Farmers face hurdles
Decades of mismanagement, limited public expenditure and low-cost returns are waylaying one of Myanmar’s largest sectors.
AGRICULTURE accounts for almost one-third of Myanmar’s GDP and growth in the sector is key to the country’s economic development. But decades of mismanagement mean providing the necessary infrastructure, financing and organisational reform will be a herculean task, according to international and local experts.
“There are a lot of constraints,” Daw Thandar Kyi, director at the Ministry of Agriculture, Livestock and Irrigation, said at a panel discussion at the annual Euromoney Conference on September 14. These range from what she called “micro-level instability” – the logistical and financial challenges faced by individual farmers – all the way up to funding for research and development (R&D).
In terms of public expenditure, there is only a limited budget for any one sector given the overall government budget deficit, she said. Some 70 to 80 percent of the budget allocated to the agricultural sector goes to irrigation, and very little to extension services like education and R&D, she said.
Speaking on the conference sidelines, deputy minister U Tun Win told The Myanmar Times that education and R&D have received around 1pc and 0.1pc of the agriculture budget respectively in recent years.
Irrigation is key for production, but developing the agricultural sector requires a much broader approach. “In the past we cared about productivity, but now it isn’t just about that,” Daw Thandar Kyi told delegates. The sector is in desperate need of modernisation, and more focus on agri-business and moving production up the value chain, she said.
“[In the past] the country forced the farmers to increase yields but failed to connect them [to the] market,” said U Tun Win. The result has been that farmers receive a much smaller share of agricultural profits than traders and middle-men.
“The farm gate prices and the free on board [FOB] prices differ by as much as 80pc,” he said. Farm gate prices reflect the value of an agricultural product when it leaves the farm, while FOB is the value when the goods are finally transferred to the end buyer. U Tun Win used the example of rice, where the rice trader sells to buyers at a price around 80pc higher than what they paid the farmers.
“The farmers will never make money given the low paddy prices at harvest, and the economy will not grow,” he said. “Forcing farmers to be production-oriented while forgetting about supporting [progress up through] the value chain with affordable infrastructure services has been a problem for the last 50 years.”
Despite the focus on productivity, Myanmar’s production levels across variouos crops are still volatile and lower than neighouring peers, said Daw Thandar Kyi. U Tun Win said efforts to create a regular and sustainable flow of agricultural exports had failed, leading to an inability to commit to export quotas with other countries.
Fellow panelist Vicky Bowman, director of the Myanmar Centre for Responsible Business, told conference delegates one key problem is that previous governments have “never listened to the voices of the producers, and the rest of the voices in the market”.
“They only listen to the voices of the domestic traders,” she said. “Agricultural experts tell me that basically nothing changed in the 25 years in agriculture.”
The new government needs to listen to smallholder producers as well as to brokers and buyers, she said. Domestic and international agricultural companies and foreign buyers should also be consulted to ascertain which products are in demand, Ms Bowman added.
This should help farmers target more popular and profitable crops for export.
“If the country continues increasing productivity without increasing profitability it may have higher output but [farmers] won’t have higher incomes and you won’t get economic development,” said Kenneth Kyaw Shein, group chief executive officer at Prime Holdings, on the same panel.
California’s agricultural production in 2012 measured in farm gate prices was higher than the whole of Thailand’s for the same year. Last year Myanmar exported US$1.5 million or $1.6 million in beans and rice, he said. California made $500 million in carrot exports alone, he added.
“The point here is that you need to look at primary production and the [whole] agricultural sector based on the market,” he said. “The solution to agricultural and economic development is to look at what we are producing and for which market.”
One example would be looking at Indonesian demand for potatoes and onions, which Myanmar has the climate to grow, he said.
“We have a comparative advantage [for certain products],” he said. “We should be looking at various economic zones and focusing on various specific crops mixes. It should not be just rice everywhere.”
Mr Kyaw Shein pointed out that Myanmar has comparative advantage in climate, labour and productive land. But in order for Myanmar’s agricultural sector to meet its potential, which he estimates at $3 billion annually, there must be investment in downstream post-harvest processing such as cold storage and cold chains.
The downstream process is where higher value-added products – potato chips and other processed snacks – can be produced. But this requires the infrastructure to connect the farmer with the market, he added.
Mr Kyaw Shein said increasing primary production of high-value crops at standards compliant with international markets will help bring more investment into downstream processing.
“We have an agricultural value chain but part of it either doesn’t function very well or isn’t functioning at all,” Ewan Lamont, chief operating officer at Myanmar Awba Group, told the audience.
But that also means investors have huge opportunities in Myanmar, although the key issue will be making sure that investment allows smallholder famers to participate in the rural economy, he said.
Irresponsible investments in agriculture, however, have created a negative view of foreign direct investment (FDI) in the sector. Firms in some countries have planted crops unsuitable for the local soil or have farmed unsustainably.
Ms Bowman said that international and local NGOs and research institutions should raise concerns about the risks of more FDI. “At the moment we hear that FDI in the sector is very small,” she said. “So I think it is really important for foreign investors who want to invest to be very open and transparent about what they are doing.”
“Looking at the competitiveness of Myanmar, one sector [that has] everything going for it is agriculture,” said Vikram Kumar, country manager for the International Finance Corporation in Myanmar. But to make it a competitive part of the economy you need competitiveness infrastructure and services that do not exist in Myanmar today, Mr Kumar said.
Although there are “tremendous opportunities” for agriculture, the challenge is how to create the necessary infrastructure and provide financial services over a short period of time with limited government resources, he added.
Without them the sector cannot be competitive, Mr Kumar said.
‘The farmers will never make money given the low paddy prices.’ U Tun Win Agriculture ministry
A farmer ploughs his field. Industry experts warn that Myanmar’s agriculture sector faces many challenges.