J.5_CTJ_Value_Chain_Report_IV.pdf

CTJ ASSESSMENT SERIES - PART IV:

VALUE CHAIN ANALYSIS REPORT

September, 2017

USAID COMPETITIVENESS, TRADE, AND JOBS ACTIVITY IN CENTRAL ASIA

RFP 72011518R00001

Attachment J.5

ABOUT THE ACTIVY

USAID Competitiveness, Trade, and Jobs Activity in Central Asia aims to facilitate exports and employment in horticulture and strengthen transport and logistics services across the five

Central Asian economies. By incentivizing firms to become more regionally competitive and by addressing cross-border impediments to trade, USAID helps to develop a more diverse and competitive private sector and generate export-driven growth.

Five-Year Project: October 2016 to September 2021

Goals: Expand regional trade and employment in the horticulture, transport and logistics sectors in Central Asia

Approach: Market Systems Development – facilitating market actors to implement activities and achieve goals

The views expressed in this publication do not necessarily reflect the views of the United States

Agency for International Development or the United States Government.

CONTENTS

EXECUTIVE SUMMARY 5

INTRODUCTION 6

BACKGROUND AND OBJECTIVES 6

STUDY FOCUS AND LIMITATIONS 6

REPORT STRUCTURE 7

CHAPTER ONE: OVERVIEW OF TRADE TRENDS 7

FRUIT 12

EXPORT OPPORTUNITIES 13

VEGETABLES 15

EXPORT OPPORTUNITIES 16

PREPARED/PROCESSED FRUIT AND VEGETABLES 18

EXPORT OPPORTUNITIES 18

POTENTIAL IN NEIGHBORING MARKETS 19

CHAPTER TWO: UZBEKISTAN 21

HORTICULTURAL PRODUCTION 21

CONSTRAINTS 23

CHAPTER THREE: TAJIKISTAN 26

HORTICULTURAL PRODUCTION 26

CONSTRAINTS 28

CHAPTER FOUR: KYRGYZSTAN 31

HORTICULTURAL PRODUCTION 31

CONSTRAINTS 33

CONCLUSION 35

ANNEX 36

TABLE A1. TOP GLOBAL IMPORTERS OF FRESH OR DRIED GRAPES (HS 0806) ($ THOUSANDS) 36

TABLE A2. TOP GLOBAL IMPORTERS OF FRESH STONE FRUITS (HS 0809) ($ THOUSANDS) 36

TABLE A3. TOP GLOBAL IMPORTERS OF DRIED FRUITS (HS 0813) ($ THOUSANDS) 37

TABLE A4. TOP GLOBAL IMPORTERS OF PEAS, BEANS, LENTILS (HS 0713) ($ THOUSANDS) 37

TABLE A5. TOP GLOBAL IMPORTERS OF FRUIT AND VEGETABLE PREPARATIONS ($ TH) 38

TABLE A6. WORLD BANK DOING BUSINESS INDICATORS, 2017 38

FIGURES AND TABLES

FIGURE 1. CAR EXPORTS OF FRESH STONE FRUIT, 2016 8

FIGURE 2. CAR EXPORTS OF DRIED FRUIT, 2016 9

FIGURE 3. CAR EXPORTS OF FRESH AND DRIED GRAPES, 2016 10

FIGURE 4. CAR EXPORTS OF DRIED VEGETABLES AND BEANS, 2016 11

FIGURE 5. TOP IMPORTERS OF FRESH/DRIED GRAPES 14

TABLE 1. TOTAL CAR FRUIT EXPORTS TO THE WORLD ($ THOUSANDS) 12

TABLE 2. CAR EXPORTS OF FRUIT BY COUNTRY ($ THOUSANDS) 13

TABLE 3. TOTAL CAR VEGETABLE EXPORTS ($ THOUSANDS) 15

TABLE 4. CAR EXPORTS OF HS 0713 (SHELLED DRIED VEGETABLES), BY COUNTRY ($ THOUSANDS)

TABLE 5. INDIAN IMPORTS OF BEANS, BY TYPE ($ THOUSANDS) 17

TABLE 6. CAR EXPORTS OF FRUIT AND VEGETABLE PREPARATIONS ($ THOUSANDS) 18

TABLE 7. CAR FRUIT EXPORTS TO THE LARGEST NEIGHBORING AND ASIAN MARKETS, 2016 19

TABLE 8. CAR VEGETABLE EXPORTS TO THE LARGEST NEIGHBORING AND ASIAN MARKETS 20

EXECUTIVE SUMMARY

USAID Competitiveness, Trade, and Jobs Activity in Central Asia (CTJ) is a five-year effort to increase the competitiveness of the economies of Central Asia in order to expand trade within the region and to other global markets, and to create jobs. The objective of this study is to ground the project’s interventions in an analytical framework that will guide the CTJ team as they determine where to focus their efforts in key horticultural value chains.

The greatest potential for export growth from Central Asian countries is likely in processed fruit and vegetable products. Global demand for these products dwarfs that for fresh and dried fruits and vegetables and Central Asia supplies a miniscule share of leading markets. Processed products are especially attractive because they do not require the transport and logistics infrastructure necessary to preserve fresh fruit. Finally, scaling up processing will generate jobs and investment in the region, increase the competitiveness of Central Asian firms and strengthening linkages to global markets. Peas and beans are another product category with high potential for the region. Nearby India is the leading global importer of these products, but Central Asia supplies only 0.5 percent of Indian imports. Like processed fruits and vegetables, peas and beans require limited processing, production is not water intensive, and transport logistics are simpler than what is required for fresh fruits.

This study provides an overview of horticultural production in each of the major horticultural producers in Central Asia: Uzbekistan, Tajikistan, and Kyrgyzstan. Value chain maps represent the market systems and actors underlying the production, collection, processing, distribution and sale of horticultural products within each of the selected countries.

The three countries face many of the same constraints in scaling up production and exports. Most produce is sold fresh locally, with a small portion processed and some exported. Only a minority of firms (including large commercial farmers and niche producers) have sufficient scale to satisfy the volume and quality requirements of export markets in Europe and Asia. The large majority of producers are small household plots that supply local markets, with some consolidation for exports to Kazakhstan and

Russia.

