03 BFC Kyrgyzstan Agriculture Finance Bulletin

05/2014

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3 K y r gy zsta n Agriculture Finance Bulletin Two Million Doses of Brucellosis Vaccine for Sheep and Goats Available Naryn Region Increases Pasture Area From 1 to 1.4 Million ha Switzerland Launches New Program to Support Business in the South Third Southern Regional Investment Forum Held In Osh

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Agriculture Finance Bulletin Edition #3, May 2014

Contents

State Initiatives ........................................................................................................... 2 1) 2)

Two Million Doses of Brucellosis Vaccine for Sheep and Goats Available ...................................... 2 3.7 Billion KGS of Subsidized Loans Disbursed as Part of Governmental Project “Financing Agriculture 2” .................................................................................................................................. 2 3) China to Increase Imports of Agricultural Goods from Kyrgyzstan ................................................. 2 4) Experts Warn of Negative Impact of Customs Union on Agricultural Sector .................................. 2 5) Issyk-Kul region to Cooperate With Iran ......................................................................................... 3 6) Anti-trust agency “Gosantimonopolii” Repeals Seasonal Import Duty on Sugar ............................ 3 7) Agroprodkorporatsiya Liquidated After 500 Million KGS of Losses Caused by Corruption ............ 3 8) Agro-Industrial Exhibition "Ayil-Agro" Attended by Over 7,000 Farmers ....................................... 4 9) Naryn Region Increases Pasture Area From 1 to 1.4 Million ha ...................................................... 4 10) Ministry of Agriculture to Improve Statistics Through Satellite Monitoring ................................... 4 11) Deputy Prime Minister Sees A Promising Future for Greenhouses ................................................ 5 12) 3,000 ha of Fields in the South Preventively Treated Against Locusts ............................................ 5

Foreign Aid ................................................................................................................. 5 13) 14) 15) 16) 17) 18)

Switzerland Launches New Program to Support Business in the South ......................................... 5 Parliament to Approve $20 Million Loan from EurAsEC Anti-Crisis Fund for Agro Machinery ....... 5 EBRD to Significantly Increase Investment in Kyrgyzstan................................................................ 6 Kyrgyzstan to Sign Agreement With Poland on €40 Million Loan for Agricultural Machinery ....... 6 EDB to Launch Projects On Farmer’s Access to Kyrgyz, Russian, and Kazakh Markets ................... 6 Since Independence ADB Has Provided $1.25 Billion to Kyrgyzstan ............................................... 6

Private Sector.............................................................................................................. 7 19) 20) 21) 22) 23) 24) 25)

Third Southern Regional Investment Forum Held In Osh................................................................ 7 Bishkek Hosts International Financial Forum .................................................................................. 7 Agricultural Machinery of Nearly $24 Million Purchased on Leasing in the Past Three Years ....... 7 85.9% of Fuel Required for Spring Sowing Delivered ...................................................................... 8 Private Companies Import 678 Tons of Seed Potatoes From Holland ............................................ 8 Saudia Arabia Begins Meat Importation from Kyrgyzstan .............................................................. 8 Natural Juice Manufacturers Demand Stricter Labeling Requirements.......................................... 8

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 the Kyrgyz Ministry of Finance and KfW. Read more » BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

Phone: +41 44 784 22 22 Fax: +41 44 784 23 23

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State Initiatives 1)

Two Million Doses of Brucellosis Vaccine for Sheep and Goats Available

May 27th, 2014, http://www.vb.kg/274562

With the financial support from the "Development of livestock and market-1" program - implemented by the Ministry of Agriculture and the International Fund for Agricultural Development - 2 million doses of vaccine REV-1 have been imported from Jordan. The vaccines were cleared by the State Inspectorate for Veterinary and Phytosanitary Security (GIVFB) and are being distributed among the veterinary district offices. Private veterinarians will conduct the vaccinations. Farmers will receive the vaccine free of charge and it is effective for 4 to 5 years. The report "On the activities and achievements for the control of brucellosis in the Kyrgyz Republic" found that since 2008 the use of REV-1 has reduced the incidence of brucellosis among both animals and humans three-fold. The economic loss caused by the disease was reduced from $27.6 million in 2007 to $13.8 million in 2012.

