COUNTRY BRIEF 14 Myanmar: Impacts of the Ukraine and Global Crises on Poverty and Food Security Xinshen Diao, Paul Dorosh, Kristi Mahrt, Bart Minten, Karl Pauw, Josee Randriamamonjy, Jenny Smart, and James Thurlow1 International Food Policy Research Institute, Washington, DC 1. World Price Shocks and Domestic Price Transmission Global food, fuel, and fertilizer prices have risen rapidly in recent months, driven in large part by the fallout from the ongoing war in Ukraine and the sanctions imposed on Russia. Other factors, such as export bans, have also contributed to rising prices. Palm oil and wheat prices increased by 56 and 100 percent in real terms, respectively, between June 2021 and April 2022, with most of the in- crease occurring since February (Figure 1) Figure 1. Changes in global real commodity prices since mid-2021 (US dollars) 30 Jun 2021 - 31 Jan 2022 31 Jan 2022 - 30 Apr 2022 30 Jun 2021 - 30 Apr 2022 100% 101% 88% 56% 34% 11% -13% Maize Rice Wheat Palm oil Crude oil Natural gas Fertilizer Source: Authors’ calculations using data from World Bank Commodity Price Data (The Pink Sheet, https://www.worldbank.org/en/re- search/commodity-markets). Note: Nominal prices in US dollars from World Bank Commodity Price Data (The Pink Sheet) are converted to real prices, which account for the overall increase in world prices over this period, deflated by the US consumer price index, which rose by 7.2 percent between June 2021 and April 2022. 1 This study was conducted by IFPRI with financial support from BMGF, FCDO, and USAID. The study uses models developed with on- going support from BMGF, USAID, and CGIAR’s Foresight and Metrics initiative. The study also benefited from working with IFPRI’s My- anmar Country Strategy Support Program. For further information, please contact Bart Minten (b.minten@cgiar.org), Paul Dorosh (p.dorosh@cgiar.org), and James Thurlow (j.thurlow@cgiar.org). Version: July 7, 2022 Wide variation exists across products, with real maize prices increasing by only 11 percent and rice prices declining by 13 percent. The price of crude oil and natural gas has also risen substantially, while the weighted average price of fertilizer has doubled. With these changes in global prices, many developing countries and their development partners are concerned about the implications for economic stability, food security, and poverty. 2. Measuring Impacts on Myanmar’s Economy and Population We use an economywide model of Myanmar to estimate the impacts of the global price shocks on all sectors, workers, and households.2 The model allows us to capture a range of considerations that determine the overall impact of the recent global crisis on the country. For example, the effect of higher world prices on Myanmar’s economy depends on the importance of the affected products in the total supply of each commodity and whether local producers and consumers can readily sub- stitute away from higher-priced imports. Myanmar imports very little maize (less than 1 percent of supply in recent years), while more than 50 percent of wheat grains are imported. (Panel A in Figure 2). Myanmar also imports edible oils, accounting for about 20 percent of total edible oil supply. My- anmar is a large pulse exporter, mainly to India, and exports rice to a number of countries, maize to Thailand, and fruits to China. Thus, in general, changes in world prices of major food products are expected to have a mixed effect on the country’s agriculture and domestic prices. However, because oil products (that is, crude oil and processed petroleum) used in Myanmar are almost all imported, changes in international oil prices have a direct effect on prices in Myanmar. While Myanmar exports natural gas to China and Thailand, the trade benefits to Myanmar’s econ- omy – particularly to households – are low. Moreover, the impact of higher oil prices on households is significantly greater than suggested by the share of petroleum products in households’ consump- tion baskets. This is because oil products are primarily used as an input for the production of other goods and services, with 94 percent of total demand for oil products in Myanmar for input use (Panel B in Figure 2). Most petroleum products, for example, are used by the transport sector, the cost of which affects the price of all marketed goods and services in the economy. IFPRI’s model tracks the flow of domestic and imported inputs between sectors and estimates the net effect on fi- nal product prices. Figure 2. Breakdown of commodity supply and demand in Myanmar, 2019 (a) Share of imports and domestic (b) Share of intermediate, final, and export production in total commodity supply (%) demand in total commodity demand (%) Domestic Imports Input use Final use Exports 21% 13% 53% 68% 51% 99% 99% 94% 79% 79% 47% 32% 44% Maize Wheat Edible oils Oil products Maize Wheat Edible oils Oil products Source: Authors’ calculations using social accounting matrix (SAM) data from IFPRI’s Myanmar RIAPA model. Note: Wheat includes wheat flour and edible oils include edible oilseeds in Panel B. Input use includes grains as intermediates in flour processing, while grain flours can also be used as intermediates in the production of other processed foods (excluding flours) and by some service sectors, such as restaurants and hotels. Final use includes private and public consumption and gross capital formation. 