Livelihoods&FoodSecurityTrustFund

Myanmar

PrawnValueChainAnalysis

RakhineState,Myanmar

OlivierJOFFRE

MoeAUNG

March2012

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ContentsAbbreviations......................................................................................................................................v

Unitsusedandconversiontable:........................................................................................................v

Acknowledgments...............................................................................................................................v

ExecutiveSummary............................................................................................................................vi

1.Introduction....................................................................................................................................9

1.1.Scopeofthemission................................................................................................................9

1.2.Geographyandcontext............................................................................................................9

1.3.PrawnsectorinRakhineState...............................................................................................11

2.Approachandmethodology.........................................................................................................15

3.Prawnfarming...............................................................................................................................16

3.1.Productionsystems................................................................................................................16

3.2.Economicresultsandprofitability.........................................................................................19

3.3.Cashadvance&loansystem..................................................................................................22

3.4.Landaccess............................................................................................................................23

4.Prawnvaluechain.........................................................................................................................25

4.1.Descriptionofthevaluechainandtheflow..........................................................................25

4.2.Postlarvaesupplyandsuppliers...........................................................................................29

4.3.Prawnfarmers,termsandconditionsforexchanges............................................................32

4.4.Collectorsatthevillagelevel,termsandconditionsforexchanges......................................33

4.5.Traders&exporters,smallscale............................................................................................34

4.6.Traders&exporter,largescale..............................................................................................34

4.7.Transportandroutes.............................................................................................................43

4.8.Processingfactories...............................................................................................................46

5.Prices,costsandmarginsalongthemarketingchain...................................................................47

5.1.Pricesalongthemarketingchain...........................................................................................47

5.2.Costsandmarginsalongthemarketchain............................................................................48

6.ScenariosforfutureprawnaquacultureinRakhineState............................................................54

7.Constraints,needsandfutureoptions.........................................................................................57

7.1Productionsystemandpondmaintenance............................................................................57

7.2Accesstoinputsandknowledge.............................................................................................58

7.3.Trading&MarketingChain....................................................................................................59

8.Conclusions...................................................................................................................................61

References........................................................................................................................................62

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Appendix1:Activitiesduringthemission.........................................................................................63

Appendix2:Listofmeetingsandpersonmet..................................................................................65

Appendix3:StatisticsofprawnfarminginRakhineState2011.(SourceDoF)...............................69

Appendix4:Mappingandvillageprofilesinthedifferenttownshipsvisited..................................70

PAUKTAW......................................................................................................................................70

MYEBON........................................................................................................................................72

KYAUKPYU.....................................................................................................................................75

Appendix5:InterviewTopiclist........................................................................................................77

Appendix6:PriceandgradingofP.monodoninFebruary2012.....................................................86

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ListofFigures

Figure1:RakhineStateandstudyarea 10Figure2:RecentchangesintheprawnsectorinRakhineState 13Figure3:Repartitionofthetotalcostforthedifferentfarmtypes 21Figure4:EstimatedpercentageofthevolumeflowofP.monodonbetweenSittwe,Myebon,Minbya,

Kyaukpyu,BangladeshandYangonin2011. 26Figure5:SchematicdescriptionoftheprawnvaluechaininRakhineState 28Figure6:Informalloansystemintheprawnvaluechain.Dashedarrowsrepresentunusualinteractions.

Solidarrowsrepresentcommoninteractionsbetweenactors. 38Figure7:Exampleofprice(MK/kg)changesalongthemarketingchainfor1kgofgrade4

(2130prawns/450g),fromaproducerinMyebontoatraderinSittweandaprocessingcompanyinBangladesh. 47

Figure8:Exampleofprice(MK/kg)changesalongthemarketingchainfor1kgofgrade4(2130prawns/450g),fromaproducerinKyaukpyuvillages. 48

Figure9:ScenariologicforthefutureofprawnfarminginRakhineState 55Figure10:ZoningofprawnfarminginPauktawTwonship.Locationofvillagevisited 70Figure11:ZoningofprawnfarminginMyebontownship.Locationofvillagevisited 72Figure12:ZoningofprawnfarminginKyaukpyutownship.Locationofvillagevisited 75

ListofTables

Table1:Keyfactsintheprawnsector,RakhineState 12Table2:Listofthestakeholdersinterviewedduringthestudy 15Table3:Characteristicofthedifferentprawnfarmtypes 18Table4:Economicresultsoftheprawnproductionsystems(in000MK) 19Table5:Keyfactsaboutprawnproductionsystemsinthestudyarea 24Table6:PriceoftheP.monodonpostlarvaeinRakhineState(2012) 29Table7:KeyfactsaboutP.monodonpostlarvaeinthestudyarea 32Table8:Destinationandspeciestradedinthedifferenttownships 35Table9:Differentgradesforprawntrading 35Table10:Characteristicsoflargeprawntraderstrader 37Table11:Summarytableofpeakproduction,destinationofproduct,demandandprices

forP.monodonandpostlarvaeavailability 41Table12:Summaryoftermsofexchangesbetweenstakeholersinthevaluechain 42Table13:Durationandtypeoftransportationforthemaintraderoutes 43Table14:Transportcostsfordifferentroutes(80kgofheadlessprawns1container) 45Table15:Scenario1,Costandbenefitanalysisforeachactorintheprawnmarketchain 50Table16:Scenario2,Costandbenefitanalysisforeachactorintheprawnmarketchain 51Table17:Scenario3,Costandbenefitanalysisforeachactorintheprawnmarketchain 52Table18:Scenario4,Costandbenefitanalysisforeachactorintheprawnmarketchain 53Table19:BuyingandsellingpriceofthedifferentP.monodonclassesforlargetradersandexporters

(Sittwe)inFebruary2012. 86Table20:BuyingandsellingpriceofthedifferentP.monodonclassesforlargetradersandexporters

(Kyaukpyu)inFebruary2012 86

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AbbreviationsDoF DepartmentofFisheries

MK MyanmarKyat

PL Penaeusmonodonpostlarvae

PCR PolymeraseChainReaction

USD UnitedStatesDollars

Unitsusedandconversiontable: International Local(Myanmar)

Weight Kilogram 1.0 Viss 0.6

Area Hectare 1.0 Acre 2.47

Currency US$ 1.0 MKyat 813

AcknowledgmentsTheauthorswould like to thanks theDepartmentofFisheries inMyebon,PauktawandKyaukpyutownshipsaswellasthestateDoF.Farmers,collectors,tradersandexportersarethankedfortheirtime and providing valuable information. Special thanks are due to the LIFT project foradministrativeandlogisticalsupportandtoUThanTunforhiscontributiontothedatacollectioninthefield.

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ExecutiveSummary

In the late1990sandearly2000sprawn farming (P.monodon)expanded inRakhineState.Prawnfarmingwasbasedonanextensiveproductionsystem,relyingonwildpostlarvaetrappedinponds.Thesectorwasdeveloping,withexpansionofthefarmedarea.However,thetechnologyusedinthesectordidnot improve,andaftera fewyearsyieldsstartedtodecline.Prawnfarmssufferedfromrecurrentcyclones,highmortality ratesand thehighcostofdikemaintenance. In20112012, theyieldwaslowandinsometownshipsmorethan50%ofprawnpondshadbeenabandoned.

This study investigates theprawn value chain inRakhine State, focusingonCycloneGiriaffectedareas.WeinterviewedkeyinformantsintheprawnvaluechainaswellasthedifferentstakeholdersinthesupplyandmarketchaininSittwe,Pauktaw,MyebonandKyuakpyutownships.Weaimedtounderstand thevaluechain,aswellas thecostsandbenefitsof thedifferentproductionsystems,andtohighlightdifficultiesandopportunitiesinthesector.

Productionsystems

Asof2012,extensiveprawnproductionsystems inthestudyareaarestillwidespread,withalmostnoinputuseandmorethanhalfofpondsrelyingonwildseedstrappedintheponds.Wedistinguishbetweendifferent farm typesbasedon farm sizes,with smallmediumscale farms (up to20ha),largescale farms (up to50ha)andprivate investorswith farmsofup to200ha.Local farmers invillages can be considered medium or better off households, since they have access to land invillageswereonaverage50%ofhouseholdsarelandless.

ThedifferentsystemsfacedhighmortalityratesinMay2011andfarmresultswerenegativeinsomecases,especiallyforlocalsmallandlargescalefarmers.TheyieldofP.monodonvariedbetween15to70kg/ha/year.ThepeakproductionseasonstartedfromMaytoAugust,andthelowproductionseasonwasduringthedryseasonfromDecembertoMarch.

Localfarmersdonothaveaccesstoextensionservicesorinputproviders.Accesstopostlarvaewasmoredifficult in late2011comparedtopreviousyears,witha loweramountofPLs importedfromBangladesh.Theactualproductionofthe2operatinggovernmentalhatcheries inthestudyarea isbelow5millionPLswhilethedemandisestimatedataround100millionPLs.FarmerscanpurchasePLs from local catchers and depots, government hatcheries or importers providing PLs reared inBangladeshihatcheries.WhenthereisashortageofPLsduringthestockingperiod,farmerscannotaffordtoinvestinPLsduetohighprices.Asaresult,thestockingdensitydropsbelow2.5PL/m2peryearandmostlocalfarmersrelysolelyonnaturalPLstrappedintheirponds.

Theeconomicdatashowthatmostfarmrelated investmentgoes intodikemaintenanceandwagelabor and that little investment goes into inputs andpondpreparation. Farms also relyonotheraquatic resources for their financial sustainability.Other prawns, crabs and fish harvested in thepond act as a safetynet for small andmediumscale famers.However,most farms are indebt,whichexplainsthehighnumberofabandonedpondsinthestudyarea.

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Afarmsfinancialstatusislinkedtothecashadvancesprovidedbytradersandlocalcollectors.Thisinformalloansystemisacharacteristicoftheentirevaluechainwithtradersandexportersfinancinglowerlevelsinthevaluechain(collectorsandfarmers).However,withfallingyieldsandcropfailuresrecentlyfarmershavenotbeenabletorepaytheircashadvances,whichhasaffectedtheentireloansystemandcashflowinthevaluechain.

Valuechainandexport

MostP.monodonproductionisexportedtoBangladesh,transitingthroughSittwe.AsmallervolumeisexportedtoYangon.Thedifference involumeexportedtoBangladeshcomparedtoYangonhasbeenexacerbatedby internationalsanctionsonMyanmarsproducts.Yangonand localprocessingfactories inRakhine cannot compete economicallywithBangladesh. For Sittwe,Myebon,MinbyaandPauktawproducers,export toBangladeshpresents lower transportcosts,shorter routeswithlessweight lostandhighersellingprices.Thechange inexport tax, from10% to2%modified theexportrouteschosenbytraders,withahighershareoftheexportedP.monodonpassingthroughthelegalbordergatetoreachBangladesh.

Traders in Kyaukpyu township market about 70% of their production to Yangon, due to lowertransportationcostsandhigherprices inYangoncompared toSittwe.Traders inKyaukpyudonothavedirectaccess toexportandneed toexport theirproduction throughSittwe, increasing theirtradingcost.

Inalllocations,processingislimitedtothefarm,wherefarmersremovetheheadsoftheprawnsandmarketheadlessprawns.Collectorsandtradersjustsorttheprawnsaccordingtogradeandpackagethem for chilled transport. Only one processing company (freezing and packaging prawns) inKyaukpyuoperatesinthestudyarea.

