Cambodia’s agriculture sector amid COVID-19

Agriculture has been considered as the backbone of the national economy. Of the total population, 76% were living in rural areas and agriculture provided 31.2% of total employment and contributed 20.7% to Gross Domestic Product (GDP) in 2019.¹ However, the global pandemic caused by COVID-19 has made the world economy including the Cambodian economy move backward. Cambodia is suffering the worst economic impacts from COVID-19 of all ASEAN member states, comparing the percentage of economic loss in terms of total GDP.² According to the ADB report, Cambodia will experience a loss of more than US$ 390 million, which is equivalent to 1.15% of the country’s GDP.³

The picture of Cambodian paddy field near Choeung Ek (the Killing Fields) outside Phnom Penh. Picture: Alan Morgan. Taken on 19 October 2003. Licensed under CC BY-NC-ND 2.0.

The outbreak of the virus has frustrated some key pillars of the national economy such as the tourism sector. The pandemic has caused a sharp decline in local and international tourists. Manufacturing production for exports has also suffered from global demand and supply shocks, while the construction sector has experienced a decline in investments.⁴ In 2019, these three sectors contributed more than 70% of national economic growth and created about 40% of total employment.⁵ The dramatic decline in these economic engines has put Cambodia’s economy on its knees, with a negative growth rate -2.9%, the lowest growth rate since 1994.⁶

COVID-19 does not seem to have had as severe an impact on Cambodia’s agricultural sector, however. The pandemic, instead, has provided an opportunity for the agricultural sector to increase production to meet the sharply increasing demand for agricultural products in the markets, and to make up for decreasing imports of agricultural products from neighboring countries.⁷

The agricultural sector is considered by the Royal Government of Cambodia to be the only sector that has not been severely affected by the storm of the COVID-19 pandemic. Among all the agricultural products, rice is the most important, contributing almost half of the entire agricultural sector’s contribution to GDP,⁸ and rice exports are growing rapidly due to an increase​ in overseas demand. In the first nine months of 2020, Cambodia’s rice exports to international markets increased by 38.3% compared to the same time in the previous year, reaching 0.48 million tons.⁹

The agricultural sector is less affected but remains weak and it cannot offset the job losses in the tourism sector. COVID-19 has severely affected the services sector, especially the hospitality, tourism, and industry sectors which employ 620,000 people.¹⁰​ Although the health of Cambodian farmers was less directly affected by COVID-19, there were still challenges facing the farming economy.¹¹ Due to the limited development of agricultural markets and the fall in harvest prices, some farmers have had difficulty repaying debts from microfinance institutions and some have been forced to sell their land or sell their products cheaply to pay off their debts, while 29.2% have taken out new loans to pay off old debts.¹² According to the World Farmers’ Organization (WFO), during the COVID-19 period, poor farmers faced challenges in allocating income to buy health products, coupled with fewer brokers and a lack of transportation to take agricultural products to markets.¹³

Another effect of COVID-19 is border restrictions or closures and their impact on supplies in the market. According to one rapid assessment of the impact of the COVID-19 outbreak on agriculture and food security in Cambodia, the supply of agricultural products in the market has declined due to import restrictions.¹⁴ In 2020, the domestic vegetable supply was expected to meet only 68% of the local demand, the local meat supply to meet about 82% of the local demand, while the domestic supply of fish and rice meets domestic demand and there is surplus for export.¹⁵

The flow of foreign direct investment (FDI), public investments and private investments in the agriculture sector has increased due to the increasing focus on agricultural development and diversification. Cambodia has achieved little in transforming basic agricultural products, fish and livestock into high value-added products, however, due to some shortages and procrastination in using modern agricultural technologies such as irrigation.¹⁶ Loans in the agricultural sector increased due to the increased demand for agricultural products during the COVID-19 period, despite a slowdown in overall credit growth. In the first seven months of 2021, FDI in agriculture including agro-industry reached US$ 100 million, up from US$ 34 million in the same period in 2019.¹⁷

The agricultural sector is expected to recover to offset the reduction in agricultural products imported from neighboring countries. The Royal Government of Cambodian (RGC) recently stated that there is an opportunity for the agriculture sector to recover as the industry and service sectors are facing deterioration due to the pandemic.¹⁸ The government has launched numerous measures and policies to support the agriculture sector in the context of COVID-19. In early 2020, the government urged all stakeholders, especially the Ministry of Agriculture, Forestry, and Fisheries to boost agricultural productivity​ and support the economy. The government instructed financial institutions to delay and restructure loans for farmers to allow them to buy other agricultural inputs to support their production.¹⁹ 

The Cambodia-China Free Trade Agreement (FTA), expected to enter into force in 2021, will be the first bilateral free-trade agreement (FTA) Cambodia has with China, already the country’s most important trading partner.²⁰ Most of Cambodia’s exports to China are ordinary agricultural products or low value-added products. For instance, the natural animal leathers and artificial furs, the largest exports to China, accounted for 25% and rice, the third largest export, accounts for 15.4%.²¹ With the framework of this FTA, Cambodia expects to exchange technology and develop agricultural techniques.²² 

On top of the government’s response, say industry observers, the government needs to:

• further promote the sharing of agricultural techniques, seeds, fertilizers and pesticides
• invest more in irrigation and infrastructure
• provide subsidies including loans and grants to ensure the sustainability of production processes and market supply so as to respond to market demand
• strengthen the movement “one village one product” and ensure that agricultural products have markets.

This will help reduce the negative impact of COVID-19 on the economy.²³

Overall, Cambodia’s agricultural sector is the only economic pillar that has shown that it can withstand the storms of the global COVID-19 pandemic. The sector had positive growth of 1.5% in 2020, while the other three pillars of Cambodia’s economy – export production (mainly textiles), tourism, and construction – have all been badly affected by supply and demand shocks.²⁴ COVID-19 has provided some opportunities for Cambodia’s agricultural sector to increase its production with strong domestic demand and a reduction of agricultural imports from neighboring countries.²⁵

Blog is written by: Mr. Than Davit, ODC Research Intern.