Myanmar addresses challenges to transform agriculture sector into engine of growth

While it has gradually reaped the rewards of diversification efforts to end over-reliance on rice, Myanmar’s agriculture sector is now at a crucial juncture. Although progress has been made, structural impediments continue to weigh on farming output. However, a new development strategy is expected to enhance sector monitoring, boost production, and improve the industry’s regional and global competitiveness. Investment in infrastructure and processing capacity has the potential to transform the nation into an exporter of higher-quality agricultural products that could open the door to more varied overseas markets.

Tracking Growth

Following decades of stagnation under military rule, the sector expanded at an average annual growth rate of 3.2% between FY 2010/11 and FY 2015/16. Agriculture remains the primary source of income for most households, with approximately two-thirds of Myanmar’s workforce directly or indirectly engaged in such activities. While official estimates vary, the national Agriculture Development Strategy and Investment Plan (ADS) – an action plan that aims to boost production and attain higher global market share – states that the sector contributes approximately 30% to GDP and constitutes 25-30% of all exports.

According to the “Myanmar Economic Monitor” report published by the World Bank in October 2017, the sector saw no growth in FY 2016/17 after four years of gains. This contributed to a dip in the country’s overall GDP growth rate to 5.9% for the year, down from 7% in FY 2015/16. The flat performance was partially due to fluctuating commodity prices and the aftermath of severe weather, such as cyclone Komen, that have hampered the sector in recent years.

According to the Ministry of Agriculture, Livestock and Irrigation (MALI), Myanmar exported 6.49m tonnes of agricultural products in FY 2016/17, worth a total of $2.9bn. This was down from the year before, when the agriculture, livestock and fisheries sector generated foreign exchange earnings of more than $3.1bn, driven by exports of pulses, rice, shrimp, livestock and rubber. Statistics from the UN Food and Agriculture Organisation indicate that Myanmar is the second-largest exporter of beans and pulses globally, behind Canada, and the ninth-largest exporter of rice.

Moemntum Shifts

Prior to military rule, Myanmar was known as the rice bowl of Asia, exporting approximately 1.7m tonnes of the commodity each year between 1961 and 1963, making it the largest rice exporter in the world. Throughout the socialist government era, which spanned 1962-88, farming suffered from a range of inefficient policies, most notably non-constructive land rights and poorly timed public intervention. Through to 1987 the state controlled the marketing of rice, but from September 1988 the military government started moving away from central planning and adopted a more market-based approach to economic activity. This policy shift was evident in the liberalisation of the trade of pulses and maize. While the move was welcomed by the business community, the state still had a tight grip on supply, and it continued to enforce a cropping plan for procured commodities, such as rice, cotton and sugar cane.

The military-run government eased its control in 2003, limiting cropping enforcement to paddy fields that had reasonable access to irrigation facilities, while also abandoning paddy procurement and allowing private firms to export rice. Although the production and export of rice increased in the years after, crop quality fell, and the price that importers were willing to pay in comparison to other rice producers declined.

The election of the Union Solidarity and Development Party in 2011 marked a transition towards civilian rule, and with it, greater liberalisation of the sector. Shortly after taking power, the government of U Thein Sein allowed any registered trader to apply for a rice export licence, while simultaneously reducing the export tax from 10% to 2% in an effort to boost trade. Further relaxation came in 2013, when the government removed the export permit requirement for agricultural products; however, rice remained the only exception.

On the back of these pro-business reforms and the easing of trade policies, production and export of rice increased. In FY 2012/13 rice exports recorded a 48-year high of almost 1.3m tonnes, leading the administration to set a 4m-tonne target for rice exports by FY 2019/20. Production was forecast to reach 12.2m tones in FY 2016/17 thanks to the recovery of some of the country’s main rice fields, and exports were expected to hit 1.4m tonnes.

Current Direction

Under the current government, led by the National League for Democracy (NLD), the agriculture sector looks set to continue benefitting from growing levels of mechanisation and surging demand from the Chinese and European markets. While the NLD has been criticised in business circles for not doing enough to stimulate economic activity, the government acknowledged the importance of agriculture in its 12-point plan aimed at creating a market-orientated economy. The development of agriculture is also an important vehicle for leader Daw Aung San Suu Kyi’s administration to generate inclusive growth and ease the strain of urban migration. As outlined in the 12-point strategy, farming is a clear priority of the NLD as it aims to increase production, promote food security and boost exports, while raising the standard of living for households dependent on farming.

