VZCZCXRO6025
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #1177/01 2490905
ZNR UUUUU ZZH
R 050905Z SEP 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 1497
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 4263
RUEHBJ/AMEMBASSY BEIJING 2075
RUEHKO/AMEMBASSY TOKYO 1940
RUEHIT/AMCONSUL ISTANBUL 2511
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHVEN/USMISSION USOSCE 2857
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 03 ASHGABAT 001177 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR SCA/CEN, SCA/PPD, EUR/ACE, DRL 
AID/W FOR EE/EA 
ANKARA FOR AGRICULTURAL ATTACHE 
 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EAGR EAID TX
SUBJECT: TURKMENISTAN: PRIVATE AGRICULTURE DEVELOPMENT 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY: Since 2007, President Berdimuhamedov's government 
has publicly acknowledged the drastic situation in the agricultural 
sector and has introduced several measures to improve it.  The 
reforms, which follow two main tracks, attempt first to improve 
input supply and access to technical services by reforming the 
farmers' unions.  Other measures attempt to increase farmers' 
motivation by increasing fixed prices for crops.  While positive, 
due to the expected increase in farmers' incomes, this signals that 
the state will retain its heavy involvement in agriculture. 
Furthermore, these steps have not contributed to significant new 
opportunities for private producers. Instead, opportunities such as 
livestock and greenhouse cultivation are in areas that do not 
compete with the state.  END SUMMARY. 
 
GOVERNMENT REFORM ATTEMPTS DON'T ADDRESS CORE ISSUES 
 
¶3.  (SBU) The agricultural sector in Turkmenistan contributes 
approximately one-quarter of the gross domestic product (GDP) and 
accounts for about 40 percent of total employment.  Cotton and wheat 
monoculture still dominate production and occupy about eighty 
percent of the cultivated area; fodder (15 percent) and other crops 
make up the rest.  Although approximately 97.5 percent of the land 
is considered state property, 83 percent of the total value of 
agricultural output is grown by "private farmers" who have only 
one-year leases and must grow cotton and wheat, or on household 
plots. The balance is produced by "farmer unions," essentially 
reconstructed collective farms from Soviet times.  In spite of 
numerous presidential proclamations in supporting of reforming the 
agricultural sector, the current efforts focus on increased 
productivity of state-ordered crops, cotton and wheat, while the 
approach toward the private sector includes further limits on land 
leasing and new curbs on agriculture exports. 
 
¶4.  (SBU) Although the government has spoken about the importance of 
private sector growth, no specific measures have been directed 
toward private agriculture.  In March 2008, President Berdimuhamedov 
made a call to increase private sector share of the non-energy share 
of Turkmenistan's GDP to reach 70 percent from the current 40 
percent by 2020.  He said, "We should review the basis of the state 
strategy and get rid of unnecessary administrative obstacles in 
issuing licenses, registration procedures, concession activity, 
attraction of foreign investments, development of free economic 
zones, denationalization and privatization, and others."  He also 
issued a decree to provide soft loans to Turkmen businessmen via 
state banks at an annual rate of five per cent for 10 years both in 
national and foreign currency. 
 
LIVESTOCK AND DAIRY - BRIGHT SPOTS FOR PRIVATE FARMERS 
 
¶5.  (SBU) Even though the current environment leaves limited room 
for private agriculture producers, livestock and milk production are 
among the few agricultural activities in Turkmenistan without direct 
government involvement through state orders.  As such, it is a 
growing subsector. In 2005, private farmers owned 94 percent of all 
cattle, including 96 percent of all cows; 82 percent of the sheep 
and goats (up from 65 percent in 2000) and 99 percent of the poultry 
(up from 87 percent in 2000).  Between 2000 and 2005, the number of 
cattle increased by 28 percent (cows by 40 percent), sheep and goats 
more than doubled, and poultry more than tripled (NOTE: Overall 
poultry production is still insignificant.  Most chicken meat and 
eggs must be imported. END NOTE).  All of this increase has occurred 
in the private sector, while the number of heads under the state 
livestock association "Turkmenmallary" has remained static (sheep 
and goats) or declined (cattle and poultry). 
 
¶6.  (SBU) The current system of state-ordered crop production 
precludes renting land for feed production, so there are very few 
large-scale private cattle farms in Turkmenistan.  Raising cattle 
 
ASHGABAT 00001177  002 OF 003 
 
 
for meat production occurs mainly on backyard farms, involving 3 to 
5 cows.  In rural areas, sheep, goats and camels graze on natural 
pastures. The relative increase of herds for meat production in 
recent years has also boosted the number of private meat processors. 
 There are several well-known companies in Ashgabat.  Every province 
has a number of smaller firms that produce sausages and other meat 
products.  Private operations are subject to licensing under the 
state food industry association "Azyk onumlery," which supervises 
private food-processing companies. 
 
¶7.  (SBU) As measured by the volume of milk sales, milk production 
more than doubled between 2000 and 2005, due mostly to increased 
herd size rather than gains in productivity.  Milk production comes 
from three sources: state-run operations, facilities leased from the 
state, and private backyard farms.  Leasing is uneconomical (due to 
the aforementioned low cow:land ratio embedded in the lease), so the 
backbone of the private milk industry is backyard farms, involving 2 
to 5 cows that generate 3 to 30 liters of milk a day.  On-farm milk 
production remains low with average annual yields of 2,400 liters 
per cow per year, as compared to the 6,000 liters recorded in 
Kazakhstan by the participants in the USAID-funded Farmer-to-Farmer 
program. 
 
