FEW EARLY VOLUNTEERS FOR BURMESE RICE TRADE

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000977

SIPDIS

STATE FOR EAP/BCLTV, EB
BANGKOK FOR FAS
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: DECL: 08/12/2013
TAGS: EAGR ETRD PGOV BM
SUBJECT: FEW EARLY VOLUNTEERS FOR BURMESE RICE TRADE

REF: A. RANGOON 563

B. RANGOON 448

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D)


1. (C) Summary: With only two or three months remaining
before rice harvest time, private traders and agronomists are
dubious that the GOB's rice liberalization policy will be a
real short term success. Too many uncertainties and holes
remain for that to happen. However, all agree that the
regime will ensure, by bribery and force, that enough private
sector entities take advantage of the policy for it to be
deemed a "success." End summary.

Sanctions Impact Minimal


2. (SBU) According to a private sector agricultural expert
with whom we spoke, the new U.S. remittance and import bans
will have little impact on the GOB's new, liberalized rice
policy. According to the GOB policy, announced suddenly in
late March 2003, the government will end its 40-year monopoly
on rice exports as well as its much maligned policy of
mandatory advanced procurement from farmers at prices well
below market. Instead, according to the still sketchy plan,
the private sector will have the freedom to buy and sell,
locally and abroad, at whatever price the market will bear.
Of course the government will maintain some control, sharing
the export revenues and also procuring rice from merchants at
cost for domestic need.


3. (SBU) Most of the country's rice exports, which are
extremely low quality, go to francophone West Africa, either
directly or through a third country as a component of some
barter arrangement. Thus, it may be easier to shift the
currency of the trade from U.S. dollars into euro -- a
currency of choice, he asserted, for West Africa. We have
heard from other sources that the government intends to allow
letters of credit and other trade facilitation to be carried
out in other major currencies, but preferably the euro.

Private Sector Dubious


4. (SBU) Though the rice scheme seems on course for some
success come harvest time in October or November, none of the
outstanding questions raised in reftels has been answered,
and there remains little incentive for small traders to get
involved. The government's policy has not been issued in
writing, adding an element of uncertainty for potential rice
exporters. Likewise, there is no indication that the regime
will set a price floor to guarantee farmers' income.


5. (SBU) Though optimistic in theory, small private traders
are skeptical about the profitability of getting involved
during this inaugural year. For one, the export price of
Burmese rice (mostly poor quality) is quite low, but "fair"
domestic prices tend to be high because of low yields per
acre and high prices of transportation and imported
agricultural inputs like fertilizer, diesel fuel, machinery,
etc. Also, prospective exporters will have to contend with
the government's intended revenue sharing scheme (explained
in detail in reftels). Finally, traders complain, the
government's proposal to procure, at cost, a to-be-determined
amount of rice for domestic consumption will leave profit
margins even thinner, and even less predictable.

Guaranteed Success


6. (C) Cynical traders and agricultural economists agree that
whatever the hurdles, the regime will stack the deck to
ensure at least an illusion of success for its new gambit.
Already the government's agricultural procurement and trading
company, Myanmar Agricultural Produce Trading company (MAPT)
is mobilizing its stocks for possible export using cutout or
crony private sector firms. It's not unusual for the GOB to
pressure a private firm to conduct a money losing, but
politically important, transaction in return for some more
lucrative contract or concession in another area. Also, one
economist reported, the government's rice policy guru, SPDC
Secretary Two Lt. General Soe Win, summoned leaders of the

SIPDIS
country's rice and paddy merchants organization and
encouraged them to collude to keep a ceiling on domestic
procurement prices, to ensure as large an export margin as
possible -- at the expense of local farmers.

GOB Deals From the Bottom


7. (SBU) Comment: Until the harvest and export seasons begin
in earnest at the end of this year, we'll not be able to
comment authoritatively on the new rice strategy's
effectiveness. Though we still feel the plan is an important
and generally positive move, four months after the its
announcement we are less convinced than before that this is
the first of many agricultural reforms. Likewise, based on
the regime's lackluster efforts to flesh out other recent
economic "policies" (such as those to resolve the banking
crisis and deal with sanctions),we are dubious that the GOB
will make the effort to address the many nagging and
expensive, but crucial, details that would aid the policy's
ultimate triumph. Instead, we think the regime will
typically first try administrative solutions to make sure
there is a neat facade of success, no matter the reality.
End comment.
Martinez