POLICY AND STRATEGY FORMULATION

FOR ENHANCED AGRICULTURAL DEVELOPMENT

TCP/CMB/2901 (A)

FOOD & AGRICULTURE ORGANIZATION

OF THE UNITED NATIONS
(FAO)
WITH
THE MINISTRY OF AGRICULTURE, FORESTRY & FISHERIES (MAFF)
OF
THE ROYAL GOVERNMENT OF CAMBODIA (RGC)

NATIONAL SEMINAR
ON
GETTING CAMBODIA’S AGRO-INDUSTRY READY
FOR WORLD MARKETS

DRAFT AGRO-INDUSTRIAL POLICY FOR GROUP DISCUSSIONS

Draft for Group 3 – Agro-Industrial Policy

MAY 2004
 DRAFT AGRO-INDUSTRIAL POLICY

1. Background
1.1. The Ministerial Decision (Pra Kass) No 358 recognised the need for an institutional
mechanism for the advocacy and promotion of agro-industrial development in Cambodia
and constituted the Department of Agro-Industries (DAI). One of the mandates prescribes
the formulation of the country’s Agro-Industrial Policy (hereinafter referred to as “the
Policy”) for the Government’s adoption. This document seeks to fulfill that mandate.

2. Vision
2.1. The agro-industrial vision would be an integral component of the development vision
of the Royal Government of Cambodia and contribute to the aspirations of national
economic growth, food security and improved living standards through poverty reduction
and income generation. With 84% of the population living in rural areas and 42% of the
GDP contributed by agriculture, development of this sector is the prime means by which
economic growth and spread of welfare could be attained.

2.2. Our vision is that over the next ten years, the country’s agriculture would move away
from being a means of survival to becoming a strong base for trade and a generator of
employment and incomes by supplying high value produce and quality raw materials for
agro-processing for the domestic market and, increasingly, to ASEAN and countries open
to Cambodia as part of the privilege of WTO membership. An important component of
this vision is that as a result of coordinated efforts of all governmental agencies and
stakeholders at continually reviewing the policy and institutional environment, foreign
investors would find Cambodia an attractive destination for investment.

2.3. SEDP II projects a growth of 6.5% for “other crops”, 5% for food industry till 2005.
With additional public investments, a more pro-active institutional and policy
environment and the opening of new export market opportunities, higher growth rates
than those envisaged for the period ending 2005 seem a distinct possibility. Initially, even
small shares in export markets would demand a high growth rate and lead to substantial
additional earnings and to GDP growth

3. Scope
3.1. The term “agriculture” is used in this document in a comprehensive farming sense to
include not only agricultural crops but also horticulture, floriculture, spices, aromatics,
commercial crops, livestock and fisheries. Similarly, terms “agro-industry” and “agri-
business” used interchangeably, encompass all activities that add value to the produce of
“agriculture”. Value addition could be not only by way of processing but also as storage,
wholesaling, retailing, transportation and any other form of post-harvest support.
Activities such as seed processing, tools, equipment, fertiliser and pesticide manufacture
are excluded. Also excluded are organized commercial-crop-based industries like sugar,
rubber, tobacco and textile.

4. Agro-Industrial Development Policy - Objectives

4.1. Produce of Quality and Competitiveness: The foremost objective is to support
measures that raise the quality of agricultural produce and promote diversification into
new commercially exploitable high value crops and thereby enhance acceptability of
Cambodia’s produce and products in world markets to absorb its surpluses arising from
improved productivity

4.2. Farm-Market Linkages: The second objective is to strengthen and expand the
farm-market linkages through promotion of processing and other value adding activities
by small and medium enterprises that can make products for the domestic market, or
intermediates for finishing and refining by large technologically advanced units; the latter
would act as converters of the output of small and medium farmers/enterprises for sale in
export markets.

4.3. Awareness of Opportunities for Large Enterprises: The third objective is to

promote, strengthen and expand the farm-market linkages through large scale enterprises
employing latest technologies and support their efforts in establishing a fair market share
and competitive presence in export markets

4.4. Grass Root Institutional Linkages: The fourth objective is to promote farm-market
grass-root institutional and service linkages that contribute to establishment of a sound
market infra-structure, improved marketability of produce and products and profitable
functioning of agro-industrial and business enterprises.

4.5. Awareness of Quality Standards: The fifth objective is to support efforts to spread
awareness of domestic and international standards relating to quality, food safety and
environment, among producers and consuming public.

4.6. Single Source, Easy Access Information to Stakeholders: The sixth objective is to
establish a readily accessible and continually updated information system that can make
available all relevant data, copies of important policy documents/announcements, news
and events and sources of service linkages relevant to stakeholders for project investment
decisions

4.7. Policy and Institutional Environment: The seventh objective is to actively support
efforts at further improving the policy, institutional and infra-structural environment with
a view provide industry an even and fair playing with its counterparts in neighbouring
countries with whom it has to compete for world market share and thereby facilitate
accelerated investment in the agro-industrial sector.

