Exporter Guide

AGRIBUSINESS IN CAMBODIA
Market Profile February 2011

This document is one of a series of free information tools for exporters produced by New Zealand Trade and Enterprise. New Zealand Trade and Enterprise provides a wide range of standard services and sophisticated solutions that assist businesses through every stage of the export process. For information or advice, phone New Zealand Trade and Enterprise on 0800 555 888, visit www.nzte.govt.nz, or contact your New Zealand Trade and Enterprise client manager.

CONTENTS
1 MARKET STRUCTURE 1.1 Market overview 1.2 1.3 1.4 1.5 1.6 1.7 2 Market drivers Market potential Import trends Key players in the market Regulatory Sustainability 3 3 3 4 5 5 6 6 7 7 7 8 8 9 9

MARKET ENTRY AND DEVELOPMENT 2.1 Market entry strategies 2.2 2.3 2.4 2.5 Points of differentiation Long term strategic issues for exporters to consider Distribution channels Tax

MARKET RESOURCES AND CONTACTS

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1 MARKET STRUCTURE
1.1 Market overview
Cambodia is located in mainland Southeast Asia, with Thailand to the west and north and Vietnam to the south and south east. It also shares a land border with Laos in the north east. It has a population of 13.4 million (2008 census). Khmer is the official language and is spoken by 95 percent of the population, although English is increasingly popular as a second language. Like many of the emerging economies in Southeast Asia, Cambodia experienced strong economic growth from the turn of the millennium, followed by a sharp slowdown at the end of 2008, which continued into 2009. In 2010, Cambodias GDP growth rate recovered, reaching 4.8 percent. The economy is composed of agriculture (29 percent of GDP), industry (30 percent) and services (41 percent).i Around 82 percent of Cambodians live in rural areas, with the majority dependent on agriculture to support their livelihoods. However, the agricultural sector remains relatively undeveloped and represents less than a third of total GDP. Crop production is increasing every year representing more than 52 percent of agricultural GDP, livestock and poultry remain quite stable, contributing around 15 percent, fisheries 25 percent, while forestry and logging have decreased over time to reach around 6.9 percent in 2008.ii At present, rice cultivation is the biggest contributor to agriculture in Cambodia, followed by other crops such as cassava, maize, sugar cane and soybean. Rubber and freshwater fisheries are also important.

1.2 Market drivers

There is great potential to develop agriculture in Cambodia. The Government of Cambodia has recognised this and has placed extra emphasis on making agriculture a key priority, with an aim to improve the populations living conditions, agricultures contribution to GDP and to grow Cambodias export base. A series of government initiatives aimed at boosting agricultural production were introduced in 2010 and led to a significant increase in Cambodias rice exports. However, Cambodias rice yields are still the lowest in the region at 2.6 tonnes per hectare, while China leads at 6.2 tonnes per hectare. This reflects the slow adoption rate of modern technologies and highlights the potential for investments in agricultural technology and infrastructure.iii Cambodia also ratified a multi-lateral free trade agreement between New Zealand, Australian and the Association of Southeast Asia (ASEAN) in November 2010. This

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agreement liberalises and facilitates trade in goods, services and investment between New Zealand and Cambodia and allows New Zealand exporters to take advantage of the preferential conditions. Further information on the agreement, including a tariff finder, can be found at www.asean.fta.govt.nz.

1.3 Market potential

There are a variety of opportunities in Cambodia for New Zealand businesses involved in agribusiness: Infrastructure Opportunities to improve infrastructure such as irrigation facilities and transport (e.g. roads). Despite having received substantial external assistance, the rural road network is still poor. Technology Cambodia requires modern technology that is affordable and of benefit to farmers. Milling equipment is also important, given the governments aim of improving rice exports. Farm and breeding technology, veterinary equipment and veterinary supplies are severely lacking in Cambodia, with animal health a particular problem in rural areas. Most supplies of equipment are imported through international organisations working in Cambodia or are imported from Vietnam or Thailand. New Zealand is recognised as having particular expertise and skill in pastoral and horticultural technologies. Agricultural Skills and Knowledge A number of international organisations are already working with the government on knowledge transfer in the agricultural sector. Further opportunities exist for New Zealand businesses to partner with these agencies to access aid funding in research, training and consultancy. Irrigation In some locations, access to a steady supply of water is limited. There is a large market for irrigation systems to improve productive capabilities (particularly in rice), to increase the growing season and improve the annual yield per farmer. At present, the Cambodian Government is actively promoting investment in the agriculture sector, although investment still remains small and accounts for only 9 percent of approved investments in the last 15 years. Approved foreign investment in the agriculture sector was about US$600 million in 2009.ii A number of large land concessions have been granted to companies and governments for agricultural development, primarily to grow crops including rubber, rice, cassava and sugar cane. However, actual utilisation of these concessions is in many cases unclear. The Government is also keen to increase the amount of milled rice for export. Additional investments will be needed in rice cultivation and milling. This will require cultivation technologies, more modern irrigation systems and milling equipment as well as infrastructure improvements.

