Myanmar is a low-income agrarian countrywith a high poverty rate. The livelihood of many poor peopledepends on the performance of agriculture, especially therice sector. Rice accounts for 70 percent of Myanmar s totalcultivated area and 30 percent of the value of itsagricultural production. Increasing returns to riceproduction will be the key to increasing farm wages andincomes in the short to medium run. Higher rice productionwill also help maintain low food prices, improve foodsecurity, and reduce poverty, as an average household spends61 percent of total household income on food, and rice is amajor component of the food basket. Price fluctuations are acommon feature of well-functioning agricultural markets.Price fluctuation should be expected in such markets, sinceoutput varies from period to period due to factors such asweather, pests and disease, and because demand and supplyare inelastic in the short run. Moreover, some amount ofseasonal and spatial price movements should be tolerated,since these usefully signal scarcity in the market andfacilitate a supply response, foster arbitrage betweensurplus and deficit regions, as well as guide post-harvesthandling, storage and trade decisions. However, in the caseof Myanmar s rice market, several factors serve toexacerbate price fluctuation and make them more pronouncedand unpredictable (volatile) and lead to serious negativeimpacts for consumers and farmers. Rice price volatility isof concern to the Myanmar government given the highimportance of rice for farm incomes and consumerexpenditures, and thereby for food security and povertyreduction. On the production side, prices volatilityinhibits farmerssupply response and is a disincentive forgreater use of purchased inputs and increased investments.Volatility can also discourage rice-producing farmers todiversify their cropping patterns to high-value crops ifthey cannot buy cereals for consumption at more predictableprices. On the consumption side, rice price spikes can causeincreased food insecurity for those not wealthy enough tomaintain consumption levels at the higher prices. For peoplespending 50 percent of their income on rice, a 20 percenttemporary increase in rice prices would lead to anapproximate 10 percent decline in effective income. This isa large shock, often equivalent to householdsspending onhealth and education.
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