PHNOM PENH (Khmer Times) – Machines are steadily replacing people in Cambodian agriculture but buyers need more financial and technical support.
Labor migration to the cities is making more farmers rely on heavier equipment. The growing pool of buyers mainly consists of middlemen who rent their machines out to farmers on a contract basis.
“[Mechanization] is becoming more affordable – labor costs are going up quicker than machinery,” said Philip Charlesworth, director of agriculture at UCA, a farming support business.
This increasing demand for equipment is hamstrung by poor access to credit and maintenance. Businesspeople see opportunities in providing both the machines and support services in Cambodia’s agricultural sector.
Labor Scarcity Drives Demand
As more Cambodians move to cities, the pool of available labor is shrinking for farmers, who must increasingly rely on equipment.
“People do not have enough labor to work in the field because of the migration [to cities] and because the farmers are getting older and older, so they start using machines instead,” said Sam Vitou, executive director of agricultural support organization CEDAC.
According to Mr. Vitou, the number of people who make their primary income from agriculture will fall from over 80 percent today to just 25 percent of the population over next decade.
According to the UN Centre for Sustainable Agricultural Mechanization (UN-CSAM), 73 percent of land preparation such as plowing is currently done with machinery like walk-behind tractors, while the rest is being done using farm animals. Machines also accomplish 70 percent of crop harvesting in the country.
On the other hand, almost all sowing, transplanting and fertilizing is done by hand. About 90 percent of weeding is accomplished by hand as well. Nonetheless, equipment use is rising across the board in Cambodia.
Equipment sales are growing 10 percent each year, according to Mike Quin, Infrastructure Division Manager at RMA Cambodia, which distributes John Deere machinery in the Kingdom.
Cambodia’s tractor supply mainly consists of machines from MTZ, Kubota Corporation, Yanar Co Ltd., Mahindra & Mahindra, John Deere and Foton, according to UN-CSAM.
Historical sales figures attest to the growth of Cambodian mechanization. According to UN-CSAM, the Kingdom had 3,857 tractors in 2004 and 9,467 in 2013.
Power tillers grew from 20,279 units in 2004 to 151,701 units in 2013. Combine harvesters, a more recent development, increased from 947 units in 2010 to 4,580 units in 2013.
Small and medium farmers are still the primary drivers of demand for equipment, according to Philip Charlesworth, the director of agriculture at UCA, a company which rents out machinery and provides advanced farming information.
“At the moment, you see a lot of contractors buying equipment and renting it out,” he said. “There is good potential for companies who would organize like that and offer quality services.”
Smaller farmers are also upgrading their tools from power tillers to full scale tractors. Some are moving into bigger pieces of land, enough to justify the costlier equipment purchases. Others are switching from working their own land to buying equipment and contracting out their services for more money.
Land preparation costs between $20 and $50 per hectare, while harvesting can run as high as $120 per hectare, according to CEDAC and private companies.
Economic land concessions still buy the bulk of the heaviest equipment like combine harvesters. But Mr. Quin said that in 2015, purchases by small and medium holders outweighed the plantations.
“There’s been a drop-off on big land concession work coming up – we’ve seen this year’s [sales going to] 70 percent small farmers and 30 percent concessions,” he said. In 2014, the split was closer to 50 percent each.
Tractors of about 45-50 horsepower are some of the most demanded pieces of equipment. These are especially popular in the northwestern region, including Pailin, Battambang and Banteay Meanchey, which have large land size per household, according to UN-CSAM.
A new 45-horsepower tractor can run as high as $20,000, according to Mr. Quin, though used varieties cost between $8,000 and $10,000.
Buyers can’t put down that kind of money up front and must rely on financing, identified by businesses and NGOs as a significant obstacle.
“Banks are wary of the problem of low profitability – it’s quite risky [to invest in agriculture] said Sam Vongsy, the vice-CEO of the Rural Development Bank.
Microfinance organizations aren’t a big help either – many of them are not interested in doing equipment loans because they have a poor understanding of equipment valuations in case they have to repossess it, according to Mr. Quin.
While RDA has its own financing solutions, some other equipment providers do not. This hampers sales but also creates the opportunity for dedicated financing in the agricultural sector.
Maintenance creates another challenge – Cambodia doesn’t have many mechanics qualified to repair agricultural equipment, according to Mr. Quin.
UN-CSAM identifies repair and maintenance as one of the major constraints in the promotion of farm machinery. Repair accounts for over 20 percent of a tractor’s annual cost, with only about a quarter of the owners knowing how to properly maintain or repair their machines.
This, too, creates a business opportunity. RDA, which sells equipment all over Cambodia, is going to invest more in equipment servicing outlets.
“We’re spreading our wings in terms of maintenance outfits,” said Mr. Quin. “We’ve put one maintenance outfit in Kampong Thom and in Takeo, we will have one by the end of July. Next year, we will expand them to a few more locations.”