The Edible Oil Milling Sector in Myanmar's Dry Zone

This report presents findings from a survey of edible oil mills in Myanmar’s Central Dry Zone, comprised of structured interviews with 144 mills in five urban centers, and 38 mills in rural areas of nine townships (total 182 mills). The following results stand out: Groundnut is the most important crop processed by Dry Zone millers, milled by 94% and 87% of urban and rural mills, respectively. Sesame is of lesser importance for urban mills (milled by 31%), but is a major crop for rural mills (milled by 74%). The domestic mill sector utilizes only a small share of Myanmar’s total oilseed production. The majority of sesame produced in Myanmar is exported. The quantity of oilseeds procured by urban mills fell by more than half from 2012 to 2017. The mean volume of groundnut procured fell 55%, from 509 t to 230 t, while the mean volume of sesame procured fell 53%, from 386 t to 182 t. The mill sector is highly concentrated and concentration has intensified since 2012. Large mills procured around 90% of all groundnut and sesame milled by urban mills in 2017. The Gini coefficient of oilseed procurement rose from 0.63 in 2012 to 0.76 in 2017, indicating deepening market concentration. Urban and rural mills have different business models. Urban mills earn income mainly by adding value to purchased oilseeds by processing them, whereas rural mills earn income mainly by providing custom milling services to oilseed farmers for a fee. Most equipment owned by mills is old. The average age of most items of milling equipment owned by urban mills is 14-17 years. Most oil produced in the Dry Zone is consumed locally. Sixty-nine percent of all oil produced by urban mills in the Dry Zone is sold locally. Local consumers account for 57% of sales. Local retailers are the second largest market segment (12% of sales). More than half of urban mills brand the oil that they sell, and one third advertise their products. The number of mills that advertise has grown rapidly since 2011. Oilcake is an important co-product that contributes mill income. Oilcake sales account for around 20% of the gross revenues earned by urban mills. Mills have responded to demand for cheaper oil by selling blended oils. Many mills sell groundnut oil blended with palm oil to consumers more cheaply than pure groundnut oil. Palm oil accounted for 15% of the volume of reported oil sales by Dry Zone mills in 2017. The real retail price of palm oil has halved since 2011, while the price of groundnut oil has remained stable. The long run decline in the price of palm oil corresponds with the removal of restrictions on imports in April 2011 that opened up the market to private importers. Domestically milled oil cannot compete with imported palm oil on the basis of price. Processed palm oil is cheaper than un-milled groundnut, and groundnut oil sells for more than double the price of palm oil. Myanmar’s market for edible oil has become segmented. Retail prices for groundnut oil and palm oil have diverged to such an extent that locally sourced products cater to a relatively small group of better-off consumers who can afford domestically produced oil, and a large group of lower income consumers who cannot Better-off consumers are willing to pay a premium for niche high quality oil. Lack of confidence in the provenance of oil produced by conventional ‘expeller’ mills has created opportunities for a ‘niche’ oil with distinct sensory characteristics produced by small artisanal mills adapted from traditional designs. Oil from these mills attracts a price premium over oil produced by expeller mills Numbers of conventional oil mills fell 30% over the past decade, but the number of artisanal mills doubled. Numbers of urban ‘expeller’ mills dropped from 266 to 186, whereas the number of small artisanal urban mills producing premium oil jumped from 78 to 156, but artisanal mills account for only 2-3% of edible oil production. Implications for policy and programming These results paint a picture of Myanmar’s edible oil milling industry attempting to adjust to the longterm challenge posed by liberalization of palm oil imports, and suggests a number of implications for policy and programming, as follows. Efforts to protect Myanmar’s edible oil milling industry (e.g. by restricting palm oil imports or raising import duties) would hurt poorer consumers. Although liberalization of palm oil imports has proven challenging for domestic millers, it enables consumers to access edible oil at affordable prices. Establishing a national quality assurance scheme for edible oil could give customers more confidence in the quality and provenance of the oil they buy. However, costs of compliance should not represent a barrier to SMEs, and training and support would be needed to help to mills to upgrade practices to meet the standard. Support for improving branding and marketing strategies could help mills differentiate their products and target a larger customer base. For example, by developing more effective online marketing campaigns and integration with emerging e-commerce platforms, or adopting geographical indications or regional brands (e.g. for Pakkoku sone hsi oil). Adoption of national standards combined with better marketing can provide a foundation for entry into export markets with higher quality standards for the best performing mills, enabling more of the value added from the oilseed sector to be retained in Myanmar. Infrastructure such as laboratory testing facilities will be needed if Myanmar is to climb the value ladder. Productivity increases in Dry Zone oilseed farming will increase farm incomes but are unlikely to improve the competitiveness of the milling sector relative to imported palm oil. Any oilseed surplus to domestic requirements is exported, dampening any effect that an increase in oilseed production by farms in Myanmar might have on domestic oil prices.