BURMA: RICE EXPORTS LOWER THAN EXPECTED IN 2008

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000001

SIPDIS

STATE FOR EAP/MLS, INR/EAP
DEPT PASS TO USDA
DEPT PASS TO USAID
BANGKOK FOR USDA/FAS
PACOM FOR FPA
TREASURY FOR OASIA, OFAC

E.O. 12958: DECL: 01/02/2019
TAGS: EAGR ECON EFIN PREL PGOV BM
SUBJECT: BURMA: RICE EXPORTS LOWER THAN EXPECTED IN 2008
BUT LIKELY TO INCREASE IN 2009

REF: A. 08 RANGOON 874

B. 08 RANGOON 075

C. 08 RANGOON 285

RANGOON 00000001 001.2 OF 003


Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4
(b and d).

Summary
--------------


1. (C) Despite GOB expectations that rice exports in
November and December would total 300,000 metric tons,
Burmese traders and military-owned Myanmar Economic
Corporation (MEC) exported only 45,000 metric tons of rice
during this period. Demand for Burmese rice remains low, as
international customers refuse to pay relatively high prices
for inferior quality Burmese rice. According to SGS
Consultants Managing Director U Kyaw Tin, GOB officials
predict Burma will have a rice surplus of three million
metric tons in 2009, which will be available for export.
Agricultural specialists challenge those expectations, noting
that Burma lacks the infrastructure to mill, store,
transport, and ship that much rice. Most specialists agree
that official 2009 exports will likely total between
500,000-750,000 metric tons, assuming prevailing conditions.
End Summary.

Lifting Ban Does Not Guarantee Exports
--------------


2. (C) The Burmese Government, expecting a 300,000 metric
ton rice surplus after the November 2008 harvest, lifted its
ban on rice exports on November 4, issuing 11 export permits
to 10 companies (Ref A). While traders had urged the GOB for
months to lift the export ban so they could sell their more
than 200,000 metric tons of rice stocks, Burmese rice prices
had fallen by 63 percent (from USD 800/metric ton to USD
260/metric ton) by November, making exports of old rice
unprofitable. By the end of December, Burma exported 45,000
metric tons of rice -- 33,000 metric tons to Cote d' Ivorie
and 12,000 metric tons to Bangladesh. The majority was
exported by MEC; otherwise, only Aye Ya Shwe Wah Company,
owned by Tay Za and Aung Thet Mann, shipped 7,000 metric tons
to Bangladesh in November, SGS Consultants Managing Director
U Kyaw Tin informed us. He reported that both MEC and Aye Ya
Shwe Wah paid farmers USD 160/metric ton for recently
harvested rice and sold it for USD 280 per metric ton,
earning USD 120/metric ton in profit.


3. (C) Agricultural trader Anwar Hussein told us that lower
profitability was only one reason why rice traders refused to
export. The real reason: most Burmese traders lacked the
capital to purchase new rice for export and were unwilling to
take a loss by exporting their existing stocks, purchased at
considerably higher prices before the GOB authorized foreign
sales. Instead, Hussein noted that most traders plan to
export their existing rice stocks only when prices increase,
which they believe should occur by March. U Kyaw Tin
commented that while the traders' plans made financial sense,
he was unsure whether the traders had the proper facilities
to store rice for long periods of time. He surmised that by
February, much of the older rice stocks could begin to rot,
making it impossible to sell.

2008 Rice Exports Lower than Expected

RANGOON 00000001 002.2 OF 003


--------------


4. (C) Rice export values have fluctuated widely during the
past six years, due to low rice production, heavy floods in
rice producing areas, and the high price of domestic rice.
In 2006 and 2007, Burma's rice production declined
dramatically due to heavy flooding in Irrawaddy and Sagaing
Divisions, prompting the GOB to limit exports. In late
2007, the GOB announced that it would export approximately
400,000 metric tons of rice in the first six months of 2008,
a more than 1000 percent increase over 2007 levels (Ref B).
Bolstered by strong exports during the first half of 2008,
the GOB later predicted that official rice exports would
total 800,000 by December 2008 (Ref C). However, rice
exports were disrupted in May, after Cyclone Nargis
devastated much of the Irrawaddy Division, Burma's main rice
producing region. By December 2008, GOB official statistics
showed exports totaling approximately 468,000 metric tons of
rice, an increase of 1400 percent over 2007 figures but still
well below the GOB's revised target. According to U Kyaw
Tin, official rice export figures do not include border trade
with Bangladesh or exports by MEC. A more accurate figure is
700,000 metric tons, he estimated.

-------------- --------------
Burma's Official Rice Exports, 2007-2008
In Metric Tons
-------------- --------------
Year Amount Exported Percent Change
-------------- --------------
2003 398,000 --
2004 115,297 -71
2005 219,624 90
2006 46,815 -79
2007 31,200 -33
2008 468,641 1402
-------------- --------------
Source: SGS Consultants, December 2008

2009: Year of Burmese Rice?
--------------


5. (C) GOB officials, predicting a rice surplus of
approximately three million metric tons, expect Burmese rice
exports to increase dramatically in 2009. The Ministry of
Agriculture continues to encourage farmers throughout the
country to grow more rice, offering incentives such as
lower-priced seeds and low-interest loans from the Myanmar
Agricultural Bank. U Kyaw Tin told us that Burma will likely
have a large surplus in 2009, as farms in the Irrawaddy Delta
recover from Cyclone Nargis damage and farmers in Northern
Burma continue to plant and harvest high yields. Aung Kyaw
Htoo, SGS Agricultural Specialist, reported that the GOB's
2009 target was unrealistic, but he too anticipated the rice
surplus in 2009 will increase significantly to approximately
one million metric tons, assuming current conditions prevail.



6. (C) U Kyaw Tin told us that in addition to extending the
validity of the 10 remaining rice permits, the GOB will issue
additional rice export permits in January and February. If
world commodity prices continue to increase (Burmese rice
prices rose from USD 280 to USD 300 during the last week in
December),more traders will export rice. U Kyaw Tin
predicted that private Burmese traders could export as much

RANGOON 00000001 003.2 OF 003


as 500,000 metric tons of rice by April 1; MEC levels could
be roughly the same. Depending on the yields of the November
2009 crop, 2009 private exports could be as much as 750,000
metric tons, Aung Kyaw Htoo predicted.


7. (C) Even if rice production and surpluses increase as
foreseen, Burma faces an additional constraint on exports --
the lack of infrastructure to process and ship a
significantly increased quantity of rice, U Kyaw Tin
commented. Many of Burma's premier rice mills were destroyed
by Nargis; reconstruction will take time. Additionally, the
GOB continues to prevent the movement of rice between states
and divisions, only allowing selected crony companies to move
rice from Northern Burma for export. As U Kyaw Tin noted,
before it can export large volumes, the Burmese Government
would need to build new roads, improve cargo storage
facilities at the Port of Rangoon, and invest in new rice
mills -- none of which it currently plans to do.


VAJDA