My Thesis

CHAPTER 1 INTRODUCTION 1.1 Rice in Myanmar Paddy is originated in the Southeast Asia. Rice is staple food for 6000 years in this region. It is staple food and daily diet in Myanmar too. People consume various kinds of traditional snacks made of rice, broken rice and sticky rice. Per capita consumption of rice in Myanmar was 195 kg in 2001. Successive governments attempted to develop the country rice economy to provide sufficient rice for domestic consumption in line with food security for increasing population, and enhancing income by rice export. It is noted that these successive governments have one main interest to produce rice in surplus though they did not have same political, economical and social objectives. Generally, these successive governments can be classified as follows (Maung, 1982): -

Myanmar kings’ Era

-

British colonial period

(1826-1941)

-

Japanese Occupation

(1941-1945)

-

Before and after Independence

(1945-1961)

-

Revolutionary Council Era

(1962-1974)

-

Socialist Economy Era

(1974-1988)

-

Military Regime

(1988 up to now)

In the time of Myanmar kings, farmers were engaged in agriculture for self-sufficiency for rice and other crops and for getting personnel goods. Barter system was practiced. Myanmar kings encouraged the agricultural cultivation and took appropriate measures, and constructed new reservoirs, lakes, canal and maintained the old irrigation network. Starting from 1824, the British colonialists occupied Burma for three times, and the country fell in 1885. In this era, they established the colonial capitalist economic system. Rice area was expended to 5.07 million hectares and around 3 million tons of rice was exported from 1923 to 1940. The highest production of paddy was over 8 million tons during this era. In December

1

1941, the Second World War II was spread into Burma, and Japanese occupation started. Up to 1941, Burma exported 3.4 million tons of rice products annually. Burma was not able to export rice and paddy due to SWW II, and consequently, the price of paddy dropped sharply due to the halt of export of rice. It was estimated that only 2.63 million hectares of paddy areas were cultivated in 1944-45. When the SWW II ended in 1945, British government took power again because they won in the war. Burmese people tried to gain independence from British. On January 4, 1948, Burma regained independence and parliamentary government took place in. During this time, rice sown area had increased to 3.83 million hectares and it was produced 5.6 million metric tons of paddy in 1951-52. Over 1 million ton of rice was exported from 1947-48 to 1951-52. Parliamentary government tried to regain the previous sown area, and implemented Eight-year Pyidawtha Plan from 1952-53 to 1959-60. At that time, the highest level of rice export was recorded at 1.8 million tons. In 1961-62, paddy sown area was reached 4.6 million hectares, and it was produced 6.8 million metric tons of paddy. The country’s annual rice export was over 1 million ton. On March 2, 1962, the Revolutionary Council, otherwise military men, took the responsibility of the state. Then rice marketing was nationalized. No traders were not allowed to carry out purchase, storage, marketing, milling and distribution of rice and rice products, and later on the business was become SOE. In 1964-65, 5.11 million hectares of land was cultivated for paddy, surpassing 5.07 million hectares of the highest sown area in 1940-41. In that year, over 1 million ton of rice was exported and total paddy production was 8.5 million metric tons. During 1960’s, the Green Revolution was introduced by the world research communities. High yielding varieties such as IR 8 and IR 5 were introduced into Burma to increase rice production. Since that time, the Revolutionary Council adopted the new state constitution on January 3, 1974 the state came to be known as the Socialist Republic of the Union of Myanmar. Rice production was stagnant because of unattractive (fixed) prices set by the government through its agencies. Food security

2

was a case to feed its increasing population. To overcome this problem, the government launched the “whole township paddy production programme” (WTPPP) from 1977-78 to 1985-86. It emphasized on the production rather than income maximization for farmers, and subsidized agricultural inputs such as chemical fertilizers, agricultural loans, etc. The country’s paddy production reached over 14 million metric tons, and the average annual rice export during that time was 0.5 million metric tons. In 1988, people demanded to quit the socialist government due to decreasing economy for several reasons. The State Law and Order Restoration Council (SLORC), otherwise military regime, assumed the responsibilities of the state in 1988, and Myanmar Agricultural Produce Trading (MAPT) was responsible for marketing of rice and paddy. From 1988 to 2002, the SLORC carried out to sell rice to the specific groups at reasonable price, to provide rice to the victims of natural disasters free of charge and to reserve rice that may need in times of military, political and economic emergencies, and to export the surplus rice to earn foreign exchange. In November 1997, the SLORC changed its name as State Peace and Development Council (SPDC). The SPDC continued to practice as under the SLORC. MAPT disbursed advanced payments to farmers under contracts as in the previous years. This system had been practiced up to April 22, 2003. The SPDC announced an issue on April 23, 2003, that it would end direct purchase of paddy from farmers beginning from fiscal 2003-2004, and would adopt the new rice marketing policy allowing free marketing of the paddy, rice and rice commodities. Unexpectedly, it declared that rice export is not allowed for unidentified period for unknown reasons. It could be seen that rice was treated as a major or as a national food in successive era. Rice dominates the agriculture sector, and shares 49 percent of the total crop sown area. Paddy production of different regions for 2003-04 in Myanmar is shown in Table 1.1. Delta region shares 63 percent of total sown area and 69 percent of the country’s rice production. It is well known as the country’s rice bowl. Although Myanmar is rice-surplus country, and can sufficiently provide rice for domestic

3

consumption and export, the central dry zone region, Tanintharyi division in coastal region, and Shan, Kachin, Chin states in mountainous regions are still rice deficit areas. The average rice yield in delta region is over 3 metric tons per hectare, and that of the rest ones range from 1.7 to 2.94 metric tons per hectares.

Table 1.1 Paddy production of different region in 2003 Region

Yield (kg/ha)

Harvested area

Production (1000

(1000 ha)

metric ton)

Delta

3188.50

3876.00

14073.00

Coastal

3000.73

516.00

1708.00

Central Dry Zone

3311.90

1252.00

4501.00

Mountainous

2647.72

884.00

2854.00

Source: MAS

1.2 Aims and Purposes of the Research Most of the government of every country has intervened in the market pricing of food grains to promote price stability. A number of stabilization schemes has used in developing and developed countries. Government of Myanmar has also practiced some form of control over prices and trade in commodity through its agency, Myanmar Agricultural Produce Trading (MAPT). Government intervention policies could not fit to the welfare of poor in Myanmar. The government announced it would end a 40 year policy and permit rice to be sold privately via “free trade” in April 2003. But it was not longer and it was revoked in 2004, it might be, not to be happen some political riot because of its transition to democratic country. On this respect and parallel, Myanmar’s participation in ASEAN and prosperity of Myanmar in the region need partly on development of agriculture through transformation of its agricultural policy. Therefore, it is needed to study Myanmar agriculture sector in all aspects. Dorosh and Shahabuddin (2002) pointed out that “domestic rice procurement contributed relatively little to raising domestic producer price at harvest time,

4

involved only a small percentage farmers, and incurred excessive costs following successful harvests because of procurement prices set far in excess of market prices in Bangladesh”. Nielsen (2003) showed that the export quota has been a very restrictive policy tool that has kept Vietnamese rice production and exports well below potential. There are two major components in intervention: (1) price intervention, and (2) institutional intervention. A set of direct policy interventions may distort prices such as export taxes, import tariffs, trade quotas, and domestic producer and consumer taxes and subsidies. It is relevant to examine the selected policy goals, and efficiency and effectiveness of the overall system as a vehicle for policy implementation in evaluating intervention. In particular, the research aims to shed light on two key questions: 1. What were the costs and benefits associated with given policies and intervention systems, in comparison with no intervention case? 2. Who gained and who lost as a result of intervention? Partial equilibrium analysis is the starting point for analysis of agricultural price policy. The partial equilibrium models equate supply and demand in one or more markets clear at their equilibrium price levels. This makes prices endogenous. Partial equilibrium models do not include all production and consumption accounts in an economy, nor do they attempt to capture all of the economy’s markets and prices. The approach allows the analyst to trace the impact of changes in one market on other markets, but it only captures such changes in the markets included in the model. Partial equilibrium models are best suited to analyzing sector reforms that are less likely to have large impacts on macroeconomic aggregates.

1.3 Specific Objectives (1) To describe the present status of physical, economic structure and paddy/rice production system in Myanmar (2) To estimate the paddy/rice supply and demand functions

5

(3) To examine the welfare of consumers and producers of paddy/rice, and government net treasury position from intervention, and (4) To investigate the further liberalization of rice markets in Myanmar.

1.4 Methodology A variety of methods is used to examine the various research tasks. These are descriptive analysis, time-series analysis, and econometric models for estimating demand and supply elasticities. Each method will be further explained in the following chapters. Data were collected both published and unpublished data from the following sources: Myanmar Agriculture Service (MAS), Ministry of Agriculture and Irrigation (MOAI); Department of Agricultural planning (DAP), MOAI; Central Statistical Organization (CSO), Ministry of National Planning and Development; Myanmar Agricultural Produce Trading (MAPT), Ministry of Commerce, and Other related local and international institutions.

1.5 Organization Chapter 2 examines the physical and economic structure of Myanmar. It provides geography, climate, natural resources, population and economic structure and summarizes the role of agriculture in Myanmar Economy. Chapter 3 looks at the some literature review. It provides background of government intervention, analysis of demand and supply and partial equilibrium analysis. Chapter 4 studies the rice production and supply. It focuses on rice production and characteristics, classification, cropping pattern, cost of production and estimating the elasticity of rice supply. Chapter 5 shows the paddy/rice marketing and demand in Myanmar. It provides paddy/rice marketing, structure of markets, rice demand and trend in consumption and econometric analysis of rice demand based on HIES carried out by CSO.

6

Chapter 6 uses the partial equilibrium model to evaluate the effects of pricing policy in Myanmar rice economy. Firstly it develops the methodology. The elasticity of rice demand and supply is used in the model. This involves comparing the volume of production, consumption and export evident at intervention prices with those that are consistent with a hypothetical no intervention outcome, and evaluation of welfare for producers, consumers and government net gain from intervention. Chapter 7 concludes the results of the study, summarizing the effects of pricing policy and simulation, and some recommendations are made with regard for other studies.

7

CHAPTER 2 THE PHYSICAL AND ECONOMIC STRUCTURE 2.1 Geography Myanmar is geographically located between 9 Degree 58' to 28 Degree 31' N and 9 Degree 29' to 10 Degree 10' E. Bounded by land on the northeast, north, east and the remaining sides by sea, it stretches for about 1275 miles from north to south and 582 miles from east to west, while approximating 261228 square miles, in total area. Myanmar is situated in Southeast Asia and is bordered on the north and northeast by China, on the east and southeast by Laos and Thailand, on the south by the Andaman Sea and the Bay of Bengal and on the west by Bangladesh and India (Figure 2.1). Myanmar's coastline defines the eastern shore of the Bay of Bengal, running from the Bangladesh border in the down to the Malay Peninsula and Thai territory in the southeast. Southern Myanmar consists largely of the broad river valley of the Ayeyarwaddy. The Ayeyarwaddy rushes down through great mountain gorges in northern Myanmar before spreading out into one of the largest river delta in Asia. Both of Myanmar's principal cities- Yangon and Mandalay- are situated along the Ayeyarwaddy, and 1600km river is navigable for almost two thirds of its length. The vast majority of Myanmar's people live in the lowland regions of this river valley in the Ayeyarwaddy basin. This fertile expense, which sits within the tropical monsoon belt, is one of the world's great rice growing regions.

2.2 Administrative Divisions and States Administratively, the country is divided into 7 states and 7 divisions; namely, Kachin, Kayah, Kayin, Chin, Mon, Rakhine, Shan States and Sagaing, Tanintharyi, Bago, Magway, Mandalay, Yangon and Ayeyarwaddy divisions. It is divided into 62 districts which comprise 324 townships and 13745 village tracts in the rural areas and 2470 quarters in the urban areas.

8

Figure 2.1 Union of Myanmar

2.3 Climate Myanmar has two distinct dry and wet seasons. The dry season runs from mid-October to mid-May and the rest being the wet season. Myanmar has the effect of monsoon in different parts of the country. Temperature varies from 38˙C to 19˙C, humidity from 82.8 percent to 66 percent. The precipitation depends on the locality,

9

elevation and months. The climatological data by regions is given in Table 2.1. The agroclimatic conditions of Myanmar range from that of equatorial to cool temperate.