2)

3.7 Billion KGS of Subsidized Loans Disbursed as Part of Governmental Project “Financing Agriculture 2”

May 22nd, 2014, http://kabar.kg/rus/economics/full/76893

By the end of May, when more than 90% of spring’s farming work is complete, 12,151 agricultural concessional loans had been issued. 82% of the loans were given for livestock breeding, 10% for crops, and 8% for agro-processing investments. Of the six participating banks Ayil Bank channeled 41% of the funds; RSK Bank 34%, KICB 10%, Optima Bank 9%, and Bakai Bank and CB Kyrgyzstan both 3% of a total sum of 3,709 billion KGS. Earlier this month the Ministry of Agriculture reported that the largest share of loans went to the regions Chui (24%), Jalalabad (19%), and Osh (17%).

3)

China to Increase Imports of Agricultural Goods from Kyrgyzstan

May 20th, 2014, http://www.gazeta.kg/1808-news.html

The Minister of Foreign Affairs Erlan Abdyldayev informed journalists that an agreement had been signed between the Kyrgyz State Inspectorate for Veterinary and Phytosanitary Security and its Chinese counterpart. The document provides for cooperation in inspection and quarantine and, from the Kyrgyz point of view, establishes a basis for entering the Chinese market.

During the talks with President Atambaev on May 18, the Chinese President Xi Jinping announced his willingness to stimulate the importation of industrial and agricultural goods from Kyrgyzstan, beginning with livestock and crop production.

Trade between the two countries is estimated at $1.5 billion per year, of which only 5% are Kyrgyz exports to China. Critics warn that Kyrgyzstan’s produce is needed on the domestic market, as local production covers only 56% of the national demand for meat and 23.2% of national demand for fruit and berries. Only milk (111.9%) and vegetables (138.5%) are produced in excess.

4)

Experts Warn of Negative Impact of Customs Union on Agricultural Sector

May 20th, 2014, http://www.knews.kg/econom/49896

Feelings remain mixed after parliamentary debate concerning Kyrgyzstan’s planned accession to the Customs Union (CU) alongside Russia, Belarus, and Kazakhstan. As a result, experts such as Kubat Umur-

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zakov predict inflation, an increase in unemployment and a decline in economic growth of about 0.6% due to changes in tariffs and a slowdown in several non-competitive industries.

Manas Samatov, director of machinery importer "Kyrgyzagromarket", and Aziza Yuldasheva, representative of the Agrobusinessmen Association "Jer Azygy”, warned that, as a WTO member, Kyrgyzstan should avoid alienating non-CU trading partners. They noted that only the northern regions have trade relations with CU members, while southern Kyrgyzstan trades mainly with Tajikistan and Uzbekistan.

Executive Director of the Bishkek Business Club, Esen Djumanov, observed that the promise of equal opportunity within the CU is unrealistic, as Kyrgyzstan is more dependent on imports than the other members, where agricultural subsidies from the state are much higher than in Kyrgyzstan. GDP per capita is 10 times higher in Russia, and 5 times higher in Kazakhstan. While the Minister of Economy, Temir Sariev, acknowledged the shortcomings, he stressed that government support programs would mitigate the downsides of joining the CU.

5)

Issyk-Kul region to Cooperate With Iran

May 20th, 2014, http://www.vb.kg/273517

In a meeting between Emilbek Kaptagayev, Authorized Representative for the Issyk-Kul region, and the Iranian Ambassador Ali Nadzhifi Hoshrudi, the parties agreed to exchange delegations and sign a memorandum of cooperation between the Issyk-Kul region and the climatically similar Iranian Mazandaran region, with the aim of attracting a wide range of private investment. Iranian entrepreneurs might be interested in investing in tourism, cultivation and the processing of meat, dairy products and fruit. It is thought that the free economic zone of "Karakol", located near the railway hub of Balykchi, may be of particular interest to investors.

