Rice Price Volatility and Poverty Reduction In Myanmar

Myanmar is a low-income country with a high poverty rate (37%). Rice, its main farm income source, generates livelihoods for over 50% of the population. People spend more than 60% of their income on food. Rice, a major staple, accounts for 25 to 50% of their expenditures. Even temporary increases in rice prices reduce real income and household spending on other nutritious food, health, and education.

A majority of rural people live close to the poverty line. Many are at high risk of falling into poverty whenever rice prices fluctuate. Rice price volatility- because it directly affects most of the population- matters for poverty reduction in Myanmar.

Key Findings

• Price fluctuations are common in agricultural markets. However, rice price volatility in Myanmar is more profound than in neighboring rice net-exporter countries like Cambodia, Vietnam, and Thailand.
• The economic liberalization in 2004 removed local trade barriers and this reduced risks and price volatility in the domestic rice market.  Even if Myanmar’s price fluctuations decreased in recent years (compared to the mid-2000s), it remains high.
•  Beyond price volatility, rice prices have risen by 41% between 2009 and 2013. This is much higher than that of rice exporters in neighboring countries like Thailand and Cambodia.
• The high concentration of the paddy harvest in November and December is the main cause of rice price volatility. Nearly 70% of paddy is harvested in just two months of the monsoon season. This results into sharp price drops from December to January and spike-ups between May and October.
• Production in dry season is small due to a lack of rice varieties with different harvesting periods, growth durations, and appropriate irrigation.
• The rice market is fragmented and weakened due to poor roads and low phone coverage. There is also inaccurate information on rice production, consumption, trade, and stocks. Due to the latter, farmers, millers, exporters, and the government often overreact when there are minor price changes. This ignites volatility even further, given that private stocks are too small to buffer price fluctuations.
• Poor diversification of export markets also contribute to price volatility. Most of the formal rice exports go to Africa with stable prices. The informal cross-border export to China, in contrast, has been highly unpredictable. The recent closure of informal trade with China is an example of such unpredictability.

Recommendations

• A good diagnostic assessment of the actual situation is needed in order to differentiate harmful volatility from normal price volatility. Due to the seasonal nature of rice production and the volatile nature of the world market for rice, some volatility is inherent in agricultural markets.
• Price volatility in Myanmar can be reduced to an extent only. International experience shows that a trade-off between lowering price volatility with short-term price stabilization measures and maintaining price competitiveness. This is critical for Myanmar in order for it to become a large rice exporter.
• Short-term price stabilization measures (such as export restrictions, minimum farm prices, and government-owned rice stocks) often have adverse economic effects and should be avoided.
• Lasting price volatility reduction requires changes in farming practices to spread production and harvesting more evenly throughout the marketing year. This will, in turn, depend on farmers’ improved access to irrigation, availability of seeds with different harvesting periods and growth durations, and farm advice on production technologies.
• Lower costs of doing business and improved access to finance for rice mill owners and traders can also help. These will reduce storage costs and increase private stocks, which will smooth price fluctuations.  This could be facilitated by opening the sector to foreign direct investments.
• Modernized rice mills are better positioned to increase the private stocks and trigger productivity and quality improvements at the farm level.
• Investments in rural roads and telecommunication will improve rice market transparency because information will be able to pass more quickly from one market to another.
• Accurate market information on production, consumption, export and prices will help produce rational decisions and stabilize prices in a market-friendly manner.
• Expanding exports to additional markets – both geographically and by quality – will contribute to lowering price volatility.  This will require a continuation of open trade policy, investments in infrastructure and ports, and less costly export procedures.