Regardless of the export market, countries will have to take steps to improve the competitiveness of producers: strengthening the cold chain for fresh fruit and vegetables; improving grading, sorting, and packaging; reducing border constraints and minimizing transport times and costs. Meeting phytosanitary and food safety standards will be increasingly important to enter more organized retail markets in Russia and beyond. CTJ activities over the next four years will target support to the highest potential products and markets.

INTRODUCTION

BACKGROUND AND OBJECTIVES

CTJ is a five-year (2016-2021) effort to increase the competitiveness of the economies of Central Asia in order to expand trade within the region and to other global markets, and to create jobs. The CTJ project is conducting an assessment to examine the competitiveness of its targeted sectors in order to prioritize those interventions that will have the greatest impact. The end market analysis was the first phase of the broader assessment, and outlined key end markets for fresh and dried fruit from

Uzbekistan, Tajikistan, and Kazakhstan. The study identified critical success factors as determined by international buyers and assessed the competitive position of products from Central Asia in these markets.

This study builds on that analysis, examining the selected high-potential horticultural value chains in

Central Asian countries and identifying key challenges to expanding export growth. CTJ will utilize the value chain analysis to target specific project interventions that will yield the greatest impact in increasing production and exports. The objective of the study is to ground the project’s interventions in an analytical framework that will guide the CTJ team as they determine where to focus their efforts in key horticultural value chains.

STUDY FOCUS AND LIMITATIONS

This analysis focuses on the major fruit and vegetable producers in the Central Asia region: Uzbekistan, Tajikistan, and Kyrgyzstan. It analyzes trade trends and identifies high-potential markets for exports of horticultural products from Central Asia, including a review of key fruit and vegetable products—fresh and dried grapes, fresh and dried apricots, fresh cherries—identified in the end market analysis and other research conducted by the CTJ team. Mirror trade data from the UNCOMTRADE database are used, as noted throughout the report.

The study provides an overview of horticultural production in each country, including a value chain map to represent the market systems and actors underlying the production, collection, processing, distribution and sale of horticultural products within each of the selected countries. Information on the horticultural sectors of Uzbekistan, Tajikistan and Kyrgyzstan was gathered from existing reports, national statistics agencies, and field research by CTJ staff. To the extent available, detailed information is presented by value chain. Beans, peas, and lentils are additional agricultural products that merit further study.

REPORT STRUCTURE

This report is organized as follows:

• Chapter One: provides an overview of trade trends, highlighting large and growing markets for horticultural products, including Central Asian export performance in these markets and the best prospects for increasing horticultural exports from the region.

• Chapter Two: maps Uzbekistan’s fresh and dried fruit production and identifies challenges to increasing production and exports.

• Chapter Three: maps Tajikistan’s fresh and dried fruit production and identifies challenges to increasing production and exports.

• Chapter Four: maps Kyrgyzstan’s fresh and dried fruit production and identifies challenges to increasing production and exports.

• Annex: includes selected trade data and World Bank Doing Business indicators.

CHAPTER ONE: OVERVIEW OF TRADE TRENDS

Uzbekistan, Tajikistan, and Kyrgyzstan are the leading producers and exporters of fruit and vegetables in the Central Asia Region (CAR). In 2015, Uzbekistan supplied 72 percent of the region’s total fruit and vegetable exports. Kyrgyzstan and Tajikistan accounted for another 13 percent and 8 percent of such exports, respectively. Kazakhstan started with 2 percent or less in 2012 and 2013, but grew to 6 percent in 2015. Turkmenistan accounted for 1 percent or less of exports over the past five years.

Based on formal trade data, it is clear that these countries also engage in re-exports to markets outside the region. When Belarus, Kazakhstan, and Russia formed the Eurasian Economic Community in 2010, for example, exports from Tajikistan to Russia were recorded as exports to Kazakhstan—the point where Tajik exports entered the single customs zone. Kyrgyzstan also serves as a transit country for exports of Tajik and Uzbek horticultural products to markets in Russia and Belarus, reinforced by membership in the Eurasian Economic Union.1 Finally, fluctuations in agricultural exports from

Kazakhstan and Kyrgyzstan mirror Uzbek agricultural exports in magnitude.

The following maps highlight export flows of fresh stone fruit (Harmonized Schedule (HS) subheading

0809); dried fruit (HS subheading 0813); fresh and dried grapes (HS 0806); and dried vegetables and beans, shelled (HS subheading 0713), respectively, from Central Asian countries in 2016.

1 Kyrgyzstan joined the Eurasian Economic Union in August 2015. The other members of the EEU are Armenia, Belarus, Kazakhstan and Russia.

FIGURE 1. CAR EXPORTS OF FRESH STONE FRUIT, 2016

Exports of fresh fruit exhibited substantial swings between 2012 and 2016 for leading CAR exporters.

Uzbekistan exported more than $120 million of fresh stone fruit in 2013, 2014 and 2016, but only $43 million and $69 million in 2015 and 2012, respectively. Kazakhstan was the major market for these exports across all years, followed by Russia (figure 1). Exports of fresh fruit from Kyrgyzstan declined throughout the period (from $24 million in 2012 steadily down to $15 million in 2014, then dropped sharply in 2015 and 2016, to only $1 million). These exports were almost exclusively for the Kazakh market.

FIGURE 2. CAR EXPORTS OF DRIED FRUIT, 2016

Exports of dried fruit from the two leading Central Asian exporters declined over the period 2012-16.

Uzbek exports dropped from $32 million to $27 million. However, Uzbek export markets diversified from an almost exclusive focus on Kazakhstan to growing focus on Germany and Belarus (figure 2).

Exports of dried fruit from Tajikistan declined sharply in 2015 and 2016, from approximately $30 million in each of the three years between 2012 and 2014 to $19 million in 2015 and $11 million in 2016.

Meanwhile, Kyrgyzstan increased its exports of dried fruit by 25 percent over this period, making

Germany its leading export market.

