Necessary reforms are under discussion to move the sector forward

An estimated 45% of Myanmar’s GDP is provided by the country’s agricultural sector, which also employs about 70% of the domestic labour force. With Myanmar’s economy expected to grow 8.5% in 2014/15, according to the World Bank, the government hopes that reforms in the agriculture sector will contribute to higher incomes and job creation. However, despite various reforms under discussion, the huge potential for the sector remains untapped. Agricultural activity occupies only about 18% of Myanmar’s total 68m-ha land area, according to the UN’s Food and Agriculture Organisation, and the agency stipulated that the country has an additional 5.7m ha of land that is cultivable but unused.

A 2013 report prepared for the US Agency for International Development (USAID) on Myanmar summarised that a closed economy and international isolation, combined with internal civil war and violence, were among the factors that have contributed to the stagnation of agricultural production. The sector suffers from a number of challenges.

“Modernisation of the agriculture sector is top priority to ensure we will be able to compete once the free trade agreement between ASEAN members is put in place in 2015,” U Myo Thant, general manager of Myanmar C.P. Livestock Company, told OBG.

Prime Products

Myanmar is well known for its rice and teak production, and is also a leading provider of rubber, oil seed, cotton, corn, chillies and pulses. Whereas a total of about 60 crops are grown commercially in Myanmar, the Asia Development Bank’s (ADB) 2014 statistics revealed that the principal crops were rice, beans and pulses, oilseeds, vegetables and chillies. Rice cultivation takes place on about one-third, or about 18.9m ha, of the total cultivation area. Bean and pulses, which have become major export crops for Myanmar, are grown on about 4.2m ha. Oilseed is grown on 3.3m ha, but remains insufficient to meet local demand, and Myanmar imports about 200,000 tonnes of palm oil annually. Vegetables and chillies, as well as other crops like maize, cotton, rubber, sugarcane and tropical fruits, are grown on about 1m ha of land. The ADB report also stated that slightly under 50% of the total land area is heavily forested or unsuitable for agriculture.

Paddy Farming

Myanmar’s agricultural policy has long been concentrated on rice cultivation, with the majority of farmers involved in the small-scale cultivation of farms of less than five acres. The main rice harvest season begins in November and continues until late December. Paddy production is among the lowest in South-east Asia, at 2.5 tonnes per ha, but it is sufficient for local consumption and even a bit of export. Over the past decade, domestic production has permitted a small rice surplus for export, averaging about 450,000 tonnes annually. In 2011 Myanmar set a new policy aiming to export 4m tonnes of rice annually by 2020 (see analysis).

Most rice mills in Myanmar use outdated machinery, resulting in a high percentage of broken grains and generating low incomes for farmers. Among the major reasons cited for dwindling rice exports are low production, decline of surplus, poor markets, as well as an exceptionally heavy monsoon season over the past two years. Farmers are struggling to equip themselves with modern technology to improve practices in land preparation, seed selection and cultivation. At the same time, the costs of labour, seeds, machines and fertilisers have increased beyond affordability. Further difficulties arise due to a limited and unreliable rural electricity grid, which is compounded by farmers’ lack of access to funding. Furthermore, the duration of bank loans are not flexible enough for the farmers to reap any profit, and issues surrounding land ownership and land preparation also frustrate production.

Weather Woes

Changing weather patterns in recent years have led to exceptionally and untimely high rains, causing flooding and droughts that have significantly impacted rice production output, and consequently pricing. Heavy rains during the October and November 2014 harvest season led to a dramatic drop in the price of rice, from $400 per 100 baskets of paddy (about 1500 kg) in October 2013 to $330 per 100 baskets in October 2014. To overcome the drop on the international market, the Myanmar Farmers Association (MFA) is working with the government to buy paddy from farmers at a fixed price. The Myanmar Rice Federation (MRF), meanwhile, is working to provide farmers with better access to credit and plans to set up warehouses to ensure better storage and quality control.

In 2011 the government also began promoting the use of hybrid rice seeds, but that initiative has not taken off, largely due to high domestic production costs. “Farmers are not keen to take the risks, and they are used to using traditional seeds. For hybrid seeds, you need nurseries and then have to replant them on your acre,” Daw Swe Mon Aung, agricultural specialist at the US Department of Agriculture at the US Embassy in Yangon, told OBG.

Land & Water

Despite current land reform proposals to change the existing system, the state has sole ownership of land in Myanmar, with farmers only holding tillage rights. This creates little incentive for farmers to invest in improving land. Furthermore, with no land titles, most small-scale farmers are left without any collateral for securing banking loans that would help meet production costs.

