Rice merchants in Myanmar are struggling to adapt to a new barter trade deal with China. The barter deal aims to stabilise border trade but risks depriving Myanmar’s rice industry of much-needed income.
Myanmar recently signed a trade deal with China to increase rice exports across its northern border fourfold to 400,000 tonnes per year. But under the new trade agreement, Chinese traders will pay for a quarter of the sum with bartered goods.
The barter deal offers a boost to farmers and traders in Myanmar by regulating trade and reducing costly border closures and unpredictable tariffs on the Chinese side. But the terms of the deal also impose a burden for everyone along Myanmar’s supply chains.
Myanmar and China signed the agreement on agricultural trade at the Belt and Road Forum in April. Mandalay Rice Development Company (MRDC) agreed to export 100,000 tonnes of rice to Kunming Green Color Trade Co in exchange for construction materials, appliances, fertilizers and agricultural machinery. But many merchants in Myanmar find they’re unable to sell the bartered goods.
U Htay Lwin, chair of the Rice Millers Association in Mandalay, has advocated for a barter system, saying that it would help reduce the power imbalance between the trading partners. But the current agreement may fall short of this goal.
To succeed, the barter element of the new agreement will need to take its cues from Myanmar’s rice farmers, processors and merchants. If the bartered goods from China can’t be easily sold in Myanmar, traders will continue to turn to smugglers and illegal deals to sell their wares across the border, which could result in more border closures and disruption.
The new rice deal expands opportunities for merchants in an attempt to reduce smuggling
The deal is a major step towards formalising agricultural trade along the border of China’s Yunnan province and has the potential to increase the income of Myanmar rice farmers and processors.
Annual exports across the border to China amount to over US$2 billion per year or 33% of Myanmar’s total exports, but rice merchants have been pushing to increase their export quota to China since a 2016 agreement capped exports at 100,000 tonnes.
The new agreement expands formal rice exports to China to 400,000 tonnes and also addresses long-standing instabilities in trade along the border. In recent years Chinese officials have often imposed unpredictable tariffs on incoming trade from Muse and merchants in Myanmar have turned to smuggling goods into China in order to skirt regulations.
If fully implemented, the barter deal will account for about one-fifth of Myanmar’s total rice exports. The deal also helps Myanmar to export varieties of long-grain rice that are difficult to sell in European markets.
Most rice exported at the border is traded illegally – Myanmar merchants sold about 2.5 million tonnes across the border in the 2017-18 fiscal year, or over six times the new legal quota. Authorities have responded by arresting smugglers, shutting down Myanmarese bank accounts in China and sometimes closing the trade route at the border, forcing rice mills in Myanmar to temporarily close. In 2018, China imposed a month-long ban on imports of rice, maize and sugar. Workers in Myanmar who process and transport these crops for a living were cut off from much-needed income.
Standardised trade will provide workers and merchants with a more stable income that isn’t subject to border closures and the volatility of smuggling. The barter system allows Myanmar’s rice exporters to mitigate the impact of Chinese import taxes on profits.
Barter trade may end up burdening Myanmar’s rice industry
While formal barter deals may be more secure than informal smuggling, the current arrangement doesn’t support Myanmar’s rice producers as well as it might. Merchants working with the MRDC are struggling to sell the goods from China to secure much-needed income.
Myanmar used to have an agreement with India facilitating barter trade between the two countries until India pushed to end the deal in 2015. The two countries formally legalised barter trade at the border for exports up to US$20,000 in 1997.
The agreement functioned because the governments left the specifics of barter arrangements up to local traders. However, the new China-Myanmar deal dictates which goods will be exchanged for rice. The central bank of India eventually called for an end to barter trade because banking services along the border had sufficiently expanded to meet traders’ needs.
Though Myanmar’s cross-border trade with China is many times larger than that with India, the idea of letting merchants in Myanmar determine which goods are appropriate for barter would make the arrangement more sustainable.
Over the past 15 years, tractors imported from China have helped many farmers reduce labour costs. But according to Ministry of Commerce Permanent Secretary U Aung Soe, many Myanmar farmers object to the deal because they say Chinese agricultural equipment is low quality.
To succeed, the agreement will need to address the concerns of Myanmar’s producers who are being repaid in goods that are hard to sell and that may be low-quality. If Yunnan traders can offer Myanmar producers more in-demand goods, such as household products, it would do more to offer a guaranteed income, deter smuggling and provide better-regulated and formalised cross-border trade.
Companies and government officials on both sides of the border need to turn to Myanmar’s rice producers and the agricultural sector at large to determine what goods are valuable and formalise an agreement around these products. If not, the new agreement offers Myanmar little income stability and smuggling will reign once again.