Agricultural Exports, Price Volatility
and Monopsonistic Markets
An Analysis of the Myanmar - India Pulses Trade
Duncan Boughton (Michigan State University)
Paul Dorosh (IFPRI)
Cho Cho San (MOALI)
Jenny Cairns-Smart (IFPRI)
Asia ReSAKSS Conference, Bangkok, Thailand, December 13, 2017

Background
• Pulses are Myanmar’s largest
agricultural export by value and
India is the major buyer
• After almost 30 years of trade,
India imposed import quotas in
August 2017 that caused a
collapse in farmgate prices in
Myanmar
• Gains from trade for Indian
consumers and Myanmar
farmers are potentially at risk
2

Objectives
• Examine the underlying causes
of price volatility that led to the
imposition of an import quota
on pulses by India
• Evaluate options for reducing
price volatility for Indian
consumers and Myanmar
producers
3

Key findings and implications
• Myanmar-India pulse markets vulnerable to high price volatility:
• India’s demand and Myanmar’s supply both inelastic in the short run
• Pulse production (supply) in both India and Myanmar is unstable
• India and Myanmar supply shocks can be positively correlated
• Myanmar-India pulse markets are reasonably integrated in terms of
price signals: no evidence of international price manipulation
(statistical analysis confirms graphical impressions)
• G2G trade “deal” to overcome volatility technically difficult to
implement and little appetite from Myanmar traders / government
• Medium to long-term solutions for both countries lie in more elastic
demand and supply through diversification of markets
4

Outline
1) Background statistics for India and
Myanmar as trading partners
2) Relationship between demand
and supply elasticity and price
volatility
3) Overview of pulse production and
trade for India and Myanmar
 Focus on black gram (urad) and pigeon
pea (tur)
 Evolution of Market Prices 2011 to 2017
4) Trade Policy Options
 Short run
 Medium and long run
5

India and Myanmar in contrast:
Variable India Myanmar Ratio
Population (m) 1,324 53 25:1
Share Rural Pop 65% 67% 1:1
GDP ($ billion) 2,264 67 34:1
Ag Share of GDP 17% 38% 0.45:1
Arable Land per cap (ha) 0.12 0.21 0.6:1
6

7
Key issue: Myanmar-India pulse trade is co-dependent
 For both pigeon peas and black gram,
Myanmar-India trade accounts for a large
share of total trade for each country.
o India purchased 92 percent of
Myanmar’s pigeon pea exports in
2016-17; for black gram the share
was 80 percent.
o Myanmar accounts for 49 percent of
India’s total pigeon pea imports; for
black gram the share was 70
percent.
 Thus, Myanmar is heavily dependent on
India as a buyer of these products; and
India is only slightly less heavily
dependent on Myanmar as a supplier of
these products.

Impact of a supply shift on domestic prices with inelastic
demand (good production season in India)
8

Impact of a demand shift on domestic prices with
inelastic supply (case of India import ban on Myanmar)
9

10
Pulse Production in India (L) and Myanmar Exports (R)
Source: Authors’ calculations based on Myanmar Agriculture Statistics 1998–2010 (MOAI 2010)
0
0
0
1
1
1
1
0
100
200
300
400
500
600
700
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
('000tons)
Black Gram ('000 tons) Pigeon Pea ('000 tons)

11
Pulse Production in India (L) and Myanmar Exports (R)
Source: Authors’ calculations based on Myanmar Agriculture Statistics 1998–2010 (MOAI 2010)
0
0
0
1
1
1
1
0
100
200
300
400
500
600
700
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
('000tons)
Black Gram ('000 tons) Pigeon Pea ('000 tons)

Pigeonpea prices in India and Myanmar 2011-17
12

Black gram prices in India and Myanmar 2011-17
13

16
G2G Agreement to the rescue?
 Government of India offered Government of Myanmar a five-year
agreement for up to 1 million tons of exports per annum at a sales
price linked to the India minimum price plus a marketing margin
 G2G potentially attractive from a political economy perspective:
 Protects Indian consumers from excessively high prices in a short supply year
 Protects Myanmar farmers from excessively low prices in a high supply year
 Major technical challenges to reaching an agreement:
 Price? (zero sum game)
 Quantity? (what quantities can Myanmar commit to; what penalties for default)
 Who covers price deviation profits/losses for participating Myanmar traders?

17
Alternative Options for a Negotiated Sales Price
• Option 1: Sales price equal to
the Minimum Support Price
(adjusted for a marketing
margin) would provide stability,
but could result in a wide
disparity between the negotiated
sales price and market prices.
• Option 2: Sales price equal to
the wholesale Delhi lagged six
months, (plus a marketing
margin) provides no stabilization
relative to the market, but does
facilitate planning for both
buyers and sellers.
Note: The Minimum Support Price (MSP) and Delhi wholesale hypothetical sales prices use
constant marketing margins to Yangon.
0
200
400
600
800
1000
1200
1400
1600
2012 2013 2014 2015 2016 2017
(US$/ton)
Historical (Yangon) MSP
Delhi (lag 6m) Ave. MSP, Delhi (lag 6m)

18
Alternative Options for a Negotiated Sales Price
• Option 3: Average of the
Minimum Support Price and the
lagged wholesale market price
(both adjusted for margins)
results in increased stability with
some responsiveness to market
forces.
• Ultimately, the size of the
margins used (to translate the
Minimum Support Price or
wholesale Delhi price to an
equivalent Yangon price) and the
weights could be determined in
future trade negotiations.
Note: The Minimum Support Price (MSP) and Delhi wholesale hypothetical sales prices use
constant marketing margins to Yangon.
0
200
400
600
800
1000
1200
1400
1600
2012 2013 2014 2015 2016 2017
(US$/ton)
Historical (Yangon) MSP
Delhi (lag 6m) Ave. MSP, Delhi (lag 6m)

Obstacles for Myanmar to respond to GoI offer
 Myanmar traders have little incentive to commit to an agreement:
 Geographical price arbitrage: trader margins unaffected by
presence/absence of a deal
 Speculators (temporal price arbitrage): price instability an opportunity
 Value added exporters: not interested in selling to India (perceived as low
quality / low value trap)
 Myanmar government has to balance desire to support farmers
with significant obstacles to implementing and agreement:
 Lack of fiscal resources to underwrite trader losses
 Potential for false declarations by traders if Myanmar government agrees
to cover losses
 Danger of setting a precedent that could be demanded by other sectors
(e.g., rice)
19

Additional options should aim to make demand and
supply more elastic
20

More elastic supply (or demand) results in smaller price
fall with demand (or supply) shocks
21

What policy interventions promote more elastic markets?
• Expand government stocks (India) or increase access to low
interest loans (Myanmar) traders to hold stocks
• Myanmar allocated $11 million in loans to traders (enough for 35,000
tons) but needs approval from parliament to increase
• Expand Myanmar farmer post-monsoon crop options through
improved irrigation access and control
• Encourage domestic consumption of pulses in Myanmar
• Purchase pigeonpeas or blackgram instead of chickpea for military,
schools, hospitals, and prisons
• Requires investment in processing and promotion of recipes
• Diversify export destinations / import sources
• India already sourcing from eastern and southern Africa
• Myanmar could expand export destinations through investment in
processing
22

Thank you for your attention!
23