Costandmarginanalysisshowsthatoperatingcosts(transport,labor,spoilageandice)arethemaincosts for tradersand collectors.Producershave topayahigh cost for their loans,which reducestheirprofitevenincaseofsuccessfulyields.Mostoftheprofitmarginiscapturedbyintermediaries,collectorsand traders. Investment inequipment is limited,and there isno investment invehicles.Tradersandcollectorsoutsourcetransportation,therebyavoidingalargecapitaloutlayandinformalfeesalong trade routes.Thispractice illustrates the reluctanceofmarketactors to invest in fixedassetsdue touncertaintyabout futurebusinessprospects.Ateach transaction, theweight loss isestimated tobe 2% to3%of the value and an estimated 7%of the total value is lost along themarketchain.TradersexportingtoBangladeshfacehighcostsforregulatoryfees.Inadditiontoalicensefeeandwastemanagementfee,tradershavetopayanexporttax,regradingatthesellingpointandagentfee.However, informalfeeswerenotestimatedandmightrepresentanonnegligibleshareoftheoverallcost.Accordingtotraders,mostoftheirmarginliesintheexchangerateofforeigncurrencyandregradingofproduct.

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Termofexchangesandinformalloans

Theloansystemalongthevaluechainreducesfarmersprofitswithcollectorsandtradersofferingalowerpriceofabout500to1,500MKperviss(300to900Mkperkg).Asimilarpricedifferencecanbeobservedbetweencollectorsandtradersinthepeakseasonwhensupplyisimportant.Thepricedifference is smaller when supplies are low or when demand increases because of competitionamongtraders.

The terms of exchange between farmers and local collectors also includes unfairweight scalingpracticesandadifferentgradingsystem.Collectorssort theprawnsbysizeand then sell them totradersaccordingtoagradesystemdifferent from theonetheyusewhenpurchasing theprawnsfromproducers.Collectorspaya lowpricetofarmersbecausetheypurchaseprawnsthathavenotbeensortedaccordingtograde.Thesecollectorsthensorttheprawnsandthensellthemtotradersat a higher price. Similar practiceswere also reported by traders during their transactions withbuyersinBangladesh.

Scenarioandrecommendations

During the study, several drivers affecting the prawn sectorwere highlighted. We classified thedrivers into two categories,Global drivers related to internationalmarkets, prices, export taxes,exchange rates and international sanctions onMyanmarsproducts; and Local drivers, related toclimate,accesstoinputsandknowledgeandloansystemswithinthevaluechain.

One future (ideal) scenario based on these drivers includes a favorable global environment forprawnsectordevelopment,withhighdemandforexportsandlowertradebarriersandtaxes.Atthelocal level,thisscenariowould include investment inthevaluechain inorderto increaseaccesstoknowledgeand inputs.Such investmentwouldsupportthedevelopmentofan improvedextensivesystembasedonhatcheryrearedPLs,withalimitedimpactontheenvironment.

Thisscenariocanbeachievedinthefuturebutrequiresinvestmentandtransferofknowledgetotheproducers.Technicalchangeswillrequirethemodificationoftheproductionsystem,shiftingfromatraditionalsystemthatdependsonnaturalresourcestoasystembasedonalowstockingdensityofhatcheryreared PLs. To enable this change, production units have to be smaller and bettermaintained,andbothpondandwaterqualityhavetobeimprovedusingfertilizersandlime.

Inthemeantime,thegovernmentshouldencouragetheprivatesectortoinvestinprawnproductionthrough hatcheries, nurseries and input suppliers. Knowledge and information systems, both fortechnicalandmarketaspects,needtobe improvedthroughvarious formaland informalnetworkssuchasthemarketchain.

Theprawn sector inRakhine Statehasbeen indecline for anumberof years. The sector,basedmostlyontheuseofnaturalresources,needsadeepchangeinordertogrowandbenefitthelocalpopulation. This change will require a shift in production systems that cannot happen withoutexternalinvestmentandinvolvementofthelocalstakeholdersinthesector.

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1.Introduction

1.1.SCOPEOFTHEMISSION

The scope of the assignment was to analyze the prawn value chain in Rakhine State and highlightopportunities for future intervention tosupport thedevelopmentofbrackishwaterprawn farming inGiriaffected areas of Rakhine State. The analysis was carried out with an emphasis on taking intoaccounttheentirevaluechain,fromproducerstoretailersandexporters.

1.2.GEOGRAPHYANDCONTEXT

RakhineStateislocatedonthewesterncoastofMyanmaralongtheBayofBengal.Itincludesatotalof17 townshipsandhas344milesofcoastline. Italso includes several islands in thegulfofBengalandsharesaborderwithBangladeshtothenorth(Figure1).

In October 2010, the area was hit by Cyclone Giri. Around 26,000 persons were affected, leaving100,000homeless.ThemostaffectedtownshipswereMyebon,Kyaukpyu,PauktawandMinbya.Itwasestimatedthat50,000acres(>20,000ha)ofcoastalaquaculturepondsweredamaged.

RakhineStatehasahighnumberofhouseholds severely food insecureaccording to theVulnerabilityAnalysisandMappingUnit(VAM)oftheWorldFoodProgramme(WFP).ItisestimatedthatinthefourGiriaffected townships, almost 150,000 households are severely food insecure, while more than350,000householdsaremoderately food insecure.More than50%of thispopulationareamong themost vulnerable and rely on nonagricultural wage labor. Other findings from the Food Securityassessmentshowthatthe levelofhouseholddebt ishigh inthevillages(85%ofhouseholds)andthatlackofjobopportunitiesisamajorissue.

The area is characterized by a low population density and has highly isolated villages. These factorsresult in lesstradeand lowerbargainingpowerforfarmers.Thevolumeoftradeatthevillage level islow,andvillagersdependontradersandhavehighlevelsofdebt.

The fisheriessector isakeysector inRakhineState,with43%of thepopulation (outofa totalof3.2millioninhabitants)relyingonfisheriesoracombinationofaquaculture/fisheriesandagriculture.

It isestimatedthatalmost600,000personsare involved incapturefisheriesand/oraquaculture,while150,000 persons are involved in other stages of the value chain (processing, wholesale, export),including489tradersregistered.

Thefisherysectorproduces273,043metrictonsoffish,whicharemostlyconsumedlocally(55%),while17% and 8% are exported to other stateswithin the country and to foreign countries respectively.AquacultureinMyanmarisadynamicsectorwithanannualgrowthrateabove28%fortheperiod1990

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2008 (FAO2010).Prawn farminghas a specific value chain,with90%of theproductionexported toBangladesh.Oneof themainconstraintsofprawn farming is the lackofpostlarvae (PLs). In2011,3millionPLswereproducedby theDoFandanestimated100millionwere imported fromBangladesh.ThosePLswerenotPCRcheckedforviruses(whitespotvirus)andriskcontaminatinglocalprawnswiththevirus.

Figure1:RakhineStateandstudyarea(Source:WorldFoodProgram&MyanmarInformationManagementUnit)

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1.3.PRAWNSECTORINRAKHINESTATE

ThefisherysectorisofstrategicimportanceforRakhineState,andtheprawnsectorplaysanimportantrole in providing exports toBangladesh. Prawn farming,mostly Penaeusmonodon (also calledGiantprawnsorTigerprawns)startedinearly1992, innorthernRakhineStateandwasgraduallyintroducedtotherestofthestate(Maungtaw,Yathitaung,Pauktaw,MyaukOo,Minbya,Myebon,Kyaukpyu,YanByei,Taungok,ThanDwei,andGwatownships).RakhineStateisthelargestareaofprawnfarminginthecountry,withmorethan330,000personsinvolvedinthesector.

In this region,prawn farmsarecharacterisedby largepondsand farmers follow traditionalextensivemethods based on selfrecruited species. Other prawn species such as Peaneus indicus, PeaneusmerguiensisandMetapenaeus sp.,mudcrabs (Scylla serrata)and seabass (Latescalcarifer)areotherproductsharvested.

Thenumberoffarms increasedunderthegrowing influenceofforeign investment inthestate,mostlyfromBangladesh.Aftera rapid increaseof theprawn farmingarea from33,598ha in2001 toalmost63,000hain2005,thesectorshowedadeclinein2011,withonly44,425haofprawnfarms(Appendix3).Pauktaw isthemainproductionarea,followedbyotherGiriaffectedtownshipsMyebon,KyaukpyuandMinbya1.The fourtownshipsrepresentabout24,000haofprawn farming,morethan50%ofthefarmedareainRakhineState.

Thenationalprawnproductionin2011wasestimatedatmorethan19,000metrictons,ofwhich3,778tonsareexportedtoBangladeshandThailandof(DoFStatistics,2011).Mostofthese3,778tonscanbeconsideredasexportofP.monodonfromRakhineStatetoBangladesh.In2009,prawnproductionwasestimatedtocontribute12%ofthenationalprawnproductionand18%ofthevolumeandrevenueforexportation2.

InKyuakpyu township, theprawn farmingareadeclined from7,000ha in2002 toabout1,600ha in2011.Similartrendswereobserved inothertownships.AccordingtotheDoF,thedecline incultivatedareacanbeexplainedbyadecreaseinpondproductivityduetothelackofselfrecruitedspecies,lackofmanagement techniquesandpotentialdiseaseoutbreaks.Prawn farmersalsoabandoned theirpondsbecauseprawnfarmingwasnolongerprofitable,duetothehighcostofdikemaintenance,thehighcostofPLson themarketand low returns that couldnot cover the reimbursementof the informal loanscontracted.

Oneof themain issues in thesector is thedecrease innaturalpostlarvae trapped in theponds.Thesectorneedshatcheryrearedpostlarvae.TheneedforpostlarvaeforRakhineStateisestimatedtobe

1OtherimportanttownshipsforprawnfarmingareMaungtaw,Ann,RathedaungandPonnagyun.2NilarMyintHtoo.TradeLiberalizationandItsImpactonFisherySectorinMyanmar,PhDDissertation,InstituteofEconomics,Yangon,May2011.

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100millionPLsperyearaccordingtotheShrimpFarmerAssociation,whilelocalproductionislessthan10millionperyear.

Prawnfarmersinthetownshipsvisitedwereusuallyatthemiddleorhigherendoftheincomescaleintheirvillages.Withlandlesshouseholdsmakingup40%to60%ofsomevillages,prawnfarmersowninglandareconsiderednonpoor.KeyfactsontheprawnsectorinRakhineStatearesummarizedinTable1.Table1:Keyfactsintheprawnsector,RakhineState

PrawnSectorinRakhine,KeyfactsIncreaseofprawnfarmedareainearly2000s

33,500hain2001to63,000in2005

Declinesince2005uptonow

44,000hain2011

Giriaffectedarea 24,000haofprawnfarms,morethan50%ofRakhinefarmingareaExportedproduct P.monodon,exportedtoBangladeshConstraintsandlimits LackofaccesstoP.monodonpostlarvaeandlimitedlocal

production(lessthan10%oftheestimateddemand)Prawnfarmers Notthemostvulnerablehouseholdsinvillages.

HighleveloflandlesshouseholdsinGiriaffectedarea.Decliningproductiontrends

Loweryieldof5060%compareto20022005Decliningstockofwildpostlarvaelowersupplyandhigherpricesonthemarket

1.3.1.Timelineandchanges

TounderstandtheactualtrendsinprawnfarminginRakhineState,wesummarizeinthepresentsectionthemaineventsintherecenthistoryofthestatesprawnfarmingsector(Figure2).

19952005/07

Prawnfarmingstartedinthe1990s.Basedonwildseedstrappedinpondsandthenaturalproductivityof theecosystem, theproductionwashighuntilmid2004/05and thenstarted todecline.During thisfirstperiodfrom1995to2005,processingcompanieswereoperating inSittweandsharedthemarketwithprocessingfactoriesinYangon.Theproductionsystemswerebasedonnaturalrecruitmentofpostlarvaeandstockingofhatcheryrearedpostlarvaewasnotcommon.Prawn farmingexpandedonthemangrovearea,ledbothbylocalfarmersandprivateinvestors.Duringthatperiod,fornewlyreclaimedland,landtenurewasbasedona3yearlandsublease3.