4.8. Marketing Cambodia to the World: The eighth objective is to support and
participate in endeavours to propagate Cambodia’s uniqueness as a land of opportunities,
advantages and favourable policy environment for investment in her agriculture and agro-
industrial activities and to attract and facilitate the entry of investors on a scale
commensurate with the country’s potential.
4.9. Human Resource Development: Human resource development is an important
aspect that permeates all the objectives and the activities and programmes that flow from
them.

5. Situation Analysis for Strategies for Agro-Industrial Development

5.1. Of the total population 40% are below poverty line and 90% of these are in rural
areas. Accordingly, the strategy should be one of producing a beneficial employment and
income generating effect in the rural areas. Exclusive focus on promoting large scale
centralized operations may not have effects that reach these areas

5.2. Agriculture accounting for 42% of GDP and rice already producing a 10% surplus
even with low productivity, strategy for growth should be agriculture and export oriented

5.3. The people:land ratio being low, processing and other value adding activities should
be promoted close to the land and the situation also offers greater scope for self-
employment on or near land than as industrial labour

5.4. Agriculture is mostly rain-fed with a single rainfall season in most areas;
consequently, long storage and preservation are critical to maintain supply and smoothen
out violent price fluctuations that act to the disadvantage of farmers

5.6. Per capita income is still very low at $ 292 although it has risen from $ 252 in 1998;
for speedy amelioration a good part of the emphasis, at least in the initial stages, should
be on quick gestating projects and services in rural areas

5.7. Gross domestic saving is low at 7.3% (1999) of GDP at current prices. Government
revenues fall short of development and non-development needs and the tax base is
narrow. Such severe resource constraints indicate heavy dependence on external
assistance and participation from foreign investors. Creating a congenial policy,
institutional and system environment to attract foreign investment is critical to poverty
reduction through growth.

5.8. External assistance is needed not only for resource mobilization but also for
introducing modern technologies in production and marketing. In parallel, for long term
interests, it is necessary to train and encourage participation by domestic entrepreneurs
through acquisition of financial and technological capacity

5.9. Agro-Industrial development at the expense of natural resources and environment

would not be able to sustain economic growth.

6. Mobilising Social Energies

6.1. In spite of severely limited resources and lack of guidance on technology and
business management aspects, there are thousands of households and small enterprises
engaged in various productive activities entirely through their own initiative indicative of
a potentially high level of private sector energy in towns and villages which can be
harnessed with appropriate guidance and encouragement
6.2. Women constitute 52.3% of the economically active population, head 25.7% of
households and comprise 54% of skilled agriculture and fishery workers. To use this vast
resource, the Policy places strong emphasis on actively encouraging mobilization and
active involvement of women through appropriate institutional mechanisms to improve
productivity and generate incomes through value addition, processing and other support
services for large scale units. Similarly, the youth constituting ---% of the population
need to be targeted for training in profitable agro-processing and value adding activites.

6.2. A large number of NGOs have a well spread network in the rural areas and good
track record of providing financial services and training in areas of small business
management, community project management and productivity improvement
programmes. This is a valuable social asset that needs to be harnessed in accomplishing
the Policy objectives.

7. Mobilising Resources
7.1. Severe resource constraints, low domestic savings rate, inadequate technical
competence in specialized areas and managerial limitations set a very low ceiling on what
can be accomplished without outside assistance. Priorities and effective resource use
through good governance, can give some relief but this may not be still sufficient to meet
needs. Donors and the multilateral funding community have been extending generous
support and guidance to Cambodia in many ways. The Policy assigns high importance to
close liaison being maintained with the assisting agencies and keeping them informed of
progress and problems and efforts and considers this a critical element for accomplishing
objectives.

8. Institutional Mechanism for Agro-Industrial Promotion

8.1. Potential entrepreneurs looking for business opportunities do not have a single source
for ideas on potential opportunities and basic information. Secondly, inter-institutional
linkages and coordination are critical for stimulating investment. Several Ministries and
agencies are involved in agro-industrial development and related rural activities. A semi-
autonomous organisation of appropriate seniority and stature could play a dynamic role in
acting as the promotion body for developing agro-industries and services. The Policy
envisages the constitution of such a body at the earliest.

9. Review
9.1. It is envisaged that the concerned institutional coordinating mechanism will translate
the Policy in to specific plans, mobilize resources with support from appropriate
ministries and formulate programmes and targets consistent with resource availability.
The Policy will be periodically reviewed to measure performance and to update the
provisions to ensure its continued relevance to changing circumstances.