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 Japanese Occupation Before and after Independence Revolutionary Council Era Socialist Economy Era Military Regime (1826-1941) (1941-1945) (1945-1961) (1962-1974) (1974-1988) (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
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
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
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 (1000 ha) Delta Coastal Central Dry Zone Mountainous 3188.50 3000.73 3311.90 2647.72 3876.00 516.00 1252.00 884.00 Production (1000 metric ton) 14073.00 1708.00 4501.00 2854.00
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,
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
(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.
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.
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.
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.
CHAPTER 2 THE PHYSICAL AND ECONOMIC STRUCTURE
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.
Figure 2.1 Union of Myanmar
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,
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 Delta Coastal Central Dry Zone Mountainous 3870.50 5496.50 1117.67 2277.00 32.75 31.25 33.73 26.97 Min 22.00 21.75 21.60 16.72 Relative Humidity (%) 78.38 80.35 70.80 74.05
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,
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
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 55 2241 482 0.8 0.1 3.3 0.7 Paddy,Jute Paddy, Chillies, Pulses, Sorghum, Maize, Cotton Paddy, Vegetables, Jute, Sugarcane, Pulses 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 Ferrosol Rhodic 1085 9971 1.6 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 Arensol Cambisol-Orthic Cambisol-Gelic Cambisol-Histric Cambisol-Chromic Ferrosol-Plinthic 244 2461 2596 6287 1370 588 0.4 3.6 3.8 9.3 2 0.9 Forest Forest Natural reserved Forest Forest Mango, Durian, Rubber, Coconut, Cassava Pineapple, Banana, Oil palm Litholsol Andosol Gleysol-Humic Solonchak Cambisol 241 46 203 42 530 0.4 0.1 0.3 0.1 0.8 Forest Forest Mangrove Forest Mangrove Forest Horticulture, Sesamum, Groundnut, Forest, Rubber Mango, Pineapple Lithosol Cambisol-Orthic 290 2188 0.4 3.2 Pasture Forest
(Chin hill) Not suitable for crop Total Source: Land use (MOAI) 18123 67659 26.8 100
Figure 2.2 Labour force of agriculture
Country's labor force
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
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 1 2 3 4 5 6 7 8 9 10 11 12 Month Jan Feb March April May June July August Sept Oct Nov Dec 1996 123 123 125 125 135 140 158 158 170 170 168 167 146.83 1997 165 165 165 160 170 180 200 220 240 250 300 310 210.42 1998 280 250 250 250 300 320 340 364 366 358 344 344 313.83 1999 325 325 335 335 345 340 340 350 360 350 340 343 340.67 2000 324 327 348 348 353 363 377 389 405 419 414 431 374.83 2001 442 480 512 591 700 605 602 649 681 715 732 728 619.75 2002 720 741 784 863 823 856 898 989 1164 1136 1073 1034 923.42 982.44 2003 1059 1064 900 923 974 967 960 1020 975
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).
Table 2.4 People's saving
FY 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 Total saving(million) 162609 236383 352347 465005 415183 408098
2003 January February March April May June July August September October November December 2004 January February March April May June Source: Central Bank of Myanmar (MOFR) 374839 378379 408098 269034 451829 484293 526918 440533 415183 391668 375104 370790 378643 380872 392239 381736 375739 380012
Figure 2.3 FDI from various countries
1800 1600 1400 1200 1000 800 600 400 200 0
No of enterprises Investment value
Republic of Korea
Figure 2.4 Government Investment at various sectors in capital
14% 13% 7% 23% 20% 8% 15%
Agriculture Energy Construction Transport and communication Social services Defence 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
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)
35000 30000 25000 20000 15000 10000 5000 0
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
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 Net sown area Fallow land Cultivable waste land Reserved forests Other forest area Other land Total 1997-98 8969 1183 7854 10475 22001 17177 67659 1998-99 9298 986 7553 11618 20962 17242 67659 1999-2000 9673 769 7311 12507 20269 17130 67659 2000-01 9909 686 7205 12914 19786 17159 67659 2001-02 9990 622 6664 13975 19327 17081 67659
Source: SLRD (MOAI)
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 Goods Agri L&F Forestry Mining Mftg E power Constrn 1991 2.6 2 -0.6 8.3 -1.2 1 5 35.8 1992 11 12.4 4.5 -3.3 26.3 10.8 31.1 11.2 1993 6 4.7 4.8 1 16.2 9.4 24.4 11.7 1994 6.9 6.7 6 -14.3 14.8 8.5 4.8 15.7 1995 6.7 5.5 3 -4.5 27.4 7.6 6.6 27.2 1996 6.4 3.8 11.9 2.7 11.6 5 10 24.6 1997 5.1 3 7.1 2.8 29.7 5 17.8 9.8 1998 4.9 3.5 9.3 3.2 7 6.2 -5.4 6.3 1999 12.1 10.5 16.8 4.6 30 14.5 14.2 4.4 2000 13.5 9.5 17.8 3.3 25.5 23.4 13.9 11.9 2001 9.7 8 11.3 10 -7.8 15.2 -5.5 29.2
Services Trade GDP
4.2 2.4 2.8
6.1 8.9 9.7
8 4.6 6
10 7 7.5
9.3 5.7 6.9
8.2 5 6.4
8.8 5 5.7
7.8 6.3 5.8
8.8 9.5 10.9
13.2 14.1 13.6
15.7 11.1 10.5
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
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
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
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
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.
