#33 Kyrgyzstan Agriculture Bulletin, BFC

11/2016

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33 K y r gy zsta n Agriculture Bulletin Kyrgyzstan and India Meet, Discuss Bilateral Cooperation Chinese Experts to Train Kyrgyz Apiarists on Honey Production Standards Kyrgyzstan Exports 177.5 Tons of Honey in First Nine Months of 2016 Russian‐Kyrgyz Development Fund to Finance Kyrgyzcentrproduct

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5)

Kyrgyzstan and India Meet, Discuss Bilateral Cooperation ............................................................. 2 New Bill to End VAT Exemptions on Grain and Flour Imports ......................................................... 2 FAO Report Highlights Problems with Land Reform Efforts in Kyrgyzstan ..................................... 2 Three‐Year Livestock Identification Program Launches in Kyrgyzstan ............................................ 3 Belarus, Kyrgyzstan Resume Tractor Assembly in Bishkek .............................................................. 3

Foreign Aid ................................................................................................................. 4 6) 7) 8) 9) 10)

World Bank Approves Project to Help Support Kyrgyz Dairy Farms ............................................... 4 Agro Horizon Project to Help Boost Milk Production in Southern Kyrgyzstan ................................ 4 Russia Allocating KGS 140 Million for Kyrgyz Veterinary Laboratories ........................................... 5 Chinese Experts to Train Kyrgyz Apiarists on Honey Production Standards ................................... 5 China to Provide Funds for the Reconstruction of Irrigation Systems ............................................ 5

Private Sector .............................................................................................................. 5 11) 12) 13) 14) 15) 16)

2.7 Percent Economic Growth in the First Ten Months of 2016 ..................................................... 5 Kaindy Sugar Factory Exports Beets to Kazakhstan at a Loss .......................................................... 6 Volume of Milk Exports Expected to Triple ..................................................................................... 6 Kyrgyzstan Exports 177.5 Tons of Honey in First Nine Months of 2016 ......................................... 6 Nearly KGS 4.5 Billion in Preferential Loans to Kyrgyz Farmers in 2016 ......................................... 6 Russian‐Kyrgyz Development Fund to Finance Kyrgyzcentrproduct ............................................... 7

Note: The Agriculture Bulletin presents a monthly roundup of headlines and news stories related 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 Agricultural Lending Programme for KfW. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Kyrgyzstan and India Meet, Discuss Bilateral Cooperation

November 30th, 2016, http://www.timesca.com/index.php/news/17393‐kyrgyzstan‐and‐india‐developing‐cooperation

A meeting of the Kyrgyz‐Indian Intergovernmental Commission for Trade, Economic, Scientific and Technical Cooperation took place in Bishkek. At the meeting, both sides discussed issues of bilateral relations which will help Kyrgyzstan and India boost cooperation in trade and investment, mining, textiles, agriculture, standardization, information technology, pharmaceuticals and healthcare, culture and tourism, education and science. Kyrgyzstan is particularly interested in increasing bilateral trade and learning India’s experience in the development and promotion of exports.

The parties agreed to cooperate in agriculture through the creation of joint ventures for the production and processing of fish in Kyrgyzstan, the export of Kyrgyz honey to India, and the introduction of India’s latest agricultural bio technology and bio security methods in Kyrgyzstan. The two sides also agreed to further cooperation in textiles (with the creation of a working group in the first quarter of next year) and healthcare (in the form of telemedicine for consultations, complicated surgeries and medical education).

2)

New Bill to End VAT Exemptions on Grain and Flour Imports

November 25th, 2016, http://www.eng.24.kg/economics/182990‐news24.html

A bill on amendments and additions to the Tax Code that will see entrepreneurs pay a VAT on grain imports beginning in September 2018 has been submitted for public discussion. The proposed bill would also see the end to the VAT exemption for flour imports beginning in January 2017.

When initially considering the VAT exemption on grain imports, its concept was modified to include a VAT exemption for flour imports. Although the exemptions have proven somewhat effective, the government is looking to abandon the idea due to a difficult economic situation and a budget deficit. It is estimated that KGS 220.3 million is lost from the budget due to complications regarding the VAT exemption on grain imports. An additional KGS 499.6 million is lost from the budget due to the VAT exemption on flour imports.

It should be noted that representatives of the International Monetary Fund have also urged the government to abolish the VAT exemption on flour imports, citing its ineffectiveness and inequity given the limited number of businessmen who can take advantage of it.