6)

Anti-trust agency “Gosantimonopolii” Repeals Seasonal Import Duty on Sugar

May 19th, 2014, http://www.vb.kg/273459

The draft decree on a seasonal duty for imported white sugar introduced by the Ministry of Economy was rejected as incompatible with a fair and equal treatment of all market actors. Imports currently supply 80% of the country’s sugar, and local factories can only provide for 12-15%: An import duty would thus lead to a price increase in sugar and products which use sugar as raw material, violating the rights of consumers.

In the meantime, the Ministry of Agriculture has developed an action plan to increase the acreage of sugar beet as part of its “Program of Development of the sugar industry of the Kyrgyz Republic, 20142017”.

7)

Agroprodkorporatsiya Liquidated After 500 Million KGS of Losses Caused

by Corruption

May 19th, 2014, http://www.vb.kg/273449

Deputy Prime Minister Tayirbek Sarpashev liquidated the "Kyrgyz Agro Food Corporation" transferring its functions to the Gosmatreserve Fund. The corporation, created in 2008 by decree of former President Bakiev, was meant to support agricultural producers and the development of agricultural processing. Meeting none of its goals, it caused a drain of 500 million KGS on the state budget, resulting from the reimbursement of losses accumulated during the last six years. Of the initially allocated 400 million KGS, 300 KGS disappeared through mismanagement, corruption, and nepotism.

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8)

Agro-Industrial Exhibition "Ayil-Agro" Attended by Over 7,000 Farmers

May 16th, 2014, http://www.vb.kg/273178

Organized by the Kyrgyz government and the Russian Association of Agricultural Machinery "Rosagromash", the Second International Agricultural Exhibition "Ayil-Agro-2014" was held from May 14 to 16 in Bishkek. 87 types of agricultural machinery were presented by 40 companies operating in 9 countries.

The Exhibition was aimed at speeding up the replacement of obsolete agro-machinery. As a result of “Ayil-Agro 2013”, attended by 27 manufacturers presenting 60 pieces of farm machinery, sales increased to 47 million RUB (a four-fold increase compared to 2012).

The event included the “National Agricultural Investment Forum of the Kyrgyz Republic”, the “Bishkek International Financial Forum 2014” and "The Day of Russian Agricultural Machinery and Equipment in 2014."

At the “National Agricultural Investment Forum”, Deputy Prime Minister Tayirbek Sarpashev outlined positive trends and directions for future development: The numbers of cooperatives has increased from 301 to 426 in recent years and this trend should, he said, now be joined by a shift from primary production to trade and service cooperatives (currently only 12%). For this purpose, he said, model cooperatives would be established throughout the country in 2014.

Sarpashev also pointed to the importance of increased leasing by the banking sector which has allowed farmers to acquire more than 2,000 units of modern agricultural machinery in the last two years. In 2014, more than 2 billion KGS will be spent on the purchase of agricultural machinery enabled by leases.

Sarpashev also identified the development of greenhouses as a promising indication of future development: in 2014, 100 new greenhouses will be completed, with the encouragement of tax breaks, and the total number of greenhouses is expected to increase from the current 400 to 1000 by 2016.

Sarpashev also underlined that it is Kyrgyzstan’s goal to provide its own food security and to become a major supplier of organic agricultural products and processed goods.

9)

Naryn Region Increases Pasture Area From 1 to 1.4 Million ha

May 14th, 2014, http://www.vb.kg/272777

Last year, through the Ministry of Agriculture’s "Agricultural Investments and Services” program, the 63 Pasture User Associations of the Naryn region repaired 815 km of roads and bridges, at a cost of more than 43 million KGS. This resulted in improved access to the most isolated pasture lands. By now 70% (1.4 million ha) of the total available pasture land in the region is accessible.

10) Ministry of Agriculture to Improve Statistics Through Satellite Monitoring May 13th, 2014, http://www.eng.24.kg/economics/170453-news24.html

The Minister of Agriculture, Taalaibek Aidaraliyev, announced plans to link with a Chinese satellite in order to improve statistical information on harvesting, irrigation and locust hotspots. The project will begin in June and data is expected within one and a half months.

