1. Cambodia Agriculture in Transition: Opportunities and Risks Stakeholders Consultation February 12, 2014 Cambodiana Hotel, Phnom Penh

2. 1Changes - Past2Driving forces - Past3Driving forces - Future 3. Cambodia Agriculture 4. Rice Production (mt)Yield Increase (2003-2012)10,000,00080%9,000,00070%8,000,00060%7,000,000 6,000,00050%5,000,00040%4,000,00030%3,000,00020%2,000,00010%1,000,0000%-200320042005200620072008200920102011Maize2012Rice Exports (mt)RiceSugarcaneCassavaPoverty Rate in Cambodia400,00050%350,00045%40%300,00035%250,00030%200,00025%150,00020% 15%100,00010%50,0005%00%20092010201120122013199419972000200420072010 5. % 60Nutritional Indicators (from CDHS)50 40 30 20 10 0UnderweigthStunted (short) 2000200520082010Wasted (thin) 6. CHANGES IN AGRICULTURE OVER PAST 10 YEARS 7. A Story of Change 1Land2Yields3Production4Profitability/ha5Return to labor 8. Cultivated land increased Active land market Higher food prices Investment in feeder roads Better access to finance12345 9. Yields increased123 Wider adoption of improved technologies Expanded irrigation Access to modern inputs Mechanized services45 10. 123Production increased45 11. 123Farm Profitability per ha has been Stagnant45 12. 1234Return to Agricultural Labor has increased5 13. Production Growth has been Impressive 14. Production in 2012 as a Multiple of Production in 2003 252320151051.92.52.93Wet Season RiceDry Season RiceVegetablesMaize0Cassava 15. Impressive Production Growth Driven in Large Part by Growth ofCULTIVATED LAND 16. Contribution of Land and Yield to Production Growth (2003-2012) RiceWet Season Rice Land 37%Land 42% Yield 58%Dry Season Rice Yield 34%Yield 63%MaizeLand 66%VegetablesCassava Yield 16%Yield 24%Land 76%Land 37%Land 84%Yield 63% 17. Contribution to Rice Production in Vietnam (2000-2012) Land 3%Yield 97% 18. Farms Are becomingBIGGER 19. Average cultivated areas (ha) 2008 to 2012 9 8 7 6 5 4 3 21 0RiceCassava20082009Maize201020112012Vegetables 20. Reasons for the Increase in cultivated Land Access to Finance 15%Better Infra 38%RGC Policy 30%Agricultural Prices 17% 21. Large Farms become Larger Medium Farms become LargerSmall Farms become Smaller 22. Average Cultivated Land (ha) by Farm Group 8 7 6 5 43 2 10200820092010 SmallMedium2011 Large2012 23. Adoption of Modern Inputs has Increased 40353530302525 20 20 15 15 10105510 years ago Seeds5-10 years3-5 yearsInsecticides1-2 yearsHerbicides10 years ago5-10 years Urea3-5 years DAP1-2 years 24. Access of farmers to a variety of financial services has increased 25. 70% 60%70%Commercial BanksMFI60%50%50%40%40%30%30%20%20%10%10%0%0%> 6 yearsRice3-5 yearsCassavaMaize1-2 yearsVegetables70% 60%> 6 yearsCommunity Savings and Loans3-5 yearsRice 70% 60%50%Money Lenders30%20%Vegetables40%30%Maize50%40%Cassava1-2 years20%10%10%0% > 6 yearsRice3-5 yearsCassavaMaize1-2 yearsVegetables0%> 6 yearsRice3-5 yearsCassavaMaize1-2 yearsVegetables 26. Access of Farmers to Extension Services Improving 100% 90% 80% 70%60% 50% 40% 30%20% 10% 0% More than 10 years5 - 10 yearsRGC3-5 yearsNGOPrivate1-2 years 27. Farmer-to-farmer Communication the main Source of Information Source of Information about Inputs Herbicides Insecticides Fertilizer DAP Fetilizer Urea Manure - Compost Improved Seeds 0%10%RGC20%Private30%NGO40%Farmers50%60%FirmsSelf70%Seller80%90%100% 28. Farmers are not too convinced of the Benefits of Farmer Organizations Farmers Perceptions about Farmer OrganizationsVery helpful 48%Very little benefits 28%Can do better 24% 29. Use of Mechanization Services Increasing 40Tractor 35 30Power TillerIrrigation PumpReaperThresherCombine25 20 15 10 5 010 years ago5-10 years3-5 years1-2 years 30. Agricultural Labor Costs increasing Labor Cost in Rice Production ($/day) 5 4 3 2 1 020052013 31. The wage gap with non-farm sector is declining. Return to labor increasing fast. Ag Wage, Off-farm Wage, Return to Ag Labor ($/day) 7.00 6.004.00Growth = 240%Growth = 60%5.00Growth = 265%3.00 2.00 1.00 0.00Ag wageNon-farm wage 20052013Return to ag labor 32. Returns to Ag Labor compare favorably with Ag Wages and seem to increase with farm size Return to Labor ($/day) 40 35 30 25 2015 10 5 0 CassavaMaizeSmallWet Season RiceMediumLargeDry Season RiceOverallVegetables 33. Declining Labor Shares in Cost of Production 70% 60%59% 55%50% 43%40% 30%53%35% 32% 29%20%18%10%CassavaMaizeWet season rice 20052013Dry season rice 34. The Cambodian Farmer becoming a Manager? Labor and Service Shares in Cost of Production 201345%43%40% 35% 30%37% 34%32% 29%30%30%25% 20%18%15% 10% CassavaMaizeLabor %Wet season riceService %Dry season rice 35. What happened to farm profitability? 