Ensuring Food Security in Myanmar:

Targeting the Land and Credit Markets to Support Smallholder Agriculture

Authors: Nicole Bacolod, Sanjan Haque, Julian Kirchherr PAE Advisor: Yvonne Chen Policy Analysis Exercise as partial fulfilment of requirements for the Degree of Master in Public Policy. Lee Kuan Yew School of Public Policy National University of Singapore April 2013

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ACKNOWLEDGEMENTS

The team would like to extend gratitude to the PAE advisor, Dr Yvonne Chen, and

acknowledge the support provided by Dr Kelvin Lee and his team throughout the PAE

process.

This report would not be possible without support from the research partner, Oxfam

Myanmar and especially Ms Jasmine Burnley, Mr Kyaw Nyi Soe and Ms Nilar Win

whose steadfast support during the primary research and feedback on different

iterations of the report were most helpful. Ms Burnley’s support at each stage was

crucial for its continued improvement and is a reflection of the dedication shown by

Oxfam towards the team and the report. A special thanks to Mr Htun Lin, Manager of

ASA, who painstakingly ensured the team, was able to undertake household survey in

his township. The team would also like to acknowledge the support provided by Dr

Michael J. Montesano of the Institute of Southeast Asian Studies and Dr David Dapice,

at the Harvard Kennedy School of Government for sharing their time and expertise

with our team. An extended acknowledgment towards the experts interviewed in

Myanmar for this report. Without their time and support the team would not have rich

information used to produce this document.

This PAE is dedicated to the millions of farmers across Myanmar working diligently to

ensure three meals per day and secure a livelihood for their family. The team hopes

that through the recommendations these households can lift themselves out of poverty

and contribute towards national development.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS 2

TABLE OF CONTENTS 3

EXECUTIVE SUMMARY 4

LIST OF TABLES 6

LIST OF FIGURES 6

LIST OF ANNEXES 7

1.INTRODUCTION 8

2.BACKGROUND 11

3.METHODOLOGY 12

4.STAKEHOLDER ANALYSIS AND PROBLEM TREE 15

5.PROPERTY RIGHTS & LAND 21

5.1 PROPERTY RIGHTS AND LAND: THE THEORETICAL STANDPOINT 21

5.2 PROPERTY RIGHTS AND LAND: DIFFERENCE-IN-DIFFERENCES ESTIMATIONS 26

5.3 PROPERTY RIGHTS AND LAND: THE CASE OF MYANMAR 36

6.CREDIT 45

6.1 CREDIT: THE THEORETICAL STANDPOINT 45

6.2 INTRODUCING THE CREDIT MARKET IN MYANMAR 47

6.3 ANALYZING THE CREDIT MARKET IN MYANMAR 58

7.POLICY RECOMMENDATIONS 66

7.1 EVALUATING LAND POLICY TOOLS: CRITERIA 66

7.2 LAND POLICY RECOMMENDATIONS 67

7.3 CREDIT POLICY RECOMMENDATIONS 81

8. CONCLUSIONS 87

BIBLIOGRAPHY 91

ANNEXES 108

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EXECUTIVE SUMMARY

This report concentrates on the processes behind ensuring household food security

across rural Myanmar. The report has been commissioned by Oxfam Myanmar to

address the following policy problem:

“Analyze the current agricultural challenges in Myanmar in the context of

land property rights and access to micro credit and suggest related policy

options that can promote agriculture and ensure food security”.

Thus, the focus of the report remains on two factors: land property rights and credit

and their accessibility and availability to support smallholder farming. The report

argues that unequal land distribution across Myanmar and weak supply for credit has

reduced the ability of smallholder farmers to cultivate land. Structural weaknesses in

the credit and land markets have concentrated resources within a small elite group,

creating the paradox of food exports at a national level and high levels of poverty and

malnutrition at the same time.

The report is divided into two sections: land and credit. This division is based upon

suggestions by the research partner Oxfam Myanmar. The land section agues that an

increase in property rights would exacerbate the landlessness situation as well as land

speculation. The new laws enacted in 2012 have improved the situation for smallholder

farmers by imposing a penalty on fallow land to discourage speculative purchases.

The success of these measures will be determined by compliance measures ensured

by the state. This report identifies land redistribution, land reform, political will as well

as compliance mechanisms as core recommendations to improve land equity and

ensure household food security.

The formal credit market for farmers is monopolised by the state-owned Myanmar

Agricultural Development Bank (MADB) and constitutes a fraction of the total rural

credit market as informal sector hold sway over farmers. The financial sector across

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the country suffered exogenous shocks after the 1997 and 2008 financial crisis, which

reduced confidence in the banking sector both for deposits and savings. This gave rise

to speculative purchases of all types of land across the country. The emergence of the

microcredit sector after Cyclone Nargis as well as informal private sector lending

schemes for farmers (such as the Special Agriculture Companies (SAC)) have

supported a small group of farmers to borrow cheaply and cultivate profitably. However,

this has spatial limitations and located in low risk-high profit regions of the country such

as the Ayerwardy Delta, also known as the breadbasket of Myanmar. The informal

lenders and kinship networks hold sway across regions with ethnic nationalities, which

can also be interpreted as high risk-low profit areas. This report provides a set of

recommendations, which include the deregulation of the banking sector, encouraging

many suppliers of formal credit for farmers, building capacity and expanding MADB,

and increasing microfinance institutions.

The report has also analysed the motivations, resources and outcomes of the different

stakeholders across the country from the perspective of the status quo and created a

problem tree to graphically illustrate the problems in the land and credit markets across

the country. The report undertook in-depth semi-structured interviews with experts in

Yangon, Singapore and USA (via Skype) and a household survey in the Ayerwardy

Delta. Oxfam Myanmar provided research support and the findings of this report will

support the development of Oxfam’s institutional strategy to achieve household food

security across Myanmar.

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LIST OF TABLES

Table 1: Myanmar Land & Credit Stakeholder Analysis

Table 2: Gains from Trade (Land Model, Part 1)

Table 3: Gains from Trade (Land Model, Part 2)

Table 4: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison

Table 5: Food Security CAGRs in Myanmar, Thailand & Laos (1996-2001)

Table 6: Short-Term Difference-in-Differences Estimations Myanmar, Thailand & Laos

Table 7: Long-Term Difference-in-Differences Estimations Myanmar & Laos

Table 8: Summary of Conditions of Different Agricultural Credit Lenders in Rural

Myanmar

Table 9: Number of Borrowers and Loans Disbursed- Action for Social Aid (2009-12)

LIST OF FIGURES

Figure 1: Problem Tree Analysis - Factors for Production: Land and Credit Markets in

Myanmar

Figure 2: GDP composition by sector in 2011 [percent, data from CIA (2012)]

Figure 3: Development of Property Rights Security in Myanmar [1996 – 2009; 0-100;

0-5]

Figure 4: Development of Property Rights Security in Thailand [1996 – 2009; 0-100; 0-

5]

Figure 5: Development of Property Rights Security in Laos [1996 – 2009; 0-100; 0-5]

Figure 6: Food Security in Selected Asian Countries [1995-2009; kcal/day]

Figure 7: Inflation Rate in Myanmar [1993-2013; %]

Figure 8: The New Land Laws: Level of Awareness among Burmese Farmers

Figure 9: Productivity among Burmese Farmers [Kyat/acres]

Figure 10: Average Food Security and Land Ownership among Burmese Farmers

[acres]

Figure 11: Increases in loan amount per acre

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Figure 12: Yearly Loan Disbursal of MADB Pyapon Township

Figure 13: Inflation Rate Trends for 2007-2011 (ADB 2012)

Figure 14: Sources of Credit in Myanmar (Lift 2012)

Figure 15: The Effect of Government Interest Rate Ceiling in the Rural Financial Market

Figure 16: Land and Credit Policy Recommendations

Figure 17: Indicative Implementation Timeline

LIST OF ANNEXES

Annex 1: Oxfam Myanmar

Annex 2: Industrial & Extractive Sector Projects Across Myanmar

Annex 3: Ethnic Nationalities Grievances

Annex 4: Further details of debt relief

Annex 5: Interviews with experts carried out in Myanmar

Annex 6: Household survey questionnaire

Annex 7: Original research proposal

Annex 8: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison

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1. INTRODUCTION

This Policy Analysis Exercise (PAE) investigates the impact of land rights and access

to credit on household food security in rural Myanmar. Focusing on these two topics

follows two hot debates globally:

Indeed, a variety of leading development economists – most notably the Peruvian

economist Hernando De Soto – view secure property rights as a key to food security.

“Securing property rights is a necessary condition for agricultural growth” (USAID

2012).

In addition, access to micro credit is considered as a second enabler. Up-scaled by

Muhammad Yunus, winner of the 2006 Nobel peace prize, via his Grameen Bank this

tool is believed to hold “enormous potential (…) for hunger alleviation”(Cons &

Paprocki 2009).

Admittedly, there are a variety of variables likely to impact food security. Such variables

comprise, inter alia: Access to technology, population growth, availability and access

to water or climate change. No report is able to cover all of these variables.

The focus of this PAE was developed in collaboration with Oxfam Myanmar, the team’s

research partner for this PAE. Additional information on Oxfam Myanmar may be

obtained in Annex 1.

1.1. DEFINING FOOD SECURITY AND SMALLHOLDER FARMING

Development policy may aim for a variety of goals, for instance: Fostering good

governance, ensuring continuous economic growth, adapting measures to combat

climate change or helping farmers to grow more crops.

Taking a look at Maslow’s famous hierarchy of needs helps to organize and prioritize

these goals. Indeed, in Maslow’s hierarchy of needs food security is considered as the

very most important physiological needs: “For the man who is extremely and

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dangerously hungry, no other interests exist but food” (Maslow 1943). “Food is not a

commodity like others” (Clinton 2011).

Unfortunately, food security is not a given in Myanmar, the case at hand. Currently,

the country’s level of food security is ranked as ‘serious’ by the latest World Hunger

Index – a considerable improvement already compared to previous years already:

Indeed, Myanmar decreased its GHI food security score from 29.2 in 1990 to 16.3 in

2011. A score of 5 is equivalent to full food security (Welthungerhilfe 2011).

This is surprising in a country where 70 percent of the workforce works as farmers and

36.4 percent of GDP is derived from the agricultural sector (World Bank 2010). This is

also surprising in a country which is a net food exporter. In 2013, Myanmar ought to

sell abroad as much as 750,000 tons of rice, for instance. It plans to double its rice

exports within the next five years (Bloomberg 2012).

Because of its significant change in food security over the past twenty years, because

of the great importance of agriculture in the country’s economy and because the

country still struggles to achieve a high level of food security despite its food exports,

Myanmar is a particularly interesting and relevant case to investigate.

Food security means “having sufficient quantity and quality of food throughout the year

for a healthy and productive lifestyle” (USAID 2012). Operationalizations of the term

are provided in Section 5 and Section 6 of the report.

Rural Myanmar refers to more all Burmese citizens which are farmers. Such farmers

are usually smallholder farmers which work on their land themselves. There is no

universal definition for smallholder farming in Myanmar. According to the primary

research undertaken, a smallholder farmer holds around 10 acres with 5 being the

minimum average needed to feed a household of five for a year.

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1.2. STRUCTURE OF THE REPORT

This introduction (Section 1) has outlined the research question and highlights its

policy relevance in the Burmese context. Section 2 provides background information

on the political and economic situation in Myanmar. Section 3 explains chosen

methodological approach. Section 4 describes core stakeholders and the team’s

problem tree.

Section 5 examines the impact of land rights on rural food security in Myanmar. The

1st part of the section outlines theoretical linkages between land rights and food

production. The 2nd part investigates the impact of expropriation on food security citing

the 2001 land confiscations in Myanmar. It is based on difference-in-differences

estimations. The 3rd part discusses the findings from the team’s primary research

undertaken in Myanmar in January 2013. The authors find that the country’s current

land distribution is disproportionally skewed towards the elites. This distribution pattern

leaves large amounts of land fallow and exacerbates food insecurity.

Section 6 examines the impact of access to credit on rural food security in Myanmar.

The 1st part investigates theoretical linkages between access to credit and food

security. The second and third part present and discuss findings from the team’s

primary research. The report argues there is a lack of competition in the rural credit

market, which causes more than half of the population to borrow from expensive

informal sources. The lack of affordable and sufficient credit in Myanmar also impedes

rural food security.

Section 7 develops a range of policy recommendations based upon the previous

analyses, which, if adopted, would foster household food security in rural Myanmar.

Section 8 summarises the central findings and implications of this report and provides

an indicative timeline for the implementation of the given recommendations.

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2. BACKGROUND

This section provides additional background information on Myanmar. It discusses the

country’s ethnic conflicts, its economic prospects and poverty in Myanmar. It also

discusses the impact of the new constitution and cyclone Nargis on access to land and

credit.

2.1. ETHNIC CONFLICTS IN MYANMAR

Just days ago reports of Buddhist monks instigating burnings, beatings and killings of

Muslim minorities in central Myanmar made international headlines (International

Herald Tribune 2013). Indeed, ethnic nationalities claim years of exploitation and unfair

distribution of profits from extractive sector and large industrial projects (see Annex 2:

Industrial & Extractive Sector Projects Across Myanmar). This was highlighted by the

national government ignoring customary land transfer practices, common within ethnic

nationalities, in its newest land laws (see Annex 3: Ethnic Nationalities Grievances).

2.2. ECONOMIC OUTLOOK AND HOUSEHOLD POVERTY STATUS

Nowadays Myanmar is at the centre of global attention not only because of ethnic

conflicts heating up, though. Ever since the Burmese President Thein Sein has

introduced a variety of economic and democratic reforms, many observers believe that

the country could be one of Asia’s next rapidly emerging economies (Reuters 2012).

The Asian Development Bank (ADB), for instance, suggests that the country could

triple its per-capita-income by 2030 becoming a middle-income nation provided it

continues its reform path (ADB 2012). Indeed, Myanmar is the last large country in

Asia which opens up. Growth projections standing at 7 percent for the next five years

are encouraging

Overall, Myanmar is income-poor, but resource-rich. However the government cannot

capitalize on the country’s resources; government revenue sources are limited

compared to ASEAN neighbours. Gratefully, in January 2013 the government cleared,

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settled and received bridging loans up to US$7 billion (Annex 4: Further details of debt

relief).

The banking system in Myanmar is only slowly re-developing. The 1997 and 2008

financial crises weakened the financial sector leading to speculative purchase of land

for investment security.

Partly because of ethnic conflicts and a dysfunctional financial system Myanmar has

high incidences of poverty. The GDP per capita was USD 1,246 in 2010, ranking the

country 161 out of 182 (IMF 2010). At national level, 10 percent of the population falls

below the Food Poverty Line (FPL) indicating food insecurity. The President targeted

poverty reduction to 16 percent by 2015 (further information in Annex 3).

2.3. RECENT EVENTS AFFECTING NATIONAL FOOD SECURITY

Cyclone Nargis in 2008 adversely affected national food security. The large death toll

resulted in the availability land, which was largely usurped through land-grabs. Oxfam

claimed farmers suffered from cyclical indebtedness due to the unavailability of

affordable loans (2009).

Recently government policies have shifted from subsistence farming to commercial

agriculture (UN Myanmar Agricultural Sector Investment Strategy 2011). The

agribusinesses sector is focused on crops such as jathropa, palm oil and rubber for

export; evidently, none of these crops directly support household food security (TNI

2011). A total of 204 agribusinesses received 1.9 million acres of land in 2011.

Currently, only 27.8 percent of land in Myanmar is cultivated and developed

(Department of Agricultural Planning 2011).

