BURMA: GOVERNMENT INTERVENES IN BEANS AND PULSES

C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000438 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: 07/14/2019 TAGS: EAGR ECON EFIN PREL PGOV PINR BM SUBJECT: BURMA: GOVERNMENT INTERVENES IN BEANS AND PULSES TRADE REF: RANGOON 023 RANGOON 00000438 001.2 OF 003 Classified By: Economic Officer Samantha A. Carl-Yoder for Reasons 1.4 (b and d). Summary -------------- ¶1. (C) Burma continues to deal with fallout from the November 2008 near-collapse of its beans and pulses market. Although the GOB historically was not involved in the sector, since November, the GOB has prohibited foreign companies from trading in beans and pulses. Additionally, GOB officials now closely scrutinize all export companies, ensuring traders have bean stocks on hand before issuing export permits. Traders acknowledge that GOB intervention may be an effort to prevent speculation in this highly volatile market, since the November crisis cost the government more than USD 100 million. Traders fear the GOB will from now on maintain a more hands-on approach to the bean market, implementing restrictive policies similar to those in the rice sector. End Summary. Laissez Faire, For Now -------------- ¶2. (C) Agricultural products, including rice and beans and pulses, are among Burma's top exports, earning the regime more than USD 1.2 billion annually. While the regime prioritizes rice exports, traders note that beans and pulses account for more than 50 percent of total agricultural exports. In 2008, Burma officially exported approximately two million metric tons of beans and pulses, including to India (1.6 million metric tons),China (146,000 metric tons), and Pakistan (62,000 metric tons). Furthermore, trader Anwar Hussein told us Burmese and foreign companies illegally export several million metric tons of beans to China annually via border trade. In 2009, Burmese traders expect to export two million metric tons of beans and pulses. ¶3. (C) Unlike the rice sector, the government historically has had little involvement in the beans and pulses sector, SGS Consultants Managing Director U Kyaw Tin said. Burmese farmers, often of Indian origin, produce beans and pulses in Shan State and Irrawaddy, Mandalay, and Sagaing Divisions. The Burmese Government allows traders to export beans and pulses and does not limit their trade between States and Divisions, Hussein stated. While the GOB limits who can export rice, more than 40 Burmese and foreign companies engage in the bean trade. Neither the Burmese Government nor its state-owned enterprises are active in the bean trade, U Kyaw Tin confirmed. Speculation Crisis Justifies Intervention -------------- ¶4. (C) The beans and pulses market is highly speculative, as the world commodity prices fluctuate dramatically, U Kyaw Tin noted. Burmese traders often speculate in the bean market, buying and selling stocks in an effort to earn the highest possible profit. In November 2008, when the price of RANGOON 00000438 002.2 OF 003 Burmese beans increased by USD 400/metric ton (to up to USD 1000/ metric ton, depending on the bean),five large bean traders defaulted on their contracts with India, failing to deliver more than 100,000 metric tons of beans because they could not secure stocks. In addition to failing to fulfill their contracts, these traders defaulted on more than USD 20 million in debts, U Kyaw Tin told us. The result: Burma's beans and pulses sector came to a standstill, as Indian companies threatened to sue the five companies and halt all bean trade with Burma. The Burmese Government stepped in, arresting four of the five owners of the companies (one owner is still on the run),confiscating and expropriating properties, and repaying over USD 100 million in debts, Hussein explained. ¶5. (C) While Burma appears to have recovered from the near-collapse of the bean market, the GOB remains wary of speculation and has begun to intervene in the sector, U Kyaw Tin confirmed. In the past, the GOB would issue export permits to any interested company. In January, the government started scrutinizing all companies that applied for an export permit to ensure that traders have adequate stocks on hand to fulfill contracts before issuing a permit, Hussein observed. Companies that failed to fulfill 100 percent of prior bean orders must surrender their export permits, pay a fine (approximately USD 5,000),and reapply for a permit. The Trade Commission now determines whether a company will receive an export permit, Hussein noted. Additionally, the GOB now prohibits foreign companies from engaging in the beans and pulses trade, although it has not documented this change, U Kyaw Tin confirmed. ¶6. (C) Hussein confirmed that neither the government nor the military have begun to heavily regulate the bean industry, and trade remains relatively free. Traders still are able to purchase directly from farmers, paying them approximately 50 percent of the export price (barely enough to cover farming costs). He observed that in some instances, Regional Commanders order farmers to only sell beans to the military, which then resells stocks to traders at higher prices. However, this practice is far more common with rice than with beans. Hussein predicted that as more traders look to enter the bean market, larger companies, particularly those owned by regime cronies, will work with Regional Commanders to ensure they obtain stocks for export. Who Benefits? -------------- ¶7. (C) U Kyaw Tin confirmed that there are still more than 30 Burmese exporters engaged in the bean trade, although the number has dropped since January. He expects small companies will try to enter the bean export market in 2009 to fill the gap left by the five large bankrupt trading companies. In the meantime, Aung Thet Mann's Aye Yar Shwe Wa and Tay Za's Htoo Trading remain the largest exporters of beans and pulses, Hussein stated. He observed that in the past year, Aung Thet Mann has spent more than USD 11 million to upgrade Aye Yar Shwe Wa's bean processing facility. He speculated that Aung Thet Mann, son of Regime #3 General Thura Shwe Mann, would attempt to use his father's connections to secure RANGOON 00000438 003.2 OF 003 beans for export, as he does with rice. Comment -------------- ¶8. (C) As one of the few agricultural sectors without GOB involvement, Burma's beans and pulses industry has seen relative growth in the past five years and traders have profited extensively. However, the November 2008 fiasco has forced trade officials to rethink their role in the market. So far, it appears GOB involvement is limited, and intervention is more an effort to prevent speculation and contract default than to ensure profitability for the regime. Perhaps this is because of the relative unimportance of beans and pulses to the domestic market. Nevertheless, should the military realize the potential profits it could earn by manipulating the beans and pulses market (as it does with rice),military involvement in this sector could blossom. DINGER