US embassy cable - 04RANGOON625

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000625 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB 
BANGKOK FOR FAS 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: DECL: 05/17/2014 
TAGS: EAGR, PGOV, ECON, BM, Economy 
SUBJECT: BURMA'S PRIVATE RICE EXPORTS: A FAILED EXPERIMENT 
 
REF: A. RANGOON 223 
     B. RANGOON 34 AND PREVIOUS 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D) 
 
1. (C) Summary: Burma's military and its economic tentacles 
are apparently benefiting from the GOB's January freeze on 
private sector rice exports, buying up thousands of tons at 
discount prices.  Though the purchases are good for farmers 
who were stuck with massive surpluses when private exporters 
stopped buying, the freeze and the evident return of 
government participation in the rice markets may be the death 
knell for the short-lived policy that freed the rice trade in 
2003 from 40 years of government control.  End summary. 
 
"Temporary" Ban: Day 163 
 
2. (C) Private sector exports of rice, liberalized after 40 
years with much fanfare in March 2003, were abruptly 
"suspended" in January 2004 (ref B) leaving in the lurch many 
exporters -- some with contracts already signed.  Though the 
GOB announced at the time the ban was only "temporary," to 
date there has been silence as to when the restrictions might 
be lifted. 
 
3. (C) The ostensible justification for the export freeze was 
a fear that domestic supply would dwindle below demand. 
Publicly the government cited a possible spike in demand 
following the January announcement that rice subsidies to 
civil servants would be replaced with a 5,000 kyat monthly 
stipend (ref A).  Privately, rice traders and economists told 
us the government was fearful because its poor statistics and 
controls meant there were no reliable accounts of how much 
rice was in GOB warehouses or what domestic consumption 
really was.  In either event, the already low domestic price 
for paddy in early 2004 -- about US$117 per 100 baskets 
(about 2.5 tons) -- remained stable, and even sank slightly 
in the aftermath of the export ban and the civil servant 
compensation reform. 
 
4. (C) With domestic prices cheap and stable, the GOB, always 
in need of foreign exchange, should have been comfortable to 
lift the ban.  However, the private sector remains frozen 
out.  There have been no legal exports of rice since January 
-- not even for barter trade deals.  According to reliable 
sources with firsthand knowledge of rice exports, in FY 
2003-04 (April-March), only 80,000 metric tons of rice were 
legally exported.  For comparison, in FY 2002-03 roughly 
700,000 metric tons of rice were legally exported. 
Transportation of rice domestically toward the border areas 
is outlawed, though much is smuggled out across the borders 
to Bangladesh and China anyway.  Recent sales to World Food 
Programme projects have come from the GOB's stocks, set aside 
in theory to meet its ASEAN buffer requirement. 
 
Military Feasts While Exporters Starve 
 
5. (C) According to several rice industry sources, the GOB 
has not re-opened exports in order to give the military a 
chance to fill its granaries while domestic prices are cheap 
and also to allow the military's two "private" companies 
(Myanmar Economic Holdings, Ltd. (MEHL) and Myanmar Economic 
Corporation (MEC)) to build up stockpiles that can later be 
exported for a large profit.  According to one knowledgeable 
commodities broker, the military has purchased more than 35 
million baskets of paddy (about 800,000 tons) from local rice 
traders -- far more than is needed to feed the troops. 
 
Production and Prices Unclear 
 
6. (C) In the short term, this massive military purchasing 
has had a beneficial impact for farmers, driving domestic 
prices up nearly 20 percent to around US$140 per 100 baskets 
of paddy (around 2.5 tons).  This is still far lower than it 
has been in recent years, but is considered the break-even 
point for most producers.  However, the chaos and insecurity 
caused by the GOB's gyrating rice policies will likely lead 
to reduced supply next season as farmers err on the side of 
caution.  The dry season area under cultivation was smaller 
than usual, and agriculture insiders are predicting a sharp 
year-on-year drop in plantings for the larger monsoon crop. 
This combined with too much or too little rain could squeeze 
supply when the main harvest occurs at the end of the year. 
Fortunately any supply problems will be mitigated somewhat by 
the domestic surpluses remaining from the 2003 monsoon 
harvest due to unmet expectations of exporter demand. 
 
Comment: Burma's New Private Sector 
 
7. (C) The direction of the GOB's ever evolving rice policy 
is troubling.  The regime, getting cold feet at the prospect 
of losing control of the politically sensitive rice market, 
is apparently swapping the old monopoly exporter Myanmar 
Agricultural Products Trading (MAPT) for new monopolists MEC 
and MEHL.  More insidious, however, is the fact the SPDC will 
claim these two firms are private (they are owned in part by 
individual military shareholders) and thus the policy of 
private rice exports has not changed.  Given their good head 
start, MEC and MEHL will destroy genuine private sector 
competitors when the export market is finally re-opened to 
"free" trade.  End comment. 
Martinez