|Project Rationale and Linkage to Country/Regional Strategy
Development Context. During the last decade, Cambodia has achieved impressive economic growth with gross domestic products (GDP) averaging 10% per annum during the 2004-2010 period. Despite its declining GDP share from 46% in the 1990's to 34% in 2010, agriculture remains an important sector in the national economy. It is an important source of livelihood for 85% of the population. Paddy production covers 84% of cultivated land and contributes about 38% of agricultural value added or 13% of the national GDP in 2010. Paddy production has been crucial in creating employment and reducing the national poverty rate from 47% in 1993 to 30% in 2010. The Royal Government of Cambodia (RGC) set the annual GDP growth target of 7% and poverty reduction rate of 1% per annum from 2009 onwards. Given its significant share in the national GDP, rice continues to play a crucial role in enhancing macro-economic stability, food security, and poverty reduction. However, to achieve economic growth on a broader and sustainable basis, substantial constraints in rice value chain need to be removed.
Key binding constraints in rice commercialization observed include: (i) production is largely traditional and unorganized; (ii) value chains are weak and fragmented; (iii) agro-industry small and medium-sized enterprises (SME) are under-developed; (iv) intra- and inter-sector connectivity is limited particularly with energy, finance and transport constraining production and market access; and (v) domestic marketing standards are low and rice trading with regional and global markets is limited. These constraints are due largely to the lack of an enabling legal and/or regulatory environment for strengthening market linkages, productivity enhancement, organized production, and sustainable access to finance, among others. In terms of natural resources, while Cambodia is endowed with ample land and water resources favorable for paddy and other crop production, use efficiency of these resources is suboptimal due to limited capacity in agricultural land management and underinvestment in increasing total factor productivity. Therefore, it is critical for agricultural land to be managed efficiently and effectively by practicing sound agricultural land use zoning, soil productivity potential mapping, water use/irrigation efficiency management, and environmental and climate change risk/vulnerability mapping and management.
Innovative Features. The SDP is among the first initiatives in Southeast Asia that contemplates rice commercialization and simultaneously addresses resilience of its underlying agro-ecological system. As a matter of fact, the evolution and development of a commercial rice value chain will create pressure on natural resources which may cause degradation of the soil, loss of biodiversity or soil and/or water pollution. The SDP's interventions will increase resilience by promoting sound agricultural land use zoning, soil productivity potential mapping, water use/irrigation efficiency management, and environmental and climate change risk/vulnerability mapping. In this regard, the SDP, if implemented successfully, will be a role model for climate resilient cropping practices for rice in response to growing global food demand. Moreover, although the primary focus of the SDP will be on rice commercialization, the enabling legal, regulatory and institutional conditions put in place for rice will also create favorable conditions for the commercialization of other agricultural commodities. This will enable Cambodia to promote agricultural diversification and economic growth on a broader and sustainable basis.
Justifications for Adopting the SDP Modality. The proposed interventions include a policy reform component, an investment component, and an associated technical assistance. The SDP modality is preferred and proposed for the following reasons. Commercialization of rice that addresses resilience of its underlying agro-ecological system will entail adjustments in legal framework and relevant regulations coupled with institutional strengthening of relevant actors. While this is necessary, it will not be sufficient to unlock the potential of supply chain actors including private sector investors and individual households. Therefore, policy and regulatory reforms will have to be accompanied by well sequenced/timed investments that enhance factor productivity. In this regard, adopting the sector development program modality for the proposed interventions is not only desirable, but necessary. Moreover, the RGC is firmly committed to rice commercialization to enhance economic growth and food security. Significant adjustment costs are associated with its implementation.