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
(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).
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
Cereals Oil crops Peas and Beans Industrial Crops Food crops Plantation crop
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
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 (million ha) 1961-62 1971-72 1981-82 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 7.16 7.96 8.41 8.34 8.71 8.74 8.95 9.17 9.28 9.28 9.67 10.14 10.48 10.65 10.82 11.04 Irrigated area (million ha) 0.54 0.89 1.04 1 1.11 1.34 1.56 1.76 1.56 1.59 1.69 1.84 1.91 1.99 1.87 2.11 7.5 11.2 12.4 12 12.7 15.3 17.4 19.2 16.8 17.2 17.5 18.2 18.2 18.6 17.3 19.1 Percentage
Achievements in promoting higher rice production can be characterized by
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 Length (mm) Paddy Length/Breath ratio Emata (A) type Letywezin (B) type Ngasein (C) type Meedon (D) type Byat (E) type 9.41 and over 8.40-9.80 7.75-9.00 7.35-8.60 9.00 and over 3.3 and over 2.80-3.30 2.40-2.80 2.00-2.40 2.25-3.00 7 and over 6.00-7.00 5.60-6.40 5.00-6.00 6.40-7.35 Length (mm) Rice Length/Breath ratio 3 and over 2.40-3.00 2.00-2.40 1.60-2.00 2.10-2.50
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
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 ('000 ha) 1961-62 1971-72 1981-82 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 7694 9187 10167 10290 11008 11386 12143 12884 12312 12277 13307 14805 15450 15845 16146 16624 Net sown ('000 ha) 7162 7962 8413 8339 8714 8738 8951 9168 9277 9578 9673 10135 10476 10654 10818 11035 Multiple cropping ('000 ha) 532 1225 1754 1951 2293 2648 3191 3716 3034 2999 3634 4669 4974 5191 5327 5589 Cropping intensity (%) 107.4 115.4 120.9 123.4 126.3 130.3 135.7 140.5 132.7 132.3 137.6 146.1 147.5 148.7 149.2 150.6
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:
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 (metric ton) January February March April May June July August 1557969 214704 418702 1274475 846654 634601 628670 295627 Rice equivalent (metric ton) 934781.4 128822.4 251221.2 764685.0 507992.4 380760.6 377202.0 177376.2 Percent of annual production 6.67 0.92 1.79 5.45 3.62 2.72 2.69 1.27 National Rice gap (1000 mt) 106.00 -699.93 -577.53 -64.07 -320.76 -448.00 -451.55 -651.37
September October November December Total
103712 1245122 7168955 8978114 23367304
62227.2 747073.2 4301373.0 5386868.4 14020382.4
0.44 5.33 30.68 38.42 100.00
-766.52 -81.68 3472.62 4558.12 4061.41
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 Number ('000) Below 2 2 to 4 4 to 8 8 to 20 20 to 40 above 40.5 Total 3135 1222 499 111 4 2 4973 Percent of total farmers 63.04 24.57 10.03 2.23 0.08 0.04 100 Total land Area (million ha) 3.13 3.58 2.88 1.3 0.11 0.44 11.44 Percent of total land 27.36 31.29 25.17 1.14 0.96 0.38 100
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 Seeds Pesticides Urea T-super Potash Bio composer Hired labour Family labour Total cash cost Total cost
Rate (per acre) 1 cart 2 baskets 0.5 litre 50 kg 25 kg 12.5 kg 2 litre 108 men day 45 men day
MMK/acre 4200 2000 1000 8000 2700 1000 2000 32400 13500 53300 66800
Percent of TCC 7.88 3.75 1.88 15.01 5.06 1.88 3.75 60.79
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 ( A,Y )
= 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 r t −1 f
A = rice sown area
r 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.
