TURKMENISTAN: PRIVATE AGRICULTURE DEVELOPMENT

UNCLAS SECTION 01 OF 03 ASHGABAT 001177

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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

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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

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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