The golden land: Technical development and reform can help unlock the treasure trove

Agriculture dominates the economy of Myanmar. While estimates vary, the sector contributes 43% to GDP and employs 70% of the working population, according to the World Bank. With rich soil and a diverse climate, the country has suitable agricultural conditions, with fertile lowlands in the Irrawaddy basin, rainforests, the so-called “Dry Zone”, and highlands and mountains.

Low Hanging Fruit

Almost anything can be grown in the country, from tropical fruits to vegetables to rice and pulses (see analysis). It is sometimes said to have the most fertile soil in Asia. As well, Myanmar is estimated to have approximately 10 times more water per capita than China, three times more than Thailand and twice that of Vietnam, according to statistics published by the Food and Agricultural Organisation of the UN (FAO). While the country had a population of more than 60m people, population density is relatively low at about half that of Thailand, which itself has half the population density of Vietnam.

Myanmar is especially known for its rice, teak and mangoes, but it also produces rubber, oil seeds, cotton, corn, chillies and pulses. A total of 60 crops are grown in Myanmar. Rice dominates in terms of hectares utilised (52%), followed by oil crops (21%), pulses (16%) and industrial crops (7%). In truth, the importance of agriculture is also the result of the country's relative lack of economic development. The manufacturing and services sectors, for example, contribute significantly less to GDP at 20% and 40%, respectively. Even as Myanmar’s economy advances and becomes more sophisticated, agriculture is not likely to be eclipsed as it has been in other South-east Asian economies. For instance, in terms of GDP, the sector accounts for around 12% in Thailand and about 15% in Indonesia.

As more and more capital is invested in agriculture, and as further technology and equipment are imported, the sector will become increasingly efficient and productive. It is very possible, given Myanmar's unusually fertile lands, that agriculture will remain an important pillar of the economy for years to come. “We have a good agricultural environment for the cultivation of any crop under the sun,” said U Myint Thein, president of the Myanmar Academy of Agriculture, Forestry, Livestock and Fisheries Science at the Ministry of Agriculture and Irrigation.

Mixed Fortunes

Prior to the colonial period, revenues generated from the taxation of farms were vital to the Burmese government and the leaders of the semi-autonomous regions, allowing them to engage in wars, build infrastructure and run their respective states.

Farming was undertaken primarily on a subsistence basis, with the government technically owning all of the land and extracting taxes from those using it – usually around 10% of production.

When the British took over, the government played a far more active role in the sector. Modern agriculture was introduced and a legal framework was developed to help support farming growth. While the state continued to technically own all of the land, a number of laws were passed allowing farmers to obtain title to their property and sell and mortgage that title, including the Land and Revenue Act (1879), Transfer of Property Act (1882) and Registration Act (1909). The idea behind the statutes was to create an efficient market for the development of agricultural properties so that the country’s resources could be better utilised. Incentives were also offered to promote cultivation. For instance, cleared farmland received a 12-year tax amnesty, while the British encouraged general developments that supported agriculture. Further, transportation networks were improved and credit was made available.

External events also had an effect. The American Civil War (1861-65), which cut off agricultural trade, prompted the British government to accelerate rice production in Myanmar, and the opening of the Suez Canal further improved the economic returns of investing in agriculture in the colony. Under the British, Myanmar’s cultivated area increased by more than 100-fold.

By the end of the 1930s, British Burma was exporting 7m tonnes of rice a year, about half the world's total rice exports at the time. In the immediate post-war period, the focus centred on restoring production lost during the conflict, but self-sufficiency and stockpiling started to become a priority.

While output recovered by 1960, it quickly started to decline again. Under the socialist government, private land rights were withdrawn and replaced instead with land tilling rights, inputs were subsidised and scientific methods of production were introduced. Farmers were required to sell a certain amount of output at a fixed price to the government, which had a monopoly on exports. A new government was formed in 1971 and tried to further promote output with investment, subsidies and the introduction of new technologies. The economy collapsed in the late 1980s, in part as a result of fiscal deficits and imbalances caused by agricultural policies. When the State Law and Order Restoration Council came to power in the late 1980s, market-oriented reforms were enacted, though the government continued to intervene with pro-growth, pro-export policies and support from favoured companies.

