07 BFC Kyrgyzstan Agriculture Finance Bulletin

09/2014

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7 K y r gy zsta n Agriculture Finance Bulletin Bishkek Hosts 10th International AgroProdExpo Exhibition Russia Approves Development Fund Worth $1 billion he Association of Fruit and Vegetable Enterprises Warns of Cutting Electricity Quotas Hay Price Increases to 250 KGS per Bale Due to Fodder Shortage

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Agriculture Finance Bulletin Edition #7, September 2014

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

Bishkek Hosts 10th International AgroProdExpo Exhibition ........................................................... 2 Russia Prevents Transit of US and EU Poultry Products to Kyrgyzstan and Uzbekistan.................. 2 Ministry of Economy Forecasts Growth in Agricultural Product Output in 2015 ........................... 2 Ministry of Agriculture Presents Results of Bean Cultivation Pilot Scheme.................................... 3 National Bank to Hold Agricultural Loan Refinancing Auction ........................................................ 3 Azerbaijan to Invest in Several Areas of Kyrgyz Agriculture ............................................................ 3 Chinese Investors to Build Drip Irrigation Equipment Plant ............................................................ 3

Foreign Aid ................................................................................................................. 4 8) 9) 10) 11) 12) 13)

Russia Approves Development Fund Worth $1 billion.................................................................... 4 UNDP: Initial Phases of the "Support to Trade” Project in Batken Successful ................................ 4 Since 2011 $20 Million Allocated to the KAED Livestock and Seed Project .................................... 4 Parliament Debates "Improvement of Pasture Management and Animal Husbandry" Project ..... 5 Russia to Provide $40 Million for the Modernization of Laboratories ............................................ 5 JICA Organizes Study Trip to Japan for Kyrgyz Agro Entrepreneurs ................................................ 5

Private Sector.............................................................................................................. 6 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24)

Gross Agricultural Production in 2014 Falls by 2.5% ....................................................................... 6 The Association of Fruit and Vegetable Enterprises Warns of Cutting Electricity Quotas .............. 6 Cotton Cultivation Decreases due to Falling World Prices .............................................................. 6 Frost in Talas Province Threatens up to One Third of Bean Crops .................................................. 7 Hay Price Increases to 250 KGS per Bale Due to Fodder Shortage ................................................. 7 Hail Causes Crop Damage Worth 10-12 Million KGS in the Issyk-Kul Region.................................. 7 Jalal-Abad to Host Organic Product Exhibition................................................................................ 7 Kompanion Organizes 9th annual Apple Festival in Uzgen District................................................. 8 70 % of Talas’s Beans for Export – 65% Sold to Turkish Businesses ................................................ 8 Villages in Jeti-Oguz and Ton Districts Begin Using New Fruit Drying Containers .......................... 8 Russia Agrees on Imports of Meat and Milk from Kyrgyzstan ........................................................ 8

Note: The Agriculture Finance Bulletin presents a monthly roundup of headlines and news stories related to investments and financing flows to Kyrgyzstan’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company with a long history of working in Kyrgyzstan. Currently, BFC is implementing the Rural Finance Programme for the Kyrgyz Ministry of Finance and KfW. Read more » BFC Max-Högger-Strasse 6 CH-8048 Zurich, Switzerland

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

info@bfconsulting.com www.bfconsulting.com

BFC. Agriculture Finance Bulletin.

State Initiatives 1)

Bishkek Hosts 10th International AgroProdExpo Exhibition

September 26th, 2014, http://www.inform.kg/ru/vistavki_i_pokazi/230#ixzz3EYUk5op7

Organizers expect 60 companies from 7 countries to participate in this year’s AgroProdExpo – held between the 26-29th of September at the Sports Palace in Bishkek.

The fair offers taste-testing, presentations and demonstrations covering: alimentary products; soft drinks and alcoholic beverages; agricultural machinery; packaging equipment and technology; alimentary production technology; ingredients, additives, spices and specialized equipment.

2)

Russia Prevents Poultry Products from the USA and Europe Reaching Kyrgyzstan and Uzbekistan

September 24th, 2014, http://ca-news.org/news:1125010/

Russian customs inspectors at Bryansk and Smolensk halted the delivery of 1.23 tons of poultry productions originating from the USA, the Netherlands and Germany. The products were supposed to transit through Russia on their way to Kyrgyzstan and Uzbekistan. The recipients were to be Merito Trading and Kristall Export Import, respectively.

According to the Russian authorities, the U.S. veterinary certificates lacked required epizootic and foodsafety information and displayed dating inconsistencies.

