Agriculture & Forestry

The agriculture sector is already gaining ground from relaxed trade policies. Future potential, however,
will depend on the ease of its transition from a supply-led industry to one determined by demand. For the
short term, Myanmar will rely on consumption trends in India and China. It is unclear how long it will
take the country to successfully penetrate international markets outside of Asia, although the process to
get there is more than apparent. In line with this objective, local and international investors, with the
support of the government and development agencies, are accelerating efforts to promote farming inputs,
improve productivity and strengthen supply chains.

This chapter contains an interview with Sunil Seth, President, Overseas Agro Traders Association of
Myanmar.

Articles from this chapter

This chapter includes the following articles.
Unlocking potential to raise productivity and increase exports in Myanmar's agricultural sector

Unlocking potential to raise productivity and increase exports in Myanmar's agricultural sector

Myanmars fertile soils hold significant potential to lift the countrys economy from a basic grain
producer to a high-value goods exporter. However, the evolution of farming has long been stifled by
limited public spending, a legacy of unconstructive land policy, partial infrastructure gaps and limited
access to finance. In addition, many farmers still lack modern cultivation techniques, sowing and
harvesting by hand. All of this has translated into low yields per hectare and poor-quality crops within the
sector.

Economic Mainstay

However, even after a lengthy period of stagnation, agriculture remains the cornerstone of the economy.
While official statistics differ, the World Bank estimates the sector to contribute 38% towards GDP and
23% towards exports, while employing over 60% of the workforce. Although the expansion of the
economy since 2011 has seen urban wages rise significantly, at least in the formal sector, investment in
agriculture lags behind other industries, and as such, rural incomes are among the lowest in South-east
Asia, with around a quarter of the population living below the national poverty line, according to the
Asian Development Bank (ADB).

The agriculture sector is in major need of structural and policy reform. The first-ever democratic
government under the National League for Democracy recognises agricultural development as an
important catalyst for economic stability. In July 2016, four months after taking power, the government
released a 12-point economic plan aimed at creating a market-orientated economy. Under the strategy, the
government aims to bolster farming production, enhance food security, increase exports and boost living
standards of the rural population, most of which rely on farming as their primary source of income. In
order to achieve these targets, the government has set out to reform the laws governing the sector.

During military rule, various policy measures relating to which crops could be produced, and by whom
they could be traded, significantly hindered the development of the agricultural value chain. Likewise,
unfavourable land rights and poor access to credit remain major roadblocks to the farming community.
Land Rights

Laws governing the land in Myanmar continue to be one of the most contentious issues, with land
grabbing and displacement of rural people being one of the most technical dilemmas the administration
has to solve. Policies targeted towards land rights, crop production and marketing have shifted in
direction since independence was granted in 1948.

From 1948 to 1952 policy was to a certain degree favourable: private ownership of land was permitted,
farmers had freedom of choice as to which crops they could grow and private traders had the right to
market products. Then came the ill-timed Land Nationalisation Act of 1953. While farmers still had the
right to choose which crops they produced, and private traders still had authority to promote agricultural
products, the state nationalised all agricultural land and made land transfers illegal. The states grip on the
sector tightened during the socialist era ( 1962-87). The right to decide which products were farmed,
when to produce them and at what price to sell, now belonged to the government. Likewise, the state
monopolised domestic and export marketing. This period led to significant decrease in farmer incentive
and expedited the decline of the sector.

Liberalisation

The first signs of policy easing came in 1988 when the government decided to liberalise the trade of
pulses and maize. This was a step in the right direction, though the state continued to control supply by
enforcing a cropping plan for procured crops such as rice, cotton and sugarcane. Minor adjustments were
made in 2003, when the government limited enforcement of its cropping plan to paddy areas with
reasonable irrigation facilities. At the same time, the governments paddy procurement was abandoned
and private rice export was allowed. Liberalisation of trade gained further ground in 2011, when any
registered trader was allowed to apply for a rice export licence and export tax was reduced from 10% to
2%. A further significant step was taken in February 2013, when the government under U Thein Sein,
announced that agriculture commodities, except rice, did not need export permits.

