Limited Improvement For Now, But Bright Prospects Ahead

BMI View: We believe Myanmar's agricultural production prospects are bright over the long term, given the country's resource endowment, strategic location and encouraging foreign investment regulation. In fact, the agribusiness sector has been attracting considerable foreign interest since the liberalisation of the country's political system in March 2011. However, the lack of clear land regulation and infrastructure, coupled with the weakness of the food supply chain, will be strong brakes to foreign investment and agricultural production growth in the medium term.

Myanmar's agricultural potential has been attracting considerable interest since the liberalisation of the country's political system in March 2011, in spite of the uncertainty surrounding the country's future political landscape. Thus far, foreign commodities producers, trading companies, and chemical makers mainly coming from South East Asia and Japan have inked agreements with local partners or public organisations in order to invest in the country.

We believe that the strong commercial interest in the sector is underpinned by several factors. As we stated in the previous special report (see 'Myanmar Agriculture: Unearthing Massive Potential', June 19 2012), we believe Myanmar has a high potential to increase its agricultural production. Myanmar boasts interesting characteristics for agribusiness production, such as relatively cheap and abundant agricultural land and labour. The Ministry Of Agriculture and Irrigation estimates there is 5.4mn hectares (ha), or the equivalent of 45% of the land under cultivation, of arable land available for agriculture expansion. According to industry sources, Myanmar agricultural land prices are highly attractive, at about US$100/ha against US$1,000/ha in Indonesia, another promising country feature in terms of agricultural production.

Looking To Win Back 'Rice Bowl Of Asia' Status
Select Countries - Rice Production, '000 tonnes (LHS) & Exports, As % of Total (RHS)

Moreover, since market-oriented economic reforms were introduced in 1988, the agricultural sector has been largely market-driven, with little government intervention. This is an aspect which we believe bodes well for the sector especially in terms of its appeal to the private sector. Indeed, since 1988, when the government dictated agricultural production for most crops as well as set fixed prices for them, farmers are now allowed freedom in agricultural production. Furthermore, since a new trade policy was announced in April 2003, paddy rice is also no longer sold to the government. In addition, the private sector is encouraged to procure and distribute agrochemicals, quality seeds, farm machinery and other inputs. Regarding trade regulations, export quotas for rice are being given in function of the production surplus. Other crops, such as pulses, oilseeds as well as industrial crops (palm oil, rubber) have no restriction to export.

Much Room To Grow
Myanmar - Land Utilisation, 2011 (As % of Total)

Moreover, the government is eager to attract foreign investment in the agricultural sector. It is encouraging investment into plantation crops, including palm oil, rubber, sugarcane, fruits as well as in the upstream agricultural industry, such as in pesticides and seed processing plants and manufacturing of light agricultural machinery. Finally, Myanmar plans on developing value-added products, such as edible oil mills and food processing factories.

Despite broad based interest in Myanmar, the majority of agribusiness companies have adopted a 'wait and see' approach and actual investments have failed to materialise for now, as many companies wait for a proven implementation of the foreign investment law. Some of the past and considered investments include:

  • Thai livestock producer Charoen Pokphand Foods ( CPF) announced in July 2012 it plans to invest US$550mn to develop a corn seeds plant, cattle farms, aquatic animal farms, rice farms and rice mills and livestock processing plants.

  • Japan's Marubeni Corporation and Nippon Meat Packers agreed in May 2013 to create a joint venture (JV) in order to invest in a feed and broiler plant and broiler production bases by March 2014.

  • Japanese trader Mitsui signed a Memorandum Of Understanding (MOU) with the Myanmar Agribusiness Public Corporation ( Mapco) in February 2013 to construct a food production plant and rice purifying and grinding mills.

  • Vietnam's Vina Capital and An Giang Plant Protection Joint Stock have signed JV contracts in order to build rice mills and providing rice seeds, fertilisers and pesticides.

  • Chemical companies BASF and DuPont have started selling their agricultural chemicals in Myanmar.

  • Malaysia's palm oil producer Felda Global Ventures Holdings has agreed to a JV with Pho La Min Trading and is awaiting investment authority approval to start downstream rubber-processing operations. Felda is also searching for land to plant palm oil and sugarcane and plans to open a cooking oil packaging plant.

  • Singapore-based palm oil producer Wilmar plans to make significant investments in Myanmar, focusing on rice, fertilisers, sugar and vegetable oil.

  • Cargill is also looking at Myanmar for importing and exporting food and livestock feed.

  • Thai sugar maker Khon Kaen Sugar is looking into expanding into Myanmar, as part of its plan to cash in on the Asean Economic Community. It plans to spend at least US$100mn million to build a new plant, on the condition that 'the foreign business law in Myanmar takes effect'.

  • The French agricultural firm Société Industrielle Agricole Et Commerciale D'Outre Mer (SIACOM) and Myanmar's XY Trading created in July 2013 Shwe Zabar which aims to set up rice mills for processing steam-rice in Myanmar.