3. METHODOLOGY

This section outlines and explains the basic rationale of this PAE’s methodology. The

chosen mixed-methods research design for this report was revised numerous times as

a result of the travel constraints for non-Burmese citizens in Myanmar. The final PAE

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now builds upon the review and analysis of existing literature and data, 18 semi-

structured interviews undertaken in Yangon as well as a household survey undertaken

with 15 farmers in Pyapon.

3.1. SECONDARY RESEARCH

As an initial step and following the research questions outlined in the introduction, the

team undertook literature reviews from September 2012 onwards under three main

thematic areas:

Land usage, availability and reform in Myanmar and across the world;

The impact of property rights and access to credit on food security;

Microfinance (reforms) and availability of rural credit in Myanmar and globally

The research was restricted to English language-based literature. Peer reviewed and

non-peer reviewed articles, reports published by NGOs, reports published by CSOs,

country analyses by private companies, country analysis by intergovernmental

organisations, annual reports by government as well as unpublished articles and

reports were taken into account.

The literature review helped developing an initial understanding of the topics at hand

as well as assessing theoretical links between the chosen variables. It also indicated

to what extent theoretical links have been corroborated by empirical findings. This PAE

attempts to build upon such previous theories and empirical findings. The empirical

data collected for analyses was sourced from FAO’s FAOSTAT, the Global Hunger

Index, the Heritage Foundation Property Rights Index, the World Bank, UNDP

Myanmar and the IMF.

3.2. PRIMARY RESEARCH: SEMI-STRUCTURED INTERVIEWS

The primary research attempted to validate and complement the secondary research

and analyses undertaken. It was conducted from 5-14 January 2013 in Myanmar.

During this time period the team undertook 18 interviews in Myanmar with experts and

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practitioners involved in property rights, land, microcredit, and food security as well as

a household survey in Pyapon Township (Annex 5: Interviews with experts carried out

in Myanmar & Annex 6: Household survey questionnaire).

The research design for this report was revised as a result of the constraints of field-

based research for non-Myanmar citizens (see Annex 7: Original research proposal).

The snowball technique, a “technique for gathering research subjects through the

identification of an initial subject who is used to provide the names of other actors”

(Atkinson & Flint 2004), was utilised to identify relevant individuals. The interviews

broadly followed five distinctive themes with questions being modified when suitable:

Status quo or current situation of the sector/industry/policy

Establish relationship between the industry/sector and the research question(s)

Reform measures on this industry/sector

Impact of reforms on this industry/sector

Prospects for Myanmar’s future

3.3. PRIMARY RESEARCH: SURVEY

The survey was undertaken in the Pyapon Township in the Ayerwardy Delta on 12-13

January. The survey was a closed questionnaire with 31 questions (Annex 6).

Respondents were borrowers of the NGO Action for Social Aid (ASA). The location of

the village was selected with ASA. There were only 15 farmers present in the village

at the time of the field research. All 15 farmers were interviewed.

The chosen sample is not representative and continuous support provided by ASA

may indicate that this village may be more affluent, on average, than most villages in

the region. The sample size does not allow for any statistically significant analyses.

Nevertheless, the analysis of the sample – in combination with the semi-structured

interviews undertaken as well as the comprehensive literature review undertaken -

may help complement and validate the team’s initial hypotheses.

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4. STAKEHOLDER ANALYSIS AND PROBLEM TREE

This section provides a comprehensive list of stakeholders relevant for this report. The analysis was undertaken with the status quo in mind, i.e.

if the recommendations of the report are not implemented.

Table 1: Myanmar Land & Credit Stakeholder Analysis

Stakeholders Motivations Resources Desired outcome

Myanmar

Agriculture

Development

Bank (MADB)

Achieve high rates of credit disbursement

& repayment from all borrowers

Monopoly in the formal credit

market for farmers across the

country

Expand annual budget, resources for

staff, financial services for borrowers

Ministry of

Agriculture &

Irrigation

Expand agriculture production for both

staple items and cash crops for national

food security

Ability and capacity to mobilise

farmers and civil servants to

cultivate land for food production

and cash crops

Improve extension services for farmers;

provide high quality irrigation; contribute

to national growth & reform via different

types of agriculture products

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President’s Office Legacy of transition to democracy;

integration within regional and international

community; continue tacit involvement of

military within civilian governance

Support of parliament, military

and international community

Transition to a functional democracy,

increase inward investment,

industrialization, and achieve food

security

National League

of Democracy

Prepare ground for national elections in

2015; engage with national government for

stable democratic transition; involve

international community within national

development

Grass-roots support base for

democratic reform; strong

alliances with global powers;

Aung San Su Kyi

Successful campaign at national

elections in 2015: critical mass within

Parliament to influence policy making

process; maintain democratic transition;

restrict military's influence within policy

making process

United Nations

agencies

Contribute to democratic transition through

capacity development in public sector

employees and institutions; establish

strong regulatory framework; interlocutor

between government and donor;

specifically build capacity of CSOs

Expertise in good governance;

interagency coordination; linked

to international resources of

experts.

Develop local capacity to maintain

democratic institutions; enable strategic

public sector institutions to dispense

public goods and enable government to

function; promote good governance;

inclusive growth framework

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Asian

Development

Bank

Contribute to democratic transition through

capacity development public sector

employees and institutions; establish

strong regulatory framework; monitor

economic growth indicators & effective

expenditure of loans & debt clearance

Loans at preferential rates of

interest; capacity development of

public sector for economic

governance; interlocutor with

regional donors

Sustainable economic growth; inward

investment from other Asian nations;

government compliance to

commitments on growth and stability.

International

NGOs

Support government development

programme in health and education;

reduce poverty: child malnutrition and

income inequity; promote inclusive growth.

Expertise on working with

marginalised group; capacity to

support livlihoods, primary health

care, non-formal education

programmes

Close cooperation with national

government to reduce poverty; higher

level of autonomy to create, expand and

implement programme; expand local

partners.

NGOs (national) Support local development programme in

health and education; reduce poverty: child

malnutrition and income inequity.

Local knowledge of poor and

vulnerable groups; weaknesses

in local institutions; gaps in the

market & local capacity

Close partnership with regional and

national government for development

programmes; financially sustainable

through microfinance

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Agribusiness Continue expropriating large farmland for

monoculture agriculture for commercial

farming

Expertise and network for

commercial farming; input

suppliers and buyers of products

from home and abroad

Weak compliance of VFVLM law;

Farmland Law ensures land tenure

security for large holder farmers

Land speculators Strong investment returns on land across

Myanmar

Capital investments in land

across the country; strong

linkage with national government

and military

Weak compliance of VFVLM law;

Farmland Law ensures land tenure

security

Large holder

farmers

Secure current landholdings; continue

cultivating land using current techniques

Local knowledge of land, people,

resources; network with different

suppliers and buyers

Weak compliance of VFVLM law;

Farmland Law ensures land tenure

security

Smallholder

farmers

Improve productivity of landholding; raise

household income to meet basic need

requirements

Local knowledge of land,

cultivation technique, access to

limited capital from MADB

Sustainable livelihood to raise

household income and meet basic

needs; increased access to land and

capital; more support from local

Agriculture Extension officer.

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Special

Agriculture

Companies

Purchase paddy at lower than market price

through cheap credit to small-medium

sized farmers

Capital investment in loans to

farmers; market access for rice

Low levels of competition in the credit

market; small-medium sized farmers

unable to increase productivity & access

market

Informal credit

providers

Few suppliers of credit to farmers Large amounts of capital

available at short-notice for

lending for both consumption &

productive loans

Continue to be the dominat providers of

credit to farmers

Commercial

banks

Unable to supply credit for agirculture;

prohibitive cost of business for all other

financial services in the rural market

Capacity to reach urban and

peri-urban dwellers

Deregualtion of the financial sector;

expand scope of competition in the

credit market across the country.

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Figure 1: Problem Tree Analysis - Factors for Production: Land and Credit Markets in Myanmar

This PAE aims to address the problem of food insecurity from the supply side and improve two distorted markets, namely land and credit. The

Problem Tree Analysis provides a top-down summary of the team’s understanding of the causes of the neglect of smallholder agriculture that

leads to household food insecurity. The following sections expand and elaborate on this problem tree.

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5. PROPERTY RIGHTS & LAND

This section examines the impact of land property rights on food security. First,

theoretical linkages between land property rights and food security are described.

Second, the link between land property rights and food security in Myanmar, Laos and

Thailand is investigated empirically via a difference-in-differences set-up. Third, the

central findings of our field research on land property rights in Myanmar are discussed.

5.1 PROPERTY RIGHTS AND LAND: THE THEORETICAL STANDPOINT

Among economists, there is now a growing consensus “that institutions protecting

property rights are essential for successful long-run economic performance”

(Acemoglu 2003). This section explores from a theoretical standpoint this consensus

and channels through which property rights may affect economic activity (including

food production). The structure of this section is based upon Besley & Ghatak (2010).

The section starts out by defining property rights. Then it reviews the three main

channels through which property rights may affect economic activity. These channels

are related to (i) expropriation risks, (ii) collateral and credit markets and (iii) gains from

trade.

It is argued that a high risk of expropriation reduces and distorts investments. However,

a low risk of expropriation in selected markets may also reduce and distort

investments. Likely a lack of collaterals due to insecure property rights impairs the

functioning of credit markets. Furthermore, resources may not be managed by those

who can use them most productively if assets such as land cannot be traded. The

section concludes by pointing out that high levels of economic activity (including food

production) may not necessarily lead to high levels of food security in a country.

5.1.1. DEFINING PROPERTY RIGHTS

The term ‘property rights’ entails at least three dimensions: First, it refers to an owner’s

“right to use (…) an asset for consumption and/or income generation (referred to as

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“use rights”) (Besley & Ghatak 2010).” Secondly, “it (…) also includes the right to

transfer it to another party” (Besley & Ghatak 2010). Thirdly, the term ‘property rights’

implies that one may exclude other parties’ from using one’s good or asset. Thus,

property rights are not items such as music, cars or land themselves, but only “an

economic concept about the house, embodied in a legal representation” (de Soto

2000). If a party holds the legal right to use land for income generation, to transfer this

land and is able to exclude other parties from using it, property rights would be

considered as a given. Following this definition, a party may even hold property rights

on land when there is a government monopoly on land ownership as long as the

government would grant land use and transfer rights.

However, land used under customary law would not necessarily fall under such

categorisation. If a government does not recognise such customary laws from a legal

standpoint, those using land only under customary laws would not hold any property

rights. This is important to remember in the case of Myanmar.

5.1.2. PROPERTY RIGHTS & EXPROPRIATION RISKS

This section explains how the level of expropriation risk may affect economic activity

(including food production) and cites relevant studies supporting this claim.

Indeed, high risk of confiscation may “not only affect the magnitude of investment, but

also the efficiency with which inputs are allocated” (Knack & Keefer 1995). If citizens

intend to invest, they will focus on those assets least prone to confiscation. However,

those might not be the most productive ones. This channel has been corroborated by

a variety of studies. This report is citing two examples below.

Johnson et al (2002) finds that profit reinvestment rates of private companies in

Eastern Europe are lowest in Ukraine and Russia (where perceived property rights are

lowest) and highest in Poland and Romania where the opposite holds true. Meanwhile,

Banerjee, Gertler & Ghatak (2002) investigate the impact of introducing tenancy laws

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(a proxy for increased property rights) on crop share production in West Bengal. The

authors find that reform program explains around 28 percent of the subsequent growth

of agricultural productivity. However, a high trust in the government’s ability to protect

citizens from confiscations may not always be desirable in our point of view. This line

of thought is driven by our analysis of land distribution and usage patterns in Myanmar.

Assume, for instance, a setting in which the government is able to protect citizens’ land

while high levels of inflation prevail. Most likely, investments would then be distorted

towards the ‘safe havens’ such as land. Indeed, if land acted as an (unproductive)

repository in such a setting, a seemingly high level of property rights may also limit

economic activity.

5.1.3. PROPERTY RIGHTS, COLLATERALS & CREDIT MARKETS

This section explains how a high level of property rights security may support other

transactions, which, in turn, then increase economic activity (including food

production). Consider this simple example: A creditor considers providing a loan of 100

units for one year with an annual interest rate of 10 percent. Property rights are non-

secure in this scenario. The repayment probability is estimated at 50 percent. The

expected value (EV) of such an investment would be zero units. Assume that the

creditor would not provide a credit with such an EV. Now consider the same scenario,

but assume that property rights are secure. The potential recipient, a farmer, owns

land worth 20 units which now can be offered as collateral. Suddenly, the EV would

increase to 20 units so that the creditor is likely to provide the loan. The increased

property right would increase his food production.

Indeed, creditors are more likely to support a project if the property of the beneficiary

can serve as collateral. Furthermore, creditors are likely to lower interest rates if

property of a recipient can serve as collateral. Again, this channel has been

corroborated by a variety of studies. Two examples below are provided below. Indeed,

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Field & Torero (2006) concludes that urban land titling, a proxy for increased property

rights, is associated with a 10-percentage point increase in loan approval rates from

banks. Besley (1995) finds a similar correlation in Ghana.

5.1.4. PROPERTY RIGHTS & GAINS FROM TRADE & ECONOMIC GROWTH

This section explains how incomplete property rights may impair trade, which, in turn,

may limit economic activity. This line of thoughts assumes that the ability of an owner

to transfer his property rights, in our case his land use rights, is limited. Based upon

Besley & Ghatak (2010) a simplified model has been built to illustrate gains from trade:

Table 2: Gains from Trade (Land Model, Part 1)

FARMER A FARMER B

Cultivation Capacity 20 5

Acres Owned 100 1

Yield/Acre 20 10

Output 400 10

In this simple scenario, inspired by the field research in Myanmar, farmer A’s amount

of land owned exceeds his cultivation capacity, the opposite holds for farmer B.

Assume now the following scenario in which the transfer of land use rights is allowed:

Table 3: Gains from Trade (Land Model, Part 2)

FARMER A FARMER B

Cultivation Capacity 20 5

Acres Owned 100 1 + 4

Yield/Acre 20 10

Acres Rented 4 4

Rent/Acre 9 9

Output 436 14

Although farmer A charges farmer B a rent of nine units per acre, both farmers are

better off in this scenario. Total output increases by as much as 50 units because the

transfer of land use rights is now allowed. Gains from trades are realised because

25

someone else can make better use of the land at hand. “Economic efficiency is

enhanced by having assets managed by those who can use them most productively”

(Besley & Ghatak 2010).

This particular model rests upon the assumption that there is such a thing as a

cultivation capacity. The primary research undertaken in Myanmar finds that making

such an assumption is realistic. Chernina, Dower & Markevich (2004) also demonstrate

with a robust difference-in-differences approach how the “introduction of individual land

titles [allowing land trade] improves the allocation of resources” in the late Russian

Empire.

5.1.5. PROPERTY RIGHTS & FOOD SECURITY

The previous sections argued from a theoretical standpoint that protection from

confiscations would directly enhance economic activity (including food production).

This section now explains why an increased economic output (including increased food

production) does not necessarily lead to increased food security from a theoretic point

of view, though. Indeed, food produced in a global free market economy is likely to be

targeted at those markets, which yield the highest profit margins. If the ability of the

local population to pay for food produced domestically is limited, then food produced

in the home markets might be sold abroad – despite domestic food insecurity at home.

This line of thought is of particular relevance for Myanmar. Indeed, the country already

exports a lot of food – and is projected to export even more in the future. In 2013, the

country ought to export as much as 750,000 tons of rice, for instance. It plans to double

its rice exports within the next five years (Bloomberg 2012). At the same time, the

Global Hunger Index still ranks the country’s level of food security as “serious” (GHI

2011).

26

5.2 PROPERTY RIGHTS AND LAND: DIFFERENCE-IN-DIFFERENCES ESTIMATIONS

Citing the example of Myanmar, the previous section suggested that high levels of

property rights security may not necessarily lead to food security at the household level.