Imbalances Remain

Since then, the country has been struggling to get the agricultural sector back on its feet. Some of the failed policies of the past were maintained, while sanctions placed on the country made matters worse by limiting the ability of Myanmar to invest in the sector. Land usage rights remained weak, market systems were not adequately developed, investment in farming was low, water was inefficiently used, financing remained insufficient and the transportation networks were not properly maintained.

“Everything is imported into Myanmar from agricultural equipment to toothbrushes,” U Soe Myint, managing director at the Agriculture and Industrial Development Company, a Yangon-based international trade group, told OBG. “Myanmar has the potential to produce more goods, but first we need to understand what we can manufacture that yields a healthy turnover.”

The last two decades have been primarily a time of stagnation in productivity at best or actual declines in output, leaving the country with one of the highest rates of malnutrition in the region. According to the UN Children’s Fund, an estimated 35.1% of children under the age of five are stunted as a result of long-term malnutrition, which also limits learning and future earnings.

The fall in agricultural output has been dramatic. In terms of rice, in 1985, Myanmar was more productive than Thailand, producing 50% more yield per hectare than its eastern neighbour. By 2005, the situation had reversed, with Thailand 50% more productive than Myanmar. In 2011, Myanmar had 17m ha of cultivable land, but only 60% of it was being cultivated. In many ways, the country is back where it was a century ago.

Turnaround

Efforts are being made, however, to transform the country's agriculture sector, and it is almost certain, given the current state of the land and its strong natural strength, that production, productivity and profitability, especially for small farmers, will increase. Land reform is central to the process.

The country has not had anything approaching private ownership for about half a century, and the lack of relevant rights and security has been greatly responsible for the sector’s poor performance.

To address this gap, a Farmland Law was introduced in April 2012, whereby the government remains the sole owner of the land itself (as the 2008 constitution says that all land is property of the state), but farmers now have the clear right to occupy, sell, mortgage and pass on the land to others. The Land Nationalisation Act of 1953 is no longer in effect.

Land Allocation

One of the main challenges for the sector is “land grabbing”, which has been an issue since the days of the military government, whereby the regime forced farmers off their land to help favoured private companies under the banner of national interest. The main concern of the government at that time was rapid economic development, and it placed that goal over the livelihood of small farmers. It is feared that the situation will not change much. The Vacant, Fallow and Virgin Lands Management Law, which was passed in 2012, allows others to lay claim to property that is not being used. The law can potentially be used by the government or private interests to acquire real estate, and the Farmland Law does not seem to offer enough protection to farmers themselves. Recourse for those who believe they have lost their property unfairly is highly limited. Rather than being heard at the courts, disputes generally have to go to the Farmland Management Body, with escalation only possible to the higher Farmland Management Body in the jurisdiction (regional or state), according to the US Agency for International Development (USAID). Non-governmental organisations (NGOs) and the local press continue to document numerous incidences of alleged land grabbing, and the concern is that this practice will only increase given the opportunities to profit during this period of reform. In August 2013, farmers sent a 17-point statement to the government asking for better treatment and better compensation in the event they are evicted from their property. Other measures taken in recent years to improve agriculture include the creation of the Myanmar Rice Federation in 2012, which succeeded the Myanmar Rice Industry Association formed in 2010 following the merger of the Myanmar Rice and Paddy Traders’ Association, the Myanmar Rice Millers’ Association and the Myanmar Paddy Producers’ Association. Further, in 2012, the Myanma Agribusiness Public Company was created with MMK16bn ($17.6m) in capital to provide loans to farmers. Financing remains a serious problem in the sector, with farmers generally required to take out loans to buy seed and equipment and pay the loans back at harvest time. Owing to the country’s varied weather conditions that often bring both drought and flooding – July and August 2013 saw some of the worst floods in decades – farmers often find themselves in debt and rolling over their obligations from one year to the next. Likewise, underdeveloped transportation links to the markets and minimal pricing information only compounds this issue.