The packaging of the German products was hazardous, showing signs of thawing as well as being inappropriately sealed, customs officials claimed.

In August, Russia imposed an embargo on the import of certain alimentary products - including poultry from the United States, Canada, Australia and the EU, amongst a few others. It can be assumed that the decision to stop the transit was taken in response to the tightening of EU sanctions related to the Ukrainian conflict.

3)

Ministry of Economy Forecasts Growth in Agricultural Product Output in 2015

September 23rd, 2014, http://www.vb.kg/287433

According to the State Secretary of the Ministry of Economy, Aidai Kurmanova, gross output of agriculture, forestry and fisheries is expected to reach 206.7 billion KGS in 2015 - corresponding to a real growth rate of 2.5%. Agriculture is forecasted to contribute 14.4% to next year’s GDP due to increases in crop and livestock production (3.2% and 1.6% respectively), representing a slight increase of 0.4 points year on year .

In 2015, the government will focus on promoting growth in production and export of agricultural products, increasing agricultural service activities and improving water and land resource management, Kurmanova added.

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BFC. Agriculture Finance Bulletin.

4)

Ministry of Agriculture Presents Results of Bean Cultivation Pilot Scheme

September 18th, 2014, http://www.vb.kg/286921

In an effort to popularize bean cultivation, in August and September, the Ministry of Agriculture presented the results of this year’s bean cultivation pilot program assessing the adaptability of French and Turkish bean varieties to the climate of different regions and their resistance to pests.

Results were mixed. While yields in the Jala-Abad region were low due to high temperatures and the spread of disease, Osh oblast, and particularly the cooler district of Nookat, showed good results.

In Batken oblast, only early maturing varieties brought sufficient yields - as maturation coincided with the region’s highest seasonal temperatures. Satisfactory yields are also obtained in the Chui valley, at sites above the Syntash ridge. In the Issyk-Kul region the “Lapatka variety” performed well; yet climatic fluctuations in the region pose a risk. For the same reason, bean cultivation is not recommended in AtBashy and in the south-eastern mountainous area of the Naryn region.

5)

National Bank to Hold Agricultural Loan Refinancing Auction

September 16th, 2014, http://kyrtag.kg/popular-news/detail.php?ID=301039

On September 16th, the National Bank will hold a credit auction for the refinancing of agricultural loans.

300 million KGS will be made available at an interest rate of 6.5% and with a maturation period of 6 months. State securities and foreign currency deposits will be accepted as collateral. The credit facility is intended to support loans invested in livestock and crop production and processing.

6)

Azerbaijan to Invest in Several Areas of Kyrgyz Agriculture

September 12th, 2014, http://vesti.kg/index.php?option=com_k2&view=item&id=29803:azerbaydzhan-budet-investirovat-vkyirgyizstan&Itemid=79#ixzz3Egt2GxiZ

Vice Prime Minister of Kyrgyzstan, Tayirbek Sarpashev and the President of Azerbaijan, Ilham Aliyev, discussed Azeri investment in Kyrgyzstan’s agriculture sector.

As outdated local factories only meet 24% of domestic demand, the sugar industry was identified as a priority. The dairy industry, greenhouse cultivation and fruit and vegetable processing were also pinpointed as potential investment targets – particularly for the provision of specialized equipment for the sorting of beans.

7)

Chinese Investors to Build Drip Irrigation Equipment Plant

September 8th, 2014, http://www.24kg.org/parlament/186075-v-kyrgyzstane-postroyat-zavod-po-izgotovleniyu.html

Minister of Agriculture Taalaibek Aidaraliev announced Chinese investors will construct a drip irrigation equipment plant. While the factory is projected to be in operation by February 2015, it has yet to be decided whether it will be located in Kara-Balta or in Tash-Kumyr.

As a response to this year’s water shortage - with rivers providing only 30% of the required water resources - 12,000 hectares will be switched to drip irrigation by next year, the Minister added.

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BFC. Agriculture Finance Bulletin.

Foreign Aid 8)

Russia Approves Development Fund Worth $1 billion

September 27th, 2014, http://www.vb.kg/287962

In the context of Eurasian economic integration the Russian government has approved the creation of a Development Fund for the Kyrgyz Republic with capital totaling $1 billion.

The Fund is intended to finance the Kyrgyz economy’s integration into the protocols of the Customs Union. Cooperation is planned in agriculture, manufacturing, mining, transport, housing construction, trade, business development, infrastructure and the textile and metal industries.

