Sow and reap: Rapid development of a vital sector promises increased yields

On the back of inefficient government policies and limited public expenditure, the agriculture sector dwindled under military rule. However, in the wake of economic liberalisation, increased investment and structural reform, the sector’s potential is ready to be unlocked. In recent years efforts have been made to enhance agricultural output with greater investment in production and post-harvest infrastructure. According to the Directorate of Investment and Company Administration (DICA), a total of $134.5m in foreign direct investment (FDI) was approved for the agriculture sector in FY 2017/18, more than the combined total over the previous six years. With approximately two-thirds of the workforce directly or indirectly engaged in some form of farming, policymakers are eager to rejuvenate the sector. The adoption of a revamped master plan is expected to nurture Myanmar’s agriculture-based economy, with extension services being scaled up to cover more farmers and their crops.

Agriculture Policy

Under the current government, led by the National League for Democracy (NLD), efforts to increase the adoption of mechanised techniques through greater access to finance is enabling farmers to better respond to local and global market opportunities. Likewise, increased spending on nutrition security and climate-smart agriculture is helping to bolster agricultural competitiveness. This drive is spearheaded by initiatives such as the Climate-Friendly Agri-business Value Chains Sector Project, funded by the Asian Development Bank (ADB).

“The agriculture sector is rebounding as a result of structural reform and mechanisation efforts,” U Myint Thein, former president of the Myanmar Academy of Agricultural, Forestry, Livestock and Fishery Sciences, told OBG. “Productivity will continue to rise as more modern equipment is imported. However, a number of obstacles, such as inefficient policy design and implementation, continue to hinder expansion.” In order to realise the full potential of the sector, efforts are ongoing to close the yield gap, produce higher-value crops and increase production of the fisheries segment. Notwithstanding this, Myanmar’s agriculture sector still faces basic supply constraints. While structural reform under a democratic government promises to diversify farming output and expand niche foreign markets, concerns remain over the implementation of public programmes due to limited capacity-building efforts, inadequate coordination and public finance management problems. To address these issues, policymakers are collaborating with international organisations to improve governance, resolve land rights issues, widen access to finance and modernise infrastructure. “The transformation of Myanmar from a low-value grain producer to an exporter of high-quality food products is within reach,” U Myint Thein told OBG. “The execution of well-designed public programmes will determine Myanmar’s success,” he added.

Sustainable Growth

In an effort to identify investment priorities and boost agricultural output, Myanmar’s government has implemented a new five-year development plan, the Agricultural Development Strategy and Investment Plan (ADS). The ADS is intended to steer the farming sector into a new era of sustainable growth. Launched by the Ministry of Agriculture, Livestock and Irrigation (MALI) in June 2018, with assistance from the ADB, the UN Food and Agriculture Organisation, and the Livelihoods and Food Security Trust Fund (LIFT), the ADS attempts to address key issues such as the lack of proper infrastructure in rural areas, complex land tenures, low agricultural productivity and weak international demand for domestic food products. It also aims to promote Myanmar as a leading agricultural producer within South-east Asia by accelerating growth across agriculture value chains, a goal which is set to be further boosted by the Climate-Friendly Agri-business Value Chains Sector Project. This initiative should assist in developing more sophisticated and efficient value chains for products including rice, pulses, fruits, vegetables, shrimp, cattle, maize, cassava and rubber. Together, these measures will boost efficiency and promote rural job creation.

Performance

In terms of economic contribution, agriculture, forestry and fishing accounted for 26.18% of GDP in 2017. Agriculture exports were at $2.8bn in 2017/18, an increase of $171m, or 6.5%, relative to 2016/17. According to the Department of Planning at the Ministry of Planning and Finance, the growth rate in the agriculture sector is projected to more than double, reaching 3.5% in 2018, as compared to 1.3% in 2017. Despite the sector’s significant GDP contribution, agricultural activity grew by only 2.5% on average between 2009/10 and 2016/17. This is just half the growth rate experienced in neighbouring China and Thailand during the same stage of their economic development. As a result of extreme weather conditions, recent agricultural performance in Myanmar has been volatile (see analysis). The cumulative growth rate of the sector between 2011/12 and 2016/17 was 15%, while during the same period cumulative growth in industry was 55% and services expanded by 59%.

Despite endeavours to reinvigorate the agriculture sector, a number of lingering issues continue to hinder production. “Shortfalls in irrigation and machinery contribute to relatively low productivity rates compared to neighbouring countries,” U Aung Thein Naung, managing director of AJ Myanmar, told OBG. “There is a major opportunity for foreign investors to introduce irrigation systems and new seeds.” National average yields for monsoon paddy were about 3.8m tonnes per ha in 2016/17, and for summer paddy they were 4.6m tonnes per ha, lower than other countries in the region.