3)

FAO Report Highlights Problems with Land Reform Efforts in Kyrgyzstan

November 23rd, 2016, http://ca‐news.org/news:1346112

The Food and Agriculture Organization (FAO) of the United Nations has released the "Land Resources and Food Security in Central Asia and the Caucasus" report. The report concludes that land reforms in Kyrgyzstan have caused increased poverty and unemployment in the rural population. Currently, Kyrgyzstan is implementing the transfer of land to private ownership. Over 90% of the former collective and state farms were converted for private use, resulting in 80 thousand individual farmers. Today, about 900 thousand hectares of arable land, 69% of the country’s arable land, is owned for personal use.

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In the early stages of land reform, errors of weak methodology and organization as well as a lack of control in the privatization process led to a deterioration of agricultural material and the technical base.

It did not provide an adequate level of sustainable development for the agricultural sector and, on the contrary, caused an increase in poverty and unemployment in rural areas.

In recent years, land reform has begun to increase the amount of agricultural land withdrawn from agriculture. In addition, the disappearance of large and collective farms has led to a noticeable degradation of farmland. Of the 1.1 million hectares of irrigated land available at the state’s formation, about 300 thousand are involved in agricultural use today. In addition, the land used in agriculture does not have the productivity that it would if properly irrigated. Nutrients are currently being removed from the soil at a rate 4 times greater than they are being introduced with fertilizers, helping increase the area of acidic soils. Weeds and other pathogen plants are also invading arable lands, causing further soil degradation. Couple these factors with an irrational use of water resources and Kyrgyzstan is left with lower yields and is more susceptible to natural disasters.

The agricultural sector represents about 35% of Kyrgyzstan’s GDP and employs 53.7% of the workforce.

Agriculture also serves as the basis for the development of processing industries and service sectors, with more than 80 % of the consumer market of the country based on food and goods produced from agricultural raw materials.

4)

Three‐Year Livestock Identification Program Launches in Kyrgyzstan

November 18th, 2016, http://ru.sputnik.kg/economy/20161118/1030354341/rossiya‐vydelila‐na‐dokumenty‐skota‐v‐ kyrgyzstane‐450.html

A three‐year livestock identification project has been launched in Kyrgyzstan. KGS 40 million has been allocated from the national budget along with USD 450,000 from the Russian government for the project’s implementation. The project will also provide for the training of 3,000 specialists who will be involved in the formation and regular updating of the identification system and animal traceability.

5)

Belarus, Kyrgyzstan Resume Tractor Assembly in Bishkek

November 3rd, 2016, http://www.agroprod.kg/index.php?newsID=222

Belarus and Kyrgyzstan have resumed the assembly of tractors in Bishkek. The assembly facility is capable of producing up to 5,000 tractors per year. Both sides plan to sell the vehicles both inside and outside of Kyrgyzstan and are in the process of working out deals with China and Turkmenistan. The assembly process will see tractor kits delivered to the plant in Kyrgyzstan, and the free warehouse customs regime will allow for the sale of the final product to customers without a VAT.

In commenting about the plant, Prime Minister Andrei Kobyakov of the Republic of Belarus noted that his country is happy to support this endeavor which will offer a serious line of tractors, adding that Belarus is looking forward to cooperation on this and will support the assembly line to help ensure its success.

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BFC Agriculture Bulletin

Foreign Aid 6)

World Bank Approves Project to Help Support Kyrgyz Dairy Farms

November 30th, 2016, http://www.timesca.com/index.php/news/17391‐kyrgyzstan‐to‐improve‐dairy‐farms‐productivity‐with‐ world‐bank‐support

The World Bank’s Board of Executive Directors has approved USD 5 million (USD 2.75 million as concessional credit and USD 2.25 million as a grant) for the Kyrgyz Republic Integrated Dairy Productivity Improvement Project. The project is aimed at enhancing dairy animal productivity and milk quality on farms in the Issyk‐Kul region. The project will benefit 12,000 household farms during its first phase of implementation, with another 12,000 households anticipated as indirect beneficiaries.

To help address the industry’s constraints, the project will work to improve public and private services in the sector, enhance on‐farm productivity and promote farm‐level investments. Specifically, the project will support cattle identification and registration in the Issyk‐Kul region, initiate the establishment of a zone free of animal diseases and provide better artificial insemination services to improve the breed stock of dairy cows. The project will also introduce a concept of model dairy villages to share good dairy farming practices and facilitate access to finance for small farmers to purchase needed equipment.

Agriculture is an important sector for Kyrgyzstan’s economy, representing about 15 percent of the country’s GDP. Kyrgyz dairy products have a reputation for being organic and tasty because of a production model based on natural pastures. However, most local milk producers and processors find it difficult to capitalize on new market opportunities due to their inability to meet animal health, food safety and quality standards. The project hopes to help them overcome these difficulties.