Accordingly, low levels of property rights may not always lead to low levels of food

security. This section now emprically investigates the link between land property rights

and food security with a difference-in-differences approach.

First, this section explains the main ideas behind difference-in-differences estimations.

Second, the operationalizations for the variables at question are developed. Third,

suitable control groups are identified. Fourth, a suitable policy intervention is identified.

Fifth, the difference-in-differences calculations are conducted before the results of the

investigation are discussed. The authors find in this section that the immediate impact

of confiscations (reduced property rights) on food security is negative. However, the

medium-term impact is likely to be more nuanced. The authors decided to examine the

outlined question empirically with a first-hand research set-up because no comparable

studies (regarding topic and region) with (rather) robust quasi-experimental techniques

could be found in the literature.

5.2.1 THE DIFFERENCE-IN-DIFFERENCES APROACH

This section explains the rationale behind difference-in-differences estimations, the

chosen methodology to investigate the question at hand. Since the work by Ashenfelter

& Card (1985), using difference-in-differences approaches, a quasi-experimental

technique, has become widespread in policy evaluation. Its key idea is “to exploit

naturally occurring exogenous variation” to mimic a randomized experiment (Remler

et al. 2010). If conducted correctly, results may yield causal effects. In its simplest set-

up (adopted in this PAE) outcomes are observed for two groups for two time periods.

Whereas one of the groups is exposed to a treatment, the second group is not exposed

in either period. In this set-up, the change in the control group outcome variable is

27

subtracted from the change in the treatment group yielding the net treatment effect

(Imbens 2007).

This procedure allows researchers to remove biases from permanent differences

between the treatment and control groups at hand as well as differences in the

treatment group that could be the result of certain time trends. A central assumption in

this approach is that both treatment and control group truly underlie identical trends

except for the policy intervention at hand.

The difference-in-differences approach developed below is inspired by Banerjee,

Gertler & Ghatak (2002). However, the methodological set-up for this report maybe

particularly innovative because a negative policy treatment (confiscations) is used as

policy intervention. Usually, positive policy treatments are utilised.

5.2.2 OPERATIONALISING THE LEVEL OF PROPERTY RIGHTS

This section outlines the chosen operationalizations for the property rights security, the

indendent variable at question. The level of property rights has been operationalised

via a variety of indexes. For suitability this report examined four: the International

Property Rights Index, the Maplecroft Expropriation Index, the Property Rights Index

within the Heritage Foundation Index of Economic Freedom and the Rule-of-Law-Index

of the World Bank Worldwide Governance Indicator (WGI) project. The International

Property Rights Index had to be excluded because it does not rank Myanmar

(Zahourek 2013). The Maplecroft Expropriation Index was excluded because one must

purchase the index. In 2013, the Index ranks Myanmar among the 21 countries in the

world with an “extreme risk for expropriation” (Maplecroft 2013). Thus, the level of

property rights security is first operationalized by drawing on the Index of Economic

Freedom, based upon surveys, from the Heritage Foundation. A score of 100 in the

Index indicates “private property is guaranteed by the government.” (The Heritage

Foundation 2013). A score of 10 indicates, “private property is rarely protected.”

28

Second, the level of property rights security is operationalised by drawing on the Rule-

of-Law-Index of the World Bank Worldwide Governance Indicator (WGI) project; this

index, based upon surveys independent from the Heritage Foundation, releases a rule-

of-law score ranging from -2.5 to 2.5. The index score is normalized by the authors of

this PAE to a range from 0 to 5. A high score ought to capture “perceptions of

confidence in the rules of society, and in particular the quality of (…) property rights”

(World Bank 2013).

Both operationalizations are in line with the previously discussed definition of property

rights. The authors are aware that the quality of data is generally believed to be poor

in most countries in South East Asia, the area of interest. Two indices are chosen for

the independent variable in order to be (more) able to identify possibly random

variations within the data.

5.2.3 OPERATIONALIZING THE LEVEL OF FOOD SECURITY

This section outlines the chosen operationalizations for the level of food security, the

dependent variable at question. The level of food security has been operationalized

via a variety of indexes. The authors examined four for suitability: The Global Food

Security Index (GFSI), the Maplecroft Food Security Risk Index (FSRI), the World

Hunger Index and data on daily per capita calories consumption by the Food and

Agricultural Organization (FAO).

The GFSI had to be excluded because it only provides 2013 data for free. In 2013, the

Index ranks Myanmar 78/105 (bottom 25 percent) (Global Food Security Index 2013).

The FSRI was excluded for the same reason. It ranks Myanmar at high risk with regard

to food insecurity (Maplecroft 2011). Data from the World Hunger Index is available,

but only for selected years (2011, 2009, 2007, 2001, 1996). The index ranks countries

from a scale from 0 – 30 whereas values higher than 30 indicate high levels of hunger.

29

The data on per-capita-daily-calories-intake from FAO is also taken into consideration

as one operationalization of food security.

5.2.4 IDENTIFIYING CONTROL GROUPS

This section explains the rationale for choosing Laos and Thailand as control groups

for Myanmar. The authors examined five countries via the criteria outlined in the table

below (criteria taken from Banerjee, Gertler & Ghatak (2002)).

Table 4: Myanmar, Laos, Thailand, Cambodia and Vietnam in Comparison

LAOS THAILAND CAMBODIA VIETNAM

Level of Food Security ✓ ✓ ☓ ☓

Geographic Proximity ✓ ✓ ☓ ☓

Agro-Climatic Features ✓ ✓ ✓ ✓

Level of Economic

Develpoment

✓ ☓ ✓ ✓

Total ✓✓✓✓ ✓✓✓ ✓✓ ✓✓

Additional information on the assessment and underlying data may be found in Annex

8.

Laos and Thailand are most similar to Myanmar with regard to the chosen criteria.

Indeed, and as outlined in Annex 8, their food security (in kcal per capita per day)

developed similarly (CAGRs 1996-2009; Myanmar: 1.16 percent, Laos: 1.21 percent,

Thailand: 1.75 percent). They are neighboring countries implying exposure to similar

external shocks such as hurricanes or local conflicts, they share similar agro-climatic

features with rice is the most important agricultural commodity in all three countries

(Encyclopaedia of the Nations 2012a; Encyclopaedia of the Nations 2012b) and similar

levels of GDP composition.

30

Figure 2: GDP composition by sector in 2011 [percent, data from CIA (2012)]

5.2.5 IDENTIFIYING POLICY INTERVENTIONS

This section outlines the process through which the authors identified possible policy

interventions. First, a comprehensive literature review on the development of property

rights in the past twenty years in the three chosen countries. Second, an examination

of whether shocks identified in the literature were reflected in the data. At the end of

the section the policy intervention to be examined, Myanmar’s 2001 confiscations, is

presented. The literature review revealed three property rights shocks in the past 20

years.

Shock 1: Myanmar’s government massively confiscated land from 2001 to 2002

(International Land Coalition 2011). This event is reflected in the operationalisation, as

depicted in the Figure below (HF for Heritage Foundation, WB for World Bank).

Figure 3: Development of Property Rights Security in Myanmar [1996 – 2009; 0-100;

0-5]

42 3744

1935

43

3928

13

Myanmar Laos Thailand

Services Industry Agriculture

31

Shock 2: Thailand’s economic crisis of 1997 and the accompanying real estate glut led

to a government revision of the domestic property law making it more restrictive for

foreigners (Brodney 2009). This event is reflected in the Heritage Foundation data, but

not in the Rule-of-Law-Index (see Figure below) suggesting this is only a weak policy

intervention.

Shock 3: Thailand’s undertook a second reform in 2003, which restricted rights for

foreigners to buy property in the country even more (Asia Times 2003). Again, this

event is reflected in the Heritage Foundation’s Property-Rights-Index, but not in the

Rule-of-Law-Index (Figure below), again suggesting only a weak policy intervention.

Figure 4: Development of Property Rights Security in Thailand [1996 – 2009; 0-100; 0-

5]

No shocks were identified during the literature review on Laos. This is also reflected

in the data.

0.7

0.8

0.9

1

1.1

1.2

0

5

10

15

20

25

30

35

1996 1998 2000 2002 2004 2006 2008

Myanmar…Myanmar…

2

2.2

2.4

2.6

2.8

3

3.2

40

50

60

70

80

90

100

1996 1998 2000 2002 2004 2006 2008

Thailand (HF)Thailand (WB)

32

Figure 5: Development of Property Rights Security in Laos [1996 – 2009; 0-100; 0-5]

Because the drop in the World Bank index on Thailand is not sharp, and because the

property rights events identified only affected foreigners (indicating a ‘weak treatment’),

our group chose not to view Thailand’s change in property rights laws as policy

interventions to be investigated. Thus, the chosen policy intervention is the Myanmar

2001 confiscations with Thailand and Laos as control groups.

Indeed, Thailand and Laos followed similar time trends with regard to the dependent

variable:

Table 5: Food Security CAGRs in Myanmar, Thailand & Laos (1996-2001)

CAGR [1996-2001; FAO] CAGR [1996-2001; WHI]

Myanmar 1.19 percent -2.4 percent

Thailand 1.58 percent -4.4 percent

Laos 0.73 percent -1.3 percent

The next figure also outlines the development of food security from 1995 to 2009.

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

8

10

12

1996 1998 2000 2002 2004 2006 2008

Laos (HF)Laos…

33

Figure 6: Food Security in Selected Asian Countries [1995-2009; kcal/day]

The GHI operationalisation of food security also underscores the countries’

comparability (from 1996 – 2009: Myanmar’s -1.97 percent, Laos -2.15 percent,

Thailand’s -2,82 percent). The following two sections present the results of our

difference-in-differences estimations. We split them in short-term and long-term

impacts of insecure property rights on food security.

5.2.6 SHORT-TERM IMPACTS OF INSECURE PROPERTY RIGHTS

The calculations in this section revel that the short-term impact of confiscations on food

security (one year past the intervention) is decisively negative. Only two calculations

were conducted in this section because there was no data available from the Global

Hunger Index for 2002.

Table 6: Short-Term Difference-in-Differences Estimations Myanmar, Thailand & Laos

Pre-Treatment (2001) Post-Treatment (2002) Difference

Myanmar 2224 2258 34

Laos 2142 2172 30

Difference 82 86 4

Pre-Treatment (2001) Post-Treatment (2002) Difference

Myanmar 2224 2258 34

Thailand 2713 89 89

Difference -400 -455 -55

1900

2100

2300

2500

2700

2900

3100

1995 1997 1999 2001 2003 2005 2007 2009

Myanmar Laos Thailand

34

If one had only considered the case of Myanmar, one would have falsely concluded

that confiscations increased food security. Indeed, Myanmar’s daily calories intake

increases by 34 calories from 2001 to 2002.

However, the difference-in-differences estimations controlling for time-trends reveal

that such a conclusion may be erroneous. Indeed, the treatment effect with Thailand

as a comparison group is now a negative 55 calories. In the case of Laos, the initial

rise in Myanmar’s calories intake is almost entirely neutralized. As economic theory

suggests, confiscations negatively impact food security. With only four observations at

hand, the results obtained are evidently not statistically significant.

5.2.7 MEDIUM-TERM IMPACTS OF INSECURE PROPERTY RIGHTS

The calculations in this section revel that the short-term impact of confiscations on food

security (six year past the intervention) is rather negative.

Our chose to conduct a medium-term impact assessment because we initially

assumed that it might take some time until confiscations actually translate in changed

investment behavior and then, in turn, food security.

A six-year-time frame was chosen due to data limitations. Indeed, there was only GHI

data for 2001 and 2006, not any years in between.

Thailand cannot be utilized as a control group in this setting because it experienced a

‘treatment’ (new law on property rights), whereas weak, in 2003, as displayed in Table

7. Thus, only two calculations were conducted:

Table 7: Long-Term Difference-in-Differences Estimations Myanmar & Laos

Pre-Treatment

(2001/FAO)

Post-Treatment

(2007/FAO)

Difference

Myanmar 2224 2435 211

Laos 2142 2287 145

Difference 82 148 66

35

Pre-Treatment (2001/GHI) Post-Treatment (2007/GHI) Difference

Myanmar 22.5 15.8 -6.7

Laos 23.6 23.23 -0.37

Difference -1.1 -7.43 -6.33

The results, depicted above, are surprising from the viewpoint of economic theory (at

first sight): Whereas the difference-in-differences estimations decrease the seeming

increase in Myanmar’s food security from 2001 to 2007, the confiscations seem to still

have had a positive net effect of +66 calories per head per day on Myanmar.

Myanmar’s controlled World Hunger Index score also improved by 6.33 points.

Additional calculations with Thailand are to be found in the appendix. These

calculations corroborate the findings of this section and the previous section. Again,

the findings are statistically not significant, though.

5.2.8 DISCUSSION

Traditional economic theory would suggest that confiscations decrease food security.

Indeed, if land, our item at question, is expropriated, a farmer cannot use it anymore

for growing crops. In addition, his access to credit might be limited because he lost his

main collateral. Furthermore, the new land might now be used by someone who makes

less effective use of it than the initial owner. The predictions of economic theory are

partly confirmed by this section. All difference-in-differences estimators decreased the

initially seemingly positive effect of less property rights on food security. However, we

had originally expected that the estimator would always reverse this effect. This is not

always the case.

Indeed, the short-term effect of less property rights on food security is negative. The

medium-term effect seems to be more nuanced, though: In our medium-term

calculations, individuals possibly had adopted substitution strategies to cope with the

confiscation of their land and the fading of creditors. For instance, illegal self-

subsistence cropping could have emerged. New land also could have been seized

36

legally. Thus, a loss of property rights may not impede food production and individual

food security in the medium-term because food security is such a basic need that it will

be sought under any circumstances. At the same time, a loss of property rights may

still impede more advanced economic activities such as running a factory or saving for

larger investments.

Putting these numbers in context: How much is 55 kilocalories, for instance, the

decrease found in the short-term estimations? In the industrialized world, the daily

caloric intake is currently at about 3,500 (FAO 2012). The suggested daily calories

intake is about 2,300 for women and about 2,700 for men (average of 2500). Hence,

decreasing the calories intake by 55 kilocalories would probably boost a country’s

health. The situation is different in our selected countries, though: Indeed, Myanmar’s

average reported intake of 2,258 kcal reported in 2002 as intake, is not sufficient. It is

242 calories below the suggested level. Hence, dropping from 2,258 to 2,203 on

average can have real negative health impacts. 55 calories are, after all, one 100g

grilled chicken salads at Burger King, for instance (Burger King 2012). Starvation

already starts at less than 1,700 kcal per day (FAO 2012).

We also want to reiterate that these reported numbers are averages. If the average

Myanmar citizen consumes 2,258 kcal a day, many will consume significantly less.

Think of the famines we initially mentioned. Our now indicated impacts of less property

rights on food security (such as – 55 kcal) may seem little at first sight, but they can

make a real difference in the life of an individual in our selected countries.

5.3 PROPERTY RIGHTS AND LAND: THE CASE OF MYANMAR

This section presents the team’s main analysis on land property rights and land usage

in Myanmar. The beginning of the section explains why there is a lack of land mapping

and land records in the country. Indeed, the state monopoly on land in combination

with a mainly rural population utilizing land according to customary laws offer little

37

incentives for the government to provide accurate and up-to-date records. In addition,

the inaccessibility and inexistence of such records may help disguising the current land

distribution in Myanmar, which is most likely highly skewed towards the country’s

affluent elites.

However, the team assumes that better land records are likely to emerge in the near

future. Indeed, the opening-up of the country has led to an exceptional prominence of

land on the country’s policy agenda. Many activists now call for better records. First,

the prominence of land is fuelled by land confiscation across the country, mainly

undertaken to create space for large industrial projects. Second, the prominence is

fuelled by land speculators, which aim to benefit from the country’s potential rise in the

current decade by buying large amounts of land, but without utilizing them.

