TURKMENISTAN: COTTON INDUSTRY STILL TROUBLED

UNCLAS SECTION 01 OF 03 ASHGABAT 001128 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, DRL, EEB E.O. 12958: N/A TAGS: PGOV PHUM EAGR ECON EIND TX SUBJECT: TURKMENISTAN: COTTON INDUSTRY STILL TROUBLED ¶1. (SBU) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Visits to the regions revealed that although President Berdimuhamedov can continue to rely on the cotton industry to bring in revenue, the sector needs reform and modernization. One positive change this year is the president established higher prices the state would pay for cotton. Overall, however, little in terms of cotton growing, manufacturing, and sales process has changed. END SUMMARY. HARVEST TARGET UNSTATED, BUT GOALS REMAIN THE SAME ¶3. (SBU) The government allocated 650,000 hectares of land this year for cotton. Information that post gathered in all five provinces indicated that farmers were harvesting an average yield per hectare of 1.2 tons. The government estimated it would harvest about 780,000 tons of raw cotton or 260,000 tons of cotton fiber. Last year, Turkmenistan produced about 200,000 tons of cotton fiber. According to official statistics, as of October 16, farmers had harvested 763,777 tons of raw cotton. Unlike previous years, the government did not set a harvest target for 2007. ¶4. (SBU) In an attempt last spring to stimulate production this year, Berdimuhamedov established new higher prices that the state would pay for cotton. State purchasing prices for 2007 were set at 5,200,000 manats or US 1,000 (at the official rate) for a ton of medium-staple cotton and 7,500,000 manats or US 1,442 for a ton of fine cotton. PUBLIC-SECTOR EMPLOYEES STILL BEING PRESSED TO HELP IN COTTON PICKING ¶5. (SBU) The government banned the use of schoolchildren and government employees to pick cotton, but this year there were reports that city residents in Dashoguz were being forced to pick cotton. In at least one sector near the Iranian border, border troops harvested cotton in response to a local mayor's request for help. In Ahal, provincial authorities increased the pay for hired labor five times, in order to offset apparent labor shortages there. A resident in Ak Bugday region of Ahal said regional authorities were demanding that employees in non-agricultural sectors pay a 500,000 manat fee to cover the local government's expenses for hired labor if they did not help with the harvest. However, those who agreed to help with the harvest discovered that there was insufficient cotton remaining in the fields to justify their presence. The contradiction led to rumors that local officials were collecting money to buy cotton from neighboring regions to cover their own shortfall. LITTLE CHANGE IN THE REGIONS ¶6. (SBU) Embassy officers met with cotton officials throughout Turkmenistan form September 21 to October 12 (reftels). Officials praised new government incentives offered to cotton growers, spoke optimistically about their harvest estimates and conducted tours of exemplary cotton farms. ¶7. (SBU) A first deputy provincial governor in Ahal province reported 120,000 hectares sown with cotton. He claimed that the average yield in the province was 3.3 tons/hectare, which would have amounted to 396,000 tons of raw cotton, but official statistics on October 16 indicated a harvest of only 123,021 tons. the deputy claimed that the number of farmers willing to grow cotton had grown from 30,000 to 38,000 since last year. ¶8. (SBU) In Dashoguz, the harvest was poor due to low precipitation, shortage of irrigation water, and poor management during the spring sowing cycle. Machine ASHGABAT 00001128 002 OF 003 harvesting the cotton had been rendered impossible this year because farmers had erroneously sown the plants in furrows that were too close together. ¶9. (SBU) The deputy governor of Balkan province said this year's crop was substantially better than last year's, primarily because the state had provided farmers new seed stock and more fertilizer. He noted almost all the province's 5,500 farmers sell their cotton to the State Cotton Concern. Farmers were to receive five million manat per ton of cotton (about $1,000 at the official exchange rate) form the State Cotton Concern in two payments -- one million manat on delivery of the cotton, and the remaining four million on completion of the harvest. He said there were no children working in the fields because Balkan simply does not produce enough cotton to require additional labor. ¶10. (SBU) Mary province's first deputy governor reported 180,000 hectares of cotton