Cambodian Rice: Race to the Top
Posted by James Plamondon on June 30, 2016 . 0 Comments
A Strategy for a Sustainably Profitable Cambodian Rice Industry
Cambodia’s rice industry needs a new strategy—fast!—to (a) avoid the imminent collapse of Cambodia’s rice industry; (b) avoid the increased poverty and political unrest that could follow; and (c) renew the international community’s flagging interest in helping Cambodia’s rice industry solve its tactical problems.
This article describes one possible new strategy, named “Cambodian Rice: Race to the Top.” It’s goal is to ensure that Cambodia’s rice industry is sustainably profitable whether global commodity rice prices rise or fall and whether Cambodia’s infrastructure costs are lowered or not.
The strategy begins with an international competition to develop new rice-based food products that increase the profitability of the Cambodian rice industry.
Over two decades, the XPRIZE Foundation has demonstrated that “competitions for large cash prizes” can focus international capital on risky innovations that solve important problems. Successful XPRIZE competitions, to date, have addressed such challenges as commercial spaceflight ($10 million), medical sensing ($2.25 million), and oil spill cleanup ($1 million). Current competitions are producing working technologies for hand-held medical diagnostics ($10 million), seafloor mapping ($7 million), and adult literacy ($7 million).
These competitions can have an enormous commercial effect. For example, the Foundation’s first XPRIZE—$10 million, offered in 1996 for commercial spaceflight—mobilized the investment of $100 million before the prize was awarded in 2004, and billions more since. Today, commercial spaceflight is a $250 billion dollar global industry.
In addition to mobilizing capital, XPRIZE competitions mobilize media attention by being newsworthy. This “free publicity” is a motivating benefit for all of the competition’s participants.
To start a new XPRIZE Competition, one must first define its Grand Challenge and Draft Guidelines. These, for the proposed “Cambodian Rice: Race to the Top” XPRIZE, could look something like this:
- Grand Challenge: Falling global prices have pushed Cambodia’s rice industry to the brink of collapse, which could double poverty and increase political instability. This XPRIZE will incentivize the development of new rice-based food products that can de-commoditize Cambodia’s rice industry and give it a sustainable competitive advantage.
- Draft Guidelines: Develop a new food product that features “100% Cambodian Rice.” Competitors will be evaluated during a simultaneous two month sales trial of the competing products in New York City in early 2017. The product earning the most profit for Cambodia during the test-marketing period wins. (Final guidelines to be developed with Deloitte Consulting.)
Ideally, the Competition timeline would look something like this:
- On or before 1st August 2016, Samdech Akka Moha Sena Padei Techo Hun Sen, Cambodian Prime Minister, would invite [The Sponsor] to sponsor the Competition ($1 million). The Sponsor would, of course, agree. The Competition would then enter the “prize development” phase.
- On or before 15th August, the Sponsor would challenge the XPRIZE Foundation’s Founder, Peter Diamandis, to “execute this XPRIZE, from concept to completion, in less than one year, to save millions of Cambodians from returning to poverty.” He would agree, accepting Cambodia Rice: Race to the Top as a “Current XPRIZE” on or before 1st September, with a Competition Start Date on or before 1st October. Publicity would begin.
- Immediately after Diamandis’ agreement, the Sponsor would invite Deloitte Consulting to design, monitor, and evaluate the criteria and metrics for the “margin-enhancing” aspect of the Competition (pro bono). It would agree.
- On or before 1st September, the Sponsor would challenge the CEOs of the world’s leading packaged food companies (Unilever, Nestlé, Mars, Kraft, etc.) to bring to market, in just six months (from 1st October), “a new food product which enhances the margins of the Cambodian rice industry.” They would agree.
- Smaller food product designers would learn about the challenge from the press, and they enter the Competition, too.
- Social enterprise investors, such as Capria, would fund the most promising small entrants.
- On or before 1st October, entries would be closed. The Competition would begin. Excitement would build. Publicity would grow.
- During the Competition, the Sponsor would invite the CEOs of the top US grocery chains to commit to giving purchase contracts to the top-scoring finalists that also meet their corporate requirements (q.v., Whole Foods Market’s quality standards). They would agee. A new wave of publicity would result.
