Agricultural mechanization service providers (MSP) are crucial to enabling smallholder farmers to undertake a range of power-intensive farm and post-harvest operations in a timely manner. In their research, Hiroyuki Takeshima, Myat Thida Win, and Ian Masias utilize the findings from a rapid phone survey to assess how COVID-19 related challenges are affecting the business environment for MSPs. They also provide policy recommendations to support the continuation of MSP businesses during the COVID-19 crisis.
The full policy note by Hiroyuki, Myat, and Ian is available both in English and in Burmese.
မြန်မာဘာသာဖြင့်ရေးသားထားသော စာတမ်းအပြည့်အစုံကို ဤနေရာတွင် ဖတ်ရှုနိုင်ပါသည်။
The Myanmar Agriculture Policy Support Activity (MAPSA) is monitoring the impact of COVID-19 on key actors in Myanmar’s agri-food system. This blog post highlights one of the many recent surveys and policy notes that MAPSA has conducted to assess the emerging constraints that these key actors face and to mitigate the possible impacts of COVID-19 on rural livelihoods and food security.
Additional blog posts are available highlighting MAPSA’s research on the impact of COVID-19 on key actors in Myanmar’s agri-food system. Surveys are ongoing, and findings and recommendations will be periodically updated.
Background
Though the operations of MSPs are critical to Myanmar’s food production and farm income, they are capital-intensive and the economic viability of MSPs is highly sensitive to capacity utilization. These businesses require cash flow to repay equipment loans, import goods, and employ machine operators. Thus, the operations of MSPs are sensitive to restrictions on mobility and trade.
The COVID-19 pandemic, the restrictions imposed as policy responses to control the spread of the virus, and the associated market disruptions affect MSPs across Myanmar.
To shed light on the extent of these impacts, MAPSA conducted phone interviews with hundreds of MSPs in the Dry Zone, Delta, and Bago regions and assessed key financial challenges and coping mechanisms.
Reported effects of COVID-19 on mechanization service providers
Demand for MSPs has declined due to the current limited financial means of farmers to pay for mechanization services, which may result in lower farm production.
One COVID-19 related restriction significantly affecting MSP operations is that on physical movement. For areas where there continues to be demand for mechanization services, this barrier on movement negatively affects the ability of MSPs to meet that demand.
Between 10 and 20 percent of MSPs indicated that they had been granted exemptions from mobility restrictions. However, obtaining such exemptions typically require recommendation letters from village authorities. These exceptions are also conditional. For example, MSPs granted an exception were banned from conducting night-time operations or required all personnel to wear protective equipment.
With the impacts of COVID-19 and related restrictions, MSPs are facing financial challenges. Requests for late payments from farmers for mechanization services have increased and due to the higher costs of equipment, imported spare parts, and worker shortages, many MSPs are facing difficulties in repaying the loans they obtained to purchase their machines. Many MSPs facing financial challenges reported selling assets, diverting other income to their businesses, and obtaining loans from private individuals.
The majority of MSPs are pessimistic about their revenue outlook for this year; many of which expect revenues to decrease by more than 10% in 2020 compared to 2019, displayed in Figure 1.
Policy recommendations
MSP survey respondents were also asked for their opinions on what policies would be most beneficial to enable them to continue during the COVID-19 crisis. Their opinions, as well as observed conditions on the ground, suggest the following short-term policy recommendations, many of which can be incorporated into Myanmar’s COVID-19 Economic Relief Plan.
- Support adjustments on loan-repayment terms on machines and equipment owed by MSPs, as well as temporary government loans for general business expenses. Such measures can be incorporated in CERP actions 2.1.1 and 2.1.6 on financial support for small and medium enterprises. Support should be extended to both formal and informal MSPs.
- Implement waivers during the peak farming season on taxes and customs duties, including those on agricultural machinery, equipment, and imported spare parts. Such measures can fall under CERP 2.1.3, which proposes deferred tax payments and increased tax waivers.
- Encourage regional governments to grant MSPs exemptions to many of the COVID-19 related restrictions. The proportion of MSPs experiencing restrictions was observed to vary significantly across regions, despite our small sample of MSPs. Under CERP, the restrictions on MSPs should be applied appropriately and uniformly.
- Continue general financial support to farmers to enable them to pay for mechanization services, including improved access to farm loans. Such efforts would fall under CERP Action 2.1.7 on support to farmers. Improving farmers’ liquidity at planting season also enhances their ability to make more prompt payments for services. This will mitigate some of the financial challenges many MSPs are now facing.
Related posts
- COVID-19's effects on Myanmar's mechanization service providers (June)
- COVID-19's effects on Myanmar's mechanization service providers (May)
Hiroyuki Takeshima is a Senior Research Fellow in the Development Strategy and Governance Division (DSGD) of the International Food Policy Research Institute (IFPRI), based in Washington, DC. Myat Thida Win is a PhD candidate in the Department of Agricultural, Food, and Resource Economics of Michigan State University, East Lansing, MI, USA. Ian Masias is a Senior Program Manager in DSGD of IFPRI, based in Yangon, Myanmar.
This blog post was prepared by Michael Wang, Mickey Leland International Hunger Fellow in DSGD of IFPRI, based in Yangon. The analysis and opinions expressed in this piece are solely those of the authors.
