Myanmar told to tackle rice price volatility
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World Bank calls for careful management of rice price volatility, which affects the poor and export competitiveness
“All farmers are struggling... We are faced with very low prices after harvesting, the rising cost of rice production, and hardly any access to bank loans that are suitable for farmers like us,” U Phyo, a farmer of Zeegon Town, told World Bank.
U Phyo owns nine acres of land in Zeegon, which is less than 190 kilometres north of Yangon, where he grows rice.
His hardship was shared with World Bank staff collecting data for the “Myanmar: Rice Price Volatility and Poverty Reduction” report which was released on November 24.
The study finds that rice price volatility in Myanmar is the highest among net rice exporting countries in Asia, preventing Myanmar’s rice farmers from earning high profits and keeping many families at or close to poverty income levels. Rice prices have also risen by 40 per cent between 2009-2013, much higher than in the peer rice net-exporting countries like Vietnam and Thailand. This increases pressure on Myanmar’s overall food security and export competitiveness.
“Rice price volatility is of concern to the Myanmar government given the high importance of rice for farm incomes and consumer expenditures, and thereby for food security and poverty reduction,” the report said.
The report finds that high rice price volatility is mostly due to internal causes which can be addressed by raising productivity, spreading production evenly over the year, improving milling and storage, strengthening market transparency, and adopting export-friendly policies.
“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’s country manager in Myanmar. “A majority of rural population lives close to the poverty line and spends more than 60 per cent of their incomes on food. Even 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.”
A UN survey released in May showed that about 95 per cent of adults in Myanmar live on less than US$10 a day.
The country’s goal is to reduce the poverty rate to 16 per cent by 2015 from 26 per cent in 2011.
Expected to show over 7 per cent in economic growth in the next few years, Myanmar is still one of the smallest economies in the world with the per-capita income below $1,000. Over 70 per cent of population is now living on income from rice.
Myanmar was once the world’s top rice exporter.
According to the Myanmar Rice Federation, the major ricegrowing region is the Ayeywaddy. Myanmar’s average yearly production of rice has been steady at about 30 million tonnes since 2006, according to the federation.
In a report “Myanmar: Capitalising on Rice Export Opportunities” released in June, World Bank said that Myanmar has a chance to rejuvenate its glory if its export strategy is reviewed. The country’s rice exports could more than double if production is raised and foreign investors are welcomed into the milling sector. The report showed Myanmar's paddy yield was the among the lowest in Asean, at 2.52 tonnes per hectare (6.25 rai) during 20102012 compared to 5.60 tonnes in Vietnam, which topped the chart.
While yields are low, price volatility hurts the country’s exports.
“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, a 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“.
Key obstacles
Price volatility in Myanmar could be reduced by spreading rice production more evenly over the marketing year, said World Bank in a new report released this week.
In the “Myanmar: Rice Price Volatility and Poverty Reduction” report, World Bank noted that the increase of rice prices in Myanmar was a result of the large public wage increases in recent years, the increased cross-border trade in rice with China, and economic transition in general. By the end of 2013, Myanmar rice export prices had essentially equalised with the export prices in Vietnam and Thailand, it said.
The high concentration of the paddy harvest in November and December is the main cause of rice price volatility. Nearly 70 per cent of paddy is harvested in just two months of the monsoon season. This results into sharp price drops from December to January and spike-ups between May and October.
The report furthered that lower costs of doing business and improved access to finance for rice mills 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.
“Any strategy for stabilising rice price volatility has to address its structural causes,” said Ulrich Zachau, the World Bank’s country director for Myanmar.
“International experience shows that there is a significant trade-off between lowering price volatility with short-term measures and maintaining price competitiveness. Long-term structural issues can be solved only through investments in agriculture and infrastructure, improved business environment, and social safety nets. Open trade policy should be the one and foremost policy goal for Myanmar”.
Key points from the report:
A good diagnostic assessment of the actual situation is needed in order to differentiate harmful volatility from normal price volatility. Due to the seasonal nature of rice production and the volatile nature of the world market for rice, some volatility is inherent in agricultural markets.
Price volatility in Myanmar can be reduced to an extent only. International experience shows that a trade-off between lowering price volatility with short-term price stabilization measures and maintaining price competitiveness. This is critical for Myanmar in order for it to become a large rice exporter.
Short-term price stabilization measures (such as export restrictions, minimum farm prices, and government-owned rice stocks) often have adverse economic effects and should be avoided.
Lasting price volatility reduction requires changes in farming practices to spread production and harvesting more evenly throughout the marketing year. This will, in turn, depend on farmers’ improved access to irrigation, availability of seeds with different harvesting periods and growth durations, and farm advice on production technologies.
Lower costs of doing business and improved access to finance for rice mill owners and traders can also help. These will reduce storage costs and increase private stocks, which will smooth price fluctuations. This could be facilitated by opening the sector to foreign direct investments.
Modernised rice mills are better positioned to increase the private stocks and trigger productivity and quality improvements at the farm level.
Investments in rural roads and telecommunication will improve rice market transparency because information will be able to pass more quickly from one market to another.
Accurate market information on production, consumption, export and prices will help produce rational decisions and stabilize prices in a market-friendly manner.
Expanding exports to additional markets – both geographically and by quality – will contribute to lowering price volatility. This will require a continuation of open trade policy, investments in infrastructure and ports, and less costly export procedures.
