Replenishing the rice bowl: Productivity and quality in Myanmar’s rice export industry
Myanmar’s rice industry can be reignited by reforms. However, key challenges need to be addressed for the country to re-establish itself in the international market.
Myanmar once held the distinction of being the world’s largest exporter of rice, accounting for one-third of the global rice trade in 1934-1935. Post-independence nationalisation of the industry was accompanied by a sharp decline in exports, reaching a low of 15,000 tonnes in 1997 (Proximity Designs, 2016). Figure 1 depicts this steep decline. The state maintained a monopoly on rice exports, which served as an important source of foreign exchange earnings despite low volumes (Okamoto, 2005).
Rice quality also deteriorated, as Myanmar farmers sold low-quality rice in response to government sales quotas at unattractive prices. Moreover, milling fees were insufficient to cover equipment repairs, and millers faced no incentive to invest in upgrading their facilities (World Bank, 2014). Thus, Myanmar’s rice industry entered a vicious cycle where low-quality inputs led to low-quality outputs, which soon became uncompetitive in the international market.
Figure 1
Sources: Authors’ representation using data from World Bank (2014) and the USDA FAS.
Note: The 1940-1949 figure averages 1940 and 1945-1949.
Reform and renewal of the rice industry
Fast-forwarding to 2019, the country’s annual rice exports have surged to 2.8 million tonnes, according to the United States Department of Agriculture's (USDA) Foreign Agricultural Service (FAS). This is testimony to the reforms to the sector and the wider economy over the past decade. These included floating the currency, eliminating minimum export prices, and liberalising rice export licenses (World Bank, 2014). With a target set by the Myanmar Rice Federation (MRF) to achieve four million tonnes in exports by 2020-2021, it is vital to build on this momentum by addressing the critical challenges that remain for the industry (Myanmar Rice Federation, 2019).
Of the many challenges facing the rice sector in Myanmar, issues of productivity and quality are central. Importantly, though much of Myanmar’s rice trade occurs informally, this article concentrates on the Myanmar rice industry as it relates to formal exports only.
Challenges going forward:
1. Farm-level productivity:
A major constraint to Myanmar’s rice industry is low productivity at the farm level, manifesting in low yields. This is evident from the observation that Myanmar and Vietnam once exported rice at comparable levels, but consistent increases in Vietnamese average yield allowed the country to surpass Myanmar in rice exports in 1989 – within one year of overtaking Myanmar in average yield (see Figure 2) (Kubo, 2012).
Figure 2
Sources: Authors’ representation using data from the Food and Agriculture Organisation and the USDA FAS.
Note: The red line marks the year that Vietnam surpassed Myanmar in rice exports.
Many determinants of farm-level productivity relate to inputs, such as seed, fertiliser and irrigation. Since 1977, the government has promoted high-yielding varieties (HYVs) of rice seed, with 65% of Myanmar farmers now opting for HYVs. However, this figure is informative only to a limited extent, as the performance of HYVs in Myanmar is frequently undermined by factors such as relying on harvested paddy for seed – which leads to seed degeneration over time – improper fertiliser usage, and inadequate irrigation and drainage facilities (Kubo, 2012; Ministry of Commerce, 2015).
The use of fertiliser is prevalent among Myanmar rice farmers, but generally in low amounts and of limited quality, with the cost of fertilisers and their availability as frequent constraints. The situation is compounded by a lack of sound knowledge on the part of many farmers, with potential negative implications for local ecosystems (Denning et al., 2013; Ministry of Commerce, 2015; Proximity Designs, 2016).
Irrigation makes it possible to grow rice during the dry season, while drainage facilities control the water level in rice fields. The percentage of irrigated areas in Myanmar has almost doubled in 26 years – from 2.7 million acres in 1988 to 5.2 million acres in 2014 – bringing the percentage of sown areas under irrigation to 80-85% (Asian Development Bank, 2016).
