Investing in Myanmar’s Future: Myanmar Agribusiness Public Corporation (Mapco)

Investing in Mapco may be difficult given that Myanmar will not have a stock exchange until 2015, but it is certainly an inimitable investment – Mapco offers exposure to one of the most exciting frontier markets as well as tapping into the global growth in food demand. Shares in Mapco also come cheap at 10,000 kyats per share (roughly USD$11). An investment in Mapco in particular looks good for the long-term as it is a wholly publicly owned company with strong government links, strong future development, and its major product (rice) happens to be one of Myanmar’s trading comparative advantages.

Farming for the Future

Mapco have just announced two joint ventures with Japanese companies that have been encouraged by the Japanese government to assist in Myanmar’s desire to again become the world’s largest rice producer. The political will behind these joint ventures is evident as Japan has the world’s most protected rice industry and therefore their agreement to a 5,000 ton shipment of long-grain rice from Myanmar in February 2013, their first import of rice from Myanmar in 45 years, is unique. One of the joint ventures is between Mapco and Mitsui to establish the Integrated Rice Complex Project (IBCP), a network of rice-milling and processing plants in Myanmar that will supply countries along the West African Coast with around 400,000 tonnes of low-quality (25% broken) rice. Mapco’s second joint venture is with Mitsubishi to start milling tropical japonica rice – used to make thin rice cakes popular for consumption in Japan – at mills in Myanmar. Innovatively, Mapco plan to power the processing plans and mills using electricity from rice hulls. Korean Dawoo company have also signed a memorandum of understanding with Mapco to jointly implement a factory in late 2013. Vietnamese private equity firm Vina Capital see the opportunity with Mapco as they have provided an undisclosed investment to the firm. Furthermore, Mapco do not only seek to exploit rice products as they are focusing on finding companies to invest in within Myanmar that produce value-add agriculture products as well as infrastructure and transport.

It is evident from the amounts of rice that Mapco produce and export that they have a monopoly in Myanmar’s market. This potential plus their resources and technologically-adept foreign partners make Mapco a potent investment.

Key problems with rice production in Myanmar, and therefore a danger to Mapco’s profitability, are:

·         Problems of land ownership and land development – many farmers do not have the right to own and register their land, farmers do not know how to correct salty lands, and to utilize multi-crop patterns;

·         Poor knowledge and practices of farmers in land preparation, selection of traditionally collected seeds as opposed to higher yielding varieties and cultivation – most farmers use cattle and only very few are able to use ploughing machines;

·         High cost of inputs such as labour, seeds, machines, and fertilizer- agricultural labour is expensive because many people from the villages migrate to other urban sectors, machines and fertilizers are expensive because the majority are imported and therefore not easily accessible to the majority of farmers;

·         Poor development of local credit market – credit is in cash and not in terms of commodities, local credit markets place heavy burden on farmers;

·         Low price of rice that reduces earnings – price of rice is rather low compared to price of inputs, lower price of rice is seasonal, Myanmar government has introduced rice buying scheme to stabilise price of rice for farmers;

·         Poor coping mechanisms for problems such as local flooding, droughts, and untimely rains.

68% of Myanmar's land is arable

On the macroeconomic level, investing in Mapco taps into Myanmar’s comparative advantage in rice products. Agriculture is Myanmar’s main economic sector, contributing 34% of their GDP. Under British colonial rule, Myanmar had been the world’s largest exporters of rice. However decades of economic isolation diminished their exports and in 1962, coinciding with the military takeover, they were overtaken by Thailand. Since the opening up of Myanmar last year, this is changing and last year’s rice exports was the largest for 30 years. In 2012 Myanmar exported 2.1 million tons of rice in 2012. In addition, Myanmar’s agricultural sector has advantages over competitor producers Thailand or Vietnam due to extremely fertile lands and large quantities of idle land, abundant labour force, and a winning mix of strong rains and sun. And yet, Myanmar’s overall production of rice was 13.6 million tons compared to Vietnam’s total rice output being 44 million tons and Thailand’s 37 million tons. What this comparison shows is the amount that Myanmar’s main rice producer, Mapco, can potentially grow to dominate.

Throw in Myanmar’s strategic location between Asia’s two economic giants – China and India – and their projected growth rate for the next decade of 7-8% annually as well as their rich natural resources, and Mapco, held long-term, could be a masterstroke of an investment.