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CHAPTER 1 INTRODUCTION

1.1 Rice in Myanmar

Paddy is originated in the Southeast Asia. Rice is staple food for 6000 years in

this region. It is staple food and daily diet in Myanmar too. People consume various

kinds of traditional snacks made of rice, broken rice and sticky rice. Per capita

consumption of rice in Myanmar was 195 kg in 2001. Successive governments

attempted to develop the country rice economy to provide sufficient rice for domestic

consumption in line with food security for increasing population, and enhancing

income by rice export. It is noted that these successive governments have one main

interest to produce rice in surplus though they did not have same political, economical

and social objectives. Generally, these successive governments can be classified as

follows (Maung, 1982):

- Myanmar kings’ Era

- British colonial period

(1826-1941)

- Japanese Occupation

(1941-1945)

- Before and after Independence

(1945-1961)

- Revolutionary Council Era

(1962-1974)

- Socialist Economy Era

(1974-1988)

- Military Regime

(1988 up to now)

In the time of Myanmar kings, farmers were engaged in agriculture for

self-sufficiency for rice and other crops and for getting personnel goods. Barter

system was practiced. Myanmar kings encouraged the agricultural cultivation and

took appropriate measures, and constructed new reservoirs, lakes, canal and

maintained the old irrigation network. Starting from 1824, the British colonialists

occupied Burma for three times, and the country fell in 1885. In this era, they

established the colonial capitalist economic system. Rice area was expended to 5.07

million hectares and around 3 million tons of rice was exported from 1923 to 1940.

The highest production of paddy was over 8 million tons during this era. In December

1941, the Second World War II was spread into Burma, and Japanese occupation

started. Up to 1941, Burma exported 3.4 million tons of rice products annually. Burma

was not able to export rice and paddy due to SWW II, and consequently, the price of

paddy dropped sharply due to the halt of export of rice. It was estimated that only

2.63 million hectares of paddy areas were cultivated in 1944-45. When the SWW II

ended in 1945, British government took power again because they won in the war.

Burmese people tried to gain independence from British.

On January 4, 1948, Burma regained independence and parliamentary

government took place in. During this time, rice sown area had increased to 3.83

million hectares and it was produced 5.6 million metric tons of paddy in 1951-52. Over

1 million ton of rice was exported from 1947-48 to 1951-52. Parliamentary

government tried to regain the previous sown area, and implemented Eight-year

Pyidawtha Plan from 1952-53 to 1959-60. At that time, the highest level of rice export

was recorded at 1.8 million tons. In 1961-62, paddy sown area was reached 4.6

million hectares, and it was produced 6.8 million metric tons of paddy. The country’s

annual rice export was over 1 million ton. On March 2, 1962, the Revolutionary Council,

otherwise military men, took the responsibility of the state. Then rice marketing was

nationalized. No traders were not allowed to carry out purchase, storage, marketing,

milling and distribution of rice and rice products, and later on the business was

become SOE. In 1964-65, 5.11 million hectares of land was cultivated for paddy,

surpassing 5.07 million hectares of the highest sown area in 1940-41. In that year,

over 1 million ton of rice was exported and total paddy production was 8.5 million

metric tons.

During 1960’s, the Green Revolution was introduced by the world research

communities. High yielding varieties such as IR 8 and IR 5 were introduced into Burma

to increase rice production. Since that time, the Revolutionary Council adopted the

new state constitution on January 3, 1974 the state came to be known as the Socialist

Republic of the Union of Myanmar. Rice production was stagnant because of

unattractive (fixed) prices set by the government through its agencies. Food security

was a case to feed its increasing popu lation. To overcome this problem, the

government launched the “whole township paddy production programme” (WTPPP)

from 1977-78 to 1985-86. It emphasized on the production rather than income

maximization for farmers, and subsidized agricultural inputs such as chemical

fertilizers, agricultural loans, etc. The country’s paddy production reached over 14

million metric tons, and the average annual rice export during that time was 0.5

million metric tons.

In 1988, people demanded to quit the socialist government due to decreasing

economy for several reasons. The State Law and Order Restoration Council (SLORC),

otherwise military regime, assumed the responsibilities of the state in 1988, and

Myanmar Agricultural Produce Trading (MAPT) was responsible for marketing of rice

and paddy. From 1988 to 2002, the SLORC carried out to sell rice to the specific

groups at reasonable price, to provide rice to the victims of natural disasters free of

charge and to reserve rice that may need in times of military, political and economic

emergencies, and to export the surplus rice to earn foreign exchange. In November

1997, the SLORC changed its name as State Peace and Development Council (SPDC).

The SPDC continued to practice as under the SLORC. MAPT disbursed advanced

payments to farmers under contracts as in the previous years. This system had been

practiced up to April 22, 2003. The SPDC announced an issue on April 23, 2003, that

it would end direct purchase of paddy from farmers beginning from fiscal 2003-2004,

and would adopt the new rice marketing policy allowing free marketing of the paddy,

rice and rice commodities. Unexpectedly, it declared that rice export is not allowed for

unidentified period for unknown reasons.

It could be seen that rice was treated as a major or as a national food in

successive era. Rice dominates the agriculture sector, and shares 49 percent of the

total crop sown area. Paddy production of different regions for 2003-04 in Myanmar is

shown in Table 1.1. Delta region shares 63 percent of total sown area and 69 percent

of the country’s rice production. It is well known as the country’s rice bowl. Although

Myanmar is rice-surplus country, and can sufficiently provide rice for domestic

consumption and export, the central dry zone region, Tanintharyi division in coastal

region, and Shan, Kachin, Chin states in mountainous regions are still rice deficit

areas. The average rice yield in delta region is over 3 metric tons per hectare, and that

of the rest ones range from 1.7 to 2.94 metric tons per hectares.

Table 1.1 Paddy production of different region in 2003

Region

Yield (kg/ha)

Harvested area

Production (1000

(1000 ha)

metric ton)

Delta

3188.50

3876.00

14073.00

Coastal

3000.73

516.00

1708.00

Central Dry Zone

3311.90

1252.00

4501.00

Mountainous

2647.72

884.00

2854.00

Source: MAS

1.2 Aims and Purposes of the Research

Most of the government of every country has intervened in the market pricing

of food grains to promote price stability. A number of stabilization schemes has used

in developing and developed countries. Government of Myanmar has also practiced

some form of control over prices and trade in commodity through its agency, Myanmar

Agricultural Produce Trading (MAPT). Government intervention policies could not fit to

the welfare of poor in Myanmar. The government announced it would end a 40 year

policy and permit rice to be sold privately via “free trade” in April 2003. But it was not

longer and it was revoked in 2004, it might be, not to be happen some political riot

because of its transition to democratic country. On this respect and parallel,

Myanmar’s participation in ASEAN and prosperity of Myanmar in the region need

partly on development of agriculture through transformation of its agricultural policy.