7)

Agro Horizon Project to Help Boost Milk Production in Southern Kyrgyzstan

November 23rd, 2016, http://www.timesca.com/index.php/news/17367‐us‐helps‐to‐boost‐milk‐production‐in‐southern‐ kyrgyzstan

The USAID Agro Horizon project and Oasis Agro LLC have signed a memorandum of understanding to boost diary production in Osh and Jalal‐Abad in southern Kyrgyzstan. The partnership will leverage private sector investment and expertise to increase the efficiency and quality of milk production, improving the competitiveness of Kyrgyz farmers. Under this partnership, USAID and Oasis Agro will equip a feed laboratory and construct 2,000 metric tons of grain storage facilities in addition to procuring feed making equipment, milk processing and cheese‐making equipment. These new facilities will provide farmers with better quality feed and will increase productivity and milk sales by an estimated USD 700,000 by the end of 2018. The project will also increase the incomes and improve the lives of more than 2,000 farmers who will be engaged in the project.

Livestock contributes nearly 50% of agricultural GDP in the Kyrgyz Republic. Livestock subsectors like dairy, meat, live animals, and eggs can be substantially improved if farmers have access to and utilize better quality feed and animal husbandry techniques. In addition, Kyrgyz farmers will benefit from the related production of feed ingredients such as maize, soybeans, and fodder — all of which are lucrative cash crops that will be needed by the industry as it grows.

Agro Horizon is a four‐year project which works to increase smallholder farmer incomes by improving productivity and expanding access to local and international markets. Oasis Agro’s total contribution to this new business venture is valued at USD 590,776.

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8)

Russia Allocating KGS 140 Million for Kyrgyz Veterinary Laboratories

November 16th, 2016, http://novosti.kg/2016/11/rossiya‐vydelit‐kyrgyzstanu‐sredstva‐na‐osnashhenie‐dvuh‐vetlaboratorij/

Within the framework of the Eurasian Economic Union (EEU), most food products are subject to obligatory quality control, which requires modern veterinary centers and laboratories. To aid in this, Russia is allocating more than KGS 140 million to Kyrgyzstan to equip two veterinary laboratories. The funds are scheduled to be available for Kyrgyzstan to use before the end of the year.

9)

Chinese Experts to Train Kyrgyz Apiarists on Honey Production Standards

November 15th, 2016, http://kabar.kg/eng/economics/full/17507

Three months ago, 43 tons of Kyrgyz honey was returned to Kyrgyzstan from China. Following this, the Kyrgyz Ministry of Agriculture started working with a company which exports honey to China and asked them to arrange for Chinese experts to conduct trainings and workshops in Kyrgyzstan on how to achieve high standards of honey production. Chinese experts have arrived and will train Kyrgyz beekeepers; the first stage of training is currently underway and involves discussions around the use of antibiotics that are used during processing and honey production.

Kyrgyzstan also plans to export meat and dairy products to China and, in a proactive move, has sent a letter to Chinese veterinary and phytosanitary control experts, inviting them for an inspection of Kyrgyz products.

10) China to Provide Funds for the Reconstruction of Irrigation Systems November 2nd, 2016, http://novosti.kg/2016/11/na‐sredstva‐kitaya‐v‐treh‐oblastyah‐otremontiruyut‐irrigatsionnuyu‐sistemu/

China has agreed to allocate approximately USD 30 million for the reconstruction of irrigation systems in three regions of Kyrgyzstan. The corresponding agreement will be signed during an official visit of the Premier of the State Council of China, Li Keqiang, under the framework of the Shanghai Cooperation Organization (SCO) summit in Bishkek.

Private Sector 11) 2.7 Percent Economic Growth in the First Ten Months of 2016 November 30th, 2016, http://kabar.kg/economics/full/113625

Kyrgyzstan’s economy grew 2.7 percent during the first ten months of 2016, with the country’s GDP amounting to AMD 359.9 billion. This is compared to 5.5 percent growth for the same period last year and inflation of 0.6 percent. Growth was recorded in all sectors of the economy except industry, which saw a 0.6 percent decline. Growth in agriculture was 2.2 percent; growth in the services sector was 3.2 percent; and growth in construction was 7.6 percent.

In announcing the growth, Economic Minister Arzybek Kojoshev named the following factors as the main contributors to the growth: a 19.6 percent increase in money remittances to Kyrgyzstan from Kyrgyz citizens working abroad, a 7.3 percent increase in gold prices, the creation of more favorable conditions for doing business, concessional loans for farmers, a slowdown in the growth of food prices, a 15.3 percent growth in consumer loans, and an overall strengthening of the national currency to both the U.S. dollar and the currencies of other Eurasian Economic Union member states.

