VZCZCXRO1948
RR RUEHCHI RUEHDT RUEHHM RUEHNH RUEHTRO
DE RUEHGO #0303/01 1211224
ZNR UUUUU ZZH
R 301224Z APR 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 7450
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1828
RUEHBY/AMEMBASSY CANBERRA 1093
RUEHKA/AMEMBASSY DHAKA 4836
RUEHNE/AMEMBASSY NEW DELHI 4640
RUEHUL/AMEMBASSY SEOUL 8181
RUEHKO/AMEMBASSY TOKYO 5742
RUEHCN/AMCONSUL CHENGDU 1430
RUEHCHI/AMCONSUL CHIANG MAI 1532
RUEHCI/AMCONSUL KOLKATA 0288
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3616
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1495
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 05 RANGOON 000303 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB/TPP/ABT/ATP - JANET SPECK 
BANGKOK FOR USDA/FAS, ECON OFFICE, USAID 
DEPT PLEASE PASS TO USAID - CHERYL JENNINGS 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL BM
SUBJECT: BURMA: IMPACT OF RISING FOOD/COMMODITY PRICES 
 
REF: A) STATE 39410   B) RANGOON 285 C) RANGOON 075 
 
RANGOON 00000303  001.2 OF 005 
 
 
¶1.  (SBU) Summary. Although food and agricultural commodity prices 
are rising worldwide at unprecedented rates, Burma has not 
experienced the same rise in prices.  Aggregate prices of rice, 
Burma's most important food staple, have remained relatively stable 
- the nationwide average price per kilo is 25 percent lower than in 
August 2007, when prices skyrocketed after the government raised 
fuel prices 400 percent.  In specific regions, including Rangoon, 
parts of Rakhine State, and Mandalay, rice prices have increased 
20-30 percent due to higher transportation costs and increased 
demand.  Prices of other commodities, such as onions, potatoes, and 
edible oil, have increased due to higher fuel and fertilizer prices 
and high inflation, currently at 30 percent.  The GOB technically 
maintains no price controls on locally-produced agricultural 
commodities, but closely monitors local price levels to ensure that 
they do not significantly increase and cause another political 
crisis.  End Summary. 
 
Snapshot of Burma's Economy 
--------------------------- 
 
¶2.  (SBU)  Burma is a poor, underdeveloped country with a population 
of 55 million.  According to the UN, 5.2 million people live under 
the food poverty line and an additional 16.6 million people live 
under the poverty line.  Burmese spend approximately 75 percent of 
their salaries on food, and most Burmese struggle to survive on an 
average income of $1 a day.  The military regime's mismanagement of 
the economy for 46 years has resulted in steady economic decline. 
The military dominates Burma's economy, controlling prices, 
manipulating production, and selling off natural resources to the 
highest bidder for personal gain.  In terms of agriculture, the 
Burmese Government has no specific price control policies, although 
limits on the movement of rice between States and Divisions act as a 
de facto price control, keeping prices lower in areas with a rice 
surplus.  Additionally, the GOB sets the price it will pay to 
farmers when it purchases surplus rice to resell to exporters, 
usually below domestic market prices so it can pocket the profits. 
Because of the low quality of Burmese rice, this price is often far 
below the international world rice price. 
 
¶3.  (SBU)  The Burmese kyat continues to appreciate against the U.S. 
dollar, with the market rate up 19 percent against the dollar in the 
past six months.  While the appreciation of the kyat has resulted in 
lower inflation, down from 53 percent in September to 30 percent in 
March, many Burmese find that their purchasing power has not 
increased.  Low salaries, coupled with high production and 
transportation costs, continue to push up prices, making it 
difficult for the majority of Burmese to survive on $1 a day. 
 
Demand 
------ 
 
¶4.  (SBU)  In Burma, rice is the most important agricultural 
commodity, consumed by a majority of Burmese daily.  Other important 
agricultural/food commodities include onions, potatoes, and edible 
oil.  Local production of rice, onions, and other vegetables meet 
100 percent of local demand, and the GOB allows private companies to 
export any surplus of these products for profit.  Burma is a net 
importer of edible oil products.  Although the prices of food 
commodities have increased substantially in the world market, prices 
in Burma have not followed this general trend.  In August 2007, the 
Burmese Government, without prior warning, cut subsidies on fuel, 
raising gasoline prices by 67 percent, diesel prices by 100 percent, 
and compressed natural gas prices by 400 percent.  This action led 
to an immediate increase in prices across the board, particularly 
 
RANGOON 00000303  002.2 OF 005 
 
 
for rice and other basic food commodities.  Since the initial price 
jumps in August, the nationwide aggregate price of rice has declined 
by 25 percent for ehmata rice (25 percent broken rice - what Burma 
exports) and 19 percent for superior rice. 
 