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11) Deputy Prime Minister Sees A Promising Future for Greenhouses May 12th, 2014, http://www.vb.kg/272368

After his visit to Kyrgyzstan’s largest greenhouse complex, “Green Line” in the village of Sary Jon in the Issyk-Ata district, Deputy Prime Minister Tayirbek Sarpashev announced that one aiyl (“village”) greenhouse complex will be built in each district. The President of the Kyrgyz Association of greenhouses Shin Howard estimates the cost of a 1.5 ha greenhouse complex at $2 million and the output at 500 t of vegetables per year. The government now intends to attract AyilBank and EcoIslamicBank to the project and also proposes to channel a part of the €40 million loan from Poland to purchase greenhouse equipment. Sarpashev considers the greenhouse industry as one of the most promising areas of agriculture, creating jobs in rural areas and serving the local market with products (e.g. tomatoes) which during the off-season, are imported primarily from China and Uzbekistan. Sarpashev estimates 10 acres of greenhouses to create annual profits of 60 million KGS.

12) 3,000 ha of Fields in the South Preventively Treated Against Locusts April 29th, 2014, http://novosti.kg/2014/04/v-etom-godu-est-ugroza-migratsii-saranchi-iz-tadzhikistana-i-uzbekistana-v-nashustranu/

The Deputy Director of the Department for Agricultural Chemicalization, Vladimir Pak, announced the preventive chemical treatment of about 3,000 ha of fields in the Aksu Nooken district and the Jalal-Abad region, with Batken next on the schedule. All exposed fields in the south were to be treated during May to protect them from potential locust migrations from Tajikistan and Uzbekistan, where experts predict the destruction of up to 350,000 ha of fields.

Foreign Aid 13) Switzerland Launches New Program to Support Business in the South May 27th, 2014, http://novosti.kg/2014/05/shvejtsariya-zapuskaet-novuyu-programmu-po-podderzhke-srednego-biznesa-nayuge-kyrgyzstana/

Jointly implemented by the Swiss NGO "Helvetas Swiss IC" and the Aga Khan Foundation in Kyrgyzstan, the program aims at improving the living conditions of the population of remote mountain regions in Alai and Chon-Alai by strengthening the production and processing of livestock products, establishing a "farmer-processor-trader-buyer” chain, and by providing training in business skills among local entrepreneurs and government representatives. The implementation is planned to last for 10 years, with a budget of $3 million allocated for the first 4-year phase.

14) Parliament to Approve $20 Million Loan from EurAsEC Anti-Crisis Fund for Agro Machinery May 26th, 2014, http://www.vb.kg/274346

The parliamentary committee for budget and finances approved a draft law ratifying an agreement (signed in March) on an investment loan of $20 million from the Eurasian Economic Community’s AntiCrisis Fund. As reported by the Deputy Minister of Agriculture and Land Reclamation, Janybek Kerimaliev, the loan will be provided over 20 years, with an annual interest rate of 1% and a grace period of 8 years. The funds will be used for on-lending to farmers for co-financing the purchase of agricultural machinery, with the farmer contributing 20% of the cost. Repayments are planned to flow into a revolving fund raising $15 million available for further lending. This initiative should help to renew Kyrgyzstan’s fleet of agro-machinery, of which ca. 80% is out of date. The first funds are expected to be disbursed in mid-June 2014 after a full ratification by Parliament.

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15) EBRD to Significantly Increase Investment in Kyrgyzstan May 16th, 2014, http://www.timesca.com/index.php?option=com_content&view=article&id=13826:ebrd-ready-to-increaseinvestment-in-kyrgyzstan&catid=79:economy-a-finances&Itemid=567

In a meeting with Prime Minister Joomart Otorbayev, the President of the European Bank for Reconstruction and Development (EBRD), Sir Suma Chakrabarti, announced the Bank’s decision to deploy more investment in Kyrgyzstan to reinforce the country’s dynamic economic growth and to reward the government’s progress in the fight against corruption, its development of the Kyrgyz democracy, and its professional work with development partners. Enhanced cooperation is planned for developing the private sector, as well as for the infrastructure, energy, and transport sectors. Since 1995 the bank has approved 111 projects in Kyrgyzstan totaling €457 million, including projects in the private and financial sectors.

