as I mentioned earlier, the promotion of agriculture sector particularly production of rice and milled rice could provide a mechanism for equitable redistribution of economic gains for more than 80% of people living in rural areas, and have spillover effects on broader economic infrastructure, that will lead to a complete change in the image of Cambodia’s rural economy.

Third- the milled rice export promotion is the first step to promote export of other agricultural produces such as rubber and other crops. However, in the current context, we should sharpen this policy to address one issue at a time to ensure that set measures are effective and efficient and not to overstretch the capacity and financial resources of the ministries/institutions responsible for the implementation of this policy. The Royal Government of Cambodia has greater ambition. Yet, we believe that working on too many produces at the same time will overstretch our limited resources and capacity and make them less effective and efficient. At the same time, the success of the implementation of rice export policy will send a strong political message, encouraging and paving the ways for the promotion of the export of other agricultural crops.

In this sense, the policy document is aimed to transform Cambodia into a «rice basket» and key milled rice-exporting country in the global market. In this connection, the Royal Government has set the year 2015 as the target year to (1) reach paddy rice surplus of more than 4 million tons and achieve milled rice export of at least 1 million tons; and (2) ensure Cambodian rice to be internationally recognized.

In implementing this initiative, the Royal Government will adhere to the following key principles:

First- Adopt market principles by encouraging competition to effectively increase export, while ensuring the interest of farmers is protected, increasing their income, reducing poverty among them, and improving food security based on a stronger social safety net.

Second- Encourage and support participation of farmers and their organizations to protect their interests by creating an enabling environment for increased production and supply of high-quality rice, including raising farmers’ bargaining power on price negotiation.

Third- Promote cooperation and partnership between the Royal Government and development partners, civil society and private sector such as rice producers, rice millers, traders and transporters in implementing the policy to promote rice production and export.

Fourth- Enhance efficiency in coordination between ministries/institutions of the Royal Government in order to improve the effectiveness and efficiency for all kinds of public service delivery related to rice production and export promotion.

Fifth- Promote domestic capacity building to export rice directly from Cambodia by encouraging every company to open up its office to buy and process rice in the country, and export it officially, while adhering to principals of fair, just and loyal competition and meeting Cambodia’s existing tax and other obligations.

To realize the above-mentioned vision, objectives and principles, the Royal Government introduced a clear, systematic and interrelated measure based on two important approaches:

A- For the short and immediate term, promoting paddy rice production to meet market demand and promote export of milled rice by shifting from the informal export of paddy rice to a formal export of milled rice. These measures include: (1) continue to invest in and expand the irrigation facilities, promote the use of water, seed, fertilizers and appropriate technologies, and provide micro-credit to rice producers; (2) encourage private sector participation to invest in paddy rice processing and export of milled rice, especially by solving the issue of shortages of credit for buying and processing paddy rice, as well as trade credit by recapitalizing state-owned financial institutions and by providing incentives to commercial banks to increase loan portfolio for agriculture, including through the development of credit guarantee schemes and risk-sharing facility and (3) coordinate and fast track rice export through improvement in procedures for export and transport facilitation and elimination of informal fees.

B-For the medium and long term, to focus on enhancing competitiveness in rice export through promotion of production technology, management of soil fertility, management of water, seed and fertilizers, organization of farmer associations, rice processing quality, physical infrastructure including roads, railways, seaports, electrical energy, land use and management, short- and long term credit as well as the trade facilitation and exploring market opportunities.

Together with above principles and measures, I would to emphasize that the Royal Government of Cambodia also lays out implementation mechanism, with clear responsibilities division. It is for all ministries/institutions to strictly, effectively and efficiently implement.

For the purpose of dissemination, the Committee on Economic and Financial Policies published and distributed the “Policy Document on Rice Production and Export Promotion”. It is already in your hand. I have already spent some time to briefly describe the rationales and concepts of this Policy Document. The remaining task is to mobilize forces and support among ministries/institutions, Development Partners and relevant stakeholders to successfully implement the practical measures outlined in the Policy Document. Nevertheless, I would like to take this priceless opportunity, as Head of the Royal Government and the father-architect of this policy document, to spend some more time to bring to the attention of all ministries/institutions, DPs, and all the stakeholders the practical issues which will be faced during implementation:

First- It is important to implement the quick-win measures without delays in order to produce specific outcomes in 2010-2011. Therefore, special attention should be on the following key measures:

1. Increase paddy rice productivity by using high yield seed and modern farming techniques;

2. Encourage participation of the private sector in paddy rice processing and milled rice export by continuing the implementation of the Investment Law, the Law on Amendment to the Law on Financial Management 2009 and related regulations and by improving the legal framework for investment and other related regulations if necessary;

3. Continue financing for paddy rice collection by preparing and introducing some necessary financial mechanisms, including risk sharing facilities and credit facilities that is guaranteed by the government, to make it easier for the communities, rice millers and exporters to access loans, especially from commercial banks.