¶8. (SBU) Fresh milk production is dominated by state-run plants, and 
nearly all private processors avoid competing with the state run 
plants in the whole milk market.  Processing of other dairy 
products, such as butter, cheese and yogurt, is undertaken by no 
less than eight known private processors, which handle between 1 and 
10 tons per day. While these processors run under-capacity, due to 
insufficient raw milk supplies, dairy imports have been growing 
since 2000, suggesting that domestic production cannot meet demand. 
 
GREENHOUSES PROVIDE NEW OPPORTUNITIES FOR VEGETABLE GROWERS 
 
¶9.  (SBU) Vegetable production in Turkmenistan is one of the largest 
non-government controlled sectors in the entire agricultural system. 
Outputs have steadily risen between 2001 and 2006, reaching some 
650,000 tons in 2006 -- a sixty percent increase.  Of the total 
volume, tomatoes and cucumbers account for nearly half (306,000 tons 
in 2006).  Vegetable production occurs in both open fields and 
greenhouses, with the former generating much of the output. 
Commercial field cultivation, situated on approximately 2 percent of 
the country's irrigated lands in Ahal province, benefit from the 
country's relatively mild climate and long growing seasons, which 
start in May and boast 230 to 280 frost-free days. 
 
¶10.  (SBU) Greenhouse production, on the other hand, is still 
small-scale.  Located mainly on backyard plots of 0.1 hectare, they 
are designed to diversify household income. Greenhouse production 
cycles cover the off-season period from October to May.  As with all 
seasonal crops, prices are higher during the off-season, which adds 
attraction to farmers.  Farm gate prices for winter vegetables last 
winter ranged from $1 to $1.50 per kilogram, which is five times 
higher than prices in summer and early fall.  Since 1994, USAID's 
partner Winrock International has been working in the private 
agriculture and was involved in the area of dairy and vegetable 
production.  A recently completed USAID project that involved the 
establishment of pilot greenhouses in Ahal and Mary provinces 
demonstrated productivity increases of three times over the previous 
season by applying simple techniques such as improved ventilation 
and drip irrigation, and introducing new varieties with higher 
yields. 
 
RESTRICTIONS ON EXPORTS, CREDIT, AND INPUTS HINDER GROWTH 
 
¶11.  (SBU) Several obstacles remain that limit increasing these 
opportunities.  Exports of privately-produced agriculture goods are 
limited to fresh products, while exports of processed goods require 
a foreign trade contract to be concluded through the State Commodity 
Exchange, which sets price ceiling and demands upfront payment in 
 
ASHGABAT 00001177  003 OF 003 
 
 
full.  Such burdens make this approach unattractive for private 
companies.  New customs regulations introduced in early August will 
reportedly ease custom procedures and reduce related payments, but 
the potential impact on private agriculture producers and processors 
remains unclear.  Microcredit institutions are still not permitted 
to operate, although small-scale donor interventions in recent years 
have shown the potential for revolving credit groups to sustain 
themselves. 
 
¶12. (SBU) Challenges also remain for private producers to obtain 
necessary fertilizers, chemicals and seeds for their activities.  No 
stores where those inputs can be easily purchased exist.  As a 
result, one reason that many farmers choose to raise government 
crops is for their associated  access to inputs.  Once they obtain 
the inputs, such as fertilizers, they secretly divert a portion to 
their backyard plots and greenhouses.  Only recently have selected 
farmers begun to have steady access to greenhouse seeds and some 
chemicals, which are supplied by entrepreneurs through shuttle trips 
to Russia.  Such opportunities, however, remain limited to small 
networks of greenhouse owners in neighboring communities and the 
variety available depends on the level of erudition and the 
willingness of entrepreneurs to take risks. 
 
¶13.  (SBU) COMMENT: Recognizing its large rural population, the 
limited amount of arable land, and fluctuating water supplies, the 
government of Turkmenistan faces a dilemma when considering moves 
toward full-scale liberalization of the agricultural sector.  A 
rapid program of mass land privatization presents a range of 
potentially negative impacts, from widening wealth inequality, to 
increased internal migration and possible social unrest.  Evidence 
from other Central Asian countries show that even though 
privatization took place, farmers often opt to grow cotton as it is 
a profitable crop and necessary infrastructure and sale market 
exists.  Based on the above factors, it appears that the government 
intends to retain a significant presence in the sector even as it 
tries to increase farmers' productivity and address other 
inefficiencies by streamlining management structures and increasing 
purchase prices for cotton and wheat.  Over the longer term, the 
government still needs to address broader issues of land 
productivity, such as reducing salinity, improving water management, 
and combating desertification, in comprehensive manner. 
 
¶14. (SBU) COMMENT CONTINUED: Support for the growth of private 
agriculture expands the options available to farmers so that they 
can choose the activity that brings more income to their families. 
Consequently, successful private agriculture competes with the 
existing state-run system, raises the bar for government, and 
demands better policies such as higher fixed prices, improvement of 
irrigation networks, better input service and so on.  Successful 
private activities could serve as positive examples, and identify 
areas in which new state policies might further expedite 
liberalization of the agriculture sector.  END COMMENT. 
 
CURRAN