World Bank – Analysis Of Farm Production Economics in Myanmar

EXECUTIVE SUMMARY

MYANMAR: ANALYSIS OF FARM PRODUCTION ECONOMICS

1. This report was prepared by the World Bank in partnership with the Livelihoods and Food Security Multi-Donor Trust Fund (LIFT). Both the World Bank and the LIFT are actively involved in supporting Myanmar’s agriculture sector given its significance in poverty reduction and food security, and they both consider the lack of reliable farm data to be a significant constraint to designing effective programs and policies. This report fills some of the data gaps. The presented results are based on a 2013/14 Myanmar agricultural survey of 1,728 farm households in four regions (Ayeyarwady, Bago, Sagaing, and Shan State1) of Myanmar that covered major crops grown in the surveyed regions during the monsoon and dry seasons. These crops include beans and pulses, oil seeds, and maize.
2. In addition to presenting the collected data, the report offers the first analysis of these data. It focuses on the assessment of the extent of crop diversification and an analysis of farm production economics, in particular (partial factor) productivity of agricultural land and labor and crop profitability. Future analyses can include more elaborate assessments of farm production function, total factor productivity, and efficiency. They can also include the analysis of value chain constraints of the major agricultural commodities, including institutional factors affecting production decisions and profitability outcomes.
3. The survey is not nationally representative and its results need to be interpreted in that context. It focused on farm households residing in main village tracts, which usually have better access to market, finance, and public services. The results therefore tell a story about farms with better opportunities and most likely better farming outcomes. This focus was chosen to study Myanmar’s commercial production areas and to facilitate international comparisons, as most international studies follow a similar approach, focusing on advanced farmers in commercial production areas.
4. The four main findings of the report are as follows:
   • Myanmar’s farming systems are diversified more than commonly thought. While during the monsoon season most farms produce paddy, during the cool and dry seasons most farms produce crops other than paddy, mainly beans and pulses, oilseeds, and maize.
   • The analysis reconfirmed that agricultural productivity in Myanmar is low, irrespective of what indicators are used, limiting the sector’s contribution to poverty reduction and shared prosperity.
   • Low productivity is a result of multiple factors, many of them associated with the undersupply of quality public services such as research, extension, and rural infrastructure, in delivery of which the government has a key role to play.
   • Going forward and given that paddy is less profitable and more costly to produce than other crops in most agro-ecological zones, especially during the cool and dry seasons, it is desirable to redesign public programs from exclusive support of paddy production to support for broad-based agricultural development.
5. These findings are substantiated with evidence from the agricultural survey. They are also supported by cross-country comparisons for rice production and profitability.

Finding No. 1: Farming systems are diversified in Myanmar

6. Most farms produce paddy during the monsoon season, mainly due to excessively high humidity, which makes it difficult to produce other crops. Monsoon paddy is the main crop for both small and large farms and across all ecoregions. Out of 1,728 surveyed households, 1,373 (80 percent) reported producing monsoon paddy.
7. Yet very few surveyed farmers practiced rice monoculture during the year. Most produce two crops per year. Farming systems are well diversified, with paddy production prevailing during the monsoon while other crops are produced during the cool and dry seasons. Only 336 farmers produced paddy during the dry season, while most of the rest produced beans and pulses.
8. The most widely planted beans and pulses in Myanmar are chickpeas, black gram, and green gram. During the dry season, their production was observed in seven ecoregions, while during the monsoon season beans and pulses were produced only in the dryland and river areas of Sagaing. A large number of farmers (787 out of 1,728) were producing one of these three types of pulses, depicting the importance of this category of crops in Myanmar agriculture. Myanmar is the world’s second largest exporter of beans and pulses after Canada, and the customers include India, United Arab Emirates, Thailand, Bangladesh, and China. In 2014, the export value of beans and pulses was $835 million, larger than the export value of rice, estimated at roughly $630 million.
9. A variety of other crops were grown during the cool and dry seasons. Sagaing was the main location for oilseeds production – i.e., sesame, groundnuts, and sunflower seeds. In Shan State, maize is an important crop. In addition, one out of ten farmers in the northern and southern interior ecoregions of Shan State grew culinary crops (mainly chilies, onion, garlic, and potatoes).

