Myanmar feed milling revisited: A new, clearer view of supply, demand and challenges
By ERIC J. BROOKS
An eFeedLik Hot Topic
With a population comparable to that of Thailand, much lower labour costs, unexploited resources and an increasingly liberalized economy and politics, Myanmar is being touted as the next China or Vietnam style agribusiness miracle. Unfortunately, investors are hampered by questionable statistics, which made for sketchy, uncertain details about its feed and livestock market. This too however, is starting to change.
With Myanmar's importance growing, the USDA recently revisited its feed input statistics and revised them in line with more accurate official meat and livestock figures released by the country's government. These new, more accurate feedgrain statistics both give and take; creating new investment opportunities for every challenge they reveal.
It turns out that both livestock production and the proportion of feed accounted for by high quality inputs were lower than either Myanmar government statisticians or the USDA's own 2014 and 2015 surveys had estimated. Moreover, while corn harvest size estimates were accurate, the actual quantity of corn used as feed was slashed by more than 50% in some cases.
For example, the USDA 2012-13 estimate for feed corn demand was slashed from 1.1 million tonnes to just 700,000 tonnes. Similarly, 2013-14's estimate for feed corn consumption was reduced from 1.3 million tonnes to 600,000 tonnes.
After revising its estimates, the USDA only expects Myanmar's feed corn use to exceed a million tonnes in 2018. This is good news for investors: It merely implies that while its growth potential remains high, we can add at least another five years to the decades of rapid, pent-up demand growth that its agribusiness lines will undergo.
It also means that much like Vietnam in the 1990s and early 2000s, Myanmar's corn sector is surprisingly export-oriented, supplying more feedgrain than was expected to the mills of neighbouring countries. With high corn prices encouraging planting, corn acreage more than doubled from 203,000 hectares in 2000-01 to 410,000 hectares 2012-13, when the feedgrain bull market peaked.
Because Myanmar's economy was not liberalized until several years ago, this large, 15-year expansion in planted acreage caused corn supplies to grow much faster than feed demand. Consequently, the proportion of corn exported skyrocketed from 11% in 2000-01 to 68% in 2014-15 before falling back to near 50% during the last two years.
With 2016-17 corn harvest projected over 2 million tonnes for the very first time, 1.1 million tonnes will be exported. 95% of exported corn or over 1.04 million tonnes will be shipped overland to China, with another 40,000 to 60,000 tonnes going to Singapore and Thailand.
Due to stricter inspections by Chinese customs and rising integrator demand within Myanmar itself, exports are down 15% in two years from the 1.3 million tonne record established in 2014-15. But even if Chinese customs gives the country's corn an easier time, more of it will be needed in Myanmar itself in the future: As it embarks on years of Chinese or Vietnamese style 10%+ annual expansion of its livestock sector, its demand for feed inputs has already been felt: According to a study by the Singapore office of Stanton Emms Strategy Consultants, using estimates based on customs statistics, total imports of feed materials such as oilseeds, oilseed meals and fishmeal jumped by 117% from 2005 through 2011 and are poised to continue rising by 10% or more annually over the next decade.
While Myanmar remains completely self-sufficient in corn, farm inefficiency and resource constraints make it doubtful that feedgrain supplies will be able to keep up with meat demand, as the days of rapid harvest growth are ending.
At first, corn yields more than doubled, from 1.7 tonnes/hectare in 2000 to 3.9tonnes/hectare by 2012. With land acreage more than doubling over this same period, the harvest increased eight-fold from 2000 through 2016. As farmers were still using traditional farm scraps for feed, supply overtook demand –but it has been a different story since 2010.
For the last five years, corn yields have stagnated in the 3.9tonnes/hectare to 4.0tonnes/hectare range, rising by less than 1% annually. Consequently, the last five years has seen the corn harvest increase 31% and land under cultivation by 27%. The latter however, is unsustainable, as Myanmar will soon run out of frontier corn growing land to bring into production.
To boost yields, hybrid corn seeds are available at a subsidized price from the government (which supplies 8% of seeds) and for regular market prices from CP, which the USDA estimates has a 60% to 70% market share. Government-subsidized Yezin corn seeds are estimated to provide average corn yields of 4.5tonnes/hectare. CP's hybrid seeds cost approximately 50% more but can yield 5.0tonnes/hectare.
Given that Myanmar's corn yields are one-third US levels and 25% lower than those of Vietnam (which has similar soil and climate), its productivity should be growing several times faster than that of Vietnam and several times more quickly than that of the United States. This however, is not the case.
The past five years has seen Vietnam boost corn yields 2.5% while those of the US went up nearly 20% --but Myanmar's corn yields only rose 1%. Is this due to a corn farming structure of undercapitalized small holders that cannot afford hybrid seeds at a time when corn prices are low? The evidence examined cannot answer this question or whether boosting farm scale would boost corn yields by enough to keep pace with demand growth.