As a response to these land policy challenges, the Myanmar government has enacted

two new land laws in 2012, the Farmland Law , which legalises the trading of land use

rights, and secondly, the Vacant, Fallow and Virgin Lands Management Law, which

hinders land speculations. Ideally, these laws would provide additional would make

land more productive, would equate the current land distribution patterns and would

cool down the country’s real estate market. Our team believes it is too early to judge

whether these ambitions can be met. In the final part of this analysis, the team explores

land productivity among small landholders.

5.3.1 LAND RECORDS AND LAND MAPPING IN MYANMAR

With a total land area of 677,000 square kilometers Myanmar is the largest country in

South East Asia. However, the country currently lacks clear records and maps of its

land. Indeed, the “land classification is chaotic” (World Concern 2009) and there are

“no updated land use maps” (Shwe Thein 2012).

UN Habitat agreed to these judgments in the interview: “There need to be better maps

and better records, (…) re-surveying”. Using GIS and satellite imagery, his team

38

intends to provide a stepping stone for the Myanmar’s land policy via the UN Habitat

land administration program which re-surveys the entire country, a process which may

take at least six years.

5.3.2 LAND LAWS IN MYANMAR

A central reason for this lack of records in our point of view may be the government’s

monopoly on land ownership combined with the prevalence of customary land laws.

From a legal standpoint, the government owns all land in Myanmar. This was decided

in 1953 already; until today it remains a central article in the country’s constitution

(UNDP 2002). Citizens need to register for user rights before cultivating any land. Until

2012 these land use rights were non-transferable. Indeed, countries with land

exclusively in the hand of the government tend to “treat [land] records as a state secret”

(The Economist 2012). Because land does not change its owner frequently in such a

setting – as opposed to a country with lots of private land – there is only little incentive

for governments to keep records precise and up to date. After all, the land remains in

the state’s hands in any case. Whereas the government de jure owns all land, it has

been common for citizens to trade their land use rights (Invest in Myanmar 2012).

In addition to the government monopoly, there is only limited potential for pressure

groups and civil society, which could ask for the creation of up-to-date records as long

as the population remains rural. Such rural population is likely to be distant from

political processes.

5.3.3 LAND DISTRIBUTION PATTERNS IN MYANMAR

Myanmar is likely to lack up-to-date land records because of the state monopoly on

land and the lack of organized pressure groups. A third reason for Myanmar’s dismal

land records could be the country’s currently skewed land distribution. Indeed, today

land (use rights) seem(s) to be mainly in the hands of a small elite, there is “a very

unequal distribution of land” (Oxfam Hong Kong 2013).

39

According to an interview of Sai Myint, a business owner from Yangon, “90 percent of

the raw land, especially in non-urban areas, is owned by the ministers [in the current

cabinet]”. If this is truly the case, it would be little of a surprise that no precise estimates

on land distribution in Myanmar are be provided. The non-provision may serve as a

disguise of this skewed distribution.

5.3.4 LAND CONFISCATIONS IN RURAL MYANMAR

However, the team believes that it is likely that land mapping and land records will

improve vastly and will become accessible in Myanmar within the next ten years. After

all, the country’s opening-up has lifted land on the country’s policy agenda. A core

reason is land grabbing [expropriation risks].

Whereas the rural population is still allowed to settle and utilize land when necessary,

land grabbing – as a tool to create space for large industrial projects – is now an

increasingly common in Myanmar. Indeed, “there is land confiscation going on in a

massive scale across the country” (Leckie 2013). “In many areas of the country rural

livelihoods are under threat as smallholder farmers are being displaced from their land

due to granting of large-scale land concessions” (Food Security Working Group’s Land

Core Group 2012).

For instance, more than 7,800 acres were seized in 2012 to allow the one-billion-USD

expansion of a copper mine in northwestern Myanmar. The police crushed the resulting

protests (Thun 2013). Seemingly, example is not an outlier. According to Asian Legal

Resource Centre (ALRC), people are forced out of their houses or lose their farming

land to state-backed projects almost daily (Mizzima News 2012). Sometimes, a paltry

compensation is offered, oftentimes nothing. Not only industrial projects, but also agri-

businesses increasingly replace smallholder farmers in Myanmar (Oxfam Hong Kong

2013) and threaten their food security.

40

5.3.5 LAND SPECULATIONS IN MYANMAR

A second reason of land’s prominence in Myanmar is the rise of land speculations and

the accompanied rise of vacant land. This is also associated with the skewed

distribution of land. Sai Myint exemplifies the rationale behind land speculations. His

family owns two ‘farms’ close to Yangon with holdings of 25 and 35 acres. However,

the main purpose of these ‘farms’ is not to produce crops. The farmer he allows living

on the land only cultivate as much as necessary to sustain for a living. Most of the

remaining land remains virgin. “This is highly unproductive land”, Sai admits.

He bought the land two years ago and he plans to keep it for at least another three

years. According to him, the square meter price in Yangon where land speculation is

particularly prevalent has reached USD 20,000 by now. “Land prices have risen 10,000

times in the last 30 years in this region. In the last 2 years, prices have risen by about

ten times,” he told us.

“In the early 1990s, my relatives had to sell 20 houses in Myanmar in order to get a

very small apartment in New York. Now, they already sold their huge mansion in Long

Island, but it could only finance 10 percent of their house in this country,” Sai told us.

Indeed, the high prices are incited partly by the anticipated influx of foreign capital due

to the opening of the country. Western firms are excited by “the country's big population,

abundant natural resources and palpable demand for modern products” (The

Economist 2012b). Investing in land now means profiting from even higher land prices

in an industrializing Myanmar later on, the rationale goes.

A second reason for the rising prices might lie within the country’s abundant resources.

The cash generated via the exploitation of these resources must be invested

somewhere. “It is the Dutch disease”, Sai told us. The real estate market most likely

seemed to be a viable option at first sight, which not prone to inflation for the cash

generated by the elites via natural resources.

41

Indeed, the country’s inflation rate developed in an unpredictable manner over the

previous 20 years (Trading Economics 2013). Whereas it stood at a (for Myanmar’s

standards) moderate nine percent in the previous three years, it reached its peak in

2002 with 58 percent. Thus, land may serve as an (unproductive) repository for the

elite. Ironically, the little risk of land confiscations for Myanmar’s elite may fuel

economic inactivity and food insecurity.

Figure 7: Inflation Rate in Myanmar [1993-2013; %]

5.3.6 THE FARMLAND LAW AND THE VACANT, FALLOW AND VIRGIN LANDS

MANAGEMENT LAW

Seemingly and despite allegedly vested interests within the Burmese government, the

government still might have recognized that it must fight land speculations and

unproductive land use if it wants to advance Myanmar economically.

-10

0

10

20

30

40

50

60

70

1993 1995 1997 1999 2001 2003 2005 2007 2009 2010 2013

42

Figure 8: The New Land Laws: Level of Awareness among Burmese Farmers

Indeed, the government enacted two new land laws in August 2012 which attempt to

address the previously described challenges: The Farmland Law and the Vacant,

Fallow and Virgin Lands Management Law.

Seemingly, these new land laws are widely known in the country, even among the rural

population. Among the farmers interviewed in Pyapon, Myanmar, 80 percent had

heard about the new laws.

Eight of the farmers we interviewed believed the new lands laws would affect them

positively, e.g. by granting them more secure land rights. Six were unsure. According

to the Farmland Law land remains in the hands of the government. However, this bill

now allows a person with land use rights to transfer, exchange, or lease their land.

Gains from trade, as discussed in the initial theoretical section of this analysis, may be

more feasible now.

However, the law does not allow disputes over land use rights to be carried to the court

yet (Invest in Myanmar 2012). Indeed, such disputes must be settled alongside

administrative lines only (Leckie 2013). What this means in reality is yet to be seen.

In addition, the government reserves for itself the right to confiscate land in exchange

for ‘suitable’ compensation. Hence, the risk of expropriation for the rural population

may stay high. Also, the land use rights exclude the permission to extract natural

resources such as gems, minerals, petroleum and gas (Leckie 2013).

80%

20%

Yes

No

Have you heard about the new land laws? [%]

43

The Vacant, Fallow and Virgin Lands Management Law is an amendment to the

Farmland Law. It stipulates that any unused land can be claimed and utilized by “willing

individuals” including foreign investors. This means that land can no longer be simply

purchased and then left vacant. If done so, this land becomes available for investors

again who have an interest in making the land economically productive (Invest in

Myanmar 2012).

If those owning large amounts of land in Myanmar fail to cultivate it from now on, this

law might change – provided it is actually implemented – land distribution patterns in

the country. It would cool down the real estate market because holding and trading

large amounts of virgin land would become practically infeasible.

5.3.7 LAND AND FARMER’S PRODUCTIVITY

Previous sections of this analysis have largely focused on land productivity among

large land owners. This section discusses land productivity among those with only little

land at hand.

Indeed, such small farmers seem to be a key to productive land use in many

developing countries. “Small farms produce more per hectare per year than large farms”

(Lipton 2009). Development reports on seven Latin American countries also evidence

that production per hectare was three to five times higher in small farms than large

farms (Berry & Cline 1979; Binswanger et al. 1995, Sen 2003).

The small-farm-equals-productivity-hypothesis is also evidenced in the sample our

team collected in Pyapon. Whereas the sample is too small to yield any statistically

significant results, the plotting of revenues generated per acre alongside acres of land

owned by a farmer indicates that farmers owning more land seem to be less productive

(Figure below). Indeed, an increase of land by one acre is associated with a decrease

in revenue per acre of 4292 Kyats (p-value at 0.177).

44

Figure 9: Productivity among Burmese Farmers [Kyat/acres]

Obviously, land speculation cannot be an explanation for this decrease. Indeed, this

data provides space a second argument: Economies of scale among non-

industrialized farmers do not seem to exist. Indeed, farmers will less land cultivate it

more efficiently because they have to in order to ensure a sufficient level of food

security. At the same time, any farmer with little land at hand will somehow cultivate it

more effectively than investors who leave it virgin. Food security is higher among those

farmers with more acres at hand. Indeed, farmers with three meals per day in our

sample own 16.3 acres, on average, while those with two meals per day only own 11.5

acres. Again: Due to the limited sample size, these results are not statistically

significant, though.

Evidently, total revenues increase if a farmer owns more acres. Indeed, an increase of

one acre of lands is associated with an increase in total revenues of 139,330 Kyats in

our sample.

100000

150000

200000

250000

300000

350000

5 10 15 20

Re

ve

nu

e/

Acr

e (

Ky

at)

Acres of Land owned

45

Figure 10: Average Food Security and Land Ownership among Burmese Farmers

[acres]

6. CREDIT

This section examines the impact of access to credit on food security. First, theoretical

linkages between access to credit and food security are described. Second, the main

credit providers in Myanmar are examined. Third, the main problems of each of the

main credit providers are discussed.

6.1 CREDIT: THE THEORETICAL STANDPOINT

This section discusses the theory behind microfinance: first, determinants of interest

rate, second modalities of including and excluding borrowers. It builds upon Karlan &

Morduch (2012).

Indeed, microfinance theories assume the borrower is the sole operator of a single

income generating activity, the output of which is constrained either by lack of capital

or by the high marginal cost of credit relative to its marginal returns. Easing the capital

constraint permits the operator to increase output, net income, profits, and hence their

own welfare (de Mel et al. 2008). Ability to borrow, or debt capacity, depends on the

capacity of actual or potential income from the business to meet borrowing costs and

collaterals.

owning 11,5 acres

owning 16,3 acres

2 meals/day 3 meals/day

46

The first strand of literature related to determinants of interest rate largely builds upon

using collaterals such as land in order to gain access to credit. This channel has been

explained in the previous theoretical section already. The second strand of literature

refers to the modalities of including and excluding borrowers.

Moral hazard is a key concept in this context. It refers to the loan utilisation by the

borrower. The lender cannot be certain that a loan is used for its intended purpose, or

that the borrower applies the expected amount of effort and entrepreneurial skill

necessary to succeed. If inputs are less than expected or if a loan is misused, then the

borrower may be less able to repay it (Ghatak and Guinnane 1999). If the lender has

only little information on the credibility of potential borrowers, which is the case in many

rural regions, he may choose not to provide a loan at all. Micro-credit ought to close

this demand-supply-gap. Microfinance advocates claim that the formation of so called

Joint Liability Groups (JLGs) with its focus on peer pressure and monitoring respond

to moral hazard. With regard to volatile household incomes (Sebstad et al. 1995), the

impact of credit on consumption smoothing may be as important as its impact on

enterprise promotion (Morduch 1995, Rutherford 2001, Collins et al. 2009).

6.1.1 EMPIRICAL EVIDENCE

In 2010, nearly 200 million people were clients of micro-credit institutions. In 2012, the

number is around 1 billion people (Deutsche Bank 2012). The previous section

discussed the theoretical underpinnings behind microcredit. This section investigates

whether these underpinnings hold empirically.

There are two ‘phases’ of micro-credit impact research:

Phase 1 (Pre-Randomization-Phase): Overwhelmingly positive towards micro-

credit until 2006. However, many impact assessments were non-randomized;

Phase 2 (Randomization-Phase): Researchers “in the last few years have

started using randomized controlled trials (RCTs) to test microfinance impact”

47

(Rosenberg 2010). This most recent evidence is “less clear-cut about [micro-

credit] effects” (Steward et al. 2012).

This paper only assesses micro-credit impact research from the second phase. Below,

two main criticisms from the most recent literature with regard to this policy tool are

outlined. One criticism argues that donors are now more concerned with making profits

than with lifting people out of poverty. This line of thought is corroborated, for instance,

by a recent Deutsche Bank report indicating that “microfinance has to achieve a new

balance between social and commercial objectives” (Deutsche Bank 2012),. Yunus

also argued in 2011 that many donors are now “sacrificing micro-credit for mega profits”

(2011). A second criticism with regard to micro-credit is that it shifts the blame for

poverty on the poor. Bateman and Chang (2012) make this point. Assume the poor

remain poor although they have been given micro-credits. From a policy-maker

perspective, one is tempted to argue that sufficient support has been provided already.

Criticisms on the (non-) impact of micro-credit are refuted by a number of recent

randomized evaluations, though. Banerjee et al. (2012), for instance, report on the

effects of a random introduction of microcredit in slums in Hyderabad, India. They find,

among other things that 15 to 18 months after lending began in treated areas,

expenditure on durable goods increased – just as the number of new businesses

increased by up to one third. Karlan and Zinman (2010) randomly assign credit to small

businessmen in Manila. They also conclude that microcredit works broadly.

More comprehensive reviews than ours on micro-credit impact assessment can be

found in Rosenberg (2010) and Steward et al. (2012).

6.2 INTRODUCING THE CREDIT MARKET IN MYANMAR

This section introduces the current rural financial situation in Myanmar and describes

the country’s main credit providers.

48

6.2.1 THE CURRENT RURAL FINANCIAL SITUATION IN MYANMAR

The section introduces the current rural financial situation in Myanmar. According to

the Myanmar Agricultural Development Bank Law (MADB Law) of 1990, the MADB is

the only legal entity that may provide loans for agricultural purposes. However, such

loans, currently at 50,000 MMK per acre, cover only 50 percent of production cost for

farming (Turnell 2009; Myint 2013, interview). Indeed, the amount necessary for a

farmer to achieve a profitable yield is estimated to be around 100,000 to 130,000 MMK

(US$117-152) per acre (Microfinance Industry Report 2010).

