Cambodia Silk Industry Overview
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TAKAKNEARY SENG
Sentosasilk Enterprise
Cambodia
Sericulture has a long history in Cambodia going back to the 13th century when villagers started breeding silkworms along the banks of the Mekong and Bassac Rivers. For centuries, Cambodia was renowned for its unique Cambodian Golden Silk which is produced from the yellow silkworm. The yellow silk worm is famous for its strength and lustrous fiber. Weaving and wearing silk is an expression of deeply rooted cultural and social traditions in Cambodia.
Until 1930, many farmers in the provinces of Kampot, Takeo, Kompong Speu, and others, grew mulberry trees and produced silk yarn for their personal consumption and for commerce. After 1930, however, silk yarn production progressively decreased, and was nearly destroyed during the Khmer Rouge period. The genocidal Khmer Rouge regime destroyed the mulberry population and people were forced to cultivate rice on collective farms. Before the Khmer Rouge took power, Cambodia was producing an estimated 50 tons of silk per year. Only about 15 hectares of mulberry trees were found alive in Bantey Meanchey due to Khmer Rouge regime which forced people to produce silk yarn only in Phnom Srok district of Bantey Meanchey. The majority of silk yarn is now imported from abroad and less than 1% of the thread used to weave Cambodian silk handicrafts today is actually produced in Cambodia.
In the last 20 years, the Cambodian government and different development organizations undertook a number of efforts to revive the sericulture sector. But, after periods of growth at times of project support, sericulture farming is back to the same marginal level like in 1990. It is assumed that there are less than 100 active silkworm breeders today, compared the 1400 breeders trained and installed from 1995-2005. The number of weavers dropped from 20,000 to an estimated number of less than 5,000 active looms which are producing silk fabric, scarves, cloth and other silk items particularly in rural areas. Silk weaving is mostly done at household level with one to four weaving looms per household and constitutes an important additional income source for low income rural households.
About 50% of the silk fabric is produced for the national consumer market, while the recent boom of the tourism market and some export promotion initiatives opened up new perspectives for a number of shops, traders, organizations. Cambodian silk products are appreciated by tourists and foreign buyers for their various designs, quality, and hand weaving techniques. They became an important product group for the tourist market and Non-Governmental Organizations (NGOs) and traders started to develop export of silk items. Several international market surveys and pilot projects have identified the silk sector to generate income for disadvantaged population groups to contribute to poverty reduction.
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In 2004, a number of donors and implementing agencies recognized that support to the sector was fragmented and poorly coordinated, leading to duplication of effort and activities, missed opportunities for collaboration, and reduced scalability. Based on a silk sector roundtable in January 2005, a Sector-wide Strategy for the Cambodian Silk Sector had first been developed in 2006 and updated in 2009.
Cambodia is characterized by a fast paced economic growth over several years, which is likely to continue. The Gross Domestic Product (GDP) was $16.7 billion in 2014, with a growth rate of 7%. Total employment was 7.2 million people in 2012. The economy still mostly depends on agriculture which employed two thirds of the Cambodian workforce in 2012. Most Cambodia farmers are smallholders with less than two hectares per farm. The annual per capita income in rural areas increased steadily with high growth rates and amounted to $285 in 2012.
Cambodia is transforming rapidly, with growth driven mainly by urban-based industries such as garments, manufacturing, tourism, and construction. The garment industry employs 600,000 persons today and the number of international tourist arrivals doubled within five years (2008-2013) from 2,125,465 to 4,502,775 tourists. As a result of the rapid growth, the national poverty rate dropped from 34% in 2008 to 17.7% in 2012.
The Silk value chain is only marginally important for Cambodia’s National Economy, but opens up economic opportunities to population groups that have few alternatives. Thus, it is particularly important for poverty alleviation and social development. Silk is also especially important for women employment. Women generate income from sericulture farming, handicraft production such as silk weaving, sewing, and various handicraft trading
The role of the silk value chain is recognized by the Cambodian government. It is estimated that silk generated a sales volume of about $25 million in 2012 which corresponds to about 0.15% of the GDP in 2014. Cambodia is a significant net importer or raw silk and silk fabric products. Total employment in the silk sector is currently estimated to be about 7,000 persons.