Low productivity has translated into low wages, which has hindered the advancement of smallholder farms. According to a 2016 study by the World Bank and LIFT, local farmers only earn about $1.80-$2.50 per day in monsoon season, compared to $8.50 per day in Thailand and $7 per day in the Philippines. The study also found that one day of work generates 23 kg of paddy in Myanmar during the monsoon season, compared to 62 kg in Cambodia, 429 kg in Vietnam and 547 kg in Thailand. While productivity is behind other ASEAN rice-producing nations, mechanisation adoption rates are rising rapidly, particularly in the main agricultural zones, which have seen continuous growth in the ownership of machines, in tandem with declines in the purchase price between 2007 and 2017. Growth drivers included the introduction of hire purchase agreements with commercial banks, the use of agricultural land titles as collateral, rising wage rates and reduced capital constraints for machine suppliers.

In recent years, rice prices have fluctuated as weather shocks have intermittently reduced supply of the crop. During the monsoon season, the domestic rice market is oversupplied and prices fall, hitting lows in January. The lack of warehouses also prevents greater price stability, as most farmers are unable to store paddy until prices recover. In 2016 there were approximately 30m tonnes of rice harvested and a total of 17,000 rice mills. According to the Myanmar Rice Federation, rice exports reached 2.6m tonnes in March 2018, and they were expected to reach nearly 3m tonnes over the course of FY 2017/18, exceeding the original projection of 2m tonnes. In 2017 total rice exports generated $800m in revenue.

While rice is by far the most widely sown crop, beans and pulses are the top export earners. Myanmar is the second-largest global exporter of beans and pulses after Canada, with approximately $1bn worth of beans and pulses exported in 2017. According to the US Department of Agriculture’s Foreign Agriculture Service, Myanmar exported 900,000 tonnes of maize from a total of 2.1m tonnes produced in 2017. Livestock, meanwhile, consists mainly of cattle, pigs and poultry, although there is little commercial consumption and rather limited FDI in this segment to date.

Investment & Funding

Prior to the beginning of economic liberalisation, Myanmar’s public spending had a limited impact on agricultural growth, in part due to inefficient land policies and a lack of investment in agricultural research and complementary farming programmes. In particular, local farmers have suffered from a lack of public expenditure on soil nutrient management and plant protection, as well as virtually no access to crop insurance. However, recent investments in mechanisation and a first-of-its-kind insurance scheme are beginning to bolster agricultural production, even if questions remain over the insurance scheme’s viability. There has been low initial interest from farmers, with most insurers and agricultural companies indicating the possibility of subsidising the policies (see analysis).

Together with the regional and national budgets, the Myanmar Agricultural Development Bank (MADB) interest rate subsidy and donor funds to MALI, total agricultural spending in 2016/17 was MMK790bn ($558.8m), a nearly three-fold increase from MMK268bn ($189.6m) in 2009/10. According to an agriculture public expenditure review by LIFT, the portion of GDP allocated to agriculture grew from 0.77% in 2009/10 to 0.93% in 2016/17, peaking at 1.21% of GDP in 2015/16. Between 2009/10 and 2016/17 the share of the agriculture sector in the national budget fell from 8.4% to 5.3%. By comparison, most developing countries in Asia allocated between 0.2% and 0.7% of GDP to agriculture over the same timeframe. During the LIFT review period, more than 50% of MALI’s budget was spent on irrigation and 15% on mechanisation efforts, while agricultural finance and crop programmes averaged 15% each. Despite the majority of expenditure going towards irrigation, only 16.2% of total crop area was connected to public irrigation systems in 2015.

During the review period, areas such as research, extension, planning, statistics, monitoring and evaluation, soil nutrient management, input quality assurance, plant protection, quarantine and sanitation received little attention. Meanwhile, agricultural research received only 0.04% of agricultural GDP in 2016/17, compared to an average of 0.6% in Asia and 2.5% in developed countries, according to the LIFT report.

Funding Partners

Despite fears of a so-called debt trap (see Economy chapter), the agriculture sector remains reliant on donor funding. In August 2018 the Parliament passed a motion to accept a loan of $40.5m from the ADB to help implement projects under MALI. Part of the loan will be used to fund the Climate-Friendly Agri-business Value Chains Sector Project for 14 townships in the Magway, Mandalay and Sagaing regions, which will allow for the production of agricultural products that meet ISO 17025 standards, helping local producers to penetrate international markets.

Following the approval of the ADB loan, the Parliament approved a loan of $8.98m from the International Fund for Agricultural Development (IFAD) to conduct projects under MALI and the Ministry of Planning and Finance. As of late 2018 the repayment requirements to the ADB and IFAD had not been released, though a soft loan of €30m from the Italian government to MALI was also approved for the electrification of remote rural homes. This interest-free loan was offered with a grace period of 18 years and a repayment period of 10 years, starting in 2036.

While major efforts have been made to increase access to finance, many rural households have historically depended on informal money lenders, with interest rates as high as 20% per month. A rise in microfinance providers has eased this constraint, but their reach is geographically limited and financing depth per loan remains shallow. Access to formal finance is thus one of the sector’s top constraints. As it stands, the state-owned MADB is the primary source of funding for farmers. The lender does not require collateral to issue loans, as it spreads risk by lending to groups of farmers who collectively guarantee each other. By contrast, formal financial institutions require collateral to issue loans. A lack of secure tenure makes accessing loans from such institutions impossible for most farmers.