In addition to the 12-point plan, the government announced in April 2017 that it was a working on the ADS. With technical assistance from the Asian Development Bank, the UN Food and Agriculture Organisation, and the Livelihoods and Food Security Trust Fund (LIFT), the strategy aims to build a platform that will enhance cooperation between public and private sector players through the implementation of 42 programmes and 268 action plans (see analysis). The Yangon regional government is also drafting an agriculture master plan as part of its revitalisation efforts, with MMK8bn ($6.1m) earmarked for the development of mechanisation techniques in the region.

Research Project 

One obstacle to the implementation of agriculture-based programmes in Myanmar has been the lack of reliable sector data. To assist policymakers, the World Bank and LIFT conducted a survey across four regions – Ayeyarwady, Bago, Sagaing and Shan State – during the monsoon and dry season of FY 2013/14, with an emphasis on beans and pulses, oilseeds, maize and rice. A total of 1728 farming households were surveyed. The majority of the research project focused on households residing in main village tracts, which – in comparison to more isolated communities – have greater access to markets, financing options and infrastructure. Although the survey did not include remote villages, it has given policymakers a better understanding of Myanmar’s commercial production areas, allowing them to make more accurate international comparisons.

The report, titled “Myanmar: Analysis of Farm Production Economics”, was released in February 2016 and included four main findings. First, while the country is still primarily focused on rice, farms are more diversified than previous reports have suggested, with most producing a variety of crops during the dry and cool season, including beans and pulses, oilseeds and maize. Paddy fields still dominate during the monsoon season, with nearly 90% of farmers surveyed dedicating their fields to rice production during the rainy months. Outside of that season, the most commonly planted crops are beans and pulses, especially chickpeas, black gram and green gram. In terms of oilseed production, farmers in Sagaing Region planted a variety of strands, including sesame, groundnuts and sunflower seeds. While most farmers in Shan State planted maize during the dry season, one in 10 opted to grow culinary crops such as chillies, onion, garlic and potatoes.

The second major finding of the report, which came as no surprise to the research team, was that agricultural productivity in Myanmar was below regional and international standards, thus limiting the sector’s contribution to poverty reduction. The country’s average paddy yield in FY 2013/14 was 2.7 tonnes per ha in the dry season and 3.5 tonnes in the wet season. A closer analysis of monsoon rice yields indicated that one day of farm work produced 23 kg of paddy in Myanmar – less than half that of Cambodia, at 62 kg, and only a fraction when compared to Vietnam and Thailand, at 429 kg and 547 kg per day, respectively.

As their third finding, the authors suggested that low agricultural productivity is the result of multiple factors, with an inadequate supply of quality agricultural public goods cited as one of the main reasons. While the survey was carried out across major commercial production areas, it nonetheless found a lack of public services and rural infrastructure. Aside from limited infrastructure, the sector has been hindered by a drop in labour availability as people migrate from rural areas to urban centres in search of higher wages.

Seed quality was another factor. The survey found that the supply of certified paddy seeds is estimated to meet not more than 1% of potential demand, and locally produced high-quality seeds are unavailable to many farmers residing in the main village tracts. Poor knowledge of fertiliser use among farmers was cited as yet another issue resulting from the undersupply of public goods, as was agricultural research.

The fourth finding suggests public policy objectives must focus on ensuring higher returns. “Going forward, and given that paddy is less profitable and more costly to produce than other crops in most agro-ecological zones, especially during the cool and dry seasons, it is desirable to redesign public programmes from exclusive support of paddy production to support for broad-based agricultural development,” the report stated.

Rice is King

More than 60 crops are grown across Myanmar’s total land area of 67.6m ha, of which 12.8m ha is cultivated. According to the September 2017 draft of the ADS, rice is grown on approximately 7.8m ha and the country has a self-sufficiency rate of around 168%. Myanmar is home to roughly 6m rice farmers, 36% of whom work a maximum of 2 ha of land. The country exported 1.6m tonnes of rice in FY 2015/16, generating revenue of $522m. Pulses and beans are planted on approximately 4.5m ha, and the country has a growing industrial crop segment that includes rubber, sugar cane, cotton, oil palm, coffee and tea.