Therefore, it is needed to study Myanmar agriculture sector in all aspects.

Dorosh and Shahabuddin (2002) pointed out that “domestic rice procurement

contributed relatively little to raising domestic producer price at harvest time,

involved only a small percentage farmers, and incurred excessive costs following

successful harvests because of procurement prices set far in excess of market prices

in Bangladesh”. Nielsen (2003) showed that the export quota has been a very

restrictive policy tool that has kept Vietnamese rice production and exports well below

potential.

There are two major components in intervention: (1) price intervention, and

(2) institutional intervention. A set of direct policy interventions may distort prices

such as export taxes, import tariffs, trade quotas, and domestic producer and

consumer taxes and subsidies. It is relevant to examine the selected policy goals, and

efficiency

and

effectiveness

of

the

overall

system

as

a

vehicle

for

policy

implementation in evaluating intervention. In particular, the research aims to shed

light on two key questions:

1. What

were

the costs and benefits associated with given

policies and

intervention systems, in comparison with no intervention case?

2. Who gained and who lost as a result of intervention?

Partial equilibrium analysis is the starting point for analysis of agricultural

price policy. The partial equilibrium models equate supply and demand in one or more

markets clear at their equilibrium price levels. This makes prices endogenous. Partial

equilibrium models do not include all production and consumption accounts in an

economy, nor do they attempt to capture all of the economy’s markets and prices. The

approach allows the analyst to trace the impact of changes in one market on other

markets, but it only captures such changes in the markets included in the model.

Partial equilibrium models are best suited to analyzing sector reforms that are less

likely to have large impacts on macroeconomic aggregates.

1.3 Specific Objectives

(1) To describe the present status of physical, economic structure and paddy/rice

production system in Myanmar

(2) To estimate the paddy/rice supply and demand functions

(3) To examine the welfare of consumer s and producers of paddy/rice, and

government net treasury position from intervention, and

(4) To investigate the further liberalization of rice markets in Myanmar.

1.4 Methodology

A variety of methods is used to examine the various research tasks. These are

descriptive analysis, time-series analysis, and econometric models for estimating

demand and supply elasticities. Each method will be further explained in the following

chapters. Data were collected both published and unpublished data from the following

sources: Myanmar Agriculture Service (MAS), Ministry of Agriculture and Irrigation

(MOAI); Department of Agricultural planning (DAP), MOAI; Central Statistical

Organization (CSO), Ministry of National Planning and Development; Myanmar

Agricultural Produce Trading (MAPT), Ministry of Commerce, and Other related local

and international institutions.

1.5 Organization

Chapter 2 examines the physical and economic structure of Myanmar. It

provides geography, climate, natural resources, population and economic structure

and summarizes the role of agriculture in Myanmar Economy.

Chapter 3 looks at the some literature review. It provides background of

government intervention, analysis of demand and supply and partial equilibrium

analysis.

Chapter 4 studies the rice production and supply. It focuses on rice production

and characteristics, classification, cropping pattern, cost of production and estimating

the elasticity of rice supply.

Chapter 5 shows the paddy/rice marketing and demand in Myanmar. It

provides paddy/rice marketing, structure of markets, rice demand and trend in

consumption and econometric analysis of rice demand based on HIES carried out by

CSO.

Chapter 6 uses the partial equilibrium model to evaluate the effects of pricing

policy in Myanmar rice economy. Firstly it develops the methodology. The elasticity of

rice demand and supply is used in the model. This involves comparing the volume of

production, consumption and export evident at intervention prices with those that are

consistent with a hypothetical no intervention outcome, and evaluation of welfare for

producers, consumers and government net gain from intervention.

Chapter 7 concludes the results of the study, summarizing the effects of

pricing policy and simulation, and some recommendations are made with regard for

other studies.

CHAPTER 2 THE PHYSICAL AND ECONOMIC STRUCTURE

2.1 Geography

Myanmar is geographically located between 9 Degree 58' to 28 Degree 31' N

and 9 Degree 29' to 10 Degree 10' E. Bounded by land on the northeast, north, east

and the remaining sides by sea, it stretches for about 1275 miles from north to south

and 582 miles from east to west, while approximating 261228 square miles, in total

area. Myanmar is situated in Southeast Asia and is bordered on the north and

northeast by China, on the east and southeast by Laos and Thailand, on the south by

the Andaman Sea and the Bay of Bengal and on the west by Bangladesh and India

(Figure 2.1). Myanmar's coastline defines the eastern shore of the Bay of Bengal,

running from the Bangladesh border in the down to the Malay Peninsula and Thai

territory in the southeast. Southern Myanmar consists largely of the broad river valley

of the Ayeyarwaddy. The Ayeyarwaddy rushes down through great mountain gorges in

northern Myanmar before spreading out into one of the largest river delta in Asia. Both

of Myanmar's principal cities- Yangon and Mandalay- are situated along the

Ayeyarwaddy, and 1600km river is navigable for almost two thirds of its length. The

vast majority of Myanmar's people live in the lowland regions of this river valley in the

Ayeyarwaddy basin. This fertile expense, which sits within the tropical monsoon belt,

is one of the world's great rice growing regions.

2.2 Administrative Divisions and States

Administratively, the country is divided into 7 states and 7 divisions; namely,

Kachin, Kayah, Kayin, Chin, Mon, Rakhine, Shan States and Sagaing, Tanintharyi,

Bago, Magway, Mandalay, Yangon and Ayeyarwaddy divisions. It is divided into 62

districts which comprise 324 townships and 13745 village tracts in the rural areas and

2470 quarters in the urban areas.

Figure 2.1 Union of Myanmar

Figure 2.1 Union of Myanmar 2.3 Climate Myanmar has two distinct dry and wet seasons. The

2.3 Climate

Myanmar has two distinct dry and wet seasons. The dry season runs from

mid-October to mid-May and the rest being the wet season. Myanmar has the effect of

monsoon in different parts of the country. Temperature varies from 38˙C to 19˙C,

humidity from 82.8 percent to 66 percent. The precipitation depends on the locality,

elevation and months. The climatological data by regions is given in Table 2.1. The

agroclimatic conditions of Myanmar range from that of equatorial to cool temperate.