Credit Where It Is Due

Notwithstanding, the country does have a number of institutions and networks providing rural credit. Set up in 1976, the Myanma Agricultural Development Bank (MADB), which was originally founded in 1953 under the previous name of the State Agricultural Bank, provides subsidised financing to roughly 1.4m people, and according to the International Finance Corporation has MMK80bn ($88m) in loans outstanding. The country also has 60 agricultural development companies, which disburse MMK40bn ($44m) in loans each season. The informal sector, primarily moneylenders, are also very active in the sector.

Despite all of these options available, sufficient financing for farms is difficult to come by and not always that useful. By and large, resources are limited. MADB estimates that it takes MMK247,105-370,657 ($272-408) to develop one hectare of land, yet the bank itself is limited to lending MMK123,552 ($136) per hectare and for a maximum of 4 ha. Terms are stringent, with repayment periods of 10 months, penalties for late payment and even the blanket banning of villages where debts of some farmers in that village are outstanding. Agricultural development companies, meanwhile, are running into problems with unpaid loans and an inability to make new loans now due to the lack of funding. Interest rates in the country are high and still higher for small farmers seeking credit. The benchmark rate is currently 10%, but loans to farmers from the informal sector run at roughly 10-20% a month.

Debt troubles feed on themselves, with farmers in the red rushing their output to the market to pay what they owe as soon as possible. This often results in high risks such as growing later into the season to yield more crops. Ultimately, only the wealthy have money to lend, and farmers go more into debt to these lenders.

The problem has nevertheless received some attention. In August 2013, an advisor to the president suggested writing off farmers’ debts, and legislation has been in the works to alleviate credit issues for the farmers. However, the cycle will continue unless robust steps are taken to make agricultural financing markets more efficient and fair. “Lenders need so many things, so the farmer becomes indebted,” U Nyi Nyi, director for the agriculture department at the Yuzana Group, told OBG. “They are not only poor, but indebted.”

Going To Seed

The other priority is the quality of seed. Historically, Myanmar farmers have not really differentiated between grain and seed, simply using grain from one year to be seed the next. This leads to wastage and lower yields. Attempts have been made in the past to solve the problem. The Seed Development Project Phase I was sponsored by the World Bank and ran from 1978 to 1984. Further, the Maize and Oil Seed Production Project, sponsored by USAID, ran from 1982 to 1986. The Quality Seed Production Project, meanwhile, took place between 1984 and 1986, and was sponsored by the FAO. In addition, the Seed Development Project Phase II, which was funded by the World Bank, lasted from 1986 to 1994. A National Seed Committee was also formed in 1977.

On an international level, some countries have been seeking to transfer expertise. While Japan established the very first seed bank in Myanmar in 1988, further initiatives have since taken place. During the period 2000-10, a dozen workshops, seminars and training exercises were held by Singapore, Thailand, the Netherlands, Vietnam and China to help Myanmar with Plant Variety Protection, which gives states legal control or ownership over specific seed and plant varieties.

Good seeds are important. Local varieties produce about 2-3 tonnes of rice per hectare, whereas high-yield varieties produce 4-5 tonnes, and hybrid varieties 10-15 tonnes. Much of what is standing in the way of better seeds is quite basic and will be solved over time.

Transportation and logistics currently hamper the distribution of higher-quality seed, while financial constraints also make it difficult to improve quality and buy good seed. In addition, the country requires additional trained inspectors, better storage and the bureaucratic capacity to develop and implement policy.

In January 2011, a new national seed law was passed, which became effective in January 2013. Some of the key objectives of the law, among others, include assisting the production of crops using pure seed, encouraging seed research, and promoting collaboration among government departments and international organisations to enhance the seed business.

Farmer-Centric

In some ways, doing less will help the sector develop and diversify considerably (see analysis). Under military rule, the state intervened excessively in the market to keep crop prices low. They also favoured large industrial players and focused single-mindedly on increased production. Such policies made investment difficult and disrupted natural incentives, causing a slow but steady deterioration in the health of the system. It also led to a decline in traditional farming skills developed over centuries.