2005/2011

In2007,after internationalsanctionsonMyanmarsproducts,purchasepricesdeclinedandprocessingfactories inSittwe ceasedoperating.TheYangonmarketwasnotprofitableanymorebecauseof lowprices, low demand and high transportation costs. Themarketwas then oriented toward export to

3Farmersandprivateinvestorsleasedthelandtothelandleaseholderforaperiodof3years.

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Bangladesh,butonly foroneproductP.monodon.Until the export taxwas reduced (10% to2%) inSeptember2011,mostexportsflowedthroughinformalroutestoavoidthehighexporttax(10%).

TheP.monodonyieldstartedtodropduetoadecline innaturalpostlarvaetrapped inpondsandtheneedforhatcheryrearedpostlarvaeorwildPLscaughtbylocalfishermenincreasedbeginningin2007.

The localhatchery capacitywas stillvery low,and starting in200809 farmersbeganusing importedpostlarvaefromBangladesh,whichwaslinkedtotheexportoftheadultprawnstoBangladesh.In2011,11millionPLswereimportedinPauktawtownshipalone.Inlate2011,BangladeshbannedtheexportofPLsandstronglyenforcedthelaw.

Duetodecliningproductivityandtobankruptcies,subland leaseswereshortenedtooneyear inmostcases,resultinginlowerinvestmentinpondmaintenancebyprawnfarmers.

The successionof cyclones in2004,2006 and in2010 (Giri) affected the farmeconomy,withprawnfarmers forced to take out loans to repair embankments. These loans put farmers in a less securesituation,andboundthemtocollectorsandtraders. Inaddition, farmersclaim (especially inMyebon)that inrecentyears,abnormallyhightideshaveaffectedtheproductionofponds intherainyseason,withfloodsspillingoverembankmentsandreducingtheproductionoffarms.Thesefactsinadditiontorepeatedcycloneshaveputfarmersinacycleofdebtsandloans,reducingtheirinvestmentcapacityandfarmareasandaffectingtheentirevaluechain.

Figure2:RecentchangesintheprawnsectorinRakhineState

2000s 2004 20072009 20102011Early90s

Introductionofshrimpculture(traditionalsystem)

Expansionofshrimpcultureonmangroves.Conversionofricefields

20022004Peakofproductionoftraditionalsystems

2004:Cycloneaffectsshrimpponds.Yieldsdrop

InternationalsanctionsonMyanmarsproducts:dropinpricesandexportstoBangladesh.Localprocessingfactoriesstoptheiractivities

2009:ImportofhatcheryrearedPLsfromBangladesh

2010:CycloneGiriandmoreshrimppondsareabandoned

2011:lowyieldandhighmortalityrateinshrimpponds

2007:Cyclone

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1.3.2.Trends

Trendsinproductionandexportwereassessedthroughdiscussionwithdifferentstakeholders.

Trendsinproduction

All the farmers and DoF representatives described declining production since the mid 2000s, withestimationsvarying from50%60% loweryields.For farmersusing the traditional system, theyield in2002was about 80 to 100 kg/ha but in 2011 had declined to 30 to 50 kg/ha. The production haddeclinedby5to10timescomparedtotheearly2000s.

Accordingtostakeholders,thedropinprawnyieldcouldbeexplainedbyvariousfactors:

DecreaseinrecruitmentofwildPLsofP.monodonandotherspecies; Lackof investment forpondmaintenance (embankments,ponddredging) resulting in shallow

ponds;

Low investment related to high risk of failurewith frequent extreme high tides and tropicalstormsoverthelastdecade;

PossibleprawndiseaseandhighmortalityinMay(warmestmonth); Mangrovedestruction(specificallymentionedinMyebon).

This trend toward lowerproductionwasespeciallypronounced in2011,whichwas theyearwith thelowest recordedproduction. In somevillagesvisited,50%of thepondswereconsideredunsuccessful(negativeeconomic results) thatyear.However, the roleofviruseswasnotas importantasexpectedwith only 10% to 15% of the farms affected by viruses according to the DoF. Local farmers havedescribedsymptoms(prawnswithredtailsorswollentails)butnovirushasbeenformallyidentified.

Trendsinexport

Thetrend inexportandthevaluechain is illustratedbyonetraderexplainingthatbefore2005,villagecollectors reached theirmaximum capacity in the peak season andwere unable to purchase all thefarmersproduction,whilenowadaysthissituationneverhappens.Before2005,duringthepeakseason,one traderwasemploying45people (10 in2011)and tradingmore than10metric tons in thepeakperiod (less than 2 metric tons in 2011). Another example was given in Myebon, where a traderestimatedthatthecurrenttradevolumeis30%ofthevolumein2004beforethedeclineinproduction.

Trendsinwildpostlarvaecatch

InSittwe,tenyearsago,PLcatcherscollectedaround100,000PLsperday,whilenowadaysthecatchisdownto5,000to10,000perday.Asaresult,thepriceofPLsinthefirststockingseason(DecemberandJanuary) ishigher.ThepriceofonePLhasnowreached18to22MK/PLcomparedto7to8MK/PL in20082009and1Kyat/PLbeforethat.

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2.ApproachandmethodologyTheteamwascomposedoftworesearchersinvaluechainanalysisandaquacultureduringtheperiodoffieldworkintheareaofRakhineStateaffectedbyCycloneGiri.Wevisited4townshipsalongthecost,includingSittwe,Pauktaw,MyebonandKyaukpyutounderstand theprawnvaluechain inthiscoastalregion, identifyopportunities to improve the value chain, andprovide firsthand information for thedesignoffutureinterventionsinthesector.

To gain abetterunderstandingof the sector,we completed a seriesof focus groupdiscussions andsemistructured interviewswiththedifferentstakeholdersalongthevaluechain(Appendix2&5).Wecovered the full range of producers, from smallholder traditionalextensive systems to improvedextensive systems used by private investors. In addition to field visits in Rakhine State, otherstakeholdersintheprawnvaluechainwhoarelocatedinYangonwerealsointerviewed.

Datawas collected from each participant or actorwithin the chain. These data include the costs ofproductionaswellassalepricesatthevariousexchangepointsastheprawnsmovedfromthehatcherytofarmers,collectors,traders,andultimatelyexportorprocessingcompanies.

Thedatawereusedtodeterminetheaverageofcostsoftransportation;theuseofinputssuchasfeed,lime,andfertilizer;thecostsofprocessing;and,alllaborthroughoutthechain.

ThelistofstakeholdersmetispresentedinTable2.

Table2:Listofthestakeholdersinterviewedduringthestudy

Stakeholders Nbr LocationFarmers(individualinterviews&groupdiscussions) 33 Sittwe,Myebon,Pauktaw,

KyaukpyuPostlarvaetraders/importers 2 SittweHatcheriesmanagersandTechnicians 2 SittweandKyaukpyuVillagecollectors 6 Pauktaw,MyebonTraders 10 Sittwe,Pauktaw,Myebon,

KyaukpyuProcessors 1 KyaukpyuExporters/transporters 1 SittweCentralDoF(Yangon)andAssociation 2 RakhineDoF 4 Sittwe,Pauktaw,Myebon,

KyaukpyuInternationalorganizations&NGOs 4 Sittwe,MyebonSincethedatawasnotderivedfromastatisticallyrepresentativesurveyorfromcontrolledexperiments,they shouldbe seenas indicativeof costsand returns in the sector.We cannot calculate confidenceintervalsandlevelsofsignificanceforthesedata,buttheydosuggestthepotentialforredistributionofreturnsthroughoutthevaluechain.

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3.Prawnfarming

3.1.PRODUCTIONSYSTEMS

Even if theDoF recognizes2mainproduction systems,namely i) the traditional system locally calledTrap and Hold and ii) the improved extensive system, observation in the field shows that thedifferencesbetween these systemsarenot importantand thata typologybasedon the sizeand thetypeoflandownerismoreaccurate.Stockingdensityislowintheimprovedextensivesystem;noinputsareused inthesystem;andtherearenoothermajortechnicaldifferencesbetweenthetwosystems.Thedecision to stockPLsdependsmoreon theavaiablilityofPLson themarketand the investmentcapacityoffarmersthanontechnicalchoices.EvenwhenstockingPLs,farmerswillexchangewaterandtrapwildPLs intheirponds.Thetechnicaldifferencesbetween thesytemsarenot importantandtherelianceonwildPLs isstillgreat inthe improvedextensivesystem. Inadditiontothetwosystems,analternate riceprawn system is found along the coastal area, in ponds where the elevation allowsdrainageofbrackishwaterintherainyseason.

One common characteristic of these prawn farms is that the ponds are large (several hectares) andshallow,withmorethan80%oftheareabetween30and70cmdeepandtheremainingareamorethan90cmdeep.Thesepondsarenaturallyfloodedwiththetideduringtherainyseason,butonlypartofthepond isfloodedandusedtoraiseprawns inthedryseason.Farmersdonotdrythepondorcatchpredatoryfishesinmostcases.

All thepondsare tidal systems (nopumping), surroundedbyembankments,withoneormore sluicegateconnectingthepondtotheriverestuary.Sluicegatesaremadeofwoodandareoperatedsoastoallowtheexchangeofwaterandrecruitmentofjuvenilesduringhightide.Adultprawnsarecapturedatthe sluicewithnetsduring springandnip tide (every14days),corresponding to the lunarcycle.Theharvestperiodoccursover4 to5daysbeforeandafter the fullandnewmoons (springandnip tiderespectively).The fullmoonperiod isthemostproductive.P.monodon isthemainproductdueto itshighpriceonthemarket,butotherprawnspecies(P.indicus,P.merguiensisandMetapenaeussp.)arealsoharvested and sold at lowerprices. In the caseof stockingPLs, the growoutperiod to achievemarketablesizeisbetween3to4months.Processingisdoneonthefarms,wherefarmersremovetheheadsbeforeselling theprawns tocollectorsor traders.There isnocontrolofpredatory fishbesidesfishingwithcastnetsandusingbrushparks(aggregatingdevices)intheponds.

Wedistinguishbetweentwomainproductionsystems,prawnmonocultureandalternatericeprawnsystems:

Inprawnmonoculture,theproductionperiodisallyearlong,withthepeakperiodofproductionusually occurring from April to August. The dry season is used to repair the dikes andembankments,aswaterlevelsarelowerintheponds.ThepeakperiodsfornaturalrecruitmentofPLsare inNovember/DecemberandMarch/April. Investment is limited towage laborand

17

maintenanceofsluicegatesandembankments.Farmers limittheir investmentduetothehighriskofcyclonesandhightides.

Inanalternatericeprawnsystem,riceculturefromJulytoOctoberisfollowedbyprawncultureinthericefieldsfromNovembertoJune.Farmerscantrapwildseedsinthepondandalsostockadditional PLs in the pond. Usually, only the lower part of the rice field is used for prawnculture.Thissystem ispopular inMinbyatownships,where30%oftheaquaculturefollowsthissystem,andinMyebonandsomevillagesinPauktaw.

Sincethedifferenceintechniqueandinputusageisnotimportant(withnolandpreparation,useoflimeorfertilizerinallcasesandcontinuousexchangeofwater),wedevelopatypologyofproductionsystemsbasedonlandholding,with3maingroups:i)smallandmediumscalefarmerswithfarmsfrom5to50acres(2to20ha);ii)largelocallandownerswithafarmedareabetween50and200acres(20to81ha)andiii)largeprivateinvestorswithafarmedareaabove200acres(morethan81ha).

3.1.1.SmallandmediumscalelandownersThesmallholdersoperatepondsof5acres(2ha)to50acres(20ha),eitherprawnmonocultureorriceprawnsystems(Table3).Thefarmscanbeentirelyownedbyanindividualorbeacollectiveinvestmentof2to4households.

