Working Paper   60

Foreign Investment in Agriculture in Cambodia

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Abstract/Summary

The noticeable rise in foreign direct investment (FDI) in agricultural land in developing countries in Africa, South and Central Asia and Latin America in recent years has sparked concerns among civil society groups and international organisations as to the potential impacts on poor local communities’ access to resources. Growing interest from foreign investors in agriculture in Cambodia, particularly in agro-industrial crops like rubber, cassava, sugarcane and maize, has likewise raised concern about the potential effects of such investments on community livelihoods, the environment and national food security.

 

Agriculture has traditionally been a steady contributor to the national economy, employing a significant proportion of the rural workforce and generating substantial foreign exchange earnings. Now in its fourth legislature, the Cambodian government is focussing even more strongly on promoting the sector by relaxing taxes related to agricultural products and developing rural infrastructure such as roads and irrigation. New measures have been taken to help people in local communities, including the removal of big fishing lots from private ownership which allows local communities better access to fishery resources without having to fish in deeper waters or further from the riverbank.

 

The government has also undertaken forestry reform to facilitate investment in forestry and crops through the establishment of legislation on concessions, forestry community formation and environmental protection. The Sub-decree on Economic Land Concessions (ELC), adopted in 2005, helps in the granting of land concessions to foreign and local investors to exploit unused and/or infertile land.

 

Laws relating to sanitary and phyto-sanitary issues and animal health have been enacted to control livestock production, prevent losses and contain disease. Through the Ministry of Agriculture, Forestry and Fisheries (MAFF), the government recently prohibited the import of livestock from neighbouring countries to prevent the spread of swine flu and reduce the risk of animal disease pandemics.

 

Meanwhile, the government, with the support of development partners, has provided technical assistance to rural people engaged in rice farming, fisheries (aquaculture) and livestock production. It has also renewed efforts to improve the irrigation system so as to reduce farmers’ dependency on rain, particularly in rice production, and bolster resilience to climate change.

 

As the agriculture sector is one of the main drivers of economic growth in Cambodia, a market mechanism has been set up to promote trade and channel agricultural products to local and international markets. To help the sector become more competitive, soft infrastructure related to rules and regulations, bureaucratic procedures and costs of doing business has been improved. Attracting investment in the energy sector is also deemed important, as the price of electricity in Cambodia is still high compared to other countries in the region.

 

The share of agricultural investment in total investment is small, averaging around 6 percent between 2000 and June 2010, despite the growing interest during this period from investors from countries such as Thailand, China, Vietnam, Korea, Singapore, Japan, Malaysia, Canada, America, India, France, the UK, the USA and Denmark. Investors engage mainly in crops, namely rubber, cassava, maize, sugarcane and cashew nuts, and forestry, such as teak and acacia. The dramatic rise in interest in recent years has triggered concern from various stakeholders as to the potential effects of foreign ELC projects on community livelihoods, local environment quality and national food security.

 

Preliminary examination using data from the Council for the Development of Cambodia (CDC) and MAFF shows both positive and adverse effects from FDI projects. Some projects have created significant employment for local communities; others, however, have not. Notably, land conflict resulting from a weak land tenure system and limited consultation with local communities prior to the granting of ELC projects has become commonplace. Moreover, some projects that entail forest clearance have eliminated vital sources of traditional community environmental income from the collection of non-timber forest products, such as vines, wood resin, bamboo and rattan, and hunting. Furthermore, the filling in of streams by some ELC companies could lead to water shortages. Overall, from the investigation of the selected projects it appears that costs of FDI projects tend to outweigh the benefits.

 

With a rapidly expanding population and increasingly limited land, food security is another cause behind the growing concern in Cambodia. From our analysis of CDC (2000–09) and MAFF (1995-09) data on ELC investments and preliminary fieldwork on a number of FDI projects, and despite the traditional widespread informal paddy rice export to Thailand and Vietnam, we find that Cambodia will not suffer from food insecurity in the short and medium term. Nevertheless, in the long term, land use conflicts, water shortages and disappearing income sources compounded by the dramatic expansion in ELC investment in recent years could lead to a decline in household food consumption and a reduction in nutrition. Particularly at risk are subsistence farming households and those that cannot earn enough from growing rice, such as in Kraya commune in Kompong Thom province.  




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