Harvesting hope

Harvesting hope

Myanmar moving up in rice market but price volatility and milling industry weakness are challenges.

Rice exports from Myanmar are expected to rise 25% to 1.5 million tonnes in the current fiscal year despite a decline in sales to China, says an industry leader.

A farmer carries paddy seedlings to replant as others uproot paddy at a rain-fed field in Nay Pyi Taw.

Myanmar exported 1.2 million tonnes of rice in the fiscal year that ended on March 31, 2014, with almost all of the sales going to China, Europe, South Africa and Japan, according to the Myanmar Rice Federation.

In the region, Myanmar remains well behind world leaders Thailand and Vietnam but it has made huge strides in the past few years, after seeing rice exports dwindle to almost nothing under decades of junta rule.

China has long been one of Myanmar's biggest customers for rice, much of which is harvested in the Irrawaddy Delta and shipped overland via Shan and Kachin states. However earlier this year Chinese authorities started inspecting rice from Myanmar more closely and rejecting some shipments at border points, even though it met sanitary and phytosanitary (SPS) standards.

Now, reduced exports and a good harvest have led to a glut and contributed to falling prices of paddy in the local market.

The price of paddy has fallen from 450,000 kyats per 100 baskets (a local measurement roughly equivalent to 1.5 tonnes) last season to 280,000 kyats as of the end of October as rice piled up in warehouses. The equivalent in baht would be a decline from 9,480 to 5,900 baht per tonne.

Falling prices have had a social impact as well. Farmers wonder whether they should risk planting a second crop (October to May), as the cost of cultivation has also become a major problem.

"That's why we've been trying to save [the farmers] by collecting their paddy from warehouses by paying a fixed price, for example 350,000 kyats per 100 baskets, and other financing plans," said Chit Khine, the chairman of the Myanmar Rice Federation (MRF) and also the head of Eden Group, one of the country's biggest conglomerates.

The fixed-price purchases helped many farmers weather tough times between June and October. "Now the paddy price is getting back to normal levels, about 370,000 to 380,000 kyats per 100 baskets," said Soe Tun, the chairman of the Myanmar Farmers Association.

As well, heavy rains in November flooded many paddy fields as well as some warehouses. "Rice traders thought there might be a rice shortage and that's why prices are going up again," he added.

Min Naing, a rice trader based in Yangon, said local rice prices had declined because of the earlier paddy price slump. "Quality rice was about 600,000 to 650,000 kyats per tonne last year, but this year it's declined to 520,000 kyats," he said.

"If China still wants to buy our rice, we can easily sell it but for next year, rice production will be less than last year because of heavy rain."

The market price of quality milled rice has fallen from $650 per tonne to $510 lately. China generally buys lower-grade rice, paying around $400 per tonne, said Chit Khine.

However, at the recent Asean summit, China gave Myanmar a fresh vote of confidence. It agreed to buy 200,000 tonnes of rice from Myanmar next year starting in January, and 1 million tonnes the year after that. An inspection group from China will be set up in Yangon to check the quality of rice before it is exported.

"China is still our major trade partner, and though the amount of our rice exports is increasing, we're still behind Thailand and Vietnam because of the quality of the rice," Soe Tun said.

Antiquated mills are the main reason for low rice quality, and as a result Myanmar struggles to sell rice to the likes of Japan and the EU. The MRF and the government are currently trying to upgrade the milling system.

"If we can control the quality of milled rice for export, we can sell at better prices like Thailand," Soe Tun said.

From April to the end of October, Myanmar exported 900,000 tonnes of rice to China, the EU, South Africa and Japan. Rice exports were worth US$330 million, behind beans and pulses at $558 million.

While export prices fluctuate, rice price volatility in the local market brings with it another set of problems. It remains the highest among net rice exporting countries in Asia, preventing farmers from earning higher profits and keeping many families at or close to poverty income levels, according to the World Bank.

Rice prices have also risen by 40% between 2009 and 2013, increasing pressure on the country's overall food security and export competitiveness.

"Agriculture is at the heart of poverty reduction in Myanmar. Changes in rice prices affect nearly 50% of the population whose livelihood depends on rice production," said Abdoulaye Seck, the World Bank country manager in Myanmar.

"A majority of the rural population lives close to the poverty line and spends more than 60% of their income on food. Even a temporary increase in rice prices reduces real income and households' spending on health, education or more nutritious food. Rice price volatility, indeed, should concern everyone in Myanmar."

Price volatility in Myanmar is mostly driven by heavy concentration of paddy production in just two months of a marketing year — November and December. A fragmented seed market, poor roads, weak phone coverage, unreliable market information, low export diversification, and high costs for rice mills to maintain stocks amplify price fluctuations even further.

"Addressing price volatility requires a good assessment of the actual situation because rice production is seasonal and price volatility is inherent in agricultural markets, said Sergiy Zorya, a Word Bank senior agricultural economist and lead author of the report.

"Stable prices per se do not generate long-term agricultural growth if it is achieved through shortsighted policies. Short-term measures such as export restrictions, minimum farm prices or government-owned stocks might reduce some volatility but rarely produce positive outcomes for food security and poverty reduction in the long term."

Price volatility could be reduced by spreading rice production more evenly over the marketing year, according to the report. Lower costs of doing business and improved access to finance for millers and traders would reduce storage costs and increase private stocks, acting to smooth price fluctuations. Investments in rural roads and telecom infrastructure would increase market integration and help stabilise rice prices in a market-friendly manner, it added.

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