By Aung Hla Tun
YANGON (Reuters) - In the first half of the 20th century, when it was known as Burma in Britain's eastern empire, Myanmar and its lush Irrawaddy delta were celebrated as the "rice bowl of Asia," leading the world in rice exports.
Farms thrived in the triangle of fertile land, mangrove swamps and tidal estuaries at the mouth of the Irrawaddy, Myanmar's longest river, shipping a record 3.4 million tons of rice in 1934.
Today, it struggles to export just a million tons, handicapped by inefficient ports, a sanctions-crippled financial system and years of land grabs by the rich and powerful -- problems that could undercut its renewed rice-growing ambitions at a time when its government is re-engaging with the world.
U.S. Secretary of State Hillary Clinton's visit on Wednesday to the resource-rich country neighboring China is stirring speculation over whether recent political reforms will lead to an end of sanctions imposed in response to rights abuses.
Since the army ceded power to a nominally civilian government in March, Washington has demanded the release of more political prisoners, peace with armed ethnic minorities and credible elections before it can consider ending sanctions.
In recent weeks, signs of progress on those fronts mark the most dramatic changes since the military took power in a 1962 coup. All the attention has begun to put its economy and rice-growing farmers back on the radar of world investors.
This year started off well enough. According to private surveyor SGS Ltd, Myanmar had exported more than 650,000 tons as of the end of October, compared with about 440,000 tons in the whole of 2010 and 1.1 million in 2009.
"Both demand and prices were very high for our rice in the world market earlier this year," said Hla Maung Shwe, vice-chairman of the Federation of Chambers of Commerce and Industry (FCCI). "But demand is falling for some reason."
One big factor could be India's return to the market in September after an export ban imposed by New Delhi from late 2007 because of a panic over domestic supplies.
Most shipments of Myanmar rice this year have gone to West Africa and neighboring Bangladesh. But those buyers tend to look hard at prices and India is pretty competitive, especially when logistics and banking complications are factored in.
"There is a growing market due to bad weather conditions in some rice-exporting countries. However, demand for Myanmar rice is falling because of India's selling out its reserves at more competitive prices," said Ko Myo Aye, a rice exporter in Yangon.
"Bangladesh, which bought about 100,000 tons of Myanmar rice earlier this year, turned to India a few months ago. Another problem is difficulty in payment. Because of the sanctions, it's impossible to get payment by letter of credit. They have to use telegraphic transfer," he added.
Although rice is not covered by sanctions on Myanmar by some Western countries for human rights abuses, restrictions on financial services are imposed by some states.
Traders in Thailand said Myanmar's 25 percent broken grade white rice was currently offered at around $350 a ton, a bit below India at $370 a ton.
Both are much cheaper than the same grade of rice in top exporter Thailand at $555 a ton and second-ranked Vietnam at $525. Prices in Thailand have been pushed up by government intervention to help farmers.
"Myanmar's prices are very attractive at this point, but what makes buyers switch to India and Pakistan is its poor logistics system," said Kiattisak Kalayasirivat, a trader with Novel Agritrade in Bangkok.
The port at Yangon was a particular problem, he said. "It can take up to a month if you want to load 30,000-50,000 tons of rice from Myanmar."
HELP FOR EXPORTERS
Myanmar produces around 30 million tons of paddy a year, much the same as Thailand. But Thailand is capable of exporting 10 million tons of milled rice in a good year.
Myanmar's rice sector fell into decline under a military government that pushed through disastrous central planning of the economy from 1962.
On August 13, 1967, dozens were killed in Sittwe, the capital of Rakhine State, a major rice area, in a crackdown on protests against an acute shortage affecting many parts of the country.
The authorities started to reform the sector from early 2010, setting up the Myanmar Rice Industry Association (MRIA), which merged associations of growers, millers and exporters with a think tank grouping economists and technocrats.