To an extent, Myanmar has been fortunate and avoided problems faced by other nations. Due to its history and the political realities on the ground, the country never underwent a complete agricultural collapse, such as the one China experienced. As a result of sanctions, Myanmar was also never able to over-industrialise or engage in excessively wasteful subsidy. Even so, the priorities of the nation have led to certain imbalances within the system and the pursuit of specific goals, especially generating cash and maximising rice output, at the expense of the farmers themselves. A simple shift away from central control and ambitious benchmarks, and toward more natural and farmer-centric development, may alone be enough to bring the overall system back toward its previous state.

“In the coming years, the voice of the farmer will become more important,” U Soe Win Muang, agriculture economist and former official at the Ministry of Agriculture and Irrigation, told OBG. “Before we emphasised production. Now we are starting to think about the welfare of the farmer.”

Downstream

As in many resource-rich countries, downstream processing is receiving significant attention. Financially, the country makes relatively little from its agricultural outputs, sending most of what its grows to overseas markets (see analysis). Like many nations, Myanmar has realised that most of the value in resources come after they are harvested or extracted and that an economy needs to have production onshore if it is going to realise the full benefits of its national assets. Selling directly into the international marketplace without adding value also exposes the economy to the full brunt of the commodity cycle.

Myanmar is not proposing anything too complex or advanced. The country, for example, just commissioned its first tyre plant, and is also targeting other areas in which more revenue can be raised through its fruits and vegetables. Discussions are currently under way to build juice, coffee and dairy factories. “We should strengthen our food processing. Now, we have an abundance of mangoes. But they go overseas,” said U Soe Myint.

Cautions & Risks

While the sector has the advantage of a significant amount of non-certified organic soil, which is attractive to consumers in the region who are becoming more aware of the dangers of chemicals, attempted transitions to modern farming techniques have not always been smooth. Cases of over- and improper use of pesticides have been reported, endangering the country's reputation as a place for clean fruits, vegetables and grains. Overuse of fertilisers and overproduction, meanwhile, remain real possibilities despite the end of heavy-handed government intervention.

The country still favours rice production due to the continued desire for food security and exports, and it is possible this policy will continue. A draft law has been written that would provide financial support for rice farmers. While the intentions may be good, programmes like this can lead to a glut, which a key problem in a market where overcapacity is already evidence globally, and can result in massive costs for the government, as is currently the case in Thailand. Agricultural experts add that rice can be hard on the soil and use too much water, and that growing fruits and vegetables on land used for rice could be a more productive option. “The government would buy at a fixed price because it was worried about food security. Due to food security, we had to grow rice,” said U Nyi Nyi. “Now we are open, what should we do? Maybe we should not grow rice in irrigated areas and grow market-demanding crops instead.”

Foreign investment in agriculture could also be problematic. While it is definitely needed in order to bring the land to its potential, foreign direct investment into agriculture will almost by definition be difficult. Under the Ministry of National Planning and Economic Development's Notification 2013, signed in January 2013, non-Burmese people and corporations are prohibited from owning small farms or farms that do not use modern techniques. Seed companies, meanwhile, must operate as joint ventures.

Issues surrounding land use may also complicate matters, as it is almost impossible to confirm or disprove title; many transactions are likely to be disputed. At the same time, land prices are currently skyrocketing as a result of speculation, making future agricultural deals potentially expensive.

Outlook

Despite the challenges, the outlook for agriculture in Myanmar is positive. The land is extremely fertile and significant goodwill has been built up, such that despite the many hurdles progress will slowly but surely be made. A whole constellation of providers, including seed companies, fertiliser makers and plantation enterprises, are scrambling to get in, and their presence should help provide the momentum and the building blocks needed for the sector. Multinationals and NGOs are also keen to assist. Their activities in the country will further support agricultural development.

By and large, the government is currently not equipped enough to fully carry out all it has set out to do. However, if Myanmar avoids the pitfalls of agriculture that have challenged other countries in the region and works to best practices, success will build on success and a healthy agricultural market will be restored.

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The Report: Myanmar 2014

Agriculture chapter from The Report: Myanmar 2014

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