Table 2.1 Climatological data by regions for 2002

Region

Annual Rainfall (mm)

Temperature

Relative Humidity

Max

Min

(%)

Delta

3870.50

32.75

22.00

78.38

Coastal

5496.50

31.25

21.75

80.35

Central Dry Zone

1117.67

33.73

21.60

70.80

Mountainous

2277.00

26.97

16.72

74.05

Source: CSO

2.4 Agroclimatic Regions and its characteristics

Generally, the country can be divided into four regions according to

agroclimatic conditions; namely, Delta, Coastal, Central dry zone and Mountainous

regions. The Delta region has the highest population density, highest land productivity

(mostly alluvial soil), moderately high rainfall, generally flat topography, and excellent

conditions for growing rice. The Coastal region can be characterized with small land

area, highest annual rainfall exceeding 4000mm per annum, and highly suitable for

growing perennial crops. The Central dry zone has lowest annual rainfall, sandy soils,

and the second highest population density. The Mountainous region has the largest

area comprising dense forest, poor road infrastructure, and low population density.

2.5 Natural Resources

Myanmar is rich in natural resources. More than half of the area of the country

is covered by dense forest which can produce valuable hard woods. Myanmar's teak is

famous in the world and in addition other varieties of hard wood are available in

abundance. Myanmar also has well-known gems, and being produced 36 types of

precious stones and gems. Production of mineral resources such as gold, silver, copper,

lead, tin and nickel are being carried out by private firms and SOEs. Myanmar with a

coastal line of 2832 km is also rich in marine resources. It has been estimated one

million metric tons of fishery resources could be produced annually on a sustainable

basis. Many foreign companies are investing to explore oil and gas. Presently, 7

companies had signed 12 contracts for onshore blocks and another 7 companies had

signed 8 contracts for offshore blocks. Most of Myanmar's natural resources are still

untapped. Therefore, there is great potential for exploiting natural resources in

Myanmar.

As for water resources, there are four major river basins; namely, The

Ayeyarwaddy, the Chindwin, the Sittaung, and the Thanlwin. These are flowing

north to south into the Andaman Sea. The Ayeyarwaddy basin creates a vast fertile

delta region.

Based on the parent material, physical features and vegetation, soil in

Myanmar can be classified into different types in various parts of the country. Different

soil types and suitable crops are shown in Table 2.2.

2.6 The Economic Context

2.6.1 Population and Labour Force

According to population census in 1983-84, population was 35.66 million. The

population of Myanmar in 2001-02 was estimated to be at least 51.1 million with a

growth rate of 2.02 percent. Approximately 73 percent of total population reside in

rural area and depends mainly on agriculture. The country's active labour force is

17.23 millions, and 65 percent engage in agriculture sector (Figure2.2). Delta region

has the highest number of farm families.

2.6.2 Economic structure

Nation's GDP grew 10 percent in FY2002 (ended 31 March, 2003) according

to the official estimate. In FY2003, Myanmar faced sanctions from US and EU that

constrained growth and hurt international trade and investment in Myanmar. Troubles

Table 2.2 Different soil types in Myanmar

Soil type

Area ('000ha)

Percent

Suitable crop

Fluvisol

736

1.1

Pulses, Chillies, Onion, Vegetables, Groundnut

 

Paddy, Jute, Maize, Sesamum

Gleysol

3051

4.5

Paddy, Pulses, Sesamum, Maize, Sugarcane

 

Vegetables, Groundnut, Cotton, Jute, Tobacco

Gley-Gleysol

555

0.8

Paddy,Jute

Gleysol-Calcaric

55

0.1

Paddy, Chillies, Pulses, Sorghum, Maize, Cotton

Gleysol-S

2241

3.3

Paddy, Vegetables, Jute, Sugarcane, Pulses

Vertisol

482

0.7

Paddy, Groundnut, Sesamum, Pulses, Sunflower

 

Cotton, Sugarcane, Chillies, Sorghum, Fodder

Catena of Luvisol

1781

2.6

Paddy, Chillies, Groundnut, Sesamum, Cotton,

 

Pulses, Sugarcane, Sunflower, Sorghum,

Fodder, Vegetables

Acriosol

4130

6.1

Upland rice, Coffee, Tea, Vegetables, Groundnut

 

Sesamum, Maize, Pulses, Horticulture, Niger

Cambisol

1085

1.6

Upland crop, Horticulture, Forest, Maize, Sesamum

Ferrosol Rhodic

9971

14.7

Forest, Rubber, Pineapple, Horticulture, Mango, Tea

 

Coffee

Ferrosol Xanthic

8363

12.4

Forest, Rubber, Pineapple, Horticulture, Mango, Tea

 

Coffee

Arensol

244

0.4

Forest

Cambisol-Orthic

2461

3.6

Forest

Cambisol-Gelic

2596

3.8

Natural reserved

Cambisol-Histric

6287

9.3

Forest

Cambisol-Chromic

1370

2

Forest

Ferrosol-Plinthic

588

0.9

Mango, Durian, Rubber, Coconut, Cassava

 

Pineapple, Banana, Oil palm

Litholsol

241

0.4

Forest

Andosol

46

0.1

Forest

Gleysol-Humic

203

0.3

Mangrove Forest

Solonchak

42

0.1

Mangrove Forest

Cambisol

530

0.8

Horticulture, Sesamum, Groundnut, Forest, Rubber

 

Mango, Pineapple

Lithosol

290

0.4

Pasture

Cambisol-Orthic

2188

3.2

Forest

12

(Chin hill)

Not suitable for crop

18123

26.8

Total

67659

100

Source: Land use (MOAI)

Figure 2.2 Labour force of agriculture

Country's labor force 35% 65% Agriculture Other sectors
Country's labor force
35%
65%
Agriculture
Other sectors

in Banking sector, shortages in power made to hinder Myanmar's economy. Although

government's statistics shows 10 percent in GDP, some essential factors of production

such as sown land area, use of fertilizer, pesticides, and crude oil have been flat or

declined for at least part of that period (ADB).

The fiscal deficit, which is largely financed through central bank credit

creation because of low level of revenues, hit 4.1 percent of GDP (ADB). More than 60

percent of the overall deficit was caused by the deficits of State Owned Enterprises

(SOEs). Inflation was 24 percent in September 2003. Supply constraints constrained

to price increases. Government keeps nominal interest rate and monetizing the

budget deficit. These happens constraints to controlling inflation. According to official

data, the balance of payment was in surplus by $49.3 million in FY2002. But it was

deficit again by $38 million in the first 6 months of FY2003. In Myanmar, the parallel

13

market exchange rates co-exist with official rate with a difference over 154 times in

start of 2003 (Table 2.3). The Government of Myanmar (GOM) once tried to solve dual

exchange rate by issuing FEC and adopting the devalued customs valuation rates.