The vital political reforms which took place in 2011 were soon followed by the Farmland Law (2012) and
the Vacant, Virgin and Fallow Lands Management Law (2012), and with these, new provisions that
allowed for the transfer of land and gave farmers the right to contest land confiscations in court.

While progress has been made concerning land ownership, tenure security remains an issue due to a lack
of information or even conflicting documentation. This has led to a minimal compensation being awarded
to those who were required to relinquish land under reasons of national interest. As such, whereas the
Farmland Law has improved the documentation process to some degree, full implementation and
resolution remain a significant hurdle.

Access To Finance

According to a 2012 survey conducted by Livelihoods and Food Security Trust Fund (LIFT), a multi-
donor trust fund that improves the lives and prospects of the rural poor in Myanmar, access to finance is
the biggest constraint that farmers face in trying to improve production. The limited availability of capital
stems directly from the absence of secure tenure, as formal financial institutions require collateral to issue
loans. Although the arrival of microfinance providers has eased this constraint by offering loans capped at
rates of 2.5% per month, their reach is geographically limited and financing depth per loan rather shallow
(see analysis).
To fill the financing void, the Myanma Agricultural Development Bank (MADB) and Global Treasure
Bank, formerly known as Myanmar Livestock and Fisheries Development Bank, have ramped up efforts
to improve access to finance, so that farmers can afford to purchase inputs, such as fertiliser and seeds,
which were identified in the LIFT survey as the second- and fourth-largest obstacles to productivity, with
the third being severe weather conditions.

The MADB has the power to lend MMK150,000 ($122) per acre (0.4 ha) of rice for a maximum of 10
acres. Interest rates on these loans were raised from 5% to 8% in 2016, compared to 13% offered by
commercial banks. According to a report in the Myanmar Times, the MADB had MMK60bn ($48.7m)
available to disperse during the rainy season. Alternatively, Global Treasure Bank can offer loans of
MMK500,000 ($406) per acre of aquaculture and can use fishing boats as collateral. Commercial banks
such as Myanmar Apex Bank are also chipping in, as they have been given authority to use exiting land
tenures as collateral for loans of up to MMK420,000 ($341) per acre.

According to Sean Turnell, associate professor at Macquarie University and economic advisor to the
government, improving access to affordable finance is critical. Myanmars farmers lack such access,
and, as a consequence are forced into the arms of informal moneylenders, Turnell told OBG.
Impairment of agricultural productivity has been the inevitable outcome of problems originating in
financial sector dysfunctions, he continued.

With informal money lenders offering rates averaging 20% per month, many farmers go without finance,
with the unsurprising consequence that yields suffer due to the inability of farmers to afford vital inputs.
As a result, rural communities have been entrenched in a so-called low-level equilibrium trap, driven by
low productivity and minimal revenue (see analysis).

Supply Shock

In addition to land and finance shortfalls, Myanmar is the second-most-vulnerable country in the world
after Honduras, according to the Germanwatchs Climate Risk Index. During the monsoon months, heavy
flooding can cause rice supply shocks. To combat flooding, irrigation facilities were extended in the
1980s. However, in 2008 cyclone Nargis damaged many of the existing systems, which are still in need of
major repair and upgrading. Evidence of the countrys failing irrigation network was made clear during
2015 when 11 of the 14 states were flooded. This in turn amplified rice scarcity and escalated inflationary
pressure, which peaked at 16% in October 2015, according to the World Bank. Considering the lack of
crop insurance, and farmers reliance on credit, the probability of over-indebtedness to money lenders is
high, a risk that is receiving careful attention from policymakers (see analysis).

According to U Thadoe Hein, managing director of Myanma Awba Group, which works across the sector,
yields could grow two-fold with the right infrastructure. Irrigation developments and road access will
reduce logistics costs. Promoting infrastructure is essential to stimulating investment in agriculture.