2 Information on the Rural Investment and Policy Analysis (RIAPA) data and modeling system can be found here. 2 Version: July 7, 2022 Impacts on households also depend on the importance of commodities in their consumption bas- kets. Cereals and edible oils make up 17 percent of the total value of household consumption in My- anmar, which is about one-quarter of total food expenditures (Figure 3).3 IFPRI’s model tracks in- come and expenditures for different population groups and is linked to a survey-based micro-simu- lation tool that tracks the consumption patterns of individual households. Unpacking populations is crucial, because cereals and edible oils are more important for rural and poorer households in My- anmar than for other groups. Figure 3. Composition of household consumption spending in Myanmar, 2019 Cereals & edible oils Other foods Non-food goods & services 17% 28% 23% 42% 35% 70% 67% 55% 60% 56% 17% 23% 27% 14% 17% All households Rural Urban Poor Nonpoor Source: Authors’ calculations using social accounting matrix (SAM) data from IFPRI’s Myanmar RIAPA model. Rising fertilizer prices may cause some farmers to reduce their use of this input, leading to lower ag- ricultural production and higher food prices. The magnitude of this decline depends on: (1) the re- sponsiveness of fertilizer demand to changes in prices; (2) the amount of fertilizer currently used to grow crops; and (3) the expected productivity losses for farmers who reduce their use of fertilizers. Fertilizer is widely applied to various crops in Myanmar, but the adoption rate varies significantly by crop, at about 81 percent for rice and 52 percent for sorghum and millet (Figure 4). Variation also arises in the amount of fertilizer used on different crops. For our initial impact analysis, we adopt a conservative set of assumptions regarding farmers’ responses to rising fertilizer prices. We assume an own-price elasticity of fertilizer demand of −0.15, implying that a 100 percent increase in real fer- tilizer prices leads to a 15 percent decline in fertilizer use. Drawing on recent survey analysis, we assume that farmers who do not use chemical fertilizers are about 20 percent less productive than farmers who do.4 3 These figures include the imputed value of home consumption, which is also tracked within the RIAPA model. 4 The final impact on crop productivity is: [Change in domestic market price] × [Price elasticity of demand] × [Share of cultivated land us- ing fertilizer] × [Productivity gain from using fertilizer per hectare]. 3 Version: July 7, 2022 Figure 4. Share of cropland using chemical fertilizers in Myanmar Maize 76% Sorghum & millet 52% Rice 81% Wheat 59% Other cereals 69% Pulses 56% Goundnuts 65% Oilseeds 62% Cassava 34% Irish potatoes 72% Sweet potatoes 63% Leafy vegetables 62% Other vegetables 75% Sugarcane 76% Tobacco 42% Cotton 53% Nuts 16% Bananas 60% Fruits 55% Tea 52% Coffee 58% Cut flowers 77% Rubber 62% Source: Authors’ estimates using data from Myanmar Agricultural Performance Survey (MAPS). Most of the crop production in Myanmar takes place in the monsoon season, with planting at the time of the onset of rains in May and June and harvesting in November and December. Production of the smaller post- and pre-monsoon crops, concentrated in the Delta and the irrigated areas of the dry zone with harvests in April and May, may also already be seriously affected this year, as ferti- lizer use is often higher during these seasons than during the monsoon. The surge in world fertilizer prices may therefore have a major effect on fertilizer use and agricultural productivity for much of Myanmar in 2022. We simulate the effects of both higher world prices (recall Figure 1) and the potential productivity losses from reduced fertilizer use in the current monsoon growing season. Simulation results should be interpreted as “medium-term” impacts; that is, after the immediate spillover effects across sectors and households have occurred, but before the government and private sector make significant changes to their investments and policies in response to the crisis (see Section 5 for next steps). Myanmar’s economy has contracted significantly following the military takeover in February 2021 and continuous political and economic instability thereafter. According to the World Bank, national GDP was reduced by 18 percent in the previous fiscal year and the predicted growth rate is only around 1 percent for the current fiscal year.5 The recent global price crises, which were not taken into consideration in the World Bank’s early growth projection, will further worsen Myanmar’s growth prospects. Moreover, the global crisis could worsen the banking problem, foreign exchange short- ages, and insecurity issues that have existed since the military coup. These impacts, however, 5 World Bank (January 2022). Myanmar Economic Monitor: Contending with Constraints. Washington, DC: World Bank (https://openknowledge.worldbank.org/handle/10986/36889) 4 Version: July 7, 2022 cannot be taken into consideration in our analysis, and the economic and poverty impacts assessed in this study should be understood as an additional shock adding to the recent local crises. 