Finally this system leaded to decline in FE reserves after the Asian currency crisis

because the GOM has reinforced exchange controls by regulating foreign remittances.

Trade sanctions have been lessened because of stronger demand from neighbouring

countries.

FE reserves at end of FY2003 covered 3.5 months of imports.

Table 2.3 Market exchange rate of Myanmar

No

Month

1996

1997

1998

1999

2000

2001

2002

2003

1

Jan

123

165

280

325

324

442

720

1059

2

Feb

123

165

250

325

327

480

741

1064

3

March

125

165

250

335

348

512

784

900

4

April

125

160

250

335

348

591

863

923

5

May

135

170

300

345

353

700

823

974

6

June

140

180

320

340

363

605

856

967

7

July

158

200

340

340

377

602

898

960

8

August

158

220

364

350

389

649

989

1020

9

Sept

170

240

366

360

405

681

1164

975

10

Oct

170

250

358

350

419

715

1136

 

11

Nov

168

300

344

340

414

732

1073

 

12

Dec

167

310

344

343

431

728

1034

 
   

146.83

210.42

313.83

340.67

374.83

619.75

923.42

982.44

Source: From various companies

2.6.3 Investment

People's saving was increased from 1980 to January 2003. After that it was

declined because of trouble in banking crisis dramatically as shown in the Table 2.4.

FDI of permitted enterprises from various countries up to the end of 2002 is shown in

Figure 2.3. In 2003, investment represents 25 percent of total GDP. Among various

sectors, investment in agriculture is only 14.2 percent in capital (Figure 2.4).

Table 2.4 People's saving

FY

Total saving(million)

1998-1999

162609

1999-2000

236383

2000-2001

352347

2001-2002

465005

2002-2003

415183

2003-2004

408098

2003

January

526918

February

440533

March

415183

April

391668

May

375104

June

370790

July

378643

August

380872

September

392239

October

381736

November

375739

December

380012

2004

January

374839

February

378379

March

408098

April

269034

May

451829

June

484293

Source: Central Bank of Myanmar (MOFR)

Figure 2.3 FDI from various countries

1800 1600 1400 1200 1000 No of enterprises 800 Investment value 600 400 200 0
1800
1600
1400
1200
1000
No of enterprises
800
Investment value
600
400
200
0
million $
Singapore
Britain
Thailand
Malaysia
United States
France
Netherlands
Indonesia
Japan
Philippines
Hong Kong
Republic of Korea
Australia
Austria
Canada
China
Panama
Germany
Denmark
India
Bangladesh
Israel
Macau
Srilanka

Figure 2.4 Government Investment at various sectors in capital

23%

14% 13% 7% 20% 8%
14%
13%
7%
20%
8%

15%

AgricultureEnergy Construction Transport and communication Social services Defence Others

EnergyAgriculture Construction Transport and communication Social services Defence Others

ConstructionAgriculture Energy Transport and communication Social services Defence Others

Transport andAgriculture Energy Construction communication Social services Defence Others

communication

Social servicesAgriculture Energy Construction Transport and communication Defence Others

DefenceAgriculture Energy Construction Transport and communication Social services Others

OthersAgriculture Energy Construction Transport and communication Social services Defence

2.6.4 Trade

GOM has supported private exporters and importers recognizing that private

sector as a prime mover of the market mechanism and pays great attention to its

development. As private sector has been in place, it could seen the volume of external

trade has increased in absolute terms and reached K35509 millions in 2001 (Figure

2.5). Out of total exports, agriculture sector contributes 18 percent in trade.

Figure 2.5 External trade

40000 35000 30000 25000 20000 15000 10000 5000 0 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000
40000
35000
30000
25000
20000
15000
10000
5000
0
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
Value (million MMK)

Year

Total trade
Total trade

2.6.5 Land Utilization

Myanmar has 67.7 million hectares of total land area of which 10 million

hectares is utilized for crop cultivation. The forest area contributes 49 percent of

country's total land area. Extendable land area is approximately 7.28 million hectares,

which can be brought under crop cultivation and livestock farming (Table 2.5).

Table 2.5 Land utilization ('000ha)

Particulars

1997-98

1998-99

1999-2000

2000-01

2001-02

Net sown area

8969

9298

9673

9909

9990

Fallow land

1183

986

769

686

622

Cultivable waste land

7854

7553

7311

7205

6664

Reserved forests

10475

11618

12507

12914

13975

Other forest area

22001

20962

20269

19786

19327

Other land

17177

17242

17130

17159

17081

Total

67659

67659

67659

67659

67659

2.6.6 The Role of Agriculture in Myanmar Economy

There are four economic objectives laid down by the government, and the

first objective is to develop agriculture as the base and all round development of other

sectors. In this regard, the MOAI set the following policies and strategies for the

development of this sector;

- to allow freedom of choice in agricultural production

- to expand agricultural land and to safeguard the rights of farmers

- to encourage the participation of private sector in the commercial production of

seasonal crops and perennial crops and distribution of farm machineries and other

inputs.

Because of these favourable policies in priority of agriculture, the sector

achieved an annual growth rate of 5.6 percent (Table 2.6), and contributes about 42.7

percent to GDP (at the 1985-86 constant prices) indicating the dominant position in

the national economy. Fishery and forestry sector also achieved considerable increase

share in national GDP.