Thetechnicalmanagementofthepondislimitedbythefarmersinvestmentcapacityandnoinputsareused(nofertilizerorlime).Insomecase,whenthelandisathigherelevations,farmerscandrythepondevery23years,butwithoutdredgingorsedimentremoval.Stockingwildpostlarvaehappensaccordingtoinvestmentcapacity,butatavery lowdensity,below1.5PLperm2.Such lowstockingdensitiesarepartiallyexplainedby thehighcostofPLs in2011.Fiftypercentof the farmsdidnotstockanyPLs in2011.Theproductivityofthissystemislow,between20and70kgofP.monodonperhectare.Thepeakharvest is from April to July and another period fromOctober toNovember in prawnmonoculturesystems.Penaeus sp.,Metapenaeus sp.,mudcrabsand fish suchas seabass caught in thepondcanmakeupasubstantialpartofthefarmeconomyeveniffarmersaretargetingP.monodonasaspeciesofhighvalue.Pondoperationisbasedonfamilylaboronsmallerfarmsandonetothreesalariedworkersonthelargestfarms.

Themarketing is done through a collector at the village level, and farmers can have access to cashadvancesfromthecollectorinordertoinvestinpondpreparation.

3.1.2.LargescalelandownersThesesystemsarecharacterizedbylargefarmsofmorethan20haownedbyvillagebasedlandownerswithseveralownerscombiningtheirinvestmentcapacitytooperatelargeprawnmonocultureponds.

In these farms, the stocking density is between 0.5 and 2.5 PL/m2,withmultiple stockings (2 to 10times). The stocking period varies according to the availability of PLs and the farmers investmentcapacity,withafirststocking inJanuaryearly inthedryseasonandasecondstocking inMay.Mostofthe PLs are wild PLs purchased from an agent or imported from Bangladesh. Forty percent of thefarmers do not stock any PLs. The decision about whether to stock is based on the cost of PLs,

18

availabilityon themarket,knowledgeof stockingand thequaliyofavailablePLs.Theproductivityoftheseponds isnothighandvariesbetween15and50kgperha (P.monodon),with thepeakharvestperiodfromApriltoAugustduringthespringtide.

Thesefarmsareoperatedby2to4salariedworkers,paid20,000to30,000MKpermonth(plusmeals).Theworkerscanharvestandmarketbyproducts(crabsandfish),butalltypesofprawnsaremarketedbythepondowners.Marketingisdonethroughvillagecollectorsorlargertraders.Somelargefarmsarenotfullyoperationalduetotheownerslackofinvestmentcapacityandthedeclineofprawnyieldsoverthepastfewyears.

3.1.3.LargescaleprivateinvestorsThesefarmsarearound200ha,onlandthatwasreclaimedinthelate1990sandearly2000s.Thelandisleased by private investors who invest in land clearing, embankments and sluice gates. InvestorspurchasehatcheryrearedPLsproducedlocally.Also,importedPLswerepopularin2009and2010dueto their low cost and availability.PLs canbe stocked innurserieswherepredatory fisheshavebeencleared.Thestockingdensityislow,from0.5to3PL/m2andtheaverageyieldperhectarewasestimatedbetween 11 to 200 kg per ha4. However, this range is based on a small sample size with extremeexamples, includinga successfulandanunsuccessful farm.Production isdirectlymarketed to tradersbut also exported to Bangladesh during the peak season,when the volume harvested is sufficientlylarge.These farmsareoperatedby8to20salariedworkers. Inadditiontotheirsalaries,workerscanharvestcrabs,fishandotherprawnspeciesinthepond.

Comparedto2002/2003,theyieldhasdeclinedby50%.Since20082009,farmershavehadtoprocesstheprawns(removetheheads)andtransportthematerial.Before,processingcompaniespurchasedtheprawnsdirectlyfromthefarmandcoveredthetransportationcosts.

Table3:Characteristicofthedifferentprawnfarmtypes

SmallMediumScale Largescalelandowner PrivateInvestorFarmsize(ha) 0.5to20 2050 50215Productionsystem Riceprawn

PrawnmonoculturePrawnmonoculture Prawnmonoculture

Watermanagementsystem SluicegateTidal SluicegateTidal SluicegateTidalStockingdensity(PL/m2) 0(50%ofthefarms)

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3.2.ECONOMICRESULTSANDPROFITABILITY

Table4,summarizestheeconomicresultsofthedifferentproductionsystemsfoundinthestudyarea.Datainthetableindicatetheaveragecost,revenueandnetincomeforeachfarmtype.However,theseresultsareindicativeonly,duetothesamplesize.

Table4:Economicresultsoftheprawnproductionsystems(in000MK).Standarddeviationispresentedinparentheses.

Smallmediumscale

LargeScalelandowner

PrivateInvestor

n 11 9 3OperatingCostperha Postlarvae 38 53 91Labor 69 48 69Inputs 0 0 0Transportation 0 3 47 FixedCostperha Taxes 1 1 6Informalcosts 0.5 0.5 1Dikemaintenance 83 93 83Equipmentdepreciation 4 3 14 Totalcost(farmaverage) 1,896 5,275 45,866Totalcostperha 196(127) 200(92) 307(174) RevenuefromP.monodonperha 239(143) 236(134) 706(733)Netincomeperyearandperha 38(121) 52(113) 399(574) Netincomeperyearandperha(includingotheraquaticorganisms)

78(134) 71(104) 399(571)

Resultsarebasedonestimatedproductionduringthepeakand lowseasonandbasedontheaveragepriceof themainprawn sizeharvested. Inaddition, the costof informal feesand loansand interestratesweredifficulttoestimate,aswellaslandleasefees.Operatingcostsincludethecostofpostlarvae

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(incaseofstocking), laborcosts (seasonalandpermanentworkers,excludingmealcosts), thecostofotherinputs(fertilizerorlime)andtransportationcosts.

Fixedcosts includetaxes.Farmerspay300MKperacretotheDoFannually,a landtaxof100MKperacre and additional informal taxes. In addition to the prawn farming tax, large farmers employingpermanentworkershavetopayataxof500MKperemployeeperyear.PrawnfarmershavetopaytheInternalRevenueTax,whichvariesforeachfarm(between3,000and7,000MKforsmallandmediumscalefarmers).However,wedidnottakeintoaccounttheInternalRevenueTax,sinceitwasextremelyvariableaccordingtofarmsanddatawasnotalwaysaccessible.

Fixed costs include also the average yearly expense for dikes and sluice gatemaintenance and thedepreciation of other equipment (baskets, shelter).Net income per year and per hectare includes acalculationbasedon i)P.monodononlyand ii)P.monodonwithotheraquaticorganismsharvested inthepond.

Resultspresentedarebasedonthe2011season,whichwasseverelyaffectedbyhighmortalityinMay.Therefore,mostoftheeconomicresultsarerelatively lowandarehighlyvariable foreach farmtype,withaveryhighstandarddeviation.

Smallandmedium landownershaveavery loweconomicreturn fromP.monodondueto lowyields.Theiroperationalcostsarehigh,due to laborcostsand thehighcostofpostlarvae,withaunitpricebetween8and15MK(Figure3).Theamountoflaborperhectareishighcomparedtootherfarmtypesandthe laborcostrepresentsabout35%ofthetotalcost.Equipmentandmaintenanceofdikes isthemost significant cost, accounting for more than 40% of the total. Maintenance of the sluice gatesrepresents70%ofthatcost,duetothehighpriceofthewoodandtheneedforyearlymaintenance.Inrecentyears,themaintenanceofsluicegateshasbeen limitedbythe investmentcapacityoffarmers.Accordingtofarmers,themaintenanceofdikesandsluicegatesvariedfrom40,000to125,000MKperha.The costalsodependsgreatlyon the lengthof thedikeadjacent to the riverand thenumberofsluicegates.Thenumberofabnormal tidesandcyclones increased themaintenancecost forall farmtypes.

Withinoursample,66%ofthefarmspresentedpositiveeconomicresultsand40%ofthefarmssufferedfrom severemortalityofP.monodonwithyieldsbelow30kgperha.On those farms,otherprawns,crabs and fish harvested can be crucial for the farm economy.Other aquatic animals harvested canrepresentupto80%oftherevenueprovidedbyP.monodon,particularlyinMyebonorKyaukpyuwhereMetapenaeussp.yieldwashigh.Morethan50%ofthefarmswereindebttolocalcollectorsormoneylenders,withamountsvaryingfrom0.2to12millionMK.

Largescale landownerfarmsareoperatedbyseveral landownerscombiningtheir investmentcapacitytoincreasethecultivatedarea.Thestockingdensityonsuchfarmsishigherthanonsmallholderfarms,withahighercostpersurfaceunit.Their laborcost is lowercomparedtosmallholdersduetoa lowernumberof employeesperhectare and a lower salarypaid to laborers compared toprivate investorfarms.Transportationcostsarehigherwhenmarketingofprawns isdone indifferentvillagesor inthe

21

townshipcenter.However, the totalcostperhectare issimilar tosmaller farmsand these largescalefarms differ mostly by their size, with their total cost being 3.5 times higher because of the sizedifference.Otherprawnspeciesharvestedcanrepresent30%to90%oftherevenuefromP.monodon.

Withinoursample,30%ofthefarmswereaffectedbysevere loss in2011and50%ofthefarmswerenoteconomicallysustainablebasedonlyonP.monodonculture.Farmerswereindebtfor3to12millionMK.

Figure3:Repartitionofthetotalcostforthedifferentfarmtypes

Postlarvae13%

Labor21%

Transportation0%Taxes

1%

Dikemaintenance

62%

Depreciation3%

RepartitionoftheTotalcostforsmallandmediumscalefarmers

Postlarvae29%

Labor22%

Transportation15%

Taxes2%

Dikemaintenance

27%

Depreciation5%

RepartitionoftheTotalcostforPrivateinvestor

Postlarvae26%

Labor24%

Transportation2%

Taxes1%

Dikemaintenance

46%

Depreciation1%

RepartitionoftheTotalcostforLargelandowners

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Privateinvestorsoperatinglargefarmsreceivethebesteconomicresultscomparedtootherfarmtypes.However,theseresultsarebasedonaverysmallsample(3)includingrelativelysuccessfulfarms(2)andareonlyindicative.Onefarmwassuccessfulwithhigherinvestmentinpondmanagementandstockingdensity,while other farms presented lower financial results. These large, private farms have higheroperatingcostswithhigherstockingdensitiesand laborcosts,counting for29%and22%of the totalcostrespectively.Thecostfordikemaintenancevariesgreatlyaccordingtotheequipmentused(wagelabororbulldozers),from40,000MK/hatomorethan135,000MK/haandrepresented27%ofthetotalcostonaverage.Comparedtootherfarmtypes,thetransportationcosttotradersintownisestimatedto be 15% of their total cost. Farm revenue from P. monodon is important for private investorscomparedtootherfarmsduetohigherproductionperhectare(upto200kg/ha),butaccordingtooursample,variabilityisgreatandlossescanbesubstantialgiventhelargerareacultivated.Ofthe3farmsvisited, 1 presented negative economic results with reduced investment and reduced farmed areacomparedtothepreviousyears,while2otherfarmsweresuccessfulandshowedhigherinvestmentinlandpreparation,dikemaintenanceandhigherstockingdensities.

Theeconomicresultsrelatedtotheseextensivesystemsshowthatmostoftheirinvestmentisfordikemaintenanceandwage laborand that little investment is for inputsandpondpreparation.The farmsalsorelyonotheraquaticresourcesfortheirfinancialsustainability.Otherprawns,crabsandfishactasa safetynet for small andmediumscale famers.However,most for these farms arehighly indebt,whichexplainsthehighnumberofabandonedpondsinthestudyarea.