Lay Of The Land

One area that agro-economists all agree on is the abundance of arable land, much of which still remains
untouched by modern cultivation. With a total land area of 67.6m ha, Myanmar is the 40th-largest country
in the world and the second largest in South-east Asia. Its diverse topography and ecosystems consist of
the Himalayas in the north and the Andaman Sea to the south. The country is divided into three distinct
agro-ecological zones: the delta and coastal zone, the dry zone and the hill regions. With a total of 12.8m
ha, cultivated land accounts for 19% of the total land mass.
According to Myanmar Agriculture Sector: Unlocking the Potential for Inclusive Growth report
published by the ADB in 2015, cultivation has the potential to expand to more than 18m ha, a 50%
increase, and more than a quarter of the entire country.

As it stands, 46% of the countrys population live in the delta and coastal zone. Rice and fish dominate
rural incomes in this area, which benefits from an abundant supply of water. The dry zone is home to 23%
of the population, and unlike the delta and coastal zone, its upland crops and paddy fields have to rely on
river valleys, many of which are tributaries from the Ayeyarwady river, which spans an impressive 2170
km in length. The hill regions, on the other hand, are sparsely populated and dominated by rain-fed tree
crops, including highly sought after timber (see analysis). The hill regions also produce horticulture
products along with rice, maize and pulses.

Access to water is a clear competitive advantage, but is not being utilised. There are four main river
systems that supplement the countrys agro efforts. They are the Ayeyarwady, Sittaung, Chindwin and
Thanlwin. Together with other smaller rivers, these supply more than 19,000 cu metres per capita of
renewable fresh water each year, five times that of Vietnam and six times that of neighbouring Thailand,
which by comparison has 15.76m ha of arable land.

Crops

Myanmar produces more than 60 different species of crop including rice, corn, oilseeds, pulses,
vegetables and fruits. Historically, Myanmar has been a major producer and exporter of rice in the region,
so much so that it was once considered the rice bowl of Asia. Following the military coup in 1962, public
investment across most sectors fell, at a time when the rest of Asias agriculture revolution was gaining
momentum. While there was a lengthy period of increased rice production from 1.69 tonnes per ha in
1961 to a high of 3 tonnes in 2000, quality declined. During this era, land rights, crop production and
marketing was tightly controlled by the state. This came at a time when neighbouring countries were
diversifying their crops and diets, in turn generating more revenue at the grass-root level. On the other
hand, Myanmars agriculture sector stagnated, and the trading power of the nations rice fields gradually
became a shadow of their former self.

According to the ADB report, rice accounted for 34% (8m ha) of total crop land in 2010. Production
increased by 134% from 13.7m tonnes in 1990 to 32.1m tonnes in 2010 thanks to the introduction of
high-yielding varieties. Despite this impressive increase, Myanmar ranks second-lowest in rice yields in
Asia, mainly due to a weak value chain stemming from limited access to finance and poor infrastructure
which leads to high post-production costs. In addition, poor water management and the improper use of
fertiliser limit prospects.

Fortunately, access to finance and inputs are improving. Similarly, mechanisation programmes are
gaining momentum and infrastructure is high on the priority list of government and development
agencies. These efforts are expected to significantly reduce production costs and promote better yields.

According to the Ministry of Commerce (MoC), 578,200 tonnes of rice and broken rice, worth around
$199m, was exported by October 28, 2016, for the fiscal year (FY) 2015-16. This signifies a drop of more
than 200,000 tonnes, compared to the same period the previous year, due to monsoon rain falls which
caused heavy flooding throughout the country.
Beans & Pulses

While rice occupies the majority of cropland, pulses are the top foreign exchange earner among
agricultural commodities. According to the Myanmar Pulses, Beans and Sesame Seeds Merchants
Association, the total export value of beans and pulses averages $1bn per year, with 1.4m tonnes expected
to have been exported in the calendar year of 2016. Some 80% of this was destined for India. Spurred on
by the liberalisation of trade policy in 1988, beans and pulses have grown in popularity with farmers over
the years due to their low production costs and higher return in comparison to paddy.

Another benefit is that they are predominantly grown between January and March and are therefore not
subjected to the risk of flooding during monsoon rains. Beans and pulses are sown in all of the agro-
ecological zones, predominantly in the central dry zone. A study released by the US Department of
Agricultures Foreign Agriculture Service in February 2016 found that black matpe, green mung and toor
whole beans accounted for 80% of the varieties exported.

