Enterprise Based Development Research

Cambodia & Lao PDR

Aug 26th, 2013

Project Scope VSO is keen to understand how to continue to have a sustainable impact in the delivery of it’s

programmes across the globe. The project aims in reviewing the existing approach taken to Secure Livelihood placements and to provide recommendations for future approaches.

Specifically in Cambodia and Lao PDR: Review existing Secure Livelihoods work and the impacts of these placements Review the way in which VSO currently partners with stakeholders involved in Enterprise

Based Development in the region Review the Rice value chain Provide recommendations on specific areas where VSO may play a role in the Rice Value

Chain in the future (if any at all) in order to have the greatest impact on poor and marginalised people.

Identify opportunities for VSO to contribute to programmes with adequate scale of impact

Meeting ObjectivesTo review and discuss:

• the Cambodia Rice Value Chain,• challenges which exist in the Cambodia Rice Value Chain• Rice Value Chain supporting actors and Rules regulating the Rice Value Chain,• suggested Value Chain interventions,• potential future partnering opportunities for VSO.

CONTEXT & OBJECTIVES

METHODOLOGYCambodia

PRIMARY INTERVIEWS• Conducted primary interviews ranging from

INGOs NGOs (IADC, Ratanakiri) Social Enterprises Commercial Rice Mills Microfinance Organisations

STAFF INTERVIEWS• Programmes Manager• Livelihood Programme Manager

PUBLICATION REVIEW• Over 40 documents reviewed and referenced

PROJECT METHODOLOGYLaos

PRIMARY INTERVIEWS• Conducted c.12 primary interviews ranging from

INGOs NPAs / Social Enterprises Government Officials Rice Mills Rice Retailers

FIELD INTERVIEWS• 23 interviews carried out by local consultants• Visited:

• Champasak• Khammouane• Savannakhet• Salavanh• Vientiane Capital

PUBLICATION REVIEW• c.75 documents reviewed

VSO STAFF & VOLUNTEER INTERVIEWS• Country Representative• Programmes Manager

QUOTES

“TRANSPORT COSTS ARE

VERY HIGH, THERE IS A

MONOPOLY MARKET IN

PLACE IN THE EXPORT

MARKET”“PROVIDING CREDIT IS ONLY

ONE FACTOR IN LIFTING

PEOPLE OUT OF POVERTY.

THEY MUST PLAY A ROLE IN

COMING OUT OF POVERTY

AS WELL, TO BECOME MORE

INDEPENDENT”

“LAND IS SOLD OFF TO

PRIVATE ENTERPRISES AND

FARMERS ARE LEFT WITH

NO LAND TO GROW RICE”

“PROVIDING INCENTIVES IS

THE ANSWER, LEAVING

PEOPLE DEPENDANT, IS

NOT”

“JOINING TOGETHER ALL

STAKEHOLDERS THROUGH

FINANCIAL PRODUCTS WILL

LEAD TO A MORE

EFFECIENTLY OPERATING

MARKET”

• A rice-based farming system forms the backbone of Cambodia’s agricultural sector

• 80% of all farmers grow rice, of those farmers, 60% produce for subsistence

• 75% of Paddy produced during Wet Season abut farming takes place on rainfed lowland, rainfed upland, deepwater, and irrigated land

• Increased production and resulting surpluses have seen significant increased activity in commercial Rice export

• The Cambodian government have set a target of exporting 1 million metric tonnes of Rice by 2015, so far in 2013 there has been a large increase in exports (Official target)

• Cambodia has a growing rice market with potential benefits available to smallholder farmers

• There are still significant barriers to overcome to continue to develop the Rice Industry in Cambodia “However, we also face our own problems, such as lack of sufficient capital to procure

paddy rice during harvest time, higher producer prices [due to low productivity], higher cost of export, and limited experiences in exporting business.” Dr Yang Saing Koma

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Explanation of the Rice Value ChainRice Value Chain in Cambodia