Table 2.1 Climatological data by regions for 2002 Region

Annual Rainfall (mm)

Temperature Max

Min

Relative Humidity (%)

Delta

3870.50

32.75

22.00

78.38

Coastal

5496.50

31.25

21.75

80.35

Central Dry Zone

1117.67

33.73

21.60

70.80

Mountainous

2277.00

26.97

16.72

74.05

Source: CSO

2.4 Agroclimatic Regions and its characteristics Generally, the country can be divided into four regions according to agroclimatic conditions; namely, Delta, Coastal, Central dry zone and Mountainous regions. The Delta region has the highest population density, highest land productivity (mostly alluvial soil), moderately high rainfall, generally flat topography, and excellent conditions for growing rice. The Coastal region can be characterized with small land area, highest annual rainfall exceeding 4000mm per annum, and highly suitable for growing perennial crops. The Central dry zone has lowest annual rainfall, sandy soils, and the second highest population density. The Mountainous region has the largest area comprising dense forest, poor road infrastructure, and low population density.

2.5 Natural Resources Myanmar is rich in natural resources. More than half of the area of the country is covered by dense forest which can produce valuable hard woods. Myanmar's teak is famous in the world and in addition other varieties of hard wood are available in abundance. Myanmar also has well-known gems, and being produced 36 types of precious stones and gems. Production of mineral resources such as gold, silver, copper,

10

lead, tin and nickel are being carried out by private firms and SOEs. Myanmar with a coastal line of 2832 km is also rich in marine resources. It has been estimated one million metric tons of fishery resources could be produced annually on a sustainable basis. Many foreign companies are investing to explore oil and gas. Presently, 7 companies had signed 12 contracts for onshore blocks and another 7 companies had signed 8 contracts for offshore blocks. Most of Myanmar's natural resources are still untapped. Therefore, there is great potential for exploiting natural resources in Myanmar. As for water resources, there are four major river basins; namely, The Ayeyarwaddy, the Chindwin, the Sittaung, and the Thanlwin. These are flowing north to south into the Andaman Sea. The Ayeyarwaddy basin creates a vast fertile delta region. Based on the parent material, physical features and vegetation, soil in Myanmar can be classified into different types in various parts of the country. Different soil types and suitable crops are shown in Table 2.2.

2.6 The Economic Context 2.6.1 Population and Labour Force According to population census in 1983-84, population was 35.66 million. The population of Myanmar in 2001-02 was estimated to be at least 51.1 million with a growth rate of 2.02 percent. Approximately 73 percent of total population reside in rural area and depends mainly on agriculture. The country's active labour force is 17.23 millions, and 65 percent engage in agriculture sector (Figure2.2). Delta region has the highest number of farm families.

2.6.2 Economic structure Nation's GDP grew 10 percent in FY2002 (ended 31 March, 2003) according to the official estimate. In FY2003, Myanmar faced sanctions from US and EU that constrained growth and hurt international trade and investment in Myanmar. Troubles

11

Table 2.2 Different soil types in Myanmar Soil type Fluvisol

Area ('000ha) 736

Percent 1.1

Suitable crop Pulses, Chillies, Onion, Vegetables, Groundnut Paddy, Jute, Maize, Sesamum

Gleysol

3051

4.5

Paddy, Pulses, Sesamum, Maize, Sugarcane Vegetables, Groundnut, Cotton, Jute, Tobacco

Gley-Gleysol Gleysol-Calcaric Gleysol-S Vertisol

555

0.8

Paddy,Jute

55

0.1

Paddy, Chillies, Pulses, Sorghum, Maize, Cotton

2241

3.3

Paddy, Vegetables, Jute, Sugarcane, Pulses

482

0.7

Paddy, Groundnut, Sesamum, Pulses, Sunflower Cotton, Sugarcane, Chillies, Sorghum, Fodder

Catena of Luvisol

1781

2.6

Paddy, Chillies, Groundnut, Sesamum, Cotton, Pulses, Sugarcane, Sunflower, Sorghum, Fodder, Vegetables

Acriosol

4130

6.1

Upland rice, Coffee, Tea, Vegetables, Groundnut Sesamum, Maize, Pulses, Horticulture, Niger

Cambisol

1085

1.6

Ferrosol Rhodic

9971

14.7

Upland crop, Horticulture, Forest, Maize, Sesamum Forest, Rubber, Pineapple, Horticulture, Mango, Tea Coffee

Ferrosol Xanthic

8363

12.4

Forest, Rubber, Pineapple, Horticulture, Mango, Tea Coffee

244

0.4

Forest

Cambisol-Orthic

2461

3.6

Forest

Cambisol-Gelic

2596

3.8

Natural reserved

Cambisol-Histric

6287

9.3

Forest

Cambisol-Chromic

1370

2

Forest

588

0.9

Arensol

Ferrosol-Plinthic

Mango, Durian, Rubber, Coconut, Cassava Pineapple, Banana, Oil palm

Litholsol

241

0.4

Forest

Andosol

46

0.1

Forest

203

0.3

Mangrove Forest

42

0.1

Mangrove Forest

530

0.8

Horticulture, Sesamum, Groundnut, Forest, Rubber

Gleysol-Humic Solonchak Cambisol

Mango, Pineapple Lithosol Cambisol-Orthic

290

0.4

Pasture

2188

3.2

Forest

12

(Chin hill) Not suitable for crop

18123

26.8

Total

67659

100

Source: Land use (MOAI)

Figure 2.2 Labour force of agriculture

Country's labor force

35%

65%

Agriculture

Other sectors

in Banking sector, shortages in power made to hinder Myanmar's economy. Although government's statistics shows 10 percent in GDP, some essential factors of production such as sown land area, use of fertilizer, pesticides, and crude oil have been flat or declined for at least part of that period (ADB). The fiscal deficit, which is largely financed through central bank credit creation because of low level of revenues, hit 4.1 percent of GDP (ADB). More than 60 percent of the overall deficit was caused by the deficits of State Owned Enterprises (SOEs). Inflation was 24 percent in September 2003. Supply constraints constrained to price increases. Government keeps nominal interest rate and monetizing the budget deficit. These happens constraints to controlling inflation. According to official data, the balance of payment was in surplus by $49.3 million in FY2002. But it was deficit again by $38 million in the first 6 months of FY2003. In Myanmar, the parallel

13

market exchange rates co-exist with official rate with a difference over 154 times in start of 2003 (Table 2.3). The Government of Myanmar (GOM) once tried to solve dual exchange rate by issuing FEC and adopting the devalued customs valuation rates. Finally this system leaded to decline in FE reserves after the Asian currency crisis because the GOM has reinforced exchange controls by regulating foreign remittances. Trade sanctions have been lessened because of stronger demand from neighbouring countries. FE reserves at end of FY2003 covered 3.5 months of imports.

Table 2.3 Market exchange rate of Myanmar No

Month

1996

1997

1998

1999

2000

2001

2002

2003

1

Jan

123

165

280

325

324

442

720

1059

2

Feb

123

165

250

325

327

480

741

1064

3

March

125

165

250

335

348

512

784

900

4

April

125

160

250

335

348

591

863

923

5

May

135

170

300

345

353

700

823

974

6

June

140

180

320

340

363

605

856

967

7

July

158

200

340

340

377

602

898

960

8

August

158

220

364

350

389

649

989

1020

9

Sept

170

240

366

360

405

681

1164

975

10

Oct

170

250

358

350

419

715

1136

11

Nov

168

300

344

340

414

732

1073

12

Dec

167

310

344

343

431

728

1034

146.83

210.42

313.83

340.67

374.83

619.75

923.42

982.44

Source: From various companies

2.6.3 Investment People's saving was increased from 1980 to January 2003. After that it was declined because of trouble in banking crisis dramatically as shown in the Table 2.4. FDI of permitted enterprises from various countries up to the end of 2002 is shown in Figure 2.3. In 2003, investment represents 25 percent of total GDP. Among various sectors, investment in agriculture is only 14.2 percent in capital (Figure 2.4).

14

Table 2.4 People's saving FY

Total saving(million)

1998-1999

162609

1999-2000

236383

2000-2001

352347

2001-2002

465005

2002-2003

415183

2003-2004

408098

2003 January

526918

February

440533

March

415183

April

391668

May

375104

June

370790

July

378643

August

380872

September

392239

October

381736

November

375739

December

380012

2004 January

374839

February

378379

March

408098

April

269034

May

451829

June

484293

Source: Central Bank of Myanmar (MOFR)

15

1800 1600 1400 1200 1000 800 600 400 200 0

No of enterprises

Macau

Srilanka

Israel

India

Bangladesh

Denmark

Germany

China

Panama

Canada

Austria

Australia

Hong Kong

Republic of Korea

Japan

Philippines

Indonesia

France

Netherlands

Malaysia

United States

Britain

Thailand

Investment value

Singapore

million $

Figure 2.3 FDI from various countries

Figure 2.4 Government Investment at various sectors in capital

Agriculture

14% 13%

Energy 7%

23% 20%

Construction Transport and communication Social services Defence

8% 15%

Others

2.6.4 Trade GOM has supported private exporters and importers recognizing that private sector as a prime mover of the market mechanism and pays great attention to its development. As private sector has been in place, it could seen the volume of external

16

trade has increased in absolute terms and reached K35509 millions in 2001 (Figure 2.5). Out of total exports, agriculture sector contributes 18 percent in trade.

Figure 2.5 External trade

Value (million MMK)

40000 35000 30000 25000 20000

Total trade

15000 10000 5000 19 94 -9 5 19 95 -9 6 19 96 -9 7 19 97 -9 8 19 98 -9 19 9 99 -2 00 20 0 00 -0 1 20 01 -0 2 20 02 -0 3 20 03 -0 4 20 04 -0 5

0

Year

2.6.5 Land Utilization Myanmar has 67.7 million hectares of total land area of which 10 million hectares is utilized for crop cultivation. The forest area contributes 49 percent of country's total land area. Extendable land area is approximately 7.28 million hectares, which can be brought under crop cultivation and livestock farming (Table 2.5). Table 2.5 Land utilization ('000ha) Particulars

1997-98

1998-99

Net sown area

8969

9298

9673

9909

9990

Fallow land

1183

986

769

686

622

Cultivable waste land

7854

7553

7311

7205

6664

Reserved forests

10475

11618

12507

12914

13975

Other forest area

22001

20962

20269

19786

19327

Other land

17177

17242

17130

17159

17081

67659

67659

67659

67659

67659

Total

1999-2000

2000-01

2001-02

Source: SLRD (MOAI)

17

2.6.6 The Role of Agriculture in Myanmar Economy There are four economic objectives laid down by the government, and the first objective is to develop agriculture as the base and all round development of other sectors. In this regard, the MOAI set the following policies and strategies for the development of this sector; -

to allow freedom of choice in agricultural production

-

to expand agricultural land and to safeguard the rights of farmers

-

to encourage the participation of private sector in the commercial production of seasonal crops and perennial crops and distribution of farm machineries and other inputs. Because of these favourable policies in priority of agriculture, the sector

achieved an annual growth rate of 5.6 percent (Table 2.6), and contributes about 42.7 percent to GDP (at the 1985-86 constant prices) indicating the dominant position in the national economy. Fishery and forestry sector also achieved considerable increase share in national GDP.