The expected yield depends on the following factors:
Y = Y ( P , P , MV )
r 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
Pf is the
At −1 is the lagged sown area, and
is the disturbance term.
Yield response function is as follows:
log Yt = γ 0 +γ 1log Pt −1 + γ 2 log Pf + γ 3 log MVt + vt
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
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 0.96 0.94 1.13*** (0.26) Yield response 0.87 0.83 1.08*** (0.224) 0.006 (0.037) -0.067** (0.044) 0.513 -0.197 0.059 Supply
R2 AdjR 2
Pf At −1
-0.13** (0.029) 0.513*** (0.106)
***,**,* = significant at 1%, 5% and 10% respectively; figures in parentheses are standard errors.
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.
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 Sown (million ha) Production Yield (ton/ha) Paddy (million mt) Utilization Paddy (million mt) Marketable surplus Paddy (million mt) 1998 1999 2000 2001 2002 2003 5.76 6.28 6.36 6.45 6.49 6.54 3.13 3.24 3.38 3.42 3.42 3.54 17.08 20.13 21.32 21.92 21.81 23.14 2.39 2.82 2.98 3.07 3.05 3.24 14.69 17.31 18.34 18.85 18.76 19.90 8.81 10.39 11.00 11.31 11.26 11.94 Rice (million mt)
Source: CSO and owned estimation
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,
Figure5.1: Paddy-Rice Marketing Channels from 1990 to 2002
Seed, storage for home consumption
Excess paddy after delivery to MAPT
Compulsory delivery scheme to MAPT (10 to 15 baskets)
Primary collector (milled for retail markets)
Retail markets (small amount)
Target consumers at government determined price
Wholesalers (milled at private and government’s mills)
Export monopolized by MAPT
Traders (small traders, retailers, shopkeepers)
Remarks: Prices at the MAPT channels were at government determined prices, and prices at private channels were at market prices.
Figure5.2: Paddy-Rice Marketing Channels from 2003
Storage for home consumption
Government procurement for target groups
Traders can export if there is surplus
Remarks: Prices will be at the prevailing market prices in all channels.
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 Type A Type B Type C Type D Type E and F Total 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.. Number of mills 118 159 406 1498 8 2189 Capacity 6988 5888 10799 25907 385 49967
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.
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.
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.
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 Kachin Kayah Kayin Chin Sagaing Tanintharyi Bago Magway Mandalay Mon Rakhine Yangon Shan Ayeyarwady Myanmar 11.69 13.36 10.88 12.31 12.48 11.82 10.97 14.23 12.31 14.08 14.61 11.76 10.80 13.12 11.18 Rural 14.76 14.91 13.95 11.20 15.68 15.76 15.59 14.36 14.33 16.15 18.32 15.57 14.65 14.95 13.21
Table 5.4 Apparent rice consumption in Myanmar 1989-2002
Rice Production (million mt)
Rice production per capita (kg/capita)
Net export of rice (million mt) 0.17 0.22 0.19 0.20 0.27 0.94 0.36 0.93 0.03 0.12 0.06 0.25 0.95 0.91
Apparent consumption (kg/capita)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
9.21 9.32 8.81 9.90 11.18 12.14 11.98 11.79 11.11 11.39 13.42 14.22 14.62 15.19
231 230 214 236 262 280 272 263 243 247 286 299 303 311
39.82 40.51 41.21 41.93 42.65 43.38 44.09 44.80 45.78 46.19 46.87 47.54 48.21 48.85
207 210 211 214 215 216 215 215 212 216 208 207 206 205
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
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.
Table 5.5.Dependent and Independent variables in model of rice demand
Variable Description Rice quantity consumed Price of rice Price of meat Price of fish (fresh and dried) Price of cooking oil and fats Price of fruits and vegetables Community price of other foods Total expenditure based on price of 1995 Mean 3.117 3.841 5.599 6.000 5.526 4.274 4.988 8.298 St. dev. 0.035 0.839 0.913 0.988 0.851 0.923 0.992 0.895
Source: Based on HIES (1997); all values are in logs
The value of R
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.