In similar findings to the World Bank and LIFT report, statistics from MALI and the Ministry of Commerce show that the productivity of Myanmar’s paddy fields is well below regional levels. However, yield figures from the national bodies are lower than the survey findings, at 1.5-2.5 tonnes of rice per ha, versus Thailand at 3.5 tonnes and Vietnam at 4.5 tonnes. The lower quality of Myanmar’s rice affects prices: the average amount paid per tonne is $170 at the first point of sale – less than half of Thailand’s $350 per tonne. As a result, income per ha is also low in regional comparisons, with farmers earning an average of $425 against those in Thailand and Vietnam earning $1225 and $1215, respectively.

Since 2012 Myanmar’s rice prices have been volatile. While weather shocks have intermittently affected supply, most paddy fields are harvested at the end of monsoon season in November and December, in part due to the limited availability of quality seeds and a lack of irrigation. The domestic rice market becomes oversupplied and prices fall, hitting lows in January. A shortage of warehouses adds to the problem, leaving farmers unable to store paddy until prices recover. According to MALI and the Ministry of Commerce, 30m tonnes of rice were harvested in FY 2015/16, when a total of 17,000 rice mills were operational.

Beans & Pulses

The amount of land dedicated to beans and pulses has grown in recent years due to their low production cost and higher return in comparison to paddy. According to the US Department of Agriculture, black matpe, green mung and toor whole beans account for 80% of the beans and pulses exported.

In terms of foreign exchange revenue, the crops lead among Myanmar’s agricultural commodities, generating $1.15bn in export earnings in FY 2015/16, with 80% of the total coming from India. However, sales to its large western neighbour faced an unforeseen disruption in 2017. Seeing increased production in its own pulses segment, India issued an import quota on the commodities in August 2017, saying it would accept just 200,000 tonnes of pigeon peas and 300,000 tonnes of mung beans and green grams; India typically imports around 1m tonnes of the crops from Myanmar each year. While India’s decision to restrict imports of the commodities has resulted in one of the harshest trade disputes between the two countries, it has showcased the importance of diversification not just in agricultural production, but also in trade.

In response, the government issued a blueprint to help its bean and pulses segment recover from the resulting drop in prices. The document comprises five strategies to encourage cultivation of different crops and explore new export markets for its commodities.

Priority Sector

Foreign investment in Myanmar agriculture has been hampered by restrictive policy and unclear regulation. In FY 2016/17 foreign direct investment (FDI) inflows equalled $6.8bn, of which less than 1% was channelled to agriculture, according to the Directorate of Investment and Company Administration. However, thanks to the country’s preferable climate, fertile soil and abundant water resources, the sector has vast potential for higher levels of investment.

Government policy has sought to encourage this. Since 2015 fully foreign-owned companies have been able to invest in the sector. Investments in previously restricted areas, such as value-added agricultural products and processed foods, are also now open to FDI. Furthermore, the Myanmar Investment Commission (MIC) has been reducing the list of activities in the sector that require a local partner. In the first quarter of 2016 the MIC allowed full foreign ownership in the production and distribution of hybrid seeds, as well as the production and propagation of high-yield and local seeds. These measures are expected to boost yields, increase incomes and narrow the trade deficit.

The MIC has identified agriculture for investment prioritisation, meaning that investors targeting the sector or the development of new agri-businesses will benefit from income tax exemptions. The new investment law introduced in April 2017 supports both foreign and domestic companies operating out of special economic zones (SEZs) being established by the state, representing one mechanism for the encouragement of downstream agriculture activities.

Private Investors

Despite some remaining hurdles to investment, private businesses are contributing to the effort to boost competitiveness in the sector. One such example is Myanmar Awba Group, which received a $10m loan from the International Finance Corporation to build a chemical plant in Hmawbi, around 30 km north of Yangon. The Hmawbi Agricultural Input Complex, which is set to meet up to 50% of the demand for crop protection chemicals in the country, is currently under construction and expected to begin operations in 2018. “The fertiliser industry is attracting a growing number of investors,” U Thawda Tun, managing director of agricultural product wholesaler Marlarmyaing, told OBG. “Demand for fertilisers is on the rise, with annual consumption around 1.2m tonnes per annum, 60% of which is imported from China.”