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In many projects financed by donors, increased private sector participation is promoted, especially in fields such as technical services, infrastructure building, application of information and communication technology (ICT) for rural development, training and skill development, marketing and rural finance to overcome some of the key problems which exist in the agriculture sector in Cambodia.

1.4 Import trends

Most agricultural products are imported from Cambodias neighbouring countries, primarily Singapore, Indonesia, Thailand, Malaysia, Vietnam and China.iv Charoen Pokphand (CP) from Thailand is one of the largest importers of seeds to Cambodia. For agricultural machinery, the Department of Agricultural Mechanisation has continued to cooperate with the International Rice Research Institute (IRRI), the Catholic International Cooperation for Development and Solidarity (CIDSE), the Regional Network for Agricultural Machinery (RNAM) and the United Nations Industrial Development Organisation (UNIDO) in order to increase the amount of equipment, develop its effective utilisation and to carry out research activities.

1.5 Key players in the market

Agriculture is one of the four pillars of the Cambodian Governments strategy for growth and development (the others being infrastructure, private sector development and human resource development). The strategy for agriculture is focused on: improving productivity and diversification, land reforms, fisheries reforms and forestry reforms. To implement the strategy, there are a variety of international aid agencies very active in agriculture in Cambodia. These include the Australian Centre for International Agriculture Research (ACIR), Partners for Development (PFD), the International Rice Research Institute (IRRI) and the International Centre for Tropical Agriculture (CIHI) as well as the Asia Development Bank. There are also some private players in the market such as Agrokhmer, Nokorthom Agriculture Development, Natural Garden, Southern Seeds, Baitang, Aqip, DuPont, 7NG and CP for seeds and equipments. For land concessions, 52 percent of firms are foreign companies and 40 percent of those are Chinese companies. Western companies are a minority (5 percent only).ii

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1.6 Regulatory
Information provided in this section is for reference only. When negotiating supply contracts and before beginning actual export, companies are advised to consult closely with their importer or distributor. Duties and tariffs The import tariffs on agricultural products (seeds, fertiliser, etc) are subject to 10 percent VAT only. For agricultural machinery (tractors), taxes vary generally between 10 percent VAT (for agricultural tractors for example) to 10 percent VAT + 15 percent customs duty + 10 percent special tax for some other categories. It is recommended that you consult with a specialist tax adviser to determine the exact rates applicable to each product.ii Licensing and registration requirements Importers must first have an import licence issued by the Ministry of Commerce. For agricultural products, these licences are usually issued free of charge but must also be approved by the Ministry of Agriculture, Forestry and Fisheries. As per WTO requirements, the Government has eliminated most restrictions on the import of fertilisers, pesticides and other agricultural inputs. However, Cambodia does require a certificate of Good Manufacturing Practice (GMP). Imports of live animals and animal sub-products require a health certificate, while the import of some agricultural products, such as fruit, requires a phytosanitary certificate. Camcontrol is the agency in charge of inspecting imports and execution of any regulations. For further information visit the website: www.spring.gov.sg/QualityStandards/etac/food/Documents/Cambodia.pdf

1.7 Sustainability
There are significant opportunities to improve the productivity and sustainability of activities in the rural sector. A major economic effort is required from Cambodia to focus on agriculture as the main driver of broad-based growth and economic prosperity for the wider population. While food security and better nutrition continue to be core sector development goals, a move towards commercialisation is required to create economic opportunities and enable the sector, especially small-scale farmers, to become more important actors in the economy. Numerous obstacles make the transition from low-level subsistence agriculture difficult (low productivity, high transport costs due to lack of infrastructure, etc.). Nonetheless,

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opportunities exist for longer-term players, as the market needs are quite significant and agriculture is identified as a priority of the Government of Cambodia.

2 MARKET ENTRY AND DEVELOPMENT

2.1 Market entry strategies
As Cambodia sits between Vietnam and Thailand, it plays an important part in stopping the spread of a number of epidemics including Avian Influenza, which has had an impact on Cambodian chicken and duck stocks. The Government and other international organisations are continuing to look for partners to lessen the risk. The best opportunities for investment in this sector are partnerships with international organisations that have programmes in place or are looking for support. For example, the Food and Agriculture Organization (FAO) is looking to improve support services and production inputs for pig farmers and is keen to work with private sector partners. Companies can operate as 100 percent foreign owned entities or in a joint venture with a Cambodian partner. However, companies must first be registered with the Council for Development of Cambodia (the Council) and the Ministry of Commerce. Registration with other ministries is also required depending on the business activity. The Council presents itself as a one-stop service investment centre and evaluates investment applications for all projects, except those involving natural resources. It also grants duty and tax exemptions, processes company registrations, visas and work permits, and provides potential investors with economic and social data. However, businesses should always consult with legal agencies in Cambodia for additional information on the registration process. They may also be able to assist with any red tape associated with setting up a business in Cambodia. Land can only be owned by Cambodian nationals, individuals or corporations. However, long-term leases for 15 years or longer are possible. New Zealand companies can also incorporate a landholding with a Cambodian partner to allow ownership of land title. Due diligence on any land deals is always critical.ii Contract farming, which offers stable revenue to farmers, can also be a possible entry strategy. Charoen Phokphand, a Thai conglomerate, has a dominant position in the maize industry in Cambodia (70-80 percent of the market) and uses a strategy which involves giving/selling seeds and technology, offering contract farming and having a commercial mill in Cambodia.