- Six months later (1st April), the Competition’s Finalists (i.e., those who have developed a viable product) would start selling their products in a two-month real-world trial in New York City. Publicity would expand rapidly.
- On or before 1st June, 2017, the Competition ends. The Sponsor, the President of the Cambodian Rice Federation, and Hun Sen would jointly award the Prize in front of Angkor Wat. The publicity would reach a frenzy.
- Just ten months after Prime Minister Hun Sen’s initiating phone call, Cambodia would be FAMOUS for producing the world’s best rice. Every American consumer would want to try it. They would have all learned to look for Cambodia’s new “100% Cambodian Rice” logo. Demand would skyrocket. Prices would increase. Cambodia’s rice industry would return to profitability. And it would not have cost Cambodia anything.
AwardBest Ultra-Premium Cambodian Jasmine Rice is one potential "new product" that could be developed by this Competition. Its existence shows that there really are product ideas out there that, if developed, could help improve the profitability of Cambodia's rice industry.
Each individual new product is likely to occupy a small niche. Together, however, they could consume enough of Cambodia’s rice exports to return the industry to profitability. Like the members of the Cambodia Rice Federation, these new products would be stronger together.
The ideal Sponsor would be either Angelina Jolie or The Gates Foundation. The power of the Gates Foundation is obvious, but—why Angelina Jolie? Because she is a Cambodian citizen; she is the adoptive parent of a Cambodian son; she cares about Cambodia; she is a UNHCR Special Envoy; and everyone else in the world will take her calls.
If Angelina Jolie and Bill Gates both decline this opportunity to keep millions of Cambodians from falling back into poverty, other potential sponsors include Cambodian individuals such as Cambodia’s King Norodom Sihamoni, Pung Kheav Se, and Ted Ngoy; international companies such as InVivo, Lucky Market Group, Syngenta, Kubota, Bühler, Attwood, Unilever, Nestlé, Mars, and Kraft; international banks such as ADB, AIIB, IFC, and IFAD; social impact funds such as Capria, CDC, and ABN-AMRO; and American grocery chains such as Walmart, Whole Foods Market, Target, Kroger, and Amazon.
The US market is targeted for four reasons. First, its intellectual property laws can protect the high margins that are the whole point of this strategy. Second, the Cambodian economy is heavily dollarized, so it needs dollars more than it needs yen, euros, or yuan. Third, it is a new market for Cambodian rice, without preconceptions, enabling Cambodian rice to earn an entirely new reputation. Finally, Amazon.com, combined with the USA’s efficient distribution, enables consumers all over the USA to participate in the NYC-based sales trial, broadening its excitement and effectiveness.
Strategy: Beyond the XPRIZE
There is more to this strategy than the Competition.
To simplify the following discussion, let’s presume that:
- Many of the contestants prove to be profitable (not just the Competition’s one winner). That is, many products make profits for themselves, and for Cambodia, too.
- Most or all of the new high-margin products feature Cambodian jasmine rice, where Cambodia’s high-margin potential is concentrated.,,, (Again, this assumption is made only to simplify the following discussion; it is not a limitation or prohibition.)
- Michael Porter was correct in stating, in his seminal paper What is Strategy?, that “Strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.”
Two important “activities” that will “deliver a unique mix of value” for Cambodian jasmine rice are Research & Development (R&D) and Marketing.
Research & Development (R&D)
Cambodia justifiably congratulates itself for having won The Rice Trader's "The World's Best Rice™" competition three times. What it forgets is that it lost the most recent competition, and it could lose again.
Therefore, Cambodia urgently needs to undertake the R&D necessary to produce the world’s best jasmine rice, and to be recognized as producing it, for decades to come.
1. 100-Point Scale
Today, every producer claims that its jasmine rice is "the best," but there is no standard definition of the criteria and/or metrics of “best-ness.”
- The Rice Trader's "The World's Best Rice" competition is as opaque as FIFA. Its judging standards and procedures, even its list of judges, are proprietary secrets. Its lack of transparency makes it unsuitable as the basis of any strategy.