To meet growing demand, Japanese conglomerate Marubeni Corporation announced in 2016 that it was investing $18.5m in a fertiliser facility in the Thilawa SEZ. Two Thai firms were also given approval from the MIC to set up fertiliser manufacturing facilities in Thilawa, worth a combined $23m, which should help to reduce imports from China. Under the umbrella of local conglomerate Eden Group, Myanmar Agribusiness Public Corporation is investing $12m in a 90-ha industrial park in Myaungmya township, around 150 km west of Yangon. The park will support agricultural development, and aims to attract local and foreign investment in agriculture and agri-business. Infrastructure development plans include roads, a jetty and electricity supply, and investors from Japan, Thailand, China and Taiwan have already submitted proposals to invest in the estate, which is expected to be operational by November 2018.

In yet another example of private sector activity, PepsiCo commenced its agriculture programme in Myanmar in 2014. The scheme is designed to help meet the company’s demand for potato supplies in South-east Asia. The company planned to expand potato production in the country from 700 tonnes in 2014 to an estimated 3300 tonnes by the end of 2017.

Finance & Wages

Poor access to finance remains one of the sector’s top constraints. The state-owned Myanmar Agricultural Development Bank has historically been the main source of funding for farming landowners. The lender does not require collateral to issue loans, as it spreads risk by lending to groups of farmers who collectively guarantee each other.

Many rural households still rely on informal lenders, however, with interest rates averaging 20% per month, according to local media. As a result, some farmers cannot obtain credit to purchase modern machinery and vital inputs, resulting in poor yields. This constraint was eased somewhat by the arrival of microfinance institutions (MFIs) in the 1990s, offering loans capped at rates of 2.5% per month; however, MFIs are not available nationwide and their financing depth per loan remains shallow (see Financial Services chapter).

One private entity that is helping to get crucial equipment to farmers is New Holland Agriculture, a manufacturer of farming machinery. In April 2017 the company announced an agreement to deliver 600 tractors to local farmers through the Department of Agricultural Mechanisation of MALI. Working with Yoma Bank, tractors can be bought with a 10% down payment; the remainder is paid off in six instalments over three years. Programmes such as this, which join access to finance with needed inputs, should help to greatly improve individual productivity and Myanmar’s global competitiveness. “Myanmar is not able to fully leverage its agriculture potential because it lacks adequate machinery and seed quality, and does not channel enough resources into research and development,” Sunil Seth, country head of Tata Group Myanmar and president of Overseas Agro Traders Association of Myanmar, told OBG. “The country needs to address these issues or it will lose ground to emerging competitors in Africa, such as Mozambique, Sudan and Tanzania, which can produce the same crops at a lower cost.”

In August 2017 U Kyaw Win, minister of planning and finance, told local media that a plan had been drawn up to provide the agriculture and construction sectors, as well as small and medium-sized enterprises nationwide, with funds to develop their operations. The plan will allow businesses to more easily take out loans for crop cultivation and machinery purchases, and for processing and diversifying into new export markets.“The supply side of Myanmar’s agriculture market is fragmented and inefficient,” U Thawda Tun told OBG. “Making the supply chain more efficient will be an important step to raise the incomes of local farmers.”

In addition to limited access to funding, low wages have historically hindered the progress of smallholder farms in Myanmar. During the 2013 monsoon season farm wages were $1.80-2.50 per day, the lowest in a sample of selected Asian countries. According to the World Bank and LIFT report, in the 2014 dry season, wages grew to $3-3.50 per day.

Land Rights

Unfavourable land rights also present an obstacle to sector growth, and instances of unlawful land grabs have been reported, particularly in the mountainous region of Karen State. According to a report published by Human Rights Watch, some farmers in Karen State have been pushed off their land and face arrest if they resist. Tenure security also remains an issue due to a lack of information and – in some cases – conflicting documentation. Without written contracts or other documents certifying land ownership, in many cases land rights are confirmed by village chiefs. As a result, verification and compensation for farmers who have lost their land can be difficult to obtain.

