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

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.