One barrier for irrigation development is the country’s outdated legislation governing water resource management. The 1905 Canal Act does not recognise modern approaches such as effective participatory irrigation management and sustainable arrangements for cost recovery (Asian Development Bank, 2016). It was reported in 2017 that the government is drafting a National Water Law, with the assistance of the World Bank (Phyu, 2017).
2. Downstream productivity
For exports, productivity further downstream plays an equally important role. As Bernard and Jensen (1999) note, larger, more productive firms tend to become exporters. The common rationale for this is that there exist additional costs of exporting (e.g. transport costs, distribution costs), which can act as a barrier for less successful firms. In Myanmar, low productivity at the mill level can be a severe constraint for firms that may otherwise be in a position to export. Figure 3 depicts the milling rate in selected countries in the region, with Myanmar at the bottom of the pile until relatively recently.
Significant challenges that affect the productivity of Myanmar rice mills include outdated equipment and a lack of reliable electricity, with the latter also weakening the incentive for millers to upgrade their equipment. In this regard, generous electricity subsidies from the state have discouraged the construction of new power sources and maintenance of existing plants and transmission lines (World Bank, 2014). The recent hike of electricity tariffs is a welcome development from this perspective.
Figure 3
Source: Authors’ representation using data from the USDA FAS.
3. Mechanisation and its discontents
The rice landscape in Myanmar is currently being transformed by mechanisation, in part because of rural labour shortages. While mechanisation can improve productivity, it can also be counterproductive without complimentary upgrades along the value chain. This is evident, for example, in the fertiliser shortages that are now being observed from a decreased use of cattle in Myanmar agriculture (Proximity Designs, 2016).
Similarly, technology that reduces harvest time can inadvertently reduce the value of a harvest as well, as paddy that is left in a damp condition for a few days becomes unfit for human consumption. A complementary intervention in this case would be to develop financial products to support millers in purchasing dryers, which can cost as much as USD 200,000 (Proximity Designs, 2016).
4. The quality paradox
Myanmar’s rice export industry faces a quality paradox. Rice exports from Myanmar are predominantly of low-quality rice, even though the country is a major cultivator of certain premium varieties. More than 90% of rice exported in 2010-2012 included at least 25% broken rice. Moreover, the world demand for low-quality rice is declining rapidly, according to data from the mid-1990s to 2012 (Asian Development Bank, 2014; World Bank, 2014).
Insufficient income from exports of low-quality rice for farmers and other intermediaries, coupled with declining international demand, makes it unsustainable to export low-quality rice for much longer (World Bank, 2014). Thus, if Myanmar is to remain a viable rice exporter, the question of quality needs to be addressed as a matter of priority.
A number of the constraints that render Myanmar rice low-quality have already been touched upon, as they also relate to productivity. For example, less than a quarter of mills in Myanmar were equipped to produce medium to high-grade rice in 2012-2013. The quality of milled rice in Myanmar is also undermined by mixing of seed varieties by farmers and improper drying (World Bank, 2014). Myanmar exporters also deal with intentional mixing at the mill level (Proximity Designs, 2016).
A lack of national quality standards that are consistent with those of international rice buyers compounds these issues. In this regard, the MRF, with the support of the International Finance Corporation, have been revising the country’s milled rice standards and paddy grading system (Demaree-Saddler, 2018).
Overarching lessons:
Several in-depth and comprehensive analyses of Myanmar’s rice industry provide specific and wide-ranging recommendations on how to revamp this sector. In this regard, there are four overarching lessons.
1. The government has a key role to play
Due to its power to formulate policies, provide public goods, and set the agenda, the government is in a unique position to facilitate an enabling environment for investments in the rice sector. The Rice Sector Strategy 2015-2019, part of the broader National Export Strategy, developed by the Ministry of Commerce (MOC) underscores the importance of rice in the overall export mix of the country. While the Rice Sector Strategy provides a detailed diagnosis of the sector with specific recommendations, its effective implementation by the government is fundamentally important if export targets are to be met.