FIGURE 3. CAR EXPORTS OF FRESH AND DRIED GRAPES, 2016

Uzbekistan was the region’s leading exporter of fresh and dried grapes between 2012-16. Exports were relatively stable throughout the period, declining slightly from $157 million in 2012 to $147 million in

2016. Kazakhstan was the largest export market, but accounted for only 55 percent of Uzbek exports in

2016, followed by China (17 percent), Russia (13 percent) and Germany (5 percent) (figure 3). Tajikistan exported relatively small amounts of fresh and dried grapes (less than $3 million) over this period. In

2015 and 2016, the majority of these exports were to Kyrgyzstan. Kazakhstan exported less than $1 million in fresh and dried grapes over the period 2012 to 2015. The 2016 total of nearly $4 million likely represents re-exports of Uzbek grapes to Russia.

FIGURE 4. CAR EXPORTS OF DRIED VEGETABLES AND BEANS, 2016

Kyrgyzstan and Uzbekistan, the leading Central Asian exporters of dried vegetables and beans, are accessing more diverse markets beyond the Central Asia region (figure 4). More than half (52 percent) of Uzbekistan’s exports of these products in 2016 were to India, the largest global importer of peas and beans. Similar to the situation with grapes, Kazakhstan reported little exports of peas and beans from

2012 to 2015, with a large increase in 2016. It is possible that the increased Kazakh exports are re-exports from Kyrgyzstan, which are not recorded at the Kyrgyz-Kazakh border because both countries are members of the Eurasian Economic Union.

FRUIT

Fresh and dried grapes and fresh stone fruits are the largest fruit exports from the region by value (table

1). Uzbekistan is the leading regional producer of fruit, accounting for 78 percent of total exports in

2016. Between 2012-16, Kyrgyzstan and Tajikistan also exported significant amounts of fruit, while

Kazakhstan and Turkmenistan are largely markets for fruit exports from the major producers (table 2).

TABLE 1. TOTAL CAR FRUIT EXPORTS TO THE WORLD ($ THOUSANDS)

Product

Code

Product Description Value in

Value in

Value in

Value in

Value in

0806 Grapes, fresh or dried 160,824 51,378 124,950 140,148 153,660

0809 Fresh apricots, cherries, peaches, plums

& sloes

94,710 174,483 136,671 48,589 126,169

0802 Nuts not elsewhere specified (nes) 32,613 27,143 58,837 64,690 44,333

0810 Fresh fruit nes* 43,475 55,804 23,242 16,830 43,046

0813 Dried fruit 66,515 72,538 64,758 56,928 42,649

0807 Fresh melons (including watermelons) and papayas

24,177 29,481 31,073 5,501 7,116

0808 Fresh apples, pears and quinces 24,066 17,817 11,574 6,634 3,689

0805 Fresh or dried citrus fruit 223 372 904 4,302 3,662

0811 Frozen fruit and nuts 302 332 288 208 459

0803 Fresh or dried bananas and plantains 11 0 0 0 423

0804 Dates, figs, pineapples, avocados, mangoes, guavas

15 701 3,687 260 331

0801 Coconuts, Brazil nuts and cashew nuts 18 2 120 110 187

0812 Provisionally preserved fruit & nuts

(unfit for immediate consumption)

52 0 62 314 0

0814 Citrus fruit and melon peel 1 0 1 1 0

TOTAL 447,001 430,052 456,165 344,517 425,726

*Note: Predominantly made up of persimmons.

Source: UNCOMTRADE.

TABLE 2. CAR EXPORTS OF FRUIT BY COUNTRY ($ THOUSANDS)

Exporters Value in

Value in

Value in

Value in

Country

Share of

CAR

Exports

Central Asian Republics Aggregation 447,001 430,052 456,165 344,517

Uzbekistan 344,618 335,033 339,540 268,627 78%

Tajikistan 36,218 37,725 37,510 28,425 8%

Kazakhstan 7,382 3,399 37,535 25,357 7%

Kyrgyzstan 57,526 51,770 37,367 20,964 6%

Turkmenistan 1,257 2,124 4,213 1,143 0%

EXPORT OPPORTUNITIES

The leading global importers of fresh and dried grapes and fresh stone fruit include the United States, the European Union (EU), and China.2 The United States is the largest market for fresh and dried grapes, exhibiting steady growth over the past five years (figure 5). In 2016, China was the largest importer of fresh stone fruit and exhibited strong growth (139 percent between 2012-16) (figure 6).

Imports into Hong Kong—also considerable—are likely re-exported to China. Notably, Russian imports of both of these product categories has fallen significantly since 2012 but it remains in the top ten global importers for both product categories. The EU and the United States are the leading consumers of dried fruits (other than dried grapes) (figure 7). Demand for these products has declined slightly over the last five years, both globally and in these major markets.

2 Tables listing the top 15 importers of fresh and dried grapes, fresh stone fruits, and dried fruits are included in the annex.

FIGURE 5. Top Importers of Fresh/Dried Grapes FIGURE 6. Top Importers of Fresh Stone Fruits

Source: UNCOMTRADE. Source: UNCOMTRADE.

FIGURE 7. TOP GLOBAL IMPORTERS OF DRIED FRUITS

0 300 600 900 1,200 1,500 1,800

U.S.

UK

Germany

Netherlands

China

Canada

Hong Kong

France

Russia

Millions ($)

2016 2015 2014 2013 2012 0 300 600 900

China

Ger…

Hong…

France

UK

Russia

U.S.

Cana…

Millions ($) 2016 2015 2014 2013 2012

0 50 100 150 200 250

UK

U.S.

Germa…

France

Vietnam

Nether…

Italy

China

Millions ($) 2016 2015 2014 2013 2012

VEGETABLES

Dried leguminous vegetables, including beans, peas, and lentils, are the dominant vegetable export from the Central Asia Region, accounting for 40 percent of vegetable exports in 2016 (table 3). Kyrgyzstan and Uzbekistan were the leading exporters of these products over the period 2012-16 (table 4).