9)

UNDP: Initial Phases of the "Support to Trade” Project in Batken Successful

September 18th, 2014, http://www.vb.kg/287000

At the kick off seminar for the third phase of the UNDP project "Support to Trade” - targeting Batken project coordinator Taalaibek Isaev presented interim results which, he said, “surpassed expectations”.

At the launch of the project in 2010, Batken was chosen as a target region due to the multiple challenges faced by the agribusiness sector in the province. These included border conflicts, geographical isolation, weak infrastructure and an underqualified workforce.

As part of the program, 500 farmers and local officials received training in marketing techniques and the implementation of higher food quality and safety standards. Three fruit and vegetable storage facilities, a rice and bean packaging line, two dried fruit and a jam production lines and a warehouse with a capacity of 200 tons were built. An information center was created, through which about 2000 farmers regularly sell their produce, increasing penetration of the domestic market and opening new export markets – such as the Russian cities of Novosibirsk, Moscow and Ekaterinburg. Storage facilities for vegetables enabled farmers to benefit from seasonal price increases on the domestic market, improving their revenues. The project helped create 45 new jobs and increased the income of farmers by up to 28%, said Isayev. The project is set to continue for 3 years.

Meanwhile, the UNDP launched “Promotion of Trade” programs in Osh and Naryn provinces. To promote export potential, representatives of business associations and government agencies will be trained in the implementation of food quality and safety standards focusing on potatoes, meat and milk in Naryn, fruits in Osh and walnuts in Jalal-Abad.

10) Since 2011 $20 Million Allocated to the KAED Livestock and Seed Project September 18th, 2014, http://kyrtag.kg/news/detail.php?ID=301906

Since 2011, USAID has allocated about $20 million to the livestock and seed project Kyrgyz Agro-Input Enterprise Development (KAED). In cooperation with the Ministry of Agriculture, 3,600 tons of quality seed were distributed among 34,000 farmers and cooperatives, creating income of $12.2 million. In phase two, 14 seed farms were built, comprising a total of 94 units of agro machinery. During the third phase, aimed at increasing the productivity and profitability of livestock breeding, 400 units of agricultural equipment were distributed between 9 livestock farms and 235 Black Angus sheep were imported from the USA. The KAED project was implemented in 2001 and will come to an end this year.

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BFC. Agriculture Finance Bulletin.

11) Parliament Debates "Improvement of Pasture Management and Animal Husbandry" Project September 15th, 2014, http://www.vb.kg/286538

The Parliamentary Committee on Budget and Finance discussed a draft agreement with the International Development Association (IDA) for financing the "Improvement of pasture management and animal husbandry" project. The 5-year project is budgeted at $15 million, of which 45% will be allocated as a grant and 55% as credit.

The funds will be used to for the preservation and development of pastures. as well as to respond to the recent dramatic increase in animal disease via the training of veterinaries.

Certain members of the Committee criticized the project for its lack of expenditure control mechanisms and expressed doubt that public organizations in charge of implementation will be held accountable for results and credit reimbursement.

The pasture land committee representative was skeptical about the need for such a project at least for its pasture development component. He pointed out that, in 2013, the state income from pasture land fully covered the necessary investments: While the income amounted to 111 million KGS, only 94 million were spent on the construction of new roads and bridges to remote pasture land. The exceeding 17 million were paid into the general treasury. The discussion was postponed until the next Committee meeting.

12) Russia to Provide $40 Million for the Modernization of Veterinary and Phytosanitary Laboratories September 11th, 2014, http://www.vb.kg/286203

$40 million of Russia’s $200 million grant to support the implementation of the "road map" for Kyrgyzstan’s entry into the Customs Union is to be allocated to the modernization of veterinary and phytosanitary laboratories.

The Minister of Economy, Temir Sariev, said that the upgrade and accreditation of veterinary diagnostic centers (to test unprocessed meat and dairy products), would cost $11.66 million.

While Kyrgyzstan possesses 34 accredited food diagnostic centers which conform to Customs Union criteria, none of its veterinary laboratories is yet having an international license. The total cost of modernizing the diagnostic centers is estimated at more than $28 million. The remaining funds may be used to modernize laboratories in Russia.

Of the $200 million grant, signed in Astana on the 29th of May, half will be disbursed this year, and the remaining $100 million in 2015.

Sariev also encouraged the private sector to invest in the improvement of laboratories and to create a competitive environment for the certification of goods.

