Ung Kim Oan

Indonesia’s recent plan to acquire Cambodian rice companies marks a significant milestone for both nations. As Cambodia’s rice industry continues to attract substantial foreign investment and undergo strategic transformations, understanding the implications and opportunities of these changes is crucial. 

This interview delves into these dynamics with Chhay Bora, Cambodian managing director at strategic advisory firm BowerGroupAsia. With expertise in government affairs and public policy, as well as in advising multinational companies on strategic business initiatives in Cambodia, Bora provides valuable insights into how foreign acquisitions, regulatory frameworks and export strategies are shaping the future of Cambodia's rice sector. Explore the potential of this vital industry with us.

How will the acquisition of Cambodian rice producers by an Indonesian state-owned company benefit both countries strategically?

The acquisition of Cambodian rice producers by an Indonesian state-owned company is certainly a strategic move. It not only supports Indonesia’s efforts to sustain its rice supply but also enhances national food security by maintaining regulated rice stocks. Furthermore, the company may establish itself as a producer of high-quality rice for export. It will also benefit from the Cambodian government’s continuous efforts to diversify markets for milled rice exports, in addition to Cambodia’s existing bilateral and multilateral free trade agreements with several countries including China and South Korea, as well as the comprehensive economic partnership agreement with the United Arab Emirates. This is in addition to the Regional Comprehensive Economic Partnership, regional and ASEAN-based multilateral accords and access to the EU market. The acquisition could result in either a 100 per cent buyout or a joint venture stake with Cambodian producers.

What are the key policies and regulations in Cambodia that attract foreign direct investment, particularly in sectors like agriculture and rice production? 

Investors face no restrictions and are treated in a nondiscriminatory manner, with the exception of land ownership. The Cambodian government permits 100 per cent foreign ownership across various economic sectors. This includes agriculture and agro-processing and, thus by extension, rice production. The government also offers several investment incentives to attract foreign capital. Foreign investors are encouraged to invest through qualified investment projects, which provide significant tax holidays and exemptions. However, ownership of land for the purpose of conducting promoted investment activities is reserved exclusively for individuals holding Cambodian citizenship or legal entities in which more than 51 per cent of equity capital is directly owned by Cambodian citizens or legal entities.

How do Cambodia's rice production dynamics and its export agreements with trading partners including China and Indonesia influence its strategic goals for rice exports?

Cambodia does not impose any restrictions on the volume of rice exports. According to figures from the Cambodia Rice Federation, the country produced more than 12.6 million tonnes of paddy rice, or more than 7 million tonnes of milled rice in 2023. This resulted in a surplus of 6 million tonnes of paddy rice available for export, the equivalent of 3 million tonnes of milled rice. With this surplus, Cambodia has the capacity to export between 4 and 4.5 million tonnes of paddy rice each year. It is important to note that China signed a memorandum of understanding with Cambodia for the import of 200,000 tonnes of milled rice per year, with plans to increase this amount to 400,000 tonnes from 2024 onward. Indonesia also signed a memorandum of understanding with Cambodia for the import of one million tonnes of milled rice from 2024-2028. If demand increases in Indonesia, the Indonesian state-owned company should negotiate with the Cambodian government to gradually ramp up exports.   The Cambodian government aims to increase the export of milled rice from 700,000 tonnes to one million tonnes by 2025. At the same time, the government is promoting the production of unique rice varieties that are distinguished by geographic indications and standards-based production methods, such as organic, low-carbon-emission, wildlife-friendly and deforestation-free practices. The government is also developing strategies to expand and diversify its rice market from 2024-2030, aiming to boost exports of Cambodian milled rice to the global market.

What are the primary countries involved in foreign investments in Cambodia's rice industry, and what impact do these investments have on the sector?

Data regarding foreign acquisitions of Cambodian rice companies is sparse, but there has been notable involvement by Chinese investors. Chinese companies have been particularly active in Cambodia’s rice sector, forming business deals and partnerships. Chinese enterprises funneled more than $3 billion into Cambodia in 2023, dedicating a considerable amount to agricultural ventures, including rice production. Indonesian state-owned company Bulog has also taken an interest in Cambodia’s rice industry. Companies from France, Israel, Singapore, Thailand, Europe and the US have also invested, although on a smaller scale. Although details on acquisition volumes are scarce, the impact of foreign investment on the industry’s expansion and modernisation is undeniable.

What are the anticipated benefits and potential challenges of foreign acquisitions on Cambodia's rice industry in terms of productivity, quality and competitiveness?

Foreign acquisition plans are not expected to have a negative impact on Cambodia’s rice supply and trade in the future. Instead, these plans could help diversify and modernise the Cambodian milled rice industry, leading to higher productivity inputs, the increased production of high-quality rice and enhanced competitiveness. Given its abundance of paddy rice, Cambodia remains an attractive destination for foreign investors looking to establish milled rice operations for the international market.

Earlier, you mentioned that land ownership in Cambodia is permitted for Cambodian citizens, but not foreigners. What alternatives are available for foreign investors like Bulog to effectively utilise farmland in Cambodia for long-term paddy rice and milled rice production for export?

Foreigners cannot buy, own or sell land in Cambodia; only Cambodian citizens are allowed to do so. However, foreign investors can obtain concessional land through long-term leases from the Cambodian government. Alternatively, in a joint venture, Bulog could sign a deal with trusted local partners to purchase farmland through entities that are 51 per cent Cambodian owned. As another option, Bulog could engage in contract farming.

This interview has been edited for brevity and clarity.