Rice exports dry up due to forex restrictions, rising prices

The shock determination to repair the speed of the kyat has harmed the competitiveness of Myanmar’s rice exports, merchants say, and orders from overseas are already starting to say no.

By FRONTIER

Rice merchants are warning that the regime’s latest determination to repair the trade charge might cripple exports, with probably vital flow-on results to the nation’s farmers. The sector was exhibiting robust indicators of restoration from a turbulent 2021, however farmers at the moment are afraid of export gross sales drying up once more.

The consequences of the February 2021 coup have been felt shortly by farmers and exporters, with banks and ports shuttered and transportation affected. Rice exports plummeted within the 2020-21 monetary 12 months, down from 2.6 million tonnes to 1.8 million tonnes. 

The sector recovered shortly and posted a return to regular amid robust international demand. Within the six-month “mini-budget” interval from October to March of this 12 months exports rose to 1.3 million tonnes.

As one latest report discovered, the rice worth chain has proven “resilience” regardless of quite a few shocks from Myanmar’s political disaster and COVID-19, and has met demand from each home and worldwide markets.

In January, exports of rice (together with damaged rice) hit 260,000 tonnes, in line with the Myanmar Rice Federation – the very best month-to-month whole since previous to the coup.

On March 25, the US authorities’s Overseas Agricultural Service workplace in Yangon forecast that rice exports would “stay robust” on account of excessive world costs and robust demand from patrons, together with African and European nations, China and the Philippines.

However then on April 3 the junta-controlled Central Financial institution of Myanmar shocked the enterprise neighborhood by introducing overseas forex controls, and fixing the trade charge at K1,850 to the US greenback – under the market charge of K2,000 to the greenback. 

Contracts dry up

Underneath the foundations, overseas forex earnings should be transformed into kyat inside a day on the stipulated charge. Utilizing the brand new trade charge, merchants have needed to revise upwards the US greenback value for Myanmar rice that they quote to overseas patrons.

Merchants say this synthetic strengthening of the kyat has made exports much less aggressive at a time once they have been already grappling with rising home costs on account of decrease manufacturing, and better transport prices.

“As a result of our export value is now excessive, demand from overseas patrons is falling,” stated Ko Yazar Myo, secretary of the Myanmar Rice Miller Affiliation. “This started when the US greenback trade charge was all of a sudden modified to K1,850. Home rice costs have additionally risen, so these two components are pushing up the export value and we’re not aggressive.”

He cited the instance of 5 p.c damaged rice, which exporters in Pakistan are promoting for $350 per metric tonne. Myanmar exporters are providing $370 to $380 a tonne, on virtually non-existent revenue margins, up from $330 to $335 a tonne in the beginning of this 12 months. 

Relying on the range, the ‘free on board’, or export value, of Myanmar rice is now as much as $500 a tonne, merchants stated.

“Rice exports are nonetheless going out for now, as a result of we now have superior orders for Might and June supply. Now we have to fulfil these orders whatever the value,” Yaza Myo stated.  

Dr Soe Htun, Vice Chair of the Myanmar Rice Federation, stated he anticipated rice exports to say no this 12 months as a result of trade charge revaluation.

“Now the one rice exports are for advance buy contracts,” he stated. “As a result of the trade charge has been mounted at K1,850, it’s troublesome to promote our rice so no new export offers are being made. We are able to hardly anticipate the native value to say no both as a result of the worth of agricultural inputs that farmers use can be rising, so I anticipate rice exports will fall.”

Sai Kyaw, a rice exporter primarily based in Mandalay, confirmed that Myanmar’s rice exports have been struggling to take care of their competitiveness on account of rising home costs and the brand new overseas trade guidelines.

However he stated one other issue was that Myanmar exporters face increased transport prices than a few of their rivals. 

“It prices us $1,800 to rent a container for rice exports, which is far increased than different nations – in Thailand, for instance, it’s solely $700,” Sai Kyaw stated.

Rising costs

There have been already some warning indicators for rice exports – and manufacturing extra broadly – previous to the Central Financial institution’s April 3 announcement on overseas forex controls. After hitting a excessive of 260,000 tonnes in January, exports fell to 210,000 tonnes in February after which simply 130,000 tonnes in March, on account of rising native costs and diminished provide, merchants advised Frontier.