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12) Kaindy Sugar Factory Exports Beets to Kazakhstan at a Loss November 23rd, 2016, http://www.eng.24.kg/economics/182964‐news24.html

Kaindy sugar factory has had to export beets to Kazakhstan at a loss due to the fact that the plant could not process the collected crop of sugar beet, which was particularly large this year. Farmers planted 11,000 hectares of sugar beets and harvested 600,000 tons. However, the plant can process only 450,000 tons; last year the acreage amounted to 4,500 hectares.

Beet farmers were not affected by this since a contract was concluded in spring which provided that farmers received money for seeds, fuel and equipment as well as a guarantee from the factory that the entire production volume would be bought.

In 2017, 17,000 hectares of beet are planned to be planted, meaning that additional capacity is needed.

The Russian‐Kyrgyz Development Fund has approved a USD 15.5 million project to support two sugar factories in the Chui region (Koshoy JSC and Kaindy‐Kant JSC) in expansion efforts.

13) Volume of Milk Exports Expected to Triple November 22nd, 2016, http://www.vb.kg/doc/350813_obem_moloka_na_eksport_v_kyrgyzstane_yvelichilsia_v_tri_raza.html

In a meeting with Prime Minister Jeenbekov, Kalysbek Zhumakanov, head of the State Inspectorate of Veterinary and Phytosanitary Security, said that the volume of milk exported from Kyrgyzstan is expected to triple in upcoming years. During the meeting, the Prime Minister confirmed his support for the industry, noting that more work is needed to strengthen veterinary and phytosanitary safety as well as to improve the epizootic situation in the country.

Zhumakanov announced the start of the process of animal identification which will help bring the country in line with international standards for the export of agricultural products of animal origin.

According to Zhumakanov, 716,000 tags are expected to arrive before the end of this year. This will enable the country to complete the identification of cattle in the first half of 2017 and move the dairy sector closer to meeting the standards necessary for greater dairy exports.

14) Kyrgyzstan Exports 177.5 Tons of Honey in First Nine Months of 2016 November 15th, 2016, http://engf.kabar.kg/eng/economics/full/17508

Kyrgyzstan has exported 177.5 tons of honey through the first nine months of 2016. Over these nine months, Kyrgyzstan exported 86.7 tons to China, 40.9 million tons to Saudi Arabia, 15.7 tons to the United Arab Emirates, 10.3 tons to Malaysia, 4.6 tons to Japan, and 4.5 tons to South Korea.

The main partner of the Kyrgyz Republic in exporting honey is China, but demand for the product is also growing in the Middle East. Liu Man, President of Dimid exporting company, noted that China prefers Kyrgyz honey because it is considered the best in the world with its use of clean honey plants, alpine herbs and other variations which produce high‐quality honey.

15) Nearly KGS 4.5 Billion in Preferential Loans to Kyrgyz Farmers in 2016 November 8th, 2016, http://www.minfin.kg/ru/novosti/novosti/po‐proektu‐finansirovanie‐selskogo‐khozyaystva‐4‐v.html

Kyrgyz farmers have received preferential loans amounting to nearly KGS 4.5 billion since the beginning of 2016 under the Financing Agriculture 4 project. The project helps to provide loans from commercial Page 6

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banks and specialized financial institutions at a discounted rate to businesses and individuals which are engaged in crop development, animal husbandry, agricultural processing and other services in the agricultural sector. Most of the loans have been issues by Aiyl Bank and RSK Bank.

16) Russian‐Kyrgyz Development Fund to Finance Kyrgyzcentrproduct November 2nd, 2016, http://kabar.kg/economics/full/113333

The Russian‐Kyrgyz Development Fund has signed an agreement to provide direct financing for Kyrgyzcentrproduct, a company which exports agricultural products and processed products which have been grown and produced in Kyrgyzstan. The funds will be used for the construction of a vegetable store and the purchase of a production line for washing, sizing and packaging products.

Kyrgyzcentrproduct sells beans, potatoes, onions, carrots, cabbage, walnuts nuts, dried fruit, and other products to importers, canneries and trading networks in Eastern Europe and Central Asia (Russia, Belarus, Moldova, Kazakhstan, Bulgaria, Poland, Serbia, Macedonia, and Turkey). The increased production capacity will help increase both the quality and quantity of exported Kyrgyz products that reach Eurasian Economic Union (EEU) markets.

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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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