Cross-Border Trade a Challenge for Rice Policy

Government’s million-ton goal faces entrenched hurdles

kompong trabek district, Prey Veng province – There was a flurry of activity here Tuesday morning by the banks of the Kompong Trabek River, which runs close to the Vietnamese border.

It is the height of the rice harvest season. Trucks were bringing in tons of unmilled rice from all over the country and workers were off­loading bag after bag of paddy onto waiting Vietnamese barges. On the shore, stacks of Cambo­dian riel and Vietnamese dong changed hands between Cambo­dian and Vietnamese traders.

And then, with the barges filled to the brim, the rice-dubbed “white gold” by Cambodians for its economic potential—is shipped to Vietnam, where it is milled, pac­kaged and sold to export markets or Vietnamese consumers.

Unregulated cross-border rice trade in places like Kompong Trabek causes the vast majority of Cambodia’s roughly 3.5 million tons of annual rice surplus to slip away unprocessed to Vietnam and Thailand.

This situation is one of numerous challenges facing the government’s new rice policy, announced in August, which aims to modernize the rice sector and export one million tons of milled rice by 2015–a 25-fold increase from the 40,000 tons of milled rice exported this year.

The policy includes a raft of measures to improve the market value chain from rice farming to processing, facilitating export and increasing access to credit for rice millers so they can compete for paddy with foreign traders.             But so far this year, the government’s Rural Development Bank has provided only $18 million in credit for millers, the same amount as last year, and in Kompong Trabek traders said the policy had not changed this year’s rice trade. They said Vietnamese traders still offered the highest prices and bought as much paddy as any other year.

Rice trader Heng Sodany said she bought rice from farmers in provinces as far away as Battambang and supplied around 500 tons of paddy to ten Vietnamese barges per day.

“Vietnamese demand is no less than last year,” she said. “I sell to Vietnamese traders because they offer more than Cambodian millers.”

At Banteay Chakrei border crossing in neighboring Preah Sdech district, several traders were also busy loading up half a dozen Vietnamese boats on the Tonle Krom River.

Neou Savy, a local rice trader, said he supplied up to 45 tons of paddy to Vietnamese traders daily. “My business is not much different from last year,” he said

“Cambodian rice millers give a lower price,” Mr Savy said, when asked why he was selling his paddy here. “I don’t think the government policy will be successful because the rice millers are not hungry to buy our rice.”

Rice trade at the border appeared largely unregulated. A border police official, who declined to be named, explained that traders who wanted to sell rice to Vietnamese traders were only required to register their truck’s number plates and pay 5,000 riel, or about $1.25, in “tea money.”

Vietnamese trader Chaulhe Hugnh Hang said buying up Cambodian rice was an important business in her province, An Giang, and she explained that small traders picked up the paddy to mill it and sell to the domestic market or to Vietnamese rice export companies.

Ms Chaulhe argued the rice trade was in everyone’s interest. “The Vietnamese buy at the highest price and Cambodian [millers] buy at the lowest price. If there are no Vietnamese traders the Cambodian farmers have a problem,” she said.

Thon Virak, director of state-owned rice trading company Green Trade, said rice millers had been able to buy more paddy this year but he acknowledged that the cross border rice trade went unrecorded and there was no way of knowing how much paddy had left Cambodia.

“This paddy [trade] we cannot calculate. It’s like smuggling,” he said. “We cannot stop it. It’s a free economy.”

But as the rice sector develops under the new policy, Mr Virak predicted, “We will attract all this smuggled paddy.”

Seng Bunsor, president of the Battambang Rice Millers Association, said his organization had received about 10 percent more credit this year because of government measures but he added millers would need a huge expansion of credit if they wanted to compete with foreign traders and reach the government’s export target.

“We cannot prevent unmilled rice export unless we have enough capital,” he said.

Rice sector experts have estimated that millers would need between $250 million and $300 million in capital annually just to be able to buy up a third of the 3.5-million ton paddy surplus.

Peter Brimble, country economist at the Asian Development Bank, said the best way to keep more paddy in Cambodia was to increase domestic demand through development of the rice milling business.

Mr Brimble said under the government policy new ways of providing credit for rice millers were being developed that would allow millers to use their paddy and rice stocks as collateral for their loans.

“In many countries you can use that stock of rice to borrow money,” he said.

It would, however, take time before such developments stem the flow of paddy across the border.

“The existing [foreign] buyers are not going to take it lying down,” said Mr Brimble. “They have pretty detailed knowledge of their suppliers and when they need money.”

 

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