Milled rice export to EU expected to increase

Cambodia is in high hope of seeing the amount of milled rice export to the European Union increase after the import tariff on the country's rice was revoked.

The EU market accounted for more than 50 percent of Cambodia's total milled rice export in 2016 and this amount dropped sharply to around 20 percent last year, mainly due to the import tariff on Cambodia's long-grain white rice.

High hopes to grain shares of rice export in the EU come as the bloc's three-year temporary measure - import tariff came to an end on January 19.

Rice exports to the EU will gradually increase from this year, said Song Saran, president of the Cambodia Rice Federation, a clan of rice millers and exporting companies, yesterday.

The rice body encourages its members and farmers to produce fragrant rice and high-quality rice as import tariffs were removed in the EU, Saran said.

"We expect the milled rice export to the EU to increase, but it is not in a high pact of growth because we focus on export of fragrant rice and premium high-quality rice," Saran said.

Cambodia would spend several years pushing the amount of milled rice to reach the amount of 300,000 tons registered in 2019, he said.

The EU imposed import tariffs under the safeguard scheme as a temporary measure to help protect farmers from competitively priced long-grain rice, with exporters in Cambodia and Myanmar having benefited from tariff-free status under the EU's Everything But Arms (EBA) scheme.

Under the tariff, exporters are subject to pay \(\$198\) per metric tonne in the first year, \(\$170\) and \(\$142\) per metric tonne in the second and third year, respectively.

Figures from the Ministry of Agriculture, Forestry, and Fisheries showed that Cambodia exports only some over 140,000 tonnes to the EU while more than 300,000 tonnes to China, the biggest market of Cambodia's milled rice.

"We expect to see an increase by 10 percent and constantly in the same beat until the amount of rice export reaches about 25 to 300,000 tonnes as before, and what we want is 300,000 tons per year export to the EU," he said.

CRF plans to promote and guide farmers to produce fragrant rice and premium quality rice for export, rather than a lower price rice grain, Saran said, promoting in markets abroad is another task the CRF would take to promote the country's rice name in international markets.

Exports of Cambodian milled rice are expected to increase after the tariff imposed on imports of the commodity by the EU was removed in January 2022. A tariff is a type of trade protection, in the form of a tax, imposed on imported goods with the purpose, among others, of protecting domestic producers. In this case, the tariff was imposed under a three-year "safeguard" measure, in order to protect domestic farmers in the EU from competitive prices of Cambodian milled rice, consequently improving their economic well-being.

Economic well-being refers to the present and financial security of an economy. In this instance, it can be accounted for in terms of increased domestic production and revenue leading to further improvements in the domestic economy of the EU milled rice industry. This commentary focuses, however, on the effects of the successive removal of the tariff, illustrated by the diagram below.

Assuming the Scam curve is the total supply of the Cambodian milled rice production exported to the EU, and the Pcam is the price paid for by EU domestic consumers on imported Cambodian rice; before the first tariff being imposed, the EU domestic rice market enjoyed free trade (no form of intervention), and domestic consumers imported Q2-Q1 of Cambodia's rice. However, the imposition of the tariff for the first year caused an upward shift in the Scam curve from Scam to Scam + tariff 1. Meaning EU's domestic consumers' imports of Cambodian rice decreased from Q1-Q2 to Q3-Q4 and increased domestic production from Q1 to Q3, receiving a higher price of PCAM + tariff 1.

Cambodian's export of 300,000 tonnes of rice decreased from Q1-Q2 to approximately 140,000 tonnes from Q3-Q4, as the price of exports increased to PCAM + tariff 1. After the first imposition of the tariff of \(\$198\) per metric tonne, each following year, the amount of the tax decreased to \(\$170\) to \(\$142\), resulting in consecutive downward shifts in the SCAM + tariff curves, finally reaching the SCAM curve at the price of PCAM when the tariff was completely removed.

After the tariff removal, the economic well-being of farmers in the EU worsened, as they received less revenue resulting from the decrease in price from PCAM + tariff 1 to PCAM. Farmers who are at a comparative disadvantage to foreign exporters (such as Cambodia) are forced to close down and leave the market as they no longer can carry on producing high quantities at high prices. Domestic consumers, however, benefit, due to the disinflation of the high prices, increasing their purchasing power, enabling them to purchase up to Q2 of the goods for the price of PCAM. This may lead to a more even distribution of income in the sector, as citizens of lower-income, are not so heavily impacted by the higher price as compared to high-income earners.

The economic wellbeing of Cambodia's domestic farmers improves, as they can now export Q1-Q2 of rice, instead of Q3-Q4, gaining higher revenues. This encourages higher efficiency in the production of rice, possibly increasing the employment of labor in the rice industry. However, according to the article, the Cambodian Rice Federation (CRF) "... encourages its members and farmers to produce fragrant rice and high-quality rice as import tariffs were removed". They claim to expect a slower increase of exports in the short run, indicating that the country is seeking to specialize their product in order to "... promote the country's rice name in international markets...". Bringing future long-run benefits to the economic well-being of the country's domestic economy of the rice market.

Specialization is an opportunity for Cambodian farmers to achieve economies of scale, meaning their average costs per metric tonne of rice for example, decreases as their production increases due to the efficiency encouraged by the removal of the tariff. In the short run, this could lead Cambodian farmers to export less, from Q5-Q6 or Q7-Q8, to in the long run achieve the quantity of 300000 tones from Q1-Q2, that they originally exported to the EU prior to the safeguard scheme being implemented.

On the other hand, encouraging the refinement of Cambodian rice can be expensive and time-consuming, and domestic farmers may choose to simply supply the current rice and ignore the long-run future benefits. This can instead harm the economic well-being as farmers will attempt to maximize profits, by decreasing costs of production, which could involve a decrease in employment in the industry as well as poorer rice quality due to cheaper production. This can, in the long run, reduce the quantity demanded of Cambodian rice in the EU. The domestic consumers might also decrease consumption of the good, and demand foreign, higher quality rice from abroad, harming the economic well-being of domestic farmers in the form of lower production revenues, possibly placing them at a comparative disadvantage to foreign rice producers.