Cambodia #102

Explanation of the Rice Value ChainRice Value Chain in Cambodia

RICE VALUE CHAIN – Cambodia

CARDI

NeighbouringFarmers

Foreign Seed Supplier

Farmer Collector MillerWholesaler / Retailer

Domestic Market

WFP

Commercial Contract

Export Market

Consumed

Industry

Milled Rice, Seed, Fertilizer, CapitalSeed

Seed

Milled Rice

Milled Rice Milled RiceMilled Rice

Fertilizer Supplier

Milled Rice

Milled Rice

Milled Rice

Rice Bran / Milled Rice

Seed

Fertilizer

COMMERCIAL RICE MILLS PLAY THE MOST DIVERSE ROLE IN THE VALUE CHAIN AND ARE SEEN TO HOLD THE MOST POWER

Un-milled Paddy

Import Market

RICE VALUE CHAIN FLOW – CambodiaThe

SEED• CARDI to Neighbouring Farmer, Seed Producer, Miller, Wholesaler/Retailer • Import to Farmer (Unofficial trade)

FERTILIZER• Supplier to Farmer, Miller, Wholesaler / Retailer• Miller, Wholesaler / Retailer to Farmer

UNMILLED PADDY • Farmer to Collector• Farmer to Miller• Farmer to Export (Unofficial trade)

CAPITAL• Miller / Wholesaler/ Retailer to Farmer

MILLED RICE• Farmer consumes (family or village), Domestic market• Miller to Consumed / Domestic / Commercial / Export / Industry• Wholesaler / Retailer to Domestic / Commercial / Export / Industry

RICE BRAN• Miller to Industry

Value Chain Actor Description Challenge Impact

• Farmer producing rice can be small scale producer up to larger contract farming operation.

• 80% of Cambodian farmers grow Rice

• Cooperative’s are a growing trend and are used by commercial business to meet paddy demand

1. Lack bargaining power2. Lack access to Market Information3. High dependency on private sector4. Lack of Business Management skills5. Land rights not officially recognised6. Lack of access to good quality

Agricultural Inputs

1. Lower price obtains for goods, lower income

2. Unclear how to plan production3. Driven by the needs of commercial

enterprise makes it difficult to plan4. Production costs increased and less efficient5. Motivation to expand farm operation 6. Poorer yield, leads to increased production

costs

• Typically commercial Mill,have advanced significantly in the past years due to growing export market

1. High transportation costs2. High energy costs3. Lack access to Market Information4. High capital costs (limiting access for

Social Enterprise)

1. Lower price paid to farmer for goods to recover transport costs

2. Lower price paid to farmer for goods to recover energy costs

3. Incorrect production decision leads to more waste

4. Unable to scale operations up to gain greater benefit

• Selling rice domestically or through export contracts. Can distribute through supermarket or though export contracts

1. Licence expensive2. High transport costs3. Lack of export experience4. Lack of national body to implement

international quality standards

1. Profits fall and look to pay a smaller price for milled rice from farmers

2. Profits fall and look to pay a smaller price for milled rice from farmers

3. Secure fewer supply contracts and buy less rice from farmers

4. Secure fewer supply contracts and buy less rice from farmers

KEY CHALLENGES – VALUE CHAIN ACTORS – CambodiaMany challenges have been identified in the project for actors in the Cambodia Value Chain. Highlighted below are the issues raised most frequently and estimated to have the most significant impact

FARMER

WHOLESALE / RETAILER

MILLER

PROCESSINGRice Mill

Collector / Trader

Rice Farmer

MILLS(Loran Rice,

MekongOryza)

SUPPORTING FUNCTIONS

CO-OP MODELS

RULES

STANDARDSQuality & Safety

Standards

REGULATIONSDevelopment and

Enforcement

INGOs & NGOs(AFD, AUSAID, IDE)

INFRASTRUCTURE

LAND ACCESSLand measuring and titling campaign

10% Titled Land Deeds

GOVERNMENT POLICYExport Target

ADVISORY(MAFF, MIME,MoC)

LICENSING

GENDER DYNAMICS

PRIVATE SECTOR GOVERNMENT

REPRESENTATIVE BODIES CIVIL SOCIETY

Wholesaler

Export Market

ADVOCAY ORGANISATIONS

Domestic Market

CAPITAL SUPPLIERS(Acleda, RDB,AMK, Maxima)