TABLE 3. TOTAL CAR VEGETABLE EXPORTS ($ THOUSANDS)

Product

Code

Product Description Value in

Value in

Value in

Value in

Value in

0713 Dried leguminous vegetables, shelled 61,530 66,906 101,673 70,783 84,619

0709 Other vegetables, fresh or chilled 36,051 44,858 43,333 37,605 31,949

0702 Tomatoes, fresh or chilled 23,323 24,162 23,597 37,537 30,981

0703 Onions, shallots, garlic, and leeks, fresh or chilled

21,251 34,651 27,484 31,901 18,894

0704 Cabbages and cauliflowers, fresh or chilled 9,173 24,111 33,922 12,596 12,614

0711 Vegetables provisionally preserved (unfit for immediate consumption)

10,209 11,530 14,633 11,920 8,470

0712 Dried vegetables 4,914 5,629 7,271 7,986 8,206

0707 Cucumbers and gherkins, fresh or chilled 12,484 30,965 7,679 9,546 7,754

0706 Carrots, turnips, salad beetroot, fresh or chilled

22,623 54,234 19,540 13,873 4,072

0705 Lettuce (Lactuca sativa) and chicory, fresh or chilled

77 93 82 535 1,990

0710 Frozen vegetables 1,102 1,605 2,394 531 1,387

0701 Potatoes, fresh or chilled 13,356 7,555 4,592 1,993 272

0708 Leguminous vegetables, shelled or unshelled, fresh or chilled

331 510 296 145 49

0714 Manioc, arrowroot, salep (yams), etc. 0 0 6 1 0

TOTAL 216,425 306,809 286,500 236,952 211,259

TABLE 4. CAR EXPORTS OF HS 0713 (SHELLED DRIED VEGETABLES), BY COUNTRY ($ THOUSANDS)

Exporters Value in

Value in

Value in

Value in

Value in

2015 Country

Share of CAR

Exports

Central Asian Republics

Aggregation

61,530 66,906 101,673 70,783 84,619

Kyrgyzstan 40,109 40,258 52,365 38,967 35,967 55%

Uzbekistan 16,771 24,703 45,973 26,254 34,744 37%

Kazakhstan 3,978 1,449 3,123 5,256 13,684 7%

Tajikistan 672 495 211 298 223 0%

Turkmenistan 0 0 0 8 2 0%

Source: UNCOMTRADE.

EXPORT OPPORTUNITIES

India is the leading and fastest-growing market for peas, beans, and lentils, increasing imports of these products by 75 percent between 2013 and 2016 (figure 8). Other major markets close to CAR include

Pakistan, United Arab Emirates, and China.

FIGURE 8. MAJOR MARKETS FOR PEAS, BEANS, AND LENTILS

Digging deeper, 95 percent of Indian imports of dried vegetable products classified under HS subheading

0713 in 2016 comprised five products: peas, vigna mungo beans, chickpeas, pigeon peas, and lentils (table

5). Canada, Myanmar, and Australia, the top three suppliers of these products to India, accounted for two-thirds of Indian imports of these products in 2016 (figure 9). Russia was the fourth-largest supplier

0 1,000 2,000 3,000 4,000

India

Pakistan

UAE

Bangladesh

China

U.S.

Egypt

Turkey

Millions ($) 2016 2015 2014 2013 2012 of peas and beans, accounting for six percent of Indian imports. CAR countries supplied only 0.5 percent of Indian imports under HS subheading 0713 in each of the years between 2013 and 2016, indicating substantial growth potential. Exports to India from each of the CAR countries were concentrated in one product: vigna mungo beans (Uzbekistan); kidney beans (Kyrgyzstan); and chickpeas (Kazakhstan).

TABLE 5. INDIAN IMPORTS OF BEANS, BY TYPE ($ THOUSANDS)

Product Code Product Description Value in

Value in

Value in

Value in

Share of imports, 071310 Peas (Pisum sativum) 561,765 822,801 816,155 1,171,747 29%

071331 Beans of the species Vigna mungo 469,768 585,534 687,185 711,091

18%

071320 Chickpeas (garbanzo) 324,199 200,483 430,105 688,368 17%

071360 Pigeon peas (Cajanus cajan) 244,055 380,204 519,534 616,291 15%

071340 Lentils 435,583 480,504 930,899 611,220 15%

FIGURE 9. MAJOR SUPPLIERS OF PEAS, BEANS AND LENTILS TO INDIA

0 400 800 1,200

Canada

Myanmar

Australia

Russia

Tanzania

United States

Mozambique

France

Millions ($) 2016 2015 2014 2013

PREPARED/PROCESSED FRUIT AND VEGETABLES

Compared with fresh and dried fruits and vegetables, the Central Asia region exports relatively little prepared fruits and vegetables (table 6). Fruit and vegetable juices account for the majority of these exports. There appears to be potential to develop simple value-added processes to dry and preserve horticultural products without the need to invest in costly freezing or canning processes. This industry generates jobs and investment, and unlike fresh fruit, does not require elaborate transport and logistics infrastructure.

TABLE 6. CAR EXPORTS OF FRUIT AND VEGETABLE PREPARATIONS ($ THOUSANDS)

Code Product Description Value in

Value in

Value in

Value in

Value in

2009 Fruit & vegetable juices, unfermented 20,610 21,730 14,875 11,547 13,979

2001 Cucumbers, gherkins and onions preserved by vinegar

2,726 2,372 4,183 2,225 1,944

2007 Jams, fruit jellies & marmalades 2,010 2,755 1,653 257 1,763

2008 Preserved fruits nes 2,817 1,437 1,159 1,311 1,537

2005 Prepared or preserved vegetables, not frozen

1,552 1,239 1,809 1,617 815

2002 Prepared or preserved tomatoes 263 210 904 372 726

2004 Prepared or preserved vegetables nes, frozen

6 0 2 8

2003 Prepared or preserved mushrooms and truffles

0 30 158 1 3

2006 Fruits and nuts preserved in sugar 47 8 59 1 0

TOTAL 30,025 29,787 24,800 17,333 20,774

Source: UNCOMTRADE.

EXPORT OPPORTUNITIES

Global demand for processed horticultural products is far higher than that for fresh and dried fruits. In the leading global market, the United States, imports reached nearly $8 billion in 2016 (figure 10).

