05 BFC Kyrgyzstan Agriculture Finance Bulletin

07/2014

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5 K y r gy zsta n Agriculture Finance Bulletin Government To Provide 400 million KGS of Concessional Lending To Farmers Role of Female Rural Entrepreneurs to be Strengthened FAO to Assist with Development of Livestock Tracking and Identification Software China Prepares Import of Kyrgyz Fruit

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Agriculture Finance Bulletin Edition #5, July 2014

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

Government To Provide 400 million KGS of Concessional Lending To Farmers ............................. 2 Ministry of Agriculture to Modernize the Irrigation System ........................................................... 2 Kyrgyz National Agrarian University Recruits Students at the Veterinary Faculty .......................... 2 Role of Female Rural Entrepreneurs to be Strengthened ............................................................... 2 Grand Chuisky Canal loses 50% of its Water ................................................................................... 3 Government Receives First 512 tons of Sugar to Fight Price Increases .......................................... 3 Government Attempts to Redeem Collateral of Giant Ak-Suu Maize Sugar Factory ...................... 3 Chui Region Receives Only 71% of Required Irrigation Water ........................................................ 4

Foreign Aid ................................................................................................................. 4 9) 25 Villages In Issyk-Kul Region Equipped with Drip Irrigation Demonstration Plots ....................... 4 10) FAO to Assist with Development of Livestock Tracking and Identification Software ..................... 4 11) Ministry of Agriculture And Kyrgyzhydromet Specialists Trained In Satellite Agricultural Management ................................................................................................................................... 5 12) Meat Factory Construction Discussed With Islamic Development Bank ........................................ 5 13) Russian Company LLC "Agrovet" Begins Delivery of Vaccine Worth 28.2 Million KGS ................... 5 14) Training in Advanced Greenhouse Agriculture Provided in Batken and Osh .................................. 5 15) EBRD Has Launched Information Campaign On SMEs .................................................................... 6 16) Donors Help Kyrgyz Farmers To Improve Livestock Productivity And Marketing ........................... 6

Private Sector.............................................................................................................. 6 17) 18) 19) 20) 21) 22) 23)

Hay Prices Double Due To Late Arrival of Spring and Water Shortage ........................................... 6 China Interested In Building a Drip Irrigation Equipment Factory .................................................. 7 China Prepares Import of Kyrgyz Fruit............................................................................................. 7 Batken Region to Restart Kyzyl-Kiya Tobacco Fermentation Plant ................................................. 7 Fruit Trees Destroyed By “Burn” Disease ........................................................................................ 7 Sharp Increase In Batken’s Apricot Price Due to Poor Harvest and New Turkish Wholesalers ...... 8 State Inspectorate For Veterinary And Phytosanitary Security Intervenes In Osh And Bishkek Markets............................................................................................................................................ 8 24) Kyrgyzstan to Import 300.000 t of Kazakh Grain ............................................................................. 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

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BFC. Agriculture Finance Bulletin.

State Initiatives 1)

Government To Provide 400 million KGS of Concessional Lending To Farmers

July 24th, 2014, http://www.vb.kg/281514

The Ministry of Finance presented its medium-term budget for 2015-17, detailing a 400 million KGS agricultural subsidy in the form of concessional lending to farmers, aimed at ensuring the country’s food security - including the production of cereals, sugar beet, cotton, and oilseeds. The subsidy is intended to counterbalance risks such as climate change and volatile fuel prices. The Ministry stressed the government’s role in supporting the improvement of land management, seed variety, and modernization of the tractor fleet.

2)

Ministry of Agriculture to Modernize the Irrigation System

July 24th, 2014, http://www.vb.kg/281560

At a meeting called to address the lack of irrigation water, First Deputy Prime Minister, Tayirbek Sarpashev instructed the Ministry of Agriculture to develop a modernization strategy for the country’s irrigation system. He observed that the current system, dating from the 1950s, has not been adjusted in the face of regular 5-year cycles of surplus water and drought. He stressed that funds for the implementation of irrigation projects are currently available and stipulated that modernization works should start in 2015, including the installation of drip irrigation on at least 5,000 ha during the coming year.