Silk Value Chain
The Value Chain is comprised of four parts: Input Supply, Sericulture, Yarn Trade, and Silk yarn processing & weaving of silk fabric, Production of Final Handicrafts, Trade in Final Products.
Input Supply
The Agricultural Station of the Ministry of Agriculture, Forestry, and Fisheries (MAFF) in Kandal Province has a mulberry nursery and raises silkworms of five different local varieties and five Korean varieties to ensure access to different silkworm varieties. Other inputs for weaving and production of final silk products, such as chemicals, dyes, equipment, accessories etc., are provided by individual traders.
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Sericulture
Sericulture farmer are independent smallholder farmers who cultivate mulberry trees on small plots of land in addition to other agriculture produce. The farmers breed a particular variety of Cambodian silk worms producing a special kind of yellow silk yarn which is named Cambodian Golden Silk. The number of sericulture farmers in Cambodia was estimated to be 250 in 1990. With support programs, the number went up to about 1750 in 2005, but is estimated to be less than 100 farmers today (less than 50 farmers in the district Phnom Srok in the east of Banteay Meanchey province, about 50 farmers in other provinces) cultivating mulberry trees on a total area of less than 40 hectares.
Due to the declining number of farmers, the production of Cambodian Golden Silk Yarn is estimated to be less than 1 ton today, as indicated by the Artisan Association of Cambodia and as confirmed by seminar participants in July 2015.
Yarn Trade
The Cambodia Golden Silk is mainly marketed via intermediary traders while in the past the association Khmer Silk Villages played an important yarn trading role. The Cambodian Golden Silk is nearly exclusively used for products sold in the high end tourist market segment and in export.
99% of all silk items produced in Cambodia are produced from imported silk yarn. It is estimated that the total import of silk yarn is 400 t/year from China and Vietnam. Silk yarn from Vietnam is usually purchased through informal channels because of relatively small volumes traded. The silk yarn is mostly sold at wholesale and retail markets in Phnom Penh. The yarn is variable and below standards in quality, affecting its appearance and its ability to absorb dyes and easily breaking when weaving. This means that weavers need to polish their warp yarn with starch from time to time to make it stronger and sturdy.
Silk Yarn Processing and Weaving
Processing of silk yarn means twisting, degumming, bleaching, and dyeing, which are mostly done by the weavers themselves or by independent service providers. Two dyeing techniques are used: synthetic and natural dyeing. For synthetic dyeing, the so called “Thai Dyes” (Non-AZO free) or so called “German Dyes” (AZO-free) and used. For access to the EU market, the use of AZO-free dyes is an obligatory requirement.
Weaving is an activity carried out by women. The weavers mostly belong to farm households having one to four looms at the basement of the farmhouse. Weaving in Khmer rural areas is a work without time constraints. The women begin weaving when they have finished major work at home and their daughters begin to weave when they come back from school. In Takeo, for instance, weaver families often do not have enough land for rice farming and need silk weaving as an additional income if they don’t want to migrate to Cambodia or Thailand.
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Most weavers are organized in loose producer groups which are often linked to companies through some independent middlemen or producer group leader at village level. In fact, it is estimated that 90% of the weavers are in a contractual relationship with a middleman or company. In this case, the middleman or the company usually provide all inputs, including the silk yarn, and takes the final product. Some middlemen provide “full warp preparation” services. Others provide only dyeing services or dyed yarn.
At the present stage, weavers are often still doing all three steps of silk yarn processing (twisting, degumming, bleaching, and dyeing), warp preparation, and weaving. As the sector develops, all three steps can be done independently. The weaver will only master his/her weaving techniques and will subcontract the other steps of preparation to specialized service providers. Such specialized service providers for dyeing of the yarn and setting up of the warp are of growing importance. They have special skills, knowledge and play an increasingly important role for quality management.