But we are certain of the following: After the first wave of new, post-economic liberalization investments in integrated feed and livestock facilities commenced production, feed corn use started growing very rapidly. Too rapidly for a country with flat feed crop yields and a dwindling supply of new land to bring into corn production.
Moreover, even if corn yields resume their previous, rapid growth, an ongoing substitution of modern feed materials in place of traditional inputs makes it almost impossible for feed grain supplies to keep pace with consumption.
With most livestock production accounted by undercapitalized small-scale farms, they traditionally relied on lower cost, lower quality feed ingredients whenever possible. For example, a report authored by a Myanmar agriculture ministry official, a leading Myanmar veterinarian and University of Queensland researcher ("Regional Workshop on Beef markets and trade in Southeast Asia and China", Ben Tre, Vietnam, 30th November – 3rd December 2015) notes that, "Farmers prepare homemade feed from a diversity of agricultural by-products such as bean straw, groundnut cake, rice bran, corn by-products or peanut plants."
In the rainy season, "Rice straw from the previous season along with green feed collected from roadside are used as the main source of feed." In the dry season, ruminants, "Are left to graze on rice stubble." This makes a bad situation worse, as Myanmar has not imported significant quantities of modern livestock breeds. Consequently, animals with suboptimal genetics are having growth constrained by protein poor feed materials with limited digestibility.
The good news is that with new investment coming in, the share of livestock production accounted for by large scale farms and integrators is rising. Now that it has opened itself up to the world economy, multinational conglomerates including CP, CJ, Japfa Comfeed, Sunjin, De Heus and New Hope Group have established integrated feed milling and livestock farming facilities. Moreover, this is just the first wave of integrator investments in feed and livestock production, and many more new investments are expected in the future.
Moreover, With the lifting of US economic sanctions in Q4 2016, it is believed that it is a matter of time before large American integrators announce the construction of new feed mills and animal rearing operations in Myanmar. As their share of protein production grows, so will the overall productivity of Myanmar agribusiness.
The post-2013 establishment of new feed mills and integrated poultry farms took off is transforming the way the country's livestock are raised. Integrators ranging from CP to De Heus have imported more productive broiler breeds and led a mass substitution of high quality feed ingredients in place of farm scraps and residual left over from the harvest.
On one hand, such investments have launched Myanmar's ongoing agribusiness miracle: According to a Larive Group study, chicken production has more than doubled; from 202,500 tonnes in 2010 to 413,600 tonnes in 2016 and is expected to total 561,000 tonnes by 2020.
From 3.9kg in 2010, Larive expects per capita chicken consumption to total 8.1kg in 2017, 10kg by 2020. Similarly, per capita egg consumption jumped from 1.6kg in 2010 to 2.5kg in 2015 and a projected 3.8kg by 2020. Moreover, poultry account for 80% of feed demand. Thus, even if the importation of more efficient broiler and layer breeds lowers feed conversion ratios, the sheer rise in the number of poultry required will cause a large rise in feed corn demand.
Moreover, with integrators setting an example and low corn prices undercutting traditionally cheaper feed ingredients, the USDA reports that, "Corn is likely to replace broken rice as a major ingredient in animal feed." As of Q4 2016, the USDA estimates that depending on the livestock line and geographic region, feed corn inclusion rates remain low, ranging from 20% to 45%.
This means that while feed demand may increase by 7% to 10% annually over the next decade, with inclusion rates increasing, feed corn consumption could rise by more than 9% to 13% annually. No combination of higher crop yields and expanding cultivation acreage could keep up with such rapid feed corn demand growth –and so far, this seems to be the case: Within a year of a new wave of multinational feed mills opening, the USDA estimates that corn feed demand jumped 41.6%, from 600,000 tonnes in 2014-15 to 850,000 tonnes in 2015-16.
Going forward, with several new, large mills under construction (but not becoming operational before 2018), 2017 will see a smaller 5.9% rise in corn feed demand to 900,000 tonnes as existing facilities boost their capacity utilization. Thereafter, as sets of newly constructed feed mills come on line, demand for corn will rise at rates near 10%, topping 1 million tonnes no later than 2019.
When rapidly rising feed and livestock output is multiplied by rising corn inclusion rates, one thing is clear: Myanmar's livestock boom is likely to behave like earlier ones in China and Vietnam, where demand for feed grains, oilseeds and protein meals exceeded increases in feed and livestock production. Imports of US soymeal for example, jumped from 3,900 tonnes in 2014 to 25,500 tonnes in 2015. By the end of H1 2016, it had already imported two times more US soymeal than in all of 2015.