Microfinance

Launched in December 2016, the Agri-business Finance Programme (AFP) is a good example of how donors, government and the private sector can form partnerships to increase farming productivity. With an initial contribution of $11bn from LIFT, the AFP is providing financing for farm machinery on terms that farmers can afford. The AFP has successfully provided affordable finance for tractors, threshers, combine harvesters and other equipment to thousands of farmers around the country. Maha Agriculture, a local microfinance institution and subsidiary of Myanma Awba Group, confirmed a funding agreement with Yoma Bank in April 2018 for MMK3.5bn ($2.5m). The loan, which falls under the AFP, will enable Maha Agriculture to reach an additional 6000 farming families. The funding will also allow it to provide more small, unsecured loans to farmers, vendors and micro-enterprises. Prior to the Yoma Bank loan, Maha Agriculture was providing assistance to 10,000 families. The much-needed funds will assist farmers with the acquisition of vital inputs, among them fertilisers, seeds and other complementary products. Cutting-edge technology is also set to play an increasingly instrumental role. “Start-ups across South-east Asia are collaborating with major investors and conglomerates to achieve democratised agriculture. Robotic technology will have a huge impact on small-scale agriculture in the region,” Kiwi Aliwarga, CEO of UMG Myanmar, one of the country’s leading business conglomerates, told OBG.

Land & Top Crops

Around 60 different types of crops are grown across the nation’s total land area of 67.6m ha, of which 12.8m ha is cultivated. Most farms produce paddy during monsoon season but grow a variety of other crops, such as beans and pulses, oil crops and maize, during the dry season.

Rice production is highest in the Ayeyarwady Delta, while the central dry zone is home to the most beans and pulses, and oil crops, due to their ability to tolerate drier conditions. The Shan State, Sagaing Region and Chin State are home to the most fields of maize, the third-largest crop in terms of total land area. While rice, beans and pulses, and maize account for the majority of cultivated land, a number of other crops can be found throughout the countryside, including groundnut, sesame seeds, watermelons and soybeans. Rubber plantations, meanwhile, are a mainstay of the Tanintharyi region and Kayin and Mon states.

Fisheries

The fisheries industry plays a key role in Myanmar’s economy and culture, accounting for half of all animal foods consumed by the general public. Myanmar is among the top global fish-producing nations. In 2015/16, the country’s total output of fish was approximately 3m tonnes, while in 2017/18 it exported 560,000 tonnes of fishery products, worth $711m.

Fishery supply chains in Myanmar are primarily domestic oriented and traditional, with exports of fish landed in the country fairly limited in comparison to Thailand and Vietnam, representing around 8% of officially recorded fish production. Despite efforts to develop the marine subsector during military rule, the country still lacks a sizeable domestic fleet of trawlers. However, fishing by international fleets has been going on since the 1970’s, a development which – despite a later ban – has negatively impacted the country’s fish stocks. “A significant portion of large-scale fishing in Myanmar waters is undertaken by foreign vessels,” Merabi Chkhenkeli, country representative at Mekong Economics, told OBG. “The majority of catches are shipped to Thailand, Malaysia and Taiwan.”

Timber

Teak wood has long served as an important source of revenue for logging companies and the government. However, weak monitoring capacity has fuelled the illegal timber trade over the years, and as a result, the nation’s forests have been significantly depleted. While Myanmar remains one of most forested countries in the region, its intact forests are declining at a rate of 0.94% per annum. Log export bans have managed to slow the rate of deforestation and encourage investment in the downstream segment, but illegal logging activity continues to destroy forests, particularly in the Bago Yoma mountain ranges. Since coming to power, the NLD government has suspended timber log exports in an effort to control deforestation rates, and it also plans to significantly reduce annual timber extractions. However, concerns remain over the ability to monitor and diminish illegal logging activity.

Outlook

Easing fixed collateral requirements and expanding cash flow-based lending is vital to unlocking the potential of Myanmar’s agriculture sector. Likewise, effective public capacity-building programmes, secure land tenure and FDI will be key to long-term development. As a whole, the agriculture sector presents a number of opportunities that could help the country restore its reputation as the “rice bowl of Asia.” Robust population growth in neighbouring countries and rising global demand for agricultural goods presents an opportunity to boost exports, while warehouse receipt financing, a new private-sector-led scheme that enables farmers to use crops stored in participating warehouses as collateral for loans, has the potential to boost access to credit. With greater capital injection, farmers could purchase more machinery, which would in turn improve labour productivity and yields. In the long term this should lead to the development of complementary value-added services such as transport and processing, creating a more robust and cost-competitive sector.

Improving the efficiency of irrigation investment will require a shift of focus from infrastructure development to infrastructure management. This implies a reallocation of funds from new installations to the improvement of existing irrigation systems as well as on-farm water infrastructure. This will also require increased operation and maintenance funding, as well as larger budgets for region and state governments to allocate funds to irrigation networks. In addition, institutional strengthening at the ministry level will require additional funding, which will aid in the design and implementation of the public programme.

Policymakers, donor agencies and investors still have many challenges ahead. However, Myanmar’s fertile soils hold the potential to unlock economic growth if efforts to improve mechanisation and financing provision, and achieve greater clarity in land rights, continue.