36. Profitability of Agriculture INCREASED in NOMINAL TermsNominal Margins ($/ha) 1600 1400 1200Average Increase = 65%1000800 600 400 200 0 Wet season riceDry season riceCassava 2005Maize 2013vegetablesTotal 37. Profitability of Agriculture STAGNANT in REAL Terms Margins deflated by CPI ($/ha) 1000 900Average Increase = 2.2%800 700 600 500 400 300200 100 0 Wet season riceDry season riceCassava 2005Maize 2013vegetablesTotal 38. Growth of AgricultureHIGHGrowth of InputsHIGHGrowth of OutputsHIGHGrowth of Profitability/ha Growth of Return to Ag Labor~ ZERO HIGH 39. DRIVERS OF PAST GROWTH 40. Drivers of Past Growth 1. Policy2. Investment 3. Incentives 41. Policy Relatively liberal economic environment Trade integration with the global economy, with ASEAN and GMS 42. Investment Improved connectivity to markets, technology, and finance Private sector investment and FDI 43. Incentives Higher food prices originating from world markets Increase in labor cost originating from migration of labor 44. The Questions about Past Drivers Werethese drivers effective in achieving past growth?YES Arethese drivers suitable to sustain growth in the future?NO 45. RISKS 46. Risks1.Sustainability of expansion of cultivated land 2.Increasing farm size and farmland distribution 3.Increasing scarcity and cost of agricultural labor 4.Stagnant farm profitability 5.Low value added and weak linkages between farmers and agroenterprises 6.High cost of irrigated water 47. 1234Land Expansion56 48. If Current Cultivated Land Expansion continue, cassava would be cultivated over almost 6 million ha! Cultivated Land 2022 - Scenario A Dry season rice, 953,020 , 9%Wet season rice, 3,221,498 , 30%Maize, 545,559 , 5%Vegetables, 114,627 , 1%Cassava, 5,901,177 , 55% 49. Likely Scenario: Moderate Increase of Total Cultivated Land and Diversification towards Upland Crops Cultivated Land 2012 Dry season rice, 495,465 , 14%Vegetables, 54,155 , 2%Cultivated Land 2022 - Scenario B Cassava, 337,800 , 9%Dry season rice, 619,140 , 13%Vegetables, 69,972 , 2% Cassava, 962,482 , 21%Maize, 215,442 , 6%Wet season rice, 2,484,832 , 69%Wet season rice, 2,711,504 , 58%Rice Cultivated Area: from 83% to 71%Maize, 296,512 , 6% 50. Diversification towards Upland Crops even more significant in terms of Total Margins Vegetables, 74 , 7% Dry season rice, 146 , 14%Total Margins ($ million) in 2022 Scenario BTotal Margins ($ million) in 2012 Cassava, 171 , 16%Vegetables, 95, 6% Cassava, 487, 32%Dry season rice, 183, 12% Maize, 65 , 6%Wet season rice, 609 , 57%Wet season rice, 664, 44%Maize, 90, 6%Rice as % of Total Margins: from 71% to 54%. Upland crops becoming as economically important as rice. 51. 12345Farm Land Distribution6 52. Total Margins in 2013 ($ mil)0%10%20%30%40% Small50%60%Medium70%80%90%100%Large80%90%100%Total Margins in 2022 ($ mil)0%10%20%30%40% Small50%60%MediumLarge70% 53. 123Labor456 54. Labor employed in agriculture will decline Labor in Crop Cultivation (million person days)-2040608010020222013120140160180 55. Strong labor productivity growth has to occur for return to ag labor to keep up with non-farm wages ($/day) Non-farm wages and Return to Ag Labor ($/day) 18161412108642020132022 Non-farm wageReturn to ag labor 56. 1234Farm Profitability56 57. Even small increases in unit margins imply large increase in profitability Total Margin ($ million)-2004006008002022 - Profitability increase 2%1,0001,2001,4001,6002022 - NO CHANGE in profitability1,800 20132,000 58. Modernization of Farmers Increases Profitability Increase in Gross Margins (%) 55y = 4.3x + 35.85045403530 00.511.522.533.5Annual Increase in Percentage of Modern Farms (%)44.5 59. 