Table 2.6 Annual growth rate of GDP (%)

Particulars

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Goods

2.6

11

6

6.9

6.7

6.4

5.1

4.9

12.1

13.5

9.7

Agri

2

12.4

4.7

6.7

5.5

3.8

3

3.5

10.5

9.5

8

L

& F

-0.6

4.5

4.8

6

3

11.9

7.1

9.3

16.8

17.8

11.3

Forestry

8.3

-3.3

1

-14.3

-4.5

2.7

2.8

3.2

4.6

3.3

10

Mining

-1.2

26.3

16.2

14.8

27.4

11.6

29.7

7

30

25.5

-7.8

Mftg

1

10.8

9.4

8.5

7.6

5

5

6.2

14.5

23.4

15.2

E

power

5

31.1

24.4

4.8

6.6

10

17.8

-5.4

14.2

13.9

-5.5

Constrn

35.8

11.2

11.7

15.7

27.2

24.6

9.8

6.3

4.4

11.9

29.2

Services

4.2

6.1

8

10

9.3

8.2

8.8

7.8

8.8

13.2

15.7

Trade

2.4

8.9

4.6

7

5.7

5

5

6.3

9.5

14.1

11.1

GDP

2.8

9.7

6

7.5

6.9

6.4

5.7

5.8

10.9

13.6

10.5

CHAPTER 3 LITERATURE REVIEW

3.1 Government Intervention and Pricing Policy

Government interventions are designed to change prices. Government may

use prices as a vehicle to increase producer income, consumer welfare, or budget

revenues. Most government interventions have at least an indirect effect on food

prices facing farmers. These intricate and roundabout influences on agricultural

incentives are an integrating theme of food policy analysis (Timmer and others 1983).

Streeten (1987) stated that food policy is that between food prices high

enough to encourage agricultural production and low enough to protect poor food

buyers. Anderson (1986) pointed out that policies that attempt to strengthen

incentives to expand food production through higher food prices may result in reduced

incomes and severe hardships for the poor. To implement price policies government

may use state-controlled regulatory boards or logistics agencies.

Deaton (1989) found that higher prices for rice are likely to bring benefits to

rural households at all levels of living in Thailand, and there were marked regional

variations depending on the importance of the rice crop, but there is no systematic

pattern whereby higher prices favour the rural rich at the expense of the rural poor.

Morisson and et al (1991) sowed that considerable diversity in the evolution

of income distribution during adjustment in the country studies of the effects of

adjustment policies on the distribution of income in Chile, Cote d’Ivoire, Ecuador,

Malaysia, Morocco, and Indonesia. The results exposed the fatal flaws of narrowly

designed adjustment programs, and whether efficiency-focused or welfare-focused,

will fail when they do not recognize the interdependence of the three criteria of

efficiency, welfare, and political feasibility.

Ramaswami and Balakrishnan (2002) studied the food prices and the

efficiency of public intervention in India. They modelled the implications of quality

differences between public and private grain supply. As both qualities were procured

at similar prices, the lower quality of public grain marked the inefficiency of

government operations. As a result, a reduction in food subsidies increased food

prices and hurt the poor even when they are not major recipients of the subsidy.

Diven (2001) showed that in their study of the domestic determinants of US

food aid policy has three key findings: (1) There is a consistent relationship between

commodity producer interests and US food aid policy, (2) there is a strong relationship

between commodity stocks and food aid shipments, especially during the years when

stocks were the greatest, (3) US food aid policy-making is highly incremental.

In Madagascar, many farmers do not participate in product markets as either

sellers or buyers, and, for many others, net sales or marketable surplus is fairly small.

The roughly one-third of rice farmers who fall below the poverty line have substantial

net purchases of rice. More variable rice prices induced by economic reforms likely

imposed additional instantaneous welfare losses by threatening household food

security and destabilizing incomes (Barrett and Dorosh 1996).

Smith (1997) pointed out that an important stimulus for cereal sector has

been the massive fiscal costs of many state procurement and intervention agencies.

This has led to policies to minimize their role in the future through rapid market

liberalization and a substantially increased role for the private sector. There were

several instances in which, even with a well-developed private sector, government

intervention will be required to achieve adequate stability. Moreover, where the

private sector is not fully developed, public sector agencies can potentially play an

important, but hopefully declining, role in either performing or financing stabilization

services.

Barrett (1997) showed that the short-term effects of liberalization on the

mean and variance of food prices vary substantially by commodity, region and season.

In the long term, liberalization increases both the mean and the variance of food

prices. The abandonment of a quantity-rationed state marketing system with

administrative pricing also leaded to smaller inter-regional and inter-seasonal

differences in mean food prices and a sharp increase in price auto-correlation. Real

exchange rates have pronounced positive effects on mean food prices, but these

effects emerge indirectly, rather than directly, through induced changes to border

parity prices.

3.2 Partial Equilibrium Model

Partial equilibrium analysis is the starting point for analysis of agricultural

price policy. Agricultural price policy is a major instrument of government intervention

to enhance the welfare of farm households or contribution of economic development.

Schultz (1978) said that price distortions against agriculture have been blamed for the

stagnation of agriculture in LDCs. Sah and Stiglitz (1984) blamed that for the squeeze

on agricultural incomes.

Currie, Murphy, and Schmitz (1971) pointed out that the concept of consumer

surplus provides a measure of consumer welfare as the excess of the price the

consumer would be willing to pay for each unit consumed over the price which is

actually paid.

The supply and demand functions represent only part of the reaction to a

change in the price of the commodity being considered and so are referred to as

partial equilibrium models. When the commodity is important to the entire economy,

as a staple food grain or major export crop inevitably is to a developing country, these

partial equilibrium adjustments provide only an initial glimpse of the full adjustments

likely to occur when the price changes (Timmer 1986a).

Myoung and Lee (1988) evaluated the Korean market intervention system by

using partial equilibrium model. They estimated the elasticities for rice demand and

supply and calculated nominal protection coefficients (NPC), and were used to

calculate trade levels under the no intervention scenario. Then they compared actual

trade levels with those generated by the model. They found that producer welfare

gains were equivalent to US$3807.6 million and government revenues of US$25.6

million were earned as a result of intervention. However, consumers suffered an

overall loss of US$3945.2 million, and the net social welfare loss amounted to

US$418.4 million.

Using partial equilibrium model, Tamin and Meyanathan (1988) studied rice

market intervention system in Malaysia. They placed the demand and supply

elasticities at 0.2 and 0.3 respectively. They found that with the exception of 1974 and

1975 ‘no intervention’ supply balances show a decrease while consumption would

have increased (except 1974 and 1981). Efficiency losses generated by the system of

controls (deadweight losses) stood at M$141 million in 1974 and have tended to rise

over the 1980s. The foreign exchange cost to the nation (compared to intervention)

has been reduced by about M$190 million over 1980-86 due to the measures

enforced.

In Bangladesh, Rahman and Mahmud (1988) attempted to quantify the

benefits and costs of intervention using the partial equilibrium analysis approach.

They explored the adverse impact of higher food grain prices on the real incomes and

nutritional status of the poor, within the context of the macro-economic model of the

Bangladesh economy. Their results indicated that worker households carry most of

the burden of adjustment while large farmers enjoy the major income games.

However, the persistence of a downward trend in world grain prices has softened the

distributional impact of referencing domestic prices to border prices in the period

1982 to 1985.

