Cotton in Central Asia‘Curse’ or ‘Foundation for Development’?

MAX SPOORInstitute of Social Studies

Centre for the Study of Transition and Development

The Hague, The Netherlands

‘White Death’ or ‘White Gold?’

• The Soviet Planner’s View versus the outcomes:– Environmental Degradation– Forced/and even Child Labor– Dependency and monoculture

• The opportunities to develop the cotton sector as an engine or foundation for development and growth

An Overview

• The History of Cotton and its Legacy

• The Macroeconomics of Cotton in the ‘Transition’

• The changing institutional framework and land reform & social relations

• The environmental impact of cotton production

The History of Cotton and its Legacy

• Cotton was already produced as cash crop in the 19th century

• With Russian empire, and American civil war: ‘Middle Asia’ became the Russian ‘cotton belt’

• USSR even intensified this role, and Moscow order more cotton to be produced

• Cotton nomenklatura/cotton barons emerged• Cotton was exported to the Center without

processing: Forced cultivation in the ‘periphery’

1913 1940 1960 1970 1980 1985 1986 1987 1988 1989 1990 1991

Wheat (winter) Area (x 1,000 Ha) 460.5 615.6 384.2 540.0 500.0 396.7 269.9 426.9 431.2 327.6 407.0 ..

Output (x 1,000 Tn) 299.3 172.4 253.6 340.2 415.0 353.1 224.0 461.0 539.0 321.0 521.0 ..

Yield (Tn/ Ha) 0.7 0.3 0.7 0.6 0.8 0.9 0.8 1.1 1.3 1.0 1.3 ..

..Wheat (spring) Area (x 1,000 Ha) 471.7 396.7 128.2 123.6 22.7 62.5 32.1 41.0 25.3 18.3 24.8 ..

Output (x 1,000 Tn) 212.3 103.1 70.5 66.7 16.8 34.4 17.0 34.0 24.0 21.0 32.0 ..

Yield (Tn/ Ha) 0.5 0.3 0.6 0.5 0.7 0.6 0.5 0.8 1.0 1.2 1.3 ..

..

Wheat (total) Output (x 1,000 Tn) 512.6 272.6 327.0 408.9 433.9 387.9 241.0 495.0 563.0 342.0 553.0 ..

..Barley (winter) Area (x 1,000 Ha) 117.7 107.1 211.8 312.4 304.3 163.0 119.4 208.9 256.4 214.7 269.2 ..

Output (x 1,000 Tn) 57.7 34.3 167.3 253.0 276.9 166.3 117.0 257.0 359.0 219.0 358.0 ..

Yield (Tn/ Ha) 0.5 0.3 0.8 0.8 0.9 1.0 1.0 1.2 1.4 1.0 1.3 ..

..Barley (spring) Area (x 1,000 Ha) 132.9 207.5 90.6 77.7 36.3 48.0 19.7 31.4 27.8 22.5 22.5 ..

Output (x 1,000 Tn) 74.4 64.3 55.3 45.8 33.0 33.6 15.0 32.0 32.0 27.0 27.0 ..

Yield (Tn/ Ha) 0.6 0.3 0.6 0.6 0.9 0.7 0.8 1.0 1.2 1.2 1.2 ..

..

Barley (total) Output (x 1,000 Tn) 143.3 98.0 225.4 301.4 309.2 199.4 132.0 289.0 391.0 246.0 385.0 ..

..

Rice Area (x 1,000 Ha) 161.1 83.1 31.2 63.3 105.1 150.3 127.5 155.2 166.5 160.8 147.1 ..

Output (x 1,000 Tn) 210.2 125.5 57.8 184.9 507.2 482.2 399.0 506.0 581.0 484.0 503.0 ..

Yield (Tn/ Ha) 1.3 1.5 1.9 2.9 4.8 3.2 3.1 3.3 3.5 3.0 3.4 ..

Corn Area (x 1,000 Ha) 38.8 17.3 30.8 24.6 185.0 128.9 117.4 118.6 116.3 111.1 108.8 107.4

Output (x 1,000 Tn) 38.8 33.5 70.8 66.3 1239.7 443.1 389.0 421.0 520.0 460.0 431.0 421.0

Yield (Tn/ Ha) 1.0 1.9 2.3 2.7 6.7 3.4 3.3 3.6 4.5 4.1 4.0 3.9

Cotton Area (x 1,000 Ha) 441.6 1022.6 1427.9 1709.2 1912.1 2027.0 2091.2 2103.0 2016.9 1967.3 1832.6 1719.6

Output (x 1,000 Tn) 517.2 1385.9 2823.5 4495.2 5579.0 5381.8 4989.0 4858.0 5365.0 5292.0 5058.0 4643.0

Yield (Tn/ Ha) 1.2 1.4 2.0 2.6 2.9 2.7 2.4 2.3 2.7 2.7 2.8 2.7

Potatoes Area (x 1,000 Ha) 6.5 23.5 28.1 21.2 23.3 26.3 30.0 30.7 31.1 35.3 42.0 39.5

Output (x 1,000 Tn) 46.2 113.3 162.7 180.3 239.0 240.7 308.6 261.0 308.0 325.0 336.0 316.0

Table 1: Cotton in Uzbekistan

The Macroeconomics of Cotton in ‘Transition’

• Cotton played an important role in avoiding a supply shock (see ‘Uzbek Puzzle’)

• Hard currency access in world markets to pay for necessary imports

• Taxation of cotton sector was high in the 1990s finance for energy independence and important substitution model

• Since 2000: Clear reduction of Net Outflow

Cotton Taxation and Subsidies: Net Outflow

Source: World Bank (2005)