Mostfarmersfocustheirinvestmentondikemaintenance,sincethedikesandsluicegatesaredamagedbyhigh tidesandstorms.The financialcapacityof the farms is limitedand farmers lack theability toinvestinstockingPLsorinadditionalinputstoimprovethepondandwaterquality.Tomaintainthedikesystem,farmersareforcedtocontractloansfromlocalcollectors.

3.3.CASHADVANCE&LOANSYSTEM

Farmersdonothaveaccess to formal loans from theMyanmarLivestockandFisheriesDevelopmentBankandareforcedtouseinformalcredit.Inpractice,thebankdoesnotacceptprawnfarmlandtitlesor land leasecontractsascollateral.Prawn farmershave to takeout informal loans from theprivatesector.Tradersandcollectorsarethemainloanproviderstoprawnfarmers.Loansvaryfrom0.2to12million MK (for small andmediumscale land holders),without interest. The loans are provided tofarmersinexchangeforlowersalepricesandfortheobligationtoselltheprawnharvesttothecollectoror trader.The termsof the loansarebasedon thegrowoutperiod, ranging from4 to6months. Inprawnmonoculture systems, cash advances canhappen several timesper year,withpartialor total

23

reimbursementbeforeeachadditionaladvance.Atthevillagelevel,farmerscantakeoutasecondloanfromcollectorswhencropsfail.

Farmerscanaccumulatedebtstocollectors,buttheyalsoneedloansfromlocalmoneylenders(3%withgold collateral or 10% without collateral) or they need to accept new shareholders to cover theinvestmentneededforcrops.Toillustratetheamountofmoneyowedbyprawnfarmers,inonevillageinMyebon, all prawn farmers are in debt (between 1 and 12million) and obliged to pay up to 2%interestpermonth.

Largertradersalsoprovideloansoradvancepaymentstoprivateinvestors.Inthesecases,theloanscanbeover100millionMK.Inthesecases,thereisnoyearlyreimbursement,butfarmersmustagreetoselltheirfullyieldtotheloanprovider.

3.4.LANDACCESS

Land tenurewasnot investigatedduring this study.However, it seems tobean important factor forinvestment inprawnpondmaintenanceandoperation.Smallholdersandvillagebased farmershavetheuseof their rights,but land tenure ismore complex forprivate investorsoperating large farms.Theselargeprawnfarmswereestablishedonreclaimedmangrovelandduringtheprawnexpansionandinmostcasestherearenolandtitles.

Land tenure isnot secure and investors lease5 the land for shortperiodsof1 to3 years. Therefore,farmersinvestingintheselandleasescannotinvestinimprovingembankmentsordikesduetotheshortperiodoftheleases.AccordingtothepresidentofthePrawnFarmerAssociationinSittwe,thissituationaffects90%of theponds in thenorthernpartofRakhineState, includingnorthernRakhineStatebutalsotheSittweandPauktawareas.Insouthernareas,theproportionof leased land is lowerandmorelocalvillagersareinvolvedinprawnfarming.

5Leasevariesfrom5,000MKto50,000MKperacreandperyear.

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MaincharacteristicsofproductionsystemsaresummarizedinTable5.

Table5:Keyfactsaboutprawnproductionsystemsinthestudyarea

Prawnproductionsystems,KeyfactsProductionsystems

3maintypesofprawnfarmsdifferentiatedbytheirsize:i)smallmediumsized(

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4.Prawnvaluechain

4.1.DESCRIPTIONOFTHEVALUECHAINANDTHEFLOW

IntheP.monodonvaluechain,themainproducttradedandexportedisheadlesschilledprawns.Asmallpercentage of the production is still processed in Kyaukpyu. The production areas are in Myebon,Mienbia, Pauktaw and Kyaukpyu.However, all production transits through either Sittwe,Minbya orKyaukpyu.Mostoftheproduction(around90%)isdestinedforBangladeshandYangon(Figure4).

Thepeak export season takes place fromMay toAugustduring the rainy season. Thedry season ischaracterizedbyalowerexportvolume,andduringthatperiodpricesarehigher.Also,townshipsclosertoBangladesh(Sittwe,Pauktaw,Minbya)haveacomparativeadvantagewhenexportingtoBangladesh.

ExporttoBangladeshtakesdifferentroutes:seaorriverandroadviaMaungtaw.SittweandMaungtawaretheofficialbordergates.

Theprawnvaluechain inRakhineState ischaracterizedby the followingactors,whoareclassifiedbytheirgeographiclocation:ruralorurban(Figure5).

4.1.1.RuralStakeholders Producers: small andmediumscale landowners, large landowners andprivate investors (see

section3).

Collectors: located invillages,theyprovidecashadvancestofarmers.Theyare linkedto largertradersintownsandofferapricelowerthanthatoftheurbanmarket.TheyinsomecasesretailPLsatthevillagelevel.

Wild prawn PL collectors: are foundmostly in villages on the coast in Sittwe and Pauktaw6,where villagers collectprawnsduring the spawning season and sell them towildpostlarvaedepotsinthevillages.

Wild prawn PL depots are located in villages along the coast where prawn postlarvae areabundant(Sittwe,Pauktaw);somehouseholdscollectthepostlarvaeandstorethemforafewdays(23)tosellthemtoagentsordirectlytofarmers.

WildprawnagentspurchasePLsfromwildprawndepotsandretailthematthevillage leveltofarmers.

DoFHatcheries(2actuallyinoperationinthestudyarea,3intotalinRakhineState).

6InMyebon,collectorsarenotpresentduetothelackofamarketandthedifficultyofsortingthedifferentspeciesofpostlarvaeshrimp.

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Figure4:EstimatedpercentageofthevolumeflowofP.monodonbetweenSittwe,Myebon,Minbya,Kyaukpyu,BangladeshandYangonin2011,basedonkeyinformantinterviews.ValuerepresentsthepercentageofthevolumesenttoSittwe,Bangladesh(Maungtawbordergate)orYangonforeachtownship.Redarrowsrepresentexportoutsideofthestateandblackarrowsinterstateflows.

ToYangon

90

10

70

30

90

10

27

4.1.2.Urbanstakeholders: Traders&exportersoperatesmallscaleenterprises.InSwitte,thereareatotalof45traders,of

differentsizes,withlessthan10tradersthatregularlyexporttoBangladesh.FourarelocatedinMyebon, trading with Sittwe or Minbya. Eighty traders operate in Kyaukpyu, but only 10collectors from Kyaukpyu transport to Yangon or Sittwe depending on themarket situation.Tradersaggregatetheproductionfromdifferentfarmersandcollectorsatthevillagelevel.TheyeitherexportdirectlytoYangonortoBangladeshorselltolargertradersinSittweforexport.

Export license holders. Two companies in Sittwe hold a license for exporting prawns toBangladesh.Allothertradershavetousethesetwolicensesforexporting.Thesetradersactastransporters (serviceproviders),charginga transport fee foreachboxshipped toBangladesh.Thetransportersalsotradeandexportprawnsfortheirowncompanies.

PL importers and agents import the PLs from Bangladesh using the exporters means oftransportation and sell the PLs to agents and farmers directly. The importers have a directconnectionwithagentsand/orhatcheriesinCoxBazaarinBangladesh.

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Figure5:SchematicdescriptionoftheprawnvaluechaininRakhineState

MultipleActors

ServiceProviders

ProcessingCompany

Transporter

BorderAgent

ProcessingCompanyor

Agent

PLCatcher PLImporter

Trader

Producer

Collector

Hatchery

PLAgent

Agent

PLAgent

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4.2.POSTLARVAESUPPLYANDSUPPLIERS

AccordingtotheDoF,100millionofPLsperyearareneeded,whiletheproductionfromhatcheries inRakhineStateisestimatedat6to10millionPLs,coveringlessthan10%ofthedemand.

PLs stocked in production ponds are purchased from 3 main sources, with different prices andavailabilityonthemarket(Table6):

HatcheryrearedPLsinRakhine; PLscollectedinriverestuariesandoncoastlines; ImportedhatcheryrearedPLsfromBangladesh.

Table6:PriceoftheP.monodonpostlarvaeinRakhineState(2012)

P.monodonpostlarvaeprice Kyatperpiece AvailabilityHatcheryDoF(Myanmar) 47 NovembertoMarchWildPLs 718(upto22) PeakinSeptemberto

November&MarchtoMayImportedPLs 37(upto14) NovembertoJanuary(2010)

4.2.1.HatcheriesinRakhineStateIn 2011, therewere 3 operating hatcheries in Rakhine State operated by theDoF: 1 in Sittwe, 1 inKyaukpyuand1 inMaugTaw townships.Anotherone, located inPauktaw,wasdamagedbyCycloneGiri. Each of these production units can generate about 2 million PLs per year. In Rakhine Statehatcheries,aPCRcheckforvirusesispossibleonhatchedPLsinYangon,butitiscostlyandbroodstockcannotbetested.

In2012,thehatchery inSittwehadatargetproductionof5millionPLsperyear,withnew investmentallowingproduction inDecember,which coincideswith thepeakdemand (seeBox1).TheKyaukpyuhatchery is actually producing PLs for producers located in other townships, since the demand inKyaukpyu is low.Only1.5millionPLswereproduced in2011,whileaproductionof5to10millionPLscould be reached. The capacity of the hatchery is underutilized due to marketing constraints. Thehatchery can produce PLs only if there is an order from buyers. The transport cost from Kyaukpyuincreasesthepriceto9MKperPLandbuyersarewaryoftheriskscausedbytransport.

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AccordingtotheDoFthemainreasonsforthelownumberofprivatesectorhatcheriesare:

Highproductioncostduetothecostofelectricpower(diesel)andconcurrenceofimportedandwildPLs;

Lackofdiseasecontrolequipment; Lackofknowledgeandcompetenttechnicians.

Thegovernmentwantedtodevelopprivate investmentforhatcheriesbuthasbeenunsuccessfulsincethesemiprivatehatcheryinPauktawstoppedafterCycloneGiri.AsimilarattemptbyprivateinvestorstohirefacilitiesandstaffwasmadeinMaungtawintheearly2000swithoutsuccess.

Suchinitiativesrequireabasicinvestmentofabout20millionMKandadditionaloperationalcostsof6to7millionMK,forasimilarannualnetrevenue.However,investorsacknowledgethatmaintenanceisdifficult due to problematic access to equipment and inputs7. Because of Cyclone Giri and theconcurrenceofimportedPLsfromBangladesh,thehatcheryinPauktawstoppedoperating.

Box1:DoFHatcheryinSittwe

The hatchery has been in operation since 1999 and produced 2.63 million PLs in 2011. The targetproduction is 5 million PLs in 2012, since an improved heating system allows production in winter(December).

Thedemand forPLs starts inOctober/Novemberafter the riceharvest in townshipsandvillages thatfollowariceprawnproductionsystem.ThehatcherycannotproducePLsbeforeNovemberduetolackofbroodstockandbadweatherconditions.Accesstobroodstockisstilleasybutthecatchhasdeclinedby50%sinceearly2000.TheproductionusuallystopsinApril,whenwildPLsareabundant.

Theoperatingcost isabout45millionMK toproduce1.86millionPLs.Themaincost is theartemia8representingmorethan2millionMKanddieselwhichrepresents1to1.5millionMK.

Thedemand forPLs ishigh and according to thehatcherymanager, they couldproduce and sell10millionPLs,becausePLsfromthewildarenotavailableallthetimeandPLsimportedfromBangladeshareoflowerquality.In20011,thehatcheryhad30regularclients(fromMinbya,MyebonandPauktaw)andmostofthefarmersorderedthePLsinadvance.

7Thesameprivateinvestorestimatedthatproducing20millionPLswouldrequireaninvestmentof40to50millionMKforanewfacilityandaccesstogoodqualityinputsandequipment.8Artemianauplii(larvae)areusedtofeedP.monodonlarvae.

