02 BFC Kyrgyzstan Agriculture Finance Bulletin

04/2014

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2 K y r gy zsta n Agriculture Finance Bulletin 1,226 Units of Agricultural Equipment Received on Leasing in 2013 3.3 Billion KGS of Loans Granted to Farms and Agro Processing Businesses IDB Allocates 1,38 million USD for the Development of Agriculture Sector Total Production Capacity of Flour Mills at 600,000tons

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Agriculture Finance Bulletin Edition #2, April 2014

Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9)

1,226 Units of Agricultural Equipment Received on Leasing in 2013.............................................. 2 3.3 Billion KGS of Loans Granted to Farms and Agro Processing Businesses .................................. 2 1.5 million Cattle Vaccines Available - Three Times Less than required ......................................... 2 Kyrgyzstan Becomes a Member of AFACI........................................................................................ 2 Chinese Organic Fertilizer Company to Start Production in Bishkek............................................... 2 Development of Agricultural Leasing Discussed with Dutch Ambassador ...................................... 3 Chinese Mineral Fertilizer Factory to be built in Jalal-Abad Region ................................................ 3 Inter-Agency Coordination for "Development of Livestock and Markets-1" Program ................... 3 In 2014, 341 Tons of Mineral Fertilizers Required .......................................................................... 3

Foreign Aid ................................................................................................................. 4 10) 11) 12) 13) 14) 15) 16)

IDB Allocates 1,38 million USD for the Development of Agriculture Sector ................................... 4 Bishkek's First Municipal Bakery to be Built in 135 days ................................................................. 4 KfW to Finance Agribusiness and Agricultural Value Chains ........................................................... 4 250 tons of Organic Cotton to be Grown in 2014 ........................................................................... 4 IFC to Provide $4m Loan to Bai Tushum Bank to Encourage SME lending ..................................... 4 UNDP Support Increases Productivity of Batken’s Cooperatives .................................................... 5 Dutch Development Bank FMO to Lend $10m to KICB ................................................................... 5

Private Sector.............................................................................................................. 5 17) 18) 19) 20) 21) 22) 23) 24) 25)

Rise in Potato Price May be Due to Seasonal Sowing Fluctuations................................................. 5 Bean Price Triples in Talas Oblast .................................................................................................... 5 44% of Spring Plowing Completed .................................................................................................. 6 Yield Increase for Wheat and Sugar Beet expected in 2014 ........................................................... 6 Small Private Landowners Threaten the Food Security of Kyrgyzstan ............................................ 6 NISI: Small and Medium Enterprises Lack Innovation ..................................................................... 6 Livestock Production Pushes Agricultural Growth to 1.2% in Q I .................................................... 6 Total Production Capacity of Flour Mills at 600,000 tons ............................................................... 7 NAS Makes Recommendations Regarding Top Soil Improvement.................................................. 7

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows to Kyrgyzstan’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company with a long history of working in Kyrgyzstan. Currently, BFC is implementing the Rural Finance Programme for KfW. Read more » BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

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State Initiatives 1)

1,226 Units of Agricultural Equipment Received on Leasing in 2013

April 28th, 2014, http://www.eng.24.kg/economics/170247-news24.html

Vice Prime Minister Taiyrbek Sarpashev reported that 1226 units of agricultural machinery were leased and 50,000 tons of fertilizer imported last year. Both were subsidized by the state.

Sarpashev added that the state will allocate 2.5 billion KGS to concessional loans in 2014.

2)

3.3 Billion KGS of Loans Granted to Farms and Agro Processing Businesses

April 28th, 2014, http://kabar.kg/rus/economics/full/75614

To date, the government issued 9,799 concessional loans worth 3.3 billion KGS to farmers and agro entrepreneurs via the "Financing Agriculture - 2" program. Regional distribution was as follows: Chui oblast received 25%; Issyk-Kul 12%; Talas 10%; Naryn 9%; Osh 17%; Jalal-Abad 19% and Batken 8%.

The largest share of loans was issued for livestock (82%), while farming accounted for 10%, breeding farms and agricultural cooperatives received 8% of the loan volume.

3)

1.5 million Cattle Vaccines Available - Three Times Less than required

April 28th, 2014, http://kyrtag.kg/news/detail.php?ID=266140

Director of the State Agency for Veterinary and Phytosanitary Security, Azizbeyov Shakirov, announced an acute shortage of veterinary drugs for animal vaccination. This year, only 1.5 million vaccinations are available, while 3.5 million vaccinations are needed merely for large cattle.

