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Since Cambodia's accession to the WTO on 1 January 2005 there has been increased donor pressure on the Government to formalise the country's largely informal trade activities and create the legal, financial and administrative frameworks necessary to ensure greater trade facilitation. This is to enable the country to take greater advantage of its newfound access to international markets.
The range of products that Cambodia has available for export is limited and, as an overwhelmingly rural country with a largely subsistence rice farming population, widened participation in international trade is likely to come only through the export of rice.
The majority of rural rice producing communities are already engaged in the international rice trade, albeit informally. Cambodia exports an estimated 400,000 tones of rice, primarily in paddy form through informal cross-border exchanges with Thailand and Vietnam. Typically this rice paddy meets lower quality domestic demand in Thailand and Vietnam, while these highly efficient rice producers themselves export their own higher quality milled rice onto the global market. Thus, prices and demand in Thailand and Vietnam exert strong influence on the rice economies of Cambodia, which are often more attuned and better integrated into dominant neighbours' economies than with other internal Cambodian markets. As Cambodian producers and rice millers cannot effectively compete with the highly efficient and subsidized rice markets of neighbouring countries, export takes place in the form of unmilled rice paddy from Cambodia. In-country value-added benefit is therefore minimal. Cambodian producers therefore inhabit the lowest tier of the international rice supply chain through such trade links. Yet, the prospect of access through formal trade links to the international market does not appear to offer any substantial benefit to Cambodian farmers.
While some labour intensive, organic Cambodian rice is exported formally and directly to the global market, such trade is typically dominated by those with robust business and political connections. This is due not only to the higher quality required by international markets and the risks generally associated with agro-industry processing, but is also due to the complex, costly, time consuming and often corrupt procedures required to export from Cambodia legally. At this time there is but a handful of companies capable of navigating such complex export procedures at costs that are sustainable on international markets.
Cambodia is therefore accessing two segments of the international rice market in two ways: with high quality organic rice to niche markets through formal trade dominated by large well connected exporters, and with low quality unprocessed rice paddy through informal farmer/trader trade linkages to neighbouring countries. While neither of these links is particularly beneficial to Cambodian producers, informal cross-border trade, which has occurred for centuries in the region, is generally less quality demanding and more flexible, thereby enabling rural producers to access the market sporadically and according to surplus production. Thus, informal rice trade offers Cambodian farmers vital, timely and flexible outlets for their surpluses. As such rice smuggling remains rampant throughout the country, and any attempts to curb this informal trade would be ultimately detrimental to farmer survival strategies at the current time.
Cambodia is, and has long been, connected to the global market in uneven, unsystematic and primarily informal ways. Regulation and formalisation of longstanding informal trade links in the name of free trade is not only physically difficult along Cambodia's porous borders, it is in many senses politically unfeasible. While donor pressure is aimed at assisting Cambodia to take advantage of newfound opportunities in the global market place, such access is currently only feasible for large and well-connected companies.
WATCHPOINT: While donor pressure to rationalize and formalize the economy increases in the name of taking advantage of WTO membership, efforts to formalize current trade links will prove difficult if not ineffective.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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