Selling rice to China

Selling rice to China

Burma’s largest trading partner, China, has announced that it will officially start importing Burmese rice from May in a pilot programme, which came as a result of months of negotiations between the two governments.

Burma exported 1.1 million tons of rice in the first nine months of the 2014-15 fiscal year, of which 800,000 tons went to China. Meanwhile, a report this week noted that the Philippines is also hoping to begin importing rice from Burma.

DVB spoke recently with Ye Min Aung, the Myanmar Rice Federation (MRF) general secretary, about the development of Burma’s rice sector and the path ahead.

 

Q: U Ye Min Aung, can you give more details about the official agreement to begin large-scale rice exports to China? What are the latest developments?

A: The negotiations on official trade in rice between the two governments, and in consultation with related businesspeople, began back in September 2014. As a result, we are now preparing to export rice to China officially for the first time in May 2015. The General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) of the Chinese government is sending a team here on 23 April to inspect rice mills and warehouses in Rangoon for the trial export of 3,000 tons of rice to China in May.

In this file picture from August 2013, Burmese farmers collect rice seeds in Naypyidaw.
In this file picture from August 2013, Burmese farmers collect rice seeds in Naypyidaw.

 

Q: According to the initial agreement, China will purchase 200,000 tons of Burmese rice in 2015. Do you think Burma will be able to deliver?

A: Actually the export quota is not specifically set for 2015. China National Cereals, Oils and Foodstuffs Corporation (COFCO) has allowed us a 100,000-ton rice export quota, and judging from the quality of these initial exports, they will consider increasing that amount in the coming years.

China, as a member of the Word Trade Organisation, has to adhere to the Tariff-Rate Quota system in which the countries awarded quotas have to compete with one another. Alongside Burma, countries awarded quotas include Pakistan, Thailand and Vietnam. China annually grants a total of around 5 million tons in quotas; 50 percent of these exports are bought by the government-owned COFCO and the rest, by privately owned companies.

So at the moment, we have a 100,000-ton quota – starting with 3,000 tons in May, and based on the results, the quota may systematically increase. We plan to export our rice via sea routes and also by land over the border.

 

Q: Will the pilot exports in May go by land or sea?

A: As for the pilot exports in May, we plan to deliver them by sea routes, but at the same time are preparing to facilitate the infrastructure for the land route – such as using private investment to develop warehouses and reprocessing or packaging plants in border towns like Muse. Once they are complete, we will look to deliver exports via the land border.

 

Q: About two years ago, there were issues surrounding the ‘unofficial’ border rice exports, resulting in several Burmese merchants losing large amounts of money. It led to the push for a G2G (Government to Government) trading system. Can we say the exports in May signal the beginning of a functional G2G system?

A: The governments’ role is currently in negotiation and planning. The trade itself will actually be implemented in a ‘P2P’ system, between private companies and public companies limited (PCLs). COFCO is a business conglomerate and appointed by its government to buy the initial 100,000 tons quota, while the follow-up shipments may be distributed among private companies.

 

Q: We have learnt that ten PCLs were awarded licenses for export.

A: Initially, we nominated nine companies including both PCLs and non-PCLs. The second time round, ten more companies were nominated and then then ten more in the third round. We will continue to do so to allow all firms a chance to export.

 

Q: Three-quarter of Burma’s rice exports are to China. Do you think we are relying too much on China as a buyer?

A: The international market is currently demanding quality rice; meanwhile our country is gradually developing itself as a quality rice producer. The modern rice mills we have now were only built when the present government came to power and some of them are still under construction. At the same time, China’s demand is increasing so fast – it is the world’s largest rice importer.

Geographically, Burma and China share a long stretch of land border, and as China’s relations with Vietnam have been tense, they are now buying more rice from Burma by land. But while we rely on China’s market, we do not ignore the potential markets in Europe, the Middle East and Africa in the long term because a single market dependency strategy is too risky for us.

 

Q: The European Union in the recent years lifted some of its economic sanctions on Burma and reinstated the country in the Generalised Scheme of Preferences (GSP). Is Europe within your sights?

A: Nowadays, the majority of quality rice exports are targeted at Europe. However it might take a while for us to follow suit. Looking back, we were able to export around 1.5 million tons of rice annually in the past three years, and around 1.8 million this year. These profits of US$700-800 million is what we could call a ‘turning point’, and from this take-off position we hope to be able to establish a stronger foothold, utilising marketing and promotion strategies. Once we do that, we will be looking to diversify our market – aiming for Indonesia, the Philippines, Japan, Europe, the Middle East and Africa.

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Q: Burma’s rice and agriculture sectors have attracted the interests of only very few foreign and domestic investors. Why is that?

A: True. The percentage of investment in the agriculture sector as a whole is very low as investment possibilities and prospects are limited. Furthermore, there is a sizable domestic rice market in our country. The approximate 1.5 million tons of rice exported is only between 10 and 15 percent of the total rice production in the country. Around 80-90 percent is circulated in the domestic market.

But we are seeing an average 15 percent growth in rice exports every year and aim to maintain this pace. We are targeting an export figure of 3 million tons by 2020. In order to make this happen, we need to invest in constructing modern warehouses at all the major ports – Bassein [Pathein], Rangoon [Yangon] and Sittwe – to reduce transportation expenses, and we also need to install advance cargo loading systems and crane terminals to allow for loading in the rainy season. Exporting 2 -3 million tons of rice without that kind of infrastructure would be a very challenging mission.

 

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