EXPORT DEVELOPMENT OF ESSENTIAL OILS

AND SPICES BY CAMBODIA

Update on Dec 26, 2003

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SUMMARY

This report provides an evaluation of the potential for Cambodia to enter as an exporter into the international market for essential oils and spices and identifies the next steps in the development pathway.

For both commodity groups, competition exists between existing suppliers on the basis of product price, product quality and standards of trading service. However, these conditions do not preclude successful market entry by Cambodia with carefully selected commodities. The keys to success are:

• Aiming at the capture of a modest market share of a large-scale international trade, where market access is relatively easy.
• Selecting commodities that do not pose great difficulties in the acquisition of technical skills for the production of an acceptable quality.
• Taking advantage of Cambodia’s perceived comparative advantages, especially those of low agricultural labour costs, under-utilized farmland and a keen farmer interest in adopting new cash income generating crops.

Essential Oils

Two essential oils are currently produced in Cambodia, cajeput and tea tree, but market conditions do not favour their further development in the short term. Instead, better immediate prospects and benefits would accrue with the following three oils:

• Lemongrass – a well known crop in Cambodia is that currently used for culinary purposes.
• Citronella – a close botanical relative of lemongrass.
• Eucalyptus citriodora – a fast growing tree whose leaf provides an oil on distillation, while the harvested branches furnish a valuable fuel wood supply.

In the medium-term (5-8 years), Cambodia should readily capture a market share with these three oils, valued at around US$0.5 million / year in export earnings. At this scale of output, the benefits in the rural sector would equate to bringing over 700 ha of land into productive use and creating about 3,800 new job opportunities, especially for women and in more remote areas that encounter problems in marketing perishable or low-value / high-volume products. Fair prospects exist to increase exports several fold above this target level, particularly with citronella and E. citriodora oils.

It is necessary, however, to recognize that constraints exist in achieving this aim. Specifically, knowledge of essential oil production and marketing is sorely missing in Cambodia and, also, resource limitations within the Ministries of Commerce and Agriculture preclude their bridging this gap in the short term. Additionally, investment capital in the agricultural sector is in short supply.

In order overcome these barriers to establishing a new industry, the most appropriate approach would be to obtain support from donors for a pilot-project, which is compatible with the ‘Enterprise Incubator’ concept. Of necessity, the pilot-project would have to be private sector led, but the Ministries of Commerce and Agriculture would be expected to contribute as much assistance as their resources permit (and, in the course of the project, both Ministries would usefully gain knowledge and capability for future involvement in this sector).

This report presents a costed plan for a three-year pilot-project to develop the commercial production and export of the three selected oils. It would involve the establishment of cultivation and 10 minimum-scale commercial distilleries with medium-sized farmers. The target for production would be an output of 5 tonnes each of lemongrass and citronella oils and 15 tonnes of E. citriodora oil in the third year of the project; quantities sufficient to stimulate the serious long-term interest of overseas buyers.

The pilot-project would require the cultivation of around 200 ha of land by the participating farmers and donor financing of up to US$300,000 for equipment and operational costs.

At the end of the project’s duration, new employment - spanning much of each year - will be have been created for 900 people and the recurring annual foreign exchange earnings through export would average US$140,000 without further expansion of production.

It may be expected that the industry will expand after completion of the pilot-project through other medium-size farmers and some entrepreneurs emulating the established model. In this phase, smallholders would become increasingly involved as contract suppliers of raw material for distilleries.

Spices

Opportunities are perceived to exist over the medium term for Cambodia to export 10,000(+) tonnes of black pepper and, possibly, significant quantities of ginger, turmeric and chillies. All four spices are grown already in Cambodia and black pepper is presently undergoing a spontaneous expansion of cultivation in the southern provinces.

However, the absence of a reliable knowledge base on the scale, structure and challenges of the existing spice industry prevents the immediate formulation of an export-oriented development plan.

This report specifies the requirements for a spice sector survey by national consultants (estimated to cost up to US$30,000). Upon creation of this database, the next step would be a thorough evaluation of the industry and its development needs by an international spice consultant.

This approach would permit the formulation a well-defined development project which could be submitted to donors for funding.                                                               Top