Maize and Pigeon Pea Production, Profitability, and Tied Credit in Southern Shan State

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June 2, 2020 - Author: Peixun Fang and

Peixun Fang and Ben Belton, 2020. Maize and Pigeon Pea Production, Profitability, and Tied Credit in Southern Shan State, FSP Research Paper 173.

Abstract

This report presents results from by far the most comprehensive survey of maize cultivators ever conducted in Myanmar. This research was designed to test characterizations of hybrid maize farming in the literature on Myanmar empirically, and identify implications for development policy and programming. A study by the World Bank (2016) suggests that returns from maize farming are very high in comparison to other major crops grown in Myanmar, whereas two studies by Woods (2015a; 2015b) list a host of negative impacts associated with hybrid maize cultivation, including reduced food security, widespread and severe indebtedness among the smallest farmers, and deepening inequality.

Our survey represented the population of all maize growing village tracts in the nine major maize growing townships of southern Shan where the security situation at the time of the survey permitted access. A total 884 maize growing and 678 non-maize growing rural households were interviewed. We summarize key survey results and their implications below.

Key findings

Sectoral structure
Numbers of maize growers in southern Shan more than tripled between 2007 and 2017.
About half of all households in surveyed locations now farm maize.

Households with larger landholdings are more likely to farm maize. Seventy nine percent of farms in landholding tercile 3 (the largest third of farms, averaging 10 acres in size) grow maize, compared to 28% in landholding tercile 1 (the smallest third of farms, averaging 2.5 acres).

Many farmers grew local maize varieties before growing hybrids. Nearly two-thirds of farmers who planted maize in 2007 grew local varieties of maize at that time, indicating that maize was already an important commercial crop prior to the widespread uptake of hybrid seed.

Food security
Farming maize does not reduce crop diversity. Farms in South Shan have much higher crop diversity than other areas of the country. Most of these crops are grown in very small quantities in homegardens for subsistence consumption. Maize farming households grow two more crops on average than non-maize farming households (eleven crops vs nine).

Most food eaten by rural households in southern Shan is purchased. Most households produce a mix of crops for own consumption and sale. Only 12% of farm households produce crops exclusively for subsistence, rising to 25% among non-maize farming households. However, despite high levels of subsistence production 73% of food, by value, is purchased.

There is little difference in the value or composition of foods eaten by maize and non-maize farming households, but maize growers obtain a larger share of their food from own production than non-maize growing farm households (26% vs 19%).

Maize is by far the most important crop grown in terms of contribution to cash incomes.
Maize accounts for 54% of the value of crops sold by surveyed households.

Seed and inputs

Hybrid maize seed has been adopted widely in southern Shan. Eighty-six percent of maize growers planted hybrid maize seed in 2017.

CP’s share of the hybrid maize seed market dropped from around 80% in 2012 to below 50% in 2017. This is true in terms of number of farmers planting (43%), and the quantity (46%) and value (47%) of hybrid maize sales. CP’s two largest competitors are Golden Tiger (planted by 16% of farmers and accounting for 11% of market share), and Awba (planted by 7% of farmers and accounting for 16% of market share).

Adoption of hybrid maize has been accompanied by big increases in fertilizer use. The share of maize farming households using compound fertilizer doubled from 2007-2017.

Fertilizer application rates have climbed over time. The average quantity of inorganic fertilizer applied per acre increased 42% from 2007-2017, from 1.2 bags/acre (60 kg) to 1.7 bags/acre (85 kg). Increasing fertilizer application rates are linked to the shift from local to hybrid varieties but may also indicate declining soil fertility after years of maize monocropping.
Maize yields
Maize yields have risen over the past decade. Yields rose 23% between 2007 and 2017. This is likely attributable to the shift from cultivation of local to hybrid varieties and associated increases in compound fertilizer use.

Maize yields vary little with farm size. We find no evidence that larger farms attain higher yields. The average yield of farms in landholding tercile 1 is marginally higher (1,265 kg/acre) than that of farms in tercile 3 (1,238 kg/acre). Tercile 2 have the highest average yields (1,391 kg/acre)

Average maize yields are lower than in other countries in the region. The average yield of monocropped maize parcels in our sample area is 1,420 kg/acre. This is about 30% lower than Thailand (1,816 kg/acre) or Viet Nam (1,882 kg/acre), indicating potential for productivity gains.

Small farms grow maize more intensively than large farms. The average seed application rate of farms in terciles 1 and 2 (6.2 kg/acre) is 11% higher than that of farms in landholding tercile 3 (5.5 kg/acre). The average rate of inorganic fertilizer application is 107 kg, 85 kg, and 76 kg per acre, respectively, for farms in terciles 1, 2 and 3.

Production costs & profitability
Women contribute 55% of all labor inputs for maize farming. The gender wage gap is significant, but smaller than in agriculture in other parts of the country. Women casual laborers earn 89% of the average daily wage rate earned by male casual workers.

Chemical inputs make up the largest share of production costs. Fertilizers, pesticides and herbicides combined account for 28% of total costs. Hired labor (24%), agricultural machinery rental and operation (20%), and seed (18%) account for the three next largest cost shares.

Interest on loans amounts to just 4% of total maize production costs for households who avail credit for maize cultivation.

Average gross margins for maize during 2017 were modest. The average gross margin for monocropped maize parcels was MMK 165,344/acre ($303/ha at prevailing exchange rates), similar to gross margins for rice in Shan, as reported by survey respondents. This is 2.8 times lower than the average gross margin of $854/ha reported by the World Bank for maize producers in southern Shan in 2013/14. This drop in profitability is attributable mainly to changes in exchange rates and maize prices between the two surveys. The gross margin per acre of maize- pigeon pea intercrop was not significantly different from that of maize monocrop.