Inputs

BUSINESS ENABLING ENVIRONMENT REVIEWMany organisations play a supporting role in the Cambodian Rice Value Chain, equally many bodies exist who form the rules of trade. The influence of these organisations can be significant and need consideration

INPUT SUPPLIERS(CARDI ,Vietnam Import,

CHHIVTIMEX GROUP)

SOCIAL ENTERPRISE(CEDAC, IDE)

SUGGESTED INTERVENTIONS TO INVESTIGATE FURTHER –CAMBODIABased on the research to date and the challenges identified in the Rice Value Chains, the following Interventions are suggest and to be explored in more detail

INTERVENTIONChallenge Addressed

Approach Impact

WORK TO ENSURE LAND RIGHTS ARE RESPECTED BY COMMERICAL COMPANIES

Farmers lose land through forced sale to

commercial organisations from inside Cambodia as

well as FDI

Lobby government to ensure Land upheld by

courts in line with Cambodian Laws

Farmers confident in the expansion of activity as the risk of land grabs is

reduced

ENCOURAGE THE GROWTH OF SOCIAL ENTERPRISE

Commercial mill power reduces the ability of Farmers to bargain on price and conditions

Work with Social Enterprise who have the infrastructure to support many farmers and uphold their rights to a fair price

Rice Farmer costs of production are reduced

and access to information and fair price is increased

MATCH FARMER ASSOCIATIONS TO SIGNIFICANT SUPPLY CHAINS

Programmes looking to address small holder

farmers livelihood rarely have sufficient scale for

long term change

Identify large scale local rice consumers (i.e. Beer

Laos)

Market access for small scale producers provides

long term sustainable income

PARTNER WITH COMMERCIAL ORGANISATIONS WHO WORK IN AGRICULTURE

VSO funding from traditional sources is on a

declining trend, future funding required to be

sourced

Build on existing CSR programmes or

encourage others to create new ones

Funding available for programmes to support

Agriculture extension services

RECOMMENDED INTERVENTION

InterventionPartner

TypePotential Partner

Rationale Risk

Social Enterprise

Social Enterprise

CEDAC

CEDAC have significant experience in Rice Farmer Cooperatives and already have advanced plans for a large scale Mill Cooperative in Cambodia funded by farmers, CEDAC and International Funding. CEDAC have the scale to reach up to 100,000 farmers with their existing infrastructure and future plans, VSO have business and marketing volunteer skills to help them achieve this.

• Competition from Commercial Rice Mills

Social Enterprise

Social Enterprise

IDE

IDE’s business arm have a very strong infrastructure providing income for farmers and Farm Based Advisors (FBA’s) alike. Supporting the expansion of this incentive led social enterprise has the potential to reach 5000+ beneficiaries

• Social enterprise does not become self sufficient and requires continued donor support

Corporate Partnership

MFI AMK

AMK’s extensive CSR Programme is an impressive expression of their commitment to rural Cambodia. In VSO’s attempts to build bigger scale projects and programmes, there is an opportunity to partner with AMK or other MFIs to fund agricultural projects in the future

• Examples of this type of partnership in Cambodia are rare

POTENTIAL PARTNERSHIPS – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

PARTNERSHIP PROFILE – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

CEDAC is a Social Enterprise and was established in August 1997 as a Cambodian NGO with the mission to build Cambodia society where small farmers:

• enjoy very good living conditions and strong mutual cooperation,• have the right and power to determine their own destinies• play an important role in supplying healthy food for the whole society

During the past 15 years CEDAC has been very successful in achieving the social mission, especially by providing capacity building support to around 150,000 farmers from 6,176 villages in 593 communes, 131 districts and 22 provinces to improve their livelihood.

Rice Mill CooperativesCEDAC are embarking on a plan to build community based rice mills to process organic rice to be distributed through it’s existing supply chain.Building local rice mills is planned to result in

• Reduced transportation costs• Increased rice cooperative participation• Link more markers direct to local and international markets• Increased knowledge of Organic farming techniques

VSO SupportIn order to deliver the expansion of the operation, CEDAC would be able to use skills from volunteers from VSO such as:

Investment strategy & Finance Marketing Business Management Quality Control Production Planning (to support small scale producers)

PARTNERSHIP PROFILE – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

IDE’s business function Lors Thmey has been operating since 2009 and was created to meet the challenge of providing affordable, good quality inputs to small scale farmers. These farmers can farm a wide range of crops, a significant number are rice farmers. Operating with a franchise model whereby local people act as small private enterprises in their own right, Lors Thmey is able to provide a range of products and services to local farmers.