Rice is produced from paddy, which is buying and selling at K700,000 to K1 million for 100 baskets (a basket is the same as 46 kilos, or 20.87 kilograms), relying on the range. That is up from K500,000 to K900,000 on the similar time final 12 months. 

Farmers and trade specialists say the upper paddy costs are due primarily to decrease manufacturing throughout the latest summer time paddy season. 

Manufacturing is down as a result of the sharp decline within the worth of the kyat because the coup has made imported agricultural inputs, together with fertilizer, costlier, whereas credit score has additionally change into harder to entry. In consequence, many farmers have responded by cultivating fewer acres, decreasing fertilizer use, or each.

In the meantime, Yaza Myo from the millers’ affiliation stated frequent energy outages meant that mills weren’t in a position to run at full capability, and this was additionally decreasing rice provide into the market.

Rice costs have to this point risen solely modestly: relying on the range, the staple is promoting for K30,000 to K80,000 a bag (one bag comprises 24 pyi, round 50 kilograms), a rise of round K2,000 to K4,000 increased per bag primarily based on late 2021 costs. 

The World Meals Programme’s Market Worth Replace for March discovered that costs have been up a median of 14pc year-on-year, however the enhance was skewed considerably by vital rises in some conflict-affected areas, resembling Kayah and Chin states. 

Most states and areas skilled a big rise throughout March, together with Yangon, the place costs have been up 9pc, the report stated. 

Daw Hlaing, a rice service provider from Pyinmana Township within the capital Nay Pyi Taw, stated many shoppers have been choosing cheaper forms of rice. 

However exporters don’t have that luxurious, Yaza Myo stated. They’ve contracts to satisfy, they usually have to purchase the range stipulated within the contract whatever the value. 

“Earlier than I might purchase 750 or 1,000 tonnes with a day’s discover, however now it’s tougher as a result of there may be much less rice obtainable,” he stated. “Exporters are having to pay good-looking costs to get the quantity of rice they want.”

Struggling farmers

Greater paddy costs would usually be excellent news for farmers, however this 12 months they’ve little to rejoice. Greater manufacturing prices imply they’re making much less revenue than in earlier years.

U Ko Ko Naing, who cultivates 15 acres in Mandalay Area’s Patheingyi Township, stated cultivation prices had risen from about K300,000 an acre final 12 months to about K400,000 this 12 months.

A bag of chemical fertiliser that value K60,000 final 12 months has risen to virtually K100,000, whereas the rental payment for a harvester and thresher has risen from K50,000 to K75,000, on account of elevated gasoline costs.

With cultivation prices so excessive, Ko Ko Naing stated that with a median yield of about 70 baskets an acre the paddy value must be about K800,000 for 100 baskets for them to make a small revenue.

“So whereas the paddy value this 12 months is sweet, farmers gained’t make a lot cash from it,” stated Ko Ko Naing, who can be a neighborhood rice dealer.

As a result of farmers usually take out loans to pay for cultivation prices, additionally they often need to promote their paddy instantly after harvest, when costs are lowest. 

“Solely large farmers are in a position to refill paddy and promote it later. Most farmers need to promote their paddy right away to repay their money owed,” stated U Myint Wai, who farms practically 100 acres in Ayeyarwady Area’s Maubin Township. “Now there are patrons however farmers don’t have anything to promote.”

Most farmers have now introduced of their summer time paddy and are getting ready to develop the monsoon crop, which is harvested in the direction of the tip of the 12 months.

There may very well be extra ache forward for them, nonetheless. Rice exports have change into an necessary characteristic of the market because the 2011 transition, and have usually helped to push up costs.  

If export demand dries up as a result of trade charge and different components, this can put downward stress on home rice costs – however farmers’ cultivation prices are set to stay comparatively excessive.

“The rice trade is simply in situation if the entire provide chain is doing effectively,” stated Yazar Myo.

Sai Kyaw agreed.

“Farmers gained’t make a revenue if paddy costs are low, significantly when their enter prices are excessive. However exporters face issues when paddy costs and transport prices are excessive as a result of they need to compete with different nations. Both method, it isn’t scenario.”