3)

Kyrgyz National Agrarian University Recruits Students at the Veterinary Faculty

July 18th, 2014, http://kabar.kg/rus/society/full/79945

With financial support from the government project "Development of Livestock and Market-II” the KNAU continues to accept students to integrate the Faculty of Veterinary Medicine and Biotechnology for the upcoming academic year 2014-15. The 114 places are distributed by regional quotas: 41 for Osh, 25 for Jalal-Abad, 19 for Issyk-Kul, 17 for Naryn, and 12 for Batken (with Talas and Chui receiving places next year). In response to an acute shortage of veterinary specialists, particularly in rural areas, the government has decided to pay the students’ educational fees and to provide scholarships to outstanding high school graduates. Students participating in the program must agree to return to their native village after completing their studies in order to work in the field of their specialization.

4)

Role of Female Rural Entrepreneurs to be Strengthened

July 17th, 2014, http://kabar.kg/rus/society/full/79913

During the second National Conference on the "Development of Female Entrepreneurship in Rural Areas" the Minister for Social Development, Kudaibergen Bazarbayev, stressed the government’s interest in helping rural women realize their entrepreneurial potential. The minister noted that, although women actively develop small and medium businesses which create jobs in rural areas (particularly in the fields of handicrafts, rural tourism, and the processing of agricultural products) they do not always have equal opportunities within their own companies. Bazarbayev reported that, of the country’s entrepreneurs, 72% are men while only 28% are women. Of the total, 57% of men and 22% of women entrepreneurs work in small enterprises, 10% and 4% in medium enterprises and 5% and 2% respectively in large enterprises. He observed that the percentage of women running farms is particularly low, and stressed the need to promote female access to executive positions.

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5)

Grand Chuisky Canal loses 50% of its Water

July 11th, 2014, http://aif.kg/novosti/obschestvo/7694-poteri-polivnoy-vody-v-zapadnom-bchk-sostavlyayut-50-procentov.html

During a visit to the Chui region with First Deputy Prime Minister Tayirbek Sarpashev, the region’s head of water management, Ruslan Devyatkulov, stated that the efficiency of the Grand Chuisky Canal (fed by the Ortho-Tokoy reservoir) stands at ca. 56%. Devyatkulov explained that 30% of the water is lost before the canal reaches the village of Bystrovka (Kemin) where it splits into its western and eastern sections.

Although water is still flowing at 35 m3 per second at this junction, the Western branch of the canal (mainly consisting of earthen beds) loses a further 50% of its water on its 200 km journey to the Panfilov District, where it arrives with between 2 and 17 m3 per second. In face of the water crisis, Sarpashev has ordered that an irrigation headquarters be established in the Chui region to coordinate and limit the use of water in each district.

Later in July, the Minister of the Economy warned that irrigation water is being wasted through poor usage and dam leakages - like that in Koi-Tash village (south of Bishkek) where water from the Alamedin river flooded streets and apple orchards.

6)

Government Receives First 512 tons of Sugar to Fight Price Increases

July 8th, 2014, http://aif.kg/novosti/obschestvo/7663-v-kyrgyzstan-pribyla-pervaya-partiya-sahara-iz-azerbaydzhana.html

This month, the Gosmatrezervov Fund received the first batch of sugar beet from Azeri supplier Azerbaycan Seker Istensalat Birliyi MMC. Local authorities will organize the resale of this sugar to socially vulnerable people at a reduced price of 44.8 KGS per kilo. Through this initiative the Government aims to avoid unjustified seasonal increases in price from the local sugar monopoly “Kaindinski”. Before October 10.000 t of sugar—about 10% of the country’s annual consumption—is to be sold below the market price (53.35 KGS in May) in order to stabilize prices and ensure food security.