Closer to CAR, Japan and Russia are large markets for processed fruits and vegetables. If countries can increase production of juices and other prepared fruit and vegetable products, they can tap into these established and growing markets.

FIGURE 10. MAJOR MARKETS FOR PREPARED FRUITS AND VEGETABLES

0 2,000 4,000 6,000 8,000

U.S.

Germany

France

UK

Japan

Netherlands

Canada

Belgium

Spain

Italy

Russia

Millions ($) 2016 2015 2014 2013 2012

POTENTIAL IN NEIGHBORING MARKETS

Russia represents an important market opportunity for CAR exports of fruit and vegetables owing to existing economic and cultural ties, established trade routes, and its substantial market size. Central

Asian countries are particularly well-positioned to supply Russia with early-season harvests. While

Russia was the largest market for CAR exports of fruit in 2016, CAR countries supplied only 2 percent of Russian fruit imports (table 7). CAR supplied even smaller shares of other neighboring markets, of which China, Japan, and India were the largest.

Critical to increasing exports of fresh fruit will be establishing refrigerated supply chains and improving logistics. The recent agreement between Central Asian rail authorities to fast-track rail shipments of perishables through Uzbekistan to Russia would create an alternative to more expensive road transport from Tajikistan through Kyrgyzstan.

TABLE 7. CAR FRUIT EXPORTS TO THE LARGEST NEIGHBORING AND ASIAN MARKETS, 2016

Importing

Country

Total 08 imports from all countries

CAR Share of 08

Imports (most recent year)

08 Products with CAR Export Potential1

Russia $3.8 Billion 2.0% All products, particularly fresh fruit

China $5.9 Billion 0.5% All products, particularly fresh fruit, nuts

Japan $3.2 Billion 0.0% Fresh Fruit, Frozen Fruit, Grapes, Nuts, Dried

Fruit

India $2.8 Billion 0.0% Nuts, Grapes, apples, Dried Fruit

United Arab

Emirates

$2.1 Billion 0.1% Nuts, Apples, Grapes, Fresh Fruit, Dried Fruit

South Korea $1.6 Billion 0.0% Fresh Fruit, Frozen Fruit, Grapes, Nuts, Dried

Fruit

Saudi Arabia $1.4 Billion 0.1% Nuts, Fresh Fruit, Apples, Dried Fruit

Ukraine $0.5 Billion 0.8% Nuts, Fresh Fruit, Apples, Grapes, Dried Fruit

Iran $0.1 Billion 0.0% Negligible

Pakistan $0.3 Billion 0.0% Nuts, Grapes

Source: UNCOMTRADE.

Note: Products (at the 4-digit level in the Harmonized Schedule) imported by target country at values greater than $10M and for which CAR has a low or zero market share.

Similarly, CAR countries supplied a negligible share of vegetable products to surrounding markets (table

8). India is the largest market, followed by Japan, China, Russia, and the United Arab Emirates. Perhaps the highest potential lies in dried peas, beans and lentils. Legumes are not water intensive and need limited processing and simple logistics. Establishing exports of legumes could open up supply routes to

South Asia, particularly India.

TABLE 8. CAR VEGETABLE EXPORTS TO THE LARGEST NEIGHBORING AND ASIAN MARKETS, 2016

Importing

Country

Total 07 Imports from all countries

CAR Share in Total 07

Imports (most recent year)

07 Products with CAR Export Potential1

Russia $1.4 Billion 3.2% Tomatoes, Potatoes, Onions, Cucumbers, all products

China $1.9 Billion 0.0% Dried Veg shelled, Dried Veg, Frozen Veg

Japan $2.5 Billion 0.0% All products, incl. Dried and Frozen Veg

India $4.0 Billion 0.5% Dried Veg shelled

UAE $1.3 Billion 0.5% All products

South Korea $0.7 Billion 0.0% All products

Saudi Arabia $0.7 Billion 0.0% Dried Veg shelled

Ukraine $0.6 Billion 0.9% Tomatoes, Potatoes, Cucumbers, Onions

Pakistan $0.9 Billion 0.1% Dried Veg shelled, tomatoes, legumes, onions, potatoes

Iran $0.0 Billion 0.0% Dried Veg shelled

Overall, these trade trends show that CAR has an extremely small share of major horticultural markets.

The simple reason for this is that CAR horticultural trade is a supply problem—producing at sufficient scale, quality and cost—and also a transport and logistics problem—delivering in a timely and cost-effective manner. The remainder of this report will focus on the leading CAR producers of horticultural products.

CHAPTER TWO: UZBEKISTAN

Like many of the Commonwealth of Independent States (CIS) countries, Uzbekistan experienced an economic decline following the post-Soviet transition, recovering in the late 1990s. The economy grew by 4 percent annually between 1998 and 2003, and accelerated to 7-8 percent per year through 2016.

Commodities (including natural gas, coal, oil, and precious metals) form the basis of industrial production.

Agriculture accounts for approximately 18 percent of Uzbekistan’s GDP and employs 26 percent of the country’s workforce. Cotton is the primary cash crop, accounting for ten percent of total exports. The

Government of Uzbekistan (GOU) is diversifying into cereals and horticultural products to reduce the risks of a one-crop economy and increase food security.3 In the decade between 2004 and 2014, production of fruits and berries increased by 98 percent.4 Uzbekistan is now among the top five global producers of apricots and the sixth largest producer of cherries. The majority of these crops are consumed domestically, and demand continues to climb as a result of population and income growth alongside increased urbanization.

HORTICULTURAL PRODUCTION

Until 1991, agriculture was organized according to the dual Soviet system, in which large-scale collectives and state farms coexisted with quasi-private individual farms on household plots. In the process of transitioning to a market economy, three types of farms were established: 1) dehkan farms

(traditional small plots based on household labor); 2) agricultural production cooperatives or other corporate entities (including joint-stock societies, limited liability companies and partnerships) from large-scale collective and former state farms; and 3) a new category of mid-sized peasant farms. While some farms may grow only one crop, most farms are cultivated with several fruits and vegetables on the same plot to limit risk. The value chain map below charts the production, distribution, processing, and sales of horticultural products in Uzbekistan.5

3 Government policies to stimulate horticultural production include renovating existing orchards and establishing thousands of hectares of new orchards on lands where cotton and wheat were previously grown.