31

4.2.2.WildPLcatchersanddepotsInMyanmar there isnoenforcedbanoncatchingwildPLs.Sincethedemand ishigh,thisactivityhasbecomepopularissomecoastalareasofRakhineState,especiallyinSittweandPauktawtownships.TherearetwomainpeakseasonsforwildPLs,fromSeptembertoNovemberand laterfromMarchtoMay.However,thecatchhasbeendecliningsince2005/2007andfromSeptembertoNovember2011thenumberofPLscaughtbylocalfishermenwaslow.

LocalvillagersarecatchingPLson theseashoreeverydayusingpushnetsorseinenetsand theyselltheirproduction to a villagedepot. In thepeak season, thesedepots trade an averageof 80,000 to100,000PLsperday.They can store thePLs foramaximumof23days inplastic tankswithoutanyoxygensupply, justbychangingthewaterfrequently.Themaximumcapacityofthedepotvisitedwasabout180,000PLs.Thedepotvisitedworkedwithamaximumof100catchers.Thedepotprovidesthenet(20,000MK)tothePLcatcherwhorepaysthecostofthenetoverthecourseoftheseason.Thebuyingpriceis2.5to3MKperPLandthesalepriceis4to5MKperPLinthepeakseasonandreaches18to22MKperPLinthelowseason(DecembertoFebruary2012).ThedepotssellthePLstofarmersandagentswhoprovideadvancepayment.Accordingtothedepotowner,thenumberofPLcatchers is lowerthanbeforesincetheactivity is lessprofitableandpoorvillagersprefertobeinvolvedinwagelaboractivities.

4.2.3.PLimporters&agentsTheDoF estimates that around 20million PLs are imported per year. The lower production cost inBangladeshmakes them veryattractiveon theMyanmarmarket,especiallyduring thepeakdemandperiod,whenthesupplyfromhatcheriesandwildPLsisinsufficient.

Three different qualities of PLs are available in Bangladesh (3 MK/PL; 2 MK/PL and 0.5 MK/PL).Accordingtoimporters,anagentinBangladeshchecksthequalityofthePLs(byPCR).Thetransportcostisestimatedat0.6MKperPL,usingatransportertomovethePLsbetweenBangladeshandMyanmar.Oneimportercouldimport14MillionPLsinayearandsold60%to3to4agents.TherestofthevolumeispurchaseddirectlyatthelandingsitebyfarmerswhoorderPLsinadvance.Later,agentsretailthePLstofarmersatahigherprice(upto14MK/PL).AgentscanstorethePLsinnurseriesforafewdaysandsellsmallquantitiestofarmersincludingfarmdelivery.

Inlate2011,theBangladeshigovernmentbannedtheexportofPLsandthevolume importedhasnowbeen reduced to aminimum,which explains the high price ofwild PLs in February 2012 (up to 22MK/PL)andthedifficultiesfacedbyfarmerswhowanttopurchasePLsforthelatestcrop.

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In addition to importing PLs from Bangladesh,Myanmar also exports brood stock to Bangladesh tosupplyhatcheries.

Main characteristics of the P. Monodon postlarvae market and accessibility by producers aresummarizedinTable7.

Table7:KeyfactsaboutP.monodonpostlarvaeinthestudyarea

Market Highdemand(100millionPLs)andlowavailability,resultinginhigherpricesLocalhatchery Highproductioncostandlowtechnicalcapacity

Limitedlocalproductioncapacity,coveringlessthan10%ofthedemandNomarketaccesstolocalsmallscalefarmers

WildPLs DecliningcatchHighpriceinlowseason(dryseasonDecembertoMarch)

ImportedPLs Widelyusedin20092011,butnotaccessibleonthemarketanymorein2012LowproductioncostandlowmarketpriceNoqualitycontrolandpotentialinfectionbyviruses.

4.3.PRAWNFARMERS,TERMSANDCONDITIONSFOREXCHANGES

Prawnfarmerscaneitherselltheirproductiontocollectorsatthevillageordirectlytotradersinurbancenters(Sittwe,MyebonorMinbya),accordingtotheirlocationandvolumeofproduction.Largeprivateinvestors operatingmore than 200 ha can export their production, adding it to other shipments toBangladesh.Thisrequireshighvolumeandhappensonlyduringthepeakharvestseason.

Smallandmediumscale farmers invillages sell theirproduction to local collectors (see section3.3).Farmersareusuallyboundtoa localcollectorthroughcashadvancesprovidedatthebeginningoftheseason to finance embankment and sluice gate maintenance, but they do not have to provide anycollateral. The cash advance is usually without interest, though in some case, when the amountadvancedislarge,2%interestpermonthisapplied.Collectorsfixthebuyingprice,usually500to1,500MKpervissbelowthemarket(or300to900MKperkg).Also,collectorswerereportedtousedifferentweightscaleunits,withanestimatelossof5to10%accordingtofarmers.Inaddition,inremotevillagescollectorsemployadifferentgradingsystem,usinginchesinsteadoftheusualgradesapplied.Collectorssorttheprawnsbysizeandsellthemtotradersusingthecommonlyusedgrades(numberofpiecesper450g,Appendix6).

Somefamersprefertotakealoanfromalocalmoneylenderwitha3%interestrateinsteadofthecashadvance from the collector. In some cases, the collectors charge the futurepostharvest loss to thefarmer,with3%oftheweightaddedbutnotpaidbythebuyer.

33

For largescale farmers in contract with traders, the cash advance can be substantial but withoutinterest. In thiscase, the traders fix thebuyingpricebutnodifferentweight scale systemorgradingsystemwasreported.

4.4.COLLECTORSATTHEVILLAGELEVEL,TERMSANDCONDITIONSFOREXCHANGES

Collectorsoperatingatthevillagelevelareusuallyprawnfarmersornativefromthevillage.Morethanone collector usually operates in each village. There are multiple layers of collectors, with a maincollectorcoveringseveralvillageswithdifferentsubcollectors.Villagecollectorstradebetween500kgto 5 tons during the peak season. The necessary equipment consists of little more than 6 to 10containers,weightscalesandfewseasonalhiredlaborersduringthepeakperiodofproduction.

Wherecommunicationispoor,informationsparse,andtransportationinadequate,theseintermediariesperformavitalrolegettingprawnsfromdispersedlocationstothenexttradingpoint.Thesemarketingagentstypicallyoperatethroughlending.Theyobtainfundsfromamarketingagenthigherupthevaluechain,orfromsomeotherfinancialsource,andlendmoneytothosebelowtheminthechain.

Acollectoratthevillagelevelentersintoacontractwithfarmersandfishermen.Thecontract,whichisinformal, includes an advance payment or loan from 0.2 to 2 million MK to finance farmers orfishermens crops. The investment of the collector can be up to 50millionMK per year,with cashadvancestoasmanyas30farmers.Termsofexchangewithfarmersaredescribedaboveinsection4.3.Collectorspurchaseprawnsfromfarmers inmixedgrades(ata lowpurchaseprice)andsortthem intogrades before selling them to traders. In some extreme cases, themargin between the buying andsellingpricewasmorethan2,000MKperviss(1,250MKperkg)accordingtofarmers.

Small collectorsaremostlybound to larger collectorsor traders inurban centers,as these collectorsprovidethemwithcashadvances.However,withdecliningyields,collectorsarenowtakingmoreriskswhentheyprovidecashadvances.Severalcaseswherefarmerswereonlypartiallyabletorepaytheircashadvanceswereobserved,withonly30%to50%ofthecashadvancereimbursedonaverage. Inafewcases,villagecollectorstookoutloansofabout30millionMKperseasonfromlocalmoneylenders.These loans camewith an interest rate of 5 to 10% permonth for an average period of 5months,corresponding to theduration foraprawncrop.Thecollectorsrequired these loans toreimburse thecashadvancestheyreceivedfromtradersandtofinancetheoperationsoffarmers.

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4.5.TRADERS&EXPORTERS,SMALLSCALE

SmallscaletraderstradeP.monodonandotherseafoodproducts.Thevolumeoftradeisestimatedtobelessthan10metrictonsperyearofP.monodon(for2011)andsomeofthesetradersdonottradeP.monodonyearround,butonlyinthepeakseasonfromApril/MaytoAugust/September.Theirsupplyisprovidedbyfarmers(largescale)orcollectorsdirectly incontractwiththem.Thetraderprovidescashadvancestofinancethecrop.Onetradercanworkdirectlywitharound80to90farmers.

Smallscaletraders inSittweorPauktawselltheirproductionto largertraders inthedryseasonwhenthe prices are low in Bangladesh and when the volume of trade is not sufficient to export9. FromPauktaw,Myebon,andMinbya,themainrouteforprawnexportsintherainyseasonistoBangladesh,viaSittweandMaungtaw.Theexporters joinothershipmentstoBangladeshmanagedbytransportersholdingexport licenses. Inaddition to the transportcostsandexport taxes, the tradersmustpay thetransporterfortheuseoftheexportlicense(8,000MKpercontaineror100MKperkg).However,thisadditionalservicechargeisvariableaccordingtotheexchangerate.Itmayhappenthatthetransporterdoesnotrequireanyservicecharge.

At the border gate in Maungtaw, an agent is in charge of the trade with the Bangladeshi buyers,resulting inanadditionalcostof5,000MKperboxor62MKperkg.Theagent fixes thepricebeforeshipment.Ifthepricegoesdownduringshipment,thetraderwillsellatthecurrentprice,showingthelowbargainingpowerofthetrader.Traderscangetcashadvancesfromtheagentattheborder iftheagentfixestheprice(lowerthanthemarketprice)beforethetransaction.Thispracticeisnotcommonamongtraders.

4.6.TRADERS&EXPORTER,LARGESCALE

4.6.1.CharacteristicsLargescaletradersoperateallyearround.Theirmainactivity,tradingP.monodon,occursmainlyfromApril toOctober during spring and nip tides. They also trade other prawn species for the domesticmarketand fishes.Tradersdonotprocess10theproducts;theypurchasetheheadlessprawns.Sortingeachpurchasebygrade,cleaning,weighingandpackagingchilledheadlessprawns11incoolerboxesaretheirmainactivities.Traders ineach townshipusedifferent trade routesand tradedifferentvolumes(Table8).

9SellingtolargerlocaltradersismoreprofitableforsmallscaletraderssincetheycannotpurchaseenoughvolumetolowerthetransportationcosttosellineitherBangladeshorYangon.10Inthisreportprocessingisdefinedascleaning,freezingandpackagingfortheexportmarket,notjustsortingandchilling.11Allvolumesandweightsareexpressedforheadlessshrimp.

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Table8:Destinationandspeciestradedinthedifferenttownships(source:keyinformantsandtraderinterviews)

Sittwe Pauktaw Myebon KyaukpyuCollectorsandsmallscaletraders

45a 60b 200b 70a

TraderExporter 10 20 4 10Species P.monodon

Metapeneaussp.(P.merguiensis)(P.indicus)Fish

P.monodonMetapeneaussp.(P.merguiensis)(P.indicus)Fish

P.monodonMetapeneaussp.(P.merguiensis)(P.indicus)Fish

P.monodonMetapeneaussp.P.merguiensis(P.indicus)Fish

DestinationofP.monodon

Bangladesh(90%)Yangon(10%)

SittweandBangladesh

Sittwe,Minbya,KyaukpyuorYangon

Yangon(70%);Sittwe(30%)

Destinationofotherprawns

Yangon(100%) Yangon(100%) Yangon(100%) Yangon(100%)

OriginofP.monodon

>75%Aquaculture >80%Aquaculture >90%Aquaculture 60%Aquaculture40%Capture

a:includesonlysmallscaletradersbasedintownsb:includesbothvillagecollectorsandsmallscaletraders

InSittwe,mostoftheP.monodon isexportedtoBangladeshduetotheproximityoftheborder.Therearetwoexportlicenseholders.OnlyinKyaukpyuisthepercentageofcapturefisheriesmoreimportant.Otherwise,mostoftheproductioncomesfromextensiveaquacultureponds.Severalprawnspeciesaretraded,butonlyP.monodonisexported.Otherspeciesaretradedforthedomesticmarket.