The potential to generate more revenue from pulses is clear. At present India pays on average $1500 per
tonnes of mapte, which reached its peak of $1800 in a decade in India in 2015-16. Speaking
to the Myanmar Times, U Tun Lwin, chair of Myanmar Pulses, Beans and Sesame Seeds Merchants
Association, said that the export price could easily reach $2000 per tonne given the growing demand from
the Middle East, EU and US. According to the Overseas Agro Traders Association of Myanmar,
strengthening the agricultural value chain is critical. This can be achieved by improving outdated mills,
which will also raise the quality of yields and promote the incomes of farmers.

Oilseeds & Sesame

Accounting for 16% of cultivated land, oilseeds take up 3m ha, of which 43% is occupied by sesame.
Statistics from the Ministry of Agriculture and Irrigation suggest that in 2011 sesame oil represented 37%
of all edible oil produced, making it one of the worlds largest sesame oil producers in some years
holding the top spot alongside India and China. Myanmar produced some 890,000 tonnes of sesame in
2013, representing close to 20% of global production. The bulk of exports go to China, which bought
77% of the 63,800 tonnes sold in FY 2012/13.

Sesame has for some time been subjected to unfavourable policies. Private exports were banned in 1998
in an effort to strengthen domestic supply and support self-sufficiency. Myanmar Agricultural Produce
Trading was given exclusive trading rights until 2004. As a result, there was a 30% (average) decline in
price, causing a drop in production. Between 2004 and 2011, private companies were entitled to export
white and black sesame but prohibited from selling mixed sesame, such as the red, brown and yellow
varieties. Following the end of military rule and easing of sanctions in 2011, the MoC removed
restrictions and made all colours of sesame available for export.

Livestock

Livestock and dairy production is increasing steadily. ADB research indicates that chicken is the fastest-
growing meat produce, accounting for 51.3% of all meat in 2010, followed by pork and beef. Around
85% of milk is produced by small-scale farmers, according to a report by the local research firm Frontier
Myanmar. This illustrates significant potential for development, considering demand far outweighs local
production, resulting in large imports from neighbouring countries, particularly Thailand. Myanmar
imported dairy products worth $113m in FY 2014/15, most of which was ultra-high-temperature (UHT)
milk. As of late 2016 no significant investment into dairy farming or a domestic UHT facility had been
announced.

The fisheries and aquaculture sector is likewise expanding rapidly. With a mixture of marine and inland
fisheries, the country is well positioned to capture international demand. According to the Ministry of
Livestock, Fisheries and Rural Development, Myanmar exported aquaculture products to 29 countries in
2013 at a reported value of $653.8m.

Moving Forward

The food segment has focused on supply-led yield increases, and not a demand-led approach determined
by market forces, which has restricted the development of supply chains. A white paper published by
USAID and the National Economic and Social Advisory Council in April 2016 entitled From Rice Bowl
to Food Basket: Three Pillars for Modernizing Myanmars Agricultural and Food Sector, identifies that
an important factor for Myanmar to create a successful agriculture sector is to apply lessons learned from
other Asian countries that transformed their agro-economy. The white paper suggests that success was
achieved by focusing on the modernisation of small-farm production through input markets, whilst at the
same time strengthening output markets and supply chains. However, putting this into place will require
investment, policy reform and harmonisation between the government, the private sector and civil society.

U Thadoe Hein says more needs to be done in terms of knowledge-sharing. Local farmers lack the
understanding of how to penetrate markets, he told OBG. More focus needs to be directed to education
and research and development (R&D), so that local farmers can capture markets in the US and EU.
According to the Ministry of Agriculture and Irrigation, education and R&D have received 1% and 0.1%
of the agriculture budget, respectively, in recent years.

Foreign Participation

Unclear regulation and restrictive policies have historically hindered foreign investment in the agriculture
sector. According to the Directorate of Investments and Company Administration (DICA), the country
received $9.4bn of foreign direct investment (FDI) during FY 2015/16, of which just $7.2m was
channelled into agriculture. Previously, between 1988 and 2015, $243m was invested in Myanmars
agriculture sector, with $215.5m (88.7%) of that flowing in since 2010.