Myanmar - Available Agricultural Land Estimates, 2011
State/Region Available Agricultural Land ('000 ha) Major Suitable Crop
Note: 'seasonal crops' refer mainly to grains, oilseeds and pulses; 'plantation crops' refer mainly to rubber, palm oil sugarcane. Source: BMI, Ministry of Agriculture and Irrigation
Shan 1,940 Seasonal, Plantation Crop, Orchard, Tea, Coffee
Kachin 1,460 Seasonal, Plantation Crops, Fruits, Orchard
Chin 1,200 Orchards, Sericulture, Tea, Fruits
Tanintharyi 260 Rubber, Oil Palm, Other Plantations, Orchard
Sagaing 140 Seasonal Crops, Orchard
Rakhine 110 Rubber, Other Plantation Crops, Orchard
Bago 90 Rubber, Seasonal, Other Plantation Crops, Orchard
Magwe 60 Seasonal Crops, Orchard
Kayin 50 Plantation Crops, Orchard
Mandalay 30 Seasonal Crops, Fruits, Orchard
Ayeyarwady 30 Seasonal Crops, Orchard
Kayah 20 Seasonal, Plantation Crops
Total 5,400

We believe that this reticence to actually invest in the country for now is justified. Indeed, although we see interesting opportunities for foreign investment in Myanmar's agribusiness sector, we remain cautious on the country's business environment and political profile. While we continue to believe that democratic and economic reforms have reached a critical stage at which they are unlikely to be rolled back, we note that the country faces critical tests in addressing rising ethnic tensions as well as the run-up to 2015's general election ( see 'Star Continues To Rise, But Risks Brewing' May 29). Moreover, the lack of infrastructure including roads, train lines, mills, storage and processing facilities as well as communications and electricity means many projects will require heavy investment in capital and technology to start functioning and achieve profitable outcomes.

Second, the uncertainty over land rights for a land-hungry activity like agriculture is a clear risk for foreign companies investing in Myanmar, given the fact that foreigners are not allowed to own land in the country. Land has long been a politically and economically contentious issue in Myanmar, at least in part because more than two-thirds of the population relies directly or indirectly on agriculture. Land disputes, especially in rural areas, have been intensifying in the past couple of years, as many state authorities are in legal battles with local residents, farmers and landowners over the utilisation of land for new investment. The recent Farmland Law and Vacant, Fallow and Virgin Lands Management Law, both passed in 2012, have officially reintroduced the concept of private ownership since the early 1960s when land was nationalised. Although the state remains the ultimate owner of all land, tenure rights can now be sold, traded, or mortgaged. This measure offers new avenues for farmers to raise credit and expand their activities. Also, these laws will add greater transparency in a system previously characterised by illegal land trading. The granting of more clearly defined land use rights by Vietnam in the 1980s was critical to boosting farm productivity and transforming the country into one of the world's top exporters of rice and coffee. In Myanmar, however, the widespread lack of proper ownership documents will prove challenging for foreign companies to safely acquire land and for local farmers to secure their right to the land for now. This could put a strong brake to both foreign and local investment in productivity in the medium term.

Still To Be Materialised
Myanmar - Foreign Direct Investment By Sector, 1988-2012 (As % of Total)

Finally, while the government has proven eager to attract foreign investment in the agricultural sector, there has not been much in the way of finding answers to improve development of the small-scale holders, which dominate the sector. There is a clear lack of government support to farmers, and the budget allocated to agriculture was only US$310mn in the 2011/12 financial year, representing a mere 5% of the total national budget. Although 70% of the population remains dependent on agriculture, the amount of foreign investment since they were allowed in 1988 in the sector hovers around 1%, as most part of foreign capital is channeled into power and oil and gas projects.

The fulfilment of Myanmar's agricultural potential will mostly come from small-scale farming operators. The difficulties of those holders remain to be addressed, via secure land rights, access to credit, reliable inputs, better roads and efficient markets to sell production. Those 'low-hanging fruits' of productivity gains will be easy to grab. However, obtaining an improvement in heavy infrastructure, including ports, will prove more challenging.

Myanmar Agricultural Production & Consumption Estimates ('000 tonnes)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f
Source: BMI, USDA, FAO
Rice Production 10,788 10,730 9,570 10,440 10,600 11,840 11,200 11,642 10,528 10,816 10,666 11,000
Consumption 10,100 10,200 10,300 10,400 10,670 10,750 10,800 10,890 10,100 10,200 10,200 10,250
Corn Production 660 704 784 920 1,016 1,128 1,185 1,200 1,250 1,300 1,500 1,800
Consumption 566 560 500 850 875 1,000 800 900 1,050 1,100 1,200 1,400
Wheat Production 96 107 124 124 156 140 155 173 182 185 185 190
Consumption 213 173 238 255 249 224 248 352 398 389 450 425
Sugar Production 300 300 310 315 150 150 150 150 150 150 150 150
Consumption 100 105 115 125 125 130 132 182 160 178 159 164
Palm Oil Consumption 192 224 278 304 330 345 355 370 390 450 525 550
This article is tagged to:
Sector: Agribusiness
Geography: China, Myanmar, China, France, Indonesia, Japan, Malaysia, Thailand, United States, Vietnam, Myanmar, Myanmar

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