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’
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 (Qni ) as in figure 6.1.
the national supply and demand schedules
pb p ni
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
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 pd
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.
Thus, consumers’ welfare could be calculated as follows:
Wc = c d ( pb − p d ) − NSLc
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 − cb ) . Thus it can be expressed as: − p b (q b − q d + c d − cb )
diverted to domestic consumption (c d Change in FE =
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 calculated as: Change in Government revenue =
− p d ) . It could be
( 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
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
Figure 6.4: Change in FE by an implicit tax
Supply pb pd
Figure 6.5: Gain in government revenue by an implicit tax
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:
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 ( p d / pb ) − 1
Where, t = NRP = NPC − 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.
Table 6.1.Market exchange rate, consumers and producer price series (1990-2004)
Year Market exchange Producer price (A) (MMK/mt) 2256.00 2256.00 2256.00 3360.00 3360.00 3840.00 6720.00 16229.76 15600.00 15600.00 15600.00 15600.00 50194.56 74985.12 Consumer Price (B) (MMK/mt) 4660.00 5100.00 8980.00 15880.00 14820.00 21900.00 23740.00 23920.00 35480.00 46720.00 39780.00 40420.00 89154.70 127215.40 2.07 2.26 3.98 4.73 4.41 5.70 5.53 1.47 2.27 3.00 2.55 2.59 1.78 1.70 B/A
rate (MMK/US$) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 100.00 100.00 100.00 100.00 100.00 104.00 146.83 210.42 313.83 340.67 374.83 619.75 923.42 982.44
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
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 producers 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Note: Border price to consumers is the border price to producer plus a 15 percent mark-up for intermediate handling costs. 22.56 22.56 22.56 33.60 33.60 36.92 45.77 77.13 49.71 45.79 41.62 25.17 54.36 76.33 46.60 51.00 89.80 158.80 148.20 210.58 161.68 113.68 113.05 137.14 106.13 65.22 96.55 129.50 186.00 199.00 181.00 147.00 163.00 178.00 194.00 194.00 199.00 169.00 151.00 139.00 128.00 128.00 Border price to consumers 213.90 228.85 208.15 169.05 187.45 204.70 223.10 223.10 228.85 194.35 173.65 159.85 147.20 147.20
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
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)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
0.12 0.11 0.12 0.23 0.21 0.21 0.24 0.40 0.25 0.27 0.28 0.18 0.42 0.60
0.22 0.22 0.43 0.94 0.79 1.03 0.72 0.51 0.49 0.71 0.61 0.41 0.66 0.88
-0.88 -0.89 -0.88 -0.87 -0.79 -0.79 -0.76 -0.60 -0.75 -0.73 -0.72 -0.82 -0.38 -0.40
-0.78 -0.78 -0.57 -0.06 -0.21 0.03 -0.28 -0.49 -0.51 -0.29 -0.39 -0.59 -0.34 -0.12
Source: Owned estimation
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.
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
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.
Table 6.4.Partial equilibrium effects of rice price intervention in Myanmar (1990-1996)