The sector suffered for many years under a government regime that did not commit a significant budget
to foster sustainable growth, leading to an inefficient farming yield, which has hindered investor appetite
in the sector, U Aung Zaw Oo, chairman of Aung Naing Thitsar Group of Companies, told OBG.

However, investment in the sector is more than worthwhile given the countrys natural climatic
advantages and topography. Rural progress is also an important opportunity for the new government to
simulate inclusive growth and ease the strain of urban migration. In order to enable farmers to capitalise
on the countrys favourable conditions, land rights and finance options are gradually evolving as the
government works to remedy past wrongs.

The lifting of economic and financial sanctions, coupled with the passing of the long-awaited Myanmar
Investment Law on October 18, 2016, which combines the Myanmar Foreign Investment Law and the
Myanmar Citizens Investment Law into one overarching legislation, is expected to promote FDI into the
once overlooked sector. Furthermore, it will encourage the entrance of previously hesitant investors by
placing them on the same playing field as local ventures. More enticement is expected when the new
Myanmar Companies Act, which as of mid-December 2016 was still under ministerial review, is
approved, replacing the 1914 Myanmar Companies Act.

According to Cheah Swee Gim, director of law firm Kelvin Chia Yangon, the new act is expected to bring
the countrys corporate law concepts in line with international best practice. The willingness to invest in
Myanmars future is much different from the cautious wait-and-see attitude which was prevalent in 2015,
brought on by the then forthcoming first free general elections, she told OBG. Now, more than ever,
Myanmars doors are open to the world.

While there is still much ground to cover to implement these reforms, the intention of the government to
create a fair and competitive investment a key ingredient that has been missing in the agriculture sector
environment is clear. Additionally, by removing uncertainty surrounding land rights, investor appetite is
almost guaranteed to increase.

Supporting Growth

Although the fertiliser sector was liberalised in 1987, few investors were willing to distribute these
products because of low domestic demand and unclear importing procedures. Now that demand is
increasing, foreign investors from Japan and Thailand are setting up operations to tap into the rising
number of fertiliser users. In early 2016 Japanese conglomerate Marubeni Corporation announced it was
investing $18.5m in a facility that manufactures and repackages fertiliser in the special economic zone
(SEZ) at Thilawa. Two Thai firms have also been given approval to set up manufacturing facilities in
Thilawa SEZ,investments worth $23m.

To increase access to inputs, the International Finance Corporation granted a $10m convertible facility to
Myanma Awba Group, a leading local agriculture company, in September 2016. The funds will be used to
expand the companys production base, which is expected to meet up to 50% of the demand for crop
protection chemicals in the country.

Outlook

The agriculture sector is already gaining ground from relaxed trade policies. Future potential, however,
will depend on the ease of its transition from a supply-led industry to one determined by demand. For the
short term, Myanmar will rely on consumption trends in India and China. Longer term, prospects are
strong, given the governments direction towards trade liberalisation and structural reform.

It is unclear how long it will take the country to successfully penetrate international markets outside of
Asia, although the process to get there is more than apparent. In line with this objective, local and
international investors, with the support of the government and development agencies, are accelerating
efforts to promote farming inputs, improve productivity and strengthen supply chains. Furthermore,
improvements in hard and soft infrastructure will reduce logistical costs and promote efficiency in the
value chain. All these factors, combined with the modernisation of cultivation techniques, will strengthen
the sector and stimulate the livelihoods of rural people.

Sunil Seth, President, Overseas Agro Traders Association of Myanmar, on boosting the sectors
competitiveness: Interview
Sunil Seth, President, Overseas Agro Traders Association of Myanmar, on boosting the sectors
competitiveness: Interview

Interview: Sunil Seth

What measures could be taken to entice foreign investment in Myanmars agriculture sector?

