Tajikistan Vows to Revive Ailing Cotton Industry

Hoping to lift the country’s all-important cotton industry out of the doldrums, Tajikistan has come up with a plan to help farmers by providing them with easier access to bank loans.



The cotton industry has become increasingly indebted over recent years. Farmers ended 2007 owing their creditors more than 500 million US dollars.



This level of indebtedness is a serious problem for Tajikistan, where agriculture remains a key component of the economy. More than 70 per cent of the six million-plus population live in rural areas and support themselves from farming– many from raw cotton production.



Cotton production has averaged less than half a million tons a year since 2001, and while the government approved a programme in 2004 designed to raise output to 800,000 tons a year by 2015, production has dropped significantly over the last three years, due mainly to bad weather. In 2005, output was 448,000 tons instead of the anticipated 610,000 tons, and it slipped further to 443,000 tons in 2006 and just 418,000 tons last year.



The cotton industry went into crisis when the Soviet Union fell apart in 1991, the Tajik economy collapsed and the country plunged into five years of civil war. Little relief was brought by reforms launched in 1994, in which the government encouraged farmers to finance their operations through a complicated system of financial intermediaries known as futures companies.



These firms are often termed “investors” but it is something of a misnomer, as they simply advance money to farmer to buy seeds, fuel, fertiliser and other inputs, or actually supply these items in kind. In return they get a pre-determined share of their crop at a fixed price, and then sell it on.



“When the reforms started, we expected good results within ten to 15 years, but they just did not meet today’s requirements,” said Vahob Vohidov, head of the agriculture department at the Institute for Economic Studies.



The “futures” system falls down when adverse weather conditions or other factors leave the harvest lower than expected, leaving farmers saddled with outstanding debt to the company instead of the healthy profit they should have at the end of the season.



Declining national output figures show how expectations are consistently being disappointed. Most experts agree that raw cotton is only profitable in Tajikistan if farmers gather more than 2.4 tons per hectare. Last year the average cotton yield was just 1.6 tons per hectare.



Many farming experts agree that the futures companies have become part of the problem rather than the solution.



“Control over cotton production was effectively handed over to the futures companies, so the state is unable to regulate it strictly,” said Nuriddin Kayumov, head of the Institute of Economic Studies, which comes under the Ministry for Trade and Economic Development.



“The uncivilised way that futures companies operate here is one of the reasons why we have is a multi-million-dollar debt in this sector today. There is no rational arrangement between them and the farmers.”



Farmers complain that when futures companies supply them with things like fertilisers, diesel and seed as part of the advance contract, one set of prices is given, but when they are billed after the harvest is over, the prices listed for these same items are much higher.



Now the government is planning to change the rules in a bid to relieve the farmers’ growing debt problem. Late last year, Prime Minister Akil Akilov announced that his ministers intend to phase futures contracts out of the system.



Instead, cotton farms will be directly financed by the banks, cutting out the middlemen. Agriculture Minister Abdurahmon Kodiri said that under the new mechanism, farmers would be free to take out loans and use this money at their own discretion. That will allow them to source their inputs – fuel, seed and the like – on the open market.



Kodiri said a government working group had come up with a mechanism under which the debts currently owed by cotton farmers would be rescheduled so that they could pay them off gradually.



According to the minister, there was no reason why the industry should not be more lucrative for growers, because the price of cotton on world markets was rising.



Ahmadov believes the new financing structure is the best alternative yet, as it will enable the farmer to act more independently.



“It’s a very good idea, compared with the futures companies which took everything from the farmers… leaving them with nothing,” he said.



However, not everyone is so optimistic that the new system will rescue this embattled sector from destruction.



Some say it will make no difference, or that it could even lead to a worse situation.



Muhiddin Kabiri, a member of parliament and leader of the Islamic Rebirth Party, believes the majority of farmers will not able to obtain bank loans because the terms will be exorbitant.



“The banks charge such high interest rates that no one will get loans from them,” Kabiri claimed. “I doubt that money from the banks is now simply going to flow into agriculture.”



At the moment, most commercial banks in Tajikistan lend at rates between 15 and 22 per cent or even more, just for a six month period.



Vohidov agreed that changing the financing system would not be enough to turn things round, and said the government needed to intervene directly to help farmers reach agreements with the processing plants to which they will be selling their raw cotton.



Tajik farmers get only 300 US dollars a ton, while cotton fibre sells on the world market for 1,200 to 1,300 dollars.



Vohidov said there was no reason why Tajik cotton farmers could not in future sell directly to the Liverpool Cotton Exchange, the main international clearing-house.



The farmers themselves have had their fingers burned so often in the past that it is unsurprising that they are sceptical about the latest reform.



They are especially worried that banks want to insist they sign over their land as collateral against loans. This arrangement has not been finalised, and is problematic as farmers do not hold title deeds to the land on which they as tenure; agricultural land is still officially state property.



“We don’t see anything good about this new financing method. Our lands just don’t yield enough crops to cover all our expenditures, so there is no doubt that farmers will again be burdened with debt,” said one farmer from the southern region of Khatlon.



“We don’t know what to expect of a new system, but we have little faith in the proposed mechanism. We are afraid our land will now be taken over by the banks.”



Hikmatullo Ahmadov, vice-president of the Academy of Agricultural Sciences, says the failure to turn the agricultural sector around to date is symptomatic of the broader failure of economic reform.



“They only ever change the signpost outside, while on the inside, things always remain exactly the same as before,” he said.



Aslibegim Manzarshoeva is an IWPR contributor in Dushanbe. Lola Olimova is IWPR’s Tajikistan editor.