Thereare6maingradesforP.monodontrading,basedonheadlessprawnweight(Table9andAppendix6).Agradeisgenerallydeterminedbyspecies,andthesizeandappearanceoftheprawnthemarketpriceisdeterminedbythesefactors.

Table9:Differentgradesforprawntrading

Grade CharacteristicsGrade0 Lessthan8prawnsper450grGrade1 812prawnsper450grGrade2 1315prawnsper450grGrade3 1620prawnsper450grGrade4 2130prawnsper450grGrade5 3150prawnsper450gr

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InSittwe,MyebonandPauktaw,morethan50%ofthevolume isofgrade3and4 intherainyseason(peakseason),whilegrades1and2represent lessthan30%.Inthedryseason,thevolumeofgrade4and5prawns ismore important,withgrade5prawnsdominating themarket (more than50%of thevolume)insomecases.

Incontrast, inKyaukpyugrade1and2prawnsdominatethemarket,accountingformorethan50%ofthevolumetraded.Thisdifferencemightbeduetomarketrequirements.KyaukpyutradesmostlywithYangon processing factories, which seek the largest sized prawns for the export market, while theBangladeshimarketislessdemanding.

4.6.2.OperationsSorting,weightingandpackagingtheproducthappen inawarehouseoften locatedwithinthetradershouse.Material is limited,with only cool boxes or containers used for transport,weight scales andbasketstosorttheprawns,andanicecrushingmachine.Theprawnsarenotprocessed,butpackagedinthe boxeswith ice for transport. InMyebon, some traders also operate a smallscale ice processingfactorytoreducethecostoficeandavoidanyshortageinthepeakseason.

Prawnsarereceivedalreadyprocessed(headless)sothattheycanbekeptwithoutspoilageforalongerperiod.Tradersemploypermanentworkers and additional seasonalworkersduring thepeakperiod.Mostof theworkers for sorting theprawns arewomen. Theirmonthly salaries vary from 25,000 to50,000MKaccordingtotheirlocationandtheirskillsandresponsibilities.

4.6.3.VolumeandseasonThe peak season for trading P.monodon varies slightly between townships. In Sittwe,Myebon andPauktaw, June toAugust is themain season,while inKyaukpyu the seasonextends toSeptemberorOctober.ThedryseasonfromDecembertoMarch isconsideredthe lowseasonforprawntradingandthevolumetradeatthistime isestimatedtobe4to5times lower.Capturefisheryproduction isalsomoreimportantatthattimeoftheyear,especiallyinKyaukpyu.

Thepeakoftradingfollowsthelunarcyclewithahighvolumeoftradeduringthespringtide(fullmoon)and a lower volumeduring thenip tide.The supply followsa very regular andpredictable cycleandtraders have to deal with a large volume of highly perishable material over a few days. The maincharacteristicsofthetradersvisitedaresummarizedinTable10.

Otherprawnspecies,probablyP.merguiensisandP.indicus(locallycalledwhite)orMetapenaeussp.(pink)representanonnegligiblevolume.Thevolumeofwhiteprawnstradedisonaverage50%to75% lower than P.monodon,while pinkprawn trade is similar to thatof P.monodon in termsofvolume.However, thesellingpriceofwhiteandpinkprawns is1,500 to2,500MKperviss.TheotherprawnspeciesarenotexportedtoBangladeshatanytimeoftheyearandalltheproductionissenttoYangon.However,thedemandcanbeverylow(1,500MKperviss)inthepeakseason(ApriltoAugust)andthepricescandrop.Producersandtradersarenottargetingtheseotherspecies.

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Table10:Characteristicsoflargeprawntraderstrader(n=9)

TradersCharacteristics RangeVolumetradepertide(visspertide) 1,0006,000EstimatedvolumeofP.monodontradeperyear(metrictons)

1248

Numberofpermanentworker(person) 8to21Maximumstoragecapacity(metrictons) 2to8tonsDurationofstorage(days) 2to4daysPostharvestloss 1%to3%Numberofcollectors&farmersincontract 20to100collectors

10to100farmers

ThevolumespresentedinTable10arebasedon2011results,whichwereconsideredtobethelowestovertheprevious10yearsbyallthetradersinterviewed.Thedropintradevolumewasestimatedtobe40%to60%bytraders.

4.6.4.QualityandpostharvestlossThe main criterion that determines the grade and price of prawns is their size. After storage andtransport, themain criterion is thequalityof the shell.A soft shellprawn,due topoor storage andtransportconditions,willbedowngraded.Theweightlostandspoilageisconsideredtobe1%to3%ofthevolume.Theseproductsaredowngradedby10%to15%oftheprice.

The loss incurredbecauseof transport isnegligible in the caseofdirectprocessing inKyaukpyu,buthigherinthecaseofexportbyboatandroadtoBangladesh(throughMaungTaw)orYangon,withthedifferentdistancesresultinginalossestimatedat3%fromKyaukpyuand10%fromSittwe.

4.6.5.SupplyandcashadvancesTradersaredependenton theircollectorsand farmers for the supplyofP.monodon.Since transportcostsarehigh,aminimumvolumepershipmentisnecessary12.Inorderfortraderstoensurearegularsupplyofprawns,theyprovideloanstocollectorsandfarmers(Figure6).

The collectors and farmers involved in the loan scheme must sell their prawns exclusively to theircreditors.Thenumberofcollectorsandfarmerswhohave loanswithtradersvarieswidely,dependingonthe investmentcapacityofthetrader.However, inallcases,thisnumber isnowdecreasingduetolackof investmentcapacityanda low reimbursement rate,sometimes lower than50% (some tradersreportedhavingaslittleas30%oftheirloanreimbursed).

12Forexample,anindividualtraderwillshipaminimumof20boxestoBangladesh(1.6metrictons)andthetotalshipmentwillgroupdifferenttradersforatotalof200boxes(16metrictons).

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Figure6:Informalloansystemintheprawnvaluechain.Dashedarrowsrepresentunusualinteractions.Solidarrowsrepresentcommoninteractionsbetweenactors.

According toone trader, themaximum acceptable losson a cash advance is40%.The informal loansystemcanbeseenasapyramidalstructurewithtradersandagentsatthetop,providingcashadvancestocollectorsandfarmersonthelowertiers.

Collectors Farmers

Moneylenders

Moneylenders

Agents

Traders

CollectorsSmalltraders

10to100farmers0.1to20millionMK

20to100collectors

Upto90farmersUpto12millionMK

MoneylendersUpto30farmers0.2to2millionMK

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The loansorcashadvancesprovidedarebetween0.1and20millionMK. Inexchange, thecollectorsagreetoselltheirprawnsatafixedpricetothetrader.Thecashadvanceisusuallyprovidedduringthedry seasonand reimbursedduring the rainy seasonwhenmostof the volume is traded.There isnointerest on this cash advance, according to traders.One trader explained that if a collector sells toanothertrader,hewillchargethatcollector2%interestonhiscashadvance.Asmallpercentageoftherepaymentismadeduringeachtransactionaccordingtothetraders.Thecollectorhastheopportunitytoselltoanotherlargetraderbutnotoften.Ifcollectorsdonotselloftenenoughtheproducttotradertheyare incontractwith,thecontract isbrokenandthecollectorhastoreimbursehis loan.Foreverytide (orharvestperiod)thecollectorshavetoselltheirprawnsat leastonceortwicetothetradertowhomtheyareindebt.

Fortraders,cashadvancestoensurethesupplyoftheirproductionarebecomingincreasinglyimportantevery year. According to traders in Kyaukpyu, cash advances provide 70% of the trade volume andwithout this cash advance, collectorswould sell toother traders. Some traders in SittweorMyebonexplainedthattheyadjusttheirpriceaccordingtothemarketinsteadoffixingalowerprice.Theydosoto ensure collectors supply a certain volume because traders require aminimum volume to export(estimatedtobe20boxes).

However,with thedrop inproduction in recentyears, the reimbursement ratehasdeclinedandcashadvancesareaccumulating.Onetraderhasinvestedmorethan50millionMKincashadvancesoverthepast3years,andhasnowaytorecoverthisinvestmentandmighthavetoscaledownhisoperations.

This problem was exacerbated by Cyclone Giri, with farmers requiring extra loans to repair theirembankmentsandsluicegatesafterthecyclone.Withdecliningyields,farmerscannotrepaytheirloansandprefertoabandontheponds.Accordingtotraders,thesystemwasfunctioningwelluntiltheareawashitbycyclones.When theyieldwashighand stable, farmerswereable to reimburse their loanseveryyearbeforereceivingnewcashadvances.

4.6.6.Termsofexchangeswithbuyers:trustandlinkagesThesellingpriceinYangonandBangladeshdeterminesthedestinationoftheprawnharvest.Ifthepricedifferencebetweenprocessingfactories inBangladeshandYangon isgreaterthan1,5002,000MKperviss (in favorofBangladesh), the traderwill sell toBangladesh.Also, tradersprefer tosell largesizedprawns(grade0)toYangonsincethisgradeisdoesnotexistinBangladesh.

ExportingtoBangladeshorsellingtoYangonrequiresanother intermediary inmostcases,withagentsbasedatthebordergateor inYangon.Theseagentstakeacommissionbasedonthevolume (500to1,000MKperviss).Some large tradershaveoneemployeenegotiating the tradewith theprocessingcompanyeitherinYangonorBangladesh.

However,tradingwithBangladeshwasreportedtobemoredifficultthanwithYangonbecauseoflowerbargainingpower.Whendemandislow,buyersinBangladeshregradeandcontroltheentireshipment

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ratherthanjustasample,which isthepracticeofYangonprocessingcompanies.Theregradingofthevolumeresultsinapostharvestvaluelossestimatedat2%to10%bytraders.TradersalsoclaimedthatBangladeshi agents and processing companies used unfair practices such as using analogicalweightscales,while transactionswith Yangonweremore transparent and digitalweight scaleswere used.ThereisalackoftrustbetweenexportersandBangladeshibuyers.TheYangonmarketisseenasamoretrustedandreliablemarket.

Traderscanask forcashadvances fromagents inBangladesh (up to10millionMK,without interest).Theymayrequestsuchadvancesduringthepeakseason,inJulyAugust,tosecurethecashflowtopaythe collectors.Otherwise tradersprefernot to receive cash advances from importers inBangladesh,sincethepricesfortheirprawnyieldarethenfixedinadvancebytheagents.

Oneadvantage to tradingwithBangladesh is thepayment schedule,which is faster inBangladesh (4days1week)comparedtoYangon (morethan2weeks).Therefore,traderssellingtheirproductiontoYangonprefertouseanagentwhowillpay immediatelyafterthetransactionratherthanselling ittothecompanydirectly.Eveniftheagentchargesafeeof100MKperviss,theabsenceofadelayinthetransaction isan importantfactortoensurecash flowandcashavailability,especiallyduringthepeakseason.

ThechoicetoexporttoBangladeshalsodependsontheexchangerate.A largepartoftheexportersand traders profit depends on the exchange rate between MK and USD or Bangladeshi Taka. Theexchangerateisimportanttoboththetradersandtransporters.Onetraderalsoexplainedthatalargepartoftheirprofitcomesfromsortingtheprawnsbygradebetweenpurchasingthemandsellingthem.

InformationabouttheseasonalityofproductionandtradingroutesaswellasthetermsofexchangesbetweenstakeholderswithinthevaluechainaresummarizedintheTables11and12.

