| By MIN HTET MYAT | MAY, 2003 - VOLUME 11 NO.4 |
Burma’s new rice trading policy change is a step in the right direction but several questions remain unanswered. On April 24, one week after the Burmese Buddhist New Year, Secretary Two of the ruling State Peace and Development Council (SPDC) Lt-Gen Soe Win issued a statement that scrapped Burma’s 30-year-old state rice procurement policy which was introduced by Ne Win’s regime on Oct 10, 1973. Beginning from the next harvest, before the end of this year, the government will no longer buy paddy directly from farmers. At the same time, the government announced a new trading policy, which stipulates: "All nationals have a right to trade rice. The price will be according to the prevailing rates, and monopolizing the rice trade will not be allowed for anyone or any organization." Citizens are now free to participate in the domestic rice trade. As far as rice exports are concerned, however, citizens will have to follow the three guidelines set by the newly formed Myanmar Rice Trading Leading Committee (MRTLC): rice will only be exported when it is in surplus, exporters must pay a ten percent export tax, and the net export earnings after taxes will be shared between the government and rice exporters on a 50-50 basis. Rice trading associations will buy rice directly from farmers and then sell to the Myanmar Agricultural Produce Trading (MAPT), which then distributes rice to the armed forces at cost. The MRTLC comprises ministers from related economic sectors with participation from private sector representatives from organizations such as the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), the Myanmar Rice Traders Association and the Myanmar Rice Millers Association. The junta is optimistic this policy change will put Burma’s rice sector back on its feet. But what do the people think of the change? They would generally be delighted and welcome these measures, but 40 years of military rule has bred popular skepticism at the government’s sincerity. This is the second time the junta has scrapped the state-purchase of rice policy. In Nov 1997, they informed the public that the state would procure paddy through a tender bid system, but that plan never materialized and requirements to sell paddy to the state remained. There are lessons to be learned from Vietnam. The country was a rice importer until Apr 1988, when the government instituted Resolution No 10, which eliminated the rice procurement system by the state and abolished agricultural collectives. Shortly after Resolution 10 was passed, Vietnam became the third largest rice exporter in the world after the US and Thailand. Now, it is the world’s second largest rice exporter after Thailand. This suggests that Burma could significantly increase its rice output once it abandons the compulsory sale of paddy to the state. The new policy could benefit many. Giving farmers license to sell at market prices instead of to the state at a discounted price will boost their motivation to increase yields and hence paddy production. Increased yields would not only help sustain rural development but would also, in theory, prevent exports from digging into the supply of rice needed for domestic consumption. Furthermore, the policy change would integrate Burma’s domestic rice market more closely with the world market. Paddy farmers would gain, as the domestic price of rice would fall in line with the world market. More important, competition for the export market among private rice traders would eventually raise efficiency. But several questions remain unanswered. First, it is not clear whether the government will still intervene in the rice trade since nobody knows precisely what "guidelines" have been prescribed by the MRTLC. Second, how can rice trading associations earn a profit if, according to the new policy, they buy paddy from farmers only to sell it to Myanmar Agricultural Produce Trading for the armed forces at the same price at which they have purchased it? Third, until now, civil servants, like the armed forces, obtained rice at a subsidized rate from the state. Will the government be able to justify making them buy rice at prevailing market prices? Has the government set measures to relieve civil servants from the rising price of rice? So far, no one knows. Rumors that civil servants will receive another pay rise, which would be the third increase since 2000, are the products of wishful thinking. Fourth, even after estimating the size of Burma’s rice surplus how will the MRTLC determine who can export how much rice, given the current practice of cronyism? Will the business arms of the armed forces—such as Myanmar Economic Holding and Myanmar Economic Corporation, which currently monopolize the import and export of some commodities—play a role in the rice trade as well? If private firms, formed by Burmese nationals are able to buy rice directly from the farmers at market rates, then why should rice-trading associations sell to MAPT for the armed forces at cost? Fifth, how can the government justify charging a ten-percent export tax on rice in addition to taking half the earnings from rice exports? Finally, is the government aware that forming too many committees at various levels will create unnecessary layers of red tape and greater opportunities for corruption? These questions can not yet be addressed simply because the new rice export policy remains so vague. According to the government, the new policy was designed to "ensure free trade of the crop in the interest of the entire peasantry and to help develop the market-oriented economy". This shift away from the state-controlled system to allow the market to dictate the rice trade actually began in 1988. Nevertheless, it has taken the junta about 15 years to finally dismantle the government’s total command over the rice trade. The policy shift should encourage farmers to produce more but it is doubtful their incomes will increase significantly any time soon since they must also buy consumer goods and inputs, such as fertilizers and pesticides, at market prices. High inflation, too, will offset any short-term income gains for farmers. Moreover, eliminating the government’s export monopoly would abolish the price differential between the domestic purchase price and export price, but the grossly overvalued exchange rate means the implicit taxation of rice would remain large. This would mainly benefit urban consumers, rice exporters and others with access to foreign exchange. Furthermore, the new policy statement proudly mentioned that it is "the last remaining restriction of the old national economic system". But this is patently not true. There are still many economic issues that need urgent reforms including restrictions on the import-export trade, the overvalued exchange rate, the weak banking and financial system, high inflation, negative interest rates, the budget deficit and high military spending. Also, uncertainties in the business sector and frequent policy changes should be corrected for the rice trade to run smoothly. Even the agriculture sector needs to relax controls over other crops as well as over the transfer, sale and ownership of land. Without addressing these issues, the new policy will help neither the farmers nor consumers. Thus far, the emphasis has been more on the creation of several committees than on clearly explaining the particulars of the new rice trading procedures. The sheer number of new committees at various levels suggests that they will play additional roles outside of facilitating the rice trade, or that they will step back in to control it. In any case, it is still early to assess the actual impact of the new rice trading policy, as many questions await answers from the government. One thing, though, is for certain: mounting political, economic and social crises have forced the military regime to introduce the change. After 15 years of clinging to power, ostensibly trying to move the country towards a market economy, public unease is running high. Lifting controls over the rice trade marks a significant break from the sullied legacy of Ne Win. Whether this policy shift can breathe new life into Burma’s economy and diffuse social tensions, however, remains to be seen. Min Htet Myat is a Burmese scholar living in exile.