Table 2.6 Annual growth rate of GDP (%) Particulars

1991

1992

1993

1994

1995

1996

1997

1998

1999

2.6

11

6

6.9

6.7

6.4

5.1

4.9

12.1

13.5

9.7

2

12.4

4.7

6.7

5.5

3.8

3

3.5

10.5

9.5

8

-0.6

4.5

4.8

6

3

11.9

7.1

9.3

16.8

17.8

11.3

8.3

-3.3

1

-14.3

-4.5

2.7

2.8

3.2

4.6

3.3

10

-1.2

26.3

16.2

14.8

27.4

11.6

29.7

7

30

25.5

-7.8

Mftg

1

10.8

9.4

8.5

7.6

5

5

6.2

14.5

23.4

15.2

E power

5

31.1

24.4

4.8

6.6

10

17.8

-5.4

14.2

13.9

-5.5

Constrn

35.8

11.2

11.7

15.7

27.2

24.6

9.8

6.3

4.4

11.9

29.2

Services

4.2

6.1

8

10

9.3

8.2

8.8

7.8

8.8

13.2

15.7

Trade

2.4

8.9

4.6

7

5.7

5

5

6.3

9.5

14.1

11.1

GDP

2.8

9.7

6

7.5

6.9

6.4

5.7

5.8

10.9

13.6

10.5

Goods Agri L&F Forestry Mining

2000

2001

Source: CSO

18

CHAPTER 3 LITERATURE REVIEW

3.1 Government Intervention and Pricing Policy Government interventions are designed to change prices. Government may use prices as a vehicle to increase producer income, consumer welfare, or budget revenues. Most government interventions have at least an indirect effect on food prices facing farmers. These intricate and roundabout influences on agricultural incentives are an integrating theme of food policy analysis (Timmer and others 1983). Streeten (1987) stated that food policy is that between food prices high enough to encourage agricultural production and low enough to protect poor food buyers. Anderson (1986) pointed out that policies that attempt to strengthen incentives to expand food production through higher food prices may result in reduced incomes and severe hardships for the poor. To implement price policies government may use state-controlled regulatory boards or logistics agencies. Deaton (1989) found that higher prices for rice are likely to bring benefits to rural households at all levels of living in Thailand, and there were marked regional variations depending on the importance of the rice crop, but there is no systematic pattern whereby higher prices favour the rural rich at the expense of the rural poor. Morisson and et al (1991) sowed that considerable diversity in the evolution of income distribution during adjustment in the country studies of the effects of adjustment policies on the distribution of income in Chile, Cote d’Ivoire, Ecuador, Malaysia, Morocco, and Indonesia. The results exposed the fatal flaws of narrowly designed adjustment programs, and whether efficiency-focused or welfare-focused, will fail when they do not recognize the interdependence of the three criteria of efficiency, welfare, and political feasibility. Ramaswami and Balakrishnan (2002) studied the food prices and the efficiency of public intervention in India. They modelled the implications of quality differences between public and private grain supply. As both qualities were procured

19

at similar prices, the lower quality of public grain marked the inefficiency of government operations. As a result, a reduction in food subsidies increased food prices and hurt the poor even when they are not major recipients of the subsidy. Diven (2001) showed that in their study of the domestic determinants of US food aid policy has three key findings: (1) There is a consistent relationship between commodity producer interests and US food aid policy, (2) there is a strong relationship between commodity stocks and food aid shipments, especially during the years when stocks were the greatest, (3) US food aid policy-making is highly incremental. In Madagascar, many farmers do not participate in product markets as either sellers or buyers, and, for many others, net sales or marketable surplus is fairly small. The roughly one-third of rice farmers who fall below the poverty line have substantial net purchases of rice. More variable rice prices induced by economic reforms likely imposed additional instantaneous welfare losses by threatening household food security and destabilizing incomes (Barrett and Dorosh 1996). Smith (1997) pointed out that an important stimulus for cereal sector has been the massive fiscal costs of many state procurement and intervention agencies. This has led to policies to minimize their role in the future through rapid market liberalization and a substantially increased role for the private sector. There were several instances in which, even with a well-developed private sector, government intervention will be required to achieve adequate stability. Moreover, where the private sector is not fully developed, public sector agencies can potentially play an important, but hopefully declining, role in either performing or financing stabilization services. Barrett (1997) showed that the short-term effects of liberalization on the mean and variance of food prices vary substantially by commodity, region and season. In the long term, liberalization increases both the mean and the variance of food prices. The abandonment of a quantity-rationed state marketing system with administrative pricing also leaded to smaller inter-regional and inter-seasonal differences in mean food prices and a sharp increase in price auto-correlation. Real

20

exchange rates have pronounced positive effects on mean food prices, but these effects emerge indirectly, rather than directly, through induced changes to border parity prices.

3.2 Partial Equilibrium Model Partial equilibrium analysis is the starting point for analysis of agricultural price policy. Agricultural price policy is a major instrument of government intervention to enhance the welfare of farm households or contribution of economic development. Schultz (1978) said that price distortions against agriculture have been blamed for the stagnation of agriculture in LDCs. Sah and Stiglitz (1984) blamed that for the squeeze on agricultural incomes. Currie, Murphy, and Schmitz (1971) pointed out that the concept of consumer surplus provides a measure of consumer welfare as the excess of the price the consumer would be willing to pay for each unit consumed over the price which is actually paid. The supply and demand functions represent only part of the reaction to a change in the price of the commodity being considered and so are referred to as partial equilibrium models. When the commodity is important to the entire economy, as a staple food grain or major export crop inevitably is to a developing country, these partial equilibrium adjustments provide only an initial glimpse of the full adjustments likely to occur when the price changes (Timmer 1986a). Myoung and Lee (1988) evaluated the Korean market intervention system by using partial equilibrium model. They estimated the elasticities for rice demand and supply and calculated nominal protection coefficients (NPC), and were used to calculate trade levels under the no intervention scenario. Then they compared actual trade levels with those generated by the model. They found that producer welfare gains were equivalent to US$3807.6 million and government revenues of US$25.6 million were earned as a result of intervention. However, consumers suffered an overall loss of US$3945.2 million, and the net social welfare loss amounted to

21

US$418.4 million. Using partial equilibrium model, Tamin and Meyanathan (1988) studied rice market intervention system in Malaysia. They placed the demand and supply elasticities at 0.2 and 0.3 respectively. They found that with the exception of 1974 and 1975 ‘no intervention’ supply balances show a decrease while consumption would have increased (except 1974 and 1981). Efficiency losses generated by the system of controls (deadweight losses) stood at M$141 million in 1974 and have tended to rise over the 1980s. The foreign exchange cost to the nation (compared to intervention) has been reduced by about M$190 million over 1980-86 due to the measures enforced. In Bangladesh, Rahman and Mahmud (1988) attempted to quantify the benefits and costs of intervention using the partial equilibrium analysis approach. They explored the adverse impact of higher food grain prices on the real incomes and nutritional status of the poor, within the context of the macro-economic model of the Bangladesh economy. Their results indicated that worker households carry most of the burden of adjustment while large farmers enjoy the major income games. However, the persistence of a downward trend in world grain prices has softened the distributional impact of referencing domestic prices to border prices in the period 1982 to 1985. Radhakrishna and Indrakant (1988) analysed the effects of rice market intervention policies in Andhra Pradesh, India. They constructed variant of the partial equilibrium model systematically. Their finding suggested that average producer prices would fall from Rs.2910 to Rs.2400 per ton, while production within Andhra Pradesh would fall by about half a million tons. The consequent loss in producer revenue of Rs.6172 millions per year would be more than offset, though, by a cut in government subsidy expenditures of Rs.2097 million and gains by all classes of consumers. Weerahewa (2004) examined the impacts of trade liberalization in imperfectly markets in Sri Lanka. A partial equilibrium model was developed for the

22

paddy market in Sri Lanka, under oligopsony. Results revealed that losses to paddy producers due to trade liberalization can be minimized if oligopsony power can be eliminated simultaneously.

3.3 Analysis of Demand The objective of analyzing individual consumer behaviour is to explain the level of demand for the commodities an individual consumes given the structure of relative prices faced, real income, and a set of individual characteristics such as age, education, professional status, type of household to which he belongs, and geographical environment (Sadoulet and Janvry 1995). Schemes of income transfers to the poor would have a much smaller nutritional impact and would require much larger transfers to achieve a quantum of nutritional improvement. Behrman and Deolalikar (1990) argued this debate that increases in income will not result in any significant improvements in nutrient intakes. However, Strauss and Thomas (1990), and Subramanian and Deaton (1992) showed that calorie elasticity is indeed lower than expenditure elasticity, but nevertheless significantly positive. The analysis of demand could suggest the determination for which commodities to subsidize in order to minimize the budgetary cost of nutritional improvement of the malnourished. To achieve this, an ideal commodity for distribution is one consumed in large quantities by the poor and little by those with adequate diets, thus minimizing leakages toward the latter (Timmer, Falcon, and Pearson, 1983). Minot and Goletti (2000) estimated the linear approximation of the Almost Ideal Demand System for Vietnamese urban and rural households by using regression analysis. Their food system included the 14 food categories, and regression equations explained between 54 and 71 percent of the variation in the budget share of rice across households. They found that rice consumption is largely determined by the fundamental economic factors such as income, prices, and household composition rather than household specific habits and preferences.

23

Weerahewa (2004) developed a demand function for cereals representing rice, wheat and millet that are used in Sri Lanka diet. It was assumed that the utility of cereal consumption is weakly separable from the utility derived from other commodities. The results showed that all the elasticity estimates of demand with respect to own prices have the expected negative sign and they are statistically significant at one percent level.

3.4 Analysis of Supply There are two ways to analyse a producer’s response. One is the technological relation that exists between any particular combination of inputs and the resulting levels of outputs; this is represented by the production function. The other is the producer’s behaviour in choice of inputs, given the level of market prices for a commodity and factors that can be traded, and the availability of fixed factors whose quantity cannot be altered in the period of analysis (Sadoulet and Janvry 1995). Nerlove (1956 and 1958) developed the supply response model, and called Nerlovian Supply Response Model. He formulated the model in terms of yield, area, or output response of individual crops, for instance, the desired area to be allocated to a crop in period t is a function of expected relative prices and a number of shifters such as private and public fixed factors and truly exogenous variables such as weather. Cuddihy (1980) estimated a model of area response for the five major crops of Egyptian agriculture: Egyptian clover, cotton, wheat, maize and rice. It was used revenue per feddan (1 feddan=1.035 acres) of each crop deflated by a real wage index. It was assumed that price and yield expectation are exogenous. The data had 26 annual observations, from 1950 to 1975. About one-third of the estimated coefficients are significantly different from zero at the 5 percent level, and the coefficient of determination indicated that a large part of observed variation in the cultivated areas is explained by the model. For the analysis of rubber supply in Sri Lanka, Hartley, Nerlove, and Peters

24

(1987) focused on the uprooting and replanting of trees as opposed to new plantings. They specified a three equation model with replanting, production, and new plantings. Their results showed a strong positive long-run response of replanting to variations in the expected price and generally insignificant response to current price. Haughton and et al (2004) estimated the rice supply for Vietnam in their study of “the

effects of rice policy on food self-sufficiency and on income distribution

in Vietnam” using Cobb-Douglas production function including sown area, the number of labour used in cultivation and other variables such as the intensity of agricultural extension activities, or the educational level of farmers. They found that the most important determinant of rice output is the area of land cultivated. Their estimation results indicated that if the wage rate rises by the equivalent of 1 kg of paddy rice per day, or about 10 percent, then the quantity of rice will fall by 14 kg per household (about 7 percent).

25

CHAPTER 4 RICE PRODUCTION AND SUPPLY

4.1 Rice Production and its Characteristics Myanmar is able to grow over more than 60 different crops since its prevalence of different agroecological zones within the country. Among various crops, cereal crops are main important crops constituting 50 percent of the total crop sown area of 16.7 million hectares in 2003-04 (Figure 4.1). Rice as a national crop is grown widely all over the country and throughout the year because of its adaptability to a wide range of agroclimatic conditions. It could be divided into two rice cultivation methods: dry upland and wet cultivation. The method for former one generally practiced on the hillsides especially in the forest area. Shifting cultivation on the hillside is almost replaced by dry land crop rotation system for subsistence production.

Figure 4.1 Percentage share of sown area for various crops

6%

4% 1%

18% 50%

Cereals Oil crops Peas and Beans Industrial Crops Food crops Plantation crop

21%

There are three distinct types in rice cultivation: partially submerged by natural rainfall, partially submerged by irrigation in addition to rainfall, and deep water submerged rice. Rice production in dry season is generally not feasible without irrigation. Generally, little work and care is needed for rice cultivation in monsoon

26

season. The current major rice ecosystems include the traditional rain-fed that is grown in monsoon season, deep water submerged rice, irrigated lowland rice and rain-fed upland rice. Rain-fed lowland and deep water rice are mostly produced in the lower delta region (Ayeyarwaddy and Bago), and the coastal region (Rakhine). Rain-fed upland area is mostly in Mandalay, Sagaing and Shan states. Irrigated rice is grown where irrigation system exists. It is not surprising that the GOM is giving priority in constructing new dams, reservoirs and weirs in every parts of the country where it is able to construct these because of the successful of its neighbours such as Thailand and Vietnam. Summer paddy mainly depends on irrigation. Net sown area and irrigated area in Myanmar is given in Table 4.1.