SUNIL SETH: The agriculture sector is extremely important for Myanmar, contributing 41% of GDP.
Farmers land holdings are small and fragmented. One area the government should consider is allowing
contract farming, whereby foreign companies can work directly with farmers to provide better inputs like
seeds, nutrients and technical support to improve the quality and productivity of agro-products. Myanmar
mostly exports raw agro-products without much value addition. The government could incentivise foreign
companies to set up plants for making finished pulses and give tax and export duty benefits to attract
foreign investment. It could also explore the possibility of working closely with agriculture universities to
bring best practices to Myanmar.

The new Myanmar Investment Law provides incentives for the countrys less-developed regions by
providing a seven-year tax break instead of the uniform five years. This should attract attention in states
like Sagaing, Chin and Shan, where there is good potential for agro-products. This is a good step taken by
the government and should attract foreign investment.

Are there any moves that could help promote the development of the beans and pulses industry?

SETH: Beans and pulses are an important product for Myanmar. They have an export potential of 1.
5m2m tonnes and over $1bn per year. The government should look at investing in better technology and
seeds, and at providing finance to farmers at competitive rates. Initiatives like the minimum support price
and weather insurance will also motivate farmers to focus more on beans and pulses.

Improvements in infrastructure such as logistics from Upper Myanmar to Yangon, and reducing costs at
Port of Yangon will make bean and pulse exports more competitive. Many African countries will be
competing with Myanmar on pulses in the future. Exports to countries in the Middle East, as well as the
UK, the US and Canada, can also be developed.

Local banks can also help by providing letters of credit and other trade finance products, so that this
business can be scaled up and can follow standard norms of international trade.

What can be done to ensure that Myanmar exports higher-value-added products?

SETH: The government should focus on higher-value items like high-quality rice for exports to
discerning markets, and finished pulses by setting efficient milling machines and food-processing units.
The farmers will also get greater income from their produce, making it a win-win situation for all
stakeholders in the agricultural value chain. Mechanisation of farming is another area to be looked at to
increase productivity. Tractors and other farm equipment are used less in Myanmar than in Cambodia.
The government could consider having a special economic zone to focus on the agricultural sector, along
the same lines as Thilawa Special Economic Zone, and encourage companies to invest in value addition
for agro-commodities.

Where does Myanmars agriculture industry have advantages over those of other ASEAN nations?
SETH: Myanmar has a lot of natural resources, including water and fertile soil, as well as a young and
hard-working population. The cost of labour is very competitive and farmers have years of experience in
cultivating rice, beans and pulses, sesame, ground nuts and so on. Myanmar is also very well located to
supply agricultural products to China, India and ASEAN countries, and this puts it in a unique position.
With the recent lifting of sanctions by the US government, Myanmar can be a competitive supplier of
finished pulses along with other valueadded agricultural commodities to the EU and the US.

Increasing credit options available to Myanmar's small-hold farmers

Increasing credit options available to Myanmar's small-hold farmers

While the financial services industry in Myanmar continues to move forward, the provision of funding
remains the biggest roadblock to small-hold farmers. For the most part, banks lack flexibility due to rigid
interest rates and overprotective collateral-based lending, which hinders their ability to provide finance to
farmers. Likewise, a lack of tenure security accentuates the limited amount of rural loans. In addition,
mistrust of the financial system saturates the market, stemming from Myanmars 2003 banking crisis.
Furthermore, the banking sector does not cater to the mass market, especially the rural community, with
over 90% of the population estimated to be unbanked.

Hurdles

Under current regulations, affordable financing is hard to come by, apart from a small number of
exceptions, owing to tight interest rate guidelines, with lending capped at 13% for a maximum of a one-
year loan period. Even in cases where credit is made available to farmers, it is often not tailored to
production cycles. Ultimately, due to low incomes and insufficient credit, farmers are unable to take
necessary measures to increase productivity through the use of good-quality chemicals. Often, poor-
quality fertiliser and pesticides are used to tend to crops which in turn leads to a viscous cycle of poor
yields and low incomes. As a result, the majority of smallhold farmers remain entangled in a low-level
equilibrium trap of poor-quality inputs and low revenue.

Given these constraints, farmers are often forced to seek out unofficial money lenders to support crop
inputs, such as seeds and chemicals. The lack of savings and insurance facilities also puts farmers at risk
of over-indebtedness to money lenders. Typically, these unregulated lenders apply a 5 to 6 ratio, in
other words for every $50 lent $60 needs to be paid by month end, meaning a 20% monthly interest rate.