Handicraft Production
Scarves and local “Sompot skirts” represent the main production output of weavers. 82% of the weavers produce scarves and local Sompot skirts, 29% fabrics and few also produce blankets and fringes. In addition, the companies produce silk accessories, ties, and a broad range of home interior decoration items such as tablecloth, cushion cover, curtains, bedspreads, silk towels, and seasonable ornaments.
Silk weaving and production of final handicrafts are closely interlinked, as an estimated number of 250 Small and Medium Enterprises (SME), Non-Government Organization (NGO) and middlemen play an important role in the entire value chain. The SME’s purchase inputs, design products and subcontract the weaving to loosely organized weaver groups. The weaver groups are mostly subcontracted via individual such as intermediary traders and village group leaders, who in turn organize the production of the loosely organized weaver groups. The weavers are supplied with the raw material by the SMEs, NGOs, and middlemen. These do the finishing of the product (knitting, sewing, stitching, screen printing, embroidery, washing, and ironing) either themselves or subcontract other service providers.
Main final silk products are scarves/shawls and clothing such as skirts, shirts, dresses, jackets/blazers, trousers etc. In addition, the companies produce a broad range of silk accessories such as bags, purses, wallets, jewelry silk, ties and interior decoration items such as tablecloth, cushion covers, curtains, bedspreads, silk towels, seasonal ornaments.
All over Cambodia, locals still continue their tradition of wearing silk dresses to attend formal functions and occasions such as weddings and official meetings. Weddings are big events for the population and important parts of social life. Women are obliged to attend and wear their traditional silk dresses. Likewise, men are perceived as formal and proper when they wear their formal silk polo shirts.
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Global Perspective: Silk Exports
Cambodia is far from the top ten silk export countries. China, India, Japan, South Korea and Vietnam are the predominant Asian export countries, while some European countries are main exporters of final silk products manufactured based on imported silk yarn. The most important silk import countries are Italy, India, Japan, USA, Vietnam, Romania, and France. They import silk products of a value of more than $100 million each year. The United Arab Emirates, Germany, China, and UK are important too.
Trade Performance
The market for silk products in Cambodia can be divided into three segments: Local Khmer Market, Tourist Market, and Export Market.
The overall sales volume is estimated to be $25 million in 2012. The estimated market share of the local Khmer market is about 50%, while the tourist market is at 20% and the export market share is about 20%. All three market segments are considered to have further growth potential. Exports are done to many different countries such as Japan and other Asian markets, Germany, France, and other European Markets, USA/Canada, Australia/New Zealand etc. Silk products from Cambodia find markets all over the world. The internet market is still of negligible relevance, but exists and will have increasing growth potential in the future.
The Local Khmer Market
Each respective province has local silk traders in the market. These local traders sell silk yarn and silk fabrics. They can be located easily by the majority of the consumers. Mostly, these silk traders also act as middlemen providing yarn to the weavers. In Phnom Penh, there are various locations such as Olympic Market, Orussei Market, Central Market, Kandal Market, Toul Toumpung and some shops along popular streets in Phnom Penh.
The Tourist and Expat Market
Siem Reap and Phnom Penh are the main tourism centers with the hundreds of souvenir shops, night market stalls and more exclusive boutiques serving the tourist market. The number of international tourist arrivals doubled within five years (2008-2013) from 2,125,465 to 4,502,775 tourists. 77% of tourist is from Asia. 15% are from Europe, 6% are from America, 3% are from Oceania, 0.3% are from Middle and 0.1% are from Africa.
More and more Asian tourists and affluent middle class tourists are visiting the country. There is a trend towards more exclusive interior decoration and fashion shops which also sell a large number of silk products. Asian tourists are a particularly interesting target group for silk products. Asian tourists are a particularly interesting target group for silk products.
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Scarves are the main product for all different kinds of tourists. In addition, Asian tourists mainly buy accessories and silk jewelry; while French tourists are more interested in silk dresses, and while American tourist go more for cushion covers and silk jewelry. The products are mostly used for gifts or for personal use.