Problem• 90% of Cambodia’s poor live in rural areas and depend on agriculture for their livelihood

Constraints• Lack of good quality inputs• Lack of horticultural know how• Water Scarcity in dry season• Poor access to credit and market information

Opportunity 60% of all vegetables consumed in Cambodia are imported from neighbouring countries. Local farmers can earn income by growing and selling vegetables to replace imports

PARTNERSHIP PROFILE – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

VSO SupportIn order to deliver the expansion of the operation, IDE may be able to use skills from volunteers from VSO such as:

Production Planning & Purchasing Expansion into Trader based FBAs Recruitment Business Management

PARTNERSHIP PROFILE – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

AMK’s Mission is defined as – “To help large numbers of poor people to improve their livelihood options through the delivery of appropriate and viable microfinance service”

Established in 2002 but originated from microfinance interventions of CONCERN which began in in 1993. CONCERN remain the majority shareholder in AMK but the company is now run as a commercial enterprise independent from CONCERN

AMK has established a wide network in Cambodia providing a range of financial products. Current presence in:• All 24 provinces• 99% of districts• 95% of communes• 75% of villages

This presence is made up of 130 offices, 150 agents – these 130 offices contain the branch and sub branch network

AMK promote their business as “socially motivated” and realise this through their Social Performance Management Framework. Winning them many international rewards, the SPMF provides AMK with a double bottom line which they measure in their annual report.

Having previously had a VSO volunteer, AMK would consider future volunteer placements on their individual merits. A broader partnership, taking advantage of their social stance, is something VSO should consider - potentially to work with AMK as a donor of other programmes.

PARTNERSHIP PROFILE – CambodiaIt is important that future partnerships working in Rice Value Chains are linked to the challenges and resulting interventions which can have the greatest impact on improving livelihoods

Rice industry in Cambodia has seen significant growth in the past years. The benefit of this growth does not always reach the producer due to a complex Value Chains+

Significant investment is taking place to meet the Cambodian Government’s Export target of 1m Metric Tonnes+

VSO should look to work with Social Enterprises who provide market incentives for farmers to increase their income+

+

SUMMARY CONCLUSIONS – CambodiaA number of areas of further investigation suggest that VSO can have a positive impact on Livelihoods in the Rice Value Chain. Recognition of the risks associated with this development is key

The flourishing MFI market provides opportunity for access to credit for farmers throughout the country, this also, however, presents an opportunity for Social Investment+

Focusing interventions in the following areas can help ensure rice farmers benefits from the process of growing rice:• Provide access to markets whilst guarding against exploitation (Social Enterprise)• Provide access to information to allow farmers to make informed decisions (Social

Enterprise)• Provide access to good quality agricultural inputs by supporting IDE’s FBA model

+

Commercial rice growing is on the increase and Government policy indicates a willingness to open to trade both domestically and internationally+

The current Rice Value Chain sees both official and unofficial transactions, the benefit of which does not always reach the rice producer+

Focusing interventions in the following areas can help ensure rice farmers benefits from the process of growing rice:• Provide access to markets whilst guarding against exploitation (Social Enterprise)• Provide access to information to allow farmers to make informed decisions (Grading)• Continue the good work of Agricultural Extension services (e.g. in SRS)

+

Whilst there is an impact on livelihoods resulting from the recommendations here, the scale of impact does not match the ambition of the VSO Leadership (10,000 people)+

SUMMARY CONCLUSIONS – LAO PDRA number of areas of further investigation suggest that CUSO VSO can have a positive impact on Livelihoods in the Rice Value Chain. Recognition of the risks associated with this development is key

Whilst government policy indicates an interest in creating an active rice market and a market for export, the reality on the ground is that it’s difficult to create enterprises without significant administrative costs

+