US embassy cable - 02RANGOON1292

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001292 
 
SIPDIS 
 
STATE FOR EAP, EB 
BANGKOK FOR AGCOUNSELOR 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
CINCPAC FOR FPA 
 
E.O. 12958: DECL: 10/03/2012 
TAGS: ECON, EAGR, PHUM, BM, Economy 
SUBJECT: BURMA: BREADBASKET AND BASKET CASE 
 
 
Classified By: COM CARMEN MARTINEZ FOR REASONS 1.5 (B,D) 
 
1. (C) Summary: Persistent reports of unrest at food 
warehouses and distribution points in Burma suggest the 
government ration system may be breaking down.  If true, then 
food problems will only become worse for Burma's poorest in 
coming months as inflation accelerates, the kyat continues 
its free-fall, and corruption corrodes the government's 
ability to deliver basic commodities at subsidized prices. 
End summary. 
 
Supply is Up, So is the Price 
 
2. (SBU) Burma does not have a food shortage.  While 
government statistics are always suspect, the information 
available suggests that Burma has consistently produced as 
much or more rice per capita as any other country in the 
world.  According to local numbers compiled by the U.S. 
Department of Agriculture, Burma annually produces about 800 
pounds of rice per person, i.e., as much as Thailand, and 
more than either Vietnam or Bangladesh. 
 
3. (SBU) This year, Burma seems to be headed again for a 
relatively good rice crop.  While heavy rains have damaged 
crops in central Burma and in the Irrawaddy delta, Burma 
nevertheless appears headed for a wet season harvest that is 
roughly equivalent to last year's 15 million tons. 
 
4. (C) Stocks are also allegedly ample.  By government fiat, 
all rice merchants must retain a 120-250 bag surplus 
(depending on each merchant's sales volume) that the regime 
can order onto the market at a subsidized price through the 
Rice Millers Association.  In addition, government officials 
claim to have "strategic" reserves for use during national 
emergencies, though there are real questions as to how large 
those strategic stocks are -- or if they even exist. 
 
The Price of Tea in Burma 
 
5. (C) Despite this evidence of adequate supply, there have 
been persistent tales of hardship among poorer families and 
rumors of sporadic unrest at rice distribution centers across 
the country.  These appear to be the result of three primary 
problems.  The first is wage and price pressures generated by 
decades of bad economic management by the government.  Forty 
years of military rule has crippled economic activity, while 
the government has supported itself in recent years 
essentially with money printed at the Central Bank.  For 
workers, this translates into a combination of unemployment 
and inflation that has held down wages and boosted prices. 
Over the past 12 months, retail prices in Rangoon have 
increased by approximately 60 percent, while wages have 
remained stagnant.  Right now rice in the open market in 
Rangoon is going for 300 to 350 kyat per pyi (2.2 kilograms), 
while factory workers make on average only 300 to 500 kyat 
per day, government pensioners only 600 to 800 kyat per 
month, and an average laborer or street merchant perhaps 100 
to 200 kyat per day. 
 
6. (C) The second factor is a poorly functioning public 
ration system, which covers politically sensitive items like 
rice, cooking oil (imported palm oil from Malaysia), 
gasoline, and soap.  Whenever rice prices begin to rise, the 
government orders the Rice Millers Association to work with 
local township authorities to determine the amount of rice 
needed and then procure it at a subsidized price set by the 
central government.  The township authorities are then 
responsible for distribution at this below market price to 
local families. 
 
7. (C) However, even the government's subsidized prices 
(recently raised from 100 to 130 kyat per pyi for rice) are 
too high for some.  There is also no needs test; the ration 
is available to all citizens regardless of their economic 
circumstances.  Consequently, many who do not need the 
subsidized rice claim their ration anyway to resell on the 
open market, exhausting stocks.  Moreover, because 
distribution centers are disorganized in checking 
identification for disbursement of subsidized cooking oil, a 
blossoming industry has emerged for those who are able to get 
multiple rations to resell for a handsome profit.  Finally, 
supplies are uncertain thanks to corruption among the 
township authorities.  We have heard of two recent cases 
where the police arrested local authorities for lying about 
availability of subsidized rice so that they could resell it 
in bulk on the black market. 
 
8. (C) The third factor in the food problem is the obstacles 
to the domestic rice trade that the government imposes in an 
effort to stem the border trade in rice.  Earlier this 
summer, for instance, rice shipments from Magwe Division to 
northern Rakhine State were reportedly cut off entirely in an 
effort to stop cross-border sales to Bangladesh that are 
stimulated by the subsidized prices in Burma.  The result is 
local shortages, usually in the border regions adjacent to 
China, India, Bangladesh, and Thailand. 
 
Comment 
 
9. (C) The net result for the government of this system of 
rations, subsidies, and trade barriers is a highly 
politicized food distribution system that could backfire as 
inflation continues to rise, and truly steep differentials 
emerge between open market and subsidized prices.  Thus far, 
only the poorest in Burma have suffered very much.  However, 
if the system does break down and the government does find 
itself incapable of keeping its implicit promise to deliver 
food at "reasonable prices," especially in the major urban 
areas, then real trouble could result.  The government is 
gambling that it can maintain control of the ration system 
until the wet season harvest in October and November.  If as 
predicted the harvest is adequate, then the simple increased 
availability of food should put a damper on rice price 
pressures for a few months.  However, if the harvest is below 
expectations, there could be more widespread difficulties. 
End comment. 
Martinez