Why Cambodia’s rice industry needs a new strategy

Without a dramatic change in policy and direction, the industry could collapse in two to seven years. 

After decades of genocide and civil war, Cambodia became a net exporter of rice in 2004. In the following 10 years, high prices—captured through Cambodia’s rising exports—were the largest factor in the country’s early achievement of its poverty-reduction Millennium Goal. Today, Cambodia is one of the top 10 rice exporting nations.

In yesterday’s circumstances of rising prices, Cambodia’s strategy of “exporting as much rice as possible” was inarguably successful. Those who led, supported, and executed it deserve the utmost praise and respect.

But that was yesterday.

Today, producers of globally over-supplied commodities such as steel, oil, and grain are being overwhelmed by a cost-focused, price-deflating “race to the bottom.” The decline in grain prices is credibly projected to continue (with occasional temporary increases, and despite global population growth) until at least 2050. “Grain” includes rice, the price of which recently hit an eight-year- low.

In such a race to the bottom, the lowest-cost producer wins and everyone else is squeezed out. Cambodia’s rice export industry must pay uncompetitively high costs, yet it commands lower prices, so industry-wide margins are being squeezed towards (or below) zero. With prices, margins, and demand all falling, experts have stated that—without a change of policy (that is strategy)—Cambodia’s rice export industry could collapse within two to seven years.

The collapse of Cambodia’s rice export industry could have terrible consequences. Falling incomes could push millions back into poverty, which might tend to reduce political stability.

With its high costs and low prices, Cambodia cannot win the global rice industry’s “race to the bottom”—and it cannot afford the terrible consequences of losing that race.

Metaphorically, Cambodia’s rice industry is a dying patient…but we must save it, and quickly.

Today, the Cambodian rice industry is working to improve its efficiency in areas such as seed multiplication, access to capital, extension services, contract farming, milling efficiency, storage, and transportation.

These efforts are tactically necessary, and must continue. However, they are not sufficient to make Cambodia’s rice industry sustainable and profitable, and hence they do not constitute a strategy.

There are range of areas where tactical improvements are under way.

First, branding. Cambodia’s new jasmine rice branding program, Angkor Malis, is merely playing catch-up to Thailand’s successful branding of Thai Hom Mali.  Cambodia’s branding program is necessary to reduce the 22 per cent discount at which Cambodian jasmine rice is sold versus Thai Hom Mali, but not sufficient to gain a price advantage.

Second, certification. Cambodia’s recent effort to encourage food safety certification is merely playing catch-up to its international competitors (like Thailand). Obtaining these certifications is necessary to enter new markets, but they are not sufficient to give Cambodia a price advantage in those markets.

Third, transport. Thailand and Vietnam both have low-cost river transport from paddy to [domestic oceanic] port, whereas Cambodia’s domestic oceanic port, at Sihanoukville, is not accessible by Cambodia’s internal river network (which reaches the ocean, via the Mekong River, in Vietnam). Therefore, Cambodia’s current efforts to re-build its rail networks are necessary to reduce its road-based transportation costs, but not sufficient to gain a cost advantage.

If its current strategy and tactics can’t give Cambodia’s rice industry a sustainable competitive advantage, what can?

To quote Michael Porter, in his influential paper What is Strategy?, “Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.”

To build a sustainable competitive advantage, Cambodia’s rice industry must offer a “unique mix of value”—let’s call it a “new product”—that is different, supported by activities that are different. Different than Thailand. Different than Vietnam. Different than before.

Being different, by itself, is not enough. Logically, to be the basis of a new national rice industry strategy, Cambodia’s new product must meet three additional criteria.

One, it must be high margin. To gain an advantage, Cambodia’s new product must command a price that is high enough to earn high margins despite Cambodia’s high costs.

Two, it must be defensible. To be sustainable, Cambodia’s new product must be defended from margin-destroying price competition, both foreign and domestic—presumably through intellectual property (patents, trademarks, Geographic Indication status, and so on).

Three, it must be inclusive. To be an industry strategy rather than a corporate strategy, Cambodia must be able to use the new product to rapidly increase industry-wide profitability, all along the value chain.

Competitive strategy requires sustained innovation, which is going to be a problem for Cambodia. Of the 140 nations ranked by the World Economic Forum’s most recent Global Competitiveness Report, Cambodia ranked 121st—near the bottom—in “innovation.” Clearly, Cambodia will continue to need assistance from the international community to define, execute, and sustain its new rice industry strategy.

The Cambodia Rice Federation will hold its Annual General Meeting in Phnom Penh on Saturday, 2 July.

The Federation’s current leadership recognises the need for a new strategy. Unfortunately, many of its members face imminent bankruptcy, and hence are understandably focused on short-term tactics.

Yet the two are inextricably tied. Without a new strategy, Cambodia may not be able to revive the international community’s flagging interest in helping resolve the industry’s tactical problems, and Cambodia’s rice industry cannot succeed without international assistance.

Alternatively put: resolving the tactical problems of Cambodia’s rice industry requires that it develop a new strategy—and fast!

Formerly a high-tech marketer with Microsoft and Rackspace, Jim Plamondon now lives in a rural Cambodian village. There, he’s exploring ways to help Cambodia profit from its rice industry, of which his company, AwardBest, is a very small part.