“Land grabbing” is also a major problem for the agricultural sector. The term refers to a leftover practice from the days of the military government when the regime forced farmers off their land to help favoured private companies under the banner of national interest. In 2012 the government passed the Vacant, Fallow and Virgin Lands Management Law which allows others to lay claim to property that is not being used. The law can thus potentially be used by the government or private interests to acquire real estate, and the Farmland Law does not offer enough protection to farmers themselves.

While Myanmar is fortunate to have abundant water resources, there are challenges related to their uneven distribution. The Ministry of Agriculture and Irrigation (MOAI) has undertaken measures to construct new reservoirs and dams; renovate existing reservoirs to raise storage capacity and efficiently deliver water; and more effectively use groundwater. The Irrigation Department has initiated about 200 irrigation projects, but some have not been fully developed. Field level canals are also in poor condition, and given the numerous obstacles, there is little incentive for farmers to develop a system on their own. Furthermore, there is no single institution responsible for the overall management of national water resources, although a government proposal for establishing a Myanmar Water Commission has been submitted to the MOAI for official approval.

Beans, Pulses & More

Myanmar is a major producer of beans and pulses, and its exports of these products are increasing gradually. The country is now the second-largest exporter of beans and pulses in the world. Most of its exports are going to other Asian countries, with almost 70% to India, followed closely by China, Vietnam and Singapore. Efforts are underway to enter into new markets for these products as well, especially to Europe, the US and the Middle East. In 2013 about 95% of beans and pulses trade was with Asian countries.

U Soe Win Maung, a consultant with the Myanmar Pulses, Beans and Sesame Seeds Merchants Association, told OBG that Myanmar’s exports of beans and pulses have risen slightly in the 2014/15 fiscal year following a slight drop in 2013/14, and is expected to continue its upwards trend. Ministry of Commerce data, meanwhile, showed that as of August 2014 exports of beans and pulses totalled 500,669 tonnes from April 1 to August 8. The ministry’s statistics showed that most of the exports, or some 400,000 tonnes valued at $296m, were transported by sea. Beans and pulses exported by land were valued at about $100m. The ministry also stated that total farm produce exports, including rice, beans and pulses, sesame and corn, reached about $870m in the same period.

Expanding The Field

A major drawback for the export of these beans is that they depend largely on the Indian market. “We have only old clients, no new ones,” said U Soe Win Maung. The association is looking at breaking into other markets, targeting the Middle East, US and EU. However, to do so local producers must improve the quality and standard of their produce, and introduce a proper certification process. There is also a need for modern processing and storage plants. Presently, products are not kept in the correct conditions before being exported, as they are transported to ports in Yangon or Mandalay and then kept in open warehouses before being shipped out. Furthermore, Farmers are being educated on the need to use high-quality seeds and grains to increase production value. The government has no specific policy for beans and pulses, although it has included this sector as part of its National Export Strategy in 2013.

Myanmar’s exotic fruit export segment of bananas and mangoes heads mostly to China. Local press reported that Myanmar would be increasing such production to Asia in coming years, with three new products – dragon fruit, mangosteen and pomelo – in addition to mangoes headed to South Korea in 2015. Myanmar also produces sufficient sugar for domestic consumption through its sugarcane plantations, which provide 380,000 tonnes of sugar annually from 21 sugar mills. Tea is a high-value export product largely planted in Namhsan in the Shan State, but the industry is suffering due to labour shortages and influx of untaxed tea from China.

Fish & Prawns

Myanmar’s seafood segment remains untapped despite signs of improvement following the 2012 lifting of trade sanctions by the EU and the US. This sector also faces challenges like electricity shortages and weak infrastructure as it tries to attract more foreign customers. In June 2014 local press reported that the Ministry of Livestock, Fisheries and Rural Development had granted MMK1.5bn ($1.5m) to livestock breeders and fish farmers to help boost capacity and export revenues. Ministry data showed export revenues falling from $490 in FY 2012/13 to $414 in FY 2013/14. Other media reports indicated that the export of fishery products to the EU and other countries was about $530m in FY 2013-14. Prawn farming has huge potential following a good demand for prawns in the Western market. Fishery breeding, meanwhile, is inefficient and has been unable to compete in the global market, said a report by the Myanmar Fishery Products Processors and Exporters Association (MFPPEA). Myanmar has about 450,000 fish and shrimp farms, but most lack capital and technology.

In 2013 the EU granted Myanmar an export permit under the Generalised System of Preferences, but the country has been unable to take advantage of it given the shortfall in fisheries resources. There are 20 factories permitted to export fishery products to EU countries, but only 10 factories are actively exporting to Europe at present.

