Apart from building a hotel or other commercial property in Yangon, agriculture is one of the best opportunities in Myanmar for investors looking to make an immediate impact. Currently agricultural land is under-capitalized, and farmers often borrow private capital at exorbitant interest rates. This presents opportunities for foreign financial firms to provide funding for agricultural land or to cultivate land themselves. Because the current lack of infrastructure makes manufacturing in Myanmar difficult, the agricultural sector represents another way to take advantage of relatively low labor costs. The land in Myanmar is very fertile, and Myanmar people have generations of experience in agricultural enterprises. If farmers have access to capital, better seeds, and better technology, the agricultural sector in Myanmar has the potential to see rapid growth.
Foreign investors can either invest in international agricultural companies who are currently looking to expand in Myanmar, or start their own agricultural enterprise by leasing land and contracting farmers. There are quite a few medium-sized Myanmar companies currently looking for capital to expand into agriculture, so joint ventures are also quite possible in this sector.
The lack of agricultural capital available for farmers is a serious issue in Myanmar. The cost to cultivate one acre of rice is about US$120, but government banks are only able to provide about $60 per acre. This has created a situation where private moneylenders known as Chittiars (Chit ti in Myanmar) , have stepped in to fill the void. They charge anywhere from 10 to 15% interest on loans. These interest rates have led many farmers to sink into debt when crop prices fall or unexpected disasters occur.
Foreign investors looking at agriculture will need to understand a few problems with the sector though. One of these problems is transportation. It can be very expensive to transport large quantities of produce from rural areas to Yangon for export. Some traders have remarked that it is more expensive to ship rice from the Irrawaddy Delta to Yangon than it is to send the rice from Yangon to Singapore.
Another issue in agriculture is land use. There has been a huge rise in the number of protests and demonstrations by farmers who claim that their land was confiscated by large corporations or the government without compensation. Any foreign company wishing to lease large tracts of land for agricultural use will need to be very careful about who they are leasing the land from. A mistake in this area could prove to be very costly, both for a company’s reputation and for its balance sheet. Any large scale agricultural investment will need an MIC permit, which will help firms ensure the legality of their land leases.
Another issue that we’ve seen with foreign agricultural companies in Myanmar is that they have a hard time implementing particular farming practices. This is because farmers in Myanmar have been using certain techniques for many generations and are reluctant to change their ways for fear that they will lose money. Companies should consider adjusting their compensation schedules when attempting to grow unknown crops in Myanmar which will help to alleviate the risks for farmers expected to try something new.