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Table11:Summarytableofpeakproduction,destinationofproduct,demandandpricesforP.monodonandpostlarvaeavailability

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov DecPeakproductioninRakhine Highprices&demandinBangladesh

Highprices&demandinYangon

ProductioninSittwe,PauktawandMyebon

MoreP.monodonsoldtoYangona

P.monodon exportedtoBangladeshviaSittwebOtherprawnssoldtoYangon

More P.monodonsoldtoYangona

ProductioninKyaukpyu MoreP.monodon soldtoYangonsellinggrade1mostlyOtherprawnspeciessoldtoYangon

MoreP.monodon exportedtoBangladeshviaSittweifpricesarehighOtherprawnspeciessoldtoYangon

MoreP.monodon soldtoYangonsellinggrade1mostlyOtherprawnspeciessoldtoYangon

WildPLsavailability(peakperiod)

PLsavailabilityfromlocalhatcheries

ImportedPLs a:differenceofmarketpricebetweenYangonandBangladeshlowerthan1,500MKpervissb:differenceofmarketpricebetweenYangonandBangladeshhigherthan1,500MKperviss(infavorofBangladesh)

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Table12:Summaryoftermsofexchangesbetweenstakeholersinthevaluechain

Farmer Collector Small&largescaleTraderCollector Cashadvance(0.2to2million

Mk);fixedpriceslowerthanmarketprices(500to1,500Mkperviss)andinterestrate(2%)UnfairweightingpracticesLowbargainingpowerforfarmers

Small&largescaletrader

CashadvanceandfixedpriceslowerthanmarketpricesLowbargainingpowerforfarmersGradingsystemdifferentthanmarketinKyaukpyu

Cashadvance(0.1 20millionMK)withoutinterestbutcollectorshavetoselltothesametradersfromwhomtheyreceivedanadvanceGradingsystemdifferentthanmarketinKyaukpyu

Exporter Interactdirectlyonlywithprivateinvestorfarmtype.Exporterprovidestheexportlicensewithaservicefee(100MKperkgexported)andtransportstheproducttoanagentinBangladesh

Exporterprovides theexportlicensewithaservicefee(100MKperkgexported)andtransportstheproducttoanagentinBangladesh

Exporterprovidesthe exportlicensewithaservicefee(100MKperkgexported)andtransporttheproducttoanagentinBangladesh

Agent Agentnegotiatestransactionwiththeprocessingcompany.Agentchargesservicefeerelativetothevolumeoftrade(around62MKperkg)Agentcanprovidecashadvancetotraders(10millionMK)

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4.7.TRANSPORTANDROUTES

Themaincharacteristicsofthedifferentroutesarepresented inTable13.Sittwe isthehubforalltheprawnsexportedtoBangladesh,whilethosecollectedinKyaukpyuaremostlysenttoYangon.

Tradersdonotownanytransportequipment,butpayserviceproviderstotransporttheirproductiontoBangladeshorYangon.

Table13:Durationandtypeoftransportationforthemaintraderoutes

Destination Duration TypeoftransportationToYangonfrom:

Sittwe 60hours Bytruckroad.Mostlyindryseason Kyaukpyu 40hours Bytruckroad

ToBangladesh

ViaMaungtaw 2days Byboatandtruck BySea

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4.7.2.ExporttoBangladeshIntherainyseason,atthepeakofprawnproduction,tradersshiptheirproductiontoBangladeshduetohigherpricescomparedtoYangon.AllproductionshippedtoBangladeshtransitsthroughSittwe.

ExporttoBangladeshcanbedoneby3routes:

FormalandlegalroutebyboatuntilBouthidaungandroadtothebordergate(Maungtaw).Thisrouterequiresmoreeffortandmoretime, loadingandunloadingtheshipment fromboatstotrucksandtimewastedatthebordergateforadministrativeformalities;

Formaland legal routebyboatdirectly toBangladeshwithastopat theexportborderchecknearSittwe.Thisrouteisfasterthanthepreviousoneandlesscostlyintermsoflabor;

Informalroute,byboatfromSittwedirectlytoBangladesh.ExporttoBangladeshisdoneviaatransporterholdinganexportlicenseprovidedbythegovernmentofMyanmar.InSittwe,2companiescanexportproductstoBangladesh.

Thetransporterorganizesthetransporttothebordergateandchargesatransportfeeinadditiontoaservice charge, which includes the export tax. The transporter regroups shipments from differenttraders(5to10)toreducethetransportcost. Insomecases,thetransportercanarrangetoregrouptheproductionofseverallargescalefarmers.OneshipmentfromSittwetoBangladeshisaminimumof200boxes(16metrictons)andasingletraderwillshipaminimumof20boxes(1.6metrictons).

At the border or in Bangladesh, the traders either finalize transactions directlywith the processingcompanys agentorwith a free agent. The agentwillbepaid according to the trade volume.A fewtradershavetheirownagentbasedatthebordertosupervisethetransactionandtheweighingoftheshipment.

4.7.3.ChoiceoftransportroutesInKyaukpyu,before2009,90%ofthevolumewassenttoSittweduetoabetterexchangerate(USD)and higher profit. Traders redirected their shipments to Yangon due to better prices and bettertransportation. In the rainy season,when thepricedifference is significantandBangladesh isamoreprofitabledestination,tradersshiptheirproductiontoBangladesh.

ForexporttoBangladesh,whichrepresentsmorethan90%ofthemarketforSittwetraders,thechoiceofrouteschangedrecently (September2011)duetothereductionoftheexporttaxfrom10%to2%.According toone trader, the informal route representedaround80%of the tradevolume,whilenow80%of the volume isgoing through the legal route,due to the tax reduction.Underweighing at thebordergatetoreducetheexporttaxwasalsoreportedasacommonpractice.However,thisestimationwasobtained in thedry season,when the tradevolumesare low. Inaddition, thechoiceof route to

45

Bangladesh, via boat or boat and truck, depends on theweather. The informal route requires goodweatherconditions.

Thedecisiontoexportorselllocallyandthechoiceofroutealsodependsontheexchangeratebetweencurrenciesandthevalueoftheexportearnings.Whenthevalueofthoseexportearningsishigh,theexport licenseholderwillnotchargeanyadditionalcost,butwillbewillingtoexportandgainforeigncurrencythathasahighvalueonthedomesticmarket.

4.7.4.TransportcostsTransportcostsincludethecostoftransportationandtheformalandinformalfeesrequiredforaboxof50viss(80kg).ThedifferentcostsaresummarizedinTable14.

Table14:Transportcostsfordifferentroutes(80kgofheadlessprawns1container)

Bangladesh(Sea)

Bangladesh(informal)

Yangon(fromSittwe)

Yangon(fromKyaukpyu)

Transportation* 10,000to15,000 10,000to15,000 20,000to25,000 12,000to13,000Ice 3,000to5,000 3,000to5,000 5,000to7,000 3,000ExportTax(2%) 8,000 TradeTax 9,900** 9,900** TotalMK/kg 262to350 162to250 436to524 311to323TotalMK/box 21,000to28,000 13,000to20,000 34,900to41,900 24,900to25,900

*theservicefeeofthetransporter,whichvariesaccordingtotheexchangerateandcanbenullinsomecases.**tradetaxis198Mk/viss,whichisataxtotransportP.monodonoutsideRakhineState.

Exporting through Maungtaw costs an additional 10,000 MK per box due to higher labor costs forloadingandunloading theboatand truck.Transportation fromMyeboncostsanadditional10,000 to15,000perboxand fromPauktaw11,000MKperboxviapublic transportation (including thecostofreturning theboxes).Shippingproduction fromKyaukpyu toSittwecostsanadditional7,000perbox.ExportingtoYangonfromMyebon(viaSittweorTaungaut)costsbetween30,000to40,000MKperbox.ExportingtoYangonviaSittweisnotcosteffective,withmostofthecostduetodistance.TransporttoYangonviaKyaukpyu is comparable to theexport cost toBangladeshvia the formal route.Export toBangladeshvariesgreatlyaccordingtotheroute, formalor informal,withadifferenceofabout8,000MK per box. However, the cost of transport to Bangladesh was difficult to estimate since it variesaccordingtotheservicefeeappliedbythetransporter,whichcanbeashighas8,500MKperboxornulldependingontheexchangerate.

Inaddition,theexporttaxcanbereducedinthecaseoftheformalroute,sinceunderreportingofthevolumeexported isacommonpractice.Thisarrangement leadsto informaltaxesattheborder,which

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wedidnotestimate,aswellasotherinformalcostsalongthetransportationroutes,whichcanalsobesignificant.However,informaltaxesalongtherouteareincludedinthetransportationcostandcoveredbythetransporter.

InformalroutestoBangladeshseem lesscostly,buttheirpricedoesnot includethe informalfeesthatmightberequired(coveredbythetransporter),andnowthattheexporttaxhasbeenreducedthepricedifferenceisnotasimportantasitwasbefore.

Asimilartransportcost isapplicabletootherprawnspecies.Alltheproduction issenttoYangonandthere isnoexportofMetapenaeussp.andPenaeus indicus toBangladesh.Theonlydifference in thetransportcostforspeciesotherthanP.monodonisalowertradetax(totransportoutsideofRakhineState):50MKpervissand100MKpervissforpinkandwhiteprawnsrespectively.

4.8.PROCESSINGFACTORIES

Ofthethreeprocessing factories located inSittwe,nonewereoperatingat fullcapacity in2011.Onlyonethisyearwasoperating,and itwasproducinganegligiblevolume.Withinthestudyarea,theonlyprocessingfactorystillactiveislocatedinKyaukpyu.

TheAsiaGoldenPrawnCo. Ltd. inKyaukpyu isabranchofa larger companybased inYangon.Theytargethighvalueproductionsuchasgrade0andgrade1P.monodonforexport.P.monodonrepresentsmorethan50%ofthevolumeprocessed.OtherspeciesareP.merguiensisandMetapenaeussp.

Thecollectedmaterial is sorted,cleaned, frozen,packaged (1.8 2kgboxes)and storedbeforebeingsenttoYangonforexport.Thecompanypurchasesprawnsdirectlyfromtraders inKyaukpyubutdoesnot provide any cash advances. According to the companys manager, the buying price differencebetweenKyaukpyuandYangon isonly500MKperviss.However,thepricesarenotthatattractivetolocal traders since the company buys prawns following a grading system similar to the oneusedbytraders (inches).Thus, traderscannot increase theirprofitsby resorting theprawnsafterpurchasingthemfromfarmersorfisherscomparedtosellingtheprawnstheYangonprocessingfactories.

ThefactoryoperatesfromApriltoNovember,butoverthelast4years,thevolumehasdecreaseddueto competition from Bangladesh, and unfavorable climatic conditions including cyclones, and lowproductionvolumes.Thevolumeprocessedeachyeardecreasedfrom500metrictons in2008to302metrictonsin2009and284metrictonsin20102011,a40%decreaseofthetradevolumeover3years.For2012,tothecompanyprojectsthatitwillprocess200metrictons.

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5.Prices,costsandmarginsalongthemarketingchain

5.1.PRICESALONGTHEMARKETINGCHAIN

Itishardtoestimateeachincrementintheproductionschangingvaluealongthevaluechain.Figure7presentsanexampleof this change invalue for1 kgofprawns traded fromMyebon toBangladesh.However,thesepricechangesaresubjecttolargefluctuationsduetotheexchangerate,informalrulesbetweenactors,andlocalandinternationalmarketprice.

Figure7:Exampleofprice(MK/kg)changesalongthemarketingchainfor1kgofgrade4(2130prawns/450g),fromaproducerinMyebontoatraderinSittweandaprocessingcompanyinBangladesh.

During the year, the price varies from 2,000 to 3,500 MK per viss for the same grade. Themarginbetween thebuyingand sellingprice for the traderalsovariesaccording to themarketdemandandtransportationcost,butcanbeestimatedat500to1,000MKperviss.

The margin is optimized with sorting