UZBEKISTAN : THE PROBLEMS OF COTTON PRODUCTION

1. UZBEKISTAN: THE PROBLEMS OF COTTON PRODUCTION Tashpulat Yuldashev Presented to the SOAS conference ”Cotton Sector in Central Asia: economic policy and development challenges”, 3-4 November 2005 (English version)

2. The importance of cotton for Uzbekistan • The sown area for cotton: 1.4mhectares.The annual harvest: approximately 3.5m tons. • The sixth place in the world in its production; the secondin its export • One forth of monetary income of the state is from cotton sector • 40% of the employable population is occupied in the cotton sector

3. The crop capacity • The crop capacity was decreased: in average 2.5 tper ha in the country, but in many areas less than 2 t/ha • One of the reasons is the exploitation of land resources: • The land fund is managed by the local authority, not interested in long-term planning • The cotton farms are not interested either. Being just a temporary leaser of lands, their attitude to lands is consumptive. There is no interest for them to invest money in improving the fertility of soils, protecting from denutrition etc., since the land can be confiscated at any time. • The drain of the irrigation system: • Due to undeviating increase of the ground water level, the soil continues to be salinated on the whole territory of the republic • Drainage systems are out of operation in many areas, which leads to destabilization of water management and ecological security • In order to clean, repair and rebuild, lay new branches and intake constructions, there is a need for large investments.

4. The management and corruption problems • Priority of vertical and monopoly relations over market relations • The main institutes of management: Ministry of Agriculture, Association «Uzhlopkomprom». • «Uzhlopkomprom» solely sets the plan of cotton wool procurement and its procurement prices • Scissors of prices: • The understated procurement prices: The procuring and processing entities used to buy one ton of cotton was on average $180 in 2004, $200 in 2005. It is 2.5 times cheaper than its real cost. • At the same time secondary cotton products were sold for two to three times more expensive prices. • Prices set for pesticides, mineral fertilizers, technique and devices are too high. • Manipulation mechanisms • From every third ton of cotton it is possible to produce 1100 kg of lint,not 1000 kg as it is usually indicated in reports. (One can confirm it by weighing the cotton samples in any region of Uzbekistan). Only in this operation the officials peculate around 125 000 to 130 000 tons of cotton per year or up to $140m. • The Ministry of Foreign Economic Relations, Investments and Trade and Association of “Uzhlopkomprom”, their branches and entities work in a closed regime. There is no state and civil control over their activities.

5. The Mechanisms of Redistribution • As was mentioned above, the enterprises of Uzhlopkomprom used to buy one ton of cotton for 200 000 soms ($1= 1100 soms) in 2004. The cotton lint comprises one third of it. The remaining two thirds are left for processors for free as a by-product. • In 2004 the commodities produced from by-products were sold at the following prices per ton: cotton seeds 667 000 soms;ready made cotton wool 600 000 soms;cotton oil 820 000 soms;sand soap (3000 pieces) 600 000 soms;schrots (by products) 100 000 soms;husks 70 000 soms and etc.

6. The Immediate Producers • Poverty • Dehkan farmers live in poverty, based on natural economy. They are ready to work even for half a dollar a day or less. • No rights • In Uzbekistan the cotton growers have absolutely no rights and no defence. They are in slavery conditions and deprived of possibilities to protect their interests collectively, to speak against cotton dealers, to create independent public associations or trade unions. • Forced migration • Those, who have opportunities, leave for other countries looking for better circumstances and are ready to do any low paid work. • The population bordering with other countries’ territories cross the mined borders illegally and go to work in the neighbouring countries travelling 10-15 km every day. There they receive 1.5-2 dollars per day for heavy work and come back to their homes at nights.

7. Exploitation of cotton growers by force and monopoly • The receiving points take out twice more than the actual figures for wet and unclean cotton. Thus, up to 5% of the total products, which is 60 000 tons of cotton lint or up to $70m is peculated. • More often the cotton growers are cheated in defining the sort of the cotton. The only buyer of this product in Uzbekistan is Uzhlopkomprom.In 2004 it gave 260 000 soms ($235) for 1 ton of first sort cotton wool, but for 1 ton of the cotton wool of fourth to fifth sorts only $60-70. • The procurers and processors of the cotton wool – cotton plants, cotton points receive around 60% of the harvest as the first sort. After the first rain the sort of the cotton drops for no reason. The rest of the harvest is received as low sorted. • The difference in re-sorting exceeds $200m. It is hidden from state records and is totally peculated by cotton dealers.

8. Export • According to the Ministry of Foreign Economic Relations Investment and Trade, until 2000, the traditional markets for Uzbek cotton were European Countries approximately 62%, CIS 23%, andAsian countries 15%. Nowadays the situation has changed completely. The cotton load has been redistributed towards Russia, China and countries of South-east Asia. • Overstocking in terminals • Using the advantageous situation, the current potential customers of Uzbek cotton try to beat down the prices to the maximum in order to buy it for $150-200 lower than the world price. • It is connected with the change of foreign policy of the Uzbekistan government.

9. The cotton trade institutes • There are three foreign trade firms: GAVK “Uzinterimpeks”, GAVK «Uzmarkazimpeks» and GAVK «Uzprommasheksport». Their monopoly is a condition for various manipulations, corruption and non-fulfilment of contractual obligations. • From the second half of 2005 the export of cotton lint is done through Republican commodity and primary resources exchange (OAO UzRTSB). It should provide the transparency of export operations. • At the moment the export of cotton lint is done by the following process: cotton producers to cotton gin plant to commodity and primary resources exchange to buyer to importer. The supply of cotton lint to monetary terminals of commodity and primary resources exchange (OAO UzRTSB) are executed by cotton gin plants. • Each cotton plant has an amount of cotton hidden from state records. It is more convenient for them to put them in a shadow turnover by bypassing the standard processes exclusively through influential people, who are able to surmount any custom, administrative and other barriers.Therefore they are interested in keeping the existing until now system of export operations and to block as much of the work of the exchange as possible.

10. The textile industry • Statistics • According to the official data, for the last three years the share of products of the textile industry in total output of manufacturing increased up to 21%. The republic’s light industry enterprises process 24% of the cotton lint • This data challenges the data of cotton lint export, the level of which does not drop. • In fact in comparison with 1990, the share of the light industry in the GDP has decreased five times! • Drop of Production: • In total there are 40 000 people working for GAK “Uzlegprom”, instead of 400 000 people until 1991. For the last years there has been a big decrease in industrial production of garment and knit. • There were 18 000 people working in three shifts only in the Tashkent textile entity. Now it is almost out of operation, In the same condition are the formerly advanced industrial corporations «Yulduz», «Malika», «Krasnaya zarya», almost all denim, knit and garment factories. • Under the guise of light industry management reconstruction, there is a new redistribution of property and sphere of influence in this industry for the interests of newly appointed high level officials of the central and local governments.

11. The relations of economy to politics • Cotton production in Uzbekistan remains resource intensive and unprofitable • The statistics do not reflect the real situation, but propaganda • The situation will not change unless there is a change in the whole political system