--------------------------------------------- ------- 
  Burma:  Aggregate Domestic Rice Prices, per Kilo 
                    In Kyat 
--------------------------------------------- ------- 
Month       Ehmata    Percent     Superior   Percent 
            Rice      Change      Rice       Change 
--------------------------------------------- ------- 
August 2007  383        --         517         -- 
Dec. 2007    332      -13.32       472       - 8.71 
Jan. 2008    289      -12.95       420       -11.02 
Feb. 2008    295        2.08       412       - 1.91 
March 2008   287      - 2.71       419         1.70 
--------------------------------------------- ------- 
Source: Foreign Agricultural Service, March 2008 
 
¶5.  (SBU)  While the nationwide aggregate price of rice has 
decreased, rice prices in select areas, including Rangoon, parts of 
Rakhine State, and Mandalay, have increased 20-30 percent, World 
Food Programme Manager Chris Kaye told us.  In March, WFP purchased 
rice from the Burmese Government at a rate of $340 per ton, up from 
$260 a ton in November.  (Note: this reflects the Rangoon price of 
rice.   End Note.)  While there is no one reason why rice prices in 
select markets are higher, agricultural analysts note that GOB 
limitations on rice shipments between States and Divisions often 
drive up prices, as shippers must obtain expensive permits from 
Regional Commanders before they can ship rice to high demand 
locations.  These costs, along with high transportation and shipping 
costs, get passed to the consumer in the form of higher prices per 
kilo.  Additionally, many people living in urban areas, with higher 
disposable incomes, demand and eat higher-quality rice (Burma 
produces a limited amount of superior rice each year).  This could 
be another reason why rice is more expensive in Rangoon and 
Mandalay, they explained. 
 
¶6.  (SBU) Agricultural specialists note that prices of other 
agricultural commodities increased during 2007 and 2008, due 
primarily to higher fuel and transportation costs, as well as the 
increasing cost of imported fertilizer.  The chart below shows how 
key commodities in Rangoon  were affected by the August 2007 fuel 
price hike.  While average prices have decreased somewhat, in most 
cases, they remain above pre-August levels.  Prices of these 
products have remained stable to date, although aggregate 2008 price 
data is not available.  In the case of onions, the GOB in January 
2007 allowed private companies to export surplus supply, which 
immediately lead to an increase in price.  The next month, the GOB, 
which closely monitored onion prices, cancelled all onion export 
permits, and the market price slowly dropped. 
 
--------------------------------------------- ------- 
           2007 Prices of Key Commodities* 
                      In Kyat 
--------------------------------------------- ------- 
Month     Maize   Palm    Sesame   Onions   Potatoes 
                  Oil     Oil 
--------------------------------------------- ------- 
Jan        197    1223    1226      1072      348 
Feb        233    1186    1454       355      242 
March      244    1237    1531       364      169 
April      243    1365    1574       294      250 
May        240    1565    1543       297      248 
June       247    1539    1472       291      161 
 
RANGOON 00000303  003.2 OF 005 
 
 
July       295    1569    1515       306       93 
Aug        295    1678    1651       501      181 
Sept       255    1687    1549       531      143 
Oct        221    1858    1583       549      185 
Nov        227    1804    2028       746      200 
Dec        226    1223    2122       525      212 
--------------------------------------------- ------- 
Average    243   1494    1607       485      202 
--------------------------------------------- ------- 
Source:  Foreign Agricultural Service, April 2008 
*Prices reflect Rangoon Prices 
**Food prices are per kilo 
 
¶7.  (SBU)  The higher prices of food and agricultural products did 
not cause the Burmese to shift consumption toward alterative food 
commodities, primarily because many people lacked enough money to 
consume other products.  Salaries have not increased to offset 
Burma's high inflation rates, so many Burmese, who already spent 75 
percent of their salaries on food, have opted to do without. 
 
Supply 
------ 
 
¶8.  (SBU)  Domestic production of food and agricultural commodities 
has remained relatively stable.  During the 2007 monsoon season, 
heavy rains flooded rice fields in Central Burma, reducing crop 
yields.  Despite the floods, overall production of rice and onions 
has increased in recent years because the GOB allows private 
companies with permits to export any surplus (Refs B and C). 
However, there has been no noticeable increase in investment, either 
domestic or foreign, in food production.  In certain areas of Burma, 
particularly in Irrawaddy and Bago Divisions, farmers have developed 
creative ways to increase rice production without spending more on 
fuel (Ref B). 
 
¶9.  (SBU)  In Burma, higher input costs, particularly fuel and 
imported fertilizer costs, have led to an overall increase in food 
prices, particularly in vegetables and fruits.  Despite higher 
prices, stocks of food have remained relatively unchanged, as 
farmers find they can often export any surplus either through legal 
trade or illegal border trade.  In Burma, there are no shortages of 
storage or food processing facilities, nor are there any real 
bottlenecks in the supply chain. 
 