Radhakrishna and Indrakant (1988) analysed the effects of rice market

intervention policies in Andhra Pradesh, India. They constructed variant of the partial

equilibrium model systematically. Their finding suggested that average producer

prices would fall from Rs.2910 to Rs.2400 per ton, while production within Andhra

Pradesh would fall by about half a million tons. The consequent loss in producer

revenue of Rs.6172 millions per year would be more than offset, though, by a cut in

government subsidy expenditures of Rs.2097 million and gains by all classes of

consumers.

Weerahewa

(2004)

examined

the

impacts

of

trade

liberalization

in

imperfectly markets in Sri Lanka. A partial equilibrium model was developed for the

paddy market in Sri Lanka, under oligopsony. Results revealed that losses to paddy

producers due to trade liberalization can be minimized if oligopsony power can be

eliminated simultaneously.

3.3 Analysis of Demand

The objective of analyzing individual consumer behaviour is to explain the

level of demand for the commodities an individual consumes given the structure of

relative prices faced, real income, and a set of individual characteristics such as age,

education, professional status, type of household to which he belongs, and

geographical environment (Sadoulet and Janvry 1995).

Schemes of income transfers to the poor would have a much smaller

nutritional impact and would require much larger transfers to achieve a quantum of

nutritional improvement. Behrman and Deolalikar (1990) argued this debate that

increases in income will not result in any significant improvements in nutrient intakes.

However, Strauss and Thomas (1990), and Subramanian and Deaton (1992) showed

that calorie elasticity is indeed lower than expenditure elasticity, but nevertheless

significantly positive.

The analysis of demand could suggest the determination for which

commodities to subsidize in order to minimize the budgetary cost of nutritional

improvement of the malnourish ed. To achieve this, an ideal commodity for distribution

is one consumed in large quantities by the poor and little by those with adequate diets,

thus minimizing leakages toward the latter (Timmer, Falcon, and Pearson, 1983).

Minot and Goletti (2000) estimated the linear approximation of the Almost

Ideal Demand System for Vietnamese urban and rural households by using regression

analysis. Their food system included the 14 food categories, and regression equations

explained between 54 and 71 percent of the variation in the budget share of rice

across households. They found that rice consumption is largely determined by the

fundamental economic factors such as income, prices, and household composition

rather than household specific habits and preferences.

Weerahewa (2004) developed a demand function for cereals representing

rice, wheat and millet that are used in Sri Lanka diet. It was assumed that the utility

of cereal consumption is weakly separable from the utility derived from other

commodities. The results showed that all the elasticity estimates of demand with

respect to own prices have the expected negative sign and they are statistically

significant at one percent level.

3.4 Analysis of Supply

There

are

two ways

to analyse a producer’s

response.

One

is

the

technological relation that exists between any particular combination of inputs and

the resulting levels of outputs; this is represented by the production function. The

other is the producer’s behaviour in choice of inputs, given the level of market prices

for a commodity and factors that can be traded, and the availability of fixed factors

whose quantity cannot be altered in the period of analysis (Sadoulet and Janvry

1995).

Nerlove (1956 and 1958) developed the supply response model, and called

Nerlovian Supply Response Model. He formulated the model in terms of yield, area, or

output response of individual crops, for instance, the desired area to be allocated to a

crop in period t is a function of expected relative prices and a number of shifters such

as private and public fixed factors and truly exogenous variables such as weather.

Cuddihy (1980) estimated a model of area response for the five major crops

of Egyptian agriculture: Egyptian clover, cotton, wheat, maize and rice. It was used

revenue per feddan (1 feddan=1.035 acres) of each crop deflated by a real wage

index. It was assumed that price and yield expectation are exogenous. The data had

26 annual observations, from 1950 to 1975. About one-third of the estimated

coefficients are significantly different from zero at the 5 percent level, and the

coefficient of determination indicated that a large part of observed variation in the

cultivated areas is explained by the model.

For the analysis of rubber supply in Sri Lanka, Hartley, Nerlove, and Peters

(1987) focused on the uprooting and replanting of trees as opposed to new plantings.

They specified a three equation model with replanting, production, and new plantings.

Their results showed a strong positive long-run response of replanting to variations in

the expected price and generally insignificant response to current price.

Haughton and et al (2004) estimated the rice supply for Vietnam in their

study of “the

effects of rice policy on food self-sufficiency and on income distribution

in Vietnam” using Cobb-Douglas production function including sown area, the number

of labour used in cultivation and other variables such as the intensity of agricultural

extension activities, or the educational level of farmers. They found that the most

important determinant of rice output is the area of land cultivated. Their estimation

results indicated that if the wage rate rises by the equivalent of 1 kg of paddy rice per

day, or about 10 percent, then the quantity of rice will fall by 14 kg per household

(about 7 percent).

CHAPTER 4 RICE PRODUCTION AND SUPPLY

4.1 Rice Production and its Characteristics

Myanmar is able to grow over more than 60 different crops since its

prevalence of different agroecological zones within the country. Among various crops,

cereal crops are main important crops constituting 50 percent of the total crop sown

area of 16.7 million hectares in 2003-04 (Figure 4.1). Rice as a national crop is grown

widely all over the country and throughout the year because of its adaptability to a

wide range of agroclimatic conditions. It could be divided into two rice cultivation

methods: dry upland and wet cultivation. The method for former one generally

practiced on the hillsides especially in the forest area. Shifting cultivation on the

hillside is almost replaced by dry land crop rotation system for subsistence production.

Figure 4.1 Percentage share of sown area for various crops

4% 1% 6% 18% 21%
4% 1%
6%
18%
21%

50%

CerealsOil crops Peas and Beans Industrial Crops Food crops Plantation crop

Oil cropsCereals Peas and Beans Industrial Crops Food crops Plantation crop

Peas and BeansCereals Oil crops Industrial Crops Food crops Plantation crop

Industrial CropsCereals Oil crops Peas and Beans Food crops Plantation crop

Food cropsCereals Oil crops Peas and Beans Industrial Crops Plantation crop

Plantation cropCereals Oil crops Peas and Beans Industrial Crops Food crops

There are three distinct types in rice cultivation: partially submerged by

natural rainfall, partially submerged by irrigation in addition to rainfall, and deep

water submerged rice. Rice production in dry season is generally not feasible without

irrigation. Generally, little work and care is needed for rice cultivation in monsoon

season. The current major rice ecosystems include the traditional rain-fed that is

grown in monsoon season, deep water submerged rice, irrigated lowland rice and

rain-fed upland rice. Rain-fed lowland and deep water rice are mostly produced in the

lower delta region (Ayeyarwaddy and Bago), and the coastal region (Rakhine).

