It’s time to energize Cambodian agribusiness

Published on Monday, 23 January 2017

Published by Samiuela Tukuafu on Monday, 23 January 2017

Smallholder farmers in Cambodia.
Smallholder farmers in Cambodia.

Cambodia, already one of the fastest growing economies in developing Asia, produces enough food to meet not just its own needs but also those of Greater Mekong Subregion (GMS) countries and beyond. The potential of its agriculture sector is immense.

But that potential hasn’t yet been realized because the sector is not yet competitive. It needs further investment and policy attention.

The sooner Cambodia can energize its agriculture sector, the quicker its economy will advance to upper middle-income status and beyond. Not many developing countries have made this leap—retooling their economies to boost growth, jobs and incomes—without first modernizing their agriculture sectors and boosting productivity.

Data from the International Fund for Agricultural Development, the World Bank and the International Food Policy Research Institute show that investing in agriculture can be up to three times more effective in increasing the income of poor people than any other investment. On average, a 1% per annum increase in agricultural growth delivers a 2.7% increase to poor incomes.

Agriculture is by far the most important sector of Cambodia’s economy, and fundamental to its success. With 70% of population engaged in farming and women accounting for 70% of agricultural employment, its success is vital to create the jobs—especially among youth—and higher incomes that are desperately needed in rural areas.

Opportunities to boost competitiveness

A competitive agriculture sector will integrate Cambodia more tightly into the regional and global economy, especially if supported by policies favoring foreign direct investment and exports. Agriculture can then help Cambodia to get more value from its natural assets, and this in turn will make the economy grow faster and reduce poverty.

But it must deliver these gains in a sustainable, climate-friendly manner so it doesn’t worsen the impacts of climate change.

So how can Cambodia lift the competitiveness of its farms? There are three main issues that need to be addressed: underdeveloped agricultural value chains compared to neighboring competitors; critical infrastructure constraints; and high production and distribution costs mainly due to expensive energy and transport and high post-harvest losses.

Sound agribusiness policies are needed to promote the right kind of infrastructure along the entire value chain to link producers, traders, processors and service providers. This will help to create internationally competitive value chains and boost access for smallholder farmers to local, national, and regional markets.

Developing a food processing industry is inhibited by the high cost of energy, perhaps the most expensive in GMS. Another deterrent to the development of a higher value product for export is lack of an input industry to make jars, cans and other items. To reach export standards, farmers need technical and sanitary and phytosanitary standards assistance, training and extension services. Access to credit is another constraint.

These challenges are an opportunity for the country’s farmers and agribusiness entrepreneurs to significantly expand the quality, productivity, and efficiency of their operations.

Climate-friendly agriculture

One way to move forward is by forming sound partnerships between agribusiness investors and farmer organizations, a win-win solution for both. Despite Cambodia’s booming economic growth and increasing integration into regional and global markets, foreign direct investment in agribusiness remains very small. More investment will strengthen value chains and upgrade infrastructure, as would the promotion of public-private partnerships in agribusiness.

Once the FDI starts flowing, the next concern is to ensure it is not only responsible but also responsive to local conditions, including changing climate. At ADB, we aspire to make our infrastructure resilient to climate change impacts, and this is the best way to protect our investments in a country where a 2-week flood in 2011 caused nearly $500 million worth of damage to rural infrastructure and crops.

To help the government overcome obstacles to agribusiness value chains, ADB’s Country Partnership Strategy 2014-2018 and Country Operations Business Plan 2017-2019 include a number of investments in this sector.

Cambodian agriculture is slowly adapting to a new era in agricultural production, involving much greater cross-border trade and much higher expectations and standards for safety, quality and convenience. Climate change will make these challenges even tougher, not only for Cambodia but also for other GMS countries. That’s why a subregional strategy and action plan for climate-friendly agribusiness value chain development is in the works, and is expected to be approved by GMS agriculture ministers in July.

The potential for Cambodian agribusiness is great, and chances for success are high. Once the appropriate policies and an action plan are in place, the possibilities are limitless.