Table 4.1 Irrigated area in Myanmar Year

Net sown area

Irrigated area

Percentage

(million ha)

(million ha)

1961-62

7.16

0.54

7.5

1971-72

7.96

0.89

11.2

1981-82

8.41

1.04

12.4

1991-92

8.34

1

12

1992-93

8.71

1.11

12.7

1993-94

8.74

1.34

15.3

1994-95

8.95

1.56

17.4

1995-96

9.17

1.76

19.2

1996-97

9.28

1.56

16.8

1997-98

9.28

1.59

17.2

1998-99

9.67

1.69

17.5

1999-2000

10.14

1.84

18.2

2000-2001

10.48

1.91

18.2

2001-2002

10.65

1.99

18.6

2002-2003

10.82

1.87

17.3

2003-2004

11.04

2.11

19.1

Source: DAP

Achievements in promoting higher rice production can be characterized by

27

three distinct programs launched by the MOAI: summer paddy production program, expansion of HYVs, and paddy-fish integrated farming system. About two-thirds of the summer paddy is produced in Ayeyarwaddy and Bago divisions.

4.2 Classification of Rice The widely used and accepted method in Myanmar is the classification of five rice groups, based on length/breadth ratio of rice grains (Table 4.2). Another classification is based on life period from seeding to maturity. This system is adopted by rice farmers since labour requirement is calculated on this system. -

Early mature varieties (less than 150 days)

-

Medium mature varieties (between 150 and 170 days)

-

Late mature varieties (exceeding 170 days).

Table 4.2 Dimension of paddy Type of paddy

Paddy Length (mm)

Rice

Length/Breath

Length (mm)

ratio

Length/Breath ratio

Emata (A) type

9.41 and over

3.3 and over

7 and over

3 and over

Letywezin (B) type

8.40-9.80

2.80-3.30

6.00-7.00

2.40-3.00

Ngasein (C) type

7.75-9.00

2.40-2.80

5.60-6.40

2.00-2.40

Meedon (D) type

7.35-8.60

2.00-2.40

5.00-6.00

1.60-2.00

Byat (E) type

9.00 and over

2.25-3.00

6.40-7.35

2.10-2.50

Source: MAS

4.3 Cropping Pattern Starting from 1992-93 and onwards, multiple cropping increased remarkably since inception of favourable price incentives for some crops especially pulses and increasing availability of water resources (Table 4.3). Cropping intensity of all field

28

crops with rice increased gradually from 107 percent in 1961-62 to 150 percent in 2003-04.

Table 4.3 Cropping intensity Year

Gross sown

Net sown

Multiple cropping

Cropping intensity

('000 ha)

('000 ha)

('000 ha)

(%)

1961-62

7694

7162

532

107.4

1971-72

9187

7962

1225

115.4

1981-82

10167

8413

1754

120.9

1991-92

10290

8339

1951

123.4

1992-93

11008

8714

2293

126.3

1993-94

11386

8738

2648

130.3

1994-95

12143

8951

3191

135.7

1995-96

12884

9168

3716

140.5

1996-97

12312

9277

3034

132.7

1997-98

12277

9578

2999

132.3

1998-99

13307

9673

3634

137.6

1999-2000

14805

10135

4669

146.1

2000-2001

15450

10476

4974

147.5

2001-2002

15845

10654

5191

148.7

2002-2003

16146

10818

5327

149.2

2003-2004

16624

11035

5589

150.6

Source: DAP

It could be noted that the factors contributed to higher cropping intensities are as follows: -

Increased irrigation

-

Increased use of HYVs or MVs with short growth duration

-

Increased agricultural mechanization, and

-

Higher crop prices, e.g. pulses, to make double cropping more profitable.

The present trend of multiple cropping could be summarized as follows:

29

-

Growing a pre-monsoon crop before the main crop in rice growing area (jute, cotton, sesame)

-

Growing of some suitable crops after rice (summer paddy, groundnut, sunflower, peas and beans)

-

Growing of two suitable crops in successive on dry land with or without irrigation (sesame, peas and beans, maize, etc)

-

Mixed cropping of two crops with different life periods in the same field (sesame and pigeon pea, groundnut and maize, etc). In fact, rice can be grown and harvested somewhere every month of the year.

As shown in Table 4.4, December is largest harvest (about 39 percent of total), and the three months from November to January contribute an additional about 25 percent of total production. Using 2003 production and an assumed consumption of 195 kg per capita, the rice deficit can be estimated on a monthly basis, shown in last column of Table 4.4. The December generates a surplus of about 4.56 million tons, while the months of February to October are the lean months. The largest deficit (766520 tons in September) may be interpreted as rice storage requirement period consistent with food security.

Table 4.4 Seasonal distribution of production and national rice gap Month

Production

Rice equivalent

Percent of annual

National Rice

(metric ton)

(metric ton)

production

gap (1000 mt)

January

1557969

934781.4

6.67

February

214704

128822.4

0.92

-699.93

106.00

March

418702

251221.2

1.79

-577.53

April

1274475

764685.0

5.45

-64.07

May

846654

507992.4

3.62

-320.76

June

634601

380760.6

2.72

-448.00

July

628670

377202.0

2.69

-451.55

August

295627

177376.2

1.27

-651.37

30

September

103712

62227.2

0.44

-766.52

October

1245122

747073.2

5.33

-81.68

November

7168955

4301373.0

30.68

December

8978114

5386868.4

38.42

4558.12

Total

23367304

14020382.4

100.00

4061.41

3472.62

Source: SLRD and owned estimation Note: National rice gap refers to the gap between monthly production and monthly consumption, assuming consumption of 195 kg per person per year (owned estimation).

4.4 Farm Size Myanmar farms are relatively larger than other ASEAN countries (Vietnamese average farm size is just 0.49 ha, Minot and Goletti 2000). The average agricultural household has 2.3 ha of agricultural land (Table 4.5). According to agricultural census in 1993 the number of rural households with no agricultural land is about 7 percent. Out of total agricultural area (nearly 11 million ha), rice sown area is about 53 percent of total sown area.

Table 4.5 Distribution of farm land holdings (2003-04) Size of holding (ha)

No of farmers

Total land

Number

Percent of

Area

Percent of

('000)

total farmers

(million ha)

total land

Below 2

3135

63.04

3.13

27.36

2 to 4

1222

24.57

3.58

31.29

4 to 8

499

10.03

2.88

25.17

8 to 20

111

2.23

1.3

1.14

20 to 40

4

0.08

0.11

0.96

above 40.5

2

0.04

0.44

0.38

4973

100

11.44

100

Total

Source: SLRD

31

4.5 Cost of Production The data for cost of production was obtained from MAS. The cost of production will differ depending on the season and region. Among the purchased input, urea is the most important, accounting for nearly 18 percent of total production. The labour intensity of rice production also reflects variation in population densities. In the table 4.6 for Ayeyarwady division (delta region), rice cultivation takes 153 man-days per acre per season or more than 300 man days per hectare per season. It is relatively higher than other ASEAN countries (Red River Delta in Vietnam has 246 man days per hectare per season Pingali et al., 1998). That is because of farmers usually practice transplant rice seedlings rather than broadcasting seeds to tolerate heavy rain. It, however, takes labour consuming. In the case of fertilizer utilization, farmers in Ayeyarwady division use 150 kg urea per hectare. The usage is relatively lower than when comparing to Vietnam (more than 180 kg per hectare Minot and Goletti, 2000). Also farmers in that region use FYM and bio composer to improve soil fertility.

Table 4.6 Cost of production for monsoon rice per acre for Ayeyarwady division (2003)

Cost component FYM

Rate (per acre)

MMK/acre

Percent of TCC

1 cart

4200

7.88

2 baskets

2000

3.75

0.5 litre

1000

1.88

Urea

50 kg

8000

15.01

T-super

25 kg

2700

5.06

Potash

12.5 kg

1000

1.88

2 litre

2000

3.75

108 men day

32400

60.79

45 men day

13500

Seeds Pesticides

Bio composer Hired labour Family labour Total cash cost

53300

Total cost

66800

100.00

Source: MAS

32

Ayeyarwady division has the highest profit than other states and divisions, and rice production accounts two third of total production.

4.6 Constraints in Rice Production The GOM is continually facing the problem of scarce public and private capital. So, the GOM cut off the fertilizer subsidies to farmers in 1994. As Soe (1994a) forecasted that of a reduction in the government’s current high expenditures to maintain security and national stability and to support the subsidies of government employees is considered highly unlikely in the immediate future was now become real case in Myanmar. However, paddy production was increased although GOM has limitations in government budget and shortages of foreign exchange reserves because of expansion of irrigation facilities and expansion of agricultural land. Because of these limitations, imported farm inputs such as fertilizer were inadequate to the use of improved technology. The considerable another constraint might be the overvalued official exchange rate for private investment particularly when imported items are required. On the other hand, the GOM also opened local markets for paddy farmers after fulfilling compulsory delivery system to MAPT. So from 1990 onwards, it could be seen farmers’ response to paddy price. In 2003, the GOM announced trade liberalization in paddy/rice sector. But it was no longer, and again revoked the export of rice. In respect of these factors, it’s still in question whether Myanmar rice sector will grow rapidly or not although the country has rich capacity to potentially increase rice production.

4.7 Conceptual Model for Supply Function With given constraints in production as discussed in the previous section, quantity of rice supply could be defined as follows: ___ ___

S

r

= S r ( A,Y )

33

Where

S

r

= quantity of rice supply

___

A = rice sown area ___

Y = rice yield From this equation, it could be obtained the price elasticity of output by summarizing the elasticity of area and elasticity of yield with respect to price. Rice sown area is depended on the following factors:

A = A (P , P , A r

Where

r

t −1

f

)

t −1

A = rice sown area r

P

t −1

P

A

f

t −1

= lagged rice price of paddy = Price of fertilizer = lagged rice sown area

Hypothesis 1: If paddy price is increased, rice sown area could be expected to increase in coming year and vice versa. Hypothesis 2: If the input price (fertilizer) is increased, rice sown area will be decreased and vice versa. Hypothesis 3: Present rice sown area depends on the lagged rice sown area.

34

The expected yield depends on the following factors:

Y = Y ( P , P , MV ) r

Where

Y P

r

t −1

P

f

r

t −1

f

= the expected yield of rice = lagged price of rice = price of fertilizer

MV = area for modern and hybrid rice varieties Hypothesis 1: The expected yield of rice is depends on the lagged price of rice. If the price of rice is increased, it could be expected price will be increased or the same price. According to favourable price, farmers may manage well their rice fields, consequently yield might be increased and vice versa. Hypothesis 2: If the input price (especially of fertilizer) is increased, the expected yield could be decreased since increase in the cost of production, farmers may use lower rate of fertilizer and consequently yield may be decreased, and vice versa. Hypothesis 3: It could be expected if farmers use modern or hybrid rice varieties, yield would be increased rather than the use of traditional varieties.

4.7.1 Empirical model of rice supply In this section, regression analysis is used to examine the area response and yield response functions. Area response function is as follows:

log At = α 0 + α 1 log Pt −1 + α 2 log Pf + α 3 log At −1 + u t Where At is the rice sown area, Pt −1 is the lagged price of paddy, price of fertilizer

At −1 is the lagged sown area, and

u

t

Pf is the

is the disturbance term.

35

Yield response function is as follows:

log Yt = γ 0 +γ 1log Pt −1 + γ 2 log Pf + γ 3 log MVt + vt Where fertilizer,

Yt is the yield, Pt −1 is the lagged price of paddy, Pf is the price of

MVt is the area for modern varieties hybrid varieties, and vt is the

disturbance term.