3. Impacts on Myanmar’s Economy and Agrifood System The effects of the world price and fertilizer shocks on GDP and employment are significant. Real GDP falls by 3.5 percent due to the combined effects of the negative terms-of-trade shock (that is, the negative effect of higher import prices outweighs the positive effect of higher export prices) and rising import costs that reduce spending on domestically produced goods (Figure 5). Employment also declines by 1.5 percent, as falling production leads to job losses. The percentage declines in agrifood system GDP, particularly in agricultural GDP, are larger than the decline in total GDP, and about half of the losses in total GDP is from agrifood. Employment falls more in the off- farm sectors of the agrifood system because the shocks increase the cost of food processing and food-related services and lower demand for them. Many such activities, especially those in food-re- lated service sectors, are labor intensive, thus leading to more job losses than the decline in GDP (in percentage points) in the off-farm agrifood system. Outside of the agrifood system, GDP falls but employment is largely unaffected, because these negatively affected nonagricultural sectors are of- ten less labor intensive. Figure 5. Percentage change in GDP and employment due to food, fuel, and fertilizer shocks GDP Employment -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% -3.5% Whole economy -1.5% -4.2% Whole AFS -3.2% -4.3% Agriculture -2.9% -3.7% Off-farm -4.0% -3.0% Outside AFS 1.3% Source: Simulation results from IFPRI’s Myanmar RIAPA model. Fertilizer and fuel shocks drive the decline in national GDP. Fertilizer and fuel shocks have a similar impact on national GDP, and both accounts for roughly half (1.8 percentage points) of the total fall in real GDP (Figure 6). Agrifood GDP losses are more driven by fertilizer shocks, which di- rectly affect primary agricultural production and cause disruptions in downstream supply chains. Off- farm GDP within the agrifood system is also affected by the higher food prices that increase costs of food processing and food-related services, while the impact from the fertilizer shocks still predomi- nates. GDP losses outside of the agrifood system are driven more by higher fuel prices, which raise transaction costs and market prices and reduce consumer demand. 5 Agri-food system Version: July 7, 2022 Figure 6. Percentage change in real GDP decomposed by food, fuel, and fertilizer shocks Food prices Fuel prices Fertilizer prices & response -3.5% -1.8% -1.8% Whole economy -4.2% -2.8% -1.4% Whole AFS -4.3% -3.1% -1.5% Agriculture -3.7% -1.9% -1.3% -0.5% Off-farm -3.0% -1.0% -2.0% Outside AFS Source: Simulation results from IFPRI’s Myanmar RIAPA model. 4. Impacts on Household Poverty, Inequality, and Diets in Myanmar Household consumption falls due to the crises, with larger losses for rural households. Na- tional consumption spending, including the value of home consumption, falls significantly, by 9.7 percent (Figure 7). The percentage decline in consumption is much larger than that of GDP be- cause households are hit twice, by rising prices and falling incomes. Moreover, food accounts for a much larger share of household consumption than of GDP. The declines in consumption are also mostly driven by the fertilizer and fuel shocks, while rising food prices have little effect on overall household consumption. There are important differences in consumption outcomes across popula- tion groups. The fall in consumption is larger for rural households. Rural households earn more of their income from farming, and so are adversely affected by the decline in agricultural production following the increase in fertilizer prices but less affected by higher food prices, as they also grow crops for exports that benefit from the higher world prices. On the other hand, the impact of rising fuel prices on urban consumption is much larger than on rural consumption, because urban house- holds consume more energy-intensive products and services such as transport and have a more import-intensive food basket. 