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2.2 Points of differentiation

The ability to identify niches and build relationships with key partners, such as international organisations, donors, associations mandated by donors or even big distributors is important. However, given the current size of the agribusiness market in Cambodia and its low sophistication, there is no particular competitive advantage to be gained by having a highly differentiated product or highly sophisticated skills and expertise in a specific field. The key priorities for the market in this early stage of development are around increasing existing productivity, achieving greater diversification, building capacity and encouraging private investments in the sector. This stage of development does make Cambodia an attractive market, as it means it is possible to build a dominant position in the market as an early player. Building a brand is fairly easy and western companies benefit from having a good reputation. The reputation of New Zealand companies in the field of agribusiness and pastoral activities is an asset that can be branded and developed. Cambodian farmers and players are usually keen to try new approaches in order to improve their productivity, but unless this is done under a governmental and/or donor-financed program, they are still very price-sensitive. Price versus quality is an important factor of differentiation that needs to be considered when working directly with the private sectors.

2.3 Long term strategic issues for exporters to consider

Partnering with local organisations or aid agencies active in Cambodia is a good option. Agricultural Development International (ADI) works with both the private and government sectors to provide advice on agribusiness opportunities. Given the low level of development and poor agricultural base, any investments in Cambodia will need to be considered from a long-term perspective, as investment gains may take 15 to 20 years to realise.

2.4 Distribution Channels

The distribution of agricultural products can be made through some of the key players identified in Section 1.5 or the retailer outlets, as they already have access to the consumers. The Cambodian market sometimes lacks transparency, but as it is quite small, it is relatively easy to get access to the key people. As with anywhere else in Asia, relationships are important in gaining access to the market and building a brand can be easily done as consumers are keen to try new things.

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It is recommended that companies contact a legal firm that can assist with company registration and guide businesses through other legal and tax issues.

2.5 Tax
There are various tax exemptions granted for certain investments in agriculture as well as tax holidays. Most companies are subject to a tax rate of 20 percent. Companies are also required to pay a 10 percent value-added tax (VAT) on all outputs in addition to income taxes, with rates varying by salary amount.

3 MARKET RESOURCES AND CONTACTS

ASSOCIATIONS ORGANISATION WEBSITE

Ministry of Agriculture, Forestry and Fisheries Invest in Cambodia DFDL (largest legal firm in Cambodia) Cambodian Customs and Excise Department Ministry of Commerce Council for the Development of Cambodia Cambodia Chamber of Commerce Agriculture Technology Service Association
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www.maff.gov.kh www.investincambodia.com www.dfdlmekong.com www.customs.gov.kh www.moc.gov.kh www.cambodiainvestment.gov.kh www.ccc.org.kh/ www.atsacambodia.org/ www.ibccambodia.com

International Business Chamber of Cambodia

ATSA is currently registered with the Ministry of Interior as a non-profit organisation. It has a small team of highly trained professional staff who have previously supported the National IPM Programme at the central level to implement national level programmes in partnership with Danida, FAO, CIDA and the World Bank.

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Disclaimer: This publication is provided to you as a free service and is intended to flag to you market opportunities and possibilities. Use of and reliance on the information/products/technology/concepts discussed in this publication, and the suitability of these for your business is entirely at your own risk. You are advised to carry out your own independent assessment of this opportunity. The information in this publication is general; it was prepared by New Zealand Trade and Enterprise (NZTE) from publicly available and/or subscription database sources. NZTE; its officers, employees and agents accept no liability for any errors or omissions or any opinion/s expressed, and no responsibility is accepted with respect to the standing of any firm/s, company/ies or individual/s mentioned. New Zealand Trade and Enterprise is not responsible for any adverse consequences arising out of such use. You release New Zealand Trade and Enterprise from all claims arising from this publication. New Zealand Trade and Enterprise reserves the right to reuse any general market information contained in its reports.

USAID, Phnom Penh, Cambodia Indochina Research, Agribusiness Opportunities in Cambodia, Sept 2010 iii Business Monitor International, Unlocking Untapped Opportunities in Agriculture, Sept 2010 iv COMTRADE statistics via Trade Map
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