4.7.2 Econometric Results To estimate the elasticity for area response, yield response and supply, data were collected from CSO, MAS and DAP. Price data were deflated by the general consumer price index based on 1986 price. Supply elasticity is approximated with the

Table 4.7.Elasticity for area response, yield response and supply Variables

Area response

Yield response

R2

0.96

0.87

AdjR 2

0.94

0.83

Const

1.13***

1.08***

(0.26)

(0.224)

0.053**

0.006

(0.029)

(0.037)

-0.13**

-0.067**

(0.029)

(0.044)

Pt −1

Pf At −1

0.513***

Supply

0.059

-0.197

0.513

(0.106)

MVt

0.18**

0.18

(0.064)

***,**,* = significant at 1%, 5% and 10% respectively; figures in parentheses are standard errors.

36

the summation of the elasticity of area response and yield response.

R 2 indicates that the model is fit both in area response and yield response. It is 0.96 for area response and 0.87 for yield response. The estimated price elasticity for area response function is significant at 5 percent level though its value is very small (0.053). It could be said that there is a little response by farmers to price changes after 1990. Hossain and Oo (1995) found that the regression coefficient of rice price with respect to area and yield is not significant in their analysis from 1960 to 1991. Here the estimated price elasticity for yield response is not significant in this analysis too. The regression results indicate that paddy production is much depends on the lagged area and the use of modern varieties or hybrid varieties. The elasticity lagged area is 0.513 and it is strongly significant at 1 percent level. That means the expansion of rice area much depends on the government’s program for the agricultural development, not on the price. The elasticity for modern varieties is 0.18 and it is significant at 5 percent level. It is because of the government’s projection of the rice production potential with increased technology (the use of MV and HYV). It is found that the elasticity for main input (urea price) is significant both in area response and yield response functions. It is -0.13 for area response and -0.067 for yield response, and both are significant at 5 percent level. Thus from 1990 onwards, there is a little response of farmers to input price.

37

CHAPTER 5 PADDY/RICE MARKETING AND DEMAND

5.1 Paddy and Rice Marketing in Myanmar Rice is staple food in Myanmar. Generally, rural consumption is higher than urban consumption. Per capita consumption of rice is 129 kg in urban area, and 152 kg in rural area (CSO, 2001). Rice is consumed not only as rice, but also in the form of various traditional foods. Based on household income and expenditure survey by CSO, average per capita consumption is 159 kg. Monsoon rice in Delta region is harvested from November to January, and summer rice is harvested from May to July. In Central Dry zone, planting time depends on the feasibility of irrigation. Supply of rice is related to the planting time and harvesting time. Marketing surplus of rice is estimated based on CSO survey (Table 5.1). Though paddy is surplus for the whole country, some regions such as Magway and Mandalay in the Central dry zone, Tanintharyi division in Coastal region, and Shan state in the Mountainous region are rice deficit areas. Thus rice is marketed from surplus to deficit areas.

Table 5.1 Marketable surplus of rice in Myanmar Year

Production

Utilization

Marketable surplus

Sown

Yield

Paddy

Paddy (million

Paddy

Rice (million

(million ha)

(ton/ha)

(million mt)

mt)

(million

mt)

mt) 1998

5.76

3.13

17.08

2.39

14.69

8.81

1999

6.28

3.24

20.13

2.82

17.31

10.39

2000

6.36

3.38

21.32

2.98

18.34

11.00

2001

6.45

3.42

21.92

3.07

18.85

11.31

2002

6.49

3.42

21.81

3.05

18.76

11.26

2003

6.54

3.54

23.14

3.24

19.90

11.94

Source: CSO and owned estimation

38

Note: Marketable surplus is calculated based on 60 percent milling capacity and 14 percent for seed and losses.

5.2 Structure of Markets This section describes the channels by which rice is marketed in Myanmar. It covers from farm level marketing to retail market and exports (Figure 5.1 and 5.2).

5.2.1 Farm level marketing Farmers mostly sell their paddy in their own villages or in their fields or farms just after harvesting. But in some cases, a few farmers mill part of their paddy using a small mill in their villages. Then, they consume themselves or sell rice to traders or retailers or consumers in the nearby markets. Some farmer store their crops as an expectation to get higher price and sell just before next season harvesting time especially when the price is highest. But it depends on their financial situation and expected price. Collectors purchase paddy from farmers starting from October to January for monsoon paddy, and from May to July for summer paddy. Most of primary collectors sell to millers but some sell to township wholesalers. Before 2003, farmers have obligation to sell to MAPT about 10 to 15 percent as compulsory delivery system. After selling to MAPT the extra paddy could be sell to market.

5.2.2 Milling sector Three types of private mills can be categorized by small, medium and large. Small mills with a capacity of 0.6 to 0.8 ton per hour are found in the rural areas and play an important role. All private rice mills need to be registered with MAPT if they have capacity of 0.6 metric ton per hour or more. Most private commercial mills have a paddy milling capacity of 50 metric ton per day with a maximum of 70 metric ton per day. Public mills also play an important role. Because of new rice trading policy, government owned rice mills, storage facilities, and lands can be rented by charges. Most millers buy paddy from farmers,

39

Figure5.1: Paddy-Rice Marketing Channels from 1990 to 2002

Farmers

Seed, storage for

Excess paddy after

Compulsory delivery

home consumption

delivery to MAPT

scheme to MAPT (10 to 15 baskets)

Primary collector

MAPT mills

(milled for retail markets)

Retail markets (small

Target consumers at

amount)

government determined price

Wholesalers (milled

Export monopolized by

at private and

MAPT

government’s mills)

Traders (small traders, retailers, shopkeepers)

Domestic consumers

Remarks: Prices at the MAPT channels were at government determined prices, and prices at private channels were at market prices.

40

Figure5.2: Paddy-Rice Marketing Channels from 2003

Farmers

Seed

Primary collector

Storage for home consumption

Wholesalers

Traders

Domestic consumers

Government procurement for target groups

Traders can export if there is surplus

Remarks: Prices will be at the prevailing market prices in all channels.

41

collectors, and sell the milled rice to traders. According to MAS, the average milling capacity is nearly 60 percent. Before 2003, MAPT purchase paddy directly from farmers with advanced payment or at government determined price for milling, and to distribute target groups as milled rice and export surplus. But from 2004 harvest, MAPT did not purchase directly from farmers. According to MAPT, there were 2189 registered mills with an estimate milling capacity of 50000 tons per day (Table 5.2). Among this milling capacity, about 54 percent of milling capacity is used to process rice at the farm level.

Table 5.2 Milling capacity of Myanmar rice mills Milling capacity

Number of mills

Capacity

Type A

118

6988

Type B

159

5888

Type C

406

10799

Type D

1498

25907

Type E and F

8

385

Total

2189

49967

Source: MAPT Type A has capability to process Super 5% rice. Type B has capability to process Super 10% rice. Type C has capability to process Super 25% rice. Type D has capability to process Super 35% rice. Type E and F has capability to process parboiled rice..

5.2.3 Wholesale marketing Whole sale network can be classified into township wholesalers and market wholesalers. Former plays inter-State/Division trade and mostly purchase from collectors. Market wholesalers purchase from collectors, township wholesalers. They sell mainly to retailers and other traders using 50 kg bags. 5.2.4 Domestic retail marketing Retailers mostly purchase from wholesalers. A few retailers purchase from millers and directly from farmers.

42

5.2.5 Export marketing Government’s new rice trading policy has two-folds: removal of compulsory quota delivery system for farmers and its replacement of purchasing paddy or rice from millers or traders at prevailing market price, and lifting the ban on private export of rice under certain circumstances. So, private traders can export rice if there is surplus in the country. MAPT exported 0.1 million metric ton (approximately 60 percent of its purchase) in 2001-2002. According to MAPT estimates, it will purchase around 70 percent of current volumes in future of which 40 percent will be reserved for domestic sales and the other 30 percent reserved for buffer stock. MAPT will no longer be in exporting rice in the future. 5.2.6 Quality of rice in domestic market Rice can be classified into low, medium and high quality. These can be defined by white colour, inert material and how much percent broken. It can be classified into another way of old rice and new rice. Rice harvested in the previous season was stored, and sell to the market is called old rice. New rice means milled rice of present season. Moisture content is higher in the new rice than old rice. Consumers prefer old rice. Traders also use their own brand. They use polyethylene bags. 5.2.7 Interregional trading Myanmar is rice surplus for the whole country. But some regions are deficit areas. Thus, rice is marketed among regions. The main markets and flow of rice among markets are as follows: -

From Ayeyarwady division to Yangon division

-

From Yangon Market to Mandalay and Tanintharyi markets

-

From Mon state to Tanintharyi, Mandalay and Kayin markets

-

From Ayeyarwady to Pakokku market in central dry zone by water way

-

From Ayeyarwady to Pago (west)

-

From Pyay to Magway market

-

From Pyay to Shan (south) and Mandalay

-

From Pago (east) to Shan (south)

-

From Sagaing to Mandalay

-

From Yangon market to all major markets

It could be seen Yangon and Mandalay markets are transit markets. Marketing system is rather complex, and price depends on the quality, variety and consumers’ preferences.

43

5.3 Rice Demand There are several reasons to get information on food and calorie consumption patterns for the analysis of rice price policy. First, government intervention in food policy aims at to improve the nutritional status of particular individuals and/or households. Second, government tries to minimize budgetary constraints of consumers to improve the welfare of particular household types. Third, information on income and price elasticities is essential for the simulation of impact of policy changes on rice markets. Fourth, with given production constraints in Myanmar, the relationship between foreign exchange earning from rice export and rice consumption is imminent debate to be sustainable for long term. Finally, there is a hot controversy about the magnitude of the income elasticity of calorie intake compared with income elasticity of food expenditures since other foods contribute to total calorie consumption. This chapter first describes the pattern in rice consumption. Then trend in rice consumption and purchases across regions and household types are expressed. Finally, an econometric analysis of rice demand and the effects of price and income changes on calorie consumption are estimated.

5.3.1 Rice consumption across households Rice consumption was measured at the household level carried out by CSO for the household income and expenditure survey (HIES) in 1997 as nation-wide scale. The HIES used a nationally representative sample of 5670 households scattered across 36 townships. The survey collected information on income, expenditure, housing, health, education, water supply, sanitation and so on. According to HIES, rice is consumed by every households in Myanmar. It was estimated that rice per capita monthly consumption to be about 11 kg for urban and 13 kg for rural Myanmar. Thus, per capita monthly consumption of rice for rural Myanmar is more than 2 kg per month that of urban or 24 kg per year. Table 5.3 shows per capita monthly consumption of rice.

44

It was estimated that in all urban areas, per capita monthly consumption of rice is more than 10 kg, the highest in Rakhine state about 15 kg, and the lowest in Shan state about 11 kg. But in rural areas, per capita monthly consumption of rice is more than 14 kg except Chin state about 11 kg, the highest in Rakhine state about 18 kg and the lowest in Chin state about 11 kg. Per capita monthly consumption of rice for Yangon city is about 11 kg which is lower than that of Mandalay city about 13 kg.

Table 5.3 Monthly per capita consumption of rice in states and divisions States and Divisions

Rice (kg per monthly per capita) Urban

Rural

Kachin

11.69

14.76

Kayah

13.36

14.91

Kayin

10.88

13.95

Chin

12.31

11.20

Sagaing

12.48

15.68

Tanintharyi

11.82

15.76

Bago

10.97

15.59

Magway

14.23

14.36

Mandalay

12.31

14.33

Mon

14.08

16.15

Rakhine

14.61

18.32

Yangon

11.76

15.57

Shan

10.80

14.65

Ayeyarwady

13.12

14.95

Myanmar

11.18

13.21

Source: CSO

45

Table 5.4 Apparent rice consumption in Myanmar 1989-2002

Year

Rice Production

Rice production

Net export of

Population

Apparent

(million mt)

per capita

rice (million

(millions)

consumption

(kg/capita)

mt)

(kg/capita)

1989

9.21

231

0.17

39.82

207

1990

9.32

230

0.22

40.51

210

1991

8.81

214

0.19

41.21

211

1992

9.90

236

0.20

41.93

214

1993

11.18

262

0.27

42.65

215

1994

12.14

280

0.94

43.38

216

1995

11.98

272

0.36

44.09

215

1996

11.79

263

0.93

44.80

215

1997

11.11

243

0.03

45.78

212

1998

11.39

247

0.12

46.19

216

1999

13.42

286

0.06

46.87

208

2000

14.22

299

0.25

47.54

207

2001

14.62

303

0.95

48.21

206

2002

15.19

311

0.91

48.85

205

Source: FAO

5.3.2 Trend in rice consumption The only data on Myanmar rice consumption available for various years is apparent rice consumption per capita (Table 5.4) from FAO, defined as net production minus net exports minus losses, seed and feed divided by population. This rough data provide an indicator of trends in rice consumption. It is interesting to note that apparent per capita rice consumption is relatively stable from 1989 to now. According to official data, per capita GDP increased about 7

46

percent annually over this period, it implies that the income elasticity of rice demand is close to zero.