Finding No. 2: Agricultural productivity in Myanmar is low, limiting the sector’s contribution to poverty reduction and shared prosperity

10. Irrespective of what indicators are used, agricultural productivity in the surveyed commercial production areas of Myanmar was found to be very low. Let’s start with paddy. Paddy yields (or land productivity), labor productivity, and profitability in Myanmar are all low compared to performance in key production areas of Asia’s other rice bowls. Within Myanmar, paddy productivity and profitability are lowest in Ayeyarwady and Sagaing and highest in Shan State. The survey found average paddy yield in 2013/14 to be 2.7 tons/hectare (ha) dry paddy equivalent or 3.5 tons/ha wet paddy equivalent. This is identical to the average yield reported by the U.S. Department of Agriculture. The official statistics report 3.8 tons/ha. It is not clear whether this is wet or dry paddy equivalent, but in either case it is above the yield found in the survey. This firmly puts Myanmar on the lower end of the Asian rice productivity spectrum. Note that the yields of most other crops included in the survey were also consistently lower than those officially reported.
11. Labor productivity was also found to be low, reflecting low yields and high labor intensity of agricultural production. The example of monsoon rice shows that one day of work generates only 23 kg of paddy in Myanmar, compared to 62 kg in Cambodia, 429 kg in Vietnam, and 547 kg in Thailand. Myanmar’s labor productivity in rice production is higher during the dry season but is still very low in international comparison.
12. Farm practices are still largely labor-intensive. Farming in Myanmar looks today as it did in Thailand and Vietnam 15-20 years ago. In Ayeyarwady, farmers spend more than 100 days per hectare of monsoon paddy compared to 52 days in Cambodia, 22 days in Vietnam, and 11 days in Thailand.
13. Low labor productivity reflects the low wages and the low use of capital. During the 2013 monsoon season, the daily wage was $2.0 in the Delta and Dry Zones. Although the wage rose to $3.0-3.4/ day during the dry season, it remained low in international comparison. Capital in Myanmar is, on the other hand, expensive and in short supply. Except in Shan State, the rental machinery market is essentially nonexistent. Some mechanized services are available, as the survey shows, but they are of low diversity and poor quality. Many farmers use draught oxen instead as an intermediate means of mechanization, and only a few own power tillers and small tractors. As the labor market tightens in the future, the rental machinery market will become vitally important for small farms, for whom ownership of expensive farm equipment is unaffordable.
14. Low productivity of land and labor results in low profits from producing paddy in Myanmar. In 2013/14, the net margin/profit from producing monsoon paddy averaged $114/ha, ranging from $88/ ha in Ayeyarwady to $337/ha in Shan State. The higher profit in Shan State is explained by its proximity to China, which resulted in higher farm-gate prices and lower input prices compared to other parts of Myanmar. The profitability of dry season paddy was higher, ranging from $170/ha in Sagaing and $279/ha in Ayeyarwady to $427/ha in Shan State. Yet these profits are still low compared to those achieved by farmers in Asia’s other key rice bowls.
15. Profits from producing paddy in Myanmar vary significantly, making it difficult to use averages. Profits tend to increase along with increased farm size. Small farms had higher yields but failed to translate higher yields into higher profits. Economies of scale allowed large farms to adopt more modern technologies and save on costs. Male-headed households, the vast majority in this survey, managed to achieve higher profits than female-headed households. The situation varies by crop and by ecoregion, with the differences sometimes insignificant, but male-headed households earned higher incomes for many crops. Profits were also influenced by ecoregions’ natural conditions, seeding techniques, fertilizer use, and other factors.
16. Although higher than for paddy, the profits from producing other crops included in the survey are low on average. Data for cross-country comparisons/benchmarking for non-rice crops are not available to support this point, but the survey shows that at the current level of profitability, agricultural income alone is insufficient for poverty reduction in most cases. Farmers with one hectare of farmland and producing two crops a year cannot rely on agricultural income to pull all members of their households out of poverty. Most crop combinations2 grown by the surveyed households did not raise their per capita agricultural income3 above the regional rural poverty line.

