Cambodia Development Research Institute, Working Paper 43, Phnom Penh, December, Vutha, Hing and Thun Vathana (2009)

An analysis of production costs and the value-chain for cassava and rubber reveals the potential advantages that Cambodian agriculture can harness through markets and trade, given appropriate policy support.

The agriculture in Cambodia has not developed to the full potential in spite of rich land resources that the country possesses. Compared to other neighbouring countries in the ASEAN region, the yields and profitability in cultivation has remained relatively low. The share of agricultural exports in total Cambodian exports is only around 5 percent. Even within the Greater Mekong Sub-region, where trade is governed by the ASEAN-China Free Trade Agreement, Cambodia’s agricultural exports have been found lacking. Improper trade facilitation and high transaction costs borne by farmers and traders to reach markets have been some of the reasons why the country’s rich and diversified basket of agricultural products are not exported more often.

Recently, the Cambodian Ministry of Commerce and Industry has launched a trade strategy known as the Diagnostic Trade Integration Study (DTIS) 2007 to harness the growing trade opportunities in the region. Out of the 9 agricultural commodities identified by the DTIS that has export potential in future, two are cassava and rubber, widely grown in the country. Vutha and Vathana (2009) studies the production and marketing cost structure of cassava and rubber and attempts to identify the constraints currently facing farmers and different value chain actors from taking advantage of higher export prices.

The study employs both desk research pertaining to policy documents and secondary evidence and a primary survey of farmers, collectors and traders. The field enquiry is conducted in two provinces, Battambeng in the west and Kompong Cham in the east. The survey of cassava farmers is located in both the provinces while that for rubber was conducted only in Kompong Cham. In all, 108 farmers were surveyed 69 for the cassava survey and 39 for the rubber survey. The survey collected information on land-ownership, inputs and labour-use on farms to estimate the costs of production. The survey, along with in-depth interviews with traders, gathered information on the value-chains for the two products.

The survey of cassava farmers reveals that the production structure is quite distinct between the two regions. In Battambeng, the share of purchased inputs and hired labour formed 64 percent of total costs while the same was much lower at 38 percent in Kompong Cham. With poor availability of institutional agricultural credit all across the country, this implied that the farmers in the western province were heavily dependent of private moneylenders charging high interest rates (3.42 percent per month). The cost of credit per hectare in Battambeng was USD 60.8 (13.1 percent) compared to just USD 7.58 (2.3 percent) in Kompong Cham. The overall cultivation costs were also higher for Battambeng.

Other than high costs of credit, increasing prices of inputs and labour was a major difficulty for cassava farmers in both regions. The other major challenge to enhancing productivity was the lack of proper extension services that can help farmers to introduce new cassava seeds with higher yields. A study of the markets and the value-chains reveal that the farmers are largely price-takers and often farm gate prices are low.

The value-chain analysis done by the authors point out that the margins of the collectors and traders can range between USD 1.25 to USD 8.5 per tone of cassava depending on the value-chain position where they are situated. What is evident is that farmers mostly receive low prices even when prices are increasing in retail and export markets due to acute information asymmetry. The lack of infrastructure prevents farmers from selling directly to the factories for higher prices. The lack of smooth connectivity and high transport costs to markets make them dependent on the local traders for selling their produce. The other major problem of cassava production is the little value-addition that is done to raw cassava within the country before it is exported to Thailand or Vietnam. The under-processed cassava normally fetches a low price even in the export markets.

In contrast to cassava, rubber cultivation involves long-term investments and returns are generated usually from the seventh year after planting the trees. With significant privatization of the erstwhile state-owned rubber farms, smallholder rubber cultivation has increased to more than 40 percent of the total area under rubber cultivation in Cambodia. The survey of rubber farmers in Kompong Cham indicate that the shortage of skilled tappers is the most important challenge that rubber producers face. Unscientific tapping often leads to a fall in productivity. The survey also noted that a significant share of rubber trees in the province were nearing the end of their life-cycle and prompt replanting was necessary, for which the required public extension support was not readily available.

Volatile prices in rubber export markets often deter smallholders from undertaking new investments and some stabilization in this regard can help farmers to increase their yields. The other major change that was required according to the authors was better quality processing of the latex within the country to meet the demands of large importers like China. From the farmer’s point of view, most sell their latex produce to Wholesalers who in turn sell to factories. Few farmers with better ownership of transport vehicles sell directly to factories at higher prices and also play the role of wholesalers by buying the produce of the other farmers in the region.

Overall, from the study of the production and value-chains of the two commodities, the authors conclude that better extension services are necessary for both cassava and rubber farmers for improving their yields and profitability. A greater access to institutional credit was also necessary, particularly for cassava farmers in west Cambodia. Significant investments in infrastructure are required to grant the farmers a better access to markets and information. The study also points out that the lack of adequate value-addition or quality processing often acted as an impediment to getting better prices in the export markets for both cassava and rubber.