Assumptions Elasticity of Supply Elasticity of Demand Production ('000 mt) Net Export ('000 mt) Apparent Domestic Consumption ('000 mt) Border price to producer (Pb) US$/mt Producer price (Pp) US$/mt Consumer price (Pc) US$/mt NPCp NPCc Shift to No Intervention Movement from Pp to Pb (%) Movement from Pc to Pb (%) Increase/Decrease in output ('000mt) Increase/Decrease in consumption ('000mt) Supply ('000mt) Demand ('000mt) Export 733.33 354.55 6181.25 -2911.87 14610.23 5301.11 9309.13 809.09 354.55 6307.46 -2693.39 14103.20 4903.35 9199.85 733.33 132.56 6425.32 -1134.80 15187.12 7426.00 7761.12 334.78 6.38 3313.34 -61.48 13210.34 9570.52 3639.82 376.19 26.58 4179.26 -268.07 15288.68 9816.35 5472.32 376.19 -2.91 3988.28 29.84 14590.04 10273.60 4316.44 316.67 38.89 3305.43 -402.31 13743.63 9942.89 3800.74 1990 0.1 -0.1 8428.98 216 8212.98 186 22.56 46.6 0.12 0.22 1991 0.1 -0.1 7795.74 199 7596.74 199 22.56 51 0.11 0.22 1992 0.1 -0.1 8761.8 201 8560.8 181 22.56 89.8 0.12 0.43 1993 0.1 -0.1 9897 265 9632 147 33.6 158.8 0.23 0.94 1994 0.1 -0.1 11109.42 1025 10084.42 163 33.6 148.2 0.21 0.79 1995 0.1 -0.1 10601.76 358 10243.76 178 36.92 210.58 0.21 1.03 1996 0.1 -0.1 10438.2 93 10345.2 194 45.77 161.68 0.24 0.72
Intervention outcome Supply ('000mt) 8428.98 7795.74 8761.80 9897.00 11109.42 10601.76 10438.20
Demand ('000mt) Export Results Producer gain ($ million) Consumer gain ($ million) Government Exp/Rev ($ million) Change in foreign exchange ($ million) Efficiency loss in production ($ million) Efficiency loss in consumption ($ million) Total deadweight loss ($ million)
-1882.76 941.93 172.52 1691.32 505.13 202.96 708.09
-1931.92 925.01 192.26 1791.17 556.44 199.31 755.76
-1897.23 729.00 570.81 1368.38 509.01 51.75 560.76
-1310.19 -113.29 1242.23 496.10 187.87 -0.36 187.50
-1707.96 147.27 1257.97 724.91 270.40 1.98 272.38
-1777.03 -334.23 1852.77 704.60 281.33 0.49 281.82
-1792.24 327.86 1206.89 719.30 244.98 6.50 251.48
Table 6.5.Partial equilibrium effects of rice price intervention in Myanmar (1997-2003)
Assumptions Elasticity of Supply Elasticity of Demand Production ('000 mt) Net Export ('000 mt) Apparent Domestic Consumption ('000 mt) Border price to producer (Pb) US$/mt Producer price (Pp) US$/mt Consumer price (Pc) US$/mt 1997 0.1 -0.1 9834.72 29 9805.72 194 77.13 113.68 1998 0.1 -0.1 10084.68 122 9962.68 199 49.71 113.05 1999 0.1 -0.1 11884.8 55 11829.8 169 45.79 137.14 2000 0.1 -0.1 12592.14 254 12338.14 151 41.62 106.13 2001 0.1 -0.1 12941.52 949 11992.52 139 25.17 65.22 2002 0.1 -0.1 13083 910 12173 128 54.36 96.55 2003 0.1 -0.1 13881.6 44 13837.6 128 76.33 129.5
NPCp NPCc Shift to No Intervention Movement from Pp to Pb (%) Movement from Pc to Pb (%) Increase/Decrease in output ('000mt) Increase/Decrease in consumption ('000mt) No Intervention outcome Supply ('000mt) Demand ('000mt) Export Intervention outcome Supply ('000mt) Demand ('000mt) Export Results Producer gain ($ million) Consumer gain ($ million) Government Exp/Rev ($ million) Change in foreign exchange ($ million) Efficiency loss in production ($ million) Efficiency loss in consumption ($ million) Total deadweight loss ($ million)
150.00 96.08 1475.21 -942.12
300.00 104.08 3025.40 -1036.93
270.37 40.85 3213.30 -483.19
257.14 63.93 3237.98 -788.83
455.56 143.90 5895.58 -1725.75
138.10 51.52 1806.70 -627.09
66.67 13.64 925.44 -188.69
11309.93 8863.60 2446.33
13110.08 8925.75 4184.34
15098.10 11346.61 3751.49
15830.12 11549.31 4280.81
18837.10 10266.77 8570.33
14889.70 11545.91 3343.79
14807.04 13648.91 1158.13
9834.72 9805.72 29.00
10084.68 9962.68 122.00
11884.80 11829.80 55.00
12592.14 12338.14 254.00
12941.52 11992.52 949.00
13083.00 12173.00 910.00