Finding No. 3: Low agricultural productivity is the result of multiple factors, many of which are associated with the undersupply of quality agricultural public goods

17. Agricultural productivity is affected by many factors. Some of them are beyond the immediate influence of agricultural policy makers. A decrease in labor availability can be driven by rising wages outside of agriculture. Changes in the cost of working capital (interest rate) largely reflect macroeconomic developments rather than agriculture sector performance. Land prices can increase or decrease responding to the changes in demand from industry or urban development. Yet many factors affecting farm production can be influenced by the government through service delivery and an enabling policy environment. The survey found many examples of public services that even when delivered to farmers did not have any visible impact.
18. Take the case of seeds. The supply of certified paddy seeds is estimated to meet not more than 1 percent of the potential demand. Locally produced good seeds are unavailable even to farmers residing in the main village tracts. For comparison, the supply of good rice seeds is estimated to satisfy 10 percent of demand in Cambodia, while farmers in Thailand and Vietnam do not have any problem with seed availability. The situation for other crops in Myanmar is even worse than for paddy: the public system does not produce enough good seeds and the enabling environment for the private sector is not conducive enough to stimulate seed imports or production and multiplication of seeds in the country. It is not a surprise that most Myanmar farmers use their own saved seeds, a practice that keeps yields low.
19. Another example of a problem resulting from the undersupply of public goods such as agricultural research and extension is farmers’ poor knowledge about fertilizer use. Myanmar farmers widely use urea and compound fertilizers for paddy production in both monsoon and dry seasons, but often at inefficient application rates and inappropriate nutrient composition. During the monsoon season, farmers apply only half of the nitrogen (N) and phosphorus (P) rates applied in other Asian countries, while during the dry season the application of these fertilizers was above the levels observed in other countries. In addition, Myanmar farmers overuse N and P at the expense of potassium (K), resulting in relatively low partial factor productivity of N. One kilogram of N in Myanmar’s dry season generated only 30 kg of paddy compared to 72 kg in Thailand and Vietnam Despite the higher yields triggered by this higher use of fertilizers, high fertilizer users obtained profits below those of low fertilizer users.
20. A final example of the undersupply of high quality public programs is Myanmar’s poor record on irrigation. Irrigation coverage in Myanmar is relatively low: in 2014-2015, only about 3 million ha of agricultural land were part of public irrigation systems, which constituted 15 percent of crop area. This is much lower coverage than in Indonesia and Thailand (about 30 percent), China (about 50 percent), and Vietnam (70 percent).

Finding No. 4: Given that in many agro-ecological zones paddy is less profitable than other crops, the government needs to gradually shift its focus from paddy production to broad-based agricultural support to better leverage agriculture for poverty reduction

21. The survey confirmed that paddy is the major crop grown in Myanmar during the monsoon season but other crops are much more important during the dry season. The survey also found paddy not to be the most profitable crop. Except for chickpea and sesame, all other crops generated higher profits. Most profitable was green gram, widely produced in the Dry Zone and the Delta. Chickpea and sesame were less profitable than paddy but were less costly to produce. In particular, labor use was lower, making these crops more attractive in areas with a high labor deficit during peak harvest times.
22. The situation is more nuanced by ecoregion because not all crops are equally suitable. For the brackish water area in Ayeyarwady and the irrigated tract area in Sagaing, growing green gram was most profitable. In the east alluvial ecoregion of Bago, however, the labor productivity for rice and green gram was similar, while variable costs and water requirements were different: both were highest for paddy. Farmers with access to irrigation and working capital/loans can make good money producing dry season paddy. But those in drier places without access to working capital have to pick more economically suitable crops, usually pulses and oilseeds.
23. Shifting the public policy focus from paddy production to broad-based agricultural development and profitability of overall farming systems offers high rates of return. Producing more and getting higher paddy yields does not automatically lead to higher farm incomes. The freedom of selection of least costly and most profitable crops and high attention to efficiency and profitability of production (i.e., producing more by using less inputs or using inputs better instead of using more to achieve higher yields) are the keys to ensuring high returns to land and labor in Myanmar agriculture.
24. More attention to profitability would favor crop diversification but to meaningfully support this, agricultural programs need to broaden their scope and coverage well beyond rice. The public seed production system, for example, which currently focuses almost exclusively on hybrid rice varieties, needs to broaden its scope to include planting materials for a diverse range of paddy and other crops, building on Myanmar’s rich agro-diversity and farmers’ economic considerations. Agricultural extension services would need to increase outreach to farmers and crop coverage to accelerate adoption of modern farm technologies. Irrigation systems need to be more flexible and provide demand-driven irrigation services to enable farmers to pursue the best crop mix/rotation patterns in different areas and in response to market opportunities.

Source: World Bank & Livelihoods and Food Security Multi-Donor Trust Fund (LIFT)