5.3.3 Determinants of rice demand Regression analysis is used to determine systematically the determinants of rice among Myanmar households. The log linear approximation of the rice demand function is used to estimate the own price elasticity and income elasticity of rice. Thus, the demand equation takes the following form:

log Qr = α 0 + α 1 log Pr + α i log Pi + β log

x + ut p

Where Qr = quantity of rice demand

Pr = price of rice

Pi = price of other foods X = the value of consumption expenditure per person P = stone price index, and

ut = disturbance term. The derivation of the demand function is given in appendix B. There is a series of price for 6 food categories including rice described in Table 5.5. The independent variables include per capita consumption expenditure (x/p), food prices ( Pi ) and price of rice ( Pr ). The community prices are used for the heterogenous group of foods.

5.3.4 Results for rice demand analysis Table 5.5 gives dependent and independent variables. In this regression analysis, the quantity of rice consumed is used as a dependent variable, and the price of rice, the price of meat, the price of fish, the price of cooking oil and fats, the price of fruits and vegetables and the community price of other foods are dependent variables.

47

Table 5.5.Dependent and Independent variables in model of rice demand Variable

Description

Mean

St. dev.

qr

Rice quantity consumed

3.117

0.035

P1

Price of rice

3.841

0.839

P2

Price of meat

5.599

0.913

P3

Price of fish (fresh and dried)

6.000

0.988

P4

Price of cooking oil and fats

5.526

0.851

P5

Price of fruits and vegetables

4.274

0.923

P6

Community price of other foods

4.988

0.992

Y

Total expenditure based on price of 1995

8.298

0.895

Source: Based on HIES (1997); all values are in logs

The value of R

2

is 0.96, and it indicates that the regression equation

explains 96 percent. The result of the equation is as follows:

q r = 2.8 − 0.1 log p1 + 0.2 log p 2 − 0.2 log p 3 − 0.04 log p 4 − 0.04 log p 5 − 0.05 log p 6 + 0.12 log ( 0.21)

( 0.02 )

( 0.06 )

( 0.07 )

( 0.02 )

( 0.03)

( 0.02 )

( 0.05 )

Figures in parentheses are standard errors. The own-price elasticity of rice demand (-0.1) indicates that there is a very little response to the rice price and little substitutability between rice and other foods. According to the regression result, it is strange that there is a positive relationship between the price of meat and the quantity of rice consumed. It might be because of the very low income of people, and consumers want to choose meat rather than fish if the price of meat and fish would be the same. The expenditure elasticity is statistically significant at 5 percent level and it has a value of 0.12 reflecting that lower income of the people.

48

x p

CHAPTER 6 EVALUATION OF PRICING POLICY

Myanmar is a rice exporting country. The government practiced intervention in rice marketing by using price as a wheel in production, consumption and export. Timmer (1987) noted that “When it comes to the price of a basic necessity such as food, few governments are willing to accept the outcome of a freely competitive market without regard for the interests of a particular group”. Government of Myanmar liberalized rice marketing both in domestic and international trade after its intervention in rice marketing for a 40 years period. Thus, this paper focuses on the evaluation of pricing policy in Myanmar from 1989 to 2003, and the impact of trade liberalization though it is a short period. This has two interests: presently the government is changing from centrally planned to market oriented-economy, and rice policy is important to the 51 million inhabitants of Myanmar because rice expenditure accounts for 15 to 20 percent of total expenditure and rice is grown by 53 percent of total farms. In this chapter, a partial equilibrium model is used to evaluate government’s pricing policy. Elasticity of rice supply and demand is used in the model. This involves comparing the volumes of production, consumption and export evident at intervention prices with those that are consistent with a hypothetical no intervention outcome, and evaluation of welfare for producers, consumers and government net gain from intervention. Finally a brief epilogue is discussed for the initial impact of rice market liberalization.

6.1 The Methodology Agricultural price policy is a major instrument of government intervention, with the goal of increasing the contributions of agriculture to economic development or of enhancing the welfare of farm households. The government of Myanmar directly involved rice marketing for several years through its agency (MAPT). MAPT’

49

involvement in trade and distribution to target groups is given in Appendices. GOM procured 10 to 15 baskets from farmers at fixed price (lower than market price) on production side, and on the consumption side, food subsidies to selected consumers created heavy drain on government budgets. These distortions in agricultural and food prices are debated political issues in Myanmar. This section examines the effects of these price distortions by using partial equilibrium model. The model can be explored as follows: Myanmar could be considered as a case of small country since it consumed large amount and the average volume of rice export is very small though export quantity is high in some years. It could be assumed in the absence of government intervention and no export, the price

( Pni ) will be determined at the intersection of

the national supply and demand schedules

(Qni ) as in figure 6.1.

Supply

pb p ni

Demand

q ni

qb

Figure 6.1: No intervention and no export case

If the government opened the border and producers respond to an infinitely elastic world market. Then production will expand to qb , and at the same time the

50

domestic prices will be raised and the domestic demand will suffer a considerable fall. If it is assumed government procurement as an implicit tax on producers like that ( pb

− p d ) , to increase consumers’ welfare and its revenue, the producers will

adjust to the new price p d by reducing output to q d (Figure 6.2). Consequently, producers will suffer a welfare loss of producers’ surplus. It includes payment of the tax on the new level of output (rectangle a in Fig. 6.2) plus the deadweight loss (triangle e in Fig. 6.2). Deadweight loss can be termed as the “efficiency” or “net social loss” in production ( NSL p ) . It could be calculated as follows:

W p = qb ( p d − pb ) − NSL p

Supply pb

a

e

pd

Demand

qd

qb

Figure 6.2: Producers’ welfare loss by implicit tax

The implicit tax on producers and the consequent reduction of the price will benefit domestic consumers. Domestic consumption will increase from c b to c d (Fig. 6.3). It includes welfare gain for consumers (rectangle b in Fig. 6.3) plus the consumer surplus (triangle c in Fig. 6.3). It could be termed as net social loss in consumption ( NSLc ) which affects both domestic producers and foreign consumers.

51

Thus, consumers’ welfare could be calculated as follows:

Wc = c d ( pb − p d ) − NSLc

Supply

pb

b

c

pd

Demand

cb

cd

Figure 6.3: Consumers’ welfare gain by implicit tax on producers

Total foreign exchange loss could be calculated by using partial equilibrium framework (Figure 6.4). It consists of the payment that would made by foreigners (qb

− q d ) , and the loss of foreign exchange earnings for the quantity

diverted to domestic consumption (c d Change in FE =

− cb ) . Thus it can be expressed as: − p b (q b − q d + c d − cb )

The gain in government revenue (Figure 6.5) would be multiplication of the new level of exports (after an implicit tax) with the unit tax rate ( pb

− p d ) . It could be

calculated as: Change in Government revenue =

( pb − p d )(q d − c d )

Finally, it could be calculated the total deadweight loss which is the summation of NSL p and NSLc (Figure 6.6). Therefore, how much on the magnitude

52

of the net social loss from the market distortion of paddy/rice commodity depends on the elasticity of national supply and elasticity of domestic demand.

Supply pb pd

Demand

cb

cd

qd

qb

Figure 6.4: Change in FE by an implicit tax

Supply pb

d

pd

Demand

cd

qd

Figure 6.5: Gain in government revenue by an implicit tax

53

Supply pb c

e

pd

Demand

cb

cd

qd

qb

Figure 6.6: Total deadweight loss by an implicit tax

To measure the efficiency, welfare, government revenue, and balance of trade effects for quantitative analysis, the following should be used:

pb = border price qb = quantity produced at the border price cb = quantity consumed at the border price E S = elasticity of supply E D = elasticity of demand Imposition of an export tax (implicit) changes the domestic price level and the quantities produced and consumed to:

p d = domestic price after tax q = quantity produced after tax c = quantity consumed after tax

t = export rate of protection Then, the net social loss in production ( NSL p ), equal to triangle e in Fig. 6.2, can be measured as:

54

1 (qb − q d )( pb − p d ) 2 1 q − qb pb qb NSL p = − ( d ) ( p d − pb )( pb − p d ) 2 p d − pb qb pb NSLP =

=

p − pb 2 1 ES ( d ) pb qb 2 pb

=

1 E S t 2 pb qb 2

Where, t = NRP = NPC − 1 =

( p d / pb ) − 1

In a similar fashion, it could be obtained net social loss in consumption:

1 NSLc = − E D t 2 pb cb 2 6.2 Effects of Government Intervention In this section, it is analyzed the effects of price intervention that can distort producer incentives and influence the efficiency of resource allocation. The task involves get the picture of supply-demand conditions under no-intervention scenario by eliminating of price distortions. Firstly, border prices are set as reference points which are the international prices of a tradable commodity at the country’s border. Second, by using the border prices it is calculated welfare effects of price intervention employing abovementioned methodology.

6.2.1 Effects of price interventions Nominal protection coefficient (NPC) is the simplest indicator of price distortion that is equal to the ratio of the domestic price of a commodity to its border price. NPC greater than one means producers are protected and consumers are taxed, less than one means producers are taxed and consumers are subsidized, and unity means the protection is neutral. Otherwise, NPC which is greater than unity implies that protective measures have been applied to encourage the domestic production of the commodity, while NPC smaller than unity means that taxation measures discriminate against the domestic production of the commodity in question.

55

Table 6.1.Market exchange rate, consumers and producer price series (1990-2004) Year

Market

exchange

rate (MMK/US$)

Producer price (A)

Consumer Price (B)

(MMK/mt)

(MMK/mt)

B/A

1990

100.00

2256.00

4660.00

2.07

1991

100.00

2256.00

5100.00

2.26

1992

100.00

2256.00

8980.00

3.98

1993

100.00

3360.00

15880.00

4.73

1994

100.00

3360.00

14820.00

4.41

1995

104.00

3840.00

21900.00

5.70

1996

146.83

6720.00

23740.00

5.53

1997

210.42

16229.76

23920.00

1.47

1998

313.83

15600.00

35480.00

2.27

1999

340.67

15600.00

46720.00

3.00

2000

374.83

15600.00

39780.00

2.55

2001

619.75

15600.00

40420.00

2.59

2002

923.42

50194.56

89154.70

1.78

2003

982.44

74985.12

127215.40

1.70

2004

Source: Various companies, MAS, CSO and owned estimation

There are two kinds of NPCs depending upon which domestic prices are used. If farm-gate prices are used to calculate, it would be NPC for producers, and if the wholesale prices are used, it would be NPC for consumers. Subtracting 1 from NPC yields a nominal protection rate (NPR). NPR greater than zero means producers are protected and consumers are taxed; NPR less than zero means that producers are taxed and consumers are subsidized. Thus, if NPC greater than one or NPR greater than zero implies that producers receive a price which, after direct interventions, is above the border price, giving producers incentives to produce more of the commodity that if the equilibrium prices prevailed. Table 6.1 gives the market exchange rate, producer prices and consumer

56

price series from 1990 to 2004. There are two parallel markets for exchange rate in Myanmar; official and unofficial (market exchange rate) rates. In this analysis, market exchange rate is used because of the official exchange rate is extremely overvalued. FOB export prices are used as border prices for Myanmar since Myanmar is exporting country. Producer, consumer and border prices of rice are presented in Table 6.2. Table 6.2.Producer, consumer and border prices for rice (US$/mt) Year

Producer price

Consumer price

Border price to

Border price to

producers

consumers

1990

22.56

46.60

186.00

213.90

1991

22.56

51.00

199.00

228.85

1992

22.56

89.80

181.00

208.15

1993

33.60

158.80

147.00

169.05

1994

33.60

148.20

163.00

187.45

1995

36.92

210.58

178.00

204.70

1996

45.77

161.68

194.00

223.10

1997

77.13

113.68

194.00

223.10

1998

49.71

113.05

199.00

228.85

1999

45.79

137.14

169.00

194.35

2000

41.62

106.13

151.00

173.65

2001

25.17

65.22

139.00

159.85

2002

54.36

96.55

128.00

147.20

2003

76.33

129.50

128.00

147.20

2004 Note: Border price to consumers is the border price to producer plus a 15 percent mark-up for intermediate handling costs.

