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Cablegate: Can Burma's Rice Reforms Work?

This record is a partial extract of the original cable. The full text of the original cable is not available.

090928Z Apr 03

UNCLAS SECTION 01 OF 02 RANGOON 000448

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: EAGR ETRD ECON BM
SUBJECT: CAN BURMA'S RICE REFORMS WORK?

REF: 02 RANGOON 1292

1. (SBU) Summary: Rice merchants are nervously anticipating
the impending privatization of Burma's rice markets. Though
the long-term benefits of this step are manifold, a hurried
implementation of this drastic policy could have some
unwelcome side effects in the short haul. End summary.

GOB Washes it's Hands of Sticky Rice Trade

2. (SBU) The GOB is preparing to turn over to the private
sector all aspects of the rice trade, according to the Union
of Myanmar Chamber of Commerce and Industry (UMCCI), and the
Rice Millers' and Merchants' Associations. According to the
businessmen, beginning with the next monsoon crop (sowed in
June, harvested in October/November), farmers will be exempt
from their usual mandatory advance sales to the government,
and merchants will be allowed (with a few significant
restrictions) to freely sell and export rice.

3. (SBU) This sudden change of policy came as a bolt from the
blue on March 31, when Secretary Two (Lt. Gen. Soe Win)
called a snap meeting of the UMCCI and top rice merchants.
According to a UMCCI official, as far as he knew, there had
been no prior deliberations on changing rice policy, although
the UMCCI and others had been lobbying for some time for the
move. There's also little evidence that the GOB had been
consulting with international agriculture or privatization
experts to draw up an effective strategy. The official
speculated that the government has grown increasingly
concerned with the rising price of rice on the domestic
market, and wanted to pass on to the private sector the
responsibility for this sensitive issue.

4. (SBU) The broad outlines of the GOB's privatization
strategy trickled out in the March 31 meeting and a follow-up
session on April 5. Another confab is likely sometime after
April 20. Rice merchants say they think an official
announcement of the policy change should come within the
month, alongside the formation of a Rice and Paddy Trade
Steering Committee that will direct and control all aspects
of the privatization. As envisioned, the Committee will be
chaired by Lt. Gen. Soe Win. Its membership will include the
Ministers of Commerce, Agriculture, Industry (1), and Energy,
and six private sector representatives.

Freedom to Buy and Sell...Sort Of

5. (SBU) Though the policy is not yet official, according to
the UMCCI and rice merchants the regime will no longer
purchase rice or paddy from farmers, leaving buying and
milling to the private sector to arrange. The GOB, through
the Steering Committee, will determine the domestic demand
for rice as well as the amount needed to continue
compensating civil servants and the military. There will
also be a undetermined buffer built in for emergency and
required ASEAN stockpiles. The rice merchants will be
required to sell this total amount to the Ministry of
Commerce's Myanmar Agriculture Produce Trading (MAPT) company
either at cost or at the prevailing market price.

6. (SBU) Existing agricultural traders, as well as a number
of new private export firms the UMCCI hopes to establish,
will be free to export any surplus above this calculated
amount. The government will take its usual 10 percent export
tax, and will require the exporter to exchange an additional
50 percent of its export earnings with the GOB at a
yet-undetermined rate. The regime will also earn income from
renting out MAPT warehouses to private exporters.

Private Sector Sweats Lack of Technology, Education

7. (SBU) Though the private sector representatives with whom
we spoke were quite enthused about their new opportunity,
they were also quite anxious. They complained they'd been
given no time to prepare for this change, and were now
rushing around trying to organize Rice Merchants' Association
branches across the country. Additionally, they admitted
that the private sector had no infrastructure to provide
education and technology to farmers and merchants, keys to
the success of this experiment. Right now, a UMCCI official
said, they were banking on promises of continued government
support and a new program of loans or grants to help upgrade
badly outdated milling equipment. Without the education and
new technology, one rice merchant warned, there's no way
Burmese rice will compete in the long term.

8. (SBU) Financing will also be a problem. With only a
couple of month's warning, rice growers will be stuck this
season without the traditional government advance purchase
payments that, while unfairly low, were still the farmers'
main source of cash to purchase seeds, fertilizer, fuel, and
other inputs. It is unclear whether the GOB's Myanmar
Agricultural Development Bank will expand its currently
paltry agricultural loan program to make up for this
shortfall. With the demise of the private banking sector,
rice merchants and farmers may have to turn to the existing
informal lending networks, with their exorbitant interest
rates, in order to take full advantage of their new
opportunity.

Will Prices Fall?

9. (SBU) With no preparation for change and a steep curve for
improvement of technology and education, the hoped-for supply
boom could be at least a season or two off. However, newly
liberated merchants are licking their lips over the potential
demand for exports of Burmese paddy and milled rice, despite
lackluster quality. Bangladeshi traders clamor for as much
paddy as they can grab, sparking robust border trade (legal
and illegal) along the Rakhine State-Bangladesh frontier.
Likewise, large global rice traders (such as Malaysia's
Petronas) regularly come up short when the GOB suddenly
re-allocates export rice for domestic consumption.

10. (SBU) For rice traders, however, the devil of the new
policy will lie in its details. Rice has always been a
politically sensitive product in Burma, and the government
has in its hands more than enough power to ensure that the
new market freedoms do not disrupt domestic supplies. MAPT
may exert effectively a right of first refusal on all major
rice contracts; the government can cancel the export permits
of companies whose actions threaten to be disruptive to
markets; and, if all else fails, can simply ban rice exports.
Though they claim to have full faith in the GOB's
intentions, traders are, of course, aware of this. They have
seen the business of foreign traders in beans and pulses
handicapped by the decision last year to cease issuing
permits to trade for foreign firms. As a result, whatever
the opportunities companies may see emerging from the new
government rice policy, entrepreneurs almost certainly will
move cautiously in risking their capital in these untested
waters.

11. (SBU) That said, government action in this area is
welcome. This may be a one-off move by the GOB, but it also
could be the first step toward broader agricultural reforms
that the Japanese, in particular, have been pushing as part
of their economic adjustment programs. If these first steps
go well, others could follow.
Martinez

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