The rural financial situation in Myanmar changed dramatically when Cyclone Nargis

struck the country in May 2008, causing a credit crunch particularly in the Ayeyarwady

Delta (Oxfam 2009). Microfinance Institutions (MFIs) and Special Agricultural

Companies (SACs) started propping up in the rural area to augment the incapacity of

the MADB to provide sufficient credit for the affected population. MFIs were considered

illegal entities until November of 2011 when the MFI Law finally passed. SACs, entirely

funded by the private sector, on the other hand, were encouraged by the government.

Despite these new sources of credit, the majority of the population still borrows from

informal sources with high interest rates (Microfinance Industry Report 2010). Hence,

despite the increases in the loan size of the MADB and sources of credit in the rural

area, farmers continue to suffer a high level of chronic indebtedness (LIFT 2012).

6.2.2 A PERSPECTIVE FROM THE SUPPLY SIDE: CURRENT RURAL CREDIT PROVIDERS

This section discusses the rural financial situation from the supply side perspective of

the credit market in Myanmar and provides a brief description of each credit provider.

A summary of the different rural credit providers for agricultural production and their

services are provided in Table 8 below.

Table 8: Summary of Conditions of Different Agricultural Credit Lenders in Rural

Myanmar

49

Lender/ Conditions

Total Loans Given Out (2012)

Loan Amount per Acre

Interest Rate/ Annum

Requirements to Borrow

Repayment Dates

MADB 426,452, 000,000 MMK

50,000 MMK, capped at 10 acres

8.5 percent

Land use rights, two personal guarantors OR approval from village committee

January

MFIs

(ASA) 122,810,000 MMK

100, 000 MMK

24 percent

land use slip, village authority recommendation, and RDG approval

February

(PACT) More than 300,000,000 MMK

No acre. Ranges from 60,000 to 150,000

15 percent

None but under the discretion of village committee

Weekly payment for 25 weeks

SACs 550, 000, 000 MMK

20, 000 MMK + 3 bags of fertilizer (worth 15, 000 MMK each)

24 percent

Recommendation from a current SAC borrower

February

Input supplier

Price of the good ie seeds, fertilizer, etc.

N/A 4-8 percent

Relationship with input seller

After harvest

6.2.3 PROVIDER 1: THE MADB

The main credit provider in Myanmar is the MADB, and it will be discussed in this

section.

In 1990, the Myanmar Agricultural and Rural Development Bank Law created the

Myanmar Agricultural and Rural Development Bank (MADB) to provide “banking

services” for agriculture. Currently, the MADB is supervised by the Ministry of

Agriculture and Irrigation Authority (MAIA).

In 2012 the national budget for MADB was MMK 426,452 million or US$ 500 million

(Myint 2013, interview). In 2009, the MADB only loaned 8,000 MMK ($9.50 USD) per

acre (ASH 2011). In 2010, the amount increased to 20,000 MMK; in 2011, it was

50

increased to 40,000 MMK per acre; and in 2012, it was increased to 50,000 MMK (LIFT

2012, Myint 2013, interview) (Figure 11).

Figure 11: Increases in loan amount per acre

There is a loan cap of 10 acres per farmer (maximum loan: 500,000 MMK). Although

the loan amount per acre has significantly increased, it is still half of the 100,000 MMK

- 130,000 MMK per acre necessary for a profitable yield. Despite this, the MADB claims

it has 2 million borrowers (Turnell 2006).

The government at 8.5 percent/year sets the MADB interest rate. The loan is disbursed

in May-June during the rainy season with repayment in January the next year. In fact,

and as mentioned in the introduction of this section, official records claim that the

MADB has a 100 percent repayment rate (Turnell 2009). The research team initially

took this as a very tall claim as it is highly unlikely that a country which is, for instance,

only able to collect 3 percent of taxes as part of its GDP (ADB 2012) – one of the lowest

rates worldwide – will at the same time have the institutional capacity to collect all loans

it provides. However, interviews conducted in MADB Pyapon revealed that farmers are

forbidden from writing off their bad debts. If debts are not repaid, access to credit fades.

Thus, a high repayment rate might actually be the case.

51

6.2.4 CASE STUDY 1: MADB PYAPON

The team visited a local MADB office in Pyapon. According to MADB Pyapon Township

manager Daw Khin Saw Wa Ti Myint, MADB Pyapon serviced more than 9,000

borrowers in 2012. Myint believes this is about 50 percent of farmers in Pyapon. In

2011, the number of borrowers stood only at 7,000. The manager mentioned plans to

increase the loan caps per acre in the following year, depending on financial capacities.

Figure 12 shows the trends in loan disbursement of the branch in the last five years.

Figure 12: Yearly Loan Disbursal of MADB Pyapon Township

6.2.5 PROVIDER 2: MICROFINANCE INSTITUTIONS

This section discusses the MFIs as providers of micro-credit. As mentioned, the

aftermath of Cyclone Nargis resulted in a ‘credit crunch’ in Myanmar (Oxfam 2009).

The devastation to livelihood caused by Nargis warranted an exponential increase in

available credit for reconstruction: houses were destroyed and paddy fields were

flooded. Seeing that Myanmar’s bureaucratic capacity was insufficient to respond to

the crisis, the government allowed the entrance of International Non-Governmental

Organizations (INGOs) into the credit market. Most of these INGOs have remained in

existence as MFIs until now, serving as alternative sources of credit for borrowers.

In Myanmar, there are currently 5 INGOs involved in credit provision: Association of

Medical Doctors of Asia (AMDA), Private Agencies Collaborating Together (PACT),

52

Group de Recherce et d'exchange Technologique (GERT), Save the Children and

World Vision.

Unfortunately, these INGOs service only a fraction of rural households, as their targets

are mainly women with micro-enterprises; 90 percent of borrowers were women in

2009 (Microfinance Industry Report 2010). In 2009 there were only 385,283 loans

made which amounted to a total of USD$27 million (Microfinance Industry Report

2010). MFIs exist in 46 townships out of Myanmar’s 325 townships.

Of these five, PACT, which is the official UNDP microfinance lending arm in Myanmar

has the largest market share and reach. Among MFIs, it provided 90 percent of loans

made since Nargis (Microfinance Industry Report 2010). In 2009, UNDP-PACT

provided farmers with up to 80,000 MMK per acre for cultivation, 10 times more

compare to the 8,000 MMK per acre loaned out by the MADB in 2009.

When the Microfinance Report was published in 2010, it outlined the need for a

Microfinance Law: “Without the Microfinance Law, however, microfinance institutions

are in a precarious situation as there does not exist any microfinance law which clearly

defines what microfinance institutions can and cannot do” (Microfinance Report 2010).

The Microfinance Law was enacted in December 2011, allowing these microfinance

institutions to provide microcredit to the poor without collateral. In reality, however, the

team’s interviews with two microfinance institutions in Pyapon revealed that both are

unaware of the existence of such laws, citing that technically, they are ‘illegal entities’

as only the MADB is legally allowed to lend to farmers for agricultural purposes.

The two-microfinance institutions the research team interviewed are Action for Social

Aid (ASA) and Private Agencies Collaborating Together (PACT). Both MFIs are located

in Pyapon Township.

53

6.2.6 CASE STUDY 2: ACTION FOR SOCIAL AID

This section discusses ASA as an MFI. Action for Social Aid (ASA) is one of the non-

governmental organizations birthed by Cyclone Nargis. Located in Pyapon township,

it was initially involved with distribution of relief goods and renovation. Right after

Nargis, it was active in distributing food in the Delta; it then partnered with UNICEF in

their water and sanitation project. In 2010, five businessmen from Pyapon1 who started

ASA decided to continue its support to the community through a microfinance project

by providing loans to smallholder farmers in Pyapon. Currently, together with providing

microcredit, ASA also provides training programs (land preparation and seed planning)

to their beneficiaries.

Through the years, the number of borrowers from ASA has decreased. Htun Lin, the

manager of ASA, cites non-repayment of loans as the reason. “People thought it was

a donation,” he said. He argues that the decision to cut off these people from the

program was made to ensure its sustainability. There are no legal actions against

people who have defaulted.

The initial capitalization of 300,000,000 MMK was provided by DFID and CIDA. The

organization offers ‘farmer loans’: farmers borrow in May during the planting season

and repay in February during the harvest season. Table 9 shows the total amount of

loans disbursed and total number of borrowers from 2009 until 2012.

Table 9: Number of Borrowers and Loans Disbursed- Action for Social Aid (2009-12)

Year Total Amount of Loans Disbursed Total Number of Borrowers

2009-2010 223,501,960 MMK 210

2010-2011 153,878,920 MMK 128

2011-2012 122,810,000 MMK 107

1 Htun Lin decided it is best to withhold the names.

54

The interest rate provided by ASA is 24 percent per annum. Loans are up to 100,000

MMK per acre, thus sufficient. There is no acre cap; loan size is only dependent on the

number of acres owned. ASA believes that this loan amount enables farmers to invest

more in necessary factors of production to ensure maximum profit, thereby ensuring

repayment. This policy is also made to ascertain that farmers have sufficient credit to

discourage them from borrowing elsewhere to avoid indebtedness (Lin 2013,

interview). Requirements to borrow are land use slip, village authority

recommendations, and RDG approval. Hence, the way ASA works, only farmers with

land, capable of repayment, and of good character (according to the RDG) can borrow.

Currently, ASA considers increasing the interest rates in order to ensure sustainability

of the organization and competitiveness. Htun Lin said this would be an important step

since the initial capital from DFID is already used up. Currently, according to Htun Lin,

ASA have savings that can sustain the organization for another 7 to 8 years, though.

Htun Lin believes that the new Farm Land Law will provide an additional safety net for

ASA. The Farm Land Law allows land use slip rights to be used as collateral and this,

he believes, will create a big disincentive for farmers who are scared of losing their

land to default on their loans.

6.2.7 CASE STUDY 3: PRIVATE AGENCIES COLLABORATING

This section discusses PACT Pyapon as an MFI. PACT started in 2006 with funds

provided by the UNDP as part of its efforts towards poverty alleviation in Myanmar.

Currently, it is the primary microfinance institution in the country (Microfinance Report

2010). In 2011, UNDP has stopped its support for the program. It is currently in

partnership with Livelihoods and Food Security Trust Fund (LIFT).

According to Mr. Aung Myo Min, manager of PACT Pyapon, there are currently 4,400

main borrowers, 98 percent of which are women. Unlike ASA, PACT’s lending is not

restricted to agricultural purposes. It is mainly utilized for other income-generating

55

activities (IGA) like small family-run business. Farmers are required to attend a semi-

formal education from PACT to handle their small business before obtaining a loan.

The current budget of PACT Pyapon is more than 300,000,000 MMK.

Unlike ASA where payment is during harvest time, PACT runs like the traditional

microfinance institution. Payments are required weekly, and starts two weeks right

after the loan was made. The amount must be repaid in 25 weeks, with 25 equal quota

payments each time. For example, a loan of 100,000 MMK yields 15,000 MMK, with

4,600 MMK done weekly for 25 consecutive weeks.

There are no stringent requirements to obtain a loan but there is a committee per

village composed of 5 people who decides who will receive loans. Loans start at 60,000

for the first year of borrowing. If the borrower has a good track record, the loan amount

for the next year is increased to 80,000 MMK. The highest loan given to an individual

is 150,000 MMK. The interest rate is 15 percent.

PACT Pyapon is active in 51 villages all over Pyapon Township. The office has 16

officers: 10 field officers and 6 information clerks. Mr. Aung believes that business for

PACT is ‘booming’, saying that they are expanding year by year. “Our work can go on

for generations,” he said.

6.2.8 PROVIDER 3: THE SPECIAL AGRICULTURAL COMPANIES

This section discusses SACs. In an effort to aid reconstruction and recovery after

Cyclone Nargis in 2008, the private sector initiated what is now known as Special

Agricultural Companies (SACs). SACs are a partnership between several agriculture-

based companies— providing services ranging from loan provision to rice milling— to

farmers in a specific township. Each township has one SAC and there are currently 40

SACs in Myanmar in total. They are mainly clustered around the Ayeyarwaddy Delta.

Approximately 12, 802,470, 666 MMK ($15 million USD) were supposedly lent out to

farmers by existing SACs in 2009 (ASH 2011).

56

The SAC in Pyapon Township is the Aung Ya Da Nar Social Association. An interview

with the financial adviser of the company, Mr. U Ohn Han, provided valuable insight to

the role that SACs play in the agricultural sector and its business framework. Aung Ya

Da Nar Social Association’s primary work is credit provision to the farmers of Pyapon

Township. However, not just any farmer can obtain loans. SACs primarily work on a

trust network; although there are no stringent requirements for borrowing, a farmer

must be guaranteed by an already existing borrower. Mr. Han was able to explain the

informal application process more explicitly to the team:

“They just continue with those farmers they have. And those farmers then recommend

newcomers. This process then goes on. So that is how more farmers come. And if the

new farmers return back loans, and there is mutual relationships, trust, then there are

more loans coming.” Moreover, there are 6 shareholders and 8 board of directors—

local large-holder farmers in Pyapon who have been in the rice farming business for a

long time— who assess the character of farmers who want to borrow. In 2008, they

only had 350 farmers; in 2012, the number has risen to 550.

The current budget amounts to 550, 000, 000 MMK. Loans given are only 20, 000

MMK per acre, but 3 bags of fertilizer (worth 15, 000 MMK each) are given with it. The

interest rate is also 2 percent per month or 24 percent per annum. Moreover, loans do

not have an acre limit. The average land size of their farmers is 20 acres and can go

as high as 400 acres. Loans are paid in February the following year, but payment is

rather flexible overall. Farmers are not required to repay instantly if the weather was

bad during harvest time.

Mr. Han clarifies that SACs are non-profit companies. He also dispels the authors’

initial knowledge that SACs are public-private entities. “SACs are all private money,”

he says. He explains that initially the government wanted to use the local businessmen

as partners. However, it was not able to provide funding; the project then continued

even without government funding.

57

The 24 percent per annum interest rate is only meant to sustain the operational costs

of the company. The profit, however, lies in other businesses tied to the lending

program such as the rice mills. Although there is no formal agreement that borrowers

will utilize non-lending services of the SAC, it is usually part of a tacit agreement.

6.2.9 PROVIDER 4: THE INFORMAL MONEY LENDERS

This section discusses informal moneylenders. The MADB acknowledges the need for

farmers to borrow from informal lenders in order to compensate for their small loan

provision. Meanwhile, both PACT and ASA believe that their institutions ‘save’ the

farmers from the excessively high interest rates of informal lenders. However, where

there is no credit provider in the village, farmers are have no choice but to borrow from

informal credit sources (LIFT 2012). Credit in the informal credit market comes in a

variety of forms in rural Myanmar; sources include input suppliers, kinship networks,

loan sharks, and pawnshops. Although the team was unable to interview informal

moneylenders, people we interviewed— from farmers to credit providers—

acknowledged their existence and importance.

6.2.10 CREDIT FOR CONSUMPTION

This section discusses source of informal credit for household consumption. A sizeable

amount of rural household relies heavily on informal money lenders for credit when

small loans are desperately needed to buy food for the family (ASH 2011). Through

kinship networks, farmers are sometimes able to acquire loans without collateral and

interest (LIFT 2012).

In cases of emergency, farmers have no choice but to resort to loan sharks whose

interest rates range from 10 percent to 30 percent per month (LIFT 2012). Those who

have gold use it as collateral to borrow credit from pawnshops at a 3-5 percent interest

rate per month (ASH 2010). Some pawnshops accepted collateral in the forms of

household appliances (LIFT 2012), while some accepted anything including

58

identification cards (Sai 2013, interview). Interests varied greatly depending on the

collateral.

6.2.11 RESULTS FROM THE HOUSEHOLD SURVEY: THE DEMAND SIDE

This section discusses the rural financial situation from the demand side of the credit

market in Myanmar. It provides a snapshot of rural households through a case study

of ASA farmers from Pyapon Township.