7)

Government Attempts to Redeem Collateral of Giant Ak-Suu Maize Sugar Factory

July 7th, 2014, http://www.knews.kg/econom/52187/

Deputy Prime Minister Valery Diehl is currently holding talks intended to retrieve the giant Ak-Suu maize sugar factory from the Kazakh “Center Credit” Bank, which acquired the plant as collateral following its bankruptcy in 2012. The factory failed to find a buyer at an auction held in June, and will continue to be owned by Center Credit unless an investor comes forward to buy the factory for 1.7 billion KGS. Diehl has stressed that the reopening of the factory is a top priority considering that its production capacity of 960 t per day (350,000 t per year) could potentially meet the country’s entire sugar demand (only 100,000 t per year). Working at full capacity, it could achieve a yearly net profit of $30 million, creating tax revenues of $5 million. The factory’s special administrator, Suyumbay Mailybaev, is ensuring that the modern equipment from USA, Germany, and the Netherlands remains intact, and that the plant can resume production at any time.

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8)

Chui Region Receives Only 71% of Required Irrigation Water

July 2nd, 2014, http://kabar.kg/rus/regions/full/79175

The Ministry of Agriculture reported a severe lack of irrigation water in the Chui valley, endangering the harvest of the region’s 320,200 ha of sown agricultural land - which provides more than 40% of the country’s agricultural produce. By late June only 373 million m3 of the required 527.6 million m3 of irriga-tion water could be channeled onto the fields. According to Kyrgyzhydromet, the deficit results from low temperatures in mountain areas and the slow melting of ice, which leaves the water content of rivers at 51-64% of the annual average (especially in the eastern part of the Chui basin). Of the 367,100 ha which were to be irrigated, only 252,300 ha (69%) have so far received water. 90% of Kyrgyzstan’s agricultural land requires irrigation—a total area of 840,000 ha—this year Kyrgyzstan has already used 70% of the water resources from the reservoirs.

Foreign Aid 9)

25 Villages In Issyk-Kul Region Equipped with Drip Irrigation Demonstration Plots

July 23rd, 2014, http://kabar.kg/rus/regions/full/80212

At a press conference in Bishkek, "Karagat +" Project Manager Nurlan Tokon reported the installation of drip irrigation devices in 25 villages over the last two years with the financial aid from abroad. The devices allow for considerable saving of water and energy. One unit costs 3,500 KGS and covers 2 cotok (0,02 ha) of land. Some farmers have already started to implement the technology and the project includes the purchase of an additional 15 units of drip irrigation equipment next year. The technique will be presented at the annual "Karagat Festival" on August 9 in Kyzyl-Suu.

10) FAO to Assist with Development of Livestock Tracking and Identification Software July 23rd, 2014, http://kabar.kg/rus/society/full/80155

The Food and Agriculture Organization (FAO) and the Ministry of Agriculture held an introductory workshop with the aim of developing a national livestock identification strategy and action plan. In March, the FAO agreed to assist with the implementation of a livestock identification and tracking software and database. The project will run until May 2015 and is budgeted at 417,000 US dollars - funded by the FAO. The new system will track the movement of livestock, meat and dairy products, improving disease control and product quality. It will also improve data aggregation in animal and land management, aid the protection of property rights and increase protection of livestock during natural disasters.

The registration of farms and animals will start in October 2014 and will be completed by June 2016. Of the Polish government’s 40 million euro soft loan, 16 million will be allocated to the implementation of a nationwide identification and tracking system.

Animal identification is a strategic priority to increase the export potential of Kyrgyz livestock to the Customs Union. Though one of the largest exporters of livestock and animal products to Kazakhstan and other CIS countries, Kyrgyzstan loses up to 30% of potential revenue due to market obstacles resulting from the lack of animal identification.

