April 29, 2014
Myanmar's agribusiness sector: Shaky statistics, pent up meat demand, problematic feed supplies
Corn cultivation, feed demand and meat consumption have all taken off. Shaky statistics cannot hide the country's growing appetite for chicken and pork, but it is not clear if domestic feed inputs can keep pace.
by Eric J. BROOKS
An eFeedLink Exclusive Commentary
It has potential to rival Thailand and Vietnam as a world leading Southeast Asian agribusiness market, but Myanmar's feed industry remains an underinvested - and profoundly unknown market. Amid an overhang of considerable uncertainty, feed crop and meat consumption trends imply that within a decade, it could enter the world market for agribusiness inputs in the same dramatic fashion that Vietnam did after the mid 2000s. Or it could even become Southeast Asia's leading corn exporter.
Feed crop, yield increases via a Thai, Chinese connections
The increasing attention given to Myanmar comes after years of rapid, but mostly unnoticed growth. In the fifteen marketing years from 1998-99 to 2013-14 inclusive, Myanmar's corn harvest jumped 6.8 times, increasing at an average, compounded 12.53% annual rate. In all, corn production jumped 585% in fifteen years, from 0.25 million tonnes in 1998-99 to 1.71 million tonnes in 2013-14. Over the medium term, with a serious drought hitting Southeast Asia and developing economies in a sharp slowdown, growth in both the corn harvest and feed demand have decelerated. After years of double digit growth, expanded cultivation area will be offset by dry weather, to make 2014-15's year's corn harvest only 2.9% larger. Feed corn consumption however, is partly recovering from 2013-14's anemic 3% expansion to grow by 7.1% this year, which is still a few percentage points below its long-term rate.
With technically advanced Thailand a next door neighbour, conglomerates like CP and Betagro operate many of the country's feed mills, and virtually all of the state-of-the-art ones. They also improved both the quantity and quality of Myanmar's corn yields by introducing hybrid seeds, 80% of which are provided by CP.
After Thai conglomerates became involved in the country's feed sector fifteen years ago, corn yields roughly doubled from 2tonnes/hectare to 4tonnes/hectare. With Thai agribusiness leading the way, the country's over 40 feed mills are primarily located in the Shan, Rangoon and Mandalay states, with the bulk of their output going to farmers under contract to those same Thai integrators.
As Thailand's integrators introduced hybrid seeds before meat demand took off, supply has stayed ahead of demand up to this point, with roughly 35% of the corn harvest exported. Corn hungry China to the north buys approximately 75% of exports, which would amount to approximately 457,500 tonnes of this year's USDA estimated 610,000 tonnes of export. The remaining 25% are usually purchased by Malaysia, Indonesia, or occasionally by Thai integrators for use in their domestic operations.
A similar story is underway with oilseeds and protein meals. From 1998-99 to 2013-14, soy harvests jumped 3.5 times or 247%, from 75,000 tonnes to 262,000 tonnes. But unlike corn, which is over 90% used for feed, only 25% of its soy harvest (or 65,000 tonnes out of 260,000 tonnes in 2013-14) is used for feed, with the rest going entirely to human consumption, and virtually no imports or exports. Whatever soymeal is used is mostly imported by feed mills that are subsidiaries of Thai integrators, as the latter are investing heavily in its feed sector.
While it remains nominally self-sufficient in both feed grains and oilseeds, this chapter of rapidly expanding feed crop harvests staying ahead of feed demand is drawing to a close, and a more challenging time looms.
At this time, Myanmar's place on the growth curve mirrors that of neighouring ASEAN countries like Cambodia today, or Vietnam prior to 2005. The low starting level of meat consumption, high feed crop prices and recent economic liberalisation dramatically boosted crop farming returns. Over the last fifteen years, this fuelled large increases in both feed crop returns, yields and cultivated area.
Wildly contradictory and inaccurate statistics
In fact, if USDA statistics are correct, Myanmar did not even use corn in its feed prior to the late 1990s –and its protein meal usage lags even more than that of feed grains. But estimating such figures is a challenge in itself. Although the country's feed sector has remarkable growth potential, estimating its current market size, let alone its scope for expansion, remains deeply problematic.
More recently, the USDA recently adjusted downwards Myanmar's estimated feed corn consumption by downwards by 10% to 15% for many of the last five years. Similarly, Myanmar's 2012 population has been pegged anywhere from 52 million to 64 million, depending on who estimated it.
In a failed attempt to resolve such confusion, a recent Australian sponsored census was criticized for failing to count millions of citizens which belonged to minority groups that were not popular with Myanmar's government.
The USDA's large revisions to years of Myanmar corn harvest numbers is bad enough but without being sure of its population, even accurately calculating its per capita meat consumption is difficult -and even professional estimates can differ by a factor of three.