- National standards (e.g., USDA, Thailand) are of no help, because they define “jasmine rice” genetically, with no regard to a given cooked sample’s flavor, fragrance, or tenderness.
To spark consumer demand for Cambodian Jasmine Rice, the international rice industry needs a standard "100-point scale" for comparing, contrasting, and communicating the quality of specific samples of cooked jasmine rice. Such 100-point-scales are used for wine, coffee, and cigars. The industry also needs standard judging procedures, and standards for sharing and tracking judging data, to ensure transparency.
With these standards, many new open and transparent competitions can emerge...and Cambodia can have a fair chance of winning them.
100-point scales are widely criticized for a variety of failings, but no one disputes that they have been extremely effective in creating industry demand for the top-rated products, which is exactly what Cambodia needs.
How does one consistently grow "the best jasmine rice"? No one knows. There have been a few individual scientific studies, but not a sustained and focused research effort—partly because, as noted above, there were no accepted criteria or metrics of “best-ness” for jasmine rice.
In this strategy, Cambodia would follow the example of the fine wine and specialty coffee industries, and start growing its jasmine rice specifically for "best-ness," using well-defined “best practices,” which this research will discover.
3. Geographic Indication Status
One output of researching the agronomy of “growing the best jasmine rice” will be an understanding of the effect of terroir— “place”—on best-ness. Understanding this will enable Cambodia to scientifically identify the areas of Cambodia that are naturally best-suited to growing each variety of Cambodian Jasmine Rice (Phka Rumduol, Sen Kra Op, Phka Romeat, etc.). The combination of “best place and best practices for each variety” could then be combined into an application for Geographic Indication Status: one per variety. As new jasmine rice varieties were developed, the process could be repeated.
Farmers have been developing new varieties of rice for thousands of years, and that work continues. Most varietal improvement is focused on improving yield (e.g., C4 rice), not flavor. Cambodia must create a systematic R&D focus on producing new (non-GMO) varieties of jasmine rice that are optimized for "best-ness.”
5. Freezing & Refrigeration
One possible high-margin product is Cambodian Jasmine Rice that has been quick-frozen soon after harvesting and milling (because freezing preserves its special qualities). Other high-margin products might require freezing or at least refrigeration, also.
To maximize quality, the quick-freezing step should take place in Cambodia. Currently, Cambodia lacks the technology to quick-freeze anything (i.e., it has neither blast freezers nor contact freezers).
In the short term, quick-freezing technology could be concentrated in the Special Economic Zones of Phnom Penh and Sihanoukville.
In the medium term, however, the rice should be quick-frozen in a continuous process between the rice milling machine and the bagging machine, with the rice staying frozen continuously after bagging. No machines currently do this. Developing rice-specific quick-freezing technology is a classic R&D problem which is likely to produce patentable inventions. Such inventions could help secure and and maintain Cambodia’s competitive advantage in high-margin rice products for decades.
Cambodia’s experience has proven that winning awards for being the best doesn’t mean that you get the best price.
Only once the consumer demonstrates an eager desire to pay a premium price for a product, will the industry’s retailers, distributors, buyers, etc., be willing to pay a premium price for it, also.
Therefore, Cambodia’s marketing efforts should be focused entirely on generating demand from consumers, following the example of Intel Inside, NutraSweet, and 100% Colombian Coffee. Public relations (via celebrity chefs, influential bloggers, top restaurants, etc.) would be preferred to advertising per se. Once consumers demonstrate an eager demand to pay high prices for Cambodian jasmine rice, the supply chain will follow.
The XPRIZE Competition is designed to rapidly maximize consumer demand, through free publicity, for the new high-margin rice-based products developed for the Competition.
Red Queen Problem
Competitive strategy is a “Red Queen” problem: “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Today, Cambodia’s rice industry is far behind its competitors. It “wants to get somewhere else:” ahead of its competitors. That means that Cambodia must start running twice as fast as its competitors...and never stop, or it will once again fall behind.
The global commodity rice industry’s cost-driven “race to the bottom” has been disaster Cambodia’s high-cost rice industry.
Therefore, Cambodia needs to start a new race—a Race to the Top—fast!