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11) Ministry of Agriculture And Kyrgyzhydromet Specialists Trained In Satellite Agricultural Management July 22nd, 2014, http://www.vb.kg/281141

As part of the Food and Agriculture Organization project "Improving the Food Security Information System" (which receives financial support from the EU) a Kyrgyz delegation of specialists has been trained in Agrometeorological forecasting of crop yields by the University of Liege in Belgium. They received training in satellite data analysis of the growth, development, and health of plants, which allows choosing optimum times for planting, watering and for deploying fertilizers and pest control. The newly trained experts will now carry out an initial survey of crops in Chui region.

12) Meat Factory Construction Discussed With Islamic Development Bank July 17th, 2014, http://www.vb.kg/280695

The Minister of Economy Temir Sariyev met Islamic Development Bank (IDB) representatives to discuss the adaptation of the Kyrgyz meat industry to international food safety standards and halal butchery methods. Another issue was the adaptation of local laboratories to the Custom Union’s requirements for phytosanitary verification. The IDB expressed interest in financing projects in these areas and proposed the construction of two modern meat plants in Kyrgyzstan.

13) Russian Company LLC "Agrovet" Begins Delivery of Vaccine Worth 28.2 Million KGS July 17th, 2014, http://kabar.kg/rus/society/full/79931

The State Inspectorate for Veterinary and Phytosanitary Security announced reception of the first batch of animal vaccines from the Moscow based supplier LLC "Agrovet". The delivery is part of a 59.2 million KGS contract for the provision of vaccines against: Foot and Mouth Disease (1,6 million doses); Anthrax (3 million doses); Sheep Pox (1,6 million doses); Small Ruminant Plague (1 million doses) and Rabies (260.000 doses). This amount also covers the tuberculosis diagnostic kits for mammals (112.000 doses) and birds (135.000 doses) as well as the 20.000 doses of malleine for the allergic diagnosis of glanders in equine animals already delivered to the Inspectorate. "Agrovet" is currently preparing the expedition of the remaining doses of Foot and Mouth Disease and Anthrax vaccines.

14) Training in Advanced Greenhouse Agriculture Provided in Batken and Osh July 15th, 2014, http://www.turmush.kg/ru/news:66696

Specialists from the Kyrgyz-Korean Association of Greenhouse Agriculture "APEC" and the Swiss project "TAIC" held two-day training sessions in Batken and Osh on the use of drip irrigation in greenhouses and rainfed agriculture. They also provided practical advice on the construction of greenhouses and the purchase of the equipment.

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15) EBRD Launches Information Campaign Targeting SMEs July 1st, 2014, http://www.azernews.az/region/68467.html

Phil Bennett, First Vice President of the European Bank for Reconstruction and Development (EBRD), declared development of small and medium-sized businesses (SMEs) one of the key priorities of the bank’s strategy in Kyrgyzstan. Since 2005 the EBRD has been implementing projects increasing Kyrgyz SMEs’ access to finance through local banks and microfinance institutions and facilitating access to expert advice. Launched in 25 countries, the new information campaign is intended to educate SMEs on increasing competitiveness through the acquisition of know-how. Since it began operating in the country, the EBRD has invested close to 637 million USD through 112 projects supporting various sectors and industries. Currently the bank is running 51 projects amounting to nearly 312 million USD.

16) Donors Help Kyrgyz Farmers To Improve Livestock Productivity And Marketing June 30th, 2014, http://www.timesca.com/index.php?option=com_content&view=article&id=14003:donors-help-kyrgyzfarmers-improve-livestock-productivity-marketing&catid=89&Itemid=577

The Kyrgyz Parliament approved a bill on the identification and registration of animals requiring the timely and reliable collection of information on the number, sex, age, breed, location and movement of animals to improve livestock market management and forecasting as well as epizootic control. A pilot project will be launched in the Chui province, using experience gained in a similar project in Turkey – more than 80% of the project will be funded by donors.

In 2014, insufficient veterinary care led to mass deaths and miscarriages among sheep and horses and, consequently, many farmers may face difficulties repaying loans.