Only 5% of maize growers made losses in 2017. This is much lower than for other rainfed crops commonly grown in Myanmar. For instance, 31% of sesame growers and 26% of groundnut farmers in the Dry Zone earned negative gross margins in 2016.

Farms made a profit or broke even on >80% of maize harvests within the past 10 years.
Farmers reported making a profit on 55% of past crops and breaking even on 27%, with losses reported on 17% of crops. Small (tercile 1) farms are slightly more likely to report losses than large (tercile 3) farms (21% vs 15%).

Returns to family labor exceed the average agricultural wage. This holds for farms of all sizes. Maize farming incomes thus exceed the opportunity cost farmers’ time, even on farms with low family labor productivity. Moreover, maize farms of all sizes are profitable on average, even after accounting for the imputed cost of family labor.
Maize prices
The maize price received by farmers corresponds closely to timing of sale. Sales made later in the year tend to earn higher prices. Farms in tercile 3 make their first sale of maize 17 days later than for those in tercile 1 on average. Moreover, large farms are more likely to hold back part of their crop for sale after ‘peak’ harvest season. Larger farms tend to earn higher prices as a result.

Larger farms earn higher gross margins per acre on average. Average gross margins increase in step with landholding size, from MMK 140,183/acre for tercile 1 farms to MMK 171,721/acre for those in tercile 3 (a difference of 22%).
Credit
Most farms do not use credit to obtain maize seed and fertilizer. Only 29% of maize farms obtained maize seed as in-kind credit, with 24% obtaining fertilizer in this way. Most maize seed and fertilizer is purchased using agricultural earnings.

Most trader credit is advanced to large farms. Nineteen percent of maize farming households
in landholding tercile 1 obtained maize seed in the form of in-kind credit, as compared to 30% of
maize farms in tercile 3. In value terms, tercile 3 farms access 67% of in-kind credit advanced for
maize seed and fertilizer. Tercile 1 farms utilize 8%.

Output-tied loans are less common than believed and taken mainly by larger farms. One- third of the maize growers who took credit for maize cultivation reported that it was output-tied (i.e. committed them to sell harvested maize to the loan provider). The share of maize growers taking output-tied loans ranges from 4% in landholding tercile 1 to 14% in landholding tercile 3.

Taking credit does not affect the sales price obtained by maize growers. The average maize sales price received by farms that borrowed to fund maize cultivation was the same as the price received by farms that did not take credit. Contrary to expectations, maize growers who availed output-tied credit received higher prices for their maize than those who did not.
Contract farming
There is no maize contract farming in any of the townships surveyed. 99.5% of households interviewed reported they had never had a contract with CP company to grow maize. Households who responded “yes” had previously produced hybrid maize seed (not maize grain) for CP under contract. None of these contracts are still in force.

Implications for policy and programming

Input supply and credit markets in southern Shan are highly competitive. There is no evidence to support the claim that large numbers of small maize farmers are heavily encumbered with debt to traders or are coerced into selling harvested maize to traders at below prevailing market prices. As such, policy makers should avoid the temptation to intervene in these markets.

The role of traders in supplying informal agricultural credit for maize farming has been
exaggerated. Trader credit is mainly utilized by larger farmers. The supply of formal agricultural credit for maize farming by Myanmar Agricultural Development Bank (MADB) is almost non- existent. There is a need for MADB to ascribe higher institutional priority to maize cultivators, and to identify models for disbursing formal credit to smallholders without formal land use rights.

Farming maize does not erode household food security. There is very little difference in the food consumption patterns of maize and non-maize cultivating farm households. Most households procure most of their food with income earned by working off-farm or selling cash crops. Policies that aim to promote food and nutrition security should therefore pay close attention to ensuring availability and accessibility of food through markets. 

Contract farming is not a panacea, because: (1) it will only work in very specific cases, where buyers are unable to secure products of a specific quality or volume through spot markets or direct vertical integration; (2) contracts may be easily broken, by either side, when more attractive alternatives present themselves.

Interventions that allow farmers to delay crop sales may increase returns. Larger farmers obtain higher average prices for their maize, in part by delaying sales. Providing short-term low interest loans to farmers ahead of harvest time could provide a timely cash infusion that would permit them to defer sales until prices rise. On the demand side, expanding commercial banking services to traders, along the lines of Yoma Bank’s LIFT-supported Agricultural Finance Program, could increase effective demand for maize during ‘peak’ season by enablingtraders to buy and hold larger quantities of grain than is possible when having to constantly cycle working capital.

Appropriate small-scale mechanization could reduce production costs. Weeding and harvesting maize together account almost 70% of labor costs in maize production. Small low-cost handheld mini-tillers used for weeding and small combine harvesters are in use elsewhere in the region. The suitability of these machines in the Myanmar context should be evaluated.

Maize yields lag behind other countries in the region. The ongoing shift from local maize varieties to hybrids will raise Myanmar’s maize productivity. However, growers who use cheaper hybrid seeds do not obtain significantly higher gross margins than those who plant local varieties. To raise both maize productivity and farmer incomes, better extension messaging and credit access will be needed to encourage farmers to buy better quality (but more expensive) seed varieties.

Maize prices are volatile. This is apparent in the large gap between gross margins reported in the World Bank’s 2013/14 survey and our own. Government and the private sector should work together proactively to establish additional export markets within the region, whilst continuing to negotiate for larger import quotas with China to reduce volatility in the medium to long term.

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Tags: agrifood system transformation, c1-c2, fsg research paper, fsp research paper, household income and livelihoods, input use and market development, myanmar


Related Topic Areas

Myanmar, C1-C2


Authors

Ben Belton

Ben Belton
beltonbe@msu.edu


For more information visit:

Feed the Future Innovation Lab for Food Security Policy
Food Security Group

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