16) Kyrgyzstan to Sign Agreement With Poland on €40 Million Loan for Agricultural Machinery May 13th, 2014, http://kabar.kg/rus/economics/full/76259

According to the Minister of Agriculture Taalaibek Aidaraliyev, a large loan contract with Poland is about to be signed. The project will begin this year, allocating about €24 million of loans to the purchase of Polish agricultural machinery and €16 million to the purchase of equipment for the processing industry.

The credit will be granted for 25 years, with a preferential interest rate of 0.15% per annum during the first five years.

17) EDB to Launch Projects On Farmer’s Access to Kyrgyz, Russian, and Kazakh Markets May 13th, 2014, http://kabar.kg/rus/economics/full/76274

During a meeting between the Minister of Agriculture, Taalaybek Aidaraliev, and the Director of the Eurasian Development Bank (EDB) Andrey Shirokov, a new EDB project was announced, with the goal of constructing a commodity system in the Kyrgyz agriculture, to enable local farmers to work directly with the Kazakh and Russian markets. The Bank is currently planning two projects in the agricultural sphere with a total available budget of $100 million.

18) Since Independence ADB Has Provided $1.25 Billion to Kyrgyzstan May 5th, 2014, http://www.vb.kg/271784

In a meeting with the Asian Development Bank (ADB), Prime Minister Djoomart Otorbaev thanked the institution for having increased financial assistance for 2013-2014 to $121.44 million (compared to $88.6 million in 2011-2012). Since independence, Kyrgyzstan received $1.25 billion of financial aid from the ADB, invested in strategic sectors such as transport, agriculture, energy, education, and finance. Going forward, the ADB will focus on Kyrgyzstan’s energy sector, private sector development (public-private partnerships), and on facilitating trade and regional cooperation.

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Private Sector 19) Third Southern Regional Investment Forum Held In Osh May 22nd, 2014, http://www.vb.kg/272956

Representatives from Kyrgyzstan, China, Russia and other neighboring countries participated - presenting regional investment projects, exhibiting products, and strengthening regional trade relations. The forum includes an International Trade Fair for export goods, held from May 22-26, mainly exhibiting agricultural machinery and equipment from China.

The first regional investment forum in 2011 resulted in 11 bilateral agreements and two protocols expressing the intention to further develop trade, economic, and cultural relations between the regions.

Sooronbai Jeenbekov, the Kyrgyz government’s representative in the Osh region, reported that, following this year’s forum, the region has planned to open a joint Kyrgyz-Chinese dairy plant.

20) Bishkek Hosts International Financial Forum May 16th, 2014, http://www.timesca.com/index.php?option=com_content&view=article&id=13829:kyrgyzstan-hostsinternational-financial-forum&catid=79:economy-a-finances&Itemid=567

The annual international Forum was organized by the Union of Banks of Kyrgyzstan with the support of the Kyrgyz Government and the U.S. Agency for International Development (USAID). The Forum was attended by financial and credit institutions, insurance and leasing companies, as well as by representatives from the telecommunications sector, from international payment systems, and from local and foreign companies providing technical banking solutions. Products were presented by participants from Russia, Kazakhstan, Uzbekistan, Tajikistan, the Netherlands, and Saudi Arabia.

The forum also hosted an international summit of leaders from the banking associations of the CIS countries, who discussed innovations and new banking products like mobile banking, e-commerce and financial literacy.