6 Agri-food system Version: July 7, 2022 Figure 7. Percentage change in real household consumption due to food, fuel, and fertilizer shocks Food prices Fuel prices Fertilizer prices & response -9.7% -4.5% -4.9% National -10.1% -6.1% -4.5% Rural -9.3% -2.6% -5.4% -1.3% Urban -9.7% -6.3% -4.0% Poor -9.7% -4.1% -5.1% -0.6% Nonpoor Source: Simulation results from IFPRI’s Myanmar RIAPA model. Inequality is largely unchanged with all households adversely affected. The food, fuel, and fer- tilizer shocks have different implications for different groups of households in Myanmar. Fertilizer shocks are most detrimental for poorer households in the lower expenditure and income quintiles, as they rely more heavily on agriculture for their income, while such shocks have a relatively smaller impact on households in the top quintile, and thus, cause inequality to increase (Figure 8). Con- versely, the fuel shock causes larger consumption losses for households in the top quintile as such households earn more income from economic activities that are more fuel-intensive, and they also consume more energy-intensive products and services. Food price shocks have a modestly nega- tive effect only for households in the two highest income quintiles. The combined effect of the shocks is dominated by fertilizer and fuel shocks that lead to less impact on inequality in income dis- tribution among different income groups in Myanmar. Figure 8. Percentage change in real household consumption across per capita expenditure quintiles Q1 Q2 Q3 Q4 Q5 2.0% 0.0% Food prices -2.0% Fuel prices -4.0% -6.0% Fertilizer prices & response -8.0% -10.0% Combined food, fuel and fertilizer shocks -12.0% Source: Simulation results from IFPRI’s Myanmar RIAPA model. 7 Version: July 7, 2022 Falling household consumption leads to greater poverty, particularly in rural areas. The in- crease in world prices raises the national poverty headcount rate significantly in Myanmar, by 7.6 percentage points (Panel A in Figure 9), equivalent to an additional 4 million people falling below the poverty line because of this global crisis (Panel B). Fertilizer shocks and rising fuel prices are the dominant factors in the poverty increase. This is consistent with household consumption changes in Figure 7. Impacts on rural poverty rates are larger because of larger impacts from fertilizer shocks on rural farmers. The largest absolute increase in the poor population is in rural areas, although this partly reflects Myanmar’s smaller urban population and lower initial urban poverty rate. Figure 9. Changes in poverty due to food, fuel, and fertilizer shocks (a) Change in poverty headcount rates with (b) Change in poor populations with shocks’ contributions (percentage points) shocks’ contributions (1000 people) 7.6% 8.3% 4,099 6.0% 4.5% 3,095 3.9% 2,106 Fertilizer prices 2.4% & response 1,689 Fuel prices 1,004 3.8% 3.3% 4.0% 2,030 403 1,489 547 Food prices National Urban Rural National Urban Rural Source: Simulation results from the survey-based microsimulation module within IFPRI’s Myanmar RIAPA model. Global shocks have differential effects on the cost of different food groups for a healthy ref- erence diet. The model tracks changes in the cost of a “healthy” reference diet (CoRD) with six food crops as defined by the EAT-Lancet Commission.6 The combined food, fuel, and fertilizer shocks did not raise the CoRD in real terms (Panel A in Figure 10).7 This is because while the rising prices for edible oils within the “added fats” food group increase its cost, significantly falling house- hold income reduces demand for fruits, dairy products, and proteins (meats and fish), and thus low- ers their real costs. The “staples” food group is dominated by other cereals and root crops and is only modestly affected by higher wheat import prices. Moreover, staples currently dominate house- hold consumption, mainly due to cereals, but achieving the diversity of the healthy reference diet requires a relative decline in the share of cereals in the average household diet. As such, the in- crease in wheat prices has only a modest contribution to the changing cost of a healthy diet. Moreo- ver, consumption levels of fruits, dairy products, meats, and fish are far below those required for a healthy diet for many households in Myanmar. The falling costs of these food groups mask house- holds’ deteriorating access to these foods due to falling income. 6 For further information on the RIAPA model’s diet module and indicators, see Pauw et al. (2021). 7 The CoRD is estimated using calorie targets from EAT-Lancet (for major food groups) and the World Bank’s International Comparison of Prices (IPC) dataset. The estimated budget shares for a healthy diet include: staples (10.7 percent), vegetables (15.7), fruits (19.3), dairy (11.1), proteins (38.5), and added fats (4.7). 