Export Markets
According to official customs figures, Cambodia’s silk exports would be rather low and totaled per year 123,000-137,000 US $ only from 2011-2013. But these figures do not reflect well the real trade flows due to different reasons.
· Silk-specific tariff lines do not account for all silk products. Many Cambodian silk products are hidden in general tariff lines such as clothing, bags, home décor.
· There are big differences in trade reported statistics. From 2010-2013, export of silk products reported by Cambodian customs is only about 50% of the value that the importing countries report.
· Export figures collected by the CEDEP I project show much higher export than the official customs statistics, though these companies do not only export silk products.
Reason for the discrepancies are than an estimated 90% of all silk trade transactions are informal and that only 10% are registered by customs. In addition, the absence of a national product nomenclature for silk products at 8-digit level does not allow counting all export of different kinds of final silk products.
The average silk exporter is a small company with one office, employing an average of 22 persons and having gross sales revenues of $78,493 in 2013. Most companies target both the international and domestic market and work with other raw material such as cotton as well. It designs the product, works with own weavers or weaving groups and subcontracts part of the work to specialists such as tailors or embroidery makers. Unusual for exporters in other value chains, the silk exporters even accept very small orders of less than 20 pieces are shipped by a courier service.
Cambodian silk exporters are successful on niche markets in industrialized countries for socially-responsible products, natural fibers, organic products, ethnic crafts, and handmade items. These markets developed well in the past and can easily absorb medium quantities like being produced in Cambodia. As there are close to no restrictions on silk imports in developed countries, market access offers favorable conditions.
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Export Competitiveness Issues
The traditional approach to strategic planning tends to focus exclusively on market entry issues such as market access, trade promotion, and export development.
This approach can lead to ignoring several important factors in a country’s export competitiveness. Effective tools for export strategic planning address a wide set of constraints, including any factor that limits the ability of firms to supply export goods and services, the overall quality of the business environment, and development impact of the country’s trade, which is important to its sustainability.
1. Supply Side
Supply side constraints impact the production capacity of the sector. These include challenges in areas such as the availability of appropriate skills and the necessary competencies, the capacity of the sector to diversify, and the technological content, and value added in the sectors products.
Decreasing Production of Cambodian Golden Silk Due to a Lack of Confidence in the Market
Sericulture farms are small-scale. In most cases, there is no real plantation of mulberry trees. Most breeders have various plots of mulberry trees either near their house or in many cases quite some distance away. Producers are reluctant to produce Cambodian Golden Silk as they lack confidence in the market. 40%-50% of the sales price of Cambodian Golden Silk yarn goes to intermediary traders and does not reach the farmer as farmers depend on the intermediary traders. Farmers lack, access to water during the dry season, and as the application of pesticides in rice fields harms sericulture as silkworms may die due to the pesticides. There is a lack of larger plots of land as sericulture is competing with other crops and as the productivity of sericulture is still at low levels in Cambodia. Only the old generation has the necessary skills for sericulture farming. There is a general lack of support of the Ministry of Agriculture, Forestry, and Fisheries to sericulture, particularly in terms of technical assistance in the communes. There is also a lack of support of the Ministry of Water Resources in terms of irrigation needed for sericulture.
Farmers are not organized at community levels, e.g. in cooperatives like in neighboring countries, which causes constraints for joint purchasing activities, availability of reeling facilities, and market access as well as for coordinating government support.
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No Domestic Production of White Silk Yarn Due to Lack of Investment
There is no domestic production of white silk yarn, even though white yarn is the main input for silk weaving as a result, Cambodia is highly dependent on silk imports of about 400 tons/year.
The missing domestic production of white silk yarn is due to a lack of investment for an industrial reeling center and no experience of sericulture farmers with white silk. The profitability of setting up a reeling center in Cambodia is unknown and there is high market risk, as domestic demand figures are unreliable estimates and as the domestic production would have to compete with imports in terms of both quality and price.
Sericulture farmers are not aware of income potential of white silk cocoon production, have little knowledge about suitable technologies and would need to be organized in a producer group to ensure stable market linkages.