As one result of the Forum, representatives of the Islamic Corporation for the Development of the Private Sector (ICD), Eurasia Group AG, Kazakhstan Ljarah Company and Treadstone Investment signed the constituent documents of the first leasing company established in Kyrgyzstan, which registered with a capital of $20 million. This reflects the increasing volume of leasing operations in Kyrgyzstan: leasing grew by 80% last year compared with 2012, and by more than six-fold since 2009. The Deputy Prime Minister of the Kyrgyz Republic, Tayirbek Sarpashev, asked financial institutions to issue more leasing contracts for agricultural processing machinery.

21) Agricultural Machinery of Nearly $24 Million Purchased on Leasing in the Past Three Years May 15th, 2014, http://www.gazeta.kg/1506-news.html

The Deputy Chairman of JSC "Ail-Bank", Murat Akimov, speaking at the Bishkek International Financial Forum, declared that between 2011 and 2014 the bank financed the purchase of 1353 units of agricultural machinery, including tractors (90%), combine harvesters (2%), and other equipment (8%). According to Akimov the default rate of repayments is 0.1%. The Deputy Chairman of the National Bank, Baktygul Zheenbaeva, notes that, since the adoption of the Law “On financial leasing” in 2003, the turnover of leasing operations has grown to 500 million KGS per year. The Ministry of Agriculture estimates that there will be a need for a further 5,347 tractors, 3,472 combine harvesters, and 30,966 pieces of other agricultural equipment. According to Deputy Prime Minister Taiyrbek Sarpashev, these requirements should be met in 5-6 years, primarily through alliances with Russian producers, who currently make 90% of the agricultural machinery in Kyrgyzstan.

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22) 85.9% of Fuel Required for Spring Sowing Delivered May 13th, 2014, http://www.eng.24.kg/economics/170449-news24.html

According to the President of the Kyrgyz Oil Traders Association, Medetbek Kerimkulov, this year’s spring sowing will require 40,500 t of diesel fuel, 9,700 t of gasoline and 1,800 of diesel oil. To date only 85.9%, 86.2%, and 85.7% of these totals (respectively) have been delivered. The average market price of 1 liter of diesel fuel is 42.1 KGS.

23) Private Companies Import 678 Tons of Seed Potatoes From Holland May 13th, 2014, http://kabar.kg/rus/economics/full/76231

The Minister of Agriculture and Land Reclamation Taalaibek Aidaraliev announced this figure in a press conference with “Kabar”, noting that a local laboratory for the production of seeds is currently under construction, intended to replace the costly imports. Meanwhile, a project run by the public association "AgroLid" provided training to 600 potato farmers in Issyk-Kul on soil, seeds, fertilizers, and biological remedies, as well as on marketing and creating links with suppliers. With the support of Helvetas Swiss they received 50 t of elite potato seeds from Holland, avoiding the low quality and quantity of the domestic production, which in turn can limit export possibilities. As the Head of "AgroLid", Kayyrkul Kazylaeva, noted the demand from Russia and Kazakhstan is high, with 1200 t of potatoes exported to St. Petersbug in 2011, and with Kazakh importers ready to buy 20 t weekly (1000 t yearly). She states that Kyrgyzstan currently produces 1200 t of potatoes, of which 50% are exported, 40% used in the internal market, and 10% fed to livestock.

24) Saudia Arabia Begins Meat Importation from Kyrgyzstan May 6th, 2014, http://novosti.kg/2014/05/saudovskaya-araviya-nachala-importirovat-myaso-iz-kyrgyzstana/

According to the Director of the State Inspectorate for Veterinary and Phytosanitary Security Bakytbek Aliyev, the first batch of lamb meat has been sent to Saudi Arabia, which is preparing to import more than 1 million head of sheep and goats annually. Qatar and Yemen have also expressed interest in Kyrgyz meat.

25) Natural Juice Manufacturers Demand Stricter Labeling Requirements May 2nd, 2014, http://www.vb.kg/271651

The Association of Food Industry (APPP) has requested that the Law "On the labeling of food products" oblige manufacturers and importers to mark juices made from concentrate with an easily readable label, so as to increase the competitiveness of processing companies working with local raw materials. The association has also suggested that the government take steps to attract investment in the local production and export of fruit concentrate.

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