123Linkages456 60. Linkages among farmers (through farmer organizations) and with agribusiness (through contract farming) can increase profitability substantially Total Margins ($ million)-200400600Output price 10% higher8001,0001,200Input Price 10% lower1,4001,600Baseline 61. 123Irrigation456 62. Impacts of Irrigation Investment Annual % change in irrigated land0.0%1.0%2.0%3.0%4.0%Average yield (t/ha)3.1183.3353.5363.7213.892Total production (million tons)9,29110,80612,46214,27016,244Total Margins ($ million)756.1846.0944.31,051.61,168.7Return to labor ($/day)6.47.17.88.59.3 63. WHAT ABOUT THE COST OF IRRIGATION? 64. The Benefits of Irrigation depend on cost, O&M, yields, IRR (%) and Cost of Irrigation ($/ha)IRR (%) and Yield (ton/ha)40%16%35%14%30%12%25%10%20%8%15%6%10%4%5%y = 0.0155x2 - 0.1765x + 0.4985y = 0.036x + 0.00652% 0%0% 14002000300040004.3494.5664.7845.001 65. DRIVERS OF FUTURE GROWTH 66. Limitations of Past Approaches 1. Excessive reliance upon expansion of land and other inputs 2. Stagnant farm profitability 3. Ag labor productivity not keeping pace with off-farm wage 4. Weak linkages between farmers and agribusiness 5. More emphasis on irrigation investment and less on water use management 67. New Growth Drivers are Required 1.Total Factor Productivity 2. Agribusiness Development 68. 12Total Factor Productivity Growth 69. How do we get:Growth of Output > Growth in Inputs We o o o oneedKNOWLEDGE AND SKILLS INNOVATION EFFECTIVENESS EFFICIENCY Weneed Total Factor Productivity (TFP) growth 70. Drivers of Agricultural Productivity across Countries Agricultural Productivity Growth R&D Investment Total R&D Investment Public vs private investment International spilloverCapital Deepening Embodied technology in new investments and intermediate inputs Country specific characteristicsResource Reallocation Industry structural changes Deregulation and industrial reforms Increased average farm size Resource reallocation 71. Growth of Agricultural Output, TFP, and Inputs (1961-2007) 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5Northeast AsiaSoutheast AsiaOutput GrowthTFP GrowthSouth AsiaGrowth of InputHigh Income 72. ResearchInnovation ExtensionEducation and Skills 73. 12Agribusiness Development 74. Agribusiness Agriculture 75. Many micro and small agroenterprises poorly organized operating informally %Agribusiness Enterprises Large 15%Micro 22%Medium 21%Small 42% 76. Many agroenterprises generating little employment and value added 2011 Share of Turnover by Types of AgribusinessCrop Collectors 45%Rice Sellers 5%Processor 35%Input Suppliers 9% Machinery Sellers 6% 77. Underdeveloped Agribusiness SectorValue addedOff-farm employment in rural areasIncome of farmersFood safety for consumers 78. Agribusiness Development as Shared ProsperityValue addedOff-farm employment in rural areasIncome of farmersFood safety for consumers 79. Agribusiness Development requires strong Value Chain Linkages among Stakeholdersand Productive Partnerships to find Mutually Beneficial Solutions 80. Productive Partnerships for Mutual Benefit Smallholderfarmers: Better able to withstand the challenges of the global economy and more demanding consumers by linking with each other (eg cooperatives) or with agroenterprises (eg contract farming) Agroenterprises:Better able to assure supplies of consistent commodities to expand trade and processing. RuralLabor: Better able to find productive off-farm employment opportunities in the rural economy. 81. Through a combination of: 1. TFP Growth 2. Improved Value Chain Linkages 3. Productive Partnerships Farmers and enterprises can achieve competitiveness 82. CONCLUSIONS 83. KEY MESSAGE1Past drivers of growth will not be sufficient for a sustained and sustainable growth in the future. 84. KEY MESSAGE2Sustained and sustainable future growth will require: 1. Total factor productivity growth 2. Agribusiness Development