13) JICA Organizes Study Trip to Japan for Kyrgyz Agro Entrepreneurs August 28th, 2014, http://www.vb.kg/284845

As part of the JICA program "Organization Management for Agro-Industrial Complexes in the CIS and Mongolia�, members of the Kyrgyz Chamber of Commerce received instruction on agriculture and the processing industry in the Tokachi Prefecture of Japan. The educational expedition offered a combination of theoretical lessons and field visits concerning production and quality control tools, operations management methods, strategic planning and marketing, and food safety control. The participating agro entrepreneurs are expected to implement acquired knowledge in their respective businesses in Kyrgyzstan.

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BFC. Agriculture Finance Bulletin.

Private Sector 14) Gross Agricultural Production in 2014 Falls by 2.5% September 26th, 2014, http://www.vb.kg/287840

According to Kubat Umurzakov, external expert for the National Institute for Strategic Studies, gross agricultural production decreased by 2.5% in 2014. Fruit and vegetable production fell by 8.5%. Lower yields were due to adverse weather conditions, water shortages and a late spring, said Umurzakov.

15) The Association of Fruit and Vegetable Enterprises Warns of Cutting Electricity Quotas September 26th, 2014, http://www.vb.kg/287897

The chairman of the Association of Fruit and Vegetable Enterprises, Dilara Alimzhanova, warned that planned restrictions on energy use will threaten the delivery of fruits and vegetables to Russia, adding that processing factories recently received a notice from "Severelectro" on reduction of electricity provision by 70%. Alimzhanova said that, only a month ago, the Minister of Economy, Temir Sariev, assured manufacturers they would be exempt from the cuts and in consequence the businessmen started preparing the deliveries - many with the help of loans. She stressed that, without full power supply, projected export volumes to Russia will not be attained, leaving many processing businesses unable to meet loan repayments.

16) Cotton Cultivation Decreases due to Falling World Prices September 26th, 2014, http://www.timesca.com/index.php?option=com_content&view=article&id=14320:kyrgyzstan-reducingacreage-of-cotton-due-to-falling-world-prices&catid=89&Itemid=577

As a result of decreasing international market price, cotton cultivation in Kyrgyzstan shrunk by 1,000 hectares to 23,300 ha, compared to last year. The harvest is projected at 63,800 tons of cotton or 20,000 tons of cotton fiber.

Processing only 10-20% of its cotton and exporting the bulk of the remaining volume to Turkey and Russia, Kyrgyzstan is highly sensitive to fluctuations in the international cotton price. Due to the recent collapse in prices, cotton farmers have preferred to stock their harvest and wait for price stabilization.

The Ministry of Agriculture also announced a decrease in the production of a number of other major crops due to the drought - including wheat, sugar beets, tobacco, potatoes and fruits. The decrease in the barley yield was acute: despite an increase from 645,000 to 661,000 ha of cultivated area in 2014, harvest volume dropped by 7% compared to 2013 to 154,000 tons. Sugar beets were even more adversely affected: although the area under beet increased from 6,700 to 7,300 ha, output shrank by 25% to 146,000 tons.

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17) Frost in Talas Province Threatens up to One Third of Bean Crops September 23rd, 2014, http://novosti.kg/2014/09/do-30-protsentov-urozhaya-fasoli-mogut-poteryat-fermery-v-talaaskomrajone-iz-za-zamorozkov/

The Ministry of Agriculture estimated that farmers may lose about 30% of their bean harvest due to a recent period of frost. Between the 15th and 21st of September temperatures in the upper villages of the Talas dropped to -7 degrees Celsius. Fields around the villages of Bekmoldo, Omuraliev and throughout the districts Zherge-Tal, Kara-Suu and Kaba (where beans are sown and harvested late in the year), are particularly likely to be affected by frost damage, the Ministry announced.

18) Hay Price Increases to 250 KGS per Bale Due to Fodder Shortage September 23rd, 2014, http://www.vb.kg/287376

This year’s domestic supply of fodder amounts to only 25.1% of domestic demand, a decrease of 0.6% year on year. While fodder harvest in Osh and Issyk-Kul increased, the Batken region has the most serious shortage, meeting only 12.6% of the required volume. Throughout the country prices vary between 150 and 250 KGS per bale, compared to an average of 110 KGS in 2013 and 130 KGS in 2012.

Straw prices range from 80-220 KGS per bale. The Ministry of Agriculture called on its regional offices to set up an action plan outlining the most efficient use of fodder reserves, so as to bring the cattle through the winter.