On one hand, The Economist reported Myanmar's estimated 2007 per capita meat consumption at 29.8kg (excluding fish and sea food). - Given Myanmar's near 10% growth in feed corn use since that 2007, The Economist's statistics absurdly imply that Myanmar's current per capita meat consumption could be near 48kg, roughly equal to that of a fully developed country like Japan.
In a more reasonable manner, the organisers of ILDEX Myanmar 2014 state that in 2014, Myanmar has "per capita meat consumption over 10kg."
Simple arithmetic implies that Economist's 29.8kg estimate of Myanmar's per capita meat consumption is grossly unrealistic: Neighbouring Vietnam has per capita meat consumption of approximately 40kg, and roughly 1.5 times as many people as the average of Myanmar's population estimates. Yet, even with domestic corn production of 5 million tonnes, Vietnam needs to import more than 1.5 million tonnes of corn imports annually.
For Myanmar to have one-third less people than Vietnam and 74.5% of Vietnam's per capita meat consumption (The Economist estimated 29.8kg), it would need require at least 3 million tonnes of corn annually for domestic feed use.
Yet, according to the USDA, Myanmar uses approximately 1 million tonnes of corn in feed, but remains a self-sufficient corn exporter. For that to be true, Myanmar's per capita meat consumption cannot be more than a third of Vietnam's 40kg level, giving Myanmar a per capita meat consumption of approximately 13.33kg.
As statistics on not just Myanmar's estimated meat production but even its actual population size vary greatly, there is considerable uncertainty about the exact size, demand, and consumption aggregates of Myanmar's feed and livestock sector.
Strong demand growth ahead
Fortunately, because Myanmar hardly imports any meat or feed grain, certain consumption changes can be reasonably inferred from USDA feed corn estimates. They indicate the amount of feed corn consumed jumped approximately 33.7% from 0.733 million tonnes in 2007-08 to 0.98 million tonnes in 2013-14. With Myanmar's population's rising approximately 4% over these six years, it implies that per capita meat demand increased at least 28.6% over this time.
A 28.6% rise in meat output over six years implies that Myanmar's per capita meat consumption has been growing at around 4.2% annually over this time. Taking into account both yearly population growth of approximately 0.8% and a gradual slowdown agribusiness expansion rates, one could conservatively estimate that from now to 2025, Myanmar's demand for meat will increase at a 4.5% annual rate, rising to near 21kg by the end of this period.
But with only a Thai-integrator-connected minority of livestock farms using professional quality feed grains and protein meals, one has to assume that feed demand will increase closer to the 10%+ annual rate seen in Vietnam from the late 1990s to 2010.
That in turn, leaves Myanmar's feed and livestock sector at a critical juncture. Assuming the country's opening up to the world economy continues, demand for feed crops, particularly corn, will grow by around 10% annually.
Supply-side is promising, but problematic
On paper, Myanmar has the capability to keep pace with double digit meat demand and remain self-sufficient in corn for a decade –but not without serious challenges. The good news is that by some measures, it has almost three times as much arable land as Vietnam, and a third fewer people. The bad news is that it has little of anything else.
Lacking the infrastructure to properly irrigate its corn, the USDA notes that without a regular supply of water, even hybrid seeds will not reap their full potential. Over the short-term, that pinches corn supplies in a drought-stricken year such as this one. Over the longer term, corn yields could end up staying flat around today's 60bushels/acre. That is far below the 80bushels/acre such hybrid corn could achieve in properly irrigated conditions, and less than 38% of the yields American farmers achieve.
Similarly, whereas America, Philippines and Thailand use 120kg, 149kg and 162kg of fertilizer per hectare of arable land, Myanmar only uses 7kg. Normally, we could count on a freely functioning free market to fill such yawning demand, but Myanmar's agribusiness is not only undercapitalized, it also lacks a fully free market.
Yet, the country is changing rapidly and that is why it is important to watch closely what happens over the next few years. The technology exists to make Myanmar into Southeast Asia's feed corn exporter, supplying the rest of the region. But without proactive institutional support for investment in everything from irrigation infrastructure to incentives to use fertilizer or build new storage facilities, it could easily turn into a chronic corn importer.
Similarly, with a population comparable to that of Thailand, Myanmar could also ease its dependence on imported protein meals by attracting soy crushing facilities, much like neighbouring Thailand and Vietnam did. This too will become critical, as demand for oilseeds and protein meals will rise even faster than that for feed corn.
Hence, Myanmar has excellent potential as a rapidly growing market for meat and livestock. But whereas its strong demand fundamentals can be accepted as a given, its ability to create a solid foundation for its burgeoning domestic livestock sector remains an open question.
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