VZCZCXRO9097
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #0364/01 1540809
ZNR UUUUU ZZH
P 030809Z JUN 09
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 0770
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH 0147
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS SECTION 01 OF 03 PHNOM PENH 000364 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS TO USTR--BISBEE 
BANGKOK FOR FCS--GRIFFIN GREENE 
HO CHI MINH CITY FOR FAS--WADE AND RIEDEL 
 
E.O. 12958:  N/A 
TAGS: EAGR EINV ETRD EAID CB
SUBJECT:  U.S. Companies Eye Opportunities in Cambodian Agriculture 
 
REFS: A) PHNOM PENH 276 
B)  PHNOM PENH 306 
C)  PHNOM PENH 285 
 
PHNOM PENH 00000364  001.2 OF 003 
 
 
SENSITIVE BUT UNCLASSIFIED. PROPRIETARY INFORMATION. 
¶1.  (SBU) SUMMARY:  As the effects of the global economic crisis hit 
Cambodia's other important growth sectors, the government is pinning 
its hopes on growth in the expanding agriculture sector to shelter 
Cambodians from the global downturn.  In an effort to support the 
government's growth initiatives while enhancing U.S. commercial 
interests, the Ambassador led a delegation of U.S. companies in a 
meeting with officials of the Cambodian Ministry of Agriculture, 
Forestry, and Fisheries (MAFF) to discuss Cambodia's interest in 
American Ag-sector products.  Most of the companies are relatively 
new to Cambodia and have complained of potential technical barriers 
to trade.  The meeting was all the more urgent as Cargill recently 
announced its withdrawal from Cambodia ostensibly due to economic 
conditions, but likely due in part to corruption-related issues 
within the government.  END SUMMARY. 
Cambodia's Important Agriculture Sector 
--------------------------------------- 
¶2.  (U) For years analysts have touted Cambodia's agriculture sector 
as the most obvious engine of growth for its economy.  An estimated 
80 percent of Cambodia's population lives in rural areas, and an 
estimated 58 percent directly participate in the agriculture sector, 
which comprises nearly 35 percent of GDP.  The sector has recently 
experienced steady growth rates, as high as 15 percent in 2005, and 
has become increasingly important as Cambodia's other industries 
face sharp declines due to the global economic slowdown (Ref A). 
However, Cambodia's agriculture sector remains relatively primitive 
compared to large neighboring countries, and possesses great 
potential for growth. 
Rice is King 
------------ 
¶3.  (U) Rice occupies a place of pride in the Cambodian psyche, and 
is planted in over 85 percent of all cultivated area.  Prime 
Minister Hun Sen has spoken optimistically of his vision for 
Cambodia to become the world's leading rice exporter.  Agriculture 
Minister Chan Sarun forecasts that Cambodia will export eight 
million tons of rice annually by 2015, a dramatic improvement from 
the three million tons currently expected by the government for this 
year, which would eventually place Cambodia very close to Thailand, 
the world's leading rice exporter, which currently exports 9.5 
million tons annually.  [NOTE:  While national rice production is in 
surplus, deficits exist throughout the country where farmers cannot 
produce enough for their own needs, as clearly demonstrated during 
the global rice crisis in late 2007/early 2008 (Ref B) and recent 
increases in the already high malnutrition numbers. END NOTE].  The 
Royal Government of Cambodia (RGC) hopes to continue to increase 
production by utilizing better seeds, fertilizer, and planting 
techniques, and by bringing more land under cultivation with the 
expansion of irrigation systems.  According to the UN Food and 
Agriculture Organization (FAO), only 16 percent of Cambodia's rice 
fields are irrigated, but these fields account for 40 percent of 
production.  Expansion of irrigation in cultivated areas will also 
allow for double-cropping, which remains relatively rare in Cambodia 
despite the widespread practice in neighboring countries. 
Cassava, Corn, and Rubber Cultivation Increasing Rapidly 
--------------------------------------------- ---------- 
¶4.  (U) While rice remains the crop of choice, other crops are 
quickly catching on.  The United Nations Development Program (UNDP) 
is helping Cambodia to diversify its agricultural production base 
and has identified cassava, rubber, corn, fishery products, cashew 
nuts, soybeans, livestock, silk, fruits, and vegetables as 
industries with potential.  Cassava has quickly become Cambodia's 
second most popular crop after rice.  According to MAFF statistics, 
the 2008 cassava yield exceeded three million tons, a substantial 
increase from slightly over 140,000 tons in 2001.  Two processing 
facilities have been established in Phnom Penh and Kampong Cham with 
capacity to process one million tons of cassava, leaving two million 
tons for export. 
¶5.  (U) Corn follows cassava as the third most popular crop, nearly 
80 percent of which is produced near the borders with Thailand, with 
the rest in provinces bordering Vietnam.  According to official MAFF 
statistics, Cambodia has over 160,000 hectares of land under corn 
cultivation, and production is estimated at 612,000 tons in 2008, 
more than 600 times 1999 production. 
¶6.  (U) Rubber production is also quickly expanding, with nearly 
108,000 hectares cultivated in 2008, up 31 percent from 2007.  The 
government hopes to have 150,000 hectares of rubber cultivated by 
¶2015.  The Cambodian rubber industry recently achieved a major 
milestone through recognition of Cambodian certification by the 
International Rubber Association, validating the quality of 
Cambodian rubber to international buyers.  This recognition is 
expected to increase the value of Cambodian rubber exports, making 
 