According to Shakirov, the shortage is due to insufficient funding. This amounted to 62 million soms – an increase of 32% year-on year (47 million soms in 2013). The Committee on Agrarian Policy, Water and Local Development challenged this explanation. Vice Prime Minister Tayirbek Sarpashev ordered an investigation and the dismissal of the Agency’s director.

4)

Kyrgyzstan Becomes a Member of AFACI

April 24th, 2014, http://www.vb.kg/270641

On April 23rd, Kyrgyzstan became a member of the "Asian Food and Agricultural Cooperation Initiative" (AFACI).

In 2014-2015, Kyrgyzstan will participate in several AFACI projects on advanced agricultural technologies, service provision in rural areas, organic farming and water management cooperation.

5)

Chinese Organic Fertilizer Company to start Production in Bishkek

April 24th, 2014, http://www.knews.kg/econom/48796

Culp Korea began producing fertilizer at its new factory in Bishkek less than six months after receiving construction permits from the Ministry of Agriculture.

This year, the company plans to produce 100,000 liters of organic fertilizers from seaweed concentrate.

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6)

Development of Agricultural Leasing Discussed with Dutch Ambassador

April 24th, 2014, http://www.vb.kg/270521

Deputy Prime Minister Tayirbek Sarpashev and Dutch Ambassador Henry Hubert Drisserom discussed the strengthening of trade and economic ties between the two countries. Mutually beneficial terms for the leasing of agricultural machinery and equipment from the Netherlands were discussed. Drisserom expressed particular interest in strengthening cooperation in agriculture, tourism and health sectors and will be present at the International Agricultural Exhibition" Ail Agro 2014 "on May 14-16.

Trade volumes with the Netherlands amounted to 70.3 million USD – an increase of 9.9% compared to 2012.

7)

Chinese Mineral Fertilizer Factory to be Built in Jalal-Abad Region

April 17th, 2014, http://www.vb.kg/269749

Two years after reaching agreement with the Ministry of Agriculture on the construction of a fertilizer plant, the “Central Asia Coal Engineering and Technology Corporation” - a Chinese company - announced it had completed a feasibility study for construction in Tegene in the Jalal-Abad region.

The plant will produce 200 tons of ammonium nitrate and 110 tons of urea per year – enough to cover the country's entire demand.

8)

Inter-Agency Coordination for "Development of Livestock and Markets-1" Program

April 16th, 2014, http://www.vb.kg/269499

The Coordination Group for the “Development of Livestock and Markets – 1” program held its first meeting. The group is composed of representatives from parliament, the regional governments of IssykKul and Naryn, the Ministries of Agriculture, Education and Finance as well as other agencies and associations in the livestock sector.

The group was created to ensure a decentralized implementation of the project, maximizing stakeholder input. The program provides assistance to private veterinarians, pasture associations, women's groups and veterinary and public health facilities to reduce incidences of brucellosis and echinococcosis, improve pasture management and establish milk cooling and collection points in Naryn, Issyk-Kul and the Jalal-Abad region. The program has a budget of more than 25 million USD (20 million from the International Fund for Agricultural Development, the rest from public funds).

9)

In 2014, 341 Tons of Mineral Fertilizers Required

April 11th, 2014, http://www.vb.kg/268947

Janybek Derbishaliev, director of the Department for Chemicals and Plant Protection (Ministry of Agriculture) reported that, to date, mineral fertilizer imports in 2014 amounted to 111,600 tons. 68,300 tons were imported by the private sector, while 43,300 tons were provided through an agreement between the Gosmatrezervov Fund and Uzbekistan (foreseeing a total import of 60,000 tons). In addition to this agreement, the Gosmatrezervov Fund delivers 5 tons of fertilizer (ammonium phosphate, suprefos, nitrocalcium phosphate and potash).

This represents only one third of the needed 340,800 tons (200,000 tons of nitrogen; 129,100 tons of phosphorus and 11,700 tons of potash).

The south of the country was given priority with state supported imports due to the earlier start of spring.

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Foreign Aid 10) IDB Allocates 1.38 million USD for the Development of Agriculture Sector April 24th, 2014, http://www.vb.kg/270636

With the view of increasing milk and meat production, the Islamic Development Bank (IDB) agreed to grant 1.38 million USD for the improvement of domestic breeds through artificial insemination. The Kyrgyz government will add an additional 120,000 USD to the project. The project is expected to begin in July 2014 and will last 3 years.

