VZCZCXRO7458
PP RUEHDBU
DE RUEHNT #1734/01 2780418
ZNY CCCCC ZZH
P 050418Z OCT 07
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC PRIORITY 8552
INFO RUEHAH/AMEMBASSY ASHGABAT 3316
RUEHTA/AMEMBASSY ASTANA 9512
RUEHBJ/AMEMBASSY BEIJING 1049
RUEHEK/AMEMBASSY BISHKEK 3932
RUEHDBU/AMEMBASSY DUSHANBE 3795
RUEHBUL/AMEMBASSY KABUL 1922
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001734 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: DECL: 10/05/2017 
TAGS: ECON ICAC EINV ETRD ELAB ZK UZ
SUBJECT: COTTON TRADE, PROFITS (AND REFORMS?) 
 
REF: TASHKENT 1648 
 
Classified By: CLASSIFIED BY ECON OFF B. OLSEN FOR REASONS 1.4 (B, D). 
 
¶1. (C) Summary: The 2007 Third International Cotton and 
Textile Conference attracted over 250 companies, the majority 
Asian.  Embassy staff attended.  Uzbekistan expects to export 
over one million tons of ginned cotton in 2007 for 
approximately USD 1.55 billion.  Over 70 percent of this 
year's buyers are from Asia, demonstrating an economic shift 
away from the traditional European buyers.  Improved trade 
routes are a factor in this shift.  The Government of 
Uzbekistan (GOU) continues its attempt to convert half of the 
cotton sector to value-added industries.  It partly relies on 
foreign investment for this conversion, which trickles in 
slowly due to the poor investment climate.  Cotton industry 
reforms would likely raise the standard of living of the 
docile, poorly-educated and poorly paid rural labor force. 
However, value-added industries, in the short term, would 
deprive the powerful elite of a source of hard currency.  We 
do not foresee substantial cotton reforms occurring rapidly 
in Uzbekistan.  End summary. 
 
¶2. (U) The Third International Cotton and Textile Conference 
was held in Tashkent September 17-19.  According to 
organizers, 450 representatives from 250 companies and 34 
countries, mostly from Southeast Asia, took part in the 
event.  The fair was organized by the Uzbek Ministry for 
Foreign Economic Relations, Investment and Trade (MFERIT), 
with support from the International Cotton Advisory 
Committee, British Cotton Outlook Ltd., and the Uzbek Cotton 
Association.  In addition to the exhibition, participants 
visited cotton farms, gins and textile mills. 
 
¶3. (U) Official speakers spun a positive story about the 2007 
cotton season.  The International Cotton Advisory Committee 
lauded Uzbekistan for its strong pricing policy.  This year, 
Uzbekistan is selling cotton at a market rate, regardless of 
quantity purchased.  The government reportedly priced cotton 
so as not to undercut the international price.  The majority 
of Uzbek cotton is sold by three state-owned MFERIT companies 
(Note: There are a handful of foreign businesses with 
licenses to sell ginned cotton, including the Central Asia 
Seed Company (reftel).  End note.)  From 2006, raw cotton 
also has been traded on the Uzbek Commodity Exchange. 
 
¶4. (U) Minister for Foreign Economic Relations Ganiev 
commented that recent infrastructure improvements and the 
establishment of trade routes eastward have reduced 
transportation time from 30-32 days to 24-26 days.  Cotton is 
sent by rail to Alahsankou, Kazakhstan, then to northern 
China and onward to Chinese ports, where it is shipped by 
boat to Bangladesh, South Korea, India, and Singapore.  The 
improved trade routes have reduced the reliance on overland 
routes via Turkmenistan to Iran's Bander-Abbas port. 
 
¶5. (U) The majority of Uzbekistan's raw cotton, over 70 
percent, is now purchased by Asian buyers.  This is an 
important shift as Western demand for ginned cotton is 
rapidly decreasing.  At the Cotton Conference, many Asian 
buyers expressed the desire to buy cotton directly from 
Uzbekistan, bypassing the traditional intermediaries.  Thus 
far, foreign buyers have purchased approximately 600,000 tons 
of the one million tons of ginned cotton available in 2007. 
The total revenue expected is around USD 1.55 billion, 
approximately 16 percent of Uzbekistan's 2006 GDP. 
Uzbekistan is among the world's top five cotton exporters and 
top ten producers; 2007 is considered an average to above 
average year for production. 
 
¶6. (SBU) Converting the cotton sector from an overall 
exporter of ginned cotton to a value-added cotton industry 
has been a goal of the GOU for many years.  The process is 
moving slowly, as the GOU relies on foreign investors to 
implement the conversion.  The GOU aims to eventually process 
50 percent and export 50 percent of all cotton grown in 
Uzbekistan.  Currently, 30 percent is processed.  Post 
estimates eighty spinning mills must be built for the goal to 
be met. 
 
Comment 
------- 
 
¶7. (SBU) The Uzbek economy and government revenue are heavily 
 
TASHKENT 00001734  002 OF 002 
 
 
dependent on the agricultural sector, in particular cotton 
exports.  The majority of Uzbek cotton is hand-planted and 
hand-picked by a poorly-paid and educated labor force. 
Nearly half the Uzbek working population is engaged in 
agriculture; during the cotton harvest students are taken out 
of school to augment the labor force.  Conversion to a 
value-added cotton industry would improve the standard of 
living in the agricultural sector. 
 
¶8. (C) There are three main factors working against this 
transition.  Internationally, investors are wary of 
Uzbekistan's poor investment climate and its lack of 
transparency.  Domestically, the government is unwilling to 
finance new spinning mills from its own overflowing coffers. 
This industry is less labor intensive than the current cotton 
growing regime: at least now the farmers are all 
under-employed instead of unemployed.  The third factor is 
that groups of the powerful elite, which control much of the 
cotton exports, wish to retain this source of income that is 
easily deposited into foreign bank accounts.  Combined, these 
factors result in a government reticent to end current labor 
practices, including annual enlistment of students. 
Uneducated farm laborers remain tied to an inefficient 
labor-intensive industry, for better or worse, as employment 
options in Uzbekistan are minimal. 
NORLAND