¶10.  (SBU)  The military regime launched a concerted effort to plant 
castor beans (jatropha) as a biofuel crop in 2006.  Although the GOB 
is interested in producing biofuels, it has yet to begin production 
on a large scale because it lacks the necessary technology and 
knowledge to do so.  Several private companies produce biofuels on a 
limited scale, but these fuels are not available for commercial 
purchase.  The rising food prices worldwide have had little affect 
on public attitudes toward biotechnology or biofuels. 
 
 
Political Impact of Rising Prices 
--------------------------------- 
 
¶11.  (SBU)  The higher fuel prices, which led to higher food and 
transportation prices, acted as a catalyst for peaceful 
demonstrations against the regime in August 2007.  These protests 
spiraled into the larger September protests, which the GOB violently 
repressed.  After September, scattered political demonstrations have 
taken place and they did not mention rising food prices.  We have 
not observed any increased friction between classes, ethnic groups, 
or urban and rural populations as a result of rising food prices. 
However, popular discontent with deteriorating economic conditions 
 
RANGOON 00000303  004.2 OF 005 
 
 
and high inflation could lead to more protests in the future. 
 
Economic Impact 
--------------- 
 
¶12.  (SBU) Rising fuel prices, coupled with Burma's 30 percent 
inflation rate, affected Burma's food prices in mid-2007.  However, 
Burma's 2007 exports of agricultural commodities increased by 40 
percent compared to 2006 levels, from $733.8 million in 2006 to $1.1 
billion in 2007.  Agricultural analysts confirm that Burma continues 
to export agricultural products in 2008, although official figures 
are not yet available.  They note that the regime's continued 
mismanagement of the economy and lack of basic economic 
understanding, rather than higher food prices, will affect Burma's 
private sector development and medium-term economic growth.  WFP 
Director Chris Kaye predicts that if food prices in poorer regions 
do not decrease and incomes do not increase accordingly, another 10 
million Burmese could fall under Burma's food poverty line by the 
end of the year, an increase of 220 percent, meaning close to half 
the population would lack sufficient food. 
 
Environmental Impact 
------------------- 
 
¶13.  (U)  There is no information available indicating that rising 
food and agricultural prices have impacted deforestation, water 
availability and quality, or soil conservation. 
 
Government Policy Response 
-------------------------- 
 
¶14.  (SBU)  While the GOB does not have explicit price controls on 
locally-produced agricultural products, it closely monitors food 
prices to ensure that they do not increase too quickly.  The GOB has 
not made any economic policy changes to respond to the recent price 
shifts, and has continued to export surplus agricultural products, 
including rice (Ref B).  According to agricultural analysts, the GOB 
allowed private companies to export almost 400,000 metric tons of 
rice during the first quarter of 2008.  Exporters sold rice for an 
average of $400 per metric ton, far below the world price.  Analysts 
noted that because Burma's rice exports were of lower quality than 
other countries', it could not command the higher international rice 
price.  We are not aware of any nationalizations or redistributions 
of private farms or industries for agriculture or food production, 
although the military regularly buys rice from farmers at below 
market prices. 
 
¶15.  (SBU)  WFP officials said that the GOB has not changed its food 
assistance policy, and still allows NGOs and the UN to promote food 
security in the poorer areas - Rakhine State, Shan State, Magwe 
Division, and Kachin State.  In general, the GOB does not provide 
any subsidies or assistance to the population, instead depending on 
NGOs to assist Burma's needy.  However, in September and October 
2007, the GOB reacted to higher rice prices by selling inferior 
quality rice to Burma's poor at below-market prices.  Agricultural 
specialists told us that the quality of rice was so low that most 
Burmese chose to not eat it, and instead used it to make rice 
noodles, which they sold for small profit. 
 
Impact on Post Programs 
----------------------- 
 
¶16. (SBU)  The rising prices of agricultural commodities have had no 
impact on Embassy Rangoon's programs since we do not now provide any 
assistance in this area.  Embassy Rangoon continues to receive 
assistance requests from various NGOs that provide food and 
 
RANGOON 00000303  005.2 OF 005 
 
 
nutritional supplements to the poorest populations, including 
internally displaced persons, stateless people, ethnic minorities, 
and other vulnerable populations. 
 
Comment 
------- 
 
¶17.  (SBU)  Although Burma is a net exporter of many agricultural 
products, which accounted for 17 percent of Burma's total exports in 
2007, the country has remained relatively insulated from rising 
world food prices.  Paradoxically, the government's restrictions in 
the movement of certain commodities within the country actually 
protect consumers from market volatility.  Prices of rice and other 
agricultural products will continue to climb as the costs of fuel 
and fertilizer increase worldwide.  If world food prices remain 
high, we doubt Burma will remain insulated.  It has porous borders 
and hungry neighbors.  At the same time, rising popular discontent 
with the military in general, combined with higher food prices, 
could spark more protests.  The military is aware of this and will 
continue to closely monitor food prices, halting exports when it 
deems necessary. 
 
¶18.  (SBU)  DFID is organizing a meeting of international donors in 
Burma the week of June 9 to study food security issues.  We 
recommend appropriate USG experts consider joining this mission. 
 
VILLAROSA