11) Bishkek's First Municipal Bakery to be Built in 135 days April 22nd, 2014, http://www.vb.kg/270139

The Turkish International Cooperation and Development Agency (TICA) is building a municipal bakery in Bishkek. Construction began one month ago and is planned to finish in just 135 days. The bakery will be equipped with modern technology produced in Turkey. It will produce 1,000 loaves of bread per day.

12) KfW to Finance Agribusiness and Agricultural Value Chains April 16th, 2014, http://www.vb.kg/269512

In cooperation with the Kyrgyz Ministry of Finance, the German Development Bank KfW will assist financial institutions in the financing of agricultural value chains and agribusiness. The aim is to increase productivity and profits of micro to medium sized farms and agroprocessing businesses. The feasibility study is being conducted by CAI Consulting and its partners AFC International Consultants and ADG (Academische Deutsche Genossenschaften). Completion of the study is expected by end of June 2014.

13) 250 tons of Organic Cotton to be Grown in 2014 April 15th, 2014, http://www.vb.kg/269390

The partner organizations of Helvetas’ “Bio Cotton” project - "Bio Farmer", a cooperative, and "BioService", a public fund - presented business plans for 2014 to their donor, the Swiss State Secretariat for Economic Affairs (SECO) announcing production of 250 tons of organic cotton, 70 tons of transitional cotton and several types of rotational crops. The organizations already signed a sales contract for the delivery of 60 tons of tomatoes and 15 tons of pepper for processing. They are currently negotiating contracts with potential buyers for cotton and rotational cultures.

14) IFC to Provide $4m Loan to Bai Tushum Bank to Encourage SME lending April 11th, 2014, http://kabar.kg/eng/economics/full/9673

The International Finance Corporation (IFC), a member of the World Bank Group, will provide a $4 million loan to Bai Tushum Bank (BT) to support its expansion of financial products and services offered to SMEs in rural areas and women owned businesses. The aim is to create jobs and sustainable growth in the SME segment, which represents 40% of GDP and 60% of jobs. The IFC will also assist the bank in currency risk management and in facilitating local currency lending.

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15) UNDP Support Increases Productivity of Batken’s Cooperatives April 8th, 2014, http://www.vb.kg/268347

Since 2012, Batken has been a pilot region for the UNDP program "Wider Europe: Aid for Trade for Central Asia, South Caucasus and Western CIS countries". The program provides financial and technical assistance to farmers' associations and cooperatives, with the aim of promoting productivity, trade potential and brand development.

The program focuses on Batken’s traditional produce - these include rice, beans, peanuts and apricots.

Funds from the program were used to help finance several projects. A fruit drying cooperative received washing, drying and sorting equipment worth 2.51 million KGS, enabling the processing of 100 tons of raw fruit per month. An apricot kernel producer received processing machinery, 75% of which was funded by the UNDP program, allowing a production of 200kg of processed kernel per day. Potato storage facilities and rice packaging facilities were also financed.

The UNDP program in Batken will cease at the end of 2014, moving to Osh and Naryn.

16) Dutch Development Bank FMO to Lend $10m to KICB April 4th, 2014, http://www.microcapital.org/microcapital-brief-dutch-development-bank-nederlandse-financieringsmaatschappijvoor-ontwikkelingslanden-fmo-loans-10m-to-kyrgyz-investment-and-credit-bank-kicb/#more-27725

The Dutch development bank “Nederlandse Financierings-Maatschappijvoor Ontwikkelingslanden” (FMO) recently agreed to lend USD 10 million to the Kyrgyz Investment and Credit Bank (KICB). The terms and purpose of the loan were not disclosed. However, it is expected to finance rural sector activities, in line with a previous 10 million USD investment from FMO in 2009. According to FMO, the majority of KICB’s 60,000 clients are individuals operating small and medium-sized enterprises (SMEs).

Private Sector 17) Rise in Potato Price May be Due to Seasonal Sowing Fluctuations April 29th, 2014, http://www.gazeta.kg/545-news.html

The recent dramatic rise in the price of vegetables - especially potatoes, increasing from 20 to 50 KGS per kilo in a few days - gave rise to speculation about the underlying causes. While officials stress increased exports of potatoes, some economists, such as Asylbek Ajupov, professor of "National Economy and Regional Development" at KRS University, argue the price increase is due to seasonal fluctuations: as sales prices were low in 2013 many farmers made losses and consequently decreased potato acreage – this leads to a potato shortage through the next year, increasing prices.

18) Bean Price Triples in Talas Oblast April 26th, 2014, http://www.vb.kg/270834

According Akilbek Zhakshymbekov, director of the bean growing cooperative Beren, the price of beans in Talas oblast has tripled year-on-year, now oscillating between 95 and 110 soms. The rise is due to a poor harvest worldwide, said Zhakshymbekov.