19) Hail Causes Crop Damage Worth 10-12 Million KGS in the Issyk-Kul Region September 18th, 2014, http://novosti.kg/2014/09/materialnyj-ushherb-ot-grada-v-issyk-kulskoj-oblasti-sostavit-okolo-10-12millionov-somov/

The Ministry of Agriculture announced that heavy hail storms on the 4th and 11th of September caused damage to 240 ha of grain crops causing losses of 10-12 million KGS. To support affected farmers, the repayment period of loans issued by financial institutions has been extended by one year .

20) Jalal-Abad to Host Organic Product Exhibition September 16th, 2014, http://www.kabar.kg/rus/regions/full/82694

The city of Jalal-Abad hosted an exhibition of organic products on the 23rd of September. The chairman of the Agricultural Commodity and Service Cooperative, Nurbek Kannazrov, explained that the main purpose of the event is to strengthen links between producers and consumers, as well as to raise public awareness of organic farms and products.

Saparbek Alymkulov, executive director of the Public Fund "Organic Service", said that the organic movement in Kyrgyzstan started in 2004 with the small Helvetas project "Organic Buttermilk" in JalalAbad, which was later extended to the production of organic cotton by 46 farms in the Suzak, BazarKorgon and Nooken districts. He added that, today, 1,500 farmers in Batken, Talas, Naryn, Issyk-Kul and Jalal-Abad are engaged in organic cultivation. According to Alymkulov, in 2014, 330 ha are cultivated with organic cotton; 10 ha with tomatoes; 20 ha with peas and 20 ha with organic beans. Yields are expected to amount to 250 tons of cotton fiber, 500 tons of tomatoes, 20 tons of peas and 20 tons of beans.

Nurbek Kannazrov noted that the products of the Agricultural Commodity and Service Cooperative fully comply with European standards and that the entire harvest will be exported to Switzerland and Germany.

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21) Kompanion Organizes 9th annual Apple Festival in Uzgen District September 15th, 2014, http://www.vb.kg/286520

The microfinance institution Kompanion, which has organized the yearly Apple Festival in the Naryn and Issyk-Kul regions since 2006, brought the 2014 festival to the south of the country. Local authorities from the village of Ak-Jar and from the Uzgen district helped to organize the event, which serves as a platform for growers, buyers and processors to meet, cooperate and share their experiences.

Producers and residents from the Uzgen district participated in the fair, offering 20 varieties of apples as well as handicrafts (baskets, wooden souvenirs, felt products) and homemade foods (jams and pickles).

The festival included recreational activities as well as a round table for farmers, agronomists, and experts to discuss how to develop horticulture in the Uzgen district. The next Apple Festival is planned for the Nookat district of the Osh region.

22) 70 % of Talas’s Beans for Export – 65% Sold to Turkish Businesses September 13th, 2014, http://novosti.kg/2011/09/70-protsentov-fasoli-sobrannoj-fermerami-talasskoj-oblasti-budetotpravleno-na-e-ksport/

Former Agriculture Minister Torogul Bekov estimates that 70% of bean yields in Talas are earmarked for export. This year, 48,000 ha of the region is bean crop, producing a yield of 75,000 tons. This is sold to 18 countries, but the bulk of export goes to Turkish businesses, which buy 65% of Talas’s produce.

Bekov offered the Turkish Embassy the opportunity of organizing a Kyrgyz-Turkish business forum in Talas to help farmers negotiate price and the volume directly with clients.

23) Villages in Jeti-Oguz and Ton Districts Begin Using New Fruit Drying Containers September 4th, 2014, http://turmush.kg/ru/news:74511/

Farmers in the villages Ak-Terek, Kyzyl-Suu (Jeti-Oguz District) and Ulahol (Ton district) have begun using a new technology for the production of dried fruit. The facility consists of a 20-ton-capacity metal container divided into 5 wooden compartments with 17 drying boxes each. The air in the container is heated with energy from solar panels, also powering the 3 ventilation fans. According to farmers, the facility is able to dry not only fruit and berries but also medicinal herbs and meat.

24) Russia Agrees on Imports of Meat and Milk from Kyrgyzstan August 29th, 2014, http://novosti.kg/2014/08/rossiya-dala-soglasie-na-import-myasa-i-moloka-iz-kyrgyzstana/

The Russian market will soon reopen for meat and milk imports from Kyrgyzstan. However, farmers and officials have yet to work on ensuring that produce complies with Russian standards. Kyrgyzstan annually produces about 400,000 tons of meat, with the potential to increase production volume to meet export demands.

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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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