The resulting NPC and NPR for producers and consumers are given in Table 6.3. The developed countries such as US and EEC have paid their producers as much as five times the world price for sugar; and Japan pays on average about 2 and 1/2 times the world price (Tyres and Anderson, 1986). Since Myanmar is a developing

57

country, with NPCs less than one or (negative NPRs) not uncommon. For example, the NPC in 1995 is 0.21, and it implies that the commodity is taxed at a 79 percent rate. It could be seen taxation on the paddy/rice in commodity is declined from 2002 onwards, but it is still in a higher tax rate position. For example, NPC for 2003 is 0.60 implies that the commodity is taxed at a 40 percent rate to producers. Government subsidized fertilizers up to 1994 at a rate less than market price. So higher tax rate for this period is acceptable while 1994 onwards it was an unreasonable policy. One probable reason would be the GOM is constructing many irrigation projects as an agricultural development program, and the farmers have no charges on water utilization. Table 6.3.NPC and NPR for producers and consumers (1990-2004)

NPCp

NPCc

NPR p

NPRc

1990

0.12

0.22

-0.88

-0.78

1991

0.11

0.22

-0.89

-0.78

1992

0.12

0.43

-0.88

-0.57

1993

0.23

0.94

-0.87

-0.06

1994

0.21

0.79

-0.79

-0.21

1995

0.21

1.03

-0.79

0.03

1996

0.24

0.72

-0.76

-0.28

1997

0.40

0.51

-0.60

-0.49

1998

0.25

0.49

-0.75

-0.51

1999

0.27

0.71

-0.73

-0.29

2000

0.28

0.61

-0.72

-0.39

2001

0.18

0.41

-0.82

-0.59

2002

0.42

0.66

-0.38

-0.34

2003

0.60

0.88

-0.40

-0.12

Year

2004

Source: Owned estimation

58

6.2.2 Partial equilibrium analyses of rice market intervention By using the standard partial equilibrium framework, the effects of government intervention on the rice market have been derived. To calculate trade levels under the ‘no intervention scenario’, the computed NPC p , NPC c and the estimated elasticities for national rice demand and supply are used. Then the apparent effects of intervention are determined by comparing actual trade levels with those generated by the model. In Myanmar, consumer price is always greater than producer price. Border price is greater than that both of producer and consumer prices except in 1993, 1995 and 2003 for which that of consumer price is higher than border price. The overall results of the partial equilibrium analyses are shown in Table 6.4 and 6.5 from 1990 to 2004. It has been evaluated the price intervention effects calculating the welfare trade-off between consumers and producers, changes in government revenue and expenditures, net social efficiency losses, and changes in the foreign exchange balance. The welfare trade-off depends on the intervention and border prices of rice using the price elasticities of national demand and supply. The nominal protection coefficient on output is at a maximum in 2003 indicating that decrease in price distortion though it is still high. From 1990 onwards even though the producer loss is decreasing, the welfare for producer loss in 2002 is US$ 1029.95 million. In that year the government gained US$ 523.35 million as a result of intervention. Consumers also gained US$ 372.98 million. The net social welfare loss (total deadweight loss) amounted to US$ 76.38 million. But in 1993 and 1995 in which the consumer price was higher than that of border price, both of consumers and producers suffered losses. For producers it was US$ 1310.19 million and for consumers it was US$ 113.29 million in 1993; and it was US$ 1777.03 million and US$ 334.23 million for producers and consumers, respectively. But the government gained US$ 1242.23 million in 1993 and US$ 1852.77 million in 1995. For the overall study period from 1990 to 2003, net social loss summed up to US$ 4.31 billion.

59

6.2.3 Simulations To quantify the effects of a few likely scenarios and policy changes because the government of Myanmar liberalized the rice market from 2003, though it was revoked for the export market, but in a nearly future it is expected to open the international market like as domestic market_ the base case model is calibrated for three cases from 2006 to 2010. These are summarized in scenarios 1-3.

Scenario 1: The assumptions employed in this scenario are: (1) Production increase by 1 percent per annum over the 2003 level of 13.9 million metric tonnes. (2) Export to be expected about 0.5 million metric tonnes. (3) FOB price of Myanmar rice to be maintained at US$ 130 per metric ton. (4) Marketing margin is assumed to be 15 percent. The resulting outcomes are shown in Table 6.6. In this analysis, it was assumed for the year of 2004 and 2005 is the same as 2003 because of getting data is difficult. Under such assumptions, consumers continue to gain but the magnitude of the gain ($ 206 million) is less than before 2002 except in 2003, 2004 and 2005. Producers are still to be lost on the other hand but its magnitude in lost is much lower than before 2002. The net gain for government is about $ 207 million. Total deadweight loss expected to be declined from $ 76 million in 2002 to $ 8 million in 2010.

Scenario 2: The assumptions employed in this scenario are: (1) Production increase by 1.5 percent per annum over 2003 level of 13.9 million metric tonnes. (2) Export to be increased about 1 million metric tonnes. (3) Myanmar’s FOB price of rice to be maintained at US$ 130 per metric ton. (4) Marketing margin is assumed to be 15 percent. Compared to the previous scenario, the resulting impacts indicates that a significant decrease in producer loss from $ 1 billion in 2002 to only $ 75 million in

60

2010. However, consumers will be lost on the other hand by about $ 190 million in 2010. Net effect expected to be declined to $ 1 million comparing to the previous case.

Scenario 3: The assumptions employed in this scenario are: (1) Production increase by 2 percent per annum over 2003 level of 13.9 million tonnes. (2) Export to be increased about 1.5 million metric tonnes. (3) Myanmar’s FOB price of rice to be maintained at US$ 130 per metric ton. (4) Marketing margin is assumed to be 15 percent. Different from the previous two scenarios, producers expected to be gained in this case. Producers will be gained about $ 300 million in 2010. Consumers expected to be lost about $ 600 million on the one hand. Conversely change in foreign will be started to declined in this case. Total deadweight lost is expected to be greater than scenario 2. However government still to be gained as in the previous two cases.

61

Table 6.4.Partial equilibrium effects of rice price intervention in Myanmar (1990-1996) Assumptions

1990

1991

1992

1993

1994

1995

1996

Elasticity of Supply

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Elasticity of Demand

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

Production ('000 mt)

8428.98

7795.74

8761.8

9897

11109.42

10601.76

10438.2

Net Export ('000 mt)

216

199

201

265

1025

358

93

Apparent Domestic Consumption ('000 mt)

8212.98

7596.74

8560.8

9632

10084.42

10243.76

10345.2

Border price to producer (Pb) US$/mt

186

199

181

147

163

178

194

Producer price (Pp) US$/mt

22.56

22.56

22.56

33.6

33.6

36.92

45.77

Consumer price (Pc) US$/mt

46.6

51

89.8

158.8

148.2

210.58

161.68

NPCp

0.12

0.11

0.12

0.23

0.21

0.21

0.24

NPCc

0.22

0.22

0.43

0.94

0.79

1.03

0.72

Movement from Pp to Pb (%)

733.33

809.09

733.33

334.78

376.19

376.19

316.67

Movement from Pc to Pb (%)

354.55

354.55

132.56

6.38

26.58

-2.91

38.89

Increase/Decrease in output ('000mt)

6181.25

6307.46

6425.32

3313.34

4179.26

3988.28

3305.43

Increase/Decrease in consumption ('000mt)

-2911.87

-2693.39

-1134.80

-61.48

-268.07

29.84

-402.31

Supply ('000mt)

14610.23

14103.20

15187.12

13210.34

15288.68

14590.04

13743.63

Demand ('000mt)

5301.11

4903.35

7426.00

9570.52

9816.35

10273.60

9942.89

Export

9309.13

9199.85

7761.12

3639.82

5472.32

4316.44

3800.74

8428.98

7795.74

8761.80

9897.00

11109.42

10601.76

10438.20

Shift to No Intervention

Intervention outcome Supply ('000mt)

62

Demand ('000mt)

8212.98

7596.74

8560.80

9632.00

10084.42

10243.76

10345.20

Export

216.00

199.00

201.00

265.00

1025.00

358.00

93.00

Producer gain ($ million)

-1882.76

-1931.92

-1897.23

-1310.19

-1707.96

-1777.03

-1792.24

Consumer gain ($ million)

941.93

925.01

729.00

-113.29

147.27

-334.23

327.86

Government Exp/Rev ($ million)

172.52

192.26

570.81

1242.23

1257.97

1852.77

1206.89

Change in foreign exchange ($ million)

1691.32

1791.17

1368.38

496.10

724.91

704.60

719.30

Efficiency loss in production ($ million)

505.13

556.44

509.01

187.87

270.40

281.33

244.98

Efficiency loss in consumption ($ million)

202.96

199.31

51.75

-0.36

1.98

0.49

6.50

Total deadweight loss ($ million)

708.09

755.76

560.76

187.50

272.38

281.82

251.48

Results

Table 6.5.Partial equilibrium effects of rice price intervention in Myanmar (1997-2003) Assumptions

1997

1998

1999

2000

2001

2002

2003

Elasticity of Supply

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Elasticity of Demand

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

Production ('000 mt)

9834.72

10084.68

11884.8

12592.14

12941.52

13083

13881.6

Net Export ('000 mt)

29

122

55

254

949

910

44

Apparent Domestic Consumption ('000 mt)

9805.72

9962.68

11829.8

12338.14

11992.52

12173

13837.6

Border price to producer (Pb) US$/mt

194

199

169

151

139

128

128

Producer price (Pp) US$/mt

77.13

49.71

45.79

41.62

25.17

54.36

76.33

Consumer price (Pc) US$/mt

113.68

113.05

137.14

106.13

65.22

96.55

129.5

63

NPCp

0.4

0.25

0.27

0.28

0.18

0.42

0.6

NPCc

0.51

0.49

0.71

0.61

0.41

0.66

0.88

Movement from Pp to Pb (%)

150.00

300.00

270.37

257.14

455.56

138.10

66.67

Movement from Pc to Pb (%)

96.08

104.08

40.85

63.93

143.90

51.52

13.64

Increase/Decrease in output ('000mt)

1475.21

3025.40

3213.30

3237.98

5895.58

1806.70

925.44

Increase/Decrease in consumption ('000mt)

-942.12

-1036.93

-483.19

-788.83

-1725.75

-627.09

-188.69

Supply ('000mt)

11309.93

13110.08

15098.10

15830.12

18837.10

14889.70

14807.04

Demand ('000mt)

8863.60

8925.75

11346.61

11549.31

10266.77

11545.91

13648.91

Export

2446.33

4184.34

3751.49

4280.81

8570.33

3343.79

1158.13

Supply ('000mt)

9834.72

10084.68

11884.80

12592.14

12941.52

13083.00

13881.60

Demand ('000mt)

9805.72

9962.68

11829.80

12338.14

11992.52

12173.00

13837.60

Export

29.00

122.00

55.00

254.00

949.00

910.00

44.00

Producer gain ($ million)

-1235.59

-1731.37

-1662.28

-1554.41

-1808.68

-1029.95

-741.17

Consumer gain ($ million)

749.76

811.73

369.20

535.91

821.15

372.98

-20.61

Government Exp/Rev ($ million)

357.13

628.28

1083.92

800.92

448.29

523.35

738.15

Change in foreign exchange ($ million)

468.96

808.40

624.71

608.05

1059.37

311.53

142.61

Efficiency loss in production ($ million)

86.20

225.83

197.96

177.09

335.55

66.52

23.91

Efficiency loss in consumption ($ million)

37.84

44.56

7.70

17.70

63.66

9.86

-0.14

Total deadweight loss ($ million)

