BURMA'S PRIVATE RICE EXPORTS: A FAILED EXPERIMENT

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000625

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: 05/17/2014
TAGS: EAGR PGOV ECON BM
SUBJECT: BURMA'S PRIVATE RICE EXPORTS: A FAILED EXPERIMENT

REF: A. RANGOON 223

B. RANGOON 34 AND PREVIOUS

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D)


1. (C) Summary: Burma's military and its economic tentacles
are apparently benefiting from the GOB's January freeze on
private sector rice exports, buying up thousands of tons at
discount prices. Though the purchases are good for farmers
who were stuck with massive surpluses when private exporters
stopped buying, the freeze and the evident return of
government participation in the rice markets may be the death
knell for the short-lived policy that freed the rice trade in
2003 from 40 years of government control. End summary.

"Temporary" Ban: Day 163


2. (C) Private sector exports of rice, liberalized after 40
years with much fanfare in March 2003, were abruptly
"suspended" in January 2004 (ref B) leaving in the lurch many
exporters -- some with contracts already signed. Though the
GOB announced at the time the ban was only "temporary," to
date there has been silence as to when the restrictions might
be lifted.


3. (C) The ostensible justification for the export freeze was
a fear that domestic supply would dwindle below demand.
Publicly the government cited a possible spike in demand
following the January announcement that rice subsidies to
civil servants would be replaced with a 5,000 kyat monthly
stipend (ref A). Privately, rice traders and economists told
us the government was fearful because its poor statistics and
controls meant there were no reliable accounts of how much
rice was in GOB warehouses or what domestic consumption
really was. In either event, the already low domestic price
for paddy in early 2004 -- about US$117 per 100 baskets
(about 2.5 tons) -- remained stable, and even sank slightly
in the aftermath of the export ban and the civil servant
compensation reform.


4. (C) With domestic prices cheap and stable, the GOB, always
in need of foreign exchange, should have been comfortable to
lift the ban. However, the private sector remains frozen
out. There have been no legal exports of rice since January
-- not even for barter trade deals. According to reliable
sources with firsthand knowledge of rice exports, in FY
2003-04 (April-March),only 80,000 metric tons of rice were
legally exported. For comparison, in FY 2002-03 roughly
700,000 metric tons of rice were legally exported.
Transportation of rice domestically toward the border areas
is outlawed, though much is smuggled out across the borders
to Bangladesh and China anyway. Recent sales to World Food
Programme projects have come from the GOB's stocks, set aside
in theory to meet its ASEAN buffer requirement.

Military Feasts While Exporters Starve


5. (C) According to several rice industry sources, the GOB
has not re-opened exports in order to give the military a
chance to fill its granaries while domestic prices are cheap
and also to allow the military's two "private" companies
(Myanmar Economic Holdings, Ltd. (MEHL) and Myanmar Economic
Corporation (MEC)) to build up stockpiles that can later be
exported for a large profit. According to one knowledgeable
commodities broker, the military has purchased more than 35
million baskets of paddy (about 800,000 tons) from local rice
traders -- far more than is needed to feed the troops.

Production and Prices Unclear


6. (C) In the short term, this massive military purchasing
has had a beneficial impact for farmers, driving domestic
prices up nearly 20 percent to around US$140 per 100 baskets
of paddy (around 2.5 tons). This is still far lower than it
has been in recent years, but is considered the break-even
point for most producers. However, the chaos and insecurity
caused by the GOB's gyrating rice policies will likely lead
to reduced supply next season as farmers err on the side of
caution. The dry season area under cultivation was smaller
than usual, and agriculture insiders are predicting a sharp
year-on-year drop in plantings for the larger monsoon crop.
This combined with too much or too little rain could squeeze
supply when the main harvest occurs at the end of the year.
Fortunately any supply problems will be mitigated somewhat by
the domestic surpluses remaining from the 2003 monsoon
harvest due to unmet expectations of exporter demand.

Comment: Burma's New Private Sector


7. (C) The direction of the GOB's ever evolving rice policy
is troubling. The regime, getting cold feet at the prospect
of losing control of the politically sensitive rice market,
is apparently swapping the old monopoly exporter Myanmar
Agricultural Products Trading (MAPT) for new monopolists MEC
and MEHL. More insidious, however, is the fact the SPDC will
claim these two firms are private (they are owned in part by
individual military shareholders) and thus the policy of
private rice exports has not changed. Given their good head
start, MEC and MEHL will destroy genuine private sector
competitors when the export market is finally re-opened to
"free" trade. End comment.
Martinez