PHNOM PENH 00000364  002.2 OF 003 
 
 
rubber an increasingly attractive investment for farmers or foreign 
investors.  Seizing this opportunity, the Khao Chuly Group, a 
diversified Cambodian business conglomerate which also distributes 
GE industrial products in Cambodia, recently signed a deal with 
French company Socfin to invest USD 100 million to plant 20,000 
hectares of rubber trees by 2010 through economic land concessions 
granted by the government. [NOTE:  At least one of Khao Chuly's 
concessions has generated controversy at the provincial level.  For 
further information on land concessions see Ref C.  END NOTE]. 
U.S. Companies may be able to Transform Agriculture 
--------------------------------------------- ------ 
¶7.  (U) MAFF Secretary of State Chan Tong Yves told a U.S. 
agriculture delegation, including representatives of U.S. companies 
Dupont, Fort Dodge Animal Health, General Electric, John Deere and 
Monsanto, that "agriculture is the backbone of the economy which 
needs to be strong in order to support the rest of the body."  He 
conceded that agriculture is Cambodia's "social safety net" that 
serves as a means of livelihood for those who cannot find work in 
the cities, a thought reflected in Prime Minister Hun Sen's calls 
for unemployed urban workers to return to agriculture in the face of 
job losses caused by the global economic crisis.  According to Chan 
Tong Yves, Cambodia's agriculture strategy seeks to reduce poverty 
and develop Cambodia's export capacity by focusing on improving 
productivity and diversifying production. 
¶8.  (U) Analysts agree that American products have the potential to 
improve significantly Cambodian agricultural diversity and 
productivity by providing better inputs and practices.  Despite 
years of high economic growth in Cambodia, many U.S. companies only 
recently have become interested in opportunities here, and U.S. 
agriculture companies have begun to explore opportunities in the 
Cambodian market. 
¶9.  (SBU) Five U.S. companies participated in an Embassy-led 
initiative to promote greater American engagement in Cambodia's 
agriculture sector.  All of the participants in the MAFF meeting 
were new to Cambodia's agriculture sector and exploring 
opportunities, except for John Deere, which has been distributed in 
Cambodia for many years.  General Electric and Dupont opened offices 
in Cambodia within the last year.  Fort Dodge Animal Health, a 
division of Wyeth, and Monsanto executives flew in from regional 
locations specifically to attend the meeting and explore 
opportunities for further engagement in the agriculture sector. 
¶10.  (SBU) Dupont and Monsanto are promoting hybrid corn seeds, and 
weed and insect control.  Their hybrid seeds can increase corn 
yields up to four times over conventional seeds, and they both see 
great promise for increased cultivation of corn.  Secretary of State 
Chan Tong Yves suggested their herbicides and pesticides be used on 
Cambodia's rubber plantations.  Fort Dodge Animal Health, the 
largest vaccine seller in North America, promotes vaccines; they 
foresee the small-holder Cambodian livestock industry intensifying 
in the coming years.  John Deere distributes tractors in Cambodia 
that they hope will displace the water buffalo as a more efficient 
means to till the land.  GE hopes to introduce their biomass/biogas 
generators that can produce electricity with organic waste.  GE's 
Alfred Buchner said Cambodia was a veritable "gold mine" because of 
the prevalence of unutilized agricultural waste that can be 
transformed into much needed electricity to power village homes, 
producing a byproduct that can be reintroduced into the fields. 
U.S. Participation Limited by Corruption 
---------------------------------------- 
¶11.  (SBU) Cambodia suffers from endemic corruption, a major barrier 
for many American Companies. While the MAFF meeting was intended to 
provide a formal introduction by the U.S. Ambassador of U.S. 
companies to senior MAFF officials, and present the myriad 
productivity improvements U.S. products can provide Cambodia's 
agriculture sector, an underlying goal was to raise issues of 
corruption that most of the companies have experienced in their 
efforts to become more involved in the sector. 
¶12.  (SBU) All seeds, pesticides, and herbicides must be registered 
with the MAFF before legally entering the Cambodian market. 
Cargill, Dupont, Fort Dodge, and Monsanto have all reported 
difficulties in registering their products with MAFF in a 
transparent manner.   Registration is a requirement for distribution 
of these products. [NOTE:  Some of these companies reported that 
their products have entered Cambodia indirectly through other 
distribution networks, but many cannot enter formally because of 
registration issues.  END NOTE]. 
¶13.  (SBU) Cargill provides a good example of a pioneering American 
company that began to engage Cambodia, only to depart quickly upon 
experiencing the prevailing business environment.  Only a few weeks 
after a glitzy product launch to Cambodian farmers and product 
distributors for their pig feed, Cargill abruptly withdrew from 
Cambodia, ostensibly due to the lack of a market.  However, the 
Managing Director of Cargill Vietnam, which also has responsibility 
for Cambodia, told EconOff with palpable disappointment that in 
order to register their products with the MAFF, Cargill was asked to 
 