13881.60 13837.60 44.00
-1235.59 749.76 357.13 468.96 86.20 37.84 124.04
-1731.37 811.73 628.28 808.40 225.83 44.56 270.39
-1662.28 369.20 1083.92 624.71 197.96 7.70 205.65
-1554.41 535.91 800.92 608.05 177.09 17.70 194.78
-1808.68 821.15 448.29 1059.37 335.55 63.66 399.21
-1029.95 372.98 523.35 311.53 66.52 9.86 76.38
-741.17 -20.61 738.15 142.61 23.91 -0.14 23.77
Table 6.6.Scenario 1
Assumptions Elasticity of Supply Elasticity of Demand Production ('000 mt) Net Export ('000 mt) Apparent Domestic Consumption ('000 mt) Border price to producer (Pb) US$/mt Producer price (Pp) US$/mt Consumer price (Pc) US$/mt NPCp NPCc Shift to No Intervention Movement from Pp to Pb (%) Movement from Pc to Pb (%) Increase/Decrease in output ('000mt) Increase/Decrease in consumption ('000mt) No Intervention outcome Supply ('000mt) Demand ('000mt) Export Intervention outcome Supply ('000mt) 13881.60 13881.60 14020.42 14160.62 14302.23 14445.25 14589.70 14807.04 13648.91 1158.13 14807.04 13648.91 1158.13 14439.21 13648.91 790.31 14583.60 13648.91 934.69 14729.44 13648.91 1080.53 14876.73 13648.91 1227.83 15025.50 13648.91 1376.59 66.67 13.64 925.44 -188.69 66.67 13.64 925.44 -188.69 29.87 13.64 418.79 -188.69 29.87 13.64 422.98 -188.69 29.87 13.64 427.21 -188.69 29.87 13.64 431.48 -188.69 29.87 13.64 435.80 -188.69 2004 0.1 -0.1 13881.6 44 13837.6 128 76.33 129.5 0.6 0.88 2005 0.1 -0.1 13881.6 44 13837.6 128 76.33 129.5 0.6 0.88 2006 0.1 -0.1 14020.42 0.5 13837.6 130 100 115 0.77 0.88 2007 0.1 -0.1 14160.62 0.5 13837.6 130 100 115 0.77 0.88 2008 0.1 -0.1 14302.23 0.5 13837.6 130 100 115 0.77 0.88 2009 0.1 -0.1 14445.25 0.5 13837.6 130 100 115 0.77 0.88 2010 0.1 -0.1 14589.7 0.5 13837.6 130 100 115 0.77 0.88
Demand ('000mt) Export Results Producer gain ($ million) Consumer gain ($ million) Government Exp/Rev ($ million) Change in foreign exchange ($ million) Efficiency loss in production ($ million) Efficiency loss in consumption ($ million) Total deadweight loss ($ million)
-741.17 -20.61 738.15 142.61 23.91 -0.14 23.77
-741.17 -20.61 738.15 142.61 23.91 -0.14 23.77
-426.89 206.15 207.56 78.97 6.28 1.42 7.70
-431.16 206.15 207.56 79.52 6.34 1.42 7.76
-435.48 206.15 207.56 80.07 6.41 1.42 7.82
-439.83 206.15 207.56 80.62 6.47 1.42 7.89
-444.23 206.15 207.56 81.18 6.54 1.42 7.95
Table 6.7.Scenario 2
Assumptions Elasticity of Supply Elasticity of Demand Production ('000 mt) Net Export ('000 mt) Apparent Domestic Consumption ('000 mt) Border price to producer (Pb) US$/mt Producer price (Pp) US$/mt Consumer price (Pc) US$/mt NPCp NPCc 2006 0.1 -0.1 14089.82 1 13837.6 130 125 143.75 0.96 1.11 2007 0.1 -0.1 14301.17 1 13837.6 130 125 143.75 0.96 1.11 2008 0.1 -0.1 14515.7 1 13837.6 130 125 143.75 0.96 1.11 2009 0.1 -0.1 14733.44 1 13837.6 130 125 143.75 0.96 1.11 2010 0.1 -0.1 14954.44 1 13837.6 130 125 143.75 0.96 1.11
Shift to No Intervention Movement from Pp to Pb (%) Movement from Pc to Pb (%) Increase/Decrease in output ('000mt) Increase/Decrease in consumption ('000mt) No Intervention outcome Supply ('000mt) Demand ('000mt) Export Intervention outcome Supply ('000mt) Demand ('000mt) Export Results Producer gain ($ million) Consumer gain ($ million) Government Exp/Rev ($ million) Change in foreign exchange ($ million) Efficiency loss in production ($ million) Efficiency loss in consumption ($ million) Total deadweight loss ($ million) -70.60 -191.21 267.65 -10.19 0.15 0.94 1.09 -71.65 -191.21 274.52 -10.08 0.15 0.94 1.09 -72.73 -191.21 281.49 -9.96 0.15 0.94 1.09 -73.82 -191.21 288.57 -9.85 0.15 0.94 1.10 -74.93 -191.21 295.75 -9.73 0.16 0.94 1.10 14089.82 13837.60 1.00 14301.17 13837.60 1.00 14515.70 13837.60 1.00 14733.44 13837.60 1.00 14954.44 13837.60 1.00 14148.53 13974.73 173.80 14360.76 13974.73 386.03 14576.18 13974.73 601.45 14794.83 13974.73 820.10 15016.75 13974.73 1042.02 4.17 -9.91 58.71 137.13 4.17 -9.91 59.59 137.13 4.17 -9.91 60.48 137.13 4.17 -9.91 61.39 137.13 4.17 -9.91 62.31 137.13