The MRIA now has 14,000 members across the country but so far its ambitions have outstripped its achievements. A plan to start an intervention scheme and build up stockpiles to stabilize the domestic market has struggled, for example.
"It also has been conducting surveys to get accurate data about the industry. But we haven't been able to carry that out very extensively," said MRIA member Hla Maung Shwe.
That made life difficult, said a senior Agriculture Ministry official, who declined to be identified because he was not authorized to speak to the media.
"We have some difficulty adopting correct future policies due to the lack of reliable and accurate data on everything -- population, consumption, per acre yield, production, inputs and so on," he said.
"Local officials at different levels usually exaggerate the data on acreage and yield in their reports to please higher officials. It's bad practice handed down since the time of the socialist government," he said, meaning the post-1962 regime.
On the plus side, red tape and paperwork have been relaxed. Mills are improving and some new facilities are of international standard, traders say.
The new civilian government that took office this year has cut export taxes to 2 percent from 10 percent from September until February to help the sector, but exporters say that doesn't make up for a jump in the exchange rate.
As part of its reforms, the government has invited the International Monetary Fund to advise on its currency regime.
The official rate of the kyat is around six per dollar. The unofficial rate -- which in reality covers most transactions -- is currently around 760 per dollar, having jumped from 850 in May and more than 1,000 in 2009 as foreign money has flowed into the energy, timber and gem sectors.
"The profit margin for all exporters is still getting slimmer because of the unnaturally strengthening kyat," said Hla Maung Shwe at the FCCI, adding it would be hard for rice exporters to break even if the dollar was weaker than 850 kyat.
Farmers are feeling the pinch, too.
"It's no longer commercially viable for small-scale growers to grow paddy," said Soe Myint, a 62-year old farmer from Twantay, about 32 km (20 miles) south of Yangon.
Farmers in Myanmar reckon in terms of a "basket" of unmilled rice, or paddy, equivalent to about 21 kg (46 lb). Soe Myint put the average yield at about 60 baskets per acre.
"Depending on the quality, 100 baskets of paddy fetch only about 300,000 kyat (conversion at black-market rate) at present," he said. "With total production costs reaching up to 150,000 kyat per acre, it's hard for farmers to break even if the yield is low."
As a result, many farm workers are leaving the land, often to become laborers in Myanmar's cities or neighboring countries, and many farmers are selling up.
"In Twantay township, a lot of farmland has been converted into fish and prawn breeding ponds, mostly by the rich and powerful after buying from farmers making losses," Soe Myint said.
Shwe Kyaw, 23, a former farmer now training to be a welder in Yangon, said it was similar in Rakhine State, where he came from. "To make matters worse, many farmers there even had their farmland seized for the expansion of army battalions."
Two oil and gas pipelines run from western Rakhine State to China. Sources in the area say there are dozens of battalions garrisoned across the state, up from three about 20 years ago.
Lawyer and farmers' rights activist Pho Phyu said the authorities had seized about 10,000 acres of farmland owned by about 1,000 farmers around Yangon with minimal compensation.
"At first, the authorities promised that joint-venture farming would be carried out between the farmers and private businessmen on this land but nothing happened," he said at a recent peaceful protest of about 60 farmers in Yangon.
All that suggests Myanmar has a long way to go before it can reclaim its former glory in the rice trade.
Thailand and others are watching with interest, without worrying too much about the competition just yet or showing any interest in investing in land and facilities, as in Cambodia.
"The key factor is political stability. If the government has clear policies on business, I think many rice traders and exporters will take a look at Myanmar," said one Bangkok-based trader, who asked not to be named.
Kiattisak at Novel Agritrade said the reforms could pay off eventually. "If rice prices go higher, farmers will start to invest more in order to increase yields, by using fertilizer, for example, or the government could invest more in irrigation systems," he said.
(Additional reporting by Apornrath Phoonphongphiphat in Bangkok; Writing by Alan Raybould; Editing by Jason Szep and Alex Richardson)