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

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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

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

Summary
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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

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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

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beans for export, as he does with rice.

Comment
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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