PHNOM PENH 00000364  003.2 OF 003 
 
 
deposit funds into the personal account of an MAFF official, a story 
corroborated by Fort Dodge Animal Health, which had a similar 
experience when trying to register their vaccines.  Fort Dodge 
lamented that they would already have someone resident in Cambodia 
if they had not run into corruption barriers. 
MAFF Dodges Corruption Questions, Requests Assistance 
--------------------------------------------- -------- 
¶14.  (SBU) When directly confronted with a number of U.S. companies 
complaining about non-transparency and excessive bureaucracy in the 
registration process -- with the Ambassador  pointing out that 
Cambodia's agriculture industry is more regulated than Vietnam's or 
Thailand's -- Secretary of State Chan Tong Yves could say only that 
Cambodia is making efforts "to improve year-to-year," noting that 
this year they are working to streamline the registration process 
for forestry products, from five steps to three steps.  He offered a 
common excuse:  the Ministry is slow to register products in part 
due to lack of technical capacity.  Ambassador Rodley quickly 
volunteered USG assistance in a seminar on technical aspects of 
product registration, which the MAFF officials welcomed.  After the 
meeting, Fort Dodge noted that other vaccines from Laos, Vietnam, 
and India were already registered and promoted by MAFF, which led to 
his rhetorical question how those smaller companies were able to 
register their products and Fort Dodge, the world's fifth largest 
vaccine seller with over $1 billion turnover, is experiencing such 
difficulties.  The Director of MAFF's Animal Production Department, 
with which Fort Dodge has formerly dealt, said that an exhibition of 
products would be helpful, a strategy Dupont has followed in 
cooperation with another MAFF Department (with limited success thus 
far), but one that Fort Dodge seems keen to follow in a long-term 
effort formally to enter the market. 
Plans for Assistance to Address Ag Sector Needs 
--------------------------------------------- -- 
¶15.  (SBU) Donors, the USG, and the private sector are attempting to 
work cooperatively to convince the Cambodian Government of the 
benefits of modernizing their public administration system, which 
will open the door to the rapid modernization of the agriculture 
sector. However, more needs to be done.  In August 2009, AID will 
conduct an assessment of Cambodia's agriculture sector.  This 
assessment will inform the design of a four - to five - year 
agriculture program that will begin implementation by the end of FY 
¶2010.  Cambodia's agriculture sector is constrained by inter alia, 
the poor use of fertilizers, limited access to improved technologies 
and practices, weak irrigation systems and rural roads, limited 
access to credit, and a lack of research and development.   To 
address these impediments USAID will consider activities that 
improve access to agricultural inputs, use bio - and agricultural 
technology, increase agricultural services, improve post-harvest 
management and technology, and lead to more efficient resource 
management in order to boost Cambodia's agricultural yields for both 
domestic consumption and export markets.  Investments in improved 
technical practices as well as assistance with 
sanitary/phytosanitary measures will help Cambodia compete in the 
global economy. 
¶16.  (SBU) COMMENT:  It is unsurprising that many Cambodian farmers 
continue farming in the same manner as their ancient ancestors. 
Starting from the "year zero" base imposed on the Cambodian people 
by the murderous Khmer Rouge, many modern technologies have since 
been hindered from entering the market.  U.S. companies can provide 
better products and technologies that can significantly contribute 
to Cambodia's agricultural productivity and diversification if 
allowed to participate freely in the market.  Post hopes to develop 
a strategic framework to identify and understand market access 
problems, points of engagement in the government to address them, 
and where the Embassy can best use its influence to make inroads. 
RODLEY