For more than a decade, Cambodia has had excellent trade ties with the EU, registering some 5.8 billion euros ($6.56 billion) worth of exports in 2017, compared with a mere 837 million euros ($947 million) in 2007.
The Everything But Arms (EBA) agreement, since it was granted in 2001, has played a key role in promoting economic growth and poverty reduction in the Kingdom. Cambodia’s exports such as rice, garments and footwear ballooned to 5.8 billion euros last year due to preferential market access. However, Cambodia has also committed the cardinal sin of not preparing to engage with the EU on the EBA status when there were early storm clouds over the horizon. Now the inevitable stares at us right in the eyes. Cambodia’s duty free access to EU markets is about to be withdrawn in 18 months time.
As far as the rice sector is concerned Cambodia’s response to the EU, after the later officially gave notification on October 5 for the EBA revocation, is unresponsive, ill-coordinated, feeble at best and half-hearted at worst.
The Cambodian Rice Federation (CRF) and the Ministry of Commerce should have mounted its advocacy and lobbying campaign to safeguard Cambodia’s rice exports to the EU when the first signs of trouble emanated from Brussels a year ago.
On the contrary, their sheer lackadaisical response to the EU after it had served notice on October 5, is shocking and glaringly stupendous. It is even more appalling to note that the CRF sent a letter to the EU dated November 30 when the deadline set by the EU for appeal was November 19.
Neither the CRF nor the Ministry of Commerce has made any effort to respond by the given deadline. Instead, we saw individual rice exporters making emotional rather than technical appeals to the EU while CRF and the ministry jointly sent a junior delegation to meet the EU in Brussels only in the very last week of November – way past the given deadline. Such irresponsible behavior on the part of the concerned government agencies puts Cambodia in greater economic risk.
What is even more appalling is that the CRF and the Ministry of Commerce – who had to be nudged by the Ministry of Foreign Affairs to intervene – did not even send their top notch negotiators and
officials. The CRF and the Ministry of Commerce have done too little, too late, although local and foreign rice advocacy experts have been sounding the alarm bells for years – even resulting in Prime Minister Hun Sen stepping in to form an inter-ministerial crisis group. This, however, was brushed off by a brash and insolent CRF who insisted there was no such crisis.
Even a meeting at the Ministry of Commerce with exporters and other government officials, failed to awaken the CRF from its slumber and this attitude has dealt a death blow to Cambodian rice exports to the EU.
The seriousness of the matter warrants a more responsible response for the sake of protecting a crucial sector in the Kingdom’s economy. The EU is one of the largest export markets for Cambodian rice, with approximately 213,000 tons exported up to October 2018. Should the EU trigger the Safeguard Clause tomorrow (claiming to protect Spain and Italy’s rice exports) in a vote meeting in Brussels, Cambodian rice will be liable for duty of about 175 euros ($198) per ton by January 2019.
The two personal letters written to the EU by Amru Rice and Signatures of Asia Co Ltd, while of the best intentions, are far too emotional and lack technical cognizance. It is unlikely to trigger any attention from EU officials. Nonetheless, it is also symptomatic of the ills that plague the CRF and its inability to restructure its entire board and modus operandi.
The net result of this apathy shown by the CRF and the Ministry of Commerce would deal a severe blow to Cambodian farmers and rice millers and the supply chain which feeds the industry. It will also be a major setback for Cambodia’s efforts to export a million tons of rice – missing the targeted deadline in 2015. The ripple effects will be felt in the sector and in coming years Cambodia’s rice exports could dwindle, putting further strain on the Kingdom’s export earnings.
The parochial, inward looking attitude of the CRF and Ministry of Commerce, tends to jeopardise Cambodia’s near stellar performance in the rice sector. The International Finance Cooperation (IFC) in a report stated that in 2010, Cambodia exported 40,000 metric tons of rice. But in 2013, it exported nearly 400,000 metric tons of rice to 66 countries. This was a ten-fold increase in just three years.
Moreover, in only five years, stated the IFC, Cambodia moved from a paddy producer to a milled rice exporter, and is now well on the way to evolving from a commodity trader to a demand driven export marketer.
But the catch is here. Currently, as the IFC points out, 62 percent of all rice exports go to EU markets, and while the need to further diversify the customer base is clear, exporters currently have limited funds for market development and sales support. Greater export success and penetration of new markets will
therefore depend on prudent selection of industry priorities, correct analysis of market trends, proper identification of customer preferences, andshort- versus long-term strategies.
It appears that the rice industry, like the garments and footwear sector, which was overly reliant on the EU for its exports, is now withering and will leave tens of thousands of farmers facing an uncertain future. The Ministry of Commerce and the CRF should be held accountable for this.