This record is a partial extract of the original cable. The full text of the original cable is not available.

030541Z Jan 06

UNCLAS  DUSHANBE 000002 
 
SIPDIS 
 
 
STATE FOR EUR/CACEN, SA 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD PGOV PREL TI
SUBJECT: TAJIKISTAN'S TOP EXPORT, COTTON, CONTINUES TO DECLINE 
 
REF: DUSHANBE 209 
 
¶1.  SUMMARY:  Tajikistan's cotton harvest continues to decline 
since the fall of the Soviet Union due to lack of farm capital, 
poor land management, and detrimental financing options.  The 
government acknowledges a need to change policies to resuscitate 
the cotton industry, but real reform has been slow.  END SUMMARY. 
 
¶2.  Tajikistan only harvested 73.3% of its 610,000 tons cotton 
quota this year, down 109,354 tons from last year.  The loss of 
over one-quarter of expected cotton revenue, coupled with 
decreasing world cotton prices, hurts Tajikistan's economy and 
its impoverished farmers, three-fourths of whom grow cotton. 
Based on this year's results, Tajik authorities plan to revise 
the cotton quota for 2006 down to 550,000 tons from the slated 
610,000 tons.  The government had forecasted cotton harvest 
yields through 2010 and hoped to harvest 750,000 tons in 2010, 
but will most likely have to downgrade upcoming projections. 
Tajik cotton production has been in decline since the collapse 
of the Soviet Union when the country averaged one million tons 
of cotton per year.  In addition to reducing expectations for 
the cotton harvest, authorities have allocated less land towards 
cotton for 2006, only 250,000 hectares compared to 2005's 
288,000 hectares. 
 
¶3.  In a newspaper article December 26, Prime Minister Akilov 
blamed the poor harvest on a shortage of technical equipment and 
futures companies' failure to provide pesticides and fertilizer 
in a timely manner.  Futures companies are the interlocutors 
between international investors and farmers.  They provide loans 
and farm supplies to farmers and collect the cotton to sell on 
the international market.  Akilov held a meeting on December 24 
with relevant ministries, such as the Ministry of Agriculture, 
the Tajik Central Bank and futures companies to strategize an 
efficient 2006 harvest.  Regional authorities were tasked with 
preparing for cotton sowing by mid-January.  He also stated that 
farms should clear off their water and electricity debt. 
According to Saidmurod Bahriddinov, Chief of the Department of 
Technical Crops, the government decreased the 2006's cotton 
target to increase grain, potato and vegetable production in an 
effort to balance food security, a growing concern for 
Tajikistan. 
 
POOR LAND MANAGEMENT LEADS TO LOW COTTON YIELD 
 
¶4.  Tajikistan's poor cotton harvest stems from a combination of 
many factors  (REFTEL).  Tajikistan's concentrated efforts on 
growing cotton has taken its toll on the land and led to a 
decrease in cotton yield.  An old and inefficient irrigation 
system exacerbated by Tajikistan's high elevation has worsened 
land salinization and rendered the land infertile to crops. 
Although all farms have been privatized, farmers have no say 
over what they can use the land for and are instructed by the 
government to grow cotton year after year just so the country 
can meet its cotton quota.  There is no system of crop rotation 
and continuous cotton growth wears out the land. 
 
¶5.  Access to water affects the entire country and lack of water 
contributes to a low cotton harvest.  Agriculture uses 84% of 
Tajikistan's water supply, however due to an inefficient and old 
leaky irrigation system, only half of the water actually reaches 
farms.  Prime Minister Akilov called on farmers to cut their 
electricity and water debt.  However, the cost of pumping water 
up to high elevations is expensive and many impoverished farmers 
cannot pay their electric or water bills. 
 
¶6.  Akilov's complaints about the lack of machinery and futures 
companies are valid.  Cotton is still handpicked in Tajikistan 
by peasants and forced student laborers.  Farmers complain that 
existing gins are inefficient and the majority cannot afford 
capital machinery for their farms.  Futures companies hold a 
monopoly over farm supplies and force farmers to buy products at 
their designated prices.  The futures companies' delay in 
supplying pesticide this year was detrimental to Tajik crops, 
 
which are constantly plagued by pests.  Tajikistan is also 
disadvantaged by not having a cotton grading facility.  Although 
the cotton may be high quality, it is bought by international 
buyers at a discount since the quality of the cotton must be 
established offshore. 
 
THE GOVERNMENT PLANS TO REFORM 
 
¶7.  The Minister of Agriculture sent a letter in November to 
President Rahmonov outlining several recommended agriculture 
reforms, including: introducing better cotton seeds, increasing 
crop rotation, and increasing the number of domestic cotton 
gins.  The Ministry of Agriculture hopes to see a textiles 
industry grow in Tajikistan. 
 
¶8.  Reforming the banking and finance sector would help small 
and medium-sized enterprises as well as the country's farmers. 
Tajik farmers owe an estimated 230 million dollars to banks and 
investors.  Bahriddinov told PolOff that President Rahmonov gave 
a verbal order to the National Bank to lend directly to farmers 
and not go through futures companies.  The government set up an 
independent commission to investigate reforming the futures 
companies. 
 
¶9.  Bahriddinov said President Rahmonov is looking at ways to 
offer credit at a lower rate and provide farmers with the loans 
they need.  Bank loan interest rates are exorbitantly high at up 
to 36% and prevent farmers as well as other entrepreneurs from 
borrowing money.  However, the futures companies set interest 
rates on farm loans even higher at nearly 60%.  Banks will not 
lend to farmers because the farmers come with old land debt.  In 
addition, the banks require collateral on the loans, which 
farmers cannot provide, thereby prohibiting them from receiving 
bank credit. 
 
¶10.  Even the government has acknowledged futures companies do 
not meet expectations as investment mediators and contribute to 
farmers' debt.  Political interests have prevented reform of the 
banking sector and the role of futures companies.  The Chairman 
of the National Bank, Murodali Alimardonov, is also a partner of 
HIMA, one of the largest Tajik futures companies.  His 
investment in the cotton industry is a conflict of interest in 
reforming the sector. 
 
¶11.  Although the government, NGOs and farmers complain about 
futures companies' gouging activities, the Asian Development 
Bank (ADB) has argued middlemen are needed because international 
investors hesitate to deal with farmers directly.  ADB instead 
advises that the government audit futures companies, weed out 
exploitative middlemen and establish good investment practices. 
 
¶12.  Tajikistan's government insists on promoting cotton because 
it is a strategic cash crop for the country.  Bahriddinov argues 
this is because the state earns ten percent on all cotton 
revenues, with cotton accounting for 40% of exports and 
providing badly needed jobs. 
 
¶13.  COMMENT:  The government may blame and rationalize a poor 
cotton harvest on a variety of peripheral factors, but a 
consistently declining cotton yield is the result of bad 
government policy, poor land management and a system that 
squeezes farmers out of the business.  Unless Tajikistan can 
reform the cotton industry and improve farming and land 
conditions, the country will no longer be able to rely on cotton 
to sustain its economy.  Banking and financial reforms are 
needed, but are hindered by entrenched financial interests of 
powerful politicians. The government is only beginning to 
realize the need to reform.  A working group of NGOs, IFIs and 
government officials continues to discuss ways to move the issue 
forward in a way that addresses Tajikistan's national interests 
and not special interests.  END COMMENT. 
ARMBRUSTER 
 
 
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