Comprising of both formal and informal lending, the UNDP IHLCA Survey 2011 shows

that total access to credit has further decreased from 38 percent in 2005 to 33 percent

in 2010 in Myanmar. Meanwhile, the average amount borrowed rose by 23 percent in

real terms: from 167,974 MMK ($197 USD) in 2004 to 206,966 MMK ($242.5 USD) in

2009. These numbers exceed the MADB loan cap because of credit obtained from the

informal sector. From this data it is already apparent that those who were able to

borrow have increased their amount of borrowing, which signals the increase in price

of inputs for agricultural production. Indeed, all of the farmers interviewed pointed out

that prices for agricultural inputs rose drastically over the past few years.

6.3 ANALYZING THE CREDIT MARKET IN MYANMAR

After outlining the rural financial situation in Myanmar, describing both the demand and

supply side of the rural credit situation, this section will now provide our analysis. It is

apparent that the depressed market of rural credit affects food security.

The recent entrance of MFIs and SACs in the rural credit market point to a constant

demand from farmers for affordable and sufficient credit. It also points to the incapacity

of the MADB to provide for the credit needs of the rural populations. The recent

enforcement of the Microfinance Law, which gives legal status to MFIs and the

Farmland Law, which allows land to be used as collateral for loans, shows an

acknowledgement from the government of these market distortions and points to a

general willingness for necessary reforms. Our analysis led to the following

59

government and market failures in the rural credit market in Myanmar, and these are

the following:

1. Inefficiency of the MADB

a. Financial incapacity

b. Institutional incapacity

2. Lack of competition: Scarce and Alternative Source of Credit

3. Non-entrance of private rural banks

6.3.1 UNDERLYING FACTOR THE INEFFICIENCY OF THE MADB

Since the MADB has the institutional apparatus and state support to fix the rural credit

market, it is imperative that the analysis starts here. There are contrasting reviews of

the MADB, Prof. Sean Turnell argues farmers were dissatisfied with its services

(Turnell 2009) while the UNDP Report shows that it has a “good reputation” (UNDP

2002). Based on the assessment of the authors, it finds that there are two major

problems of the MADB: financial and institutional.

A. Financial

According to our analysis, the MADB is financially inefficient because of regulations

that inhibit its asset accumulation. This includes a limit on paid-up capital, interest-rate

ceiling, and insufficient deposits for higher profits. The MADB loans majority of its

loanable funds from the government through the Myanmar Economic Bank (MEB) with

an interest rate of 10 percent. In FY 2003/04, 73 percent of its funds were from MEB,

22 percent from deposits and 5 percent came from capital and reserves (Turnell 2009).

Moreover, the MADB Law of 1990 states paid-up capital is limited to 1 billion MMK

($1.2 million USD). Essentially, a bank’s capital is equivalent to a bank’s net worth,

which is generated from the balance of its assets and liabilities (Mishkin 2009).

Essentially, the bigger a bank’s capital is, the more resistant it is to economics shocks:

thereby reducing the possibility of a bank failure. Hence, the limitation on the paid-up

60

capital (or basically the amount that shareholders can invest in MADB) presents a huge

detriment to the growth of the bank as investments cannot go beyond what is set by

the law.

In terms of profits, according to the MADB Law of 1990, 25 percent of its profits must

be allocated for a reserve fund and the 75 percent balance must be transferred to the

government as a dividend. Instead of increasing profits by diverting the profit to more

productive assets, dividends are paid to the government. Policies such as this greatly

hinder the capacity of the MADB to accumulate necessary capital necessary to fund

the agricultural sector.

Moreover, non-transaction deposits are the primary sources of a bank’s fund (Mishkin

2009). Banks gain profit via interest rates when loans are made but acquire capital

when deposits are made. According to the FI Law of 1990, deposit can be used as

collateral against borrowing from MADB. However, MADB Pyapon not holding a single

deposit account (Myint 2013, interview) shows that farmers, and even MADB itself,

prefer to use the land-use rights as collateral more than deposits. This then poses a

great question with regards to the sustainability of the MADB as deposits may be

necessary sources of funding for future loans.

Holding deposits presents another challenge to the financial sustainability of the MADB

and the general banking sector of Myanmar. According to the Financial Institutions (FI)

Law of 1990, deposits can be made to the MADB with a 10 percent interest rate.

However, an important caveat is that deposits cannot be withdrawn.

Unless this important provision is corrected, no farmer will opt to deposit any of their

savings to the bank as the rate of inflation does not provide sufficient incentive for

farmers to deposit their savings to the bank. Figure 13 shows that although the inflation

rate trend has been going down for the past five years, an inflation rate of almost five

percent results to only a five percent interest rate on deposits. Myanmar remains to be

61

a cash-based economy and therefore a high inflation rate translates to bigger

economic costs for poor farmers to keep money in the bank.

Furthermore, assuming that farmers are rational, farmers will only make deposits when

it believes that doing so is safe and profitable. Currently, most people would rather

keep their savings at home (like the poor productive farmers) or in real estate. This is

because of the big interest-risk in Myanmar: let us say for example that with inflation,

a 100, 000 MMK deposit with 10 percent per annum interest may equal 110, 000 MMK

but with an inflation of 5 percent percent results to only 104,500 MMK in real terms.

Hence, with the same amount of money, purchasing power is greatly decreased. This

is why, some people, like those who participate in land speculation, invest it in other

more profitable assets such as real estate.

Figure 13: Inflation Rate Trends for 2007-2011 (ADB 2012)

B. Institutional

Aside from financial recapitalization, the MADB also needs to restructure itself

institutionally. Currently, institutional inefficiencies result in higher transaction costs for

farmers and profit losses to the bank. Moreover, interviews with the Ms. Myint of MADB

Pyapon reveal the need for and increase in number and capacity of human resources.

Farmers who borrow mention things such as: “cost of paperwork”, “multiple visits to

bank offices”, “forming lending groups”, and “speed money to process loan forms

quickly” as some of their expenses incurred in acquiring loans form the MADB (ASH

32.9

22.5

8.2 7.34.2

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011

CPI (% change per year)

62

2011). These expenses lead to higher transaction costs for the farmers who wish to

borrow from the MADB. Furthermore, the bank’s lack of branches nationwide result to

farmers opting for loans which are readily available in their area, which comes in the

form of informal lenders.

Moreover, the “risk-sharing” policy which provides the rationale behind the miniscule

loan amount employed by the MADB forces farmers to borrow from alternative sources.

Ms. Myint of MADB Pyapon explained that the government expects the farmers to

share the burden of cultivating the land by investing a fraction of their savings or

borrowing money elsewhere to compensate for production costs. Although this policy

avoids a welfare dependency mentality, it is not feasible for a country like Myanmar

which de facto only allows one bank, the MADB, to loan for agricultural purposes.

The acre cap of 10 acres per farmer also greatly hinders the productivity of farmers

whose land that exceeds 10 acres. In a discussion above about the relationship

between credit and acre size of ASA farmers, loan size was commensurate to their

land size. A farmer who owns 12 acres, for example, will be able to borrow 100, 000

MMK (the loan amount) x 32 acres or a total of 3,200,000 MMK. This causes ASA to

have a policy of not allowing their farmers to borrow from other sources of credit as

they believe their loan amount is already sufficient.

In addition to MADB’s unresponsiveness to consumer needs, it is also unaware of

market opportunities. For example, our survey with households in Pyapon reveal that

most farmers have savings in cash hidden somewhere inside their houses.

Indeed, MADB has to diversify its financial services to also include deposits, insurance,

and other types of loans. However, as Ms. Myint, pointed out, “bigger loans will only

increase the burden of MADB to disburse and collect larger sums of money”. This

statement is in line with the the Harvard Kennedy School’s critique of the bank’s staff,

it said: its staff should be highly competent individuals knowledgeable about rural

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banking which currently is not always the case (ASH 2011). Hence, existing human

resource capability puts into question the institutional capacity of the MADB to become

a real bank and affect macroeconomic growth for the country and provide services to

farmers to affect food security.

6.3.2 SUPPLIERS OF CREDIT

The rural credit system remains to be largely supply-driven and non-market based.

The MADB Law of 1990 greatly limits the provision of a competitive rural financial

system. Figure 14 shows the market share of different credit providers in Myanmar.

Surprisingly, borrowing from MADB comprises only 10 percent, while borrowing from

family and friends and private money lenders comprise 42 percent and 31 percent

respectively. Micro-credit only comprise 16 percent, while farmer associations and

cooperatives (including SACs) comprise only 7 percent and commercial banks only 1

percent.

This data shows that a staggering 73 percent of Myanmar’s population still rely heavily

on the informal network. What explains the huge market share of informal credit

providers is the insufficient loan amount and branches of the MADB. The miniscule

loan and acre cap results to farmers having to borrow from other sources after having

borrowed from the MADB in order to compensate production costs. The lack of

branches meanwhile results to farmers borrowing from informal sources that are more

proximate.

Although SACs has so far proven to be a market-oriented and sufficient source of credit

for agricultural production, it remains available only to an exclusive group of large-

holder farmers. Microfinance institutions, on the other hand although available to

smallholder farmers, remain to be scarce and scattered across the country. SACs and

MFIs combined service only a fraction of the market (23 percent according to Figure

14). Microfinance institutions now, are also concerned about their own sustainability

and are less and less keen on lending to errant borrowers (Lin 2013, interview).

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Figure 14: Sources of Credit in Myanmar (Lift 2012)

For authentic development to happen, the government must have the political will to

allow private banks to come in. This is supported by studies that have emphasized the

need for credit through commercial banks in Myanmar (ASH 2010). The UNDP’s

Agricultural Sector Review even states “international experience has shown that

commercializing the rural financial system is the best way to achieve financial

deepening and deliver affordable financial services”.

6.3.3 UNDERLYING CAUSE: PROFITABILITY OF PRIVATE BANKS IN RURAL LENDING

A major market failure of the financial sector in Myanmar is the lack of competition.

The previous section has pointed to the problem of scarcity of alternative sources of

rural financial credit: the elitist nature of the SACs, the small market reach of MFIs, and

the non-entrance of private banks. However, banks do not find it profitable to invest in

the rural credit market since farmers are seen as high-risk borrowers and the loan

amounts are too small. Hence, this section discusses the restrictions to an open rural

credit market in Myanmar.

There are government failures in place that serve as barriers to the competitiveness of

the rural financial sector. First, of course is the legal MADB barrier, mentioned

previously. Second, the Financial Institutions Law of 1990 stipulates all credit needs to

be collateralized by real estate. This means that only those who have land, as proxies

Family & friends

Private money lenders

Micro-credit providers

Government

Farmer associations andcooperatives

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by land-use rights, can borrow from the MADB. Land use rights can easily be

sequestered by the state in case of non-repayment.

In a report by the Banking with the Poor Network in 2010, the use of land as collateral

in accessing credit was also emphasized (Microfinance Industry Report 2010). This is

supported by the UNDP’s Agricultural Sector Review which stated that, “allowing land-

use rights to be used as collateral would greatly enhance incentives for rural lending”.

With the Farm Land Law, land use rights can now be used as collateral. It can be used

to solve the low repayment rate of loans encountered by MFIs such as ASA. However,

a counter-argument to this policy is the dangerous consequence where land is used

as collateral. In a document released by the United Nations, it worries that when land

use rights are used as collateral farmers face a higher risk of losing their lands to non-

repayment (de Schutter 2009).

Moreover, although the Farm Land Law enables farmers to borrow for bigger credit

from formal sources such as banks, the interest rate ceiling still provide a huge barrier

for a bank’s profitability. For example, although the Microfinance Law of 2012 has

already made ASA a legal institution, it still prohibits ASA from setting their own interest

rates. According to Article 7 (g): determining the interest rate on deposit, the interest

rate on and service fees in accordance with procedures which being exercised by the

Central Bank of Myanmar to be in line the market (MFI Law 2011). Although explicitly

stated that it should be “in line with the market”, the decision to determine the interest

rates remain under the discretion of Myanmar Central Bank (Central Bank of Myanmar

Law 1990; Financial Institutions Law 1990).

Although interest rate ceilings are put in place in order to protect credit borrowers from

excessive interest rates, it results to a distortion of the rural financial market. As seen

in the case of Myanmar, a lower interest rate results to a shortage of credit despite

huge market demand from 70 percent of its population. In Figure 15, it is easy to

visualize the shortage caused by this policy. Imagine that demand is the total number

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of landowners in Myanmar and Qsupply the total number of MADB’s borrowers, this

then leads to a shortage of (Qdemand – Qsupply) x (Loan Amount + 8.5 percent

interest rate). The shortage is currently filled up by informal lenders and MFIs.

Figure 15: The Effect of Government Interest Rate Ceiling in the Rural Financial Market

7. POLICY RECOMMENDATIONS

This section develops 13 policy recommendations. 5 of them relate to Myanmar’s

current land policy, 8 to the current rural financial system.

7.1 EVALUATING LAND POLICY TOOLS: CRITERIA

The overall effectiveness of the proposed policy options will be assessed based on

these three criteria (Hien 2012):

1. Suitability: To what extent does this policy – if fully implemented – reach the

overall policy goal of increasing food security among Myanmar’s rural

population?

2. Political Feasibility: Is there currently a majority in parliament that would

adopt such a policy?

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3. Administrative Feasibility: Would Myanmar's administration/bureaucracy be

able to implement this policy now?

Each of these three criteria is weighed equally. Rankings are awarded according to

the following table:

--- -- - 0 + ++ ++

Low High

Such a ranking system was chosen because the team felt that the opinions and

insights from the semi-structured interviews conducted in Yangon could be best

reflected via such a qualitative set-up.

7.2 LAND POLICY RECOMMENDATIONS

This section suggests five land policy tools which would enhance Myanmar’s rural

food security. These are (i) the development of precise land records for Myanmar, (ii)

the fining of non-land use, (iii) the introduction of a ceiling for land possession, (iv)

the development of comprehensive land laws which give those under customary law

legal land use rights and (v) the launching and enforcement of an anti-land-grabbing

program (exemption: state is allowed to confiscate land if reimbursement takes place

according to land’s market value).

In the first part of this section, eight potential land policies are developed which would

directly address the six core findings of the previous analysis on land usage and land

rights in Myanmar. Subsequently, the initial eight land policy tools are evaluated

against the chosen criteria. Finally, the recommended policy tools based upon the

chosen criteria and the subsequent analysis are outlined and discussed.

7.2.1 CHOOSING LAND POLICY TOOLS

In this section, 8 potential land policy tools are derived from our previous analysis on

land usage and land right in Myanmar.

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Below we brainstormed eight policy recommendations which would – in our point of

view – most directly address each of the six take-aways from our previous analysis:

FINDING POSSIBLE LAND POLICY TOOLS

1. Land records in Myanmar are

highly incomplete

1. The development of precise land

records for Myanmar

2. Lands laws in Myanmar are partial,

particularly due to the great

influence of customary land laws

2. The development of comprehensive

land laws which give those under

customary law legal land use rights

(part 1)

2. Guaranteeing of secure property

rights to all citizens (exemption: state

land confiscations in line with market

value reimbursements) (part 2)

3. Land distribution in Myanmar is

skewed towards a small elite

3. Introduction of a ceiling for land

possession

4. Land grabbing in the country –

particularly in the North – is

prevalent

4. Launching and enforcement of an

anti-land-grabbing program

(exemption: state is allowed to

confiscate land if reimbursement

takes place according to land’s

market value)

5. There is much land speculation in

Myanmar, especially close to

Yangon

5. Mandating that land must be kept for

at least seven years (part 1)

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5. Fining of non-land use (part 2)

6. Those owning only little land use it

more productively than those

owning much land

6. Redistribution of land so that each

citizen in Myanmar holds an equal

amount of land

7.1.3 EVALUATING LAND POLICY TOOLS: THE ANALYSIS

This section qualitatively evaluates each of the suggested seven land policy options

separately according to the criteria outlined above.