124.04

270.39

205.65

194.78

399.21

76.38

23.77

Shift to No Intervention

No Intervention outcome

Intervention outcome

Results

64

Table 6.6.Scenario 1 Assumptions

2004

2005

2006

2007

2008

2009

2010

Elasticity of Supply

0.1

0.1

0.1

0.1

0.1

0.1

0.1

Elasticity of Demand

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

-0.1

Production ('000 mt)

13881.6

13881.6

14020.42

14160.62

14302.23

14445.25

14589.7

Net Export ('000 mt)

44

44

0.5

0.5

0.5

0.5

0.5

Apparent Domestic Consumption ('000 mt)

13837.6

13837.6

13837.6

13837.6

13837.6

13837.6

13837.6

Border price to producer (Pb) US$/mt

128

128

130

130

130

130

130

Producer price (Pp) US$/mt

76.33

76.33

100

100

100

100

100

Consumer price (Pc) US$/mt

129.5

129.5

115

115

115

115

115

NPCp

0.6

0.6

0.77

0.77

0.77

0.77

0.77

NPCc

0.88

0.88

0.88

0.88

0.88

0.88

0.88

Movement from Pp to Pb (%)

66.67

66.67

29.87

29.87

29.87

29.87

29.87

Movement from Pc to Pb (%)

13.64

13.64

13.64

13.64

13.64

13.64

13.64

Increase/Decrease in output ('000mt)

925.44

925.44

418.79

422.98

427.21

431.48

435.80

Increase/Decrease in consumption ('000mt)

-188.69

-188.69

-188.69

-188.69

-188.69

-188.69

-188.69

Supply ('000mt)

14807.04

14807.04

14439.21

14583.60

14729.44

14876.73

15025.50

Demand ('000mt)

13648.91

13648.91

13648.91

13648.91

13648.91

13648.91

13648.91

Export

1158.13

1158.13

790.31

934.69

1080.53

1227.83

1376.59

13881.60

13881.60

14020.42

14160.62

14302.23

14445.25

14589.70

Shift to No Intervention

No Intervention outcome

Intervention outcome Supply ('000mt)

65

Demand ('000mt)

13837.60

13837.60

13837.60

13837.60

13837.60

13837.60

13837.60

Export

44.00

44.00

0.50

0.50

0.50

0.50

0.50

Producer gain ($ million)

-741.17

-741.17

-426.89

-431.16

-435.48

-439.83

-444.23

Consumer gain ($ million)

-20.61

-20.61

206.15

206.15

206.15

206.15

206.15

Government Exp/Rev ($ million)

738.15

738.15

207.56

207.56

207.56

207.56

207.56

Change in foreign exchange ($ million)

142.61

142.61

78.97

79.52

80.07

80.62

81.18

Efficiency loss in production ($ million)

23.91

23.91

6.28

6.34

6.41

6.47

6.54

Efficiency loss in consumption ($ million)

-0.14

-0.14

1.42

1.42

1.42

1.42

1.42

Total deadweight loss ($ million)

23.77

23.77

7.70

7.76

7.82

7.89

7.95

Assumptions

2006

2007

2008

2009

2010

Elasticity of Supply

0.1

0.1

0.1

0.1

0.1

Elasticity of Demand

-0.1

-0.1

-0.1

-0.1

-0.1

Production ('000 mt)

14089.82

14301.17

14515.7

14733.44

14954.44

Net Export ('000 mt)

1

1

1

1

1

Apparent Domestic Consumption ('000 mt)

13837.6

13837.6

13837.6

13837.6

13837.6

Border price to producer (Pb) US$/mt

130

130

130

130

130

Producer price (Pp) US$/mt

125

125

125

125

125

Consumer price (Pc) US$/mt

143.75

143.75

143.75

143.75

143.75

NPCp

0.96

0.96

0.96

0.96

0.96

NPCc

1.11

1.11

1.11

1.11

1.11

Results

Table 6.7.Scenario 2

66

Shift to No Intervention Movement from Pp to Pb (%)

4.17

4.17

4.17

4.17

4.17

Movement from Pc to Pb (%)

-9.91

-9.91

-9.91

-9.91

-9.91

Increase/Decrease in output ('000mt)

58.71

59.59

60.48

61.39

62.31

Increase/Decrease in consumption ('000mt)

137.13

137.13

137.13

137.13

137.13

Supply ('000mt)

14148.53

14360.76

14576.18

14794.83

15016.75

Demand ('000mt)

13974.73

13974.73

13974.73

13974.73

13974.73

Export

173.80

386.03

601.45

820.10

1042.02

Supply ('000mt)

14089.82

14301.17

14515.70

14733.44

14954.44

Demand ('000mt)

13837.60

13837.60

13837.60

13837.60

13837.60

Export

1.00

1.00

1.00

1.00

1.00

Producer gain ($ million)

-70.60

-71.65

-72.73

-73.82

-74.93

Consumer gain ($ million)

-191.21

-191.21

-191.21

-191.21

-191.21

Government Exp/Rev ($ million)

267.65

274.52

281.49

288.57

295.75

Change in foreign exchange ($ million)

-10.19

-10.08

-9.96

-9.85

-9.73

Efficiency loss in production ($ million)

0.15

0.15

0.15

0.15

0.16

Efficiency loss in consumption ($ million)

0.94

0.94

0.94

0.94

0.94

Total deadweight loss ($ million)

1.09

1.09

1.09

1.10

1.10

No Intervention outcome

Intervention outcome

Results

67

Table 6.8.Scenario 3 Assumptions

2006

2007

2008

2009

2010

Elasticity of Supply

0.1

0.1

0.1

0.1

0.1

Elasticity of Demand

-0.1

-0.1

-0.1

-0.1

-0.1

Production ('000 mt)

14159.23

14442.41

14731.26

15025.9

15326.42

Net Export ('000 mt)

1.5

1.5

1.5

1.5

1.5

Apparent Domestic Consumption ('000 mt)

13837.6

13837.6

13837.6

13837.6

13837.6

Border price to producer (Pb) US$/mt

130

130

130

130

130

Producer price (Pp) US$/mt

150

150

150

150

150

Consumer price (Pc) US$/mt

172.5

172.5

172.5

172.5

172.5

NPCp

1.15

1.15

1.15

1.15

1.15

NPCc

1.33

1.33

1.33

1.33

1.33

Movement from Pp to Pb (%)

-13.04

-13.04

-13.04

-13.04

-13.04

Movement from Pc to Pb (%)

-24.81

-24.81

-24.81

-24.81

-24.81

Increase/Decrease in output ('000mt)

-184.69

-188.38

-192.15

-195.99

-199.91

Increase/Decrease in consumption ('000mt)

343.34

343.34

343.34

343.34

343.34

Shift to No Intervention

68

No Intervention outcome Supply ('000mt)

13974.54

14254.03

14539.11

14829.91

15126.51

Demand ('000mt)

14180.94

14180.94

14180.94

14180.94

14180.94

Export

-206.39

73.09

358.17

648.97

945.57

Supply ('000mt)

14159.23

14442.41

14731.26

15025.90

15326.42

Demand ('000mt)

13837.60

13837.60

13837.60

13837.60

13837.60

Export

1.50

1.50

1.50

1.50

1.50

Producer gain ($ million)

281.34

286.96

292.70

298.56

304.53

Consumer gain ($ million)

-595.39

-595.39

-595.39

-595.39

-595.39

Government Exp/Rev ($ million)

332.25

350.66

369.43

388.59

408.12

Change in foreign exchange ($ million)

-68.64

-69.12

-69.61

-70.11

-70.62

Efficiency loss in production ($ million)

1.85

1.88

1.92

1.96

2.00

Efficiency loss in consumption ($ million)

7.30

7.30

7.30

7.30

7.30

Total deadweight loss ($ million)

9.14

9.18

9.22

9.26

9.30

Intervention outcome

Results

69

CHAPTER 7 CONCLUSIONS

Historically Myanmar rice sector showed rather complex. The results indicate that rice production responded to the 1990s contract system and advanced payment system as an unsuccessful implementation. Even though the system is in question, the production area was increased under the government program for area expansion. Government intervened in the market by using price as a wheel. On production side the government set a price (predetermined price) well below the market price. On the consumption side, some target group of consumers were subsidized. This intervention system made the government to use huge amount of government budget. All combined forces in the economy pushed the government to liberalize the rice market eventually in 2003. But this was not longer. It was revoked in 2004 for export market unexpectedly though domestic trading would be freed. So what has been the effect of this intervention system? It is usually argued about liberalization but not on the previous history. From 1990 onward who bear the burden of government policy testing? Who gained in the government’s game? There were no clear estimates of these effects over time. This study uses a partial equilibrium model to evaluate the impact of government’s pricing policy focusing in particular on the effects of welfare for producers and consumers from 1990 to 2003. The results indicate that producers are losers and hurt the rural people who especially grow rice. At the same time consumers get benefit from the intervention almost every year except in 1993, 1995 and 2003. The model also highlights that the impact of intervention depends on the elasticity of national supply and demand. Nominal protection coefficients (NPC) indicate that government made

70

heavy tax on producers. For example NPC in 1995 is 0.21 means that the commodity (rice) is taxed at a 79 percent rate. Even in 2003, NPC for producers (0.66) indicate that producers are still heavily taxed of 34 percent. NPC is the simplest indicator of government pricing policy distortion. It could be imagined how much burden of lost burdened on the producers by seeing this simplest indicator. Moreover the study evaluates the welfare for producers, consumers, net treasury gain for the government, change in foreign exchange and deadweight loss by using a partial equilibrium framework. The welfare trade-off depends on the intervention and border prices of rice using the price elasticity of national demand and supply. It was found that NPC is declining (price distortion is decreasing) from 1990 gradually though the protection rate is still higher even in 2003. The welfare for producer loss in 2003 is US$ 741 million. Consumers gained from intervention except in 1993, 1995 and 2003 on the other hand. For the study period from 1990 to 2003, net social loss summed up to US$ 4.31 billion.

Policy Implication GOM is now moving to liberalize rice markets. In April 2003 restrictions on the internal movement of rice and export market were opened. Unexpectedly, however, export market was revoked again in 2004. So the impact of trade liberalization is still unclear. It is heard that military is now closed the movement of rice from Ayeyarway and Bago divisions (main rice growing regions) for the sake of military stock while it is writing this conclusion (beginning of 2006). So its policy context is rather complex. Its

71

decision seems to be irrational. But from the study point, the following implications would be suggested. According to the simulation results, the future growth of rice sector depends on the rice export. In turn effective marketing system with information transparency should be developed in order to expand rice market. In order to develop such a system private sector’s participation is important. But there will be some constraints of credit and information. More generally, support from the government and credibility of government’s announcement are the key factors to be able to create such an effective system. As partial equilibrium analysis is only suitable for overall results it should be carried out other research for regional and distributional dimensions in the analysis of policy reform. Multi-markets at different regions should be considered to identify and quantify the trade-off between regions and groups. For all round development of agriculture sector it is better to study a chain of policy rather than only focusing on food policy.

72

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Appendices

Appendix 1.MAPT’ Involvement in Trade and Distribution to Target Groups Total

MAPT’

Percent

Production

Purchase

Share

Rice

Broken

Rice

Broken

Bran

(million

(million

tons)

tons)

1988

13.16

1.79

13.62

23684

24104

567855

56957

74716

1989

13.80

1.31

9.52

155839

12435

194724

84776

95319

1990

13.96

1.50

10.77

120836

11210

746616

52557

64442

1991

13.20

1.56

11.80

168959

14156

635370

92991

92220

1992

14.85

1.60

10.74

189386

3306

779137

82119

114635

1993

16.75

1.92

11.49

249185

12643

750573

44580

77887

1994

18.20

2.03

11.16

806016

29309

843082

72551

122020

1995

17.95

1.93

10.77

353106

197

803985

99413

145390

1996

17.67

1.52

8.61

91790

900

848351

125059

117577

1997

16.70

1.02

6.13

15874

760

792726

67719

75665

1998

17.07

0.21

1.28

99000

9037

672250

44815

50722

1999

20.12

0.22

1.09

58000

11127

685380

87962

112205

2000

21.32

0.21

0.99

215000

41376

590248

81854

99044

2001

22.25

0.21

0.95

952000

82805

577653

147748

162773

2002

23.36

0.21

0.88

455570

127930

677570

174858

177660

Year

Export (tonnes)

Domestic distribution (tonnes)

Source: MAPT

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