To compensate for the high purchase price, producers will export beans to Serbia, Macedonia, Bulgaria, Romania and Turkey.

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19) 44% of Spring Plowing Completed April 22nd, 2014, http://www.vb.kg/270167

By April 18th, plowing was completed on 260,600 ha of the 595,400 ha planned - 15.600 ha less than at the same time last year.

This is partly due to delays in cotton planting: only 2000 ha were ready compared to 9300 ha last year.

Oilseeds, melons and vegetables were also behind, reaching only 53%, 65% and 81% of last year’s figures respectively.

20) Yield Increase for Wheat and Sugar Beet Expected in 2014 April 21st, 2014, http://www.eng.24.kg/economics/170116-news24.html

The Ministry of Agriculture predicted yield increases for a number of crops in 2014. According to Zhumabek Asylbekov, director of the Food Security and Marketing Department at the Ministry, wheat and sugar beet yields will increase by 0.7% and 1.7% respectively. Yield of oilseeds is expected at 56,600 tons; potatoes at 134,000 tons; melons at 198,400 tons; and fruits and berries at 237,200 tons.

21) Small Private Landowners Threaten the Food Security of Kyrgyzstan April 21st, 2014, http://www.knews.kg/econom/48594

According to Gulzeynep Mursabekova, head of the Department of Statistics and Census at the National Agriculture Statistics Committee, the main threat to food security in Kyrgyzstan is unused arable land and arable land that is poorly managed by small private landowners. Today, private farms account for 60% of gross meat production; private households account for 35%. About 70% of arable land used for crop cultivation belongs to private farms. In 2013, 100.000 ha of the arable land (8%) were uncultivated - while large parts of the remaining area were used for monocultures (wheat, potatoes), resulting in low yields.

22) NISI: Small and Medium Enterprises Lack Innovation April 18th, 2014, http://www.vb.kg/269913

According to the study "Innovation potential of small and medium-sized businesses in the Kyrgyz Republic", conducted by the National Institute for Strategic Studies (NISI), the main barriers to innovation are: low levels of qualification and responsibility amongst staff; lack of staff, financial resources and raw materials; and expensive credit. The study sees a crucial role for SMEs in the spread of the knowledge and innovation essential to economic development. Innovation should not rely solely on specialized state agencies, the study found.

23) Livestock Production Pushes Agricultural Growth to 1.2% in Q I April 17th, 2014, http://www.vb.kg/269723

The Ministry of Agriculture reported on socio-economic development in the 1st Quarter, 2014. Gross output of agricultural, forestry and fishery products increased by 1.2 % - amounting to 21.3 billion KGS or 9.6 % of quarterly GDP. Growth is due to enhanced productivity in the livestock sector, which saw a 1.4 % increase in meat production; 2.2% in milk; and 4.3% in eggs compared to the first quarter of 2013.

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24) Total Production Capacity of Flour Mills at 600,000 tons April 1st, 2014, http://www.vb.kg/267519

According to Batyr Torobaev, chairman of the Milling Industry Committee, Kyrgyzstan’s 26 mills have a total production capacity of 600,000 tons of flour per year, while annual consumption is about 500,000 tons.

25) NAS Makes Recommendations Regarding Top Soil Improvement March 31st, 2014, http://www.vb.kg/267337

Jamin Akimaliev of the National Academy of Sciences called for better protection of Kyrgyzstan’s scarce arable land. Kyrgyzstan has 1.3 million ha of arable land, of which 850.000 is irrigated. Another 500,000 ha is rocky ground; 85.000 hectares is wetland; and as much as 6.5 million ha is unusable due to topsoil erosion.

Akimaliev argued the poor condition of topsoil is due to the agrarian reform of the 1990s which replaced 519 collective farms with 320,000 small farms. Mostly, these were run by farmers who lacked knowledge of farming practices such as crop rotation or plant nutrition. The result was the emergence of diseases and a sharp deterioration in soil fertility - especially humus content, which dropped from 2% to 1.5% and below, resulting in up to a 50% reduction in yield.

An additional problem, says Akimaliev, is the compaction of irrigated land causing a decrease in water content. Also soil salinity is problematic, as it leads to a decrease in yield of 10% to 80%. Of the 1 million ha of saline and alkaline soils, 350,000 ha are valuable irrigated land. To improve soil structure, Akimaliev recommends planting more vegetables and cereals, using only light vehicles to decompress the soil, observing an optimal irrigation regime and using organic fertilizers.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

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