Rain-fed upland area is mostly in Mandalay, Sagaing and Shan states.

Irrigated rice is grown where irrigation system exists. It is not surprising that

the GOM is giving priority in constructing new dams, reservoirs and weirs in every

parts of the country where it is able to construct these because of the successful of its

neighbours such as Thailand and Vietnam. Summer paddy mainly depends on

irrigation. Net sown area and irrigated area in Myanmar is given in Table 4.1.

Table 4.1 Irrigated area in Myanmar

Year

Net sown area

(million ha)

Irrigated area

(million ha)

Percentage

1961-62

7.16

0.54

7.5

1971-72

7.96

0.89

11.2

1981-82

8.41

1.04

12.4

1991-92

8.34

1

12

1992-93

8.71

1.11

12.7

1993-94

8.74

1.34

15.3

1994-95

8.95

1.56

17.4

1995-96

9.17

1.76

19.2

1996-97

9.28

1.56

16.8

1997-98

9.28

1.59

17.2

1998-99

9.67

1.69

17.5

1999-2000

10.14

1.84

18.2

2000-2001

10.48

1.91

18.2

2001-2002

10.65

1.99

18.6

2002-2003

10.82

1.87

17.3

2003-2004

11.04

2.11

19.1

Source: DAP

Achievements in promoting higher rice production can be characterized by

three distinct programs launched by the MOAI: summer paddy production program,

expansion of HYVs, and paddy-fish integrated farming system. About two-thirds of the

summer paddy is produced in Ayeyarwaddy and Bago divisions.

4.2 Classification of Rice

The widely used and accepted method in Myanmar is the classification of five

rice groups, based on length/breadth ratio of rice grains (Table 4.2). Another

classification is based on life period from seeding to maturity. This system is adopted

by rice farmers since labour requirement is calculated on this system.

- Early mature varieties (less than 150 days)

- Medium mature varieties (between 150 and 170 days)

- Late mature varieties (exceeding 170 days).

Table 4.2 Dimension of paddy

Type of paddy

 

Paddy

 

Rice

Length (mm)

Length/Breath

Length (mm)

Length/Breath

ratio

ratio

Emata (A) type

9.41

and over

3.3 and over

7 and over

3 and over

Letywezin (B) type

8.40-9.80

2.80-3.30

6.00-7.00

2.40-3.00

Ngasein (C) type

7.75-9.00

2.40-2.80

5.60-6.40

2.00-2.40

Meedon (D) type

7.35-8.60

2.00-2.40

5.00-6.00

1.60-2.00

Byat (E) type

9.00

and over

2.25-3.00

6.40-7.35

2.10-2.50

Source: MAS

4.3 Cropping Pattern

Starting from 1992-93 and onwards, multiple cropping increased remarkably

since inception of favourable price incentives for some crops especially pulses and

increasing availability of water resources (Table 4.3). Cropping intensity of all field

crops with rice increased gradually from 107 percent in 1961-62 to 150 percent in

2003-04.

Table 4.3 Cropping intensity

Year

Gross sown

Net sown

Multiple cropping

Cropping intensity

('000 ha)

('000 ha)

('000 ha)

(%)

1961-62

7694

7162

532

107.4

1971-72

9187

7962

1225

115.4

1981-82

10167

8413

1754

120.9

1991-92

10290

8339

1951

123.4

1992-93

11008

8714

2293

126.3

1993-94

11386

8738

2648

130.3

1994-95

12143

8951

3191

135.7

1995-96

12884

9168

3716

140.5

1996-97

12312

9277

3034

132.7

1997-98

12277

9578

2999

132.3

1998-99

13307

9673

3634

137.6

1999-2000

14805

10135

4669

146.1

2000-2001

15450

10476

4974

147.5

2001-2002

15845

10654

5191

148.7

2002-2003

16146

10818

5327

149.2

2003-2004

16624

11035

5589

150.6

Source: DAP

It could be noted that the factors contributed to higher cropping intensities are as

follows:

- Increased irrigation

- Increased use of HYVs or MVs with short growth duration

- Increased agricultural mechanization, and

- Higher crop prices, e.g. pulses, to make double cropping more profitable.

The present trend of multiple cropping could be summarized as follows:

- Growing a pre-monsoon crop before the main crop in rice growing area (jute,

cotton, sesame)

- Growing of some suitable crops after rice (summer paddy, groundnut, sunflower,

peas and beans)

- Growing of two suitable crops in successive on dry land with or without irrigation

(sesame, peas and beans, maize, etc)

- Mixed cropping of two crops with different life periods in the same field (sesame

and pigeon pea, groundnut and maize, etc).

In fact, rice can be grown and harvested somewhere every month of the year.

As shown in Table 4.4, December is largest harvest (about 39 percent of total), and

the three months from November to January contribute an additional about 25

percent of total production. Using 2003 production and an assumed consumption of

195 kg per capita, the rice deficit can be estimated on a monthly basis, shown in last

column of Table 4.4. The December generates a surplus of about 4.56 million tons,

while the months of February to October are the lean months. The largest deficit

(766520 tons in September) may be interpreted as rice storage requirement period

consistent with food security.

Table 4.4 Seasonal distribution of production and national rice gap

Month

Production

Rice equivalent

Percent of annual

National Rice

(metric ton)

(metric ton)

production

gap (1000 mt)

January

1557969

934781.4

6.67

106.00

February

214704

128822.4

0.92

-699.93

March

418702

251221.2

1.79

-577.53

April

1274475

764685.0

5.45

-64.07

May

846654

507992.4

3.62

-320.76

June

634601

380760.6

2.72

-448.00

July

628670

377202.0

2.69

-451.55

August

295627

177376.2

1.27

-651.37

September

103712

62227.2

0.44

-766.52

October

1245122

747073.2

5.33

-81.68

November

7168955

4301373.0

30.68

3472.62

December

8978114

5386868.4

38.42

4558.12

Total

23367304

14020382.4

100.00

4061.41

Source: SLRD and owned estimation

Note: National rice gap refers to the gap between monthly production and monthly consumption, assuming

consumption of 195 kg per person per year (owned estimation).

4.4 Farm Size

Myanmar farms are relatively larger than other ASEAN countries (Vietnamese

average farm size is just 0.49 ha, Minot and Goletti 2000). The average agricultural

household has 2.3 ha of agricultural land (Table 4.5). According to agricultural census

in 1993 the number of rural households with no agricultural land is about 7 percent.