According to Akylbek Rakaev, Executive Director of the Sheep Breeders Association, , the problems are due to lack of diagnostic capabilities and access to certified vaccines, as the market is swamped with cheap counterfeit medicines.

Several donor initiatives supporting agriculture are underway. Besides the 40 million euro soft loan provided by the Polish government and the IFAD project “Development of Livestock and Market-II” worth 32 million USD, the Japanese government allocated 2.8 million USD to improve access to fertilizers and seeds. In 2013, 95 seed farms were established with the grant funds.

This year the Kyrgyz Government allocated more than 13.000 concessional agricultural loans worth 4.3 billion KGS through 5 partner banks, yet this amount meets only 10% of demand.

Private Sector 17) Hay Prices Double Due To Late Arrival of Spring and Water Shortage July 28th, 2014, http://www.eng.24.kg/economics/171607-news24.html

While in 2013 the price of a bale of hay didn't exceed 100 soms, this year’s prices are between 120-130 KGS in Batken, 150-180 KGS in Jalal-Abad and Issyk-Kul, 150-200 KGS Naryn and Osh and 140-180 KGS in Talas and Chui regions. In order to avoid the fodder shortage seen in 2012, Deputy Minister of Agriculture Janybek Kerimaliev is considering taking measures to stabilize prices.

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18) China Interested In Building a Drip Irrigation Equipment Factory July 25th, 2014, http://kabar.kg/rus/society/full/80387

Minister of Agriculture Taalaibek Aidaraliev declared that China will sign a cooperation agreement in early August on the construction of a factory producing hoses and pipes for drip irrigation devices.

Aydaraliev also deemed it necessary to build a mineral fertilizer plant, adding that grain yields in 2014 have fallen from 28 to 22 quintals per hectare, compared to 60 quintals in China and South Korea. He sees the cause in the limited use of ammonium nitrate fertilizer, which amounts to 200 kg per hectare in Kyrgyzstan compared to 850 kg in countries with more developed agriculture. A domestic factory will guarantee lower fertilizer prices and increased yields, said the Minister.

19) China Prepares Import of Kyrgyz Fruit July 25th, 2014, http://novosti.kg/2014/06/kitaj-budet-zakupat-u-kyrgyzstana-frukty/

Sooronbai Jeenbekov, government plenipotentiary of Osh, and Sayzhunom Young, head of China's quarantine service, signed an agreement for the export of Kyrgyz melons, cherries and pomegranates. The agreement is based on a memorandum signed during the official visit of President Almazbek Atambayev to China in May this year and will enter into force after Chinese experts approve Kyrgyz cultivation and pest protection methods. The first batch of cherries is to be sent to China for examination later this year.

20) Batken Region to Restart Kyzyl-Kiya Tobacco Fermentation Plant July 22nd, 2014, http://www.turmush.kg/ru/news:67805

Erkinbek Choduev, Deputy Minister of Agriculture and Land Reclamation and Zlatko Stefanov, General Director of Bulgarian company "Arda-Agro", discussed the development of Kyrgyz tobacco production and signed a protocol of cooperation.

The Ministry of Agriculture will import modern equipment to reactivate the decommissioned tobacco fermentation plant in Kyzyl-Kiya, and distribute new varieties of tobacco seeds to farmers to improve the tobacco harvest in 2015.

Tobacco processing company Reemtsma’s 10 year exclusivity right for cigarette production in Kyrgyzstan came to an end this month with the closure of the company. Despite enjoying wide tax exemptions, the company failed to build promised factories and completely ceased production in Kyrgyzstan. With the closure of Reemtsma, the market has opened for new investors.