8 Version: July 7, 2022 Figure 10. Changes in diet costs and household diet deprivation due to food, fuel, and ferti- lizer shocks (a) Changes in the real cost of a healthy reference (b) Number of people to become deprived in at least diet, with contributions from the six major food one additional food group (1000 people) groups (%) National 5,023 3,318 9,783 0.7% -0.2% Added fats -1.1% Proteins Dairy Urban 1,756 2,845 -2.3% Fruits -1.0% Vegetable Staples Rural -0.9% 3,288 2,645 6,938 Net change in cost of Contributions of food Food prices Fuel prices Fertilizer prices & response healthy diet groups to change Source: Simulation results from the survey-based microsimulation module within IFPRI’s Myanmar RIAPA model. Diet quality worsens for many households. The survey-based micro-simulation tool also measures the increased number of people with deteriorated diet quality. People are considered de- prived in a food group if they obtain fewer calories from that food group than recommended by the healthy reference diet. Prior to the global crisis, few households had the consumption levels and di- versity needed for a healthy diet in Myanmar. Rising food and fertilizer prices cause 9.8 million peo- ple to become deprived in at least one additional food group for a healthy diet. The rural population accounts for more people (6.9 million) with a deterioration in their diet quality, but the number for ad- ditional urban residents is also alarmingly large, at 2.8 million (Panel B in Figure 10). 5. Summary and Next Steps in the Analysis Global food, fuel, and fertilizer prices have risen rapidly in recent months, raising concerns about how this will affect economic stability, food security, and poverty in developing countries. We used IFPRI’s economywide model – known as RIAPA – to simulate the impacts of the global crises on Myanmar’s economy and population. The model allows us to track the direct and indirect effects of rising world prices, taking account of key considerations that will determine the overall impact. These include, for example: the share of imports in total product supply; the importance of different sectors and products for household employment, income, and consumption levels; and farmers’ re- sponses to rising fertilizer prices and the knock-on effect this could have on next season’s agricul- tural production. Adding to the severe domestic economic crisis caused by the military coup in February 2021 and continuous political and economic instability thereafter, the recent global crises cause GDP and 9 Version: July 7, 2022 employment in Myanmar to further contract according to our analysis. Most of the GDP losses are driven by rising fuel and fertilizer prices, rather than higher food prices. This is because, while the import prices of wheat and edible oils are rising, Myanmar is not heavily dependent on food imports. To some extent, rural farmers also benefit from higher prices for agricultural products, particularly agricultural exports, although the net effect on their welfare is negative once we account for the ef- fects of higher fertilizer and fuel prices, reduced fertilizer use, and lower agricultural productivity. Overall, household consumption falls significantly in Myanmar, and impacts are larger on rural households. Falling household consumption leads to greater poverty, particularly in rural areas. Fi- nally, the gap between household consumption levels and what is required to achieve a healthy diet widens. With the global crisis adding more negative impacts to an already troubled economy, the adverse impacts of the crisis on poverty and food insecurity are likely to be pronounced, especially in rural areas. This study is part of a series of country case studies that IFPRI is undertaking using economywide models to capture current world market shocks on developing countries. The analysis presented above is an initial impact assessment designed to gauge the vulnerability of countries and key pop- ulation groups. Subsequent analyses will simulate the mitigating effects of different policy and in- vestment options, including the potential roles of cash transfers, food aid, and subsidies for food, fuel, and fertilizers. Particular attention will be paid to possible synergies and trade-offs between these policy responses, including their implications for government budgets and longer-term devel- opment goals. ACKNOWLEDGMENTS This study was conducted by IFPRI with financial support from BMGF, FCDO, and USAID. The study uses models developed with ongoing support from BMGF, USAID, and CGIAR’s Foresight and Metrics Initiative. The study also benefited from working with IFPRI’s Myanmar Country Strat- egy Support Program. Funding for this work was provided by BMGF, FCDO, and USAID. The study uses models developed with ongoing support from BMGF, USAID, and CGIAR’s Foresight and Metrics Initiative. The study also benefited from working with IFPRI’s Myanmar Country Strategy Support Program and national partners. This publication may be updated in the future when more recent price information becomes avail- able, and it has not been independently peer reviewed. Any opinions expressed here belong to the author(s) and are not necessarily rep- resentative of or endorsed by IFPRI. INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE A world free of hunger and malnutrition IFPRI is a CGIAR Research Center 1201 Eye Street, NW, Washington, DC 20005 USA | T. +1-202-862-5600 | F. +1-202-862-5606 | Email: ifpri@cgiar.org | www.ifpri.org | www.ifpri.info © 2022 International Food Policy Research Institute (IFPRI). This publicatio1n0 is licensed for use under a Creative Commons Attribution 4.0 International License (CC BY 4.0). 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