Myanmar's Proposed Rice Subsidy Criticized For Potentially Damaging Farmers And Undermining Economic Development

 @SophieXSong on August 07 2013 6:04 AM
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Farmers plant rice seedlings in a paddy field on the outskirts of Yangon, Myanmar's commercial center. REUTERS/Soe Zeya Tun

A draft law in Myanmar that is intended to help farmers by setting minimum prices for crops may actually threaten to cripple them as well as undermine efforts to unleash the economic potential of a country that once was the world’s top exporter of rice.

“A price-support policy imposes artificial incentives and market distortions that can lead to inefficient decision-making by farmers, traders and consumers, which in the long run can have detrimental effects on welfare and broader sustainable development in Myanmar,” said the report, “Implications of a Price Support Scheme for Agricultural Products in Myanmar,” according to the Myanmar Times.

The report will be released by the Myanmar Development Research Institute-Center for Economic and Social Development (MDRI-CESD).

The price-support scheme at the heart of the draft law, which will soon be debated in parliament, could also heighten conflict over agricultural land and worsen malnutrition in one of Southeast Asia’s poorest countries. About 36 percent of Myanmar children under the age of five suffer from stunted growth due to malnutrition.

The scheme is “likely to have a very large negative impact on Myanmar’s fiscal situation,” U Zaw Oo, executive director of MDRI-CESD, told the Myanmar Times.

“Minimum prices for crops sounds attractive,” said Sean Turnell, an economics professor at Macquarie University in Sydney, Australia. The reality is more complex, however.

“We have an example currently on display in Thailand,” Turnell said, referring to that country’s rice-pledging scheme that has eroded its export power and cost the government billions of dollars.

The pending legislation in Myanmar would represent a return to older policies that presume high levels of government involvement and control, according to Turnell, and such policies have failed.

There are a number of more effective and less costly options for the government to help its farmers, according to Turnell and Oo, including improving farmers’ access to credit and input markets, and investing in public goods such as irrigation, roads, access to electricity, and agricultural research and extension services.

“Agricultural output in Vietnam and China increased greatly as a result of improvements in farmers’ property rights there, with the farmers’ standard of living benefiting considerably from this increased output,” Oo said. “Enhancing property rights for Myanmar farmers could have a similarly positive effect, doing far more to increase output and productivity than a price-support scheme would.”

The legislation, at first called the Farmers’ Protection bill, was submitted to parliament on June 30 under the title Farmers’ Interests Promotion bill, according to the Myanmar Times.

The law is silent on land confiscation, which has been identified as a major impediment to the growth of the agricultural sector, according to Ko Tin Lin Aung, a member of the Myanmar Farmers Network.

The report by MDRI-CESD estimates that the scheme could cost the government at least $225 million a year. 

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