2. Interventions are needed at various points of the rice value chain
Interventions would need to target the challenges faced by different actors simultaneously, with a broad understanding of how different actors and stages of the value chain interact with each other, as evidenced by the mechanisation example above. One pressing concern that affects actors across the chain is a lack of credit. Moyes and Shwedel (2017) estimate the country’s agricultural credit market at USD 4.6 billion, compared with approximately USD 295 million of actual formal agricultural lending at present. The International Growth Centre (IGC) is actively pursuing research in these areas, in collaboration with the MOC.
3. Private investment is crucial given the capital-intensive nature of the rice industry
By providing specific and innovative solutions along the rice value chain, the private sector has a crucial role to play, complimenting that of the government. Private investment, especially from overseas, could provide Myanmar’s rice industry with much-needed capital, high-quality inputs (e.g. seed, fertiliser), and modern equipment (especially for milling).
Foreign investment may also lead to improvements in technical know-how and management practices, while helping producers achieve economies of scale and link up with international distributors and buyers. While there is significant interest in Myanmar’s rice industry from private investors, the policy environment and limited infrastructure still act as deterrents.
4. Easing infrastructure constraints is critical
Whether it is the lack of roads connecting farms to mills, the frequent power outages faced by mills, or port infrastructure challenges that raise trade costs, almost every step of the rice value chain in Myanmar suffers from a lack of adequate infrastructure, limiting productivity, quality, and export performance. The positive effects of investments in infrastructure often spill-over to other sectors, making these investments even more pertinent from a policymaker perspective. It is worth noting that public-private collaboration is vital for infrastructure development in Myanmar, given the scale of the present challenges.
References
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Asian Development Bank (ADB) (2016). Irrigated Agriculture Inclusive Development Project: Irrigation Development and Management. Accessible: https://www.adb.org/sites/default/files/linked-documents/47152-002-sd-01.pdf [Accessed 7 May 2019].
Bernard, A. B. and Jensen, J. B. (1999). “Exceptional exporter performance: cause, effect, or both?”, Journal of International Economics, 47(1), pp.1-25. Accessible: https://pdfs.semanticscholar.org/68da/66581291c30d3dd26d7949eec0cf89d77120.pdf.
Demaree-Saddler, H. (2018). “IFC, partners working toward boosting Myanmar rice industry”, World-Grain.com. Accessible: https://www.world-grain.com/articles/10433-ifc-partners-working-toward-boosting-myanmar-rice-industry [Accessed 7 May 2019].
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Food and Agriculture Organisation (FAO) (2019). FAOSTAT. Accessible: http://www.fao.org/faostat/en/ [Accessed 7 May 2019].
Kubo, K. (2012). “Rice Yield Gap between Myanmar and Vietnam: A Matter of Price Policy or Public Investment in Technology?”, Asian Journal of Agriculture and Development, 10(1), pp. 1-24. Accessible: https://ageconsearch.umn.edu/record/199104/files/AJAD_2013_10_1_1Kubo.pdf [Accessed 7 May 2019].
Ministry of Commerce (MOC) (2015). The Republic of the Union of Myanmar National Export Strategy: Rice Sector Strategy 2015-2019, Nay Pyi Taw: Ministry of Commerce.
Moyes, R. T. and Shwedel, K. (2017). Myths and Maths: The Impact of Financial Regulations on Agriculture in Myanmar, Mekong Business Initiative. Accessible: https://www.mekongbiz.org/wp-content/uploads/2017/06/The-Impact-of-Financial-Regulations-on-Agriculture-in-Myanmar.pdf [Accessed 7 May 2019].
Myanmar Rice Federation (MRF) (2019). Present and Future of Myanmar Rice Industry: Realizing Export-led Growth as the Key Driver.
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