had been sown this year, with an average yield of 1.3 tons per hectare. He claimed that there was more interest in farming because of the government's efforts to raise purchase prices. He noted the process of selling cotton directly to the State Cotton Concern was easier to manage than dealing with private purchasers, suggesting that farmers preferred to sell to the state rather than the open market. He said private cotton growers can sell their harvest on the stock market, but taxation reduced the profitability of this option. He argued that farmers are paid more quickly by the state and that it is difficult to find a buyer for the small harvests of most private farmers. He claimed he did not have accurate information regarding how many farmers contracted with the state and how many engaged in private agriculture, because the number of private farmers was constantly increasing. He was aware of no difference between the average yields of private and state farmers. ¶11. (SBU) The Lebap province deputy governor responsible for the cotton harvest reported that 145,000 hectares had been sown. They had harvested 220,000 tons so far, averaging about 3,000 tons daily. Lebap's cotton was coming in a little late, because they had planted late. They expected to finish the harvest by November 20, a month after the harvest normally ends. He said 10 percent of the province's cotton, or about 17,000 tons, was harvested by machine, and about 90 percent by hand. The average yield was about two tons per hectare, although some farmers were harvesting up to five tons per hectare. He estimated the province would harvest a total of 280,000 tons. The sate was paying farmers 5,200 manats per kilo of cotton and was making payments every 5-10 days. One cotton farmer said the cost of a ton of machine-picked cotton is 670,000 manats and 1 million manats for hand-picked cotton. (NOTE: Hand-picked cotton is higher quality and, therefore, more valuable. END NOTE.) TURKMEN STATE COTTON CONCERN ¶12. (SBU) The State Cotton Concern is tasked with purchasing the vast majority of cotton harvested in Turkmenistan at a state-established price. The Cotton Concern also determines the quality of the cotton and issues conformity certificates. This process invites corruption because the Cotton Concern can declare a farmer's cotton to be low quality to pay him at a lower price. then the Cotton concern could potentially sell the cotton at a higher price, benefiting form the wider profit margin. DOMESTIC TEXTILE INDUSTRY NEEDS MODERNIZATION ¶13. (SBU) Turkmenistan has 34 antiquated ginning plants. A new ginning plant will be commissioned on October 22 in Ruhabat district near the late President Niyazov's hometown. The factory will have U.S.-made continental ginning equipment. One other ginning plant in Turkmengalla district ASHGABAT 00001128 003 OF 003 has been using equipment from the American company Lummus since 1996. The government subsidizes 50 percent of the cost of cotton for local textile manufacturing. The Ministry of Textiles buys cotton from the Cotton concern at the price of 2 million manats per ton, about $400 at the official exchange rate. According to several sources, Turkmenistan now uses 100,000-110,000 tons of cotton per year in domestic textile manufacturing. FOREIGN COMMERCIAL COTTON SALES STILL LIMITED ¶14. (SBU) According to a foreign company cotton buyer with offices here, Turkmenistan is expected to auction off 140,000 tons of raw cotton to foreign dealers. He noted the bidding process has become a bit more transparent. When the responsibility for commercial cotton sales moved form the Agricultural Joint Stock Company, the stockholders of which were state agencies, to the State Cotton Concern, bidding and contracting processes became a bit more streamlined, due to expertise of managers at the Cotton Concern. The government's current stated priority is to increase textile exports to include yarn, thread, and cloth, instead of less-profitable cotton fiber. ¶15. (SBU) COMMENT: Cotton farming and manufacturing is a strategic national priority here, because of the hard currency revenues it brings in, but it is not a consistently reliable source of revenue, and the sector is fraught with a variety of problems. Initiating privatization of farms and factories would gradually make the sector more productive and profitable. However, given the current state of the cotton industry here, there are few signs that President Berdimuhamedov's pre-election promises to radically reform the sector are, to date, not much more than cosmetic. END COMMENT. HOAGLAND