VZCZCXRO0432
RR RUEHPW
DE RUEHBUL #0034/01 0061201
ZNR UUUUU ZZH
R 061201Z JAN 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 6624
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 02 KABUL 000034 
 
KABUL FOR USFOR-A COS 
DEPARTMENT FOR SCA/FO, SCA/A, EUR/RPM 
STATE PASS TO AID FOR ASIA/SCAA 
NSC FOR WOOD 
OSD FOR WILKES 
CG CJTF-101 POLAD 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ETRD EAID AF
 
SUBJECT: PRT KUNDUZ: SPINZAR AGAIN SPINS WHITE GOLD 
 
REF: 07 KABUL 195 
 
Summary 
-------- 
 
¶1. (SBU) Kunduz's Spinzar Factory began cotton processing again for 
the first time in years.  The factory was the economic focal point 
of the region when it was a state-owned enterprise in the 
pre-Taliban era.  Now under new French-Afghan management, the 
factory hopes to compete in the domestic and international markets. 
Following a management shuffle, the factory has recently purchased 
1000 metric tons (MT) of cotton and has resumed baling; oil and cake 
production are to follow.  Though the initial production run is 
unlikely to achieve even its seasonal goal of 7000 MT, the 
resumption of cotton processing at the Spinzar Factory has had a 
powerful symbolic effect, with even officials in neighboring 
provinces citing it as an example of economic and social progress. 
End Summary. 
 
¶2.  (SBU) PRTOff met with Hashmatullah Rahimi, a Ministry of 
Commerce employee who recently took up his position as Chief of the 
Spinzar cotton processing factory in Kunduz.  Spinzar ("white gold" 
in Pashto) was one of the largest industrial organizations in 
pre-war Afghanistan, operating throughout the Northern provinces and 
largely responsible for Kunduz's pre-war economic success and 
modernization. Producing cotton for the international market, 
Spinzar owned a variety of processing factories, canals, warehouses, 
houses and other living quarters and at least one hospital.  Today, 
the Spinzar Empire operates under the aegis of the Ministry of 
Commerce, though its core cotton processing has spun off since 2004 
as a French-Afghan joint venture called the New Afghan Project for 
Cotton and Oil Development (NAPCOD).  The new company is co-owned by 
Dagris S.A. (52 percent), a French cotton and textile company 
majority owned by the French Development Agency, and the Afghan 
Government. 
¶3.  (SBU) From 2004 until early 2008, NAPCOD operated under French 
management working hard to reestablish cotton farming in the region 
by disseminating improved seed, arranging credit for farmers, and 
working with agents who train farmers on better techniques.  An 
experimental farm in Baghlan Province allows the company to test new 
strains and techniques.  As reported in REFTEL, NAPCOD had a 
fundamentally flawed business plan.  In order to distribute seed 
more efficiently, NAPCOD organized local farmers into cooperatives 
who would act as intermediaries between the company and individual 
farmers.  In return for the seed handout, NAPCOD essentially 
expected to pay lower than market price for the cotton.  GIRoA's 
role as silent partner was to suppress competition by cracking down 
on the illegal cotton ginning operations that had sprung up in the 
years since Spinzar had ceased operation. 
¶4.  (SBU) Predictably, the plan did not work.  When NAPCOD returned 
to the cooperatives to purchase their product in harvest season, 
they generally found them disbanded, with the farmers having already 
sold their product elsewhere.  As Rahimi explains, the "cooperative" 
concept is alien to Afghanistan and while farmers will come together 
in the summer to get free or subsidized seed, there is no need for 
the cooperatives at harvest season, when they are looking to sell 
their product at the best possible price.  In addition, GIRoA has 
proven unwilling or simply unable to clamp down on the smaller 
ginning operations, which clearly fill a domestic market need. 
¶5.  (SBU) With the cotton harvest looming, NAPCOD management met in 
October to discuss their strategic problems and chart the path 
forward.  The joint venture decided to jettison NAPCOD's French 
management, who operated to the tune of some USD 500 thousand 
annually, and replace them with a Ministry of Commerce/Spinzar 
management team under the direction of Rahimi.  Rahimi's top 
priority has been to make Spinzar immediately operational.  Upon 
assuming authority, he promptly purchased 1000 MT at the market rate 
and hired 60 employees to kick-start cotton baling.  His seasonal 
target is to process 7000 MT by March, to restart oil and cake 
production and to bring the staff up to 100 employees.  He plans to 
increase production to 10,000 MT next year. 
¶6.  (SBU) Rahimi believes that NAPCOD will eventually beat out its 
smaller ginning competitors by increasing Afghanistan's cotton 
output overall, squeezing the smaller gins out of the market. 
Rahimi says a market exists for Afghan cotton far above the current 
25 to 30 thousand metric tons currently being produced.  NAPCOD 
provides access to the world market and Pakistan, he believes, can 
easily absorb 20 thousand MT, while Spinzar's oil and cake products 
will be consumed domestically.  At its peak, Afghanistan produced 
around 100 thousand metric tons of processed cotton per year and the 
smaller gins simply cannot process cotton at those volumes; market 
saturation will squeeze the smaller gins out of the market.  Rahimi 
wants to encourage the use of new seed stock, which could increase 
yield from 350 to 700 kg per jirib, and welcomes any assistance or 
 
KABUL 00000034  002 OF 002 
 
 
advice from USAID or the U.S. Department of Agriculture. 
 
Comment 
------- 
 
¶7.  (SBU) Although a variety of other businesses have recently 
opened their doors in the Northeast region, the resumption of cotton 
processing at the Spinzar Factory has had a powerful symbolic 
effect, with even officials in neighboring Takhar and Baghlan 
provinces citing it as an example of significant regional economic 
and social progress.  It is unclear if NAPCOD's management shuffle 
will have much of an impact on the viability of the enterprise, as 
the only apparent change in strategy so far has been to get the 
plant operational at a too high price point.  Moreover, Spinzar's 
initial baled product, in the opinion of visiting U.S. Department of 
Agriculture advisors, does not currently meet world standards of 
density or quality.  While such technical standards will undoubtedly 
increase as the operation progresses, it is questionable if Afghan 
cotton can realistically compete once again on the world market, 
given other Central Asian competitors who produce on a vast scale. 
However, any effort at crop diversification in the North should be 
lauded; most of the valuable agricultural land is used for the 
production of only wheat and rice, whereas the land would be better 
utilized for high-value fruit orchards or vegetable crops. 
 
WOOD