4 USDA, Global Agricultural Information Network report: Uzbekistan Fresh Deciduous and Stone Fruits, February 19, 2014.

5 It was not possible to construct a full value chain map for apricots, cherries, and grapes based on available data, however, product-specific analysis follows this section.

Mid-sized private peasant farms cultivate 75 percent of sown area; dehkan farms and corporate farms evenly split the remaining 25 percent. Dehkan farms typically operate on between 0.06 and 0.5 hectares of land and are estimated to account for over 50 percent of fresh vegetable production in Uzbekistan.

Much of what is produced on dehkan farms (between 50-70 percent, depending on the province) is consumed by the household. The remaining 30-50 percent is sold to small-scale informal intermediaries, small processors, or agri-firms for processing (i.e. drying, canning, juicing).6 Most consumers shop in traditional markets, including farmers’ markets (bazaars) and small grocery stores, which are supplied by wholesalers. However, the popularity of supermarkets is growing for consumers in larger cities.

6 Beginning in 2006, “agri-firms,” or non-government associations and private firms that distribute and process fruit and vegetables were established. By 2012, 267 such agri-firms operated in Uzbekistan. World Bank, “Strengthening the Horticulture

Value Chain,” 2012.

The number of supermarkets increased by 20 percent between 2009 and 2013.7 Local supermarkets have distribution centers where farmers and wholesalers bring produce in bulk to be packed, sorted, graded, and then shipped to the store. Approximately 69 percent of fruit sold at the retail level is consumed fresh, 20 percent is processed into juices, jams and dried fruits, and the remaining 11 percent is exported.8

Large commercial enterprises account for most of the commercial market (both domestic and export).

Corporate farming enterprises also produce horticultural goods on relatively large farms (between 5 and

300 hectares). In addition, seven or eight large, vertically-integrated enterprises operate on between 50-

2,000 hectares, farming, processing, and consolidating horticultural products for export. These large enterprises also perform services for other farmers, including drying, canning, and juicing fruit. These businesses are well-established and have relationships with buyers abroad where they export fresh and dried fruit. Most Uzbek horticultural exports are reportedly sold in open street markets, because products do not meet the strict safety and quality requirements of foreign retailers. If producers could meet international standards, they could tap into retail networks abroad, securing higher prices. Russia and Kazakhstan are the primary markets for Uzbekistan’s exports of fresh and dried fruits, followed by

Turkey and China.

Uzbekistan is increasing production of processed agricultural products, particularly fruit juices. The volume of fruit juice exports more than doubled between 2004-14, and the country is home to more than 30 factories, with some exporting to Russia and Kazakhstan.9

CONSTRAINTS

Despite positive export performance, horticultural production in Uzbekistan suffers from inefficiencies along the value chain. Constraints specific to apricots, cherries, and grapes will be discussed in product-specific sections.

At the farm level, a lack of modern production techniques and equipment, including insufficient cold storage, leads to high post-harvest losses.

Private farmers are taxed on the value of their land, as well as their agricultural output. This creates an incentive to use informal channels and to under-report production levels.

Processors operate inefficiently due to lack of coordination with producers to secure consistent supplies of desired crops at suitable times.

Local supermarkets and restaurants are beginning to require food safety systems that exceed national standards. Most farmers are operating on quality and safety standards inherited from the Soviet era and government laboratories do not have the proper equipment and personnel to test food for international standards.

7 By 2013, 1,528 supermarkets were established in Uzbekistan.

8 USDA, Global Agricultural Information Network report: Uzbekistan Fresh Deciduous and Stone Fruits, February 19, 2014.

9 USDA, Global Agricultural Information Network report: Uzbekistan Fruit and Vegetable Overview and Increasing Exports to

Russia, December 8, 2014.

Poor hygiene in crop handling and a lack of access to modern packaging materials, including cardboard, paper, glass, aluminum foil and shrink wrap, mean that Uzbek produce is not able to satisfy foreign retail requirements. This is particularly acute for fresh fruit exports, which are typically packaged in cardboard when the international standard is wooden boxes.

Exports of horticultural products from Uzbekistan are heavily concentrated on Russia as the principal market. Any changes to Russian import standards or policies will therefore have a significant—and rapid—impact on export volumes.

To continue to compete in growing markets (like the EU), horticultural products will likely need to be certified organic.

Dried fruits are often transported by road, which is cheaper and quicker than by rail. However, frequently changing road regulations often force exporters to use rail transport of exported goods from Uzbekistan, increasing costs and time-to-market.

Uzbekistan ranks among the worst-performing economies in the World Bank’s Trading Across

Borders index (165 out of 190 countries). It takes an average of 285 hours to complete border and document compliance for both imports and exports.10

FRESH/DRIED GRAPES

Uzbekistan is the largest producer of table grapes in Central Asia and one of the leading exporters of fresh grapes in the region. The majority of Uzbek grapes are consumed fresh in the domestic market (74 percent). Another 23 percent are processed into wine and juice, and the remaining 3 percent of grapes are consumed in dried form. A large government-owned processor, Uzvinsanoat Holding Company, owns large orchards and vineyards, along with 120 facilities where grapes are processed into wine and juice. Fresh grapes also comprise the majority of exports (59 percent), with dried grapes accounting for the remaining 41 percent of grape exports.

Beginning in 2010, the Government of Uzbekistan encouraged development of grape production and expansion of vineyards, including establishing new nurseries to increase production of seedlings of high-yield grape varieties and establishing over 22,00 new plantations during 2013-15 for table grapes, raisins, and wine.11 The government also developed programs to assist exporters with access to finance, marketing, and linkages to foreign markets. Still, production and export of fresh and dried grapes face several challenges:

The varieties of table grapes grown in Uzbekistan are outdated. For example, EU consumers prefer seedless grape varieties.

Traditional cold storage methods are not easily scalable. Uzbek farmers have reported difficulties in using modern storage facilities. To increase exports of fresh grapes, a more practical approach to storage must be adopted that is viable across the country.