Table 6.8.Scenario 3
Assumptions Elasticity of Supply Elasticity of Demand Production ('000 mt) Net Export ('000 mt) Apparent Domestic Consumption ('000 mt) Border price to producer (Pb) US$/mt Producer price (Pp) US$/mt Consumer price (Pc) US$/mt NPCp NPCc Shift to No Intervention Movement from Pp to Pb (%) Movement from Pc to Pb (%) Increase/Decrease in output ('000mt) Increase/Decrease in consumption ('000mt) -13.04 -24.81 -184.69 343.34 -13.04 -24.81 -188.38 343.34 -13.04 -24.81 -192.15 343.34 -13.04 -24.81 -195.99 343.34 -13.04 -24.81 -199.91 343.34 2006 0.1 -0.1 14159.23 1.5 13837.6 130 150 172.5 1.15 1.33 2007 0.1 -0.1 14442.41 1.5 13837.6 130 150 172.5 1.15 1.33 2008 0.1 -0.1 14731.26 1.5 13837.6 130 150 172.5 1.15 1.33 2009 0.1 -0.1 15025.9 1.5 13837.6 130 150 172.5 1.15 1.33 2010 0.1 -0.1 15326.42 1.5 13837.6 130 150 172.5 1.15 1.33
No Intervention outcome Supply ('000mt) Demand ('000mt) Export Intervention outcome Supply ('000mt) Demand ('000mt) Export Results Producer gain ($ million) Consumer gain ($ million) Government Exp/Rev ($ million) Change in foreign exchange ($ million) Efficiency loss in production ($ million) Efficiency loss in consumption ($ million) Total deadweight loss ($ million) 281.34 -595.39 332.25 -68.64 1.85 7.30 9.14 286.96 -595.39 350.66 -69.12 1.88 7.30 9.18 292.70 -595.39 369.43 -69.61 1.92 7.30 9.22 298.56 -595.39 388.59 -70.11 1.96 7.30 9.26 304.53 -595.39 408.12 -70.62 2.00 7.30 9.30 14159.23 13837.60 1.50 14442.41 13837.60 1.50 14731.26 13837.60 1.50 15025.90 13837.60 1.50 15326.42 13837.60 1.50 13974.54 14180.94 -206.39 14254.03 14180.94 73.09 14539.11 14180.94 358.17 14829.91 14180.94 648.97 15126.51 14180.94 945.57
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
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.
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
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.
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Appendix 1.MAPT’ Involvement in Trade and Distribution to Target Groups
Year Total Production (million tons) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 13.16 13.80 13.96 13.20 14.85 16.75 18.20 17.95 17.67 16.70 17.07 20.12 21.32 22.25 23.36 MAPT’ Purchase (million tons) 1.79 1.31 1.50 1.56 1.60 1.92 2.03 1.93 1.52 1.02 0.21 0.22 0.21 0.21 0.21 13.62 9.52 10.77 11.80 10.74 11.49 11.16 10.77 8.61 6.13 1.28 1.09 0.99 0.95 0.88 23684 155839 120836 168959 189386 249185 806016 353106 91790 15874 99000 58000 215000 952000 455570 24104 12435 11210 14156 3306 12643 29309 197 900 760 9037 11127 41376 82805 127930 567855 194724 746616 635370 779137 750573 843082 803985 848351 792726 672250 685380 590248 577653 677570 56957 84776 52557 92991 82119 44580 72551 99413 125059 67719 44815 87962 81854 147748 174858 74716 95319 64442 92220 114635 77887 122020 145390 117577 75665 50722 112205 99044 162773 177660 Percent Share Export (tonnes) Rice Broken Domestic distribution (tonnes) Rice Broken Bran