Rice is expensive: a blessing or a curse for Cambodia?


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A rice seller in one of Cambodia's markets. The price of rice, a staple food for Cambodians, has doubled between July 2007 and July 2008.
Last week, I attended a very interesting seminar by the Cambodia Development Research Institute (CDRI). They presented the result of their recent study on the impact of high food prices (which the World Bank and several others financed). I found the results, presented by CDRI’s Chan Sophal, very interesting, showing the complexity of the question.

The simple reaction is that higher price of food is bad for the poor. CDRI is able to confirm some of this by tracking prices (the price of rice doubled between July 2007 and July 2008) and reminding us that food accounts for two thirds of consumption for a poor family. And there will be little substitution effect to other goods (even within food, most of the caloric intake comes from rice, also very difficult to replace–although CDRI shows that Cambodians in part shifted to lower quality rice to make up for the higher price).

That higher prices are a curse seems even clearer once you factored in the higher prices of inputs (fertilizers, seeds in particular) for farmers. Indeed some analysts have calculated the cost of higher prices by simply adding up the cost of consuming more expensive food and buying more expensive inputs for agriculture. But is that all?

The CDRI study reminds us that it is not. In fact, assuming (that’s key, see below) yields in 2008 at their 2007 level, they calculate gross margins, as gross revenues (farm gate price times production) minus production costs. Revenues and costs went up anywhere between 40 to 100 percent between 2007 and 2008, so their difference could have gone up or down. In fact, CDRI shows that gross margins are slated to increase significantly: 33 percent for dry season rice, 38 percent for wet season rice, 82 percent for maize, 46 percent for soybeans, 176 percent for cassava. The study also reminds us that, with the economy growing fast, wages in the countryside are this year 50 percent higher than last year (CDRI shows that a 50 percent increase in income was sufficient to cover the food price increase).

So a blessing? Not so fast. The CDRI study also shows that many farmers have little or no land and are not in a position to sell crops. Others (e.g., fishermen) will also mainly suffer from the price increase since their income is stagnant. Another factor is the uncertainty about yields and prices: by harvest time, yields might be lower than expected and prices might have come down significantly. This would be quite dramatic since CDRI shows that, this year, many farmers have taken on a lot of debt to buy inputs.

A blessing or a curse? I think that the merit of CDRI is to put some analysis for discussion and show that higher prices can be a major opportunity for many…but not for all.

Join the Conversation

October 23, 2008

IMHO, I think the rice price increase doesn't help much. If input materials prices (fertilizer, seed, etc.) increase, the higher rice prices are just offsetting the higher costs that farmers are bearing to grow their crop. However, if the price increase is above the inputs price increase, I can imagine farmers in particular being marginally better off.

However, what about the rest of society? Since rice is THE staple for this country and for many Cambodians food is a significant part of their expenditure, it doesn't seem to me that having less money because of higher food prices is a good thing.

And, if higher rice prices directly contribute to inflation, that is a real detriment to the poor. I'm assuming that poor people (with the exception of rice farmers) have less recourse to increasing their income when facing higher rice and general food prices. My understanding is that many poor and working class Cambodians are not unionized and can negotiate higher salaries in the face of higher prices, etc. (a counter example being in Vietnam where earlier this year a group of employees at a shoe factory went on strike and eventually negotiated a higher salary plus company provided lunches).

Anyways, my two cents ... :)

Great idea about doing the blog by the way!

Stéphane Guimbert
October 23, 2008

Hal - thanks for your comment. You raise the right question. There are many negative effects of higher prices of food. So, like in other countries, many Cambodians will suffer from it. But Cambodia is a net exporter of rice: so at least those who sell rice should be able to benefit (because the CDRI study shows that the profits could more than offset the higher cost of fertilizer and seeds. And not by a small margin). But my question is: is it possible that the country as a whole is better off? Some econometric simulations indeed show that this won't happen (see for instance http://www.odi.org.uk/resources/odi-publications/briefing-papers/37-ris…). But I think it is worth discussing with farmers in Cambodia and policy makers to see what would need to happen for Cambodia to seize the opportunity. Anyway, for this year, the harvest is in the next couple of days in Cambodia, so we will soon know! Thanks for joining the discussion. I'll post an update once we know more about this year's harvest. Stephane.

Khmer news
January 12, 2009

The increase in the rice price is really affecting the Cambodian people, especially those are the garment workers, civil servant, teachers, and military as well.

February 17, 2009

As a Cambodian, I know how things like in this country. High rice prices is indeed a curse for the Cambodians. Why I said this? although the majority of our population (80%) are farmers, but almost 99% of them are individual farming, not collective, and they do not sell their harvested rice directly to the market, but instead to rice millers and smugglers from/to neighbouring countries. Having a middlemen buying their products is very much disadvantage for the farmers, because they don't have much bargaining power and on the other hand most of these farmers are taking loans and once harvested they need to rush selling their rice paddy to repay these loans, otherwise they will be deeply indebted. So there is no point farmers will benefit from high rice prices.

If our leader want to take advantage from this high rice prices to help reduce poverty, then we must have some mechanism in place to help farmers and landless poor for example through subsidies programs etc. However, I don't think the govt will have such capacity, resources, or transparency enough to do that.

Anyway, I love your blog. Please keep posting more story :-)