TURKMENISTAN: PRIVATE AGRICULTURE DEVELOPMENT

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