10 Results of the Trading Across Borders study are presented in the Annex for all three countries.

11 USDA, Global Agricultural Information Network report: Uzbekistan Fresh Deciduous and Stone Fruits, February 19, 2014.

As most vintners are entering the business from other fields, they have limited knowledge of modern farming methods. Extension services are very limited in Uzbekistan, to the detriment of agricultural productivity and quality.

Most grapes are sun dried at the farm level. These farms need to meet Hazard Analysis and

Critical Control Points (HACCP) or other international certification standards to enter most markets and to improve quality control.

Grape vines have a relatively long maturity period. Once planted, vines take four years to yield fruit and are not fully mature for eight years.

FRESH CHERRIES

Several of the large, vertically-integrated agricultural enterprises in Uzbekistan own very large orchards with storage and processing facilities. A combination of cherries, grapes, and walnuts are grown on these farms, and several are in the process of expanding the cherry orchards. Small farmers are also drawn to cherries, because of their high value compared with other fruit.

A major barrier to increasing production and export of cherries is the highly perishable nature of the crop and its short season. Upgrading pre-cooling, storage, and packaging systems could extend the life of cherries beyond the current season of 20 days.

Upgrading production technology will increase productivity of trees.

As with grapes, cherries have a long maturation period. Once planted, cherry trees take eight years to produce fruit and 12 years to fully mature.

Uzbekistan needs to identify buyers in new markets for fresh cherries. Possibilities may be limited, since these products must be delivered by air. However, Uzbekistan has successfully air freighted cherries to South Korea.

Some farmers prefer apples or grapes to cherries; they have longer shelf life and can be dried.

Cherries are riskier because they must be consumed within 2-4 weeks (with adequate refrigeration) and the market for dried cherries and cherry juice is more limited than for other fruits.

FRESH/DRIED APRICOTS

Like cherries, apricots have a short season (approximately one month) and cannot be stored for very long. Farmers therefore tend to choose varieties of apricots that can be sold in fresh and dried form.

The Government of Uzbekistan has not undertaken measures to support expansion of apricot production. In contrast with higher-value grapes and cherries, apricots are viewed as a commodity.

CHAPTER THREE: TAJIKISTAN

Tajikistan’s economy has grown by between 6 and 7.5 percent in each of the past five years. Still, the country has one of the lowest per capita GDP figures in the Commonwealth of Independent States and remittances account for nearly 50 percent of GDP. Growth is stifled by low commodity prices, currency fluctuations, and recent economic slowdowns in Russia and China. Exports are heavily concentrated in cotton and aluminum.

Agriculture accounts for approximately 20 percent of Tajikistan’s GDP, and employs nearly three-quarters of the population. Less than one-fifth of agricultural land is classified as arable; the smallest per capita cultivated land among Central Asian countries.12 Tajikistan imports 60 percent of its food supply.

While agricultural production flourished under the Soviet Union, it was brought to a near standstill after the dissolution of the USSR and the subsequent civil war. Since 2000, the Government of Tajikistan has taken steps to diversify the agricultural sector, increasing farm land dedicated to orchards.

The majority of horticultural exports from Tajikistan are to Russia, whether directly or as re-exports through Kazakhstan. Excluding cotton, 95 percent of agricultural exports are fruit and vegetables. The majority of these products are dried, likely because they can be more easily stored and transported than fresh produce. In 2013, Tajikistan was the world’s eleventh-largest exporter of dried fruit.

HORTICULTURAL PRODUCTION

Farms in Tajikistan can be divided into four types: household plots, individual and family dehkan farms

(mid-sized peasant farms), collective dehkan farms, and agricultural enterprises. Small farms and household plots produce most of the agricultural output. According to a World Bank estimate, 93 percent of agricultural produce is grown on household and family dehkan farms; while collective farms and agricultural enterprises grow cotton.13 The average size of these farms was 1-5 hectares for dehkan farms and 0.3 hectares for household plots.14 Farmers cultivate stone fruits and apricots together on the same plot of land.15 The value chain map below charts the production, distribution, processing, and sales of horticultural products in Tajikistan.16

12 Asian Development Bank, “Country Partnership Strategy: Tajikistan, 2016-20.”

13 Kristal Jones and Allison Hoover, “Tajikistan: Background Study,” September 4, 2014.

14 Government of Tajikistan estimates, 2012. Kristal Jones and Allison Hoover, “Tajikistan: Background Study,”

September 4, 2014.

15 USAID, Agricultural Technology Commercialization Assessment, June 2014.

16 It was not possible to construct a full value chain map for apricots, cherries, and grapes based on available data, however, A significant share of horticultural produce is consumed by households, as much as two-thirds. 17 Fruit is mostly sold fresh in local markets. Only an estimated 20 percent of fruits are processed (including drying, canning, preserving, juicing). There are reportedly 20 fruit processors in Sughd, and while 33 claim to exist in Khatlon, they may not all be operational. A number of agribusinesses purchase dried fruits from farmers

17 World Bank, Agriculture Commercialization Project, Appraisal Document, 2014.

and then process and package them for export. These firms are small, mostly fewer than 50 employees.

Employment fluctuates with the harvest season, peaking in the late summer/early fall post-harvest period.18

Wholesale markets procure fruit directly from farmers. Farmers also supply intermediaries who bulk up supplies for the wholesale markets. Intermediaries also distribute fruit to processors. Traditional retail markets (bazaars) obtain produce directly from wholesale markets.

Export consolidators buy and bulk fresh and dried fruit, taking care of all processing, including harvesting, calibration, sorting, packaging, loading and shipping. These companies may also dry the fresh fruit. In the south, where producers are smaller in scale, consolidators must sort, rewash, dry, and package goods for export. Exports go mainly to wholesale markets abroad because Tajik horticultural products cannot meet strict retail safety and quality standards.

Most exports are of dried fruit, which has a longer shelf life than fresh produce. Some fresh fruit is reportedly traded informally with Uzbekistan and Kyrgyzstan to avoid taxes and border delays. The largest formal export market is Kazakhstan, which likely re-exports Tajik fruit to Russia. Since Kyrgyzstan joined the Eurasian Economic Union in 2015, it has become the second-largest export market for Tajik fruit exports—another likely avenue to the Russian market.