While the right to own land in Karen State is a complicated issue, the amount of land claimed by the state under reasons of national interest has declined since 2012 with the adoption of two new land laws. The Farmland Law (2012) and the Vacant, Virgin and Fallow Lands Management Law (2012) are seen as steps in the right direction and have provided new provisions concerning land ownership, although implementation is ongoing and some disputes over ownership persist. The new laws allow for the transfer of land and provide farmers with avenues to contest land confiscation in court. In addition, Myanmar adopted a National Land Use Policy in 2016, which included the recognition of customary land management practices and thus further addresses issues related to land classification, tenure systems and dispute resolution.

Forestry

Covering more than 42m ha, the forests of Myanmar have long served as an important revenue source for logging companies and the government. Forestry resources include tropical hardwoods, such as teak, iron wood and padauk (cherry wood). However, weak monitoring has fuelled the illegal timber trade in Myanmar. While it remains one of the most forested countries in the region, its intact forests are declining at a rate of 0.94% per annum, according to a May 2017 study by the Smithsonian Conservation Biology Institute and the American Museum of Natural History.

While the implementation of a log export ban in April 2014 managed to slow the rate of deforestation and encourage investment in the downstream segment, it has not substantially reduced illegal logging activity. A report by the London-based Environmental Investigation Agency (EIA) estimated that 72% of logging from 2000 to 2014 was done illegally. To help reduce the rate of deforestation, the Myanmar Timber Enterprise (MTE) implemented a nationwide logging ban for the 2016/17 harvest season, which ended in March 2017. Major forested areas, such as the mountain ranges in Rakhine, Shan and Kachin states, were included in the suspension. According to the MTE, production would be restricted to 15,000 tonnes of teak and 350,000 tonnes of hardwood in the 2017/18 season.

With the EIA and the EU Timber Regulation imposing bans on timber that cannot be traced to its original source, it is hoped that illegal activity will gradually decline. However, much of the illegal trade continues to flow into China and India. In late 2016 the MTE began preparatory work to join the Voluntary Partnership Agreement for Forest Law Enforcement, Governance and Trade. To join the agreement, Myanmar’s forestry industry will need to demonstrate greater transparency across the entire supply chain, from the point the wood is first extracted to the moment it is exported.

There is concern that state intervention in the form of a higher timber export tax may hinder progress in the industry, with some bracing for a tax as high as 50%, according to local media reports. This tax varies each year and is typically between zero and 5%. Another regulation likely to affect timber exports was announced in early 2017 by U Win Zaw, a spokesman for the Ministry of Natural Resources and Environmental Conservation. He said that from May 2017 only logs purchased in US dollars could be processed for export, leading to a possible drop in volume. The purpose of the regulation is twofold: slow the rate of deforestation and earn foreign currency to help tackle the state fiscal deficit.

Outlook

For the foreseeable future, policymakers are expected to continue addressing structural shortfalls in the sector, such as unclear land rights, limited access to finance and inadequate infrastructure. “Agriculture remains Myanmar’s most important economic sector. However, productivity is very low and farmers struggle to make a living,” U Kiwi Aliwarga, CEO of conglomerate UMG Myanmar, told OBG. “To boost productivity and add value to the sector, the government should help stakeholders improve the quality of seeds, invest in irrigation systems and technology, revise the land law, improve the quality of the soil and invest in the education of local farmers.”

The introduction of more reliable and affordable financing is especially important for long-term development; at current borrowing rates, small-scale farmers remain vulnerable to dips in global commodity prices. This group of farmers also requires better access to retail and wholesale markets, and a supply chain with less intermediary agents that contribute to rising costs and reduce producer income. Producing cost-competitive, high-quality products would open the door to new and more sophisticated export markets, and rise farmer income at the same time.

Given the expected growth in demand for agricultural products in the Middle East, the EU, the US and China, Myanmar is indeed looking to diversify its export markets, while also taking steps to mitigate risk of over-dependence on any one crop. In the longer term, export and commodity diversification efforts should increase the focus on improving the country’s agricultural value chain, particularly in terms of logistical and distribution costs. This will require greater investment, continuous policy reform and more constructive collaboration between the government, private entities and not-for-profit organisations, all of which is in focus in the ADS.

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The Report: Myanmar 2018

Agriculture & Forestry chapter from The Report: Myanmar 2018

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