This is our evaluation of policy recommendation #1:

RECOMMENDATION #1: Development of precise land records for Myanmar

SUITABILITY: Would reveal uneven distribution of land which possibly could be

utilized by NGOs/IOs/pressure groups as an empirical argument for more even

land distribution. More even land distribution would then lead to higher land

productivty and food security in rural Myanmar.

Would also provide starting point for legal disputed over land. With clear land

records, land grabbing would become more difficult, thus increasing food security

via less displacements of rural farmers

RANKING: ++

POLITICAL FEASIBILITY: Land mapping presumably increases investment security.

Thus, policy would fit into government’s overall attempt to open up/liberalize. UN

Habitat already started land mapping program in collaboration with government

RANKING: +++

ADMINISTRATIVE FEASIBILITY: Challenging policy. Will take ”maybe five to eight

years, for all the re-surveying, the whole country” (Forbes 2013, interview)

RANKING: 0

TOTAL SCORE: +++++

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This is our evaluation of policy recommendation #2 (part 1):

RECOMMENDATION #2 (PART 1): The development of comprehensive land laws

which give those under customary law legal land use rights (part 1)

SUITABILITY: Giving those with customary land use legal land use rights would

presumably better protect them against land grabbing, thus increasing food

security. Those not affected by land grabbing not affected by new law, though

RANKING: +

POLITICAL FEASIBILITY: Turning customary land use rights into legal rights would

be a significant development for Myanmar’s legal system signalling investment

security. Is in line with overal government policy

RANKING: ++

ADMINISTRATIVE FEASIBILITY: Currently low because no clear land record exists of

who owns what

RANKING: -

TOTAL SCORE: ++

This is our evaluation of policy recommendation #2 (part 2):

RECOMMENDATION #2 (PART 2): Guaranteeing of secure property rights to all

citizens (exemption: state land confiscations in line with market value

reimbursements) (part 2)

SUITABILITY: Would manifest existing land distribution patterns. Hence, no

positive impact on rural food security

RANKING: --

POLITICAL FEASIBILITY: Secure property rights would signal investment security.

In line with Myanmar’s overarching industrialization policy

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RANKING: +++

ADMINISTRATIVE FEASIBILITY: Development of legal system in developiong

countries very difficult and takes much time (cf. Grey 1997)

RANKING: ---

TOTAL SCORE: --

This is our evaluation of policy recommendation #3:

RECOMMENDATION #3: Introduction of a ceiling for land possession

SUITABILITY: Would likely be a tool to immediately even out land distribution if

ceiling is set low enough and if land above ceiling is redistributed/sold

domestically . Hence, more even distribution would probably enhance food

security significantly

RANKING: +++

POLITICAL FEASIBILITY: Vested interests in government make ceiling politically

difficult to implement. However: If ceiling slowly phased in (e. g. start with 1000

acres ceiling), if (partial) reimbursement paid for confiscated land and if

awareness raised within Myanmar for necessity to even out land distribution,

political feasibility would be enhanced

RANKING: +

ADMINISTRATIVE FEASIBILITY: Currently low because no clear land record exists of

who owns what. Redistribution later on could be organized via online auction

platform

RANKING: -

TOTAL SCORE: +++

This is our evaluation of policy recommendation #4:

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RECOMMENDATION #4: Launching and enforcement of an anti-land-grabbing

program (exemption: state is allowed to confiscate land if reimbursement takes

place according to land’s market value)

SUITABILITY: Would prevent private land grabbing, while state land grabbing

prevails. State land grabbing likely to increase in the future due to

industrialization efforts. State land grabbing also necessary to rapidly implement

large industry projects. If reimbursement/market value is paid to farmers

relocated, new livelihood can be deloped so that state land grabbing with no

negative impact on food security

RANKING: +

POLITICAL FEASIBILITY: Illegalization of private land grabbing would signal

functioning of legal system to investors. Legalization of public confiscaitons signal

willingness to industrialize. Hence, fully policy in line with overarching opening-up

efforts

RANKING: +++

ADMINISTRATIVE FEASIBILITY: With ongoing conflicts particularly in the Kachin

State ban of private land grabbing difficult to implement. In addition, limited

government resources to reimburse farmers. In addition, development of legal

system in developiong countries takes much time (cf. Grey 1997)

RANKING: --

TOTAL SCORE: ++

This is our evaluation of policy recommendation #5 (part 1):

RECOMMENDATION #5 (PART 1): Mandating that land must be kept for at least

seven years (part 1)

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SUITABILITY: Would partially help stop land speculations. However, some

investors may choose to still keep land for seven years and then re-sell. Even

longer ban would lead to inexistence of legal land market, possibly resurfacing of

black market for land. If land cannot be resold, those owning much might still not

choose to give it up, farmers without capacity to buy. Hence, no evening out of

land distribution and thus no increased food security anticipated

RANKING: --

POLITICAL FEASIBILITY: The Vacant, Fallow and Virgin Lands Management Law

already aims in this direction. Majority for this proposal likely to be found as it

entails no redistribution element

RANKING: ++

ADMINISTRATIVE FEASIBILITY: With weak implementation capacities, bureacracy

likely to be unable to monitor if there is a black market for land transfers after law

implemented

RANKING: --

TOTAL SCORE: --

This is our evaluation of policy recommendation #5 (part 2):

RECOMMENDATION #5 (PART 2): Fining of non-land use (part 2)

SUITABILITY: Fining of non-land use, if sufficiently high, would immediately

increase land productivity. Part of the productivty gains might be solely exported,

but export taxes could give government additional investment capacity to foster

food security with different tools. Part of producitvtiy gains (e. g. via mass

farming) likely to enter domestic markets thus pushing down food prices and

increasing food security. With a ’must’ for land use, vastly increased need for

labor to turn virgin land into productive land. More labour implies more income

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implies more food security

RANKING: +++

POLITICAL FEASIBILITY: The Vacant, Fallow and Virgin Lands Management Law

mandates that land must be used. Hence, a variation of this proposal is already

partially and quasi legally enacted

RANKING: +++

ADMINISTRATIVE FEASIBILITY: Lack of land records/land monitoring impedes

administrative feasibility

RANKING: --

TOTAL SCORE: ++++

This is our evaluation of policy recommendation #6:

RECOMMENDATION #6: Redistribution of land so that each citizen in Myanmar

holds an equal amount of land

SUITABILITY: Redistribution would grant each citizen access to land which would

directly enhance food security of rural citizens

RANKING: +++

POLITICAL FEASIBILITY: Vested interests in the government and lobbying strength

of land-owning elites versus weakness of rural citizens make it highly unlikely that

such a law is passed

RANKING: --

ADMINISTRATIVE FEASIBILITY: Lack of land records/land monitoring impedes

administrative feasibility. Redistribution of more than 677,000 square kilometers

of land even likely to be highly difficult with strong administration and land records

RANKING: --

TOTAL SCORE: -

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7.2.2 RECOMMENDED LAND POLICY TOOLS

Land policy tools which scored neutral or negative were exempted from the final

selection. If an equal total ranking is to be found, the tool which scored less

negatively is preferred; it is likely to be the more realistic recommendation.

Based upon the chosen criteria and analysis, this is the final selection:

RANKING SCORE RECOMMENDATION

#1 +++++ Development of precise land records for Myanmar

#2 ++++ Fining of non-land use

#3 +++ Introduction of a ceiling for land possession

#4 ++ Development of comprehensive land laws which give

those under customary law legal land use rights

#5 ++ Launching and enforcement of an anti-land-grabbing

program (exemption: state is allowed to confiscate land

if reimbursement takes place according to land’s market

value)

7.2.3 RATIONALE FOR CHOSEN POLICY RECOMMENDATIONS

This section highlights the most relevant parts of our recommendations as well as

possible limitations.

Based upon of chosen criteria and analysis, our team recommends five land policies

which would most likely increase rural food security in Myanmar. Interestingly, our

two most highly ranked policy options are already being (partially) legally enacted

and/or implemented by the Burmese government.

Indeed, UN Habitat – in collaboration with the Burmese government – already carries

out a comprehensive land surveying. Eben Forbes from UN Habitat argued that “I

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think everybody agrees, no matter what ideological side, no matter if you are pro

small farmers or pro big businesses, everyone agrees that there need to be better

maps and better records in order for everyone to benefit”. He believes that land

mapping must be the first policy tool to be implemented in order to foster progress in

Myanmar. We also believe it is the most effective policy tool to increase food security

in Myanmar’s rural population.

The fining of non-land use is quasi enacted from a judicial standpoint via the Vacant,

Fallow and Virgin Lands Management Law already. Indeed, the law stipulates that

any unused land can be claimed and utilized by “willing individuals” including foreign

investors. This could be considered as a quasi-fining.

However, a central problématique with this government policy tool remains

(assuming that land mapping has taken place and that the law is enacted): Will there

really be enough willing investors to buy such virgin land and turn it into productive

use? If so, food security would be fostered. If not, the dismal status quo would

prevail.

Truly fining land use might be the more suitable policy option. Indeed, land will be

fined regardless the presence of possible investors who could turn virgin land into

productive land. At the same time, the government is guaranteed additional (and

much needed) revenues if the land remains virgin. Such income could be used for a

variety of purposes (including investing in (our selected) land policy tools which

would foster rural food security).

Meanwhile, the fines would incentivize the owners to either turn their land towards

productivity (leading to more jobs, additional government revenue and more rural

food security) or to sell their land to someone who is willing and able to use it

productively. The benefits of the latter option from a food security standpoint are

evident as well.

Interestingly, two outcomes of the analysis are truly counter-intuitive:

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First, our analysis suggests that secure property rights would not increase rural food

security significantly. Indeed, they would only preserve existing and unproductive

land distribution patterns. This result is in stark contrast to the outcomes of our

difference-in-differences calculations. We propose as an explanation for this

difference that property rights might be a proxy for overall economic development of

a country which, in turn, implies increased levels of food security. However, a sole

focus on increasing property rights security would – according to our analysis – not

directly contribute to increased rural food security in Myanmar if one takes into

account the current land distribution patterns.

Second, our analysis suggests that a land transfer program is not an effective policy

option for Myanmar. This result is counter-intuitive because a variety of scholars

recommend land transfer programs as the preferred policy option to increase rural

food security (Cheng 1961; Walinsky 1977; Ravenholt 1980). However, it is likely to

be a non-effective policy tool in Myanmar in our point of view because it would be

politically and administratively unfeasible to implement.

Our policy recommendations are based upon Myanmar’s current political and

economic situation. We believe they could be enacted immediately in order to foster

rural food security. However, the recommendations might change depending on the

evolution of the country’s political and economic landscape. Particularly the looming

2015 national elections in Myanmar could eradicate our current assessments of

political feasibility. With a new government in place, different land policy tool

recommendations are likely.

7.2.4 LAND TRANSFERS AROUND THE WORLD: LESSONS LEARNT

Largely, the policy recommendations outlined in the previous section aim at the

redistribution of fallow land (e. g. via fining of non-land use, introduction of a ceiling for

land possession). Such land redistribution reforms have been implemented in many

countries across Asia in the past 50 years.

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This section will highlight successful land reform and transfer programmes from five

countries in East Asia. The reform period ranges from the end of 1945 until the 1980s.

It will touch upon the success behind these restributive reforms, implementation

schedules across all five countries, obstacles faced by the national governments at

hand and similarities with Myanmar. The aim of this analysis is to anticipate obstacles

Myanmar might face when implementing land redistribution policies.

At the end of World War 2, China, Japan, South Korea, Taiwan, and Vietnam

successfully transformed their agrarian structures into smallholder farming with

egalitarian access to land. The land reform programme in these countries followed two

distinct paths: Japan, South Korea and Taiwan were based on compulsory purchase

of land by the government from those with excess land (ceiling determined by the

government). The ceiling price was set very low and hypothetically fell under

confiscation. This land was parcelled and distributed among tenants and landless

households at a low price financed by government credit (Cheng 1961; Ravenholt 1980;

Walinsky 1977). China and Vietnam followed a redistributive policy after expropriating

landlords, but later followed the individual peasant farming system (or smallholder

farming), which can be seen as the second land reform (Khan 1998; Koo et al 1981;).

Success behind restributive reforms

The redistribution in Taiwan and South Korea was made easier by the fact that the

state owned as much as 20 per cent of the cultivated land. Land confiscation of

landowners’ property and a substantial element of subsidy to tenant beneficiaries was

a strong threat in Japan, South Korea and Taiwan. Tenure reforms were introduced

before land was redistributed; strong local organisations also implemented and

monitored the reforms and reduced corruption and bribery. Land redistribution in

essence represented a transfer of land titles from the predominantly non-cultivating

landlords to the actual tenant cultivators – a starting point very similar to nowadays

Myanmar.

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7.2.5 IMPLEMENTATION SCHEDULE ACROSS SAMPLE COUNTRIES

Japan and Taiwan followed a Classical Land Reform (CLR). In such a CLR,

households owning above a specified ceiling must surrender excess to a state land

authority. The “surplus” land is redistributed to the landless, land-poor or other target

households (Lipton 2009). This is similar to the developed policy recommendation #3.

It took over a decade to implement these reforms.

The devastation of the war allowed the Japanese government to confiscate land but a

land ownership ceiling set by the national government meant surplus land was

purchased at a low rate. In Taiwan the state owned nearly 31 percent of the land, which

provided a distinct advantage to depress the market for land. This facilitated the

transfer from landlords to smallholder over a period of five to seven years. South

Korea’s land distribution to landless households occurred over a period of three to five

years. However, cultivation of the land by a tenant paid the landowner a fixed rent for

the use of the land therefore property rights were never transferred to the small holders

– a significant difference compared to Japan and Taiwan.

China and Vietnam’s Communist land distribution was unsuccessful and both nations

followed smallholder-farming model in the 1980s. The government assigned property

rights over the holding, which was already fairly equally distributed.

7.2.6 OBSTACLES FACED ACROSS SAMPLE COUNTRIES

The elites in Japan, Taiwan and South Korea were subdued by the American

occupation and local civil administrative bodies were active in enforcing the law. The

exception is South Korea where elites were able to stop CLR and land holdings

resemble feudal-style landlords. Central planners of China and Vietnam undertook

policy reforms after failures of collective farming, which was warmly welcomed by the

farmers.

Similarities with Myanmar

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As outlined in the analysis, Myanmar’s extended period of military rule with continued

land confiscation by the junta has developed a class of ‘landed gentry’. This group is

closely tied with the current government and the military, as many of the landed are

former and current military personnel. Myanmar and the five East Asian have the

following similarities and differences at the time land reform.

Similarities Differences

Low economic growth Democratic government

Agrarian societies Multi-ethnic society

Concentration of land within elite

groups

Elite interests represented in Parliament

High levels of poverty Land reform potentially destabilising for

political reforms

Post-conflict state as an indicator of

under development, which can be a

proxy for extended period of isolation

Low external formal pressure for land

reform viz. US interests in Japan, South

Korea and Japan.

7.2.7 ANTICIPATED OBSTACLES FOR MYANMAR

The biggest obstacle for Myanmar’s land reform remains with the vested interest of the

military and current parliamentarians in maintaining the status quo of land distribution.

With political and economic reforms starting less than two years ago, weak CSOs to

mobilise popular support and without a critical mass of support from the political elite,

land reform with the explicit aim of distribution will not find a relevant policy window.

The intended specific ‘loss’ will take time to be imbibed within the military institution

and it will also take time for citizens, through CSO, to find voice.