Few Product and Design Innovations Reduce Attractive of Final Products
There is insufficient product development and design innovation as companies lack the budget for major investment in new products and market research. Companies also lack access to qualified national designers. There is no particular national textile design school of which graduates could be employed. Another issue is the non-respect of copyrights. Companies also find it is difficult to introduce new products as old weavers are reluctant to change to new designs which they are not used to weave. Markets for higher price designs are limited. There is general lack knowledge about market trends due to limited market exposure and no access to regular market trends information.
2. Quality of Business Environment
Business Environment constraints influence transaction costs, such as regulatory environment, administrative procedures and documentation, infrastructure bottlenecks; certification costs, internet access and cost of support services.
Complicated Company and Tax Department Registration Due to Difficult Procedures and Forms
Company registration, and particularly the tax department registration, are complicated which leads to the effect companies try to avoid changing earlier registrations as shop/retailers to export company registrations. The difficult procedures and forms are due to too many steps in the registration process and missing dissemination of tax rules. They are not confident to be able to diligently follow the rules. Cambodian companies must be made aware of regulations and procedures and lack access to training. The services provided by officers and staff of government agencies are not effective and efficient.
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The companies in general lack knowledge about the preparation of financial statement. They need training on accounting and need tailored templates for bookkeeping. For the time being, only few are able to keep records and to do proper accounting. Most companies would need to hire accounting staff but cannot afford to do this.
Limited Specific Silk Promotion Measures in Place Due to Lack of Recognition of the Silk Sector
The government is committed to support the silk sector, but there is little allocation of resources into the sector. There is a general lack of community training centers for sericulture farmers and weavers. Existing support centers lack funds and there is no regular government support to promote silk on the national market or for export. The limited allocation of resources is due to the fact that the silk sector is very small and has little significance for employment compared to other sectors
The relevance of the silk sector for culture, tourism & poverty alleviation is underestimated as there are few data available. This is partly due to unreliable export statistics and the invisibility of final silk products exports.
3. Market Entry
Market entry constraints are external to the country. These include issues related to market access, development and diversification, as well as export promotion.
Low Level of Competitiveness of Cambodian Silk Products Due to High Prices and Less Structured and Less Experienced Companies
Particularly Vietnam, China, and India offer much lower prices of final silk products and have a number of experienced handicraft exporters with well-established long-term business relations. They benefit from favorable economies of scale, well-structured processes, high productivity, and lower raw material and service cost. In Cambodia, all businesses start from lower level and are exposed to business since much shorter time which makes them less competitive. In general, Cambodian silk SME’s lack awareness about innovative technologies, production methods, and efficient tools to be able to produce for lower cost.
Lack of Management and Communication Skill Stems From Lack of Training and Financial Resources
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4. Environmental and Social Side
Socioeconomic constraints include issues related to poverty reduction, gender equity, youth development, environmental sustainability, and regional integration.
Unqualified Labor, Particularly among Women and Youth, Due to Limited Access to Training and Cultural Restrictions as well as Traditional Habits
In general, women have fewer employment opportunities than men in Cambodia due to cultural restrictions and traditional habits on the one side, and a lack of suitable education on the other side. Women lack self-confidence and knowledge, and often have access to lower job categories only, such as work in sewing factories. There is a particular lack of education and training opportunities for women who often have to prioritize family issues and farm work.
In contrast to these general conditions, the silk sector offers a variety of self-determined income opportunities for women. Women can achieve both by sericulture as by weaving and trade their own income and make an important contribution to family income. Since women do not have to work in factories in the silk sector, they can work from home and arrange their activities well with household and children education.
Goal for Silk Sector
Though the silk sector is highly fragmented and underdeveloped, there are government initiatives involving both the public and private sectors. The silk sector is important for preserving cultural tradition and providing employment opportunities and income to the rural population and disadvantaged groups. The sector seeks to revitalize sericulture and modernize silk sector producing high value products providing sustainable income for women and men.
report from International Training Program on Processing Technology and Innovation Design Of Modern Silk Products