Out of total agricultural area (nearly 11 million ha), rice sown area is about 53 percent

of total sown area.

Table 4.5 Distribution of farm land holdings (2003-04)

Size of holding (ha)

No of farmers

Total land

 

Number

Percent of

Area

Percent of

('000)

total farmers

(million ha)

total land

Below 2

3135

63.04

3.13

27.36

2

to 4

1222

24.57

3.58

31.29

4

to 8

499

10.03

2.88

25.17

8

to 20

111

2.23

1.3

1.14

20 to 40

4

0.08

0.11

0.96

above 40.5

2

0.04

0.44

0.38

Total

4973

100

11.44

100

4.5 Cost of Production

The data for cost of production was obtained from MAS.

The cost of

production will differ depending on the season and region. Among the purchased input,

urea is the most important, accounting for nearly 18 percent of total production. The

labour intensity of rice production also reflects variation in population densities. In the

table 4.6 for Ayeyarwady division (delta region), rice cultivation takes 153 man-days

per acre per season or more than 300 man days per hectare per season. It is relatively

higher than other ASEAN countries (Red River Delta in Vietnam has 246 man days per

hectare per season Pingali et al., 1998). That is because of farmers usually practice

transplant rice seedlings rather than broadcasting seeds to tolerate heavy rain. It,

however, takes labour consuming. In the case of fertilizer utilization, farmers in

Ayeyarwady division use 150 kg urea per hectare. The usage is relatively lower than

when comparing to Vietnam (more than 180 kg per hectare Minot and Goletti, 2000).

Also farmers in that region use FYM and bio composer to improve soil fertility.

Table 4.6 Cost of production for monsoon rice per acre for Ayeyarwady division (2003)

Cost component

Rate (per acre)

MMK/acre

Percent of TCC

FYM

1

cart

4200

7.88

Seeds

2 baskets

2000

3.75

Pesticides

0.5 litre

1000

1.88

Urea

50

kg

8000

15.01

T-super

25

kg

2700

5.06

Potash

12.5 kg

1000

1.88

Bio composer

2

litre

2000

3.75

Hired labour

108 men day

32400

60.79

Family labour

45 men day

13500

 

Total cash cost

 

53300

100.00

Total cost

 

66800

 

Source: MAS

Ayeyarwady division has the highest profit than other states and divisions, and rice

production accounts two third of total production.

4.6 Constraints in Rice Production

The GOM is continually facing the problem of scarce public and private capital.

So, the GOM cut off the fertilizer subsidies to farmers in 1994. As Soe (1994a)

forecasted that of a reduction in the government’s current high expenditures to

maintain security and national stability and to support the subsidies of government

employees is considered highly unlikely in the immediate future was now become real

case in Myanmar. However, paddy production was increased although GOM has

limitations in government budget and shortages of foreign exchange reserves

because of expansion of irrigation facilities and expansion of agricultural land.

Because of these limitations, imported farm inputs such as fertilizer were inadequate

to the use of improved technology. The considerable another constraint might be the

overvalued official exchange rate for private investment particularly when imported

items are required.

On the other hand, the GOM also opened local markets for paddy farmers

after fulfilling compulsory delivery system to MAPT. So from 1990 onwards, it could be

seen farmers’ response to paddy price. In 2003, the GOM announced trade

liberalization in paddy/rice sector. But it was no longer, and again revoked the export

of rice. In respect of these factors, it’s still in question whether Myanmar rice sector

will grow rapidly or not although the country has rich capacity to potentially increase

rice production.

4.7 Conceptual Model for Supply Function

With given constraints in production as discussed in the previous section,

quantity of rice supply could be defined as follows:

=

S r S r

(

A, Y

)

Where S r = quantity of rice supply

A

Y

= rice sown area

= rice yield

From this equation, it could be obtained the price elasticity of output by summarizing

the elasticity of area and elasticity of yield with respect to price. Rice sown area is

depended on the following factors:

Ar Ar

=

(

P t 1 P f At 1

,

,

)

Where Ar = rice sown area

P t 1 = lagged rice price of paddy

P f = Price of fertilizer

At 1 = lagged rice sown area

Hypothesis 1: If paddy price is increased, rice sown area could be expected to

increase in coming year and vice versa.

Hypothesis 2: If the input price (fertilizer) is increased, rice sown area will be

decreased and vice versa.

Hypothesis 3: Present rice sown area depends on the lagged rice sown area.

The expected yield depends on the following factors:

(

Y Y P P MV

r

=

r

t

1

,

f

,

)

Where Y r = the expected yield of rice

P t 1 = lagged price of rice

P f

= price of fertilizer

MV = area for modern and hybrid rice varieties

Hypothesis 1: The expected yield of rice is depends on the lagged price of rice. If the

price of rice is increased, it could be expected price will be increased or

the same price. According to favourable price, farmers may manage

well their rice fields, consequently yield might be increased and vice

versa.

Hypothesis 2: If the input price (especially of fertilizer) is increased, the expected

yield could be decreased since increase in the cost of production,

farmers may use lower rate of fertilizer and consequently yield may be

decreased, and vice versa.

Hypothesis 3: It could be expected if farmers use modern or hybrid rice varieties, yield

would be increased rather than the use of traditional varieties.

4.7.1 Empirical model of rice supply

In this section, regression analysis is used to examine the area response and

yield response functions. Area response function is as follows:

log

A =

t

α

0

+

α log

1

P +

t

1

α log

2

P +

f

α log

3

A

t

1

+

u

t

Where A is the rice sown area,

t

P

t 1

is the lagged price of paddy,

P

f

is the

price of fertilizer

A t 1

is the lagged sown area, and u t is the disturbance term.

Yield response function is as follows:

log

Y

t

=

γ

0

+

γ

log

1

P +

t

1

γ

2

log

P +

f

γ

3

log

MV + v

t

t

Where

Y

t

is the yield,

P

t 1

is the lagged price of paddy,

P

f

is the price of

fertilizer,

MV

t

is the area for modern varieties hybrid varieties, and

disturbance term.

v

t

is

the

4.7.2 Econometric Results

To estimate the elasticity for area response, yield response and supply, data

were collected from CSO, MAS and DAP. Price data were deflated by the general

consumer price index based on 1986 price. Supply elasticity is approximated with the

Table 4.7.Elasticity for area response, yield response and supply

Variables

Area response