21) Fruit Trees Destroyed By “Burn” Disease July 17th, 2014, http://www.rg.ru/2014/07/17/ogonyok.html

Chief Phytosanitary Inspector Bakytbek Kurmanbaev sounded the alarm on the appearance of erwinia amylovora bacteria - better known as “fruit tree burn”. These kill apple and pear trees as well as hawthorn and quince. Originating from Europe and North America, the epidemic was first observed in 2007 in the Kazakh village Kordai bordering the Chui region of Kyrgyzstan and it spread to Kyrgyzstan a year later. This year, multiple cases were observed along the Kazakh border in Chui, Issyk-Kul and Talas. The bacterium penetrates blossoms, cracks in the bark or wounds from spring pruning and turns leaves black starting at the top of the tree. Though not dangerous for humans, the disease makes infected fruits reddish-brown and shriveled and therefore unsuitable for consumption. No cure exists for the disease. Infected parts and sometimes entire trees must be cut and burned as the bacterium dies at 43.7 Celsius.

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Temperatures above 30 degrees and humidity of roughly 70 percent are the optimal conditions for the bacterium, explaining the epidemic in 2011-2012, its retraction in the cool summer of 2013 and its return in 2014.

The Ministry of Agriculture advised farmers to take preventive measures through the repeated spraying of plots at risk with sodium sulfate, commonly known as liquid “Bordeaux”, which is available in hardware stores. While the information on preventive measures was given to village and city councils, these have no control over spraying on their territories.

Almaz Alakunov, head of the Department of Plant Protection and Pesticide Registration at the Ministry of Agriculture, acknowledges that many farmers are not aware of the threat or not willing to spend money on multiple spraying, merely hoping their orchards will not be affected. He urged orchard owners to take preventive action and advised officials to implement quarantine measures and tighten control of product safety at the border.

22) Sharp Increase In Batken’s Apricot Price Due to Poor Harvest and New Turkish Wholesalers July 17th, 2014, http://www.turmush.kg/ru/news:67098

Due to a severe temperature drop during spring and a lack of irrigation water, Batken’s apricot producers have observed low yields. According to Maria Obolova, a farmer engaged in the production of dry apricots, this year’s harvest from a single apricot tree is hardly enough for one family. She expects a sharp increase in prices for dry apricot. Prices are already at 350 KGS per kilo, partly due to a new purchase contract with Turkish businessmen. The wholesalers are paying 500 KGS per day to each local harvest worker for collecting, drying and packaging of apricot, which is higher than the tariffs paid by Tajik entrepreneurs in previous years. Batken’s apricots are famous for their quality and exported as dry fruit to Russia, Tajikistan and Uzbekistan.

23) State Inspectorate For Veterinary And Phytosanitary Security Intervenes In Osh And Bishkek Markets July 11th, 2014, http://aif.kg/novosti/obschestvo/7697-iz-za-prevysheniya-v-dva-tri-raza-dopustimoy-koncentracii-nitratov-voshe-unichtozhili-17-tonny-arbuzov.html

The State Inspectorate for Veterinary and Phytosanitary Security in Osh banned 1.7 tons of water melons from sale due to their nitrate content exceeding the legal limit by a factor of 2-3. In Bishkek 5.7 t of water melons originating from the Jalal-Abad region where destroyed for the same reason. During the daily monitoring and examination of animal and plant products the Inspectorate of Osh discovered further violations of veterinary and phytosanitary legislation and closed 4 businesses, including two slaughterhouses, one sausage shop and a pig farm.

24) Kyrgyzstan to Import 300.000 t of Kazakh Grain July 8th, 2014, http://www.knews.kg/econom/52212/

In 2014, Kyrgyzstan will need to import 300.000 t of cereals to compensate for a weak domestic harvest, said Deputy Prime Minister Tayirbek Sarpashev. He announced talks with the Islamic Development Bank on the opening of a credit line for the purchase of Kazakh grain. According to the Minister, grain acreage is still about 150.000 hectares - although other crops, such as beans, are more profitable (300.000 KGS net income per hectare of beans compared to 10-15.000 for grain). This year, the average yield for grain harvested so far (comprising 23% of total area and 211.800 tons) is only 18 quintals per hectare, which is 8.4 quintals less than last year. Sarpashev advised cereal farmers to sow more profitable crops such as vegetables, beans and sugar beet.

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