CONSTRAINTS

The horticultural sector in Tajikistan faces similar constraints to Uzbekistan, including:

The disorganized nature of the horticulture sector has hampered both vertical and horizontal integration. Ineffective cooperatives and tenuous links between producers, processors, and buyers along the value chain are coupled with weak industry clusters.

In addition, the privatization of the collective farm structure into small-scale farms has not allowed for the development of economies of scale. Farmers lack information on markets, prices, technologies, and modern production techniques. They also lack access to high-quality seeds, fertilizers and other inputs, limiting productivity.19 Weather conditions also constrain productivity; a cold snap in Ferghana Valley in 2015 resulted in a complete loss of the apricot crop that year.

Limited cold storage facilities mean that farmers must sell fresh fruit during times of high availability (and low prices). Because they are unable to store excess supply, any surplus fruit goes to waste.

Processors are mostly small and operate seasonally (closing in winter). Many get only irregular supplies of low-quality produce. Equipment is aging and it is difficult to secure new investments. Processors have limited access to finance and other fiscal incentives

(subsidies, grants, etc.) are either inaccessible or associated with complex, lengthy procedures.

As a result, Tajikistan’s horticultural processing industry is in decline. Output from the canning

18 World Bank, Agriculture Commercialization Project, Appraisal Document, 2014.

19 OECD, “Increasing exports in Tajikistan,” January 2015.

industry fell by 35 percent between 2005 and 2010 due to the unfavorable business climate that left canneries unable to compete with competitors in other countries.20

Transport logistics are poor and not effectively linked to neighboring markets. Routes to

Kazakhstan and Russia can often only be accessed through Uzbekistan. Uzbek customs may delay, hold, or damage Tajik produce, especially fresh fruit. Tajikistan is ranked 144 out of 190 countries in the World Bank’s Trading Across Borders report. This places it in the middle of the other Central Asian countries profiled in this report. While the time to import is half the time required to export, the cost to export is higher than the cost to import.

Exporters face additional constraints. Tajikistan lacks coordinated export promotion efforts, including a recognized national brand and up-to-date market information. The cost for international quality and safety certifications is high, and few laboratories have the necessary equipment and personnel to grant such certifications.

FRESH/DRIED APRICOTS

In 2013, Tajikistan produced 31,400 tons of apricots, ranking fourteenth in the world, but supplying only

0.18 percent of global consumption. Dried apricots are Tajikistan’s second largest agricultural export, after cotton, and comprise 70 percent of dried fruit exports. It is estimated that 30,000 household farmers grow apricots on 40,000 hectares throughout the country.21 The domestic market is primarily oriented toward dried apricots, which are available throughout the year, unlike fresh apricots, which are available only for a short time.

Most farmers plant multiple varieties of apricots. Early varieties are generally sold fresh in markets, and later varieties are processed and dried. In Sughd province, apricots are dried on family farms according to traditional practices. Apricot production in Khatlon is still nascent.22 The area planted with the varieties suitable for drying is increasing.

Consolidators buy and bulk fresh and dried apricots from growers to sell to wholesale markets. Dried fruit processors do not buy from growers, but prefer to select and buy dried fruit directly from wholesale markets. Farms in the south are smaller in scale, which requires processors to sort, rewash and dry the product before packaging and exporting.

Fresh apricots are very sensitive to Tajikistan’s extreme summer weather. In some cases, they are reported to spoil within three days without proper storage.23 This can be prevented if fruit is pre-cooled before being loaded into refrigerated trucks or railroad cars, but apricots can get overripe on the way to export markets in the absence of these precautions. Exports of dried apricots flow primarily to

Kazakhstan, where some are then re-exported to Russia.

20 http://www.agroinform.tj/project2/publications/ru/tahiyai_peshnihodhoRu.pdf 21 Source? This is directly from the Tajikistan Market Systems Assessment report.

22 USAID, Agricultural Technology Commercialization Assessment, June 2014.

23 USAID, Agricultural Technology Commercialization Assessment, June 2014.

FRESH / DRIED GRAPES

The majority of grapes are consumed fresh, whether in local or export markets. The major issue for consolidators is packing and packaging. Grapes require thorough, labor-intensive processing to adequately sort, calibrate and remove damaged fruits. Preparing grapes for export is time-consuming and requires workers to be specially trained. The season for exports of fresh grapes begins in September, while dried grapes are exported throughout the year.

BEANS

Tajik producers of dried, shelled vegetables (including peas, beans, and lentils) have an opportunity to increase exports to India (the leading global consumer of such products). The Government of Tajikistan is in the process of negotiating a trilateral transit trade agreement with Pakistan and Afghanistan, which would facilitate access to Indian markets for Tajik traders.

CHAPTER FOUR: KYRGYZSTAN

Since 2014, Kyrgyzstan’s GDP has grown at a steady pace of 4 percent per year. Like Tajikistan, the

Kyrgyz economy relies heavily on remittances, which make up roughly one-quarter of GDP. The same factors (low commodity prices, currency fluctuations, and economic slowdowns in China and Russia) affecting Tajikistan have also hampered growth prospects in Kyrgyzstan. In August 2015, Kyrgyzstan joined the Eurasian Economic Union, hoping to take advantage of closer economic ties to Russia, Kazakhstan, and the other members of the agreement.

Agriculture accounts for 30 percent of employment and 15 percent of GDP in Kyrgyzstan. Exports are dominated by cotton, wool, and meat. Horticultural products make up approximately 20 percent of total agricultural output. An estimated 90 percent of these products are consumed by the domestic market, while the remaining 10 percent is exported. The majority of fruits and vegetables (90 percent) are sold as fresh products; the remaining 10 percent undergo value-added processing. Of processed products, 70 percent are made into juices, largely for local consumption.

HORTICULTURAL PRODUCTION

Like other Central Asian countries, Kyrgyzstan carried out land reforms to transfer collective and state-owned farms to private ownership.