The other ancillary problem is the weak compliance instruments of the State to audit

and prosecute. The agriculture census is out-dated, national census on landless

households and other household data is incomplete and the expertise required to

implement land distribution programme will take time to establish. The government will

also face difficulties with ethnic nationalities in the borderlands where customary

practices of land transfer are in practice and require integration within national laws

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beforehand. But more significantly, much work needs to be completed with peace

building before the government has any credibility to confiscate land even if it is for the

purposes distribution. The spectre of conflict, distrust and exploitation has

overshadowed the relationship between the people of the borderlands and the

government; therefore a certain period of reconciliation must be incorporated before

major policy decisions can be taken.

7.3 CREDIT POLICY RECOMMENDATIONS

This section suggests eight recommendations to correct government and market

failures present in the rural credit market in Myanmar to affect increases in yield and

henceforth food security. In the first part of this section eight recommendations are

developed which would directly address the three core findings of the previous analysis

on the rural credit situation evaluated against the chosen evaluation criteria. Finally, a

rational for the selection of the eight recommendations concludes the section.

7.3.1 FINDINGS AND RECOMMENDATIONS

The following reflect the findings of the research:

1. Inefficiency of MADB

Financial incapacity of MADB: Limit in paid-up capital; Dividends to the government;

Government interest rate ceiling; Unprofitability of deposits

2. Incompetence of MADB

Institutional incapacity of MADB: Number of branches; Number and capacity of staff;

Risk sharing policy; Unresponsiveness to market needs

3. Profitability of private banks in rural lending: Interest rate ceiling

The above findings have led to the following recommendation: increase competition

among providers of rural financial credit.

The recommendations, which scored neutral or negative, were exempted from the final

selection. If an equal total ranking is to be found, the tool, which scored less negatively,

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is preferred; it is likely to be the more realistic recommendation. Based upon the

chosen criteria and analysis, this is the final recommendations are below:

Rank Score Recommendation

1 +++ Remove acre cap

2 +++ Increase budget by deregulating the limit on paid-up capital

3 ++ Make interest rates competitive to encourage deposits

4 + Open more branches

5 +++ Hire more people to collect repayment

6 ++ Increase financial services offered by the MADB

7 + Legalize the entrance of private banks to the rural credit market

8 - Allow interest rates to be competitive (determined by market

forces)

7.3.2 EVALUATION OF RECOMMENDATIONS

Recommendation #1 Remove acre cap of the MADB (Increase financial

capacity of the MADB)

Evaluation

Suitability: Encourages farmers to maximize productivity of all their

land because they are not limited to the credit available to only 10

acres.

+++

Political Feasibility: Currently, a 10 acre limit does not allow farmers

with larger farm holdings to borrow commensurate to the amount of

land that they till. Majority of people in parliament encourages

agribusiness and industrial farming.

+++

Administrative Feasibility: With MADB’s current state it does not

have the financial capacity to increase the loan size. ---

Total Score +++

83

Recommendation #2 Increase over all budget by deregulating the limit on

paid-up capital (Increase financial capacity of the

MADB)

Evaluation

Suitability: Directly addresses the problem of lack of access to credit.

Currently, loans are limited to 8,000 MMK per acre. According to the

Microfinance Report of 2009, each farmer needs 10,000- 13,000 MMK per

acre. If budget is increased, then this will translate to more capital for loans.

+++

Political Feasibility: Majority of people in parliament encourages

agribusiness and industrial farming. This goal can be achieved by providing

more capital for farmers. Retired generals may also be encouraged to invest

in MADB.

+++

Administrative Feasibility: The MADB Law amendment of 1997 only

authorizes 1,000 million MMK (USD1.2 million) as paid-up capital for MADB. ---

Total Score +++

Recommendation #3 Make interest rates competitive (Increase institutional

capacity of MADB)

1. Evaluation

2. Suitability: Would ensure that inflation and repayment capacity of the

farmers are reflected in the price of borrowing. Would also ensure

sustainability of the bank by loaning out repaid loans to more borrowers.

+++

Political Feasibility: Myanmar is pushing for modernization and the

parliament is seen as creating reforms for economic liberalization. However,

this may affect the goal of keeping costs low for farmers.

++

Administrative Feasibility: Currently, the MADB is under the Ministry of

Agriculture and Irrigation Authority (MAIA) and does not function like a real

bank. Interest rate is dictated at 8.5 percent per annum by government

policies and not by the market.

---

Total Score ++

Recommendation #4 Open more branches (Increase institutional capacity of

MADB)

Evaluation

84

Suitability: Would be able to reach out to more people, especially to area

where credit is more needed. Would lower transaction costs for farmers,

especially for those who have to travel far in order to get loans.

+++

Political Feasibility: It is not the priority of the government but there might

be sufficient support If necessary.

+

Administrative Feasibility: Currently, Myanmar does not have sufficient

capable people to head these branches. It also does not have the budget to

build more physical space and hire human resources.

---

Total Score +

Recommendation #5 Hire more people to collect repayment (Increase

institutional capacity of MADB)

Evaluation

Suitability: Would increase repayment rates. Especially in areas where

farmers find it extremely hard to access MADB branches. The loan

collectors can come to them instead and lower the transaction cost for the

farmers.

+

Political Feasibility: It is not the priority of the government but there might

be sufficient support If necessary.

+

Administrative Feasibility: The MADB manager in Pyapon admits the

need for more human resources. The only problem would be the budget for

the salary of these people, which would be minimal cost compared to the

benefits of more loan repayment.

+

Total Score +++

Recommendation #6 Increase financial services offered by banks (Increase

institutional capacity of MADB)

Evaluation

Suitability: As noted in our interview with farmers, most of them had

savings which they were only keeping in their houses. Allowing more

financial services to farmers, like insurance and savings account ensures

that in-between harvest times or moments when droughts happen they will

not suffer food insecurity.

+++

Political Feasibility: The government would prefer for money to be

invested back to banks so that it can be utilized in macroeconomic growth.

++

85

Administrative Feasibility: Ms. Myint acknowledges that additional work

will overwhelm MADB staff while the ASH paper points out the lack of skills

of MADB staff. This creates a huge obstacle for implementation.

---

Total Score ++

Recommendation #7 Legalize the entrance of banks to rural market

Evaluation

Suitability: Would increase competition and would allow farmers to have

more choices for their loans. Furthermore, by ensuring the profitability of

private banks to invest in the rural financial sector, it ensures their

sustainability and competition amongst rural banks.

+++

Political Feasibility: The MADB Law needs to be amended. Agriculture is

the largest industry in Myanmar and the government continues to prohibit

the development of a viable private banking in Myanmar (Turnell 2009).

However, the approval of the MFI law suggests a change in the attitude of

the government.

--

Administrative Feasibility: After the 2002/02 banking crisis, banks find it

more profitable to offer in-country remittance (Turnell 2009). Moreover,

reforms in other financial intermediations may be hard to come by including

government control of interest rates.

-

Total Score +

Recommendation #8 Allow interest rates to be competitive (determined by

market forces)

Evaluation

Suitability: Would encourage firms to keep interest rates minimal, which

would enable farmers to maximize their capital. There will no longer be

shortage of credit.

+++

Political Feasibility: There might be changes in the attitude of the

government, however, even before the financial crisis of 2002/03, and

especially after, there has been no political will to do so.

--

Administrative Feasibility: Currently, Article 12 and 13 of the Regulations

for Financial Institutions for Financials Institutions and Article 61 the Central

Bank of Myanmar Law states that interest rate ceilings are mandated by the

government.

--

Total Score -

86

7.3.3 RATIONALE FOR CHOSEN RECOMMENDATIONS

“Modernization of the financial sector is essential to facilitate development," the IMF

argued (Reuters 2012b). The main goal remains: to ensure availability of rural credit

to ensure food security in rural households. Based upon of chosen criteria and analysis,

the team recommended eight credit policies tied directly to the rural financial sector of

Myanmar and evaluated against the criteria outlined at the start of this section. The

aim is to adjust the depressed rural credit market in agriculture would lead to rural food

security. The top three recommendations focus solely on the MADB and require minor

technical changes in policies.

Moreover, two policies: “the legalization of MFIs” and “allowing land to be used as

collateral” was implemented during the conduct of this research. The analysis suggests

that the implementation of these two policy recommendations shows the government

is aware of the weak position of dire rural financial market and taking steps to correct

them. However, the problem with their method is that it is not done in an incremental

manner. A policy goal is not achieved by implementing random policies in a random

order; certain conditions must be in place first before proceeding to next step.

Of the eight, only one was ranked negatively. The policy recommendations that had

scored the lowest in the ranking is “making interest rates competitive to ensure

profitability of private banks”. Our suggestion, henceforth, is to conduct the policy

recommendations in an incremental manner, as shown in Figure 17 (conclusions).

In the short-term, problems with the MADB should be addressed. As it serves 70

percent of the population, it should be able to provide for all their agricultural credit

needs. This is done by ensuring that majority of the farmers are capable of borrowing

and that the loan amount is commensurate with production needs of farmers. It has

87

been noted that the government wants a “risk-sharing” scheme with the farmers

(Turnell 2009; Myint 2013, interview).

However, such policy is counter-productive since the farmers do not have other

sources of capital. In the medium-term, the government must realize that allowing more

lenders in the rural financial scene is beneficial not only to farmers but also to the

economy. The MFI Law has already been passed, which is a good sign for progress.

However, Cyclone Nargis initiated the circumstance of micro-finance institution in

2008— which basically highlighted the vulnerability of the government. Microfinance

institutions stayed on and provided the much necessary credit for those afflicted to

repaid their lives (Microfinance Report 2010), and finally in late November of 2011, the

government finally legalized these entities by approving the Microfinance Law.

However, the capacity for the government supress a viable banking system (Turnell

2009) is indicative that opening up to the private sector will take more time.

In the long-term, it is hence important to provide trust to the populace and to private

banks. In the banking crisis of 2002/03, it showed that strict government regulations—

most prominently the interest rate ceiling— jeopardized the growing private banking

sector (Turnell 2003).

The banking sector that was only allowed to exist in the 1990s competed against state-

owned banks, which of course had tremendous subsidies despite having

uncompetitive interest rates. Moreover, this means nothing if farmers can only access

loans during harvest times and only for agricultural production purposes. It is therefore

imperative that the banks for agricultural production provide services that their target

market needs. Examples of this would be emergency loans, student loans for

dependents, insurance, and savings and investment schemes.

8 CONCLUSIONS

88

This PAE investigated two aspects of Myanmar’s economic system: The country’s land

property rights and its rural financial system.

Both of these aspects have received much attention in the past already. For instance,

the “IMF believes that planned land reform could provide an opportunity to jump-start

the process of development” (Reuters 2012). It also argues “Myanmar’s economic

growth (…) was hindered by poor access to credit” (IMF 2012).

The 13 policy recommendations related to credit and land and developed in this PAE

are depicted in Figure 16 below. Largely, this PAE recommends to the redistribution of

land towards rural farmers as well as the liberalization of the rural financial system.

Figure 16: Land and Credit Policy Recommendations

This combination of recommendations may sound contradictory at first sight. After all,

redistributive policies tend to be associated with left-wing governments, whereas

liberalization policies tend to belong to the policy repertoire of right-wing governments.

However, these policy-recommendations are not driven by political ideologies, but

developed based upon data-driven analysis.

FOOD SECURITY

Promoting smallholder agriculture

LAND POLICIES

1. Develop precise land maps; Update land records with details of land titles

2. Part I Develop comprehensive land laws which include households practicing customary land

transfer practices

2. Part II Guarantee secure property rights to all citizens and market-based compensation in the

case of invoke eminent domain

3. Introduce ceiling for land possession;

4. Launch and enforce anti-land grabbing programme

5. Mandate land must be kept for at least seven years & fine non-land use

CREDIT POLICIES

1. Remove the acre cap

2. Increase overall budget of the MADB

3. Hire more people in MADB to collect payments

4. Make interest rates competitive (MADB)

5. Increase financial services offered by banks

6. Legalize entrance of private banks

7. Open more MADB branches

8. Make interest rates competitive (Make it profitable for privates banks to invest)

OTHER RECOMMENDATIONS

Expand agriculture extension services

89

The research partner Oxfam approached this team with the question: “Which policy

tools would promote smallholder farming in Myanmar?” Indeed, both of these policy

streams most likely would.

Land redistribution would help to end land speculation and the problem of fallow land.

Meanwhile, a liberalization of the rural financial credit system would enhance farmer’s

access to credit and thus their productivity. In the long-term, as discussed with Michael

Montesano (Institute of Southeast Asian Studies), farmers must also gain access to

larger credits from formal banking institutions in order to enable economies of scale.

Of course, such credit would require a re-building of the dysfunctional banking system.

Helping smallholder farmers, the vast majority of the country’s population, would then,

in turn, not only ensure their livelihoods and food security, but would also help develop

the country economically.

Thein Sein seems determined to make Myanmar a success story. Lee Kuan Yew made

“the Singapore story one of success” (The Economist 2000). In the interviews our team

conducted in Myanmar many experts and practitioners lauded Singapore as a

benchmark for their home country. Indeed, his autobiography From Third World to First

may be read by many Asian policy-makers and political leaders as a blueprint for

development.

However, Singapore’s approach to development is decisively different to Myanmar’s.

Singapore started out by authoritatively developing its economy – and only now it is

slowly introducing a more democratic and pluralistic approach to governance. Indeed,

“most other countries started with the economy, they became rich first, and then

democratic” (German ambassador to Myanmar, cf. Annex 5).

Myanmar started out by introducing democracy – and now wants to jump-start its

economy. Whereas its 2012 elections were largely fair and free it has yet to start

“dismantling the dismal system of crony socialism that had reduced the country to

poverty” (The Economist 2012). It has adopted a different timeline.

90

Figure 17 depicts an indicative implementation timeline for the policy options outlined

in this PAE. It is important to note that this is an ideal timeline, not a likely timeline. The

government will not be able to undertake too many reforms simultaneously. In our point

of view, the government must start with the implementation of land policy reforms.

Increased access to credit for agricultural production will not help those who do not

hold any land to cultivate yet. And it will help to truly jump-start agricultural productivity

if those with little land at hand now have more land at hand in the near future.

Figure 17: Indicative Implementation Timeline

Adopting the policy recommendations developed in our PAE would most likely

enhance food security among rural farmers. Such efforts may also help to ease the

country’s ethnic conflicts which nowadays make large parts of the country

ungovernable.

Short term

1-3 years

•Address the inefficiency of the MADB: Increase financial capacity; Increase institutional capacity

•Develop precise land maps; Update land records with details of land titles

•Launch and enforce anti-land grabbing programme; Protect property rights of smallholder farmers

•Fine non-land use

•Guarantee secure property rights to all citizens

Medium term

3-5 years

•Open the rural financial market to competition: Legalize entrance of private banks

•Develop comprehensive land laws which include households practicing customary land transfer practices

•Mandate land must be kept for at least seven years;

• Introduce ceiling for land possession; Design a framework for land transfer; Fairly compensate landowners with confiscated land

Long term

5-10 years

•Ensure sustainbility of banks (both MADB and private banks) andMFIs: Allow interest rates to be competitive; Increase financial services offerred to farmers

• Initiate land transfer programme across the country;

91

These recommendations may be one path to develop Myanmar. It may be a more

sensitive path than the path which advocates the emergence of agribusinesses and

the country’s rapid industrialization. After all, Myanmar cannot solve all of its policy

problems at once. It must start with the most pressing ones. Food security, the most

urgent physiological need, as well as ensuring the livelihoods of the vast majority of

Myanmar’s population are most definitely among them.

The approach to making policy could be simple. For example, an engineer building a

house must start with the foundations and not the third floor. Similarly, a policy-maker

must set and define priorities from the very beginning. If Myanmar opts for

industrialization and agribusinesses it may start building the third floor. If Myanmar

enhances its food security and rural livelihoods now with cautious reforms of its land

property rights and credit policies, it is likely to build the foundations for the country’s

prosperous future.

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