Table 2: Taxation of the Cotton Sector in Uzbekistan (2000-2004)

With debt write offs 2000 2001 2002 2003 2004

Net transfers (% of GDP) 4.7% 2.9% 3.1% 1.5% 1.8%Net Transfer (as % of gross farm income) 50% 35% 35% 20% 22%Taxation (million USD) 770 605 508 569 644Subsidies (million USD) 486 450 290 420 441Net Transfers (million USD) 285 155 218 150 203

Without debt write offsNet transfers (% of GDP) 9.5% 8.4% 3.5% 2.4% 2.9%Net Transfer (as % of gross farm income) 66% 61% 38% 28% 31%Net Transfers (million USD) 572 443 246 240 338

State Procurement for Cotton and Wheat in Uzbekistan

Table 3: State Procurement of Agricultural Products (1991-2002)

Type of Product 1991 1992 1993 1994 1995 1996 1997 1999 2001 2002

Wheat 100 100 80 75 50 50 50 50 50 50* Cotton 95 85 80 75 60 40 30 30 30 30

Vegetables 100 50 50 - - - - - - - Fruits 100 100 50 - - - - - - - Tobacco 100 100 80 - - - - - - - Meat and Milk 100 100 80 50 - - - - - -

Source: Centre for Economic Research, Tashkent. Note: *In 2002 it was decided, by the Decree of the Cabinet of Ministers No. 306 dated of 29 August 2002,

that this procurement share would be on actual, rather than planned output.

ISI and Taxation of Cotton

• Net Taxation went down to 1.5% of GDP• Income share of gross output for farm enterprises

reversed (from 20% in 1993 to 80% in 2003)• The Net Outflow was (at least in part) used to

finance Uzbekistan’s energy dependence• The ISI-model and Consumer-led growth

avoided the dramatic contraction of other FSU countries

Cotton/Wheat Development

Table 4: Cotton/ Wheat Crop Mix in Uzbekistan (1992-2004)

CottonUnit 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Area Harv Ha 1,666.7 1,695.1 1,539.4 1,492.8 1,487.3 1,513.4 1,531.6 1,517.4 1,444.5 1,452.0 1,421.0 1,392.7 1,362.0Yield Hg/ Ha 24.8 25.0 25.6 26.4 22.5 24.0 20.9 23.7 20.8 22.5 22.0 20.3 26.0Production Mt 4,128.7 4,234.9 3,936.1 3,934.2 3,350.1 3,639.3 3,206.2 3,600.0 3,001.8 3,264.6 3,122.4 2,822.5 3,540.0

Wheat

Unit 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Area Harv Ha 627.0 697.4 958.5 1,164.4 1,328.6 1,486.2 1,412.4 1,419.9 1,355.8 1,219.8 1,282.6 1,507.0 1,210.0Yield Hg/ Ha 14.4 12.6 14.2 20.2 20.6 20.9 25.2 25.4 26.0 30.2 38.7 35.8 37.0Production Mt 964.0 876.0 1,362.0 2,347.0 2,741.8 3,073.4 3,556.0 3,601.8 3,532.0 3,689.8 4,967.4 5,400.0 4,476.0

Source: FAOSTAT (2005), Statistical Databases

The changing institutional framework and land reform & social relations (1)

• Land Reform in Central Asia with different pace and various forms

• Kazakhstan and Kyrgystan more advanced, Uzbekistan gradual process

• Uzbekistan:– Land distribution (plots) households– Sovkhozy and Kolkhozy Shirkats– Formation of individual (peasant) farms

The changing institutional framework and land reform & social relations (2)

• In Uzbekistan: Peasant Farms Commercial Farms (not re-distributive)

Table 5: ‘Private’ Leasehold Farms in Uzbekistan (1992-2004)

1992 1993 1994 1995 1996 1997 1998

No 1,900 5,900 7,500 14,200 18,100 18,800 21,400 Size 7 8 9 14 15 15 15 Acreage 13,300 47,200 67,500 198,800 271,500 282,000 321,000 1999 2000 2001 2002* 2003 2004 No 23,000 31,100 43,800 55,400 87,550 103,900 Size 19 21 20 19 24.5 28 Acreage 437,000 653,100 889,600 1,054,700 2,148,100 2,929,980

Source: Department of Statistics Ministry of Macroeconomics and Statistics, Tashkent; Khan (2005) Note: Data is given for January 1st of each year, except for 2002. This reflects the situation in October 2001.

Abandoning the Shirkats: ‘Private Farms’• Formation of medium-sized individual lease-hold

farms• They remain still (at least in part) within the

planned system and central procurement (for wheat and cotton)

• Input markets gradually to be liberalized with private agents

• Forced harvest labor still remaining• Rural incomes to rise?

The Environmental Impact of Cotton (1)

• Drying up of the Aral Sea

• Salinization of soil and rivers

• Changing climate (less frost-free days)

• Pollution of soil and air with particles from exposed Seabed

• Fishery nearly disappeared

• However: ‘Down with cotton, long live the orchards’ is no realistic option

• Central Asia, in particular Uzbekistan is dependent on cotton for FOREX and employment

• Drastic reduction of cotton is not the solution, as it creates other problems (unemployment for example)

The Environmental Impact of Cotton (2)

Conclusion• Cotton will remain fundamental part of CA

economies, it is not a ‘curse’• The challenge is to improve the social conditions

and productivity rural incomes and livelihood improvement

• Cotton can become engine of agro-industry led growth. First signs of increased FDI in textile industry

• Importance to give to practical measures to reduce water losses, improve drainage and quality