4. Enhance trade facilitation, reduce informal fees and eliminate illegal check points. The task is to immediately create a rice export facilitation mechanism, which treat milled rice export “special” and similar to the garment sector, in order to reduce informal fee and time to the maximum. In this context, I would like to express my appreciation to the General Department of Customs and Excise of the Ministry of Economy and Finance that started immediately facilitated export procedures right after my guidance at the Fifteen Government-Private Sector Forum on 27 April 2010. I would like to propose a cooperation among all relevant intuitions under the implementation mechanism/framework laid out by this Policy Document to take necessary actions for effective trade facilitation.

5. Address the issues of standard, classification and quality according to the international standard including the strengthening of skilled institutional capacity of the Royal Government in defining the rice quality standard in Cambodia and creating the independent certification system or encouraging the private certification institutions, which are internationally well known, in order to issue the certificate of quality and standard classification that is conforming to the requirement of the importing countries.

6. Start the diplomatic campaign to seek the opportunity to export rice to the regional and global market, especially through the process of preparing a visit of the joint committee between representatives of the public and private sector to the important rice markets in the neighboring and other regions in the world such as EU.

In fact, “Policy Document on Rice Production and Export Promotion” has set out other urgent measures with immediate results that are interrelated, which require all stakeholders to promote the successful implementation. However, I believe that the 6 measures that I have highlighted above are the “key of the key” that required further attention.

Second- the Royal Government wants to strengthen the role of the rice miller association by giving special treatment to this association like that of garment sector, including enhancing its role in seeking market access and protecting interest of farmers as well as improving processing capacity in order to increase value added from Cambodian rice export...etc. However, in order to fulfill this role as expected, the association itself must be obliged to pay special attention to its skilled capacity building in order to play a partnership role with the Royal Government and a representative of the rice exporting community as well as representatives of farmers with high efficiency.

Third- the policy document, set out by the Royal Government, has clearly defined the institutional mechanism for coordination and monitoring. However, feedbacks from private sector, who are the direct beneficiaries of this policy, would be even more important to assessing the rightfulness and success of this policy. Thus, in addition to the institutional mechanism stated in the policy document, I would like to suggest that we should use the framework of Royal Government-Private Sector Forum as an additional mechanism in order to receive feedbacks from the private sector about the effectiveness and efficiency of the implementation of this rice production and export promotion policy. In order to realize this objective, I would like to suggest the working group on agriculture of the Royal Government-Private Sector Forum to look for the possibility of creating a sub-group to be in charge of coordinating the implementation and monitoring the implementation of the rice production and export promotion policy with the private sector, especially connecting with the rice miller association and then constantly report to the forum according to the existing working mechanism that is in effect.

Fourth- the Royal Government has clearly understood that the rice export from Cambodia is a new issue and the experience and knowledge is still limited, that requires the capacity building for export of Cambodia to those markets. Therefore, in addition to the measure, set out in the “policy document on rice production and export promotion”, I would like to suggest the Committee for Economic and Financial Policies and the Supreme National Economic Council to cooperate with related ministries/institutions of the Royal Government and all development partners in order to manage the capacity building including internship or short training courses for field staff of the Royal Government and vendors, concerned operators of the private sector about the method to access the market, method to solve other needs of the markets as well as the preparation and implementation of the rice trade contracts...etc.

Fifth- the Royal Government appeals to all relevant stakeholders including development partners and non-governmental organizations to provide all necessary support, either financial, material/in-kind or technical assistance, to the ministries/institutions of the Royal Government, private sector operators and Cambodian farmers in order to ensure the success of the implementation of this important policy that will pricelessly contribute to the poverty reduction and enhancing the living standard of the people and sustainable development of Cambodia.

Though the current global milled rice market is highly protected, the Royal Government recognizes that Cambodia is blessed with opportunity to export milled rice in the future thanks to the increase in domestic paddy rice production and the potential in the world milled rice trade. So far, the performance of agriculture is outstanding especially in terms of productivity improvement and diversification, due to steadfast efforts of the RGC and all stakeholders including the participation of farmers. The rice production may achieve approximately 7.3 million tons in the year 2010-2011 after the remarkable increase during more than a decade. With domestic consumption approximately 3.14 million tons together with seed maintenance and loss during harvest time, the statistics indicates a rice surplus of approximately 3.3 million tons that can be processed for export.

In fact, high growth in agricultural sector will benefit most Cambodian people who are farmers with their living standard improved. Thus, the RGC is committed to promoting paddy rice production and removing all constraints to milled rice export from Cambodia. Indeed, the success of this policy will depend on actual implementation; and the task is complex and hard to achieve, yet it really requires cooperation, coordination and strong commitment especially by way of improving the leadership and management of all concerned ministries/agencies and stakeholders.

The RGC is strongly convinced that all ministries/agencies of the RGC and other stakeholders, including the private sector and development partners, and particularly Cambodian farmers across the country, will join hands in pursuing this mission to bring about development, progress, and prosperity to the Kingdom of Cambodia.

At the end, I would like to thank Your Excellencies, Ladies and Gentlemen, National and International Distinguished Guests who have participated in this important launching of the “Policy Document on Rice Production and Export Promotion”. With that, may I wish you all the best, good health, happiness in families, and success in all your duties!