In a 2014 report compiled by the Livelihoods and Food Security Trust Fund (LIFT), entitled Making
Access Possible, it was estimated that 37% of farmers made use of formal credit, 25% borrowed from
unregulated parties, and the remaining 38% had no access to financing whatsoever. However,
circumstances are gradually changing as more finance options come on-line driven by the easing of
regulation under the countrys first-ever democratic government, eager to accelerate financial inclusion.

Steps Towards Inclusion

The previous government set out an ambitious target for financial inclusion, with a goal of bringing
financial services to 40% of the population by 2020, and having 15% of the population using more than
one financial product within that time frame. Undoubtedly, this could not be achieved without the
liberalisation of the telecoms market, which began in 2013 and has since recorded rapid growth. The
expansion of mobile phone usage has opened a window for financial institutions to partner with mobile
operators to access hard-toreach rural locations. This so-called digital money gives the opportunity to
create innovative credit and savings products that will reduce transaction costs and give the unbanked
masses access to a wide range of financial services for the first time. This should, in theory, trickle down
into the agriculture value chain.

State Bank

The farming community has three main avenues to access credit: the formal banking sector, microfinance
institutions and unregulated lenders. The state-owned Myanmar Agricultural Development Bank
(MADB) has historically been the primary source of funding for rural landowners. Unlike commercial
banks, the MADB does not require collateral to issue loans, instead it spreads risk by issuing loans to a
group of farmers who collectively guarantee each other. As of mid-June 2016, the bank increased loans
per acre (0.4 ha) from MMK100,000 ($81) to MMK150,000 ($122) for a maximum of 10 acres, at an
annual interest rate of 8%. Although as of 2014 the bank had 14 regional offices, 164 branches and 48
agency offices, its reach is fairly limited. Loans are heavily weighted towards rice farmers and exclude
many crops, including fruit and vegetable production. While the bank has made significant commitments
to landowners, it does not provide financing to value chain actors, thus excluding traders and logistic
companies, hence the splintered supply chain.

A 2014 report by the World Bank summarised the MADB as having an innovative structure but with a
thin portfolio focused on rice farmers, a lack of risk management and weak governance. Considering
these pitfalls, the Myanmar Rice Federation (MRF) submitted a recommendation to the Ministry of
Commerce in early 2016 for the privatisation of the MADB. The MRF is pushing for the corporatisation
in an effort to deepen the pockets of the MADB, which currently relies on loans from the state-owned
Myanmar Economic Bank (MEB) to stay afloat. The MRF believes private investment and
corporatisation would give the bank more freedom in terms of product choice and loan disbursement.

Shortly after the recommendation by the MRF, the government announced that it was preparing to move
the MADB from within the Ministry of Agriculture, Livestock and Irrigation to the Ministry of Planning
and Finance. As of late 2016 the MADB was still under the supervision of the Agriculture Ministry and
was continuing to receive funding from the MEB. However, a government committee assigned to
carrying out four-month corporatisation feasibility study had been established and commenced work.

Microfinance

To fill the funding gap and compliment the efforts of the MADB, a number of micro-finance institutions
(MFIs) have been entering the market since the mid-1990s, though the legal framework governing their
role was only passed in 2011. According to Germanys GIZ, by February 2016 the Myanmar
microfinance sector had served 1.6m clients, with total assets valued at MMK352bn ($285.9m) and an
outstanding loan portfolio of MMK256bn ($207.9m). Micro-savings amounted to MMK68bn ($55.2m).
While the focus is not solely on rural communities, the growing presence of MFIs is assisting the
development of the agricultural value chain. A total 168 licensed MFIs were under the Financial
Regulatory Department (FRD) as of March 2016.

