Can Cambodian farmers benefit from the trade deal with China?

PHNOM PENH – In early June, nine women in red dresses held platters of mangoes as Cambodian and Chinese dignitaries cut a red ribbon stretched between the piles of tropical fruits.

Concluded with the release of balloons, the ceremony in 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 fruit and vegetable industry outlet, quoting market spokesperson Yang Jianfei.

“Everyone at the welcoming ceremony was amazed at the speed of the sales,” Jianfei said, noting that the four shipping containers loaded with fruit at the event were quickly emptied.

This milestone reflects China’s central role in Cambodia’s agricultural sector, both as its largest commodity market and as its largest source of investment. But local producers, analysts and experts say the country has a long way to go if it hopes to take full advantage of the promise of its farmland.

The Cambodian government wishes to increase its agricultural exports, in particular to diversify its economy, which depends heavily on the clothing industry.

China seems an ideal partner to achieve this goal. Beijing has been Cambodia’s main source of development assistance since 2010, with its political banks providing more than $ 5.8 billion to its Southeast Asian ally in 2018. A list of 100 projects funded by China over the past 20 years records 17% of agricultural projects. It financed major irrigation works and new rice mills, built an agricultural school and supported, as a “priority” Belt and Road project, an “agricultural demonstration zone” in the province of Kratie.

Recent mango shipments represent the latest milestone for Cambodia after signing its first bilateral free trade agreement with China last year. While the full content of the deal has not been made public, statements from officials have suggested that it focuses primarily on agricultural products.

The first shipment of Cambodian fresh mangoes to China, which left in May, contributed to a more than 200% increase in fruit exports in the first five months of this year, according to government figures cited by media. local.

Such exports could help Cambodia reduce its large trade deficit with its economic boss and major trading partner. Out of $ 8.1 billion in bilateral trade with China in 2020, just over $ 1 billion was sent from Cambodia.

Cambodia’s agricultural sector is a highly fragmented agricultural sector dominated by smallholders. © EPA / Jiji

The country’s Agriculture Minister Veng Sakhon has touted the benefits of direct access to one of the world’s largest markets. “This will not only help boost Cambodia’s economy during the COVID-19 pandemic, but will also help reduce poverty in rural areas,” he said at an event in May.

Exports of fresh mangoes were made possible after countries finalized sanitary requirements for fresh fruit in June last year. The deal allows Chinese regulators to certify that certain Cambodian orchards and packaging factories meet the quality standards required to ship directly to China. Previously, Cambodian mango exporters had to ship their products to China via Vietnam.

Bananas were the first Cambodian fruits to receive such approval, in 2018, and have already seen a significant increase in exports to the Chinese mainland, reaching $ 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 production to 20,000 tonnes per year.

Company director Hun Lak said Cambodia is in a good position because its soil is free from Fusarium wilt, known as Panama disease. The deadly fungal disease that has plagued other banana growers in the region, such as the Philippines.

“There is more and more demand because Cambodia is growing new yellow bananas, our soil is still virgin, so we don’t worry about diseases,” Lak said. “Our target is 50,000 tonnes per year.”

The Cambodian government wants China to approve fresh longans next and hopes other tropical products like dragon fruit will follow.

Direct market access, however, is not a silver bullet for Cambodia’s highly fragmented agricultural sector, which is dominated by smallholders.

On the one hand, there is the cost of compliance. Chan Sophal, director of the Center for Policy Studies (CPS) in Cambodia, said meeting quality standards was one of the country’s biggest challenges in boosting exports. Better public infrastructure would help reduce costs, he added. “My main concern is whether the selling price is sufficient to cover the increased costs. [of compliance]”, he said.” We still need better electricity, logistics systems and reduce transport costs by having better roads, more roads, “Chan Sophal added.

Another question is how far inclusive development of the agricultural sector will be, given that many of Cambodia’s largest fruit plantations are owned, or are in joint partnerships with, Chinese investors.

“This will help create jobs. We agree that China is a big market for agricultural projects,” said Yang Saing Koma, founder of the Cambodian Center for Agricultural Studies and Development. “But the Cambodian government should have a policy and a strategy to support small and medium farmers, how they can produce and enter the Chinese market, rather than just working with Chinese investors and a few tycoons.”

The most urgent task is to organize Cambodian producers, 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 regions, 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 have. been affected by layoffs, according to a World Bank report released in June.

The country’s agricultural exports hit $ 932 million last year, according to the Economist Intelligence Unit. The figure, a jump of nearly 17% from the previous year, included just 5.4% of total exports, which are dominated by clothing and footwear.

The EIU attributed the jump in 2020 to an increase in the value of rubber exports amid increased demand for personal protective equipment due to a pandemic, as well as the opening of the Chinese market to Cambodian bananas.

But future growth is likely to be slow, especially given the lack of funds for processing facilities. EIU analyst Imogen Page-Jarret said it seemed unlikely that such an investment would come from the government, which was focusing on value-added sectors like electronics assembly.

“Currently, most of the agricultural land in Cambodia is made up of small private estates 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 added value.

The Cambodian government has called increasing agricultural diversification and productivity an “urgent task” but “difficult”.

In response to questions about his plans to improve the sector, a spokesperson for the Ministry of Agriculture sent screenshots of parts of Cambodia’s new agricultural development policy, which aims to grow the sector. by 3% per year, from $ 5.5 billion in 2019 to $ 7.8 billion in 2030..

The EIU is less optimistic, predicting it will grow by 1.9% per year on average, but noting that the estimates were vulnerable to extreme weather conditions such as droughts and floods.

Logistics is another major obstacle 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, started with cassava and then added dry mangoes in 2018. They have also exported fresh mangoes to China, but only via Vietnam until this year. Today, the duo operate one of five factories in Cambodia certified to process fresh mangoes for export directly to China.

Lu said Cambodia’s advantages – cheap labor, cheap land, a good climate for tropical fruits and its close relationship with Beijing – must be weighed against the challenges: lower level of technology and electricity and transport problems.

A major obstacle is shipping. Mangoes have a shelf life of around 20 to 25 days after being picked, but shipping from Cambodia takes around 12 days on average.

“Sometimes it takes 15 days, which means we only have 10 days to sell it to the market,” Lu said.

Air freight is too expensive. Overland shipping to Vietnam takes three days, but is also more expensive and more difficult to transport large quantities.

Ratha Chan, national director of the Cambodian 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 products, with local workers remaining a cheap labor force. “If we only use a poorly educated and cheap workforce, our industry will go nowhere. Cambodia needs to move up the supply chain, ”he said.

Saing Koma agrees and hopes the sector can one day compete with Cambodia’s $ 10 billion garment sector in terms of exports if the right policies are implemented. can be done. The question is, does the government have the politics and the people to do it? “

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