Timber

Gaps in border control have resulted in high-quality Myanma timber being illegally exported to neighbouring China, Thailand and India, leading to huge loss of income for the country. As part of the government’s attempt to regulate the timber trade, in March 2014 Myanmar banned all timber exports and worked on establishing a domestic wood-processing industry. Since the new regulation, only sawn wood will be allowed to be shipped. As a result, the wood-processing industry is anticipated to see increasing revenues from sales of finished wood products and higher tax receipts.

A report from the Environmental Investigation Agency (EIA) showed that almost 75% of Myanmar’s timber trade is illegal, accounting for an estimated $6bn loss in revenue. Figures from the Ministry of Environmental Conservation and Forestry from 2000 to 2013 made up only 28% of all recorded international trade in Myanmar logs. This suggests that the rest may be illicitly traded, said the EIA.

In Support

Despite this, in August 2014 the US Treasury Department granted a special one-year licence effective July 2015 for certain US companies to trade with Myanma Timber Enterprise (MTE), a state-related outfit dedicated to extracting timber, and other members of the timber industry currently under sanction by the US. This was seen as support from the US for Myanmar’s reforms. Under the special licence, members of US-based timber group International Wood Products Association (IWPA) can import MTE’s products on the condition that the domestic mills work towards independent legality verification and improve the timber traceability system in Myanmar, said media reports.

“The special licence affecting US firms and the MTE is good for the government and its agency’s image. Myanmar needs this special licence to show that its reforms are backed by the Western world,” said U Barber Cho, joint secretary at the Myanmar Timber Merchants’ Association (MTMA).

While the ban on exporting logs will benefit local traders and the wood-processing industry, there is also an urgent need to expand policy and laws to encompass not just timber and conservation, but also related industries. Currently, for example, there is no institutional governance for wood-based industries. The MTMA also wants better regulation and fair play in the overseeing of daily usage of logs or timbers by industry players. There is also an urgent need to educate the local population on sustainability. Illegal logging takes place because of the high level of poverty among locals, some of whom cut wood for farming and other domestic uses. Various environmental groups have reported that rampant deforestation in the last decade has caused some species of trees to reach near extinction.

Pros & Cons

However, there is also a growing fear that the ban will spur illegal trade due to continued high demand. “There is a high demand and buyers will pay to get Myanmar timber,” Pawan Sharma, timber trader and country manager at Mayar India, told OBG. While the timber ban has affected supply to India, mostly for plywood, it will help spur the local Myanma processing industry, Sharma admitted. Foreign buyers and traders will now have to look at saw milling or veneering the logs in Myanmar before exporting them, and this will increase the potential of the local saw milling and veneering industry. However, for the spin-off industry to reap any benefit, Myanmar would first need to make massive improvements to its saw mills and veneer facilities, as a policy issued in 2009 allows the local industry to saw or veneer only third-quality logs. The policy would then need to be amended to allow export-quality logs to be processed in domestic saw mills and allow exports of 100% of production with no restriction to saw sizes. This would increase competitiveness and the government's export tax revenue.

Rubber

The total rubber acreage in Myanmar stands at 1.43m acres, and the country ranked ninth in the world for rubber production in 2014, according to the Myanmar Rubber Planters and Producers Association (MRPPA). Myanmar is a net rubber exporter, exporting low-grade rubber, ribbed smoked sheet and technically specified rubber, mainly to China, and imports a variety of rubber for domestic use. U Hla Myint, advisor to MRPPA, told OBG that the production levels of rubber are low considering the area of rubber planted, because many areas are not ready for tapping and because of the low yield per unit area. Rubber yields per hectare are only about 750 kg, compared to other regional producers that can produce around 1500 kg to 1700 kg per ha. “Ours is low because many smallholders are still tapping old trees which cannot be replanted due to lack of financing, and there is lack of support from the government,” said U Hla Myint.

The association has urged the government to enforce regulations for planting so that planters use only recommended cultivars or clones, as well as asking the government to require rubber nurseries to be registered, but it has seen little success yet. The government’s planting recommendations were issued some 20 years ago and have since become outdated. There is no proper certification system in place and the MRPPA is presently working with Japan to develop such a system. There are about 12 privately owned rubber processing plants, with only a few producing high-quality rubber. As for foreign investment, Malaysia’s Felda Global Ventures (FGV) signed a joint venture agreement with local partner Pho La Min Trading in March 2014 to set up a rubber processing plant and to look for rubber plantation opportunities in Myanmar. U Hla Myint said the segment can grow with backing from government.

Outlook

Despite structural challenges, Myanmar’s agriculture sector displays potential for growth. Its land is one of the most fertile in South-east Asia, and significant new investment is planned for the coming years. Alongside government-led reform, private sector players are keen to modernise farming practices and join the global supply chain. Openings are being carved up for private entities and foreign investors to develop this sector, while state agencies and other groups are also providing assistance.