Under the requirements of the FRD, MFI loans are restricted to MMK5m ($4060), with interest payments
capped at 30% per annum, or 2.5% per month. Of the 168 MFIs, 110 are deposit taking, with a
compulsory micro-savings interest rate of 15% per annum, while voluntary deposits earn 10% per annum.
The minimum paid-up capital required for deposit taking MFIs is MMK300m ($244,000), for non-
deposit-taking MFIs MMK100m ($81,000) is required. In terms of prudential ratios, the minimum
solvency ratio is 12% and the minimum liquidity ratio is 25%.

Industry participants are pressing policymakers to adjust their mind-set of one size fits all regulatory
framework. Policy reform is expected to extend the reach of MFIs, a position summarised in a paper
entitled Policy Reform Recommendations to Accelerate Microfinance in Myanmar by the Myanmar
Microfi-nance Association (MMFA). One of the biggest shortcomings of current regulation is that all
MFIs are subject to the same requirements, despite having different capacities. This hinders the segments
ability to provide a wider range of services. The MMFA is thus pushing for regulatory innovation with
the long-term vision of creating a two-tiered MFI system, where tier 1 would have the ability to borrow
from local and foreign sources, take deposits and offer a wide range of services that meet customer needs.
Given the growing range of crops being grown and the need for financing this expansion entails, such
sophisticated MFIs would support farmers. On the other hand, tier-2 MFIs would offer a smaller range of
products and have lower capital and liquidity requirements. The paper also recommended that tier-2
operators have the opportunity to graduate to tier 1.

Food For Thought

The MMFA paper sets out eight pillars of reform to establish a dynamic micro-finance system in
Myanmar. Part of the challenge is the capacity to implement proposed reforms. If these recommendations
were successfully initiated, there is little doubt that the agriculture value chain would strengthen
significantly. International institutions, such as GIZ, the World Bank, USAID and many others, are
partnering with local bodies and the government to assess how best to apply remedies.

Given the mounting efforts to improve access to credit, policymakers will have to contend with the
potential for over-indebtedness, which can lead to land loss and major disruption in the development of
the agriculture sector, not to mention the livelihoods of rural dwellers. However, increasing access to
credit is only part of the problem. Sustainable benefits will only be realised once a variety of savings,
insurance and transaction services are available. These services would equip farmers with the tools
necessary to manage risk and capture growing market demand.

Logging and export bans implemented in Myanmar to slow deforestation

Myanmar bans lucrative logging in bid to preserve forests

Myanmar has banned lucrative logging operations as the newly-elected government of democracy leader
Aung San Suu Kyi steps up a battle on deforestation, an environment official said on Thursday.

Myanmar's rich forests are among its most valuable natural resources, but they have been plundered by
logging that helped fund the former military regime that ran the country for 49 years, before reforms
began in 2011.

In April 2014, Myanmar banned export of raw timber logs to slow deforestation and boost its own
production. By 2010, forest cover had shrunk to 47 percent of land area from 58 percent in 1990, Forestry
Ministry data show.
Despite the ban, illegal logging has thrived in northeast Myanmar, where valuable teak and rosewood are
smuggled over the border to neighboring China, forest watchdog the Environmental Investigation Agency
(EIA) has said.

"We have been reducing timber extraction, and now we have decided to stop logging completely," said
John Swe Ba, a managing director at Myanmar's Ministry of Natural Resources and Environmental
Conservation.

"This measure will cover teak and other hardwoods all across the country," he added.

Legal logging has also played a major role in ravaging the environment. State-owned Myanma Timber
Enterprise (MTE), overseen by Swe Ba's ministry, has a monopoly on the formal timber sector, but
subcontracts work to numerous companies.

That body was targeted by United States sanctions until 2014, when the Treasury Department gave it an
initial one-year waiver to work with the U.S.-based International Wood Products Association, extended in
July 2015 for two more years.

"Methods of over-harvesting include felling a greater number of logs of a particular tree species and
extracting logs smaller in diameter than recommended," said the EIA, which is based in Britain.

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"As such, the legal forest sector practices in Myanmar are a significant contributor to deforestation and
forest degradation," the watchdog added in its 2015 report.

Measures are needed to save the jobs of more than 17,000 employees in government departments working
on timber production, Swe Ba